Act 3/2004 of 29 December CLD No. 2004\2678 CONTENTS

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1 Act 3/2004 of 29 December CLD No. 2004\2678 (Legislation in effect) TRADE. Establishing Measures to Combat Late Payment in Commercial Transactions THE CROWN Official State Journal 30 December 2005, No. 314, [p ] - Contents - PREAMBLE - Article 1. Purpose - Article 2. Definitions - Article 3. Scope CONTENTS - Article 4. Determination of payment terms - Article 5. Accrual of late payment interest - Article 6. Requirements for creditors to claim late payment interest - Article 7. Late payment interest - Article 8. Compensation for recovery costs - Article 9. Grossly unfair clauses - Article 10. Retention of title clause - Article 11. Transparency in good commercial practice - Additional Provision one. Retail trade payment arrangements - Additional Provision two. Government s report to the Congress of Deputies - Sole Transitional Provision. Existing contracts - Sole Abrogatory Provision. Repeal of legislation - Final Provision one. Amendment of the Consolidated Text of the Act on Public Sector Contracting adopted under Royal Legislative Decree 2/2000 of 16 June (CLD 2000, 1380, 2126) - Final Provision two. Amendment of Act 7/1996 of 15 January on a Regulatory Framework for Retail Trade (CLD 1996, 148, 554) - Final Provision three. Definition of competence - Final Provision four. Entry into force PREAMBLE The purpose of the present Act is to transpose Directive 2000/35/EC of the European Parliament and of the Council of 29 June 2000 on Combating Late Payment in Commercial Transactions into domestic law. 1

2 For the last ten years, the European Union has been paying ever greater attention to the problems of exceedingly long payment terms and late payment of contractual obligations, given the adverse impact of such circumstances on profitability, especially among small and medium-sized enterprises. Moreover, the differences between payment rules and practice in the Member States constitutes an obstacle to the smooth operation of the internal market. The European Union has taken quite a number of initiatives in this regard, including the Commission Recommendation of 12 May 1995 on payment periods in commercial transactions. The lack of improvements in late payments since the adoption of the recommendation, however, revealed the need for further action, which translated into Directive 2000/35/EC. The general aim of the directive is to enhance transparency in the determination of payment periods in commercial transactions and further compliance with the respective deadlines. To that end, the directive includes a series of measures that tend, on the one hand, to prevent the use of exceedingly long payment periods to afford debtors additional liquidity at the expense of creditors, and on the other, to discourage late payments by eradicating the causes presently in place that may make delinquency economically advantageous for debtors. The scope of the directive is limited to payments made as remuneration for commercial transactions between companies or between the latter and the public sector. It does not regulate consumer transactions, interest in connection with other payments such as addressed in the legislation on cheques and bills of exchange, or compensation for damages. In light of the subjective and material criterion that delimits the scope of Directive 2000/35/EC, the transposition of its content to the Spanish legal system called for a specific act containing substantive measures to combat late payment. In a final provision, the Act also amends the Consolidated Text of the Act on Public Sector Contracting approved under Royal Legislative Decree 2/2000 of 16 June. The substantive measures to combat late payment regulated by this Act include: the establishment of a generally applicable period after which late payment interest may be claimed; provision for the automatic accrual of such interest; determination of the late payment interest rate; and institution of creditors right to claim reasonable compensation from debtors for the recovery costs incurred. These measures are reinforced by the option to agree to retention of title clauses that enable the seller to retain ownership of the goods until full payment has been received. The new Act introduces an essential change in this regard, namely the substitution of the conditions stipulated hereunder for the use of exceedingly long payment terms as standard practice. The provision of the Act whereby judges may consider business practice as an objective element for ascertaining whether a contractual clause is grossly unfair assumes that such information constitutes an objective basis on which to compare an operator s behaviour to the commercial standards prevailing at any given time. The terms of the Act regarding the payment due date and late payment interest rate are applicable in the absence of a covenant between the parties. Grossly unfair practices or the imposition of clauses stipulating longer payment periods or lower late 2

