Legal

ACCC finally acts on Coles ‘unconscionable conduct’ allegations

THE Australian Competition and Consumer Commission (ACCC) instituted proceedings against retailing giant Coles in the Federal Court of Australia on May 5, in a protracted reaction to allegations of unreasonable dealings with some of its suppliers that emerged from media reports – predominantly on the ABC – as far back as 2011. 

Suppliers including agribusiness and manufacturing businesses had earlier been reluctant to speak out officially, fearing negative repercussions to their trade, and this is believed to have delayed the ACCC’s action.

The ACCC took its court action against Coles Supermarkets Australia Pty Ltd and Grocery Holdings Pty Ltd (together, Coles) alleging that Coles engaged in unconscionable conduct in relation to its Active Retail Collaboration (ARC) program, in contravention of the Australian Consumer Law (ACL).

The ACCC alleged that in 2011, Coles developed a strategy to improve its earnings by obtaining better trading terms from its suppliers. 

It is alleged one of the ways Coles sought to improve its earnings was through the introduction of ongoing rebates to be paid by its suppliers in connection with the Coles ARC program, based on purported benefits to large and small suppliers that Coles asserted had resulted from changes Coles had made to its supply chain. 

ACCC’s investigations showed Coles’ target was to obtain $16 million in ARC rebates from smaller suppliers. Coles was ultimately seeking an ongoing ARC rebate in the form of a percentage of the price it paid for the supplier’s grocery products.

This, for its smaller suppliers, was the sum of a percentage which Coles asserted was referable to the value to the supplier of being able to access the Coles supplier portal and, where applicable, a percentage based on the asserted value to the supplier for Coles having changed its ordering patterns to order products in “economic order quantities”. 

The ACCC alleged that in relation to 200 of its smaller suppliers, Coles required agreement by the supplier to the rebate within a matter of days. 

If these suppliers declined to agree to pay the rebate, Coles personnel were allegedly instructed to escalate the matter to more senior staff, and to threaten commercial consequences if the supplier did not agree.  The ACCC alleges that, in a number of cases, threats were made when suppliers declined to agree to pay the rebate. 

The ACCC alleged Coles had engaged in unconscionable conduct towards 200 of its smaller suppliers, in breach of the ACL by, among other things:

  • providing misleading information to suppliers about the savings and value to them from the changes Coles had made;
  • using undue influence and unfair tactics against suppliers to obtain payments of the rebate;
  • taking advantage of its superior bargaining position by, amongst other things, seeking payments when it had no legitimate basis for seeking them; and
  • requiring those suppliers to agree to the ongoing ARC rebate without providing them with sufficient time to assess the value, if any, of the purported benefits of the ARC program to their small business.

“The conduct of Coles alleged by the ACCC in these proceedings was capable of causing significant detriment to small suppliers’ businesses,” ACCC Chairman Rod Sims said.

“This could have resulted in these businesses becoming less able to plan and less able to innovate in the market, with resulting reduced economic efficiency and consumer detriment.

“The ACCC alleges that Coles used undue pressure and unfair tactics in negotiating with suppliers, provided misleading information and took advantage of its superior bargaining position, so that its overall conduct was in all the circumstances unconscionable. 

“If this conduct is established in court, the ACCC expects that the community will share the ACCC’s view that business should not be conducted in this way in Australia,” Mr Sims said. 

“When we called for market participants to provide information to the ACCC on a confidential basis to assist the ACCC’s investigation, I committed that the ACCC would seek to maintain that confidentiality. 

“In accordance with that commitment, the documents and information relied on by the ACCC in these proceedings were obtained by use of the ACCC’s compulsory statutory information gathering powers in a subsequent phase of the investigation.”  

The ACCC is seeking pecuniary penalties, declarations, injunctions and costs.

The ACCC said the proceedings arose from a broader investigation by the ACCC into allegations that supermarket suppliers were being treated inappropriately by the major supermarket chains. The ACCC said a broader investigation is continuing, not ruling out action against other supermarket groups.

The ACCC v Coles matter is listed for a directions hearing in Melbourne on June 6, 2014.

www.accc.gov.au

Chronology of the ACCC's investigation

November 2011   

Media reports indicated that supermarket suppliers were being treated inappropriately by the major supermarket chains. 

November 2011 – February 2012

The ACCC sought information from market participants about these concerns. But it became clear that suppliers were reluctant to speak to the ACCC for fear of what they perceived may be the consequences of providing information to the ACCC. 

February 2012

The ACCC chairman called on suppliers to provide information to the ACCC on a confidential basis, ensuring the ACCC would seek to protect and maintain that confidentiality.

This resulted in around 50 market participants approaching the ACCC on a confidential basis to discuss practices by the major supermarket chains they were concerned about.

