Australian Competition and Consumer Commission v Coles Supermarkets Australia Pty Ltd
[2014] FCA 1405
•22 December 2014
FEDERAL COURT OF AUSTRALIA
Australian Competition and Consumer Commission v Coles Supermarkets Australia Pty Ltd [2014] FCA 1405
Citation: Australian Competition and Consumer Commission v Coles Supermarkets Australia Pty Ltd [2014] FCA 1405 Parties: AUSTRALIAN COMPETITION AND CONSUMER COMMISSION v COLES SUPERMARKETS AUSTRALIA PTY LTD (ACN 004 189 708) and GROCERY HOLDINGS PTY LTD (ACN 007 427 581) File numbers: VID 253 of 2014
VID 609 of 2014Judge: GORDON J Date of judgment: 22 December 2014 Catchwords: CONSUMER LAW – unconscionable conduct – admitted contraventions of Australian Consumer Law – unconscionable conduct in business transactions – dealings with suppliers – threats of commercial consequences if demands not met – demanding payments – refusing to pay or repay money – enforcement and remedies – s 87B undertaking – orders sought by consent – appropriate relief in the circumstances Legislation: Competition and Consumer Act 2010 (Cth)
Evidence Act 1995 (Cth)
Federal Court of Australia Act 1976 (Cth)Cases cited: Ainsworth v Criminal Justice Commission (1992) 175 CLR 564
Australian Competition & Consumer Commission v Alvaton Holdings Pty Ltd [2010] FCA 760
Australian Competition & Consumer Commission v Australian Safeway Stores Pty Ltd (1997) ATPR 41-562
Australian Competition & Consumer Commission v Coles Supermarkets Australia Pty Limited (No 2) [2014] FCA 1022
Australian Competition & Consumer Commission v Dataline.Net.Au Pty Ltd (2006) 236 ALR 665
Australian Competition & Consumer Commission v Dataline.Net.Au Pty Ltd (2007) 161 FCR 513
Australian Competition & Consumer Commission v Econovite Pty Ltd [2003] FCA 964
Australian Competition & Consumer Commission v Global One Mobile Entertainment Limited [2011] FCA 393
Australian Competition & Consumer Commission v Lux Distributors PtyLtd [2013] FCAFC 90
Australian Competition & Consumer Commission v MSY Technology Pty Ltd (2012) 201 FCR 378
Australian Competition & Consumer Commission v Real Estate Institute of Western Australia Inc (1999) 161 ALR 79
Australian Competition & Consumer Commission v Renegade Gas Pty Ltd (trading as Supagas NSW) [2014] FCA 1135
Australian Competition & Consumer Commission v Target Australia Pty Ltd [2001] FCA 1326
Australian Competition & Consumer Commission v The Construction, Forestry, Mining and Energy Union (2007) ATPR 42-140
Australian Competition & Consumer Commission v Virgin Mobile Australia Pty Ltd (No 2) [2002] FCA 1548
Australian Competition & Consumer Commission v Woolworths (South Australia) Pty Ltd (Trading as Mac’s Liquor) [2003] FCA 530
BMW Australia Ltd v Australian Competition & Consumer Commission [2004] FCAFC 167
Cameron v Qantas Airways Ltd (1995) 55 FCR 147
Forster v Jododex Australia Pty Ltd (1972) 127 CLR 421
Global One Mobile Entertainment Pty Ltd v Australian Competition & Consumer Commission [2012] FCAFC 134
Hadgkiss v Aldin (No 2) [2007] FCA 2069
Hurley v McDonalds Australia Ltd (2000) ATPR 41-741
NW Frozen Foods Pty Ltd v Australian Competition & Consumer Commission (1996) 71 FCR 285
Ponzio v B & P Caelli Constructions Pty Ltd (2007) 158 FCR 543
Secretary, Department of Health & Ageingv Pagasa Australia Pty Ltd [2008] FCA 1545
Singtel Optus Pty Ltd v Australian Competition & Consumer Commission [2012] FCAFC 20
Tobacco Institute of Australia Ltd v Australian Federation of Consumer Organisations Inc (No 2) (1993) 41 FCR 89
Thomson Australian Holdings Pty Ltd v Trade Practices Commission (1981) 148 CLR 150Date of hearing: 15 December 2014 Date of last submissions: 16 December 2014 Place: Melbourne Division: GENERAL DIVISION Category: Catchwords Number of paragraphs: 230 Counsel for the Applicant: Mr N O’Bryan SC with Ms R Orr SC, Mr M Hodge and Ms G Coleman Solicitor for the Applicant: Australian Government Solicitor Counsel for the Respondents: Mr N Young QC with Mr M Moshinsky QC, Mr M Borsky and Ms C van Proctor Solicitor for the Respondents: Allens
IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY
GENERAL DIVISION
VID 253 of 2014
BETWEEN: AUSTRALIAN COMPETITION AND CONSUMER COMMISSION
ApplicantAND: COLES SUPERMARKETS AUSTRALIA PTY LTD (ACN 004 189 708)
First RespondentGROCERY HOLDINGS PTY LTD (ACN 007 427 581)
Second Respondent
JUDGE:
GORDON J
DATE OF ORDER:
22 DECEMBER 2014
WHERE MADE:
MELBOURNE
THE COURT NOTES THAT:
1.The First Respondent (Coles) and the Second Respondent (GHPL) have given an undertaking to the Applicant pursuant to s 87B of the Competition and Consumer Act 2010 (Cth) (Act) relating to each of the Tier 3 suppliers who have made a payment of an Active Retail Collaboration rebate (the ARC rebate) to Coles or GHPL in the course of its Active Retail Collaboration Program (ARC).
THE COURT DECLARES THAT:
Austech
2.In October 2011, in trade or commerce in connection with the acquisition of grocery products from Austech Products Pty Ltd (Austech), Coles, by:
2.1.requiring Austech to make an agreement to pay an ongoing rebate to it or GHPL, and making threats of commercial consequences to it if it did not, namely that Coles:
2.1.1.would provide certain ranging information requested by Austech but only after Austech agreed to pay the ongoing rebate; and
2.1.2.would cease giving assistance to Austech from Coles’ replenishers; and
2.2.refusing to take into account the reasons given to Coles by Austech why the rebate would not have the benefit to it that Coles claimed,
engaged in conduct that was in all the circumstances unconscionable in contravention of s 22 as it then stood of Sch 2 to the Act (Australian Consumer Law).
Oates
3.In October 2011, in trade or commerce in connection with the acquisition of grocery products from E. D. Oates Pty Ltd (Oates), Coles, by requiring Oates to make an agreement to pay an ongoing rebate to it or GHPL, and making threats of commercial consequences to it if it did not, namely that if Oates did not sign up to ARC:
3.1.this may impact on Coles’ decisions about ranging Oates’ products relative to other suppliers;
3.2.there may be risks to promotional activity for Oates’ products; and
3.3.Oates would be classified as a ‘transactional’ supplier, which may have implications for ranging,
engaged in conduct that was in all the circumstances unconscionable in contravention of s 22 as it then stood of the Australian Consumer Law.
Paton’s
4.In October 2011, in trade or commerce in connection with the acquisition of grocery products from Paton’s Macadamia Plantations Pty Ltd (Paton’s), Coles, by requiring Paton’s to make an agreement to pay an ongoing rebate to it or GHPL, and making threats of commercial consequences to it if it did not, namely that Coles:
4.1.would not promote Paton’s products;
4.2.would not acquire new products from Paton’s;
4.3.would not provide Paton’s with forecasting information that had been provided without charge prior to the requirement,
engaged in conduct that was in all the circumstances unconscionable in contravention of s 22 as it then stood of the Australian Consumer Law.
Stuart Alexander
5.In October 2011, in trade or commerce in connection with the acquisition of grocery products from Stuart Alexander & Co Pty Ltd (Stuart Alexander), Coles, by requiring Stuart Alexander to make an agreement to pay an ongoing rebate to it or GHPL, and making threats of commercial consequences to it if it did not, namely that Coles:
5.1.would not acquire new products from Stuart Alexander; and
5.2.would not promote Stuart Alexander’s products,
engaged in conduct that was in all the circumstances unconscionable in contravention of s 22 as it then stood of the Australian Consumer Law.
Tru Blu
6.In October 2011, in trade or commerce in connection with the acquisition of grocery products from Tru Blu Beverages Pty Ltd (Tru Blu), Coles, by:
6.1.requiring Tru Blu to make an agreement to pay an ongoing rebate to it or GHPL, and making threats of commercial consequences to it if it did not, namely that Coles:
6.1.1.would not meet with Tru Blu;
6.1.2.would not continue any contractual negotiations then on foot with Tru Blu; and
6.2.refusing to take into account the reasons given to Coles by Tru Blu why the rebate would not have the benefits to it that Coles claimed,
engaged in conduct that was in all the circumstances unconscionable in contravention of s 22 as it then stood of the Australian Consumer Law.
THE COURT ORDERS THAT:
7.Coles pay the Commonwealth of Australia, within 30 days of the date of this Order, pecuniary penalties pursuant to s 224 of the Australian Consumer Law, in respect of the contraventions declared in paragraphs 2 to 6 of this Order, as follows:
7.1.in the case of Austech, the sum of $700,000;
7.2.in the case of Oates, the sum of $800,000;
7.3.in the case of Paton’s, the sum of $800,000;
7.4.in the case of Stuart Alexander, the sum of $700,000; and
7.5.in the case of Tru Blu, the sum of $700,000.
8.Coles pay the Applicant, within 30 days of the date of this Order, a contribution towards its costs of and incidental to these proceedings in the sum of $1 million, and otherwise there be no order as to costs.
9.The proceedings otherwise be dismissed.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011 (Cth).
IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY
GENERAL DIVISION
VID 609 of 2014
BETWEEN: AUSTRALIAN COMPETITION AND CONSUMER COMMISSION
ApplicantAND: COLES SUPERMARKETS AUSTRALIA PTY LTD (ACN 004 189 708)
First RespondentGROCERY HOLDINGS PTY LTD (ACN 007 427 581)
Second Respondent
JUDGE:
GORDON J
DATE OF ORDER:
22 DECEMBER 2014
WHERE MADE:
MELBOURNE
THE COURT NOTES THAT:
1.The First Respondent (Coles) and the Second Respondent (GHPL) have given an undertaking to the Applicant pursuant to s 87B of the Competition and Consumer Act 2010 (Cth) (Act) relating to each of the suppliers named in the Statement of Claim in these proceedings.
THE COURT DECLARES THAT:
Austech
2.In June 2011, in trade or commerce and in connection with the acquisition of grocery products from Austech Products Pty Ltd (Austech), Coles, by demanding payments of $25,845 and $15,516.74 towards Coles’ profit where this had not been the subject of prior agreement between either Coles or GHPL and Austech and the payments were attributable to issues that arose before Austech owned the relevant product, engaged in conduct that was in all the circumstances unconscionable in contravention of s 22 as it then stood of Sch 2 of the Act (Australian Consumer Law).
3.In June 2011, in trade or commerce and in connection with the acquisition of grocery products from Austech, Coles by:
3.1.demanding a $5,700 retrospective payment for the cost to Coles of waste in relation to Austech’s products;
3.2.requiring a response to that demand within hours, where the payment was not the subject of prior agreement; and
3.3.using a purported profit gap claim as leverage in the negotiations,
engaged in conduct that was in all the circumstances unconscionable in contravention of s 22 as it then stood of the Australian Consumer Law.
4Between July and November 2011, in trade or commerce and in connection with the acquisition of grocery products from Austech, Coles, by refusing to cease deducting and retaining payments under an agreement with Austech for deferred rebates which was due to expire, engaged in conduct that was in all the circumstances unconscionable in contravention of s 22 as it then stood of the Australian Consumer Law.
Oates
5.In June and July 2011, in trade or commerce and in connection with the acquisition of grocery products from E. D. Oates Pty Ltd (Oates), Coles, by demanding and processing a payment of $246,000 towards Coles’ profit, which was outside terms and conditions and without the agreement of Oates, engaged in conduct that was in all the circumstances unconscionable in contravention of s 22 as it then stood of the Australian Consumer Law.
6.Between July 2011 and December 2011, in trade or commerce and in connection with the acquisition of grocery products from Oates, Coles, by refusing to repay the monies referred to in paragraph 5 of this Order, and by retaining those monies, engaged in conduct that was in all the circumstances unconscionable in contravention of s 22 as it then stood of the Australian Consumer Law.
