. Background
.
In 2014 the ACCC commenced action against Coles alleging they had engaged in unconscionable
conduct in breach of s21 Australian Consumer Law. This matter was concluded by consent orders on 22nd
December 2014. (See
https://www.accc.gov.au/media-release/court-finds-coles-engaged-in-unconscionable-conduct-and-orders-co
l es-pay-10-million-penalties)
Use the current provisions in the ACL regulating unconscionable conduct, and any case law which
interprets these provisions
http://www5.austlii.edu.au/au/legis/cth/consol_act/caca2010265/sch2.html
http://www.australiancontractlaw.com/law/avoidance-unconscionable.html
The task
Consider the facts of the Coles case. Were they engaged in unconscionable conduct, or were they
just using their business advantage? (900 words)
Develop a series of points which you would use to educate business colleagues to help them
understand the difference between pressing a commercial advantage and unconscionable conduct. (900
words)
Assessment Criteria
Evidence of understanding of principles of Unconscionable conduct
Abitlity to analyse and apply
these principles to concrete business examples. Critical appraisal of developments in this area. Clear
communication skills Referencing skills and academic honesty.
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Court finds Coles engaged in unconscionable conduct and
orders Coles pay $10 million penalties
22 December 2014
The Federal Court has today, by consent, made declarations in two proceedings instituted by the
ACCC that Coles Supermarkets Australia Pty Ltd engaged in unconscionable conduct in 2011 in its
dealings with certain suppliers.
The Court has also ordered Coles pay combined pecuniary penalties of $10 million and costs.
Coles will also enter a court enforceable undertaking to the ACCC to establish a formal process to
provide options for redress for over 200 suppliers referred to in the proceedings.
In her judgment, Justice Gordon said:
“Coles’ misconduct was serious, deliberate and repeated. Coles misused its bargaining power. Its
conduct was ‘not done in good conscience’. It was contrary to conscience. Coles treated its
suppliers in a manner not consistent with acceptable business and social standards which apply to
commercial dealings. Coles demanded payments from suppliers to which it was not entitled by
threatening harm to the suppliers that did not comply with the demand. Coles withheld money from
suppliers it had no right to withhold.
“Coles’ practices, demands and threats were deliberate, orchestrated and relentless.”
“Coles’ conduct was of a kind which merits severe penalty. But for Coles making the admissions it
has now made and acknowledging the gravity of its contravening conduct, the conduct and
circumstances in which it was committed would have warranted imposing penalties at or close to the
maximum the law permits”.
ACCC Chairman Rod Sims said: “This is a very significant outcome for the supermarket sector and
the business community in general. Indeed this is one of the first findings of unconscionable conduct
in a business-to-business context under the Australian Consumer Law.
“Much more important is the magnitude of the penalties imposed and the recognition by the Court
that Coles’ conduct in its dealings with suppliers was unconscionable and in contravention of the
Australian Consumer Law. This should send a clear signal to larger businesses generally about
appropriate business conduct in commercial dealings with smaller suppliers,” said Mr Sims.
The Court’s decision followed the ACCC’s long-running investigation into supplier complaints in the
supermarket sector.
“This investigation was commenced after the ACCC urged suppliers to come forward to the ACCC in
confidence to report their concerns about dealings with the major supermarket chains; the Court
outcome has vindicated that approach.
““Another important part of the resolution of both sets of the proceedings was the establishment of
the formal process to secure redress for the more than 200 suppliers impacted. Securing redress by
way of a statutory undertaking for suppliers referred to in the proceedings was central to the
settlement,” said Mr Sims.
“The Court decision provides a clear indication of the types of conduct that are unacceptable in
commercial transactions, and gives guidance as to the standards to which businesses should
conform in their dealings with other businesses, and indeed, all consumers”.
The ACCC acknowledged Coles’ co-operation in resolving the proceedings and its willingness to
make admissions and consent to Court orders.
The ACCC also noted recent public statements from Coles Managing Director John Durkan, who has
said: “Coles unconditionally apologises and accepts full responsibility for its actions in these
supplier
dealings”.