Having identified areas of concern, the ACCC then commenced an in-depth investigation into those issues.

February 13, 2013

The ACCC provided an update to the Senate Estimates Committee of its investigations. The ACCC advised that the allegations raised with the ACCC, which were the subject of its investigation, included allegations of some conduct that the ACCC considered did not conform to acceptable business practice and may be unconscionable or a misuse of market power.  Such conduct, which was not necessarily identical across suppliers, product lines or even supermarkets, included:

persistent demands for additional payments from suppliers, above and beyond that negotiated in their terms of trade;

the imposition on suppliers of penalties that did not form part of any negotiated terms of trade, and which apparently do not relate to actual costs incurred by the major supermarket chains as a result of the conduct which has led to the penalty being imposed;

threats to remove products from supermarket shelves or otherwise disadvantage suppliers if claims for extra payments or penalties are not paid;

failure to pay prices agreed with suppliers; and

conduct discriminating in favour of home brand products.

June 2012 – December 2013  

Extensive in-depth investigation using compulsory information gathering powers that required suppliers and Coles to provide information.

 

Posted May 7, 2014.

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PPSA amendments to leases and motor vehicles

 

THE Federal Government is making amendments to the Personal Property Securities Act (PPSA) to help address anomalies over certain leases and what qualifies as a ‘motor vehicle’. 

The PPS Amendment (Deregulatory Measures) Bill 2014 was introduced to Parliament on March 19.

The bill will repeal section 13(1) (e) of the Personal Property Securities Act 2009 which deems leases of serial numbered goods of 90 days or more to be security interests for the purposes of the Act and make minor consequential amendments to the Act.

The Australian Government has also amended part of the definition of a motor vehicle in the PPS Regulations, to provide that one of the requirements is that the property is capable of travelling at speeds of at least 10km per hour and which has one or more motors with a total power greater than 200 watts. The regulations appear to have had some unintended consequences in this area.

The revised definition will take effect from July 1, 2014. The Personal Property Securities Amendment (Motor Vehicles) Regulation 2014 and the changes to the leases section is available at www.commlaw.gov.au

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Review of the Personal Property Securities Act: affecting small business?

THE FEDERAL Government is undertaking a review into the Personal Property Securities Act 2009 to consider its operation and effects, paying particular attention to the experience of small businesses.

Attorney-General George Brandis has appointed Bruce Whittaker, a partner with the law firm Ashurst, to lead the review.

“Mr Whittaker's extensive legal and industry experience make him an excellent choice for the review,” Mr Brandis said.

“This Act established a national regime for secured finance using personal property. It replaced a complex and costly patchwork of over 70 Commonwealth, State and Territory laws and 23 registers.

“Two years on from the Act’s commencement, it is timely to review its effect to ensure it is meeting its objective of providing greater certainty to lenders and helping business, especially small business, to access finance.

“The government is committed to reducing unnecessary burdens on small business. It is important that any problems or concerns with the Act are identified.

The government has already moved quickly to address some pressing concerns raised by the hire industry about the Act.”

Mr Whittaker has been asked to prepare an interim report by July 31 this year, with recommendations on priority actions for the Federal Government to consider. The interim report will focus on issues raised in relation to small businesses.

The final report is due on January 30, 2015 and is expected to make recommendations on how to improve the Act, including simplification where appropriate, Mr Brandis said.

The review focuses on the effects of the reforms introduced by the PPS Act, as requested by the Attorney-General, on:

  • Australian businesses, particularly small business;
  • Australian consumers;
  • the market for business finance in Australia; and
  • the market for consumer finance in Australia;
  • the level of awareness and understanding of the PPS Act at all levels of business, particularly small business;
  • the incidence and, where applicable, causes of non-compliance with the requirements of the PPS Act particularly among small businesses;
  • opportunities for minimising regulatory and administrative burdens, including costs, on businesses, particularly small business, and consumers;
  • opportunities for further efficiencies in the PPS Act regime including (but not limited to) simplification of the Personal Property Securities Register and its use;
  • the scope and definitions of personal property covered by the PPS Act;
  • the desirability of specifying thresholds for the operation of the PPS Act regime in respect of particular types of personal property;
  • the interaction of the PPS Act with other legislation including the Corporations Act 2001;
  • the review must include consultation with relevant stakeholders.

Mr Whittaker is a partner in Ashurst’s banking and finance group in Melbourne and leads the firm’s PPS practice. Mr Whittaker specialises in debt capital markets, acquisition and leveraged finance, project finance, asset finance and leasing, and banking.

Mr Whittaker has more than 30 years experience in private practice both in Australia and internationally and is recognised as one of the world’s most experienced structured finance lawyers.