Colonial Farm
7.Between October and November 2011, in trade or commerce and in connection with the acquisition of grocery products from Colonial Farm (Aust.) Pty Ltd (Colonial Farm), Coles, by requiring an agreement by which Colonial Farm would pay for 100% of the cost of waste in relation to Colonial Farm’s products in circumstances where Coles was aware that Colonial Farm was in financial difficulty and did not take into account Colonial Farm’s explanation that its products were not appropriate for a 100% waste agreement, engaged in conduct that was in all the circumstances unconscionable in contravention of s 22 as it then stood of the Australian Consumer Law.
Bayview
8.In October and November 2011, in trade or commerce and in connection with the acquisition of grocery products from Bayview Seafoods Pty Ltd (Bayview), Coles, by requiring an agreement by which Bayview would pay for 100% of the cost of waste in relation to Bayview’s products in circumstances where Coles was aware that Bayview was in financial difficulty and did not take into account Bayview’s explanation of the cause of the waste, engaged in conduct that was in all the circumstances unconscionable in contravention of s 22 as it then stood of the Australian Consumer Law.
9.In October and November 2011, in trade or commerce and in connection with the acquisition of grocery products from Bayview, Coles, by requiring and accepting a payment from Bayview for late delivery of Bayview’s products of $30,500 where this had not been the subject of prior agreement with Bayview, engaged in conduct that was in all the circumstances unconscionable in contravention of s 22 as it then stood of the Australian Consumer Law.
Benny’s
10.Between August and November 2011, in trade or commerce and in connection with the acquisition of grocery products from Benny’s Confectionery Pty Ltd (Benny’s), Coles by, on two occasions, imposing penalties on Benny’s for short or late delivery of Benny’s products totalling $1,639 without notice to or prior agreement with Benny’s, engaged in conduct that was in all the circumstances unconscionable in contravention of s 22 as it then stood of the Australian Consumer Law.
11.Between August and November 2011, in trade or commerce and in connection with the acquisition of grocery products from Benny’s, Coles, by refusing to repay the penalties referred to in paragraph 10 of this Order, engaged in conduct that was in all the circumstances unconscionable in contravention of s 22 as it then stood of the Australian Consumer Law.
THE COURT ORDERS THAT:
12.Coles pay the Commonwealth of Australia, within 30 days of the date of this Order, pecuniary penalties pursuant to s 224 of the Australian Consumer Law, in respect of the contraventions declared in paragraphs 2 to 11 of this Order, as follows:
12.1.in respect of the contravention declared in paragraph 2 of this Order, the sum of $650,000;
12.2.in respect of the contravention declared in paragraph 3 of this Order, the sum of $500,000;
12.3.in respect of the contravention declared in paragraph 4 of this Order, the sum of $650,000;
12.4.in respect of the contravention declared in paragraph 5 of this Order, the sum of $650,000;
12.5.in respect of the contravention declared in paragraph 6 of this Order, the sum of $900,000;
12.6.in respect of the contravention declared in paragraph 7 of this Order, the sum of $550,000;
12.7.in respect of the contravention declared in paragraph 8 of this Order, the sum of $550,000;
12.8.in respect of the contravention declared in paragraph 9 of this Order, the sum of $650,000;
12.9.in respect of the contravention declared in paragraph 10 of this Order, the sum of $600,000;
12.10.in respect of the contravention declared in paragraph 11 of this Order, the sum of $600,000.
13.Coles pay the Applicant, within 30 days of the date of this Order, a contribution towards its costs of and incidental to these proceedings in the sum of $250,000, and otherwise there be no order as to costs.
14.The proceeding otherwise be dismissed.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011 (Cth).
1.
INDEX
2.
Contents
Par
1
INTRODUCTION
[1]
1.1 The Proceedings
[3]
2
VID 253 OF 2014 – THE ARC PROCEEDING
2.1 Background
[12]
2.1.1 Coles’ market share and power
[13]
2.1.2 Coles’ Trading Arrangements and the ARC rebate
[19]
2.2 Contraventions
2.2.1 Section 22 of the ACL
[34]
2.2.2 Suppliers
[37]
2.2.2.1 Austech
[40]
2.2.2.2 Oates
[45]
2.2.2.3 Paton’s
[51]
2.2.2.4 Stuart Alexander
[57]
2.2.2.5 Tru Blu
[63]
2.3 Principles applicable to relief
2.3.1 Orders sought by agreement
[69]
2.3.2 Declarations
[74]
2.3.3 Penalties
[81]
2.3.3.1 Factors relevant to setting a penalty
[83]
2.3.3.2 Other penalty factors including approach to penalties sought by agreement of the parties
[84]
2.4 Analysis of Proposed Penalties
[87]
2.4.1 Nature, extent and duration of conduct and the circumstances in which conduct took place
2.4.1.1 Extent of the conduct
[89]
2.4.1.2 Background circumstances relating to the contravening conduct
[90]
2.4.1.2.1 Coles general business practices and profit targets
[91]
2.4.1.2.2 Development of the ARC Plan
[93]
2.4.1.2.3 Delivery of the ARC Instructions
[95]
2.4.1.3 Relationship of the background circumstances to specific instances of unconscionable conduct
[96]
2.4.1.4 Nature of the conduct
[97]
2.4.2 Amount of loss caused and profit gained
[107]
2.4.3 Whether the respondent has engaged in similar prior conduct
[110]
2.4.4 Size of contravener, including market share, and its financial position
[111]
2.4.5 The deliberateness of the contravening conduct
[114]
2.4.6 Involvement of senior employees or management
[115]
2.4.7 Culture of compliance and corrective measures in response to contravention
[117]
2.4.8 Co-operation
[122]
2.4.9 Maximum penalties and one transaction principle
[125]
2.4.10 Identifying the penalties for particular contraventions
[129]
2.4.11 Totality principle
[132]
2.4.12 Conclusion on appropriate penalty
[133]
2.5 Costs
[134]
3
VID 609 of 2014 – THE CLAIMS PROCEEDING
3.1 Background
[135]
3.1.1 Coles’ market share and power
[139]
3.1.2 Coles’ Trading Arrangements
[140]
3.1.3 Coles’ Business Practices
[141]
3.1.3.1 Profit gaps
[142]
3.1.3.2 Waste and markdowns
[144]
3.1.3.3 Short or Late Deliveries
[146]
3.2 Contraventions
3.2.1 Section 22 of the ACL
[148]
3.2.2 Suppliers
[149]
3.2.2.1 Austech
[150]
3.2.2.2 Oates
[163]
3.2.2.3 Colonial Farm
[170]
3.2.2.4 Bayview
[176]
3.2.2.5 Benny’s
[185]
3.3 Principles applicable to relief
[194]
3.4 Analysis of proposed penalties
[198]
3.4.1 Nature, extent and duration of conduct and the circumstances in which conduct took place
3.4.1.1 Extent of the conduct
[199]
3.4.1.2 Background circumstances relating to the contravening conduct
[200]
3.4.1.3 Relationship of the background circumstances to specific instances of unconscionable conduct
[201]
3.4.1.4 Nature of the conduct
[202]
3.4.2 Amount of loss caused and profit gained
[211]
3.4.3 Whether the respondent has engaged in similar prior conduct
[215]
3.4.4 Size of contravener, including market share, and its financial position
[216]
3.4.5 The deliberateness of the contravening conduct
[217]
3.4.6 Involvement of senior employees or management
[218]
3.4.7 Culture of compliance and corrective measures in response to contravention
[220]
3.4.8 Co-operation
[222]
3.4.9 Maximum penalties and one transaction principle
[223]
3.4.10 Identifying the penalties for particular contraventions
[226]
3.4.11 Totality principle
[228]
3.4.12 Conclusion on appropriate penalty
[229]
3.5 Costs
[230]
ANNEXURE 1 – VID 253 OF 2014 - Statement of Agreed Facts and Admissions
ANNEXURE 2 – VID 609 OF 2014 - Statement of Agreed Facts and Admissions
ANNEXURE 3 – s 87B Undertaking
IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY
GENERAL DIVISION
VID 253 of 2014
VID 609 of 2014
BETWEEN: AUSTRALIAN COMPETITION AND CONSUMER COMMISSION
ApplicantAND: COLES SUPERMARKETS AUSTRALIA PTY LTD (ACN 004 189 708)
First RespondentGROCERY HOLDINGS PTY LTD (ACN 007 427 581)
Second Respondent
JUDGE:
GORDON J
DATE:
22 DECEMBER 2014
PLACE:
MELBOURNE
REASONS FOR JUDGMENT
1. INTRODUCTION
Coles (collectively the First and Second Respondents) is the second largest retailer of grocery products in Australia. Coles engaged in unconscionable conduct in its dealings with a number of suppliers of products that it sold. 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 now admits that its conduct was contrary to law and involved serious breaches of s 22 of the Australian Consumer Law (ACL) as it then stood in Sch 2 to the Competition and Consumer Act 2010 (Cth) (Act), meriting serious punishment.
Coles and the applicant (the ACCC), have reached agreement as to the relief they submit is appropriate to be sought from the Court to resolve the proceedings. As will be explained, Coles and ACCC have agreed that Coles should pay penalties totalling $10 million, should pay $1.25 million towards the ACCC’s costs and should establish a system that will permit those harmed by Coles’ conduct to recover compensation. 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. In light of Coles’ admissions and acknowledgement, the time at which they were made and the other features of the orders upon which the parties agree (including in particular the arrangements for access to compensation), orders will be made substantially in the terms agreed by the parties.
1.1 The Proceedings
The ACCC filed two proceedings against Coles.
The first proceeding (VID 253 of 2014) (the ARC Proceeding) was commenced by the ACCC on 5 May 2014 following an investigation into dealings between Coles and what were called Tier 3 Suppliers. There were approximately 220 Tier 3 Suppliers, being suppliers where the annual sum spent by Coles on acquiring that supplier’s grocery products was generally greater than $3 million and for whom Coles’ documents stated Coles represented a “very significant part” of the supplier’s business: Annexure 1, par 27.
The ACCC alleged, and Coles has now accepted, that Coles contravened s 22 of the (then) ACL in relation to five Tier 3 Suppliers when Coles made demand for payment of an Active Retail Collaboration rebate (the ARC rebate) in the course of its Active Retail Collaboration Program (ARC). The ARC rebate was a payment made from a supplier to Coles, calculated as a percentage of the price Coles paid for the products and deducted by Coles from monies owed to the supplier for products that it had already supplied to Coles.
Coles admits that the conduct disclosed in a statement of agreed facts and admissions (SoAFA), set out in Annexure 1 to these reasons for judgment, was unconscionable and contrary to law. The facts agreed to, and the admissions made, in the SoAFA are made pursuant to s 191 of the Evidence Act 1995 (Cth) (Evidence Act) for the purposes of the ARC Proceeding, and are admissions upon which the Court may rely to pronounce judgment and make orders. It will be necessary to return to consider those facts and admissions.
Coles and the ACCC reached agreement as to the terms of relief they contended appropriate to be sought from the Court to resolve the ARC Proceeding whilst acknowledging that the question of relief is for the Court to determine in its discretion. In general terms, the ACCC and Coles asked that the Court make declarations of contraventions pursuant to s 21 of the Federal Court of Australia Act 1976 (Cth) (Federal Court Act), order payment by Coles of pecuniary penalties totalling $3,700,000 pursuant to s 224 of the ACL and order payment by Coles of a contribution to the ACCC’s costs in the amount of $1 million pursuant to s 43 of the Federal Court Act.
The second proceeding (VID 609 of 2014) (the Claims Proceeding) was commenced by the ACCC on 16 October 2014. In the Claims Proceeding, the ACCC alleged that Coles, by its conduct in relation to its dealings with five named suppliers, contravened s 22 of the (then) ACL. In general terms, that conduct involved Coles seeking payments from those suppliers outside of the terms of the arrangements negotiated between the supplier and Coles. The payments demanded by Coles were for so called profit gaps, waste and markdowns and short or late deliveries and were deducted by Coles from monies due to be paid to that supplier for products that it had already supplied to Coles. Coles now admits that it had no reasonable basis for making the claims that it made and that conduct (disclosed in a separate SoAFA, set out in Annexure 2 to these reasons for judgment) was unconscionable and contrary to law. The facts agreed to and the admissions made in that SoAFA were again made pursuant to s 191 of the Evidence Act for the purposes of the Claims Proceeding, and are admissions upon which the Court may rely to pronounce judgment and make orders. It will be necessary to return to consider those facts and admissions.
