The ACCC’s decision to sue supermarket giant Coles over the way it deals with its suppliers has provided the first big test of the unconscionable conduct provisions of the ACL and how those provisions relate to the relationship between suppliers and customers.
If you are involved in dealing with suppliers, or if you are a supplier who may have experienced some questionable dealings in your day to day work, this case is essential reading.
What did Coles do wrong?
The ACCC claims that Coles has engaged in unconscionable conduct in its dealings with its suppliers, in breach of the Australian Consumer Law, by asking suppliers to pay ongoing rebates in return for supposed benefits as a result of changes to Coles’ supply chain. Specifically, the ACCC alleges that Coles used unfair tactics and misleading information about the value of the changes made by Coles. Coles is also alleged to have taken advantage of its superior bargaining position by seeking payment when it had no seemingly legitimate reason for claiming them.
In relation to 200 of its smaller suppliers, it is alleged that Coles systematically pressured suppliers by escalating matters to more senior staff if suppliers refused the rebate program, made threats of commercial consequences, and sought agreement to the rebate agreement with a very short period of time.
Coles vigorously denies the claims.
The ACCC is seeking pecuniary penalties, declarations, injunctions and costs against Coles.
The background to this claim is a broader ongoing investigation by the ACCC into allegations of concerning behaviour by major supermarkets in its treatment of suppliers.
What does the law say about interactions between suppliers and customers?
The restrictions against organisations engaging in unconscionable conduct with suppliers (and of course, these restrictions also apply against suppliers engaging in unconscionable conduct with their customers) are set out it in the Australian Consumer Law[i]. The factors that a court will take into account[ii] when assessing whether conduct is unconscionable in a business to business relationship include:
- The relative bargaining strength of the parties
- The use of undue influence, pressure or unfair tactics by the stronger party
- The willingness of the stronger party to negotiate (or more precisely, the lack of willingness of the stronger party to negotiate)
- The extent to which the parties acted in good faith.
We’ll provide you with updates on this case so stay tuned for upcoming issues.
If you want to know more about unconscionable conduct and the Australian Consumer Law, we cover this topic in our contracts law seminar series, aimed at managers, procurement officers, CFOs, sales people and anyone else involved in contracting. For more details just send an email to [email protected].
