The competition watchdog commenced further legal proceedings against Coles today, alleging the supermarket giant engaged in unconscionable conduct against its suppliers.
The Australian Competition and Consumer Commission claims Coles tried to broker deals with suppliers 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.
It also claims the supermarket tried to make suppliers 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.
The ACCC says Coles also imposed fines or penalties on suppliers for short or late deliveries even though the causes of profit gaps and waste and markdowns were usually outside the control of suppliers and the amount of the fines imposed were unrelated to Coles loss.
The watchdog alleges Coles took advantage of its superior bargaining position by demanding agreements to pay money where it had no legitimate basis for doing so and failing to provide adequate information to suppliers.
The legal action includes allegations that Coles applied undue pressure by “threatening measures” that were commercially detrimental to suppliers if they refused to agree to payments, pressing suppliers for urgent responses to agree to payments, making multiple demands of suppliers for payments and
withholding money due to suppliers.
ACCC chairman Rod Sims said the allegations against Coles are a matter of significant public interest as they involve a large national company in its dealings with small business suppliers in the highly concentrated supermarket industry.
“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 in a statement.
Sally Scott, partner at law firm Hall & Wilcox, told SmartCompany this is a much needed case in Australian consumer law and for this reason alone, it is not at all surprising to see the ACCC pursue this case.
“The law of unconscionable conduct is largely undefined,” she says.
“To a certain extent this is necessary as it is important not to close off the possible circumstances where the law would provide relief.”
But Scott says more judicial guidance is needed.
“Whether the court is willing to provide further guidance remains to be seen.”
The matter is listed for a directions hearing in Melbourne at 10am on Friday 24 October 2014 before Justice Gordon.
Coles says it rejects the claims of unconscionable conduct alleged by the ACCC.
“The ACCC’s allegations concern a limited number of dealings with five Coles suppliers three years ago,” a spokesperson for Coles said in a statement.
“For context, Coles has over 4,000 suppliers, and is in contact with many of them on a daily basis. It has millions of individual contacts with suppliers every year. All five suppliers continue today to be valued suppliers to Coles.”
*This story was updated to include Coles’ response at 4pm on 16 October 2014