Coles and the ACCC reached agreement as to the terms of relief they contended appropriate to be sought from the Court to resolve the Claims Proceeding whilst again acknowledging that the question of relief is for the Court to determine in its discretion. In general terms, the ACCC and Coles asked that the Court make declarations of contraventions pursuant to s 21 of the Federal Court Act, order payment by Coles of pecuniary penalties totalling $6,300,000 pursuant to s 224 of the ACL and order payment by Coles of a contribution to the ACCC’s costs in the amount of $250,000 pursuant to s 43 of the Federal Court Act.
In relation to both proceedings, Coles has provided an undertaking under s 87B of the Act. It is Annexure 3 to these reasons for judgment. The undertaking is an important element of Coles’ agreement with the ACCC and the Court’s assessment of the relief the parties seek by agreement. It will be necessary to consider that undertaking later in these reasons for judgment.
Each proceeding will be considered in turn. For each proceeding, the reasons for judgment will address the nature and background to that proceeding, the admitted contraventions and the applicable principles in relation to the relief sought. The reasons will then consider the appropriateness of the proposed declarations of contravention and the pecuniary penalties.
2. VID 253 OF 2014 – THE ARC PROCEEDING
2.1 Background
The following summary is sourced from, and cross referenced to, the SoAFA in Annexure 1. The contravening conduct occurred from about 1 April 2011 to about 31 December 2011 (the ARC relevant period): Annexure 1, par 3.
2.1.1Coles’ market share and power
During the ARC relevant period, Coles carried on business, in trade or commerce, as a supermarket retailer. Coles engaged in a business of acquiring grocery products from suppliers, and selling those products to customers in Australia through Coles’ retail stores (the Coles business): Annexure 1, pars 4-6. Coles referred, and continues to refer, to the steps and infrastructure involved in acquiring grocery products for retail sale from suppliers and distributing them to Coles’ retail stores for display and sale as its Supply Chain: Annexure 1, par 7. During the ARC relevant period, Coles supplied approximately 30% of the grocery products supplied for retail sale to customers in Australia. Together with Woolworths, Coles supplied approximately 60% to 70% of the grocery products for retail sale to customers in Australia: Annexure 1, par 9.
The Coles business had revenue in the order of $22.1 billion for the financial year ending 30 June 2011 and in the order of $23.3 billion for the year ending 30 June 2012: Annexure 1, par 10.
The Coles business was, and continues to be, structured by reference to groups of similar or related grocery products (General Categories): Annexure 1, pars 11-13. In that structure:
(1)Each General Category was managed by a General Manager (GM);
(2)Within each General Category, the Coles business was managed by reference to smaller groups of similar or related grocery products (Business Categories);
(3)Each Business Category was managed by a Business Category Manager (BCM);
(4)Each BCM reported to a GM;
(5)Within each Business Category, the Coles business was managed by reference to smaller groups of similar or related products (Categories);
(6)Each Category was managed by a Category Manager (CM); and
(7)Each CM reported to a BCM.
The GMs and BCMs were Coles’ Senior Managers, and together with the CMs acted on behalf of Coles in relation to the contravening conduct.
Coles’ suppliers range from large multinational companies to very small Australian suppliers. By about August 2011, Coles had created three categories of suppliers – Tier 1 Suppliers, Tier 2 Suppliers and Tier 3 Suppliers. The Tier 1 Suppliers were identified by Coles as its largest suppliers with the most complex supply chains, and included Nestle, General Mills and Procter & Gamble. The Tier 2 Suppliers were identified by Coles as large suppliers with “simple” supply chains. As noted earlier, the Tier 3 Suppliers comprised approximately 220 suppliers. Those suppliers were identified by Coles as, and believed by Coles to be, its “smaller” suppliers in terms of the annual sum spent by Coles on acquiring the supplier’s grocery products (the COGS) as compared to the annual sum spent by Coles on acquiring grocery products from Tier 1 and Tier 2 suppliers, were suppliers whose COGS were generally greater than $3 million and were suppliers for whom Coles’ documents stated Coles represented a “very significant part” of the supplier’s business: Annexure 1, pars 24-27.
Many of Coles’ smaller suppliers have total annual revenue which represents less than a fraction of one per cent of Coles’ annual revenue, including the Tier 3 Suppliers the subject of the admitted contraventions: Annexure 1, par 10.
For the purpose of these admitted contraventions, the Tier 3 Suppliers were:
(1)Austech Products Pty Ltd (Austech);
(2)E.D. Oates Pty Ltd (Oates);
(3)Paton’s Macadamia Plantations Pty Ltd (Paton’s);
(4)Stuart Alexander & Co Pty Ltd (Stuart Alexander); and
(5)Tru Blu Beverages Pty Ltd (Tru Blu).
2.1.2Coles’ Trading Arrangements and the ARC rebate
During the ARC relevant period, Coles acquired grocery products for retail sale from its suppliers pursuant to arrangements negotiated between Coles and each supplier (Trading Arrangements): Annexure 1, par 14. Most of the conditions relating to the acquisition by Coles of grocery products from a supplier, including whether Coles would continue to acquire products from that supplier, were determined by representatives of Coles: Annexure 1, par 17.
The Trading Arrangements required that Coles be paid various rebates by the suppliers on an ongoing basis. Coles’ conduct in relation to the incorporation of the ARC rebate into the Trading Arrangements for a supplier is the subject of the ARC Proceeding. The nature of a rebate, and the ARC rebate in particular, has been described earlier: see [5] above and Annexure 1, par 16.
By about 9 September 2011, Coles determined that the ARC rebate would be divided into two components (Annexure 1, pars 23 and 29):
(1)An amount said to be attributed by Coles to the value to the supplier from Coles changing its ordering patterns to order grocery products from the supplier in more economically efficient ordering quantities (EOQ ordering); and
(2)An amount said to be attributed by Coles to the value to the supplier of data sharing on an internet-based “Supplier Portal” and associated changes of 35 day order plan, nine week sales forecast, six week promotional lock-down and 12 week notice for product deletion (data sharing).
By about 10 October 2011, Coles had determined that the ARC rebate to be paid by Tier 3 Suppliers would be the sum of a data sharing component of 0.7% of the price Coles paid for a supplier’s grocery products and an EOQ ordering component fixed at a percentage amount of the price Coles paid for a supplier’s grocery products that equated to the value Coles attributed to the supplier of EOQ ordering: Annexure 1, par 31.
Coles calculated the rebate for EOQ ordering by:
(1)Making a series of assumptions about Tier 3 Suppliers’ activities when picking a pallet and delivering the pallet to Coles;
(2)Attributing costs to each of those activities based on Coles’ own costs; and
(3)Inserting data about those activities, historical ordering patterns and costs into a standard formula that was used for all Tier 3 Suppliers regardless of each Tier 3 Supplier’s individual circumstances.
Coles set a target of $16 million for the amount of money it would seek to obtain in ARC rebates from Tier 3 Suppliers in the financial year ended 30 June 2012: Annexure 1, pars 32-33.
By about 14 October 2011, Coles had developed a plan for applying ARC to Tier 3 Suppliers (the Tier 3 ARC Plan). The Tier 3 ARC Plan was approved by Senior Managers: Annexure 1, pars 34 and 36. The Tier 3 ARC Plan was initially implemented by a CM. If necessary, action would be escalated to a BCM or GM. The Tier 3 ARC Plan involved a number of steps. The steps were deliberate, orchestrated and relentless. The steps were described in the following terms (Annexure 1, par 34):
34.1. CMs would:
34.1.1.on or around 17 or 18 October 2011, seek the agreement of each Tier 3 Supplier to make ongoing payments to Coles by the incorporation of the ARC rebate into their Trading Arrangements with Coles (referred to by Coles, and in the remainder of this document, as ‘the Ask’);
34.1.2.deliver the Ask in accordance with a standardised script provided by Coles (the Script);
34.1.3.respond to questions from Tier 3 Suppliers about the benefits that were said to flow to them from data sharing and EOQ ordering using a set of prescribed answers;
34.1.4.at their discretion, provide the Supplier with a two-page document that was in a standardised form and purported to explain the basis on which the ARC rebate was calculated (the Background Materials);
34.1.5.at their discretion, provide Suppliers with a Supplier Portal information pack which explained some features of the portal;
34.1.6.record the agreement of Tier 3 Suppliers to the Ask in an executed amended version of the Supplier’s Trading Terms incorporating the ARC rebate on an ongoing basis (the Revised Trading Terms);
34.1.7.not have the authority to negotiate on the amount of the ARC rebate with the Tier 3 Supplier but could escalate the negotiation to a more senior person within Coles;
34.1.8.seek to have Tier 3 Suppliers agree to the Ask within a number of days;
34.1.9if the CM could not obtain the agreement of a Tier 3 Supplier to the Ask, notify the Tier 3 Supplier that its position on the Ask would be ‘escalated’ to a BCM.
34.2.if a CM could not obtain the agreement of a Tier 3 Supplier to the Ask, responsibility for obtaining the Tier 3 Supplier’s agreement was to be ‘escalated’ from the CM to the BCM to whom the CM reported;
34.3.the BCM to whom responsibility for obtaining the Supplier’s agreement to the Ask had been ‘escalated’ had authority to accept agreement from the Tier 3 Supplier to the Ask in circumstances where the amount of the ARC rebate the Supplier agreed to pay was less than the amount originally sought from the Supplier;
34.4.if a BCM could not obtain the agreement of a Tier 3 Supplier, the BCM was to consider:
34.4.1.notifying the Supplier that its position on the Ask would be escalated within Coles, such as to the GM to whom the BCM reported;
34.4.2.escalating the Tier 3 Supplier’s position within Coles, such as to the GM to whom the BCM reported.
34.5.GMs had authority to accept an agreement by a Tier 3 Supplier in circumstances where the amount of the ARC rebate the Supplier agreed to pay was less than the amount originally sought from the Supplier;
34.6.‘escalation’ of a Supplier’s refusal of the Ask involved the BCM or GM to whom the matter had been elevated making contact with the Tier 3 Supplier in an attempt to secure the Supplier’s agreement (Escalation).
The Script (identified in the extract in [24] above) contained statements to the effect that Coles had made changes to its Supply Chain, the changes Coles made to its Supply Chain would be of benefit to the supplier identified in the Script, and Coles had identified and calculated savings to that supplier’s business in respect of data sharing and EOQ ordering: Annexure 1, par 37. The Background Materials contained statements to the effect that data sharing would lead to value to the supplier of well over 0.7% of the price Coles paid for the supplier’s grocery products and EOQ ordering, where applicable to the supplier, would lead to value to the supplier of at least a specified percentage of the price Coles paid for the supplier’s grocery products: Annexure 1, par 38.
For the reasons that follow, the Tier 3 ARC Plan and, in particular, the Script and Background Materials, were contrary to law. In putting forward the Script and the Background Materials, Coles had attributed a value to a data sharing benefit that it considered would apply to all Tier 3 Suppliers taken as a whole, but had not identified or calculated any particular savings to any individual Tier 3 Supplier’s business, and had calculated the value of EOQ ordering by the method at [23] above but had not taken any steps to establish whether its assumptions reflected the actual value of EOQ ordering to any individual Tier 3 Supplier’s business: Annexure 1, par 39. In addition, the Script and the Background Materials did not contain information that explained or justified the basis on which the data sharing or EOQ ordering components of the ARC rebate had been determined by Coles: Annexure 1, par 40.
The CMs and the BCMs then attended training and were instructed to act in accordance with the Tier 3 ARC Plan: Annexure 1, par 41. For example, they were told (Annexure 1, par 42):
42.1 this is not optional for suppliers;
42.2.Coles ‘needed’ the CMs to achieve its $16 million target and that this was Coles’ ‘one off chance’ to close [its profit] gap at scale’;
42.3.they would be given a Script to follow and provided with Background Materials and FAQs to be used in the Tier 3 ARC process;
42.4.they were to finalise trading terms with each Tier 3 supplier, incorporating an ARC rebate, within two to three days of making the Ask;
42.5.if a supplier did not agree to pay an ARC rebate within one to two days, the CM or BCM was to consider using commercial leverage;
42.6. various prizes would be awarded to CMs and BCMs who ‘landed’ suppliers.