3 payment interest than laid down in this Act must not be afforded cover under the principle of freedom of contract, however. Consequently, judges may modify such contracts if, considering all the circumstances of the case, they are found to be grossly unfair to the creditor. In this respect, contracts may be regarded to be grossly unfair when their main purpose is to procure the debtor additional liquidity at the expense of the creditor or to enable the main contractor to impose on his suppliers and subcontractors terms of payment that are not justified on the grounds of the obligations undertaken. The provisions on grossly unfair clauses determined the need to reword Article 17.3 of Act 7/1996 of 15 January on a Regulatory Framework for Retail Trade, to adapt its provisions on payments to suppliers to the terms of this Act. The present Act also regulates class action suits intended to prevent the use of these clauses in the general terms and conditions set out in commercial contracts. The adaptation of Spanish domestic law on public procurement to the Community legal system is addressed in the Consolidated Text of the Act on Public Sector Contracting approved by Royal Legislative Decree 2/2000 of 16 June. The inclusion of the public sector in the scope of Directive 2000/35/EC, which dispenses equal treatment to all economic actors in connection with payment for commercial transactions, necessitated inclusion in that Act of regulations on late payment interest and the acknowledgement of creditors right to compensation for recovery costs, to adapt it to Community rules. Similar adaptations were required in the provisions regulating payments between contractors, subcontractors and suppliers. Final Provision one of this Act deals with these issues. The Act, which constitutes commercial and civil legislation, is decreed by virtue of the competences attributed to the State by the Spanish Constitution, Article and 8. Final Provision one of the Act, however, is enacted under Article , whereby the State is competent to legislate on public sector procurement. Article 1 Purpose This Act aims to combat late payment of trade payables and conditions that are grossly unfair to creditors in commercial transactions involving the delivery of goods or the provision of services, in which the creditor is a private company and the debtor either another private company or a public authority. For the purposes of this Act: Article 2 Definitions a) company means any natural or legal person acting in the course of his or its independent economic or professional activity b) public authority means any institution, body or entity forming part of the public sector, pursuant to Article 3.3 of Act 30/2007 of 30 October on Public Procurement c) late payment means failure to comply with the contractual or statutory payment period d) payment period means all the calendar days of the year, by virtue of which 3

4 covenants that exclude vacation time from such periods shall be null and void. Amended by Art. 1.1 of Act 15/2010 of 5 July Chronological Legislative Digest (CLD) No. 2010\1810 Article 3 Scope 1. This Act shall apply to all payments made as remuneration for commercial transactions between companies or between companies and public authorities pursuant to the provisions of Act 30/2007 of 30 October on Public Procurement, or between general contractors and their suppliers and subcontractors. 2. The following lie outside the scope of this Act: a) payments made in commercial transactions involving consumers b) interest on payments addressed in the legislation on cheques, IOUs and bills of exchange, and compensation paid for damages, including insurance company payments c) debts subject to composition with creditor proceedings filed against the debtor, which are governed by the provisions of the specific legislation on the subject. Amended by Art. 1.2 of Act 15/2010 of 5 July CLD No. 2010\1810 Article 4 Determination of payment terms 1. The period within which payment must be made shall be as set out below. a) Payment must be forthcoming within sixty days of the date of receipt of the merchandise or provision of the service, which period may not be extended by agreement between the parties. b) If the debtor receives the invoice or equivalent request for payment earlier than the goods or services, it shall be payable within sixty days of receipt of the goods or services. c) If provision is made by law or in the contract for a procedure of acceptance or verification by which the conformity of the goods or services with the contract is to be ascertained, and if the debtor receives the invoice or the equivalent request for payment earlier than the date on which such acceptance or verification takes place, the maturity date to be honoured by the debtor shall be computed from the date of receipt of the goods or services and may not be deferred for more than sixty days counting 4

5 from the date of delivery. 2. Suppliers must send the invoice or equivalent request for payment to their customers within thirty days of the date of effective delivery of the merchandise or provision of the services. 3. Initiation of the payment period shall be effective upon receipt of the invoice by electronic media, provided that issuer identity and authenticity, invoice integrity and receipt by the addressee are guaranteed. 4. Invoices covering periods of no longer than 15 days may be grouped in a single invoice for all the deliveries made in that period, as a periodic summary invoice, or grouped in a single document to facilitate payment handling, as periodic invoice grouping. Such arrangements shall be valid if the mid-span date in the summary invoice or invoice grouping period is established as the initial date for computing the payment term and the sum involved is payable no more than 60 days after such date. Amended by Art. 1.3 of Act 15/2010 of 5 July CLD No. 2010\1810 Article 5 Accrual of late payment interest Where compensation for a commercial transaction is payable and not paid on the maturity date covenanted or legally established, the debtor shall be regarded as delinquent and automatically bound to pay the late payment interest covenanted in the contract or established in this Act. The obligation incurred shall not be subject to service of whatsoever notice of maturity or intimation from the creditor. Article 6 Requirements for creditors to claim late payment interest Creditors shall be entitled to late payment interest when the following two requirements are met. a) The creditor has performed all his contractual and legal obligations. b) The sum of the debt has not been received in due time, unless the debtor can prove that he is not responsible for the delay. Article 7 Late payment interest 1. The late payment interest to be paid by the debtor shall be computed at the rate laid down in the contract, or in the absence thereof, at the statutory rate established in the following paragraph. 2. The statutory interest rate to be paid by the debtor shall be seven percentage points higher than the interest rate applied by the European Central Bank to its most 5

