ACCC’s pursuit of unconscionable claims

The Australian Competition and Consumer Commission’s (ACCC) recently developed a strategy of targeting businesses engaging in unconscionable conduct in contravention of the Australian Consumer Law (ACL). The ACCC has instituted proceedings in the High Court of Australia against major supermarket chains Coles and Woolworths claiming contraventions of ACL. The Coles case has recently settled and a judgment has been delivered by Justice Gordon in relation to the consent orders, which may help shed light on the common law definition of ‘unconscionable conduct’.

Supply and demand

The ACCC claims against Coles were for alleged actions in contravention of Section 22 of Schedule 2 of the ACL in relation to its Active Retail Collaboration Program (ARC). Coles used its superior bargaining position to demand circa $16 million in ARC rebates from its small suppliers, forcing them to agree to the ARC program without allowing sufficient time to assess the value of the program benefits to their business.¹ The ACCC sought pecuniary penalties, declarations, injunctions and costs from the supermarket giant.

The complex law of unconscionable conduct

The ACL is contained in Schedule 2 of the Competition and Consumer Act 2010 (Cth). More specifically, section 20 of the ACL provides that a person must not, in trade or commerce engage in conduct that is unconscionable, within the meaning of the unwritten law.

Section 21 of the ACL further prescribes unconscionable conduct by a person (other than a publicly listed company) in connection with the supply or acquisition (or possible supply or acquisition) of goods and services.

Orders in relation to Coles

Orders were granted by Justice Gordon on 19 December 2014, in the case of Australian Competition and Consumer Commission v Coles Supermarkets Australia Pty Ltd and Grocery Holdings Pty Ltd [2014] FCA 1405 (Coles Case).

In the orders (after Coles had admitted contraventions of the ACL), his Honour declared, amongst other things, that:

Coles required suppliers to pay an ongoing rebate and made threats of commercial consequences if the suppliers did not pay; and
Coles demanded payments and imposed penalties against suppliers,

both of which were, in all the circumstances, unconscionable in contravention of section 22 (as it then stood) of the ACL. His Honour stated:

‘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.’

In determining whether the pecuniary penalties consented to by the parties were appropriate, His Honour made the comment that:

‘It is a matter for the Parliament to review whether the maximum penalty available of $1.1 million for each contravention…is sufficient when a corporation with annual revenue of $22 billion acts unconscionably. The current maximum penalties are arguably inadequate for a corporation the size of Coles.’

Ultimately His Honour ordered that Coles pay pecuniary penalties in the amount of $10 million as well as $1.25 million towards the legal costs of the ACCC.

Self-checkout

Many contracts are made between parties of unequal bargaining power,[2] however the misuse of this strong bargaining position is a major risk for retailers. It should be avoided at all costs. Other types of claims for unconscionable conduct that major retailers may be most at risk for include:

lack of full disclosure of any conditions or circumstances surrounding transactions;
not following applicable industry codes;
applying undue pressure tactics, such as making threats or demands for payments;
unlawfully holding money; and
not acting in good faith.

This list is not exhaustive. Consequently retailers should be aware of all the potential risks arising out of the ACL and conduct a ‘self-checkout test’ to avoid heading down the path of unconscionable conduct.

Going forward

The fact that the ACL itself refers to the ‘unwritten law’ to establish the meaning of this type of conduct, underlies the difficulty of successfully defining it and bringing a successful action against parties who engage in this type of conduct. Perhaps the Coles Case will shed some light on this and act as a warning to larger organisations to not abuse market power or take advantage of their bargaining position.

Directors at the self checkout

¹ACCC v Coles Supermarkets Australia Pty Ltd
²ACCC v CG Berbatis (2003) HCA 18