Woolworths has been cleared of unconscionable conduct in its financial arrangements with suppliers, after the federal court today dismissed the ACCC’s allegations that the company had breached consumer law.
The Australian Competition and Consumer Commission (ACCC) took Woolworths to the Federal Court, accusing it of unconscionable conduct over its “Mind the Gap” scheme that required profit boosting payments from suppliers to the supermarket giant.
The ACCC alleged Woolworths sought about $60.2 million in Mind the Gap payments from suppliers.
In December 2014, the ACCC said Woolworths developed the scheme to reduce a significant half-year gross profit shortfall, with category managers and buyers contacting many suppliers to ask for urgent payments ranging from $4,291 to $1.4 million.
The Federal Court ruled that Woolworths’ requests for these payments were not unconscionable within the meaning of the Australian Consumer Law.
Woolworths raised about $18 million in Mind the Gap payments from suppliers in December, 2014 to meet the half-year targets but the federal court dismissed the ACCC’s allegations that the company had breached consumer law.
Justice David Yates said he could not conclude there was a substantial difference in bargaining power between Woolworths and some of its smaller suppliers.
“It may be that some would see Woolworths’ conduct in making ‘asks’ (requests to suppliers for payments) and seeking ‘payments’ as unjustified, unfair or unjust according to their own standards of commercial propriety,” Justice Yates said.
However, he concluded that that was not the standard required to comprise a breach of Australian consumer law.
He also found Woolworths did not need a contractual or other legal right to approach suppliers to negotiate on payments.
“More importantly, the evidence does not show that, in seeking Mind the Gap payments, Woolworths asserted a contractual or other legal right to any such payment,” Justice Yates said.
“I do accept, that the approaches made to suppliers under the Mind the Gap scheme were not unusual and were typical of Woolworths’ dealings with various suppliers.”
Yates accepted all of Woolworths’ witnesses evidence and rejected all 13 propositions put forward by the ACCC that were alleged to have constituted the unconscionable conduct.
“We defended the case because we firmly believed we did not act unconscionably and we did not break the law,” said Richard Dammery, Woolworths chief legal officer and company secretary.
Meanwhile, ACCC chairman Rod Sims said the watchdog had taken action because it considered the supermarket conglomerate’s behaviour “went well beyond hard commercial bargaining” and was not consistent with business and community values.
“If you’re a supplier subject to arbitrary demands, it’s very hard to make future investment decisions in the face of financial uncertainty,” he said.
“The ACCC will carefully consider the judgment.
“Pursuing unconscionable conduct remains an important area for the ACCC and we will continue to take enforcement action where appropriate, particularly in relation to supply chain issues.”
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