COLES' $10 MILLION PECUNIARY PENALTY ORDER FOR UNCONSCIONABLE CONDUCT IS A WIN FOR BUSINESSES IN ENCOURAGING GOOD STANDARDS OF CONDUCT IN COMMERCIAL DEALINGS, BUT THE LAW MAY STILL NEED TO DO MORE

On 22 December 2014, the Federal Court ordered Coles to pay $10 million in pecuniary penalties for engaging in conduct that constituted unconscionable conduct in contravention of