Mind the Gap Scheme: Woolworths Cleared in Case against ACCC [2016] FCA 1472
Friday 9 December 2016 @ 10.21 a.m. | Trade & Commerce
A recent Federal Court decision (ACCC v Woolworths Ltd [2016] FCA 1472 (8 December 2016)) has ruled that Woolworths' attempt to charge suppliers as much as $60 million through the Mind the Gap Scheme late 2014, was not unconscionable and did not target vulnerable suppliers.
What is the Mind the Gap Scheme?
In late 2014, and facing a half-year profit shortfall of $53 million, Woolworths Executives drew up a scheme to charge suppliers for extra payments, called Mind the Gap. Alex Dower, former commercial director of Woolworths, admitted in the Federal Court to holding a conference with his team of hundreds of buyers in December 2014. The instructions were to contact suppliers in order to regain the profit shortfall.
The buyers were then given spreadsheets of sales with a series of lenses over the figures. They asked for retrospective payments from Tier B suppliers if they were under-performing, or if Woolworths was not getting its share of increased sales.
According to the Australian Competition and Consumer Commission (ACCC), more than 800 "tier-two suppliers" were asked to pay between $4,291 to $1.4 million to support Woolworths in the weeks before Christmas with the suppliers given just days to pay, with the ACCC telling the court those not willing to pay were seen as "not supportive".
It is also alleged that Woolworths buyers were plied with coffee and offered an incentive of Mr Dower's car parking space for a week. Mr Dower said he trusted his buyers to be "reasonable and make appropriate decisions" with suppliers and that these offering were not incentives in any way.
Reaction from the ACCC
Commenting on the Federal Court’s decision, ACCC chairman Rod Sims warned grocery suppliers that its failed unconscionable conduct case against Woolworths left them in an "unfortunate position" amid calls for law reform and greater protections for small businesses. Mr Sims said it was unfortunate that Woolworths had successfully argued this was "absolutely standard behaviour" and that there was nothing unusual about Mind the Gap:
"We took this case on because we were concerned that seeking money from supermarket suppliers to fill a profit gap went beyond commercial hard bargaining and we were concerned that small businesses were subject to these arbitrary demands. If you're a supplier subject to arbitrary demands, it's very hard to make future investment decisions in the face of financial uncertainty. Woolworths argued... that their behaviour was completely normal and that's how they do business. This could well leave suppliers in an extremely unfortunate position."
The Judgment
Federal Court Judge David Yates said he was not satisfied:
"… in light of all the circumstances brought forward that Woolworths' design or implementation of the Mind the Gap scheme was unconscionable, as the ACCC has alleged. I accept Woolworths' submission that a party's 'legitimate interests' will extend to include its interest in pursuing its lawful business in a profitable way and in a manner that minimises its costs. I am satisfied that the 'asks' made of suppliers, as part of that co-ordinated approach, were typical of the approaches for financial support and negotiations that took place between Woolworths and various suppliers at other times and on other occasions, albeit that the approaches and negotiations at those times and on those occasions were not part of a co-ordinated approach across the whole of the Woolworths Supermarkets business. I'm not satisfied Woolworths has contravened section 21 of the Australian Consumer Law as alleged."
His Honour was also critical of the ACCC for providing "no evidence" from any supplier who considered it had been threatened by such statements:
"Some communications between Woolworths and the supplier were, on each side, robust but no more robust than would be expected of commercial parties putting their respective positions plainly."
Statement from Woolworths
Woolworths Chief Legal Officer, Richard Dammery said of the decision:
"We defended the case because we firmly believed we did not act unconscionably and we did not break the law."
TimeBase is an independent, privately owned Australian legal publisher specialising in the online delivery of accurate, comprehensive and innovative legislation research tools including LawOne and unique Point-in-Time Products.
Sources:
Woolworths did not break any law with Mind the Gap scheme: Federal Court – smh.com.au
Mind the Gap: Woolworths scheme to hit suppliers for extra payments cleared in case against ACCC – abc.net.au
ACCC v Woolworths Ltd [2016] FCA 1472 (8 December 2016)
