Kennett Instructs Coles to Refund Over $12 million to Suppliers
Friday 3 July 2015 @ 8.40 a.m. | Legal Research | Trade & Commerce
The Australian Competition and Consumer Commission (ACCC) has welcomed a statement from independent arbiter, the Hon Mr Jeff Kennett AC who has instructed Coles to refund over $12 million to suppliers and has also allowed suppliers to exit the ARC program without penalty or have their Active Retail Collaboration (ARC) contribution rebates reviewed. In addition to the refunded amounts, this will result in further substantial on-going savings for Coles’ suppliers.
Background
Mr Kennett was appointed as an independent arbiter in 2014 to resolve disputes between Coles and suppliers after the ACCC took the retailer to court over unconscionable conduct.
After initially rejecting the ACCC's allegations, Coles settled the ACCC's claims in December 2014, admitting it had "crossed the line" and offering to compensate suppliers for rebates, fines and payments with-held by the retailer.
Mr Kennett contacted about 220 suppliers who had joined the ARC program and negotiated refunds for about 150 suppliers who felt they were eligible for a refund.
He ordered Coles to refund $12 million to those who were pressured to join the ARC program, and to pay a further $324,000 in compensation to suppliers who were forced to pay fines or had payments withheld over issues such as late deliveries, and spoilage and wastage in stores.
Reaction from the ACCC
ACCC Chairman Rod Sims said:
“The arbitration process conducted by Mr Kennett has proven both extremely timely and effective with significant benefits to suppliers. The process will also deliver flow on effects for suppliers more broadly as a result of changes Mr Kennett says Coles has begun to implement that affect the way it deals with its suppliers.”
The refunds process arose out of the resolution of two proceedings commenced by the ACCC against Coles in 2014: the “ARC proceedings” and the “claims proceedings”. In December 2014, the Federal Court made declarations in both proceedings by consent that Coles had engaged in unconscionable conduct in 2011 in its dealings with certain suppliers.
As part of the resolution, Coles also provided a court enforceable undertaking to the ACCC to establish a formal process to provide options for redress for over 200 suppliers. In December 2014, Mr Kennett was appointed to administer the process and to assess the eligibility of:
- over 200 smaller suppliers listed in the ARC proceedings, categorised by Coles as “Tier 3” Suppliers, to obtain refunds of any prior ARC rebate payments and seek adjustments of future rebates (taking into account the circumstances of their entry into the ARC program and any benefit received from their access to ARC over and above any arrangements they had with Coles prior to the implementation of the ARC program); and
- suppliers referred to in the claims proceedings (in respect of which Coles made admissions in relation to profit gap claims, waste claims, and delivery fines) to obtain possible payments.
The ACCC Chairman went on to say:
“The high level feedback from suppliers is that they are largely satisfied with access to redress from Coles and the timely, efficient and low cost approach. Ultimately, it was a matter for each supplier to decide whether or not to proceed with the resolution proposed, and as Mr Kennett’s report demonstrates, a very large number accepted the relief offered by Coles. The arbitration process was intended to provide an efficient alternative to otherwise lengthy and costly processes in determining the loss and damage of affected suppliers. Mr Kennett has now finalised his deliberations and has instructed Coles to refund over $12 million to a number of “Tier 3” suppliers and a further $324,000 to suppliers listed in the claims proceedings. This is in addition to the penalty ordered by the court of $10 million. Mr Kennett has reported that his arbitration process has resulted in substantial ongoing savings for suppliers. Exit from the program chosen by some suppliers and reduced rates for others will save suppliers significant additional costs into the future.”
Under the arbitration process, it was also open to suppliers to simply exit the ARC program. A number of suppliers took this option. Suppliers who sought a review of their eligibility for refunds also had the option to exit the ARC program.
Mr Kennett’s determinations, as the independent arbiter, are binding on Coles and Coles has already moved to implement steps necessary to comply with those determinations. Mr Kennett also made a number of non-binding recommendations to Coles on the basis of his discussions with some suppliers.
Acknowledgement of Coles’ co-operation
The ACCC also commented:
“The ACCC recognises and acknowledges Coles’ co-operation in acting upon the binding determinations made by Mr Kennett and in making some of the non-binding changes recommended by Mr Kennett. It moved quickly and without challenge to accept the decisions and implement changes.”
Coles has advised the ACCC that it intends to become a signatory to the Food and Grocery Code (the Code) from 1 July 2015. The introduction of an effective and equitable dispute resolution process for disputes arising between retailers or wholesalers and suppliers is a key feature of the Code.
Benefits of the Food and Grocery Code
The Code is voluntary which means that it only applies to retailers or wholesalers that have elected to be bound by the Code by giving written notice to the ACCC. The ACCC is also responsible for enforcing the Code.
The Code provides for an additional framework for dealings between retailers or wholesalers and suppliers. The Code does not override the existing provisions of the Competition and Consumer Act 2010 (Cth) and the Australian Consumer Law [Schedule 2 to the Competition and Consumer Act 2010 (Cth)]. In particular, the provisions relating to unconscionable conduct, misleading or deceptive conduct and misuse of market power continue to apply.
The Code governs certain conduct by grocery retailers and wholesalers in their dealings with suppliers. It has rules relating to grocery supply agreements, payments, termination of agreements, dispute resolution and a range of other matters.
To date the following companies have signed up to the Code:
- About Life Pty Ltd (retailer);
- ALDI (retailer);
- Coles Supermarkets Australia (retailer); and
- Woolworths Limited (retailer).
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Sources:
Jeff Kennett tells Coles to pay $12m to suppliers – Article from smh.com.au
Coles refunds over $12 million to suppliers following ACCC action – ACCC Media Release MR 112/15
Food and Grocery Code of Conduct - ACCC