The training included presentations by Senior Managers.
The Tier 3 ARC Plan, as its core, was deliberate, orchestrated and relentless. As will be seen, its implementation by the CMs and the BCMs was also deliberate, orchestrated and relentless.
By about 14 October 2011, the CMs and BCMs had been provided with materials which directed their implementation of the Tier 3 ARC Plan: Annexure 1, par 43. The CMs had been provided with a list of the Tier 3 Suppliers to whom they were to deliver the Ask, as defined in the extract in [24] above. The BCMs had been provided with a list of the Tier 3 Suppliers to whom the CMs that reported to them were to deliver the Ask. CMs and BCMs had both been given a version of the Script for use by each CM in relation to each of the Tier 3 Suppliers, each of which contained the statements referred to in [25] above. The front page contained certain details concerning the supplier, including the supplier’s name, its supplier ID number, the CM and the BCM responsible for the supplier. The second page contained the amount of the ARC rebate that was to be sought from the particular supplier.
CMs and BCMs had also been given access to a version of the Background Materials for use by each CM in relation to each Tier 3 Supplier, each of which contained the statements referred to in [25] above, the name of the supplier and the amount of the ARC rebate that was to be sought from the supplier. CMs had been given access to revised trading terms for each Tier 3 Supplier to whom they were to deliver the Ask, which included the ongoing payments sought by way of the ARC rebate. BCMs had been given access to revised trading terms for each Tier 3 Supplier to whom the CMs who reported to them were to deliver the Ask, which included the ongoing payments sought by way of the ARC rebate: Annexure 1, par 43.
When the Tier 3 ARC Plan was implemented from 17 October 2011, Coles (Annexure 1, par 45):
(1)Had not consulted with any Tier 3 Supplier regarding the actual value of data sharing to the Tier 3 Supplier or the actual value of EOQ ordering to the Tier 3 Supplier;
(2)Had not identified or calculated any particular savings to any particular Tier 3 Supplier’s business in respect of data sharing;
(3)Had not validated the assumptions it had made about the value of EOQ ordering to any particular Tier 3 Supplier with that Tier 3 Supplier; and
(4)Had commenced negotiations with 18 of its Tier 1 and Tier 2 Suppliers about the amounts that those suppliers would pay to Coles in connection with the ARC program and only five of the 18 Tier 1 and Tier 2 Suppliers had agreed to pay any ARC rebate, and all for amounts below 0.7%.
Coles now accepts that by reason of the matters in [31] above, it should not have asserted to any Tier 3 Supplier that a 0.7% data sharing component of the ARC rebate reflected the actual value to that Tier 3 Supplier of data sharing and should not have made an assertion to any Tier 3 Supplier about the actual value of EOQ ordering to that Tier 3 Supplier: Annexure 1, par 46.
Against that background, it is appropriate to turn to the five admitted contraventions.
2.2 Contraventions
2.2.1Section 22 of the ACL
Section 22 of the ACL (as it stood from 1 January to 31 December 2011, i.e. during the ARC relevant period) extended the unconscionable conduct provisions of the ACL to business transactions. It provided, relevantly, that a person must not, in trade or commerce, in connection with the acquisition or possible acquisition of goods from another person (other than a listed public company) engage in conduct that is, in all the circumstances, unconscionable.
Section 22(3) (as it stood during the ARC relevant period) set out a non-exhaustive series of considerations to which the Court may have regard for the purpose of determining whether Coles engaged in unconscionable conduct in relation to each of the Tier 3 Suppliers the subject of the admitted contraventions. Those considerations include, relevantly:
(1)The relative strengths of the bargaining positions of Coles and each supplier: s 22(3)(a);
(2)Whether each supplier was able to understand any documents relating to the acquisition or possible acquisition of their goods by Coles: s 22(3)(c);
(3)Whether any undue influence or pressure was exerted on, or any unfair tactics were used against, each supplier by Coles in relation to the acquisition or possible acquisition of the supplier’s goods by Coles: s 22(3)(d); and
(4)The extent to which Coles was willing to negotiate the terms and conditions of the contract with each supplier: s 22(3)(j)(i).
Courts have for some time characterised unconscionable conduct as conduct that is clearly unfair or unreasonable, or serious misconduct: see Cameron v Qantas Airways Ltd (1995) 55 FCR 147 at 179 and Hurley v McDonalds Australia Ltd [1999] FCA 172 at [22]. Recently, in Australian Competition & Consumer Commission v Lux Distributors PtyLtd [2013] FCAFC 90 at [41] the Court stated that “unconscionability” means “something not done in good conscience”. The Court went on to describe “unconscionability” as “conduct against conscience by reference to the norms of society that is in question” and that the norm “must be understood and applied in the context in which the circumstances arise”. It is against that test or description that the conduct is to be assessed.
2.2.2Suppliers
Coles admits that during the ARC relevant period, it engaged in conduct, which was, in all of the circumstances, unconscionable in contravention of s 22 of the ACL, in relation to each of the Tier 3 Suppliers identified in [18] above.
The admitted contravention for each supplier will be considered in turn. As will become apparent, Coles’ conduct in relation to the suppliers had some recurring themes and actions. However, it also adopted certain tactics in relation to particular suppliers.
The recurring themes can be described as follows. Coles demanded that suppliers pay rebates to it. The rebates were amounts calculated by reference to past orders: orders that had been made and delivered. Coles pressed for speedy answers to its demands, often pointing to adverse commercial consequences it could and would impose on a supplier who did not agree. That conduct was unconscionable.
2.2.2.1Austech
Introduction and conduct
Austech manufactures a range of household consumer products under the Orange Power, Aware, Actizyme and Stain Magic brands, which it supplies primarily to supermarkets. Coles acquired ten household consumer products from Austech for sale in Coles’ retail stores. Each product was sold by Coles under brands associated with Austech. The products acquired from Austech were part of the range acquired by Coles’ Homecare Business Category: Annexure 1, pars 111-112.
During the ARC relevant period, Coles was in a substantially stronger bargaining position than Austech, in particular because Coles represented a significant proportion of the sales of Austech’s products, Coles determined whether it would continue to acquire grocery products from Austech and whether it would substitute grocery products it was acquiring from Austech with products acquired from another supplier, and due to the matters set out in Annexure 1, par 17.
The following aspects of Coles’ admitted conduct are set out in detail in Annexure 1, pars 111-127: Coles’ admitted conduct prior to and during the Austech Ask, Austech’s response to the Austech Ask, Coles’ admitted threat to Austech and Austech’s agreement to the Austech Ask. It is that conduct which provides the foundation for the following findings of contravention.
Finding of contravention of s 22 of the ACL
In October 2011, Coles, in trade or commerce, in connection with the acquisition of grocery products from Austech, engaged in conduct that was, in all of the circumstances, unconscionable in contravention of s 22 of the ACL (as in force during the ARC relevant period). That unconscionable conduct involved Coles:
(1)Requiring Austech to make an agreement to pay an ongoing rebate to it, and making threats of commercial consequences to Austech if Austech did not, namely that Coles would (i) provide certain ranging information requested by Austech but only after Austech agreed to pay the ongoing rebate and (ii) cease giving assistance to Austech from Coles’ replenishers;
(2)Refusing to take into account the reasons given to Coles by Austech as to why the ARC rebate would not have the benefit to it that Coles claimed,
in all of the circumstances outlined in Annexure 1, Part III and pars 111 to 127.
Those circumstances included:
(1)Coles being in a substantially stronger bargaining position relative to Austech: Annexure 1, par 113;
(2)Coles failing to disclose sufficient details to enable Austech to understand how Coles had determined the figure of 0.7% for data sharing or the figure of 0.5% for EOQ ordering, which made up the Austech ARC rebate (Annexure 1, pars 117.3 and 121.3) and how the Austech ARC rebate reflected the value to Austech of data sharing: Annexure 1, par 127.1;
(3)Coles exerting undue pressure and unfair tactics on Austech by:
(a)informing Austech that it was required to agree to the Austech Ask: Annexure 1, par 117.2.4;
(b)making repeated requests for a response to the Austech Ask from Austech despite the matters in (2) above: Annexure 1, par 121; and
(c)threatening Austech with commercial consequences as outlined in [43] above, if Austech did not agree to the Austech Ask;
(4)Coles incorrectly asserting that the Austech ARC rebate reflected the value to Austech of data sharing and EOQ ordering in circumstances where it should not have made that assertion because Coles had not (Annexure 1, pars 39, 45, 117.4 and 118):
(a)consulted with Austech regarding the actual value of data sharing or EOQ ordering to Austech;
(b)identified or calculated any particular savings attributable to data sharing for Austech’s business; and
(c)established whether the assumptions it had used to calculate the EOQ ordering component of the rebate reflected the actual value of EOQ ordering to Austech’s business; and
(5)Coles not conducting any informed negotiation with Austech about the value to Austech of data sharing or EOQ ordering: Annexure 1, par 127.2.
2.2.2.2Oates
Introduction and conduct
Oates supplies mostly imported janitorial cleaning products, including chemicals, brushware and mops to Australian retailers and wholesalers. Coles acquired 35 products from Oates for sale in Coles’ retail stores. The products were sold under the Oates brand. The majority of the products Coles acquired from Oates were acquired for its Homecare Business Category: Annexure 1, pars 128-129.
During the ARC relevant period, Coles was in a substantially stronger bargaining position than Oates, in particular because Coles represented a significant proportion of the sales of Oates’ products, Coles determined whether it would continue to acquire grocery products from Oates and whether it would substitute grocery products it was acquiring from Oates with products acquired from another supplier, and due to the matters set out in Annexure 1, par 17.
The following aspects of Coles’ conduct are set out in detail in Annexure 1, pars 131-151: Coles’ admitted conduct prior to and during the Oates Ask, Coles’ admitted follow up to the Oates Ask, Coles’ admitted escalation of the Oates Ask, Coles’ admitted threat to Oates and Oates’ agreement to the Oates Ask. It is that conduct which provides the foundation for the following findings of contravention.
Finding of contravention of s 22 of the ACL
In October 2011, Coles, in trade or commerce, in connection with the acquisition of grocery products from Oates, engaged in conduct that was, in all of the circumstances, unconscionable in contravention of s 22 of the ACL (as in force during the ARC relevant period).
Coles’ unconscionable conduct involved requiring Oates to make an agreement to pay an ongoing rebate to it, and making threats of commercial consequences to it if it did not, namely that if Oates did not sign up to ARC:
(1)This may impact on Coles’ decisions about ranging Oates’ products relative to other suppliers;
(2)There may be risks to promotional activity for Oates’ products; and
(3)Oates would be classified as a ‘transactional’ supplier, which may have implications for ranging,
in all of the circumstances set out in Annexure 1, Part III and pars 128 to 151.
Those circumstances included:
(1)Coles being in a substantially stronger bargaining position relative to Oates: Annexure 1, par 130;
(2)Coles failing to disclose sufficient details to enable Oates to understand how Coles had determined the figure of 0.7% for data sharing or the figure of 0.44% for EOQ ordering, which made up the Oates ARC rebate (Annexure 1, par 136.3) and how the Oates ARC rebate reflected the value to Oates of data sharing: Annexure 1, par 151.1;
(3)Coles exerting undue pressure and unfair tactics on Oates by:
(a)Pressing Oates for a response to the Oates Ask within a short period of time: Annexure 1, pars 136.2.5, 136.2.6, 138.2, 138.3 and 143;
(b)Informing Oates that it was required to agree to the Oates Ask: Annexure 1, para 136.2.7;
(c)Making repeated requests for a response to the Oates Ask from Oates despite the matters in (2) above: Annexure 1, pars 138-140, 143 and 144; and
(d)Threatening Oates with commercial consequences (see [49] above) if Oates did not agree to the Oates Ask: Annexure 1, pars 147.2, 148 and 149.2; and
(4)Coles incorrectly asserting that the Oates ARC rebate reflected the value to Oates of data sharing and EOQ ordering in circumstances where it should not have made that assertion because Coles had not (Annexure 1, pars 39, 45 and 136.4):
(a)Consulted with Oates regarding the actual value of data sharing or EOQ ordering to Oates;
(b)Identified or calculated any particular savings attributable to data sharing for Oates’ business; and
(c)Established whether the assumptions it had used to calculate the EOQ ordering component of the rebate reflected the actual value of EOQ ordering to Oates’ business; and
(5)Coles not conducting any informed negotiation with Oates about the value to Oates of data sharing or EOQ ordering: Annexure 1, par 151.2.
