The Australian Competition and Consumer Commission has instituted proceedings in the Federal Court of Australia against Coles Supermarkets Australia Pty Ltd and Grocery Holdings Pty Ltd (together, Coles) alleging that Coles engaged in unconscionable conduct in contravention of the Australian Consumer Law (ACL).
“This is a matter of significant public interest involving allegations of unconscionable conduct by a large national company in its dealings with small business suppliers in the highly concentrated supermarket industry,” ACCC chairman Rod Sims said.
“The ACCC alleges that Coles took advantage of its superior bargaining position by demanding money from suppliers that it was not lawfully entitled to, and was, in all the circumstances, unconscionable.”
“The ACCC has commenced these proceedings because it considers the alleged conduct was contrary to the prevailing business and social values which underpin business standards that apply to dealings with suppliers,” Sims said.
“These proceedings will provide the Court with an opportunity to consider whether conduct of this nature, if proven, is unlawful in the context of large businesses dealing with their suppliers.”
The proceedings have risen out of the same investigation that was instituted by the ACCC against Coles on 5 May in respect to Coles’ Active Retail Collaboration (ARC) program.
In June, Coles categorically denied claims it engaged in unconscionable conduct by forcing suppliers to pay additional rebate.
“The proceedings relating to ARC allege unconscionable conduct in the design and implementation of the ARC program specifically, whereas these new proceedings concern conduct which occurred in the course of Coles' day to day interactions with suppliers,” Sims said.
In the latest proceedings, the ACCC alleges that in 2011, Coles, outside of its trading terms with the suppliers concerned:
- pursued agreements to pay Coles for “profit gaps” on a supplier’s goods, being the difference between the amount of profit Coles had wanted to make on those goods and the amount it had achieved;
- pursued agreements to pay Coles, both retrospectively and prospectively, for amounts it claimed as “waste” on a supplier’s goods which occurred after Coles had accepted the goods, and price reductions, or “markdowns” implemented by Coles to clear goods;
- imposed fines or penalties on suppliers for short or late deliveries.
It is alleged that the causes of both profit gaps and “waste and markdowns” were usually outside the control of suppliers, and that the amount of the fines Coles imposed was unrelated to the value of the goods, to any loss that Coles might actually have suffered from the short or late delivery, or to the reasons for the short or late delivery.
The ACCC alleges that Coles took advantage of its superior bargaining position and sought to achieve these outcomes by, among other things:
- demanding agreements to pay money where it knew, or ought reasonably to have known that it had no legitimate basis for doing so;
- failing to provide adequate information to suppliers to allow them to understand the basis upon which the demands were made;
applying undue pressure by, in some cases:
- threatening measures that were commercially detrimental to the suppliers if they refused to agree to payments;
- by pressing suppliers for urgent responses to agree to payments; or
- by making multiple demands of suppliers for different types of payments;
- withholding money due to suppliers and refusing to repay money when it knew it was not entitled to retain it.
The ACCC is seeking pecuniary penalties, declarations, injunctions and costs.
The matter is listed for a directions hearing in Melbourne at 10am on Friday 24 October 2014 before Justice Gordon.
In September, Coles was banned from advertising that its bread was made, or baked on the day that it’s sold for three years, following an investigation by the ACCC.