6 recent main financing operation concluded before the first calendar day of the half-year in question. The interest rate applied by the European Central Bank to its main financial operations shall be understood to be the rate applied to such operations in fixed-rate tenders. If a main financial operation is concluded in accordance with a variable-rate tender procedure, the interest rate for the present intents and purposes shall be the marginal rate resulting from such tender. The statutory late payment interest computed as provided in this paragraph shall be applicable for six months from the date it is established. 3. The interest rate computed by applying the rule laid down in the preceding paragraph shall be published at six-month intervals in the Official State Journal by the Ministry of Economy and Finance. Notes on implementation Implementing provisions in the Resolution of 27 June 2008 CLD No. 2008\1313. [Date of entry into force (DEF) ] Implementing provisions in the Resolution of 30 June 2009 CLD No. 2009\1346. [DEF ] Implementing provisions in the Resolution of 2 January 2008 CLD No. 2008\29. [DEF ] Implementing provisions in the Resolution of 30 December 2008 CLD No. 2009\25. [DEF ] Implementing provisions in the Resolution of 26 June 2007 CLD No. 2007\1273. [DEF ] Implementing provisions in the Resolution of 28 December 2006 CLD No. 2007\8. [DEF ] Applied under the Resolution of 28 June 2006 CLD No. 2006\1341. [DEF ] Implementing provisions in the Resolution of 29 December 2005 CLD No. 2006\39. [DEF ] Implementing provisions in the Resolution of 30 June 2005 CLD No. 2005\1463. [DEF ] Implementing provisions in the Resolution of 18 January 2005 CLD No. 2005\119. [DEF ] Article 8 Compensation for recovery costs 1. Creditors shall be entitled to claim compensation from delinquent debtors for all the duly substantiated recovery costs incurred due to late payment. Compensation for recovery costs shall be subject to the principles of transparency and proportionality. It may under no circumstances exceed 15 per cent of the principal, except where the debt is less than euros, in which case compensation shall be limited to the sum of the debt in question. 6

7 2. The debtor shall not be bound to pay the compensation set out in the preceding paragraph when he is not responsible for the delay. Amended by Art. 1.4 of Act 15/2010 of 5 July CLD No. 2010\1810 Article 9 Grossly unfair clauses 1. Clauses on the date of payment or the consequences of delayed payment covenanted by the parties concerned shall be null and void if they are not in line with the provisions on payment period and statutory late payment interest rate established subsidiarily in Article 4, paragraph 1 and Article 7, paragraph 2, respectively. Clauses whose content runs counter to the requirements for claiming late payment interest laid down in Article 6 shall likewise be void when, in light of all the circumstances of the case, including the nature of the product or service, provision by the debtor of additional guarantees and standard business practice, they are grossly unfair to the creditor. The reiterated application of grossly unfair payment terms may not be regarded as standard business practice. To determine whether a clause is grossly unfair to the creditor, account shall be taken, among others, of whether the debtor has some objective reason to deviate from the payment period and the statutory interest rate for late payment laid down in Articles 4.1 and 7.2, respectively. A further consideration shall be, in light of all the circumstances of the case, whether such clause serves the purpose of procuring the debtor additional liquidity at the expense of the creditor, or of enabling the main contractor to impose on his suppliers and subcontractors terms of payment which are not justified on the grounds of the conditions from which he himself benefits or other objective reasons. 2. The judge voiding such grossly unfair clauses shall reword the contract in accordance with the provisions of Article 1258 of the Civil Code and shall be vested with moderating powers in respect of the parties rights and obligations and the consequences of non-performance. 3. Grossly unfair clauses contained in the general terms and conditions of contracts shall likewise be void, pursuant to the provisions of paragraph In accordance with Act 7/1998 of 13 April on General Terms and Conditions of Contracts, the legal action referred to in the preceding paragraph to prevent the continued use of general conditions may be brought by the following entities: a) business, professional, self-employed workers and farmers associations, federations of associations and corporations commissioned by their by-laws to defend the interests of their members b) official chambers of commerce, industry and navigation c) legally constituted chartered institutions. Such entities may, on behalf of their members, apply to the competent judicial or administrative authorities to discontinue the application of such clauses or practices in 7