Mr Whittaker is also an editor and contributing author of the LexisNexis looseleaf and online service Personal Property Securities Law in Australia, and joint PPS Specialist Editor for LexisNexis’s Australian Encyclopaedia of Forms and Precedents.

The Personal Property Securities Act 2009 (the PPS Act) provides a single national system for the creation, registration, priority and enforcement of security interests in personal property.   The PPS Act commenced on January 30, 2012.

www.attorneygeneral.gov.au

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Fed Govt changes to help strengthen franchising sector

 

THE Federal Government is aiming to improve the viability of the franchise sector by the end of the year, and save it $8.6 million in red-tape, by implementing changes recommended by the Alan Wein-led review.

Treasury has announced it will introduce penalties for breaches of the Franchise Code of Conduct to protect small business owners.

A  'Future of Franchising' statement was released by the Federal Treasury on April 3, outlining plans to build on a review of the sector by Mr Wein last year.  

Mr Wein has a strong connection with franchising and was the co-founder and owner of the House franchise group of homeware stores that operate throughout Australia. He sold his interest in the company in 2000 and he has been involved in various business advisory panels including the Victorian Government’s 2010 VSBC Reference Panel into Improving Business Conduct which included Telstra and Woolworths.

The Federal Government has settled on the policy direction for franchising in light of Mr Wein’s review and started work on legislative changes to improve the sector for its participants.

These changes are expected to help cut red-tape by clarifying and streamlining the Code and removing unnecessary provisions. Treasury estimated red tape reduction for the Franchising Code could save businesses $8.6 million annually and would allow more opportunities for resources to be invested back into franchise systems to drive productivity, innovation and jobs.

A government statement said the proposed changes would “strike the right balance between the needs of franchisors and franchisees and the unique nature of the relationship between the two”.

The Federal Government announced it was committed to:

  • ensuring franchisees and franchisors act in good faith in their dealings with each other;

  • introducing penalties for a breach of certain provisions of the Franchising Code along with enhanced audit powers for the Australian Competition and Consumer Commission;

  • improving the transparency of marketing funds; and

  • improving disclosure including short form, easy to understand information for prospective franchisees.

To ensure the changes are implemented in partnership with the sector, the Federal Government has released the exposure draft bill and regulations amending the Franchising Code of Conduct for public feedback.

Although the franchising review was a concise one, it has benefitted from the long experience of Mr Wein in the sector and related small business areas. In 2008, Mr Wein was appointed by the Victorian Small Business Minister as an ambassador for small business through the Energise Enterprise initiative and in 2010, he was appointed to the Mediator’s Advisory Committee by the Victorian Small Business Commissioner, to assist and advise on legislation, legal issues, mediation practice process and standards.

In 2010, Mr Wein was appointed a member of the Law Council of Australia SME Business Committee.

The Draft Bill documents are available at the Treasury website for a consultation period ending April 30, 2014.

www.treasury.gov.au

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Victorian business likes Repeal Day

 

VICTORIAN businesses' lead organisation, the Victorian Employers Chamber of Commerce and Industry (VECCI) has come out in applause of the Federal Government's Repeal Day on March 26. VECCI views the move as a leap forward in common sense.

“Victorian businesses will welcome the range of initiatives announced by the Federal Government today as part of its Repeal Day on 26 March 2014,” says VECCI chief executive Mark Stone. 

“VECCI commends the Prime Minister and his Parliamentary Secretary Josh Frydenberg for the priority they have given to cutting red tape for business. The projected savings of over $700 million include measures that range across   government departments and will resonate strongly with businesses of all sizes. 

“We are particularly pleased that they will free businesses of the requirement of administering the government’s paid parental leave scheme, estimated to save $48.5 million annually, as this was a key plank of our Small Business Too Big to Ignore campaign ahead of last year’s Federal Election. 

“Equally, the nearly $100 million of compliance cost savings expected to result from repealing the Mining and Carbon taxes will free up business time and resources for direction into job and wealth creating activity. 

“Other significant savings will come from planned changes to the Fair Work laws introduced into parliament last week and the ability of Victorian employers trading in two or more states or territories to now access a national workers’ compensation scheme.

“Small business will also benefit from changes to Federal Government procurement policy, with the introduction of standard contract terms and earlier payment for government work totalling $20,000 or less. 

“VECCI is very pleased that the government’s approach to red-tape will now be guided by common sense, reduced reporting requirements and the removal of duplication. This will help business get on with generating jobs and incomes for more Australians, free from the burden of unnecessary regulation.”

www.vecci.org.au

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‘Fair use’ clause to defend copyright in Australia

THE Australian Law Reform Commission (ALRC) is recommending the introduction of a ‘fair use’ defence to help cover copyright issues brought about by new digital communication channels.  