Mr Sims said “The response from Coles and Mr Durkan is an appropriate and responsible corporate
response to the Court outcome”.
The Court orders arise out of two sets of proceedings instituted by the ACCC earlier this year alleging
that Coles engaged in unconscionable conduct in its dealings with suppliers in 2011 – the ‘ARC
proceeding’ filed in May, and the ‘claims proceeding’ filed in October.
Background
The ARC proceedings
The proceedings related to Coles’ Active Retail Collaboration (ARC) program. The ACCC alleged that
the ARC program was developed in 2011 to improve Coles’ earnings by the introduction of
continuing rebates into the trading terms of suppliers based on purported benefits to suppliers that
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Coles asserted had resulted from changes Coles had made to its supply chain.
The Court made declarations that Coles engaged in unconscionable conduct in the implementation
of the ARC program in respect of certain suppliers by taking steps, when those suppliers declined to
make payment of the ARC rebate, including threats of the following commercial consequences:
Coles would cease giving support to the supplier from Coles’ replenishers;
Coles would provide certain ranging information requested by the Supplier but only after the
supplier agreed to pay the ongoing ARC rebate;
a potential impact on Coles’ decision about the ranging of the supplier’s products;
risks to promotional activity;
classification as a ‘transactional’ supplier, which may have implications for ranging;
Coles would not acquire new products from the supplier;
Coles would not provide the supplier with forecasting information that it had been previously
provided with;
Coles would not meet with the supplier about its business; and
Coles would not continue contractual negotiations then on foot with the supplier
in circumstances including:
Coles having a greater bargaining position relative to the supplier; and
suppliers not being provided with adequate information, and being pressured to consider or
assess the value, if any, of the purported benefits of the ARC program to their business within
a short period of time.
The claims proceedings
In the second set of proceedings, the ACCC alleged that in 2011 Coles pursued some suppliers for a
variety of payments, including payments for ‘profit gaps’, waste and fines or penalties for alleged
short or late deliveries by suppliers.
In relation to the second proceedings, the Court made declarations that Coles engaged in
unconscionable conduct in circumstances where it had greater bargaining power in relation to certain
suppliers, including, by:
demanding payments for purported profit gaps from a supplier where this had not been the
subject of prior agreement between Coles and the supplier, and the payments were attributable
to issues that arose before the supplier owned the relevant product;
demanding from a supplier a retrospective payment for waste and requiring a response within
hours where the payment was not the subject of prior agreement, and using a purported profit
gap claim as leverage in the negotiation;
refusing to cease deducting and retaining payments under an agreement with a supplier for
deferred rebates which was due to expire;
demanding and processing a payment for a purported profit gap where this was outside terms
and conditions and without the agreement of the supplier, and retaining and refusing to repay
the money to the supplier;
requiring agreement from two suppliers to pay for 100% of the cost of waste in relation to their
products in circumstances where Coles was aware that the suppliers were in financial difficulty
and where Coles did not take into account:
the suppliers’ explanation about the cause of the waste (from the first supplier); or
the suppliers explanation that its products were not appropriate for a 100% waste
agreement (from the second supplier);
requiring and accepting payment from a supplier for a late delivery where this had not been the
subject of prior agreement with the supplier; and
imposing penalties for short deliveries of a supplier’s products without notice to, or prior
agreement with, the supplier and, refusing to repay to the supplier, the penalties imposed.
Court enforceable undertaking
The court enforceable undertaking given to the ACCC by Coles provides for the establishment of a
formal process overseen by an Independent Arbiter, Mr Je ff Kennett AC, that will allow for a review of
the eligibility of:
over 200 smaller suppliers (categorised by Coles as Tier 3 Suppliers) to obtain refunds of any
amounts by which their ARC rebate payments exceeded the benefits which they obtained from
the ARC program; and
suppliers referred to in the second proceedings in respect of which Coles has made
admissions in the relevant Statement of Agreed Facts and Admissions filed with the Court to
obtain possible payments.
The undertaking is available on the public register.
Release number:
MR 320/14
Media enquiries:
Media team – 1300 138 917
AUDIENCE Media
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TOPICS Competing fairly Groceries