ACCC Takes Further Action against Coles for alleged Unconscionable Conduct towards its Suppliers

Friday 17 October 2014 @ 11.06 a.m. | Trade & Commerce

The Australian Competition and Consumer Commission (ACCC) 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).

What is Unconscionable Conduct?

Unconscionable conduct, under Sections 20, 21 and 22 of the ACL, is generally understood to mean conduct which is so harsh that it goes against good conscience. Under the ACL, businesses must not engage in unconscionable conduct, when dealing with other businesses or their customers

Business behaviour may be deemed unconscionable if it is particularly harsh or oppressive, and is beyond hard commercial bargaining.

Background to the Case

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; and
  • 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; and
  • 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.

Reaction from Coles

In a statement, Coles rejected the ACCC's claims. It said the allegations concerned a limited number of dealings with five Coles suppliers five years ago:

"All five suppliers continue today to be valued suppliers to Coles...Commercial negotiations can be robust, regardless of the industry or sector."

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