Woolworths conduct not unconscionable according to the Federal Court

“It sends a terrible message when a practice that’s tantamount to extortion is deemed acceptable and normal business practice,” Australian Food and Grocery Council CEO Gary Dawson said.

Dawson is responding to the Federal Court dismissal of the case brought by the Australian Competition and Consumer Commission against Woolworths alleging Woolworths engaged in unconscionable conduct in dealings with a large number of its suppliers.

In 2014 Woolworths was suffering a significant half-year gross profit shortfall. So the company developed the ‘Mind the Gap’ scheme and contacted many suppliers asking for urgent payments ranging from $4291 to $1.4 million. Believing this action was in contravention of the Australian Consumer Law the ACCC instituted proceedings against Woolworths.

ACCC Chairman Rod Sims said, “The ACCC took this action because we considered that Woolworths’ behaviour went well beyond hard commercial bargaining and is 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.”

The Federal Court has ruled that Woolworths’ requests for these payments were not unconscionable within the meaning of the Australian Consumer Law. In handing down the decision Justice Yates noted the complex trading relationship between Woolworths and its suppliers and that it is always under negotiation and, depending on circumstances, constantly changing.

The AFGC has commended the ACCC for taking this case on but fears that the judgment handed down will have lasting negative ramifications for the food and grocery sector.

“The ACCC’s ongoing enforcement of the code of conduct is also important in ensuring it will further drive behavioural change to encourage fair and effective competition in the long-term interests of consumers,” Dawson responded.

“We welcome the commitment from Woolworths’ senior management that practices like retrospective profit gap demands won’t be repeated and we remain committed to working with Woolworths to improve trading relationships through their supply chain.”