8 the terms and with the effects provided in national commercial and mercantile legislation. Any claims lodged by these entities with the competent authorities shall be confidential pursuant to Act 15/2007 of 3 July on the Defence of Competition. 5. Without prejudice to the provisions of the preceding paragraph, the entities mentioned therein may also institute class action before the competent judicial or administrative authorities in defence of the interests of their members in respect of companies that routinely fail to honour the payment periods laid down in this Act in contracts lying outside the scope of Act 7/1998 of 13 April on General Terms and Conditions of Contracts. Amended by art. 1.5 of Act 15/2010 of 5 July CLD No. 2010\1810 Article 10 Retention of title clause In the bilateral relations between seller and buyer, the former shall retain title to the goods sold until they are fully paid for, if buyer and seller have explicitly agreed to a retention of title clause prior to delivery of the goods. Without prejudice to the application of Article 1112 of the Civil Code, the seller s right may be subrogated to another party who, through advances, financing or assumption of the obligation, pays the compensation on behalf of the debtor or enables the latter to acquire a right over the object of the retention of title or to use it when such compensation is, in effect, applied to that purpose. One of the measures that the seller or third party financing the transaction may take to protect their right is to retain the documents substantiating ownership of the goods for which the retention of title is covenanted. Article 11 Transparency in good commercial practice With a view to securing full transparency in the exercise of the rights and compliance of the obligations laid down in this Act, public authorities shall encourage the formulation of codes of good commercial practice, as well as the adoption of dispute settlement systems through mediation and arbitration, to which economic agents may voluntarily subscribe. Added under Art. 1.7 of Act 15/2010 of 5 July CLD No. 2010\1810 Additional Provision one Retail trade payment arrangements 8

9 Payments to retail establishment suppliers, regulated by Act 7/1996 of 15 January on a Regulatory Framework for Retail Trade shall be subject to the provisions of Article 17 of that Act, supplemented as appropriate by the provisions of the present Act. Additional Provision two Government s report to the Congress of Deputies Within two years of the entry into force of the present Act, the Government shall submit a report to the Congress of Deputies analysing and assessing the application of its provisions and its effects on and consequences for payment periods in commercial transactions between companies and between companies and public authorities. Sole transitional provision Existing contracts This Act shall be applicable to all contracts lying within its scope and concluded after 8 August 2002, as regards their future effects, including the interest rate for late payment laid down in Article 7 hereunder. With respect to the nullity of clauses covenanted for the reasons laid down in Article 9 hereunder, however, the present Act shall be applicable only to contracts concluded after its entry into force. Sole Abrogatory Provision Repeal of legislation All legislation of the same or lower rank that is not in line with or runs counter to the provisions of this Act are hereby repealed, with the exception of any which stipulate more beneficial payment periods for creditors. Final Provision one Amendment of the Consolidated Text of the Act on Public Sector Contracting adopted under Royal Legislative Decree 2/2000 of 16 June The Consolidated Text of the Act on Public Sector Contracting adopted under Royal Legislative Decree 2/2000 of 16 June is hereby amended in the following terms. One. Article 99, paragraph 4 shall be worded as follows. 4. Public authorities shall be bound to pay the price stipulated within sixty days of the date of issue of the works certificate or documents substantiating total or partial performance of the contract, without prejudice to the special payment period laid down in Article 110, paragraph 4. If such payment is delayed, once the sixty-day period lapses, the public authority shall pay the contractor late payment interest as well as compensation for the recovery costs in the terms laid down in the Act Establishing Measures to Combat Late Payments in Commercial Transactions. Two. Article 110, paragraph 4 shall be worded as follows. 4. Except in works contracts, which shall be governed by the provisions of Article 147.3, within one month of the date of the record of receipt, the respective settlement must be approved, the contractor must be notified accordingly and any balance in his favour must be paid. If payment of the balance is delayed, the contractor shall be 9

10 entitled to late payment interest and compensation for recovery costs under the terms laid down in the Act Establishing Measures to Combat Late Payment in Commercial Transactions. Three. Article 116, paragraphs 4 and 5, shall be worded as follows. 4. Barring the provisions of paragraph 5, the contractor shall pay the invoices by the date established in Article 4 of the Act Establishing Measures to Combat Late Payment in Commercial Transactions. If payment is delayed, the subcontractor or supplier shall be entitled to charge late payment interest and claim compensation for recovery costs in the terms laid down in such Act. 5. When a payment period of over sixty days is covenanted, payment shall be effected by means of an enforceable negotiable instrument and when the payment period is over one hundred twenty days, the subcontractor or supplier may demand a surety bond to secure payment. The subcontracts and supplier contracts referred to in the preceding paragraph shall be private. Four. Article 169, paragraph 3 shall be worded as follows. 3. In the circumstances described in Article 167 a), the contractor shall be entitled to late payment interest on the amounts owed or economic values covenanted from the days after the date payable, at the rate stipulated in the Act Establishing Measures to Combat Late Payment in Commercial Transactions, as well as to any damages incurred. Five. Paragraph 2, letter a) of Final Provision one is reworded as follows. a) Sixty-day and four- and eight-month payment periods set out in Article 99. Final Provision two Amendment of Act 7/1996 of 15 January on a Regulatory Framework for Retail Trade Act 7/1996 of 15 January on a Regulatory Framework for Retail Trade is amended as follows. One. Article 17, paragraphs 1, 3, 4 and 5, shall be worded as follows. 1. In the absence of an explicit payment period, merchandise received by retailers shall be understood to be payable within thirty days of delivery. 3. Payment for fresh and perishable foodstuffs may under no circumstances be deferred for over thirty days. Other foodstuffs and consumer goods shall be payable within sixty days except where explicitly covenanted otherwise, and subject to financial compensation for the supplier for the extension. Under no circumstances may payment be deferred for more than ninety days. Fresh and perishable foodstuffs shall be understood to be groceries which, due to their natural characteristics, are apt for sale and consumption for less than thirty days or which require regulated temperatures during display and shipping. Consumer goods are consumables with a high shelf turnover rate, routinely and repeatedly purchased by consumers. 10

11 The Government shall issue regulations within three months time defining the products referred to in the preceding paragraph. 4. When retailers agree with their suppliers to payment terms of over sixty days from the date of delivery and receipt for non-perishable, non-fresh, non-consumer merchandise, payment must be effected under an enforceable negotiable instrument, with explicit referenced to the maturity date shown on the invoice. When the goods become payable in over ninety days, this instrument shall be endorsable. In any event, the instrument must be issued or accepted by retailers within thirty days of receipt of the merchandise, provided the invoice has been sent. The seller may make deferrals of over one hundred twenty days contingent upon submission of a surety or commercial bond or credit insurance. 5. Late payment interest shall always accrue automatically beginning on the day following the maturity date or, in the absence of an agreement on payment terms, the date on which payment should have been made further to the provisions of paragraph 1. In such cases, the rate used to compute the interest payable shall be the rate laid down in Article 7 of the Act Establishing Measured to Combat Late Payment in Commercial Transactions, unless the contract concluded by the parties stipulates some other rate, which may under no circumstances be less than 50 per cent over the legal interest rate. Two. A Transitional Provision two is added, as follows. Transitional Provision two. Deferral of payments owed to retail establishment suppliers Fresh and perishable goods shall continue to be payable within 30 days. The sixtyday ceiling referred to in Article 17.3 of this Act shall be applicable beginning on 1 July In the interim, payments for non-fresh, non-perishable foodstuffs and consumer goods shall not be deferred for over ninety days from the date of delivery of the merchandise. Final Provision three Definition of competence This Act is decreed by virtue of the competence in the area of mercantile and civil legislation attributed exclusively to the State by the Constitution, Article and 8. Final Provision one of this Act, however, is enacted under Article and shall have basic provision status, with the exception of the amendment to Article of the Consolidated Text of the Act on Public Sector Contracting, which does not have such basic provision status pursuant to Final Provision one of this legal text. Final Provision four Entry into force This Act shall enter into force on the day after its publication in the Official State Journal. 11