Corporates behaving badly?

Corporates behaving badly?

Court finds Coles engaged in unconscionable conduct and orders Coles pay $10 million penalties.

 The Federal Court has today, by consent, made declarations in two proceedings instituted by the ACCC that Coles Supermarkets Australia Pty Ltd engaged in unconscionable conduct in 2011 in its dealings with certain suppliers.

 The Court has also ordered Coles pay combined pecuniary penalties of $10 million and costs.

Coles will also enter a court enforceable undertaking to the ACCC to establish a formal process to provide options for redress for over 200 suppliers referred to in the proceedings.

In her judgment, Justice Gordon said:

“Coles’ misconduct was serious, deliberate and repeated.  Coles misused its bargaining power.  Its conduct was ‘not done in good conscience’.  It was contrary to conscience.  Coles treated its suppliers in a manner not consistent with acceptable business and social standards which apply to commercial dealings.  Coles demanded payments from suppliers to which it was not entitled by threatening harm to the suppliers that did not comply with the demand.  Coles withheld money from suppliers it had no right to withhold.

“Coles’ practices, demands and threats were deliberate, orchestrated and relentless.”

“Coles’ conduct was of a kind which merits severe penalty.  But for Coles making the admissions it has now made and acknowledging the gravity of its contravening conduct, the conduct and circumstances in which it was committed would have warranted imposing penalties at or close to the maximum the law permits”

ACCC Chairman Rod Sims said: “This is a very significant outcome for the supermarket sector and the business community in general. Indeed this is one of the first findings of unconscionable conduct in a business-to-business context under the Australian Consumer Law.

“Much more important is the magnitude of the penalties imposed and the recognition by the Court that Coles’ conduct in its dealings with suppliers was unconscionable and in contravention of the Australian Consumer Law. This should send a clear signal to larger businesses generally about appropriate business conduct in commercial dealings with smaller suppliers,” said Mr Sims.

The Court’s decision followed the ACCC’s long-running investigation into supplier complaints in the supermarket sector.

“This investigation was commenced after the ACCC urged suppliers to come forward to the ACCC in confidence to report their concerns about dealings with the major supermarket chains; the Court outcome has vindicated that approach.”

“Another important part of the resolution of both sets of the proceedings was the establishment of the formal process to secure redress for the more than 200 suppliers impacted. Securing redress by way of a statutory undertaking for suppliers referred to in the proceedings was central to the settlement,” said Mr Sims.

“The Court decision provides a clear indication of the types of conduct that are unacceptable in commercial transactions, and gives guidance as to the standards to which businesses should conform in their dealings with other businesses, and indeed, all consumers.”

The ACCC acknowledged Coles’ co-operation in resolving the proceedings and its willingness to make admissions and consent to Court orders.

The ACCC also noted recent public statements from Coles Managing Director John Durkan, who has said: “Coles unconditionally apologises and accepts full responsibility for its actions in these supplier dealings.”

Mr Sims said “The response from Coles and Mr Durkan is an appropriate and responsible corporate response to the Court outcome.”

The Court orders arise out of two sets of proceedings instituted by the ACCC earlier this year alleging that Coles engaged in unconscionable conduct in its dealings with suppliers in 2011 – the ‘ARC proceeding’ filed in May, and the ‘claims proceeding’ filed in October.

Read the full announcement here.

MORE BY RogerINVEST WITH MONTGOMERY

Roger Montgomery is the Founder and Chairman of Montgomery Investment Management. Roger has over three decades of experience in funds management and related activities, including equities analysis, equity and derivatives strategy, trading and stockbroking. Prior to establishing Montgomery, Roger held positions at Ord Minnett Jardine Fleming, BT (Australia) Limited and Merrill Lynch.

This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.