The court found, by consent, that Coles Supermarkets Australia Pty Ltd engaged in unconscionable conduct in its dealings with certain suppliers. The Australian Competition and Consumer Commission (ACCC) had launched two legal actions against the supermarket earlier in the year.
In taking court action, the ACCC was concerned about Coles seeking payments and withholding money outside of the terms that had been negotiated with its suppliers. The reasons included participating in a supplier program and for so-called profit gaps, waste and markdowns, and short or late deliveries.
In her judgement, Justice Gordon said:
Coles’ misconduct was serious, deliberate and repeated. Coles misused its bargaining power. Its conduct was ‘not done in good conscience’. It was contrary to conscience. Coles treated its suppliers in a manner not consistent with acceptable business and social standards which apply to commercial dealings. Coles demanded payments from suppliers to which it was not entitled by threatening harm to the suppliers that did not comply with the demand. Coles withheld money from suppliers it had no right to withhold.
The court ordered Coles to pay total penalties of $10 million, as well as costs. Coles also provided a court enforceable undertaking to the ACCC to establish a formal process via an independent arbiter, Jeff Kennett, to provide options for signifi cant fi nancial redress for over 200 suppliers referred to in the proceedings.
The result has very important economic consequences. This is about smaller businesses being able to have faith in their contracts with larger businesses so they can plan and invest. The outcome also sends a clear signal to larger businesses about appropriate conduct in commercial dealings with smaller suppliers.
The new code
At the same time as the court case was unfolding, a new industry code of conduct was being developed to address unfair practices in the grocery sector.
In March 2015, the government introduced the voluntary Food and Grocery Code of Conduct to provide businesses that supply food or groceries to the major retailers or wholesalers with extra protections.
The code, which will apply to wholesalers and retailers who agree to be bound by it, complements existing protections for suppliers under the Competition and Consumer Act 2010, including the unconscionable conduct provisions.
Among other things, the code:
–requires retailers and wholesalers to act lawfully and in good faith;
–sets out the requirements of agreements between retailers or wholesalers and suppliers, including that they be in writing;
–limits when retailers or wholesalers can unilaterally or retrospectively vary an agreement with a supplier, and requires any variation and the reason for it to be in writing;
–sets out a dispute resolution process.
The new code, together with the court judgement that Coles acted unconscionably, makes it clear that no matter how much bargaining power a retailer holds, they must deal with their suppliers fairly.
If you have a client in the grocery sector or in another sector experiencing similar problems, more information is available at accc.gov.au.