2.2.2.3Paton’s
Introduction and conduct
Paton’s manufactures chocolate coated macadamia nuts and other chocolate coated confectionery for domestic and international customers. Coles acquired six chocolate coated confectionery products from Paton’s for sale in Coles’ retail stores. Five of those products were private label products, which were acquired by Coles for sale under Coles’ own brands. The products were acquired from Paton’s for its Snacks and Beverages, or ‘Impulse’, Business Category (Impulse Business Category): Annexure 1, pars 48-49.
During the ARC relevant period, Coles was in a substantially stronger bargaining position than Paton’s, in particular because Coles represented a significant proportion of the sales of Paton’s products, Coles determined whether it would continue to acquire grocery products from Paton’s and whether it would substitute grocery products it was acquiring from Paton’s with products acquired from another supplier, and due to the matters set out in Annexure 1, par 17.
The following aspects of Coles’ admitted conduct are set out in detail in Annexure 1, pars 51-67: Coles’ admitted conduct prior to and during the Paton’s Ask, Paton’s response to the Paton’s Ask, including Coles providing revised Paton’s trading terms to Paton’s, Coles’ admitted escalation of the Paton’s Ask, Coles’ admitted threat to Paton’s and Paton’s agreement to the Paton’s Ask. It is that conduct which provides the foundation for the following findings of contravention.
Finding of contravention of s 22 of the ACL
In October 2011, Coles, in trade or commerce, in connection with the acquisition of grocery products from Paton’s, engaged in conduct that was, in all of the circumstances, unconscionable in contravention of s 22 of the ACL (as in force during the ARC relevant period).
Coles’ unconscionable conduct involved requiring Paton’s to make an agreement to pay an ongoing rebate to it, and making threats of commercial consequences to it if it did not, namely that Coles:
(1)Would not promote Paton’s products;
(2)Would not acquire new products from Paton’s;
(3)Would not provide Paton’s with forecasting information that had been provided without charge prior to the requirement,
in all of the circumstances set out in Annexure 1, Part III and pars 48 to 67.
Those circumstances included:
(1)Coles being in a substantially stronger bargaining position relative to Paton’s: Annexure 1, par 50;
(2)Coles failing to disclose sufficient details to enable Paton’s to understand how Coles had determined the figure of 0.7% for data sharing or the figure of 0.55% for EOQ ordering, which made up the Paton’s ARC rebate (Annexure 1, pars 56.3, 59.4, 62 and 65.3) and how the Paton’s ARC rebate reflected the value to Paton’s of data sharing: Annexure 1, par 67.1;
(3)Coles exerting undue pressure and unfair tactics on Paton’s by:
(a)Pressing Paton’s for a response to the Paton’s Ask within a short period of time: Annexure 1, pars 56.2.4, 56.2.5, 62.1, 65.1.2;
(b)Informing Paton’s that it was expected to agree to the Paton’s Ask: Annexure 1, par 65.1.1;
(c)Informing Paton’s that the Paton’s ARC rebate was a cost of doing business: Annexure 1, par 62.2;
(d)Making repeated requests for a response to the Paton’s Ask from Paton’s despite the matters in (2) above: Annexure 1, pars 60, 62 and 65; and
(e)Threatening Paton’s with commercial consequences outlined in [55] above if Paton’s did not agree to the Paton’s Ask: Annexure 1, par 65.2;
(4)Coles incorrectly asserting that the Paton’s ARC rebate reflected the value to Paton’s of data sharing and EOQ ordering in circumstances where it should not have made that assertion because Coles had not (Annexure 1, pars 39, 45, 56.4 and 57):
(a)Consulted with Paton’s regarding the actual value of data sharing or EOQ ordering to Paton’s;
(b)Identified or calculated any particular savings attributable to data sharing for Paton’s business; and
(c)Established whether the assumptions it had used to calculate the EOQ ordering component of the rebate reflected the actual value of EOQ ordering to Paton’s business; and
(5)Coles not conducting any informed negotiation with Paton’s about the value to Paton’s of data sharing or EOQ ordering: Annexure 1, par 67.2.
2.2.2.4Stuart Alexander
Introduction and conduct
Stuart Alexander imports, markets and distributes branded products including chocolate, confectionery, chewing gum, salty snacks, beverages, sauces, syrups and tobacco, which it primarily supplies to supermarkets. Coles acquired goods for retail sale in Coles’ retail stores from Stuart Alexander for five different categories, including confectionery products that were acquired by Coles for its Impulse Business Category. The confectionery products that Coles acquired from Stuart Alexander were imported branded confectionery products: Annexure 1, pars 68-69.
During the ARC relevant period, Coles was in a substantially stronger bargaining position than Stuart Alexander, in particular because Coles represented a significant proportion of the sales of Stuart Alexander’s products, Coles determined whether it would continue to acquire grocery products from Stuart Alexander and whether it would substitute grocery products it was acquiring from Stuart Alexander with products acquired from another supplier, and due to the matters set out in Annexure 1, par 17.
The following aspects of Coles’ admitted conduct are set out in detail in Annexure 1, pars 71-92. Coles’ admitted conduct prior to and during the Stuart Alexander Ask, Coles’ admitted escalation of the Stuart Alexander Ask, Coles’ admitted threat to Stuart Alexander, Coles’ admitted provision of revised Stuart Alexander Confectionary trading terms to Stuart Alexander and Coles’ admitted further threats and escalation of the Stuart Alexander Ask. It is that conduct which provides the foundation for the following findings of contravention.
Finding of contravention of s 22 of the ACL
In October 2011, Coles, in trade or commerce, in connection with the acquisition of grocery products from Stuart Alexander, engaged in conduct that was, in all of the circumstances, unconscionable in contravention of s 22 of the ACL (as in force during the ARC relevant period).
Coles’ unconscionable conduct involved requiring Stuart Alexander to make an agreement to pay an ongoing rebate to it, and making threats of commercial consequences to it if it did not, namely that Coles would not acquire new products from Stuart Alexander and would not promote Stuart Alexander’s products, in all of the circumstances set out in Annexure 1, Part III and pars 68 to 92.
Those circumstances included:
(1)Coles being in a substantially stronger bargaining position relative to Stuart Alexander: Annexure 1, par 70;
(2)Coles failing to disclose sufficient details to enable Stuart Alexander to understand how Coles had determined the figure of 0.7% for data sharing or the figure of 0.31% for EOQ ordering, which made up the Stuart Alexander ARC rebate (Annexure 1, pars 76.3, 80 and 84) and how the Stuart Alexander ARC rebate reflected the value to Stuart Alexander of data sharing: Annexure 1, par 92.1;
(3)Coles exerting undue pressure and unfair tactics on Stuart Alexander by:
(a)Pressing Stuart Alexander for a response to the Stuart Alexander Ask within a short period of time: Annexure 1, pars 76.2.4, 85 and 88;
(b)Making repeated requests for a response to the Stuart Alexander Ask from Stuart Alexander despite the matters in (2) above: Annexure 1, pars 79, 83, 85, 88 and 89; and
(c)Threatening Stuart Alexander with commercial consequences (see [61] above) if Stuart Alexander did not agree to the Stuart Alexander Ask: Annexure 1, pars 83 and 88;
(4)Coles incorrectly asserting that the Stuart Alexander ARC rebate reflected the value to Stuart Alexander of data sharing and EOQ ordering in circumstances where it should not have made that assertion because Coles had not (Annexure 1, pars 39, 45, 76.4 and 77):
(a)Consulted with Stuart Alexander regarding the actual value of data sharing or EOQ ordering to Stuart Alexander;
(b)Identified or calculated any particular savings attributable to data sharing for Stuart Alexander’s business; and
(c)Established whether the assumptions it had used to calculate the EOQ ordering component of the rebate reflected the actual value of EOQ ordering to Stuart Alexander’s business; and
(5)Coles not conducting any informed negotiation with Stuart Alexander about the value to Stuart Alexander of data sharing or EOQ ordering: Annexure 1, par 92.2.
2.2.2.5Tru Blu
Introduction and conduct
Tru Blu manufactures, markets and supplies branded and private label carbonated (soft drink) beverages and cordials to retailers in Australia. The majority of the products that Coles acquired from Tru Blu for sale in Coles’ retail stores were private label products, which Tru Blu manufactured for Coles and packaged under Coles’ own brands. These products were acquired by Coles from Tru Blu on an order-to-order basis without a fixed-term contract. The products were acquired from Tru Blu for Coles’ Impulse Business Category: Annexure 1, pars 93-94.
During the ARC relevant period, Coles was in a substantially stronger bargaining position than Tru Blu, in particular because Coles represented a significant proportion of the sales of Tru Blu’s products, Coles determined whether it would continue to acquire grocery products from Tru Blu and whether it would substitute grocery products it was acquiring from Tru Blu with products acquired from another supplier, and due to the matters set out in Annexure 1, par 17.
The following aspects of Coles’ admitted conduct are set out in detail in Annexure 1, pars 96-110: Coles’ admitted conduct prior to and during the Tru Blu Ask, Tru Blu’s response to the Tru Blu Ask, Coles’ admitted threat to Tru Blu and action by Coles, Coles’ admitted further actions by Coles and Tru Blu’s response to the Tru Blu Ask. It is that conduct which provides the foundation for the following findings of contravention.
Finding of contravention of s 22 of the ACL
In October 2011, Coles, in trade or commerce, in connection with the acquisition of grocery products from Tru Blu, engaged in conduct that was, in all of the circumstances, unconscionable in contravention of s 22 of the ACL (as in force during the ARC relevant period).
Coles’ unconscionable conduct involved:
(1)Requiring Tru Blu to make an agreement to pay an ongoing rebate to it, and making threats of commercial consequences to it if it did not, namely that Coles would not meet with Tru Blu and would not continue any contractual negotiations then on foot with Tru Blu; and
(2)Refusing to take into account the reasons given to Coles by Tru Blu why the rebate would not have the benefits to it that Coles claimed,
in all of the circumstances set out in Annexure 1, Part III and pars 93 to 110.
The circumstances included:
(1)Coles being in a substantially stronger bargaining position relative to Tru Blu: Annexure 1, par 95;
(2)Coles failing to disclose sufficient details to enable Tru Blu to understand how Coles had determined the figure of 0.7% for data sharing or the figure of 0.1% for EOQ ordering, which made up the Tru Blu ARC rebate (Annexure 1, pars 99.4, 101 and 108.3) and how the Tru Blu ARC rebate reflected the value to Tru Blu of data sharing: Annexure 1, par 110.1;
(3)Coles exerting undue pressure and unfair tactics on Tru Blu by:
(a)Pressing Tru Blu for a response to the Tru Blu Ask within a short period of time: Annexure 1, par 99.3;
(b)Making repeated requests for a response to the Tru Blu Ask from Tru Blu despite the matters in (2) above: Annexure 1, pars 104.1, 105 and 108; and
(c)Threatening Tru Blu with commercial consequences in [67] above if Tru Blu did not agree to the Tru Blu Ask: Annexure 1, pars 104.3, 105 and 108.2;
(4)Coles incorrectly asserting that the Tru Blu ARC rebate reflected the value to Tru Blu of data sharing and EOQ ordering in circumstances where it should not have made that assertion because Coles had not (Annexure 1, pars 39, 45, 99.5 and 100):
(a)Consulted with Tru Blu regarding the actual value of data sharing or EOQ ordering to Tru Blu;
(b)Identified or calculated any particular savings attributable to data sharing for Tru Blu’s business; and
(c)Established whether the assumptions it had used to calculate the EOQ ordering component of the rebate reflected the actual value of EOQ ordering to Tru Blu’s business; and
(5)Coles not conducting any informed negotiation with Tru Blu about the value to Tru Blu of data sharing or EOQ ordering: Annexure 1, par 110.2.
2.3 Principles applicable to relief
2.3.1Orders sought by agreement
The parties jointly sought the making of particular orders by the Court.
The applicable principles are well established. First, there is a well-recognised public interest in the settlement of cases under the Act: NW Frozen Foods Pty Ltd v Australian Competition & Consumer Commission (1996) 71 FCR 285 at 291. Second, the orders proposed by agreement of the parties must be not contrary to the public interest and at least consistent with it: Australian Competition & Consumer Commission v Real Estate Institute of Western Australia Inc (1999) 161 ALR 79 at [18].
Third, when deciding whether to make orders that are consented to by the parties, the Court must be satisfied that it has the power to make the orders proposed and that the orders are appropriate: Real Estate Institute at [17] and [20] and Australian Competition & Consumer Commission v Virgin Mobile Australia Pty Ltd (No 2) [2002] FCA 1548 at [1]. Parties cannot by consent confer power to make orders that the Court otherwise lacks the power to make: Thomson Australian Holdings Pty Ltd v Trade Practices Commission (1981) 148 CLR 150 at 163.
Fourth, once the Court is satisfied that orders are within power and appropriate, it should exercise a degree of restraint when scrutinising the proposed settlement terms, particularly where both parties are legally represented and able to understand and evaluate the desirability of the settlement: Australian Competition & Consumer Commission v Woolworths (South Australia) Pty Ltd (Trading as Mac’s Liquor) [2003] FCA 530 at [21]; Australian Competition & Consumer Commission v Target Australia Pty Ltd [2001] FCA 1326 at [24]; Real Estate Institute at [20]-[21]; Australian Competition & Consumer Commission v Econovite Pty Ltd [2003] FCA 964 at [11] and [22] and Australian Competition & Consumer Commission v The Construction, Forestry, Mining and Energy Union [2007] FCA 1370 at [4].
Finally, in deciding whether agreed orders conform with legal principle, the Court is entitled to treat the consent of Coles as an admission of all facts necessary or appropriate to the granting of the relief sought against it: Thomson Australian Holdings at 164.
2.3.2Declarations
The Court has a wide discretionary power to make declarations under s 21 of the Federal Court Act: Forster v Jododex Australia Pty Ltd (1972) 127 CLR 421 at 437-8; Ainsworth v Criminal Justice Commission (1992) 175 CLR 564 at 581-2 and Tobacco Institute of Australia Ltd v Australian Federation of Consumer Organisations Inc (No 2) (1993) 41 FCR 89 at 99.
Where a declaration is sought with the consent of the parties, the Court’s discretion is not supplanted, but nor will the Court refuse to give effect to terms of settlement by refusing to make orders where they are within the Court’s jurisdiction and are otherwise unobjectionable: see, for example, Econovite at [11].
However, before making declarations, three requirements should be satisfied:
(1)The question must be a real and not a hypothetical or theoretical one;
(2)The applicant must have a real interest in raising it; and
(3)There must be a proper contradictor:
Forster v Jododex at 437-8.
In this proceeding, these requirements are satisfied. The proposed declarations relate to conduct that contravenes the ACL and the matters in issue have been identified and particularised by the parties with precision: Australian Competition & Consumer Commission v MSY Technology Pty Ltd (2012) 201 FCR 378 at [35]. The proposed declarations contain sufficient indication of how and why the relevant conduct is a contravention of the ACL: BMW Australia Ltd v Australian Competition & Consumer Commission [2004] FCAFC 167 at [35].
It is in the public interest for the ACCC to seek to have the declarations made and for the declarations to be made (see the factors outlined in ACCC v CFMEU at [6]). There is a significant legal controversy in this case which is being resolved. The ACCC, as a public regulator under the ACL, has a genuine interest in seeking the declaratory relief and Coles is a proper contradictor because it has contravened the ACL and is the subject of the declarations. Coles has an interest in opposing the making of them: MSY Technology at [30]. No less importantly, the declarations sought are appropriate because they serve to record the Court’s disapproval of the contravening conduct, vindicate the ACCC’s claim that Coles contravened the ACL, assist the ACCC to carry out the duties conferred upon it by the Act (including the ACL) in relation to other similar conduct, inform the public of the harm arising from Coles’ contravening conduct and deter other corporations from contravening the ACL.
Finally, the facts and admissions in Annexure 1 provide a sufficient factual foundation for the making of the declarations: s 191 of the Evidence Act; Australian Competition & Consumer Commission v Dataline.Net.Au Pty Ltd (2006) 236 ALR 665 at [57]-[59] endorsed by the Full Court in Australian Competition & Consumer Commission v Dataline.Net.Au Pty Ltd (2007) 161 FCR 513 at [92]; Hadgkiss v Aldin (No 2) [2007] FCA 2069 at [21]-[22]; Secretary, Department of Health & Ageingv Pagasa Australia Pty Ltd [2008] FCA 1545 at [77]-[79] and Ponzio v B & P Caelli Constructions Pty Ltd (2007) 158 FCR 543.
For those reasons, declarations of contravention of s 22 of the ACL will be made recording Coles’ unconscionable conduct in relation to Austech ([43]-[44] above), Oates ([48]-[50] above), Paton’s ([54]-[56] above), Stuart Alexander ([60]-[62] above) and Tru Blu ([66]-[68] above).
2.3.3Penalties
Sections 224(1)(a)(i) of the ACL relevantly empowers the Court, in respect of contraventions of provisions of Pt 2-2 (including s 22), to order the contravener to pay such pecuniary penalty in respect of “each act or omission” as the Court determines to be appropriate.
The ACCC and Coles jointly submitted that the Court should make orders imposing pecuniary penalties, pursuant to s 224, upon Coles totalling $3,700,000, in respect of its five admitted contraventions of s 22 of the ACL.
2.3.3.1Factors relevant to setting a penalty
Section 224(2) of the ACL provides that, in determining the appropriate pecuniary penalty, the Court must have regard to all relevant matters including the nature and extent of the act or omission and of any loss or damage suffered as a result of the act or omission, the circumstances in which the act or omission took place and whether the person has previously been found by a court in proceedings under Ch 4 or Pt 5-2 of the ACL to have engaged in any similar conduct. Those mandatory considerations are non-exhaustive.
2.3.3.2Other penalty factors including approach to penalties sought by agreement of the parties
Section 224 of the ACL came into force on 1 January 2011. It was preceded by s 76E of the Trade Practices Act 1974 (Cth) (the TPA) (now the Act) which came into force on 15 April 2010. The principles applied by this Court in determining penalties under s 76 of the TPA apply to penalties under s 76E of the TPA and s 224(2) of the ACL, unless the context of the infringements makes it plain that cannot be so: see Global One Mobile Entertainment Pty Ltd v Australian Competition & Consumer Commission [2012] FCAFC 134 at [114]-[119].
Recently, in Australian Competition & Consumer Commission v Renegade Gas Pty Ltd (trading as Supagas NSW) [2014] FCA 1135 at [74]-[83], I addressed the other considerations that may be relevant to an assessment of a pecuniary penalty. I adopt that analysis. In conclusion, as stated in that judgment at [83]:
I remain of the view … that the role of the Court is to assess what it would do itself based on the facts. What penalty would the Court impose that is proportionate to the gravity of the contravening conduct? There is no prescribed method. The method will invariably vary depending on the facts.
It is against that background that I turn to consider the proposed penalties.
2.4 Analysis of Proposed Penalties
In applying those principles, the ACCC and Coles submitted that the proposed total penalty of $3.7 million is not inadequate or excessive, having regard to all relevant matters.
The maximum penalty for a body corporate for each act or omission that relates to a provision of Pt 2-2 of the ACL, which includes s 22, is $1.1 million. In considering the maximum penalties, Coles is not liable to more than one pecuniary penalty in respect of the same conduct: s 224(4)(b) of the ACL.
2.4.1Nature, extent and duration of conduct and the circumstances in which conduct took place
2.4.1.1Extent of the conduct
The admitted conduct occurred from April 2011 to December 2011. It concerned, and occurred during the course of, Coles’ communications with each of the five suppliers. The ARC rebates (the subject of these contraventions) have continued to apply to the Trading Arrangements of the five suppliers throughout the three year period since December 2011. Therefore, while the admitted contravening conduct itself occurred during a nine month period in 2011, the effects of those contraventions were experienced by each of the five suppliers from 2011 to 2014.
2.4.1.2Background circumstances relating to the contravening conduct
Unconscionable conduct falls to be determined “in all the circumstances”: see Section 2.2.1 above. The conduct admitted by Coles to be unconscionable and in contravention of s 22 of the ACL in relation to each of the five suppliers took place in the context of the circumstances set out in Sections 2.1 and 2.2 above. Particular aspects of those circumstances should be emphasised.
2.4.1.2.1Coles general business practices and profit targets
During the ARC relevant period, Coles set broad financial targets for its General Categories and Business Categories, including profit targets: see Annexure 1, par 19. Achieving profit targets was a significant focus of Coles in the ARC relevant period, and Coles incentivised its CMs and BCMs to meet these targets by way of prizes: see Annexure 1, pars 19 and 42.6.
One way for Coles’ CMs and BCMs to meet profit targets was by demanding or seeking additional payments from suppliers. Coles set aside specific days for this purpose (Annexure 1, par 19.3), and encouraged its CMs and BCMs to seek rebates and additional payments from suppliers. In addition to broad financial targets, Coles also set specific profit targets for particular initiatives. One such initiative was the Tier 3 ARC rebate target: Annexure 1, pars 19 and 33.
2.4.1.2.2Development of the ARC Plan
In or around April 2011, Coles had identified that it could increase its EBIT by identifying opportunities for the recovery from suppliers of cost savings which Coles considered had been, or would be, achieved across its end to end supply chain: Annexure 1, par 21. In about October 2011, Coles introduced the Tier 3 ARC Plan to its CMs and BCMs and conveyed to them that the Tier 3 ARC Plan was a one-off chance for Coles to close its profit gap: Annexure 1, pars 41 and 42.
The Tier 3 ARC Plan, as developed by Coles, was a strategy for Coles to close what it described as a “profit gap” which included the following features:
(1)Seeking payments from its suppliers by way of an ongoing rebate in the suppliers’ Trading Arrangements: Annexure 1, pars 20-23 and 28;
(2)The division of its suppliers into “tiers”, with Tier 3 comprising suppliers considered by Coles to be smaller and for whom Coles’ documents stated that Coles represented a “very significant part” of the supplier’s business: see Section 2.1.1 above and Annexure 1, pars 24-27;
(3)Modification of the method by which Coles would seek payment of the ARC rebate from suppliers, by reference to the size of the supplier: Annexure 1, pars 34-35;
(4)Pre-determined targets of the amount of money it wanted to obtain from suppliers, including $16 million from the Tier 3 Suppliers: Annexure 1, par 33;
(5)Attributing values to the ARC rebate to be paid by each supplier to Coles but without having identified or calculated any such value to any particular Tier 3 Supplier: Annexure 1, pars 31 and 32;
(6)Coles’ CMs and BCMs seeking the ARC rebate from its Tier 3 Suppliers based on the values Coles had attributed to the ARC rebate: Annexure 1, pars 56.1, 76.1, 98, 117.1 and 136.1; and
(7)Conveying those instructions to CMs and BCMs, in the context of the importance of the Tier 3 ARC Plan to Coles: Annexure 1, pars 41-44.
2.4.1.2.3Delivery of the ARC instructions
172.4of the matters set out at paragraph 16 above.
173During the relevant period, the Trading Arrangements between Benny’s and Coles did not include a term that required Benny’s to make a payment to Coles for late or short deliveries.
Penalty for short deliveries
174On 2 August 2011, Coles informed some of its Suppliers in its Confectionery Category that, amongst other things, for any product line that Coles acquired from the Suppliers who received the email that was out of stock in Coles’ distribution centres for over a week, Coles would:
174.1delete the product line, meaning that Coles would no longer acquire the product from the Supplier for sale in Coles’ retail stores; or
174.2maintain the product line in the range available for sale at Coles’ retail stores, but claim $10 per unsupplied carton and delete the product line if it was not supplied to Coles’ Distribution Centres for three weeks.
175On 15 September 2011, Coles informed Benny’s, by email, that:
175.1Benny’s had not supplied 95 cartons to Coles;
175.2Coles would impose a standard rate fine of $10 per carton for each carton that Benny’s did not supply to Coles; and
175.3Coles would raise a claim for $950 from Benny’s.
176The email included a table, which contained, amongst other things, the following information:
176.1the number of cartons that were meant to be included in the order;
176.2the order number;
176.3the date the deliveries referred to in the table were to be made; and
176.4the number of alleged unsupplied cartons.
177On 15 September 2011, Benny’s informed Coles that:
177.1Benny’s had supplied stock as required by Coles;
177.2Benny’s had not previously been advised of, or agreed to, fines for unsupplied cartons;
177.3Benny’s believed that there were errors in the information that Coles was relying on in support of its claim to impose fines for unsupplied cartons;
177.4Benny’s would not accept the claim; and
177.5the per carton fine Coles sought to impose exceeded the margin that Benny’s made on each carton of the product Coles acquired from Benny’s.
178Despite this response from Benny’s, on 16 September 2011 Coles issued Benny’s with a ‘Credit Advice Tax Invoice’ for the amount of $1,045 (GST inclusive), which is $950 (excluding GST).
179On 21 September 2011, without the authority or agreement of Benny’s, Coles deducted $1,045 (GST inclusive) from a remittance due to Benny’s for products that Coles had purchased from Benny’s.
180On 22 September 2011, Coles informed Benny’s that:
180.1Benny’s had not supplied 54 cartons to Coles;
180.2Coles would raise claims for all unsupplied cartons at the rate of $10 per carton; and
180.3Coles would raise a claim for $540 from Benny’s.
181On 22 September 2011, Benny’s:
181.1again informed Coles that Benny’s had not previously been advised of, or agreed to, fines for unsupplied cartons;
181.2advised Coles that Benny’s would not accept the claims, particularly having regard to the cost price of Benny’s products to Coles;
181.3again informed Coles that Benny’s believed there were significant errors in the information that Coles was relying on in support of the claims;
181.4told Coles that the standard rate fine of $10 per carton for all Suppliers was unfair and unreasonable; and
181.5indicated to Coles that Benny’s wanted to meet with Coles to discuss the claims and other matters.
182On 22 September 2011, Coles, by email to Benny’s, stated that the claim referred to in paragraph 180 above, would stand.
183Despite Benny’s request for a meeting with Coles, as referred to in paragraph 181.5 above, Coles did not meet with Benny’s to discuss the claims.
184Between 22 and 27 September 2011, Benny’s made several unsuccessful attempts to contact Coles to discuss the claims for unsupplied cartons.
185On 27 September 2011, Benny’s, by email to Coles, referred to the attempts that Benny’s had made to contact Coles, and informed Coles that:
185.1Benny’s had not previously been advised of, or agreed to, fines for unsupplied cartons;
185.2there were errors in the information that Coles was relying on in support of the claims; and
185.3Benny’s considered the standard rate fine of $10 per carton to be unjustifiable, having regard to the price Coles pays to Benny’s to acquire products from Benny’s.
186On 29 September 2011, Coles told Benny’s that:
186.1the standard rate fine of $10 per carton for all Suppliers applies regardless of the cost of the product to Coles;
186.2the claims raised against Benny’s would stand; and
186.3Coles would continue to raise claims for unsupplied cartons against Benny’s.
187Despite the various responses from Benny’s, on or about 29 September 2011, without the authority or agreement of Benny’s, Coles deducted $594 (GST inclusive) in relation to the claim referred to in paragraph 180 above, from a remittance due to Benny’s for products that Coles had purchased from Benny’s.
188By 11 November 2011, Coles had not provided Benny’s with any further information to substantiate or explain the claims for unsupplied cartons.
189On 11 November 2011, Benny’s requested further information in relation to the claim referred to in paragraph 180 above.
190On 23 November 2011, Coles advised Benny’s that the claim Benny’s had sought further information about was for unsupplied cartons and offered to discuss the matter further with Benny’s.
191On 23 November 2011, Benny’s advised Coles that Benny’s:
191.1wished to discuss the claim referred to in paragraphs 189 and 190 above with Coles; and
191.2required further information about the claim.
192Coles did not respond to these requests.
193Coles retained the money that it had deducted from remittances due to Benny’s in relation to the claims for unsupplied cartons without the authority or agreement of Benny’s.
Conclusion
194Coles admits each of the contraventions in the proposed declarations which are Annexure A to the joint submissions filed in these proceedings.
ANNEXURE 3 – s 87B UNDERTAKING IN VID 253 OF 2014 AND 609 OF 2014
Persons giving this undertaking
This undertaking is given to the Australian Competition and Consumer Commission (ACCC) by Coles Supermarkets Australia Pty Ltd ACN 004 189 708 (Coles) and Grocery Holdings Pty Ltd (ACN 007 427 581) (GHPL) of 800-838 Toorak Road, Hawthorn East in the State of Victoria, for the purposes of s 87B of the Competition and Consumer Act 2010 (Cth) (the Act).
Background
1.Coles carries on business in trade or commerce as a supermarket retailer and supplies grocery products for retail sale to customers in Australia.
2.Coles engages in the business of acquiring grocery products from manufacturers and other suppliers, and selling those products to customers in Australia through Coles’ retail stores.
3.Coles operates retail stores in every Australian State and mainland Territory.
4.The ACCC is currently engaged in two litigation proceedings: VID253/2014 (ARC proceedings) and VID609/2014 (second proceedings) (together ‘the proceedings’) against Coles and GHPL in the Federal Court of Australia in relation to, in broad terms, Coles’ dealings with some of its suppliers in the period December 2010 to December 2011.
5.In the ARC proceedings, the ACCC alleged that Coles engaged in unconscionable conduct in its dealings with certain smaller suppliers (described by Coles as Tier 3 suppliers) in relation to the implementation of its Active Retail Collaboration (ARC) program (consisting of elements including Economic Order Quantities (EOQ) and a supplier portal (The Portal)), in contravention of the Australian Consumer Law.
6.The proceedings have been resolved between the parties, upon admissions made in the Agreed Statements of Facts and Admissions filed in the proceedings, and as part of that resolution Coles and GHPL have agreed to give this undertaking.
Commencement of undertaking
7.This Undertaking comes into effect when:
(a) this Undertaking is executed by Coles and GHPL;
(b) this Undertaking so executed is accepted by the ACCC; and
(c) following the making of orders by the Federal Court in the ARC proceedings (the commencement date).
Undertaking to ARC Renegotiation and Repayment
8.Coles and GHPL undertake, for the purposes of s 87B of the Act, to give effect to the matters set out at paragraphs 9 to 17 below.
9.Within two weeks of the commencement date, Coles will appoint the Honourable Jeff Kennett AC as an Independent Arbiter to undertake the reviews set out below.
10.With respect to each supplier identified by Coles for the purposes of the ARC program introduced to suppliers in October 2011 who Coles described as Tier 3 suppliers, listed in Annexure A to this Undertaking, the Independent Arbiter will:
(a)Retain a partner of an independent accounting firm (the firm), with relevant expertise and appropriate resources, approved by the ACCC and Coles to assist the Independent Arbiter.
(b)Instruct the firm to prepare an analysis of each Tier 3 supplier that identifies the extent to which the supplier has utilised ARC including:
(i)in relation to the Portal, how often and which elements of the Portal each supplier has used since it gained Portal access;
(ii)in relation to EOQs, whether each supplier has been obtaining EOQs at the level indicated by Coles during ARC negotiations.
(c)Within eight weeks of appointment (or a period otherwise agreed between Coles and the ACCC), provide the details and results of the firm’s analysis to each Tier 3 supplier (and to Coles) together with a summary of the amount paid by the Tier 3 supplier to Coles in ARC rebates each financial year.
(d)At the same time as providing the details and results at (c) above, provide the following options (to be available to the Tier 3 suppliers for a period of 6 weeks) to each such Tier 3 supplier, noting that eligibility for any refund of prior payments will be based on the matters set out in paragraphs (e) and (f) below:
(i)Remain in ARC, but initiate a review to be conducted by the Independent Arbiter of eligibility for any refund of prior payments and the rebate to be paid going forward.
(ii)Exit ARC but initiate a review to be conducted by the Independent Arbiter of eligibility for any refund of prior payments. ARC payments would cease immediately and ARC benefits would cease after 6 months. Senior Coles Management, in good faith, will work with the supplier on how it can continue to supply Coles without access to the Portal and EOQ.
(iii)Exit ARC without participation in a review by the Independent Arbiter. ARC payments would cease immediately and ARC benefits would cease after 6 months. Senior Coles Management, in good faith, will work with the supplier on how it can continue to supply Coles without access to the Portal and EOQ.
(iv)Remain in ARC on current terms, without participation in a review by the Independent Arbiter.
(e)Upon election by a Tier 3 supplier requesting a review under 10(d)(i) or (ii) above, the Independent Arbiter will review the circumstances of the supplier and assess whether each supplier should receive a refund and or any adjustment to the rebate. In relation to any review conducted by the Independent Arbiter, the Independent Arbiter will invite the Tier 3 supplier and Coles to provide information and submissions in respect of the assessment and, as appropriate, discuss the assessment with the supplier and Coles. A supplier or Coles may provide any submissions confidentially to the Arbiter. The Arbiter will conduct the review confidentially.
(f)Without limiting the information and submissions referred to in paragraph (e), when determining the eligibility for any refund of prior payments and the rebate to be paid going forward the Independent Arbiter must take into account:
(i)the circumstances of the Tier 3 supplier’s agreement to commence paying the ARC rebate, including the information that was provided by Coles at the time the agreement was made and whether the Tier 3 supplier had an opportunity to decline to participate in ARC or to negotiate the terms of the ARC rebate amount; and
(ii)the benefit in broad terms the Tier 3 supplier considers it has received from access to ARC over and above the arrangements it had with Coles prior to the implementation of ARC.
(g)Any Tier 3 supplier that elects pursuant to paragraph 10(d)(ii) or (iii) to exit ARC may rejoin ARC at any time. Such a supplier may, within 3 months of the election to leave ARC, request that the Independent Arbiter review and assess the ongoing rebate that would be applicable if the supplier had not exited ARC, and thereafter rejoin ARC at its request at the rate determined by the Independent Arbiter.
11.With respect to the suppliers named in the second proceedings, the Independent Arbiter will review the circumstances of the suppliers in respect of whom Coles has made admissions in a Statement of Agreed Facts, and assess, without restriction or limitation, whether each supplier should be paid a refund of relevant payments to Coles or GHPL. This review is to be completed within 3 months from the commencement of the undertaking.
12.The Independent Arbiter may retain any other resources he or she considers necessary or desirable to efficiently conduct the reviews contemplated by this proposal.
13.The Independent Arbiter must complete the review set out in paragraphs 10(d)(i) and (ii) and make a determination within a three month period commencing from the date a Tier 3 supplier elects under either paragraph 10(d)(i) or (ii) above, or in the case of a request under paragraph 10(g) within 3 months of the supplier making that request (in each case unless the supplier and Coles agree to extend the period).
14.Coles and GHPL must provide any information or documents requested by the Independent Arbiter, and will be bound by the determination of the Independent Arbiter in respect of each supplier.
15.At the conclusion of the review process, without revealing the identity of any supplier or information confidential to specific suppliers the Independent Arbiter will report publicly on the outcome of the reviews including on the amount of refunds provided to suppliers in accordance with paragraphs 10(d)(i) and (ii) and 11.
16.Coles or GHPL will pay to each supplier any refund determined by the Independent Arbiter within 28 days of the determination.
17.Coles will bear the costs of the Independent Arbiter and the firm as well as the costs of any additional resources retained by the Independent Arbiter.
Acknowledgments
18.Coles acknowledges that:
18.1the ACCC will make this Undertaking publicly available including by publishing it on the ACCC’s public register of section 87B undertakings on its website;
18.2the ACCC will, from time to time, make public reference to this Undertaking including in news media statements and in ACCC publications; and
18.3this Undertaking in no way derogates from the rights and remedies available to any other person arising from the alleged conduct.
Executed as an Undertaking
Annexure A to s 87B Undertaking by Coles Supermarkets Australia Pty Ltd and Grocery Holdings Pty Ltd - List of Tier 3 Suppliers
SUPPLIER 1. 3M Australia Pty Ltd; 2. 7 Chefs Pty Ltd; 3. A. Clouet (Australia) Pty Ltd; 4. AB World Foods Pty Ltd; 5. Affiliated Sponge Distributors Pty Ltd; 6. Allen Family Trust and Peregrine Trust, trading as Danish Patisserie; 7. Allsep’s Pty Ltd; 8. Anchor Foods Pty Ltd; 9. Arthur Brunt International Foods Co Pty Ltd; 10. Aspen Pharmacare Australia Pty Ltd; 11. Atkins Nutritionals Australia Pty Ltd; 12. Aussie Bodies Pty Ltd, now Vitaco Health Australia Pty Ltd; 13. Austech Products Pty Ltd; 14. Australian Bakels (Pty) Ltd; 15. Australian Beverage Holdings Pty Ltd, trading as Noble Beverages; 16. Australian Char Pty Ltd; 17. Australian Food Industries Pty Ltd; 18. Australian Pet Brands Pty Ltd; 19. Australian Wholefoods Pty Ltd; 20. Bakemark Pty Ltd; 21. Bakery Fresh Pty Ltd; 22. Banquet Desserts Pty Ltd; 23. Barilla Australia Pty Ltd; 24. Bartter Enterprises Pty Ltd; 25. Bayer Australia Ltd; 26. Beiersdorf Australia Ltd; 27. Beijing Soya Bean Products Pty Ltd; 28. Bellamy's Organic Pty Ltd; 29. Bevco Pty Ltd; 30. Bic Australia Pty Ltd; 31. Big Sister Foods Pty Ltd and Miss Muffin Pty Ltd; 32. Biotech Pharmaceuticals Pty Ltd; 33. Bon Food Pty Ltd; 34. Bonds Industries Pty Ltd, trading as Pacific Brands; 35. Borgcraft Pty Ltd; 36. Boundary Bend Olives Pty Ltd, trading as Cobram Estate; 37. Brands RMJ Pty Ltd; 38. Brownes Foods Operations Pty Ltd; 39. Brunnings Garden Products Pty Ltd; 40. Buontempo Enterprises Pty Ltd, trading as Roma Food Products; 41. Cantarella Bros Pty Ltd; 42. Carman’s Fine Foods Pty Ltd; 43. Ceres Natural Foods Pty Ltd, trading as PureHarvest; 44. Challenge Trust, Rico Tea Trust, Davey Family Trust and The Mountain Mist Trust, trading as Madura Tea Estates; 45. Charlie's Group (Australia) Pty Ltd, now the Better Drinks Co Pty Ltd; 46. Church & Dwight (Australia) Pty Ltd; 47. Clorox Australia Pty Ltd; 48. Club Trading & Distribution Pty Ltd; 49. Collins Family Trust and Petric Family Trust, trading as Ivan’s Pies; 50. Cosmex International Pty Ltd; 51. Coty Australia Pty Ltd; 52. Crafty Chef Pty Ltd; 53. Cypress & Sons Pty Ltd; 54. Dejour Sanitary Products Pty Ltd, trading as The Woman’s Room. 55. Diseb Food Group Pty Ltd, trading as Da Vinci Foods Pty Ltd; 56. Dr. Oetker Australia Pty Ltd; (aka Oetker Gruppe) 57. DuluxGroup (Australia) Pty Ltd, trading as Yates; 58. E.D. Oates Pty Ltd; 59. Euronatural Fine Foods Pty Ltd; 60. F. Mayer (Imports) Pty Ltd; 61. Fawcett Bros (NSW) Pty Ltd, now A.C.N 000 907 013 Pty Ltd; 62. FFT International Pty Ltd; 63. Fibrecyle Pty Ltd; 64. Fifya Pty Ltd; 65. Fine Breads of Australia Pty Ltd (under external administration); 66. Freshfood Services Pty Ltd; 67. Freudenberg Household Products Pty Ltd; 68. Frozen Bakery Solutions Pty Ltd, trading as Breadsolutions; 69. Frucor Beverages (Australia) Pty Ltd; 70. Gaspar Nominees Pty Ltd, trading as Bakery Du Jour; 71. Golden North Pty Ltd; 72. Griffins Foods Ltd; 73. Grove Fruit Juice Pty Ltd; 74. Gruma Oceania Pty Ltd; 75. Guzzi’s Pty Ltd; 76. Hansells Food Australia Pty Ltd, formerly Old Fashioned Foods (Australia) Pty Ltd; 77. Harice Pty Ltd; 78. Heritage Fine Chocolates (Aust.) Pty Ltd; 79. Hormel Foods Australia Pty Ltd; 80. Hot Shots (Aust.) Pty Ltd; 81. Hoyt Food Manufacturing Industries Pty Ltd; 82. Huhtamaki Australia Pty Ltd; 83. Hunter Leisure Pty Ltd; 84. International Consolidated Business Pty Ltd; 85. Jalna Dairy Foods Pty Ltd; 86. Jensen’s Choice Foods Pty Ltd, now A.C.N. 006 988 218 Pty Ltd; 87. Juicy Isle Pty Ltd; 88. Kadac Pty Ltd; 89. KAO (Australia) Marketing Pty Ltd, now KAO Australia Pty Ltd; 90. Kikkoman Australia Pty Ltd; 91. Kylie (Australia) Pty Ltd; 92. LA Pottier and LE Pottier, trading as Alinal Health Bread & Selected Foods; 93. La Famiglia Fine Foods Pty Ltd; 94. Laucke Flour Mills Pty Ltd; 95. Laurent Bakery Pty Ltd; 96. Lemnos Foods Pty Ltd; 97. Lenan Corporation Pty Ltd; 98. Leo’s Imports and Distributors Pty Ltd; 99. Libpac Pty Ltd; 100. Logan Farm Pty Ltd; 101. Maggie Beer Products Pty Ltd; 102. Mailton Holdings Pty Ltd, trading as Bernard’s Bakery; 103. Makmur Enterprises Pty Ltd; 104. Manildra Flour Mills Pty Ltd; 105. Manning Valley Free Range Eggs; 106. Marathon Food Industries Pty Ltd; 107. Massel Australia Pty Ltd; 108. Masterpet Australia Pty Ltd; 109. Mattel Pty Ltd; 110. McCormick Foods Australia Pty Ltd; 111. Menora Foods Pty Ltd; 112. Meteor Party Pty Ltd; 113. Minerva Australia Pty Ltd; 114. Mirabella International Pty Ltd; 115. Moo Premium Investments Pty Ltd; 116. Mountain H20 Pty Ltd; 117. Nature’s Care Manufacture Pty Ltd; 118. Nature’s Gift Australia Pty Ltd; 119. Nature’s Organics Pty Ltd; 120. Nerada Tea Pty Ltd; 121. Nice-Pak Products Pty Ltd; 122. Norco Co-operative Ltd; 123. Nova Concepts Australia Pty Ltd; 124. Nudie Foods Australia Pty Ltd; 125. Nutricia Australia Pty Ltd; 126. Nutrisoy Pty Ltd; 127. Nuttelex Food Products Pty Ltd; 128. Ostindo International Pty Ltd; 129. P. & T. Basile Pty Ltd, trading as Basile Imports; 130. Pace Farm Egg Products Pty Ltd; 131. Pactum Australia Pty Ltd, formerly Contract Beverage Packers of Australia Pty Ltd; 132. Pascoe’s Pty Ltd; 133. Passage Foods Pty Ltd; 134. Pasta Master Distribution Pty Ltd; 135. Paton’s Macadamia Plantations Pty Ltd; 136. Peerless Holdings Pty Ltd; 137. Pental Products Pty Ltd; 138. Pep’s Distribution Service Pty Ltd; 139. Philemon Pty Ltd, trading as Waterwheel Industries (under external administration); 140. Pied Piper Pty Ltd, trading as The Pied Piper Fine Foods; 141. Popina (VIC) Pty Ltd; 142. Poseidon Tarama Pty Ltd; 143. Potts Bakeries Pty Ltd, now CGJPG Pty Ltd; 144. Preshafood Limited; 145. Prime Pet Care Pty Ltd, trading as 4 Legs Pet Food Co; 146. Prolife Foods Pty Ltd; 147. Queen Fine Foods Pty Ltd; 148. Rachelli International BV; 149. Real Foods Pty Ltd; 150. Ricci Remand Chocolate Co Pty Ltd, now RR070912 Pty Ltd; 151. Rinoldi Pasta Pty Ltd; 152. Robern Menz (MFG) Pty Ltd; 153. Ross Cosmetics Aust. Pty Ltd; 154. Safcol Australia Pty Ltd; 155. Sargents Pty Ltd; 156. Savion Products Pty Ltd; 157. Scalzo Trading Co Pty Ltd; 158. SFH Baking Products Pty Ltd, trading as Quattro’s Bakehouse & Fine Foods; 159. Soulfresh Pty Ltd; 160. Source Holdings Pty Ltd, trading as Source Food and Drink; 161. SPF Corporation Pty Ltd; 162. Spring Gully Foods Pty Ltd; 163. Stahmann Farms Enterprises Pty Ltd; 164. Steric Trading Pty Ltd; 165. Stuart Alexander & Co Pty Ltd; 166. Swedish Match Australia Pty Ltd, now Scandinavian Tobacco Group Australia Pty Ltd; 167. Sweet Season Pty Ltd, trading as Universal Candy; 168. Swisse Wellness Pty Ltd; 169. Tasti Pty Ltd; 170. The Decor Corporation Pty Ltd; 171. The Heat Group Pty Ltd; 172. The Import Trading Trust, trading Webb Distributors (Universal) Pty Ltd; 173. The Pitruzzello Family Trust, trading as Pantalica Cheese Company Pty Ltd; 174. The Trustee for Atlantic Pacific Trading Trust; 175. The Trustee for Betta Foods Unit Trust, trading as Betta Foods Australia Pty Ltd as trustee for Betta Foods Unit Trust; 176. The Trustee for Bridgewater Poultry Farm No.1 Trust, trading as Bridgewater Poultry Farm Pty Ltd; 177. The Trustee for Encore Tissue (Aust) Unit Trust, trading as Encore Tissue; 178. The Trustee for F & D Family Trust, trading as Dallas International Pty Ltd; 179. The Trustee for Jackel Trading Discretionary Trust, trading as Jackel Pty Limited; 180. The Trustee for Scott Marketing Group, trading as Scott Marketing Group Pty Ltd; 181. The Trustee for The Bickfords Australia Unit Trust, trading as Bickfords Australia Pty Ltd; 182. The Trustee for the Foodtech Unit Trust, trading as Colonial Farm (Rust) Pty Ltd; [sic, (Aust)] 183. The Trustee for The Joss Food Trust, trading as Trialia Foods Australia Pty Ltd; 184. The Trustee for the S & J Goldsworthy Family Trust, trading as Beechworth Honey Pty Ltd; 185. The Trustee for the Tassios Family Trust, trading as Chris’ Greek Dips; 186. The Trustee for Weis Australia Trust, trading as Weis Frozen Foods; 187. Three Threes Condiments Pty Ltd; 188. Trend Laboratories Pty Ltd, trading as Trendpac; 189. Tru Blu Beverages Pty Ltd; 190. True Foods Pty Ltd; 191. Unibic Australia Pty Ltd (under external administration); 192. Unicharm Australasia Pty Ltd, trading as Australian Pacific Paper Products; 193. V & G Lubrano Investments Pty Ltd, trading as Sandhurst Fine Foods Co; 194. V.I.P. PetFoods (Rust) Pty Ltd; 195. Valeant Pharmaceuticals Australasia Pty Ltd; 196. Vesco Foods Pty Ltd; 197. Ward, McKenzie Pty Ltd; 198. Willow Ware Australia Pty Limited; 199. Y & M Friedman Family Trust, trading as Yumi's Fresh Quality Seafoods; 200. Yakult Australia Pty Ltd; 201. The A2 Milk Company Limited, formerly A2 Corporation; 202. AB Food & Beverages Australia Pty Ltd, trading as Twinings & Co; 203. Ansell Limited; 204. Blackmores Limited; 205. Blue Lake Milling Pty Ltd; 206. Buderim Ginger Limited; 207. Bundaberg Brewed Drinks Pty Ltd; 208. Capilano Honey Limited; 209. Conga Foods Pty Ltd; 210. Dilmah Australia Pty Ltd; 211. ET Browne (Australia) Pty Ltd; 212. Ferrero Australia Pty Ltd; 213. Jalco Group Pty Ltd; 214. Funtastic Limited; 215. Kao Brands Australia Pty Ltd; 216. Noon International Australia Pty Ltd; 217. Pfizer Australia Pty Ltd; 218. Pharm-a-Care Laboratories Pty Ltd; 219. Selleys Pty Ltd; 220. Star Maid International Pty Ltd; 221. New TOCG Pty Ltd, trading as The Original Croissant Gourmet;
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