The ALRC has released the final report from its inquiry, Copyright and the Digital Economy,  in which it was asked to consider whether current copyright exceptions were adequate and appropriate in the digital era.

The report recommends the introduction of fair use as a defence to copyright infringement that essentially asks of any particular use: Is this fair?

Fair use is found in a number of countries, notably the United States, and it builds on existing Australian laws that allow the fair use of copyright material for purposes such as research, study and reporting the news.

The commissioner in charge of the inquiry, Jill McKeough said, “Fair use is a flexible exception that can be applied to new technologies and services, which is crucial in the digital economy.

“Fair use can facilitate the public interest in accessing mater

ial, encourage new productive uses, and stimulate competition and innovation,” Professor McKeough said.

“But fair use also protects the interests of writers, musicians, film-makers, publishers and other rights holders. It was very important that in an inquiry about exceptions to copyright, we not lose sight of the purpose of copyright law.”

The report also recommended some specific exceptions, such as for libraries and archives to make preservation copies, for judicial proceedings and royal commissions, and for public access to certain documents lodged with government.

There are also reforms to encourage the use of ‘orphan works’—a wealth of copyright material that is neglected and wasted because rights holders cannot be found.

“The 30 recommendations in this report are designed to allow for a more principles-based and less prescriptive approach to copyright law,” ALRC president Rosalind Croucher said.

 

“In a highly contested field, we have suggested reforms that will protect creators and their markets, provide appropriate access to material, simplify and modernise the law, and create a better environment for innovation and economic development,” Professor Croucher said.

The report follows an 18 month inquiry, during which the ALRC produced two consultation documents, undertook over 100 consultations and received more than 850 submissions.

A number of industry roundtables were held and an advisory committee of experts met three times to provide comment and feedback on the ALRC’s work.

Prof. Croucher thanked Prof. McKeough for her work on this complex inquiry, and the hundreds of people who contributed through submissions and consultations.

http://www.alrc.gov.au/

 

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ATO takes over Small Business Superannuation Clearing House

DESIGNED to help reduce red tape for small business, the Australian Taxation Office (ATO) is to take over the operations of the Small Business Superannuation Clearing House – and produce a mobile ‘app’ to help streamline the processes.

Image
Assistant Treasurer Arthur Sinodinos with Prime Minister Tony Abbott at a media conference.

 

The cost of administering superannuation for staff has long been a bone of contention for small businesses in particular, second perhaps only to the cost of administering and collecting the Goods and Services Tax (GST).

Assistant Treasurer, Senator Arthur Sinodinos said the re-allocation to the ATO was the first step to reduce the compliance burden employers face when making superannuation contributions for their workers.

He said the Small Business Superannuation Clearing House was a free online service that helped small businesses with 19 or fewer employees meet their superannuation guarantee obligations. It allows employers to pay superannuation contributions in one transaction to a single location to reduce red tape and compliance costs.

“The ATO is best placed to increase the take up rate of the clearing house as they have access to data on who is eligible for this free service,” Senator Sinodinos said.

“This is a positive first step in progressing the government’s election commitment to provide a better way to pay superannuation for workers by remitting compulsory superannuation payments directly to the ATO, with the tax office distributing contributions to individual accounts.”

Sen. Sinodinos said this process would be followed up with “an extensive stakeholder consultation process so the government can better understand superannuation compliance cost concerns and develop further options to reduce these costs”.

Sen. Sinodinos issued a statement that small businesses would be able to use the ATO’s app on mobile devices to:

  • find out if their worker is an employee or contractor for tax and super purposes;
  • search small business assist, the ATO’s online service that provides an easy pathway for small business to find information they need on a range of tax and super topics, with the option to book an after-hours call from an ATO customer service consultant;
  • use the payment plan estimator to simulate a payment plan for an ATO debt. Users will also be provided with information on how to enter a payment plan once they have determined the arrangement that would suit their needs; and
  • get news and updates as well as answers to frequently asked questions.

Sen. Sinodinos said the move was part of the Federal Government’s commitment to cut $1 billion worth of red-tape out of the economy and “will make life easier for small business as they already have dealings with the ATO”.

Since the Global Financial Crisis (GFC) began in April 2008, record numbers of small and medium businesses have collapsed around Australia, leaving a trail of unpaid superannuation and uncollected GST.

According to the ATO’s 2012-13 annual report, there was almost $18 billion in what was termed ‘collectible debt’ and there was a further $1.8 billion deemed uncollectible from organisations that had collapsed and been liquidated. About 60 percent of the collectible debt, $10.6 billion, was owed by small business.

The ATO’s total collectable debt increased from $16.6 billion in 2011-12 to $17.7 billion in 2012-13, according to the annual report.

http://www.ato.gov.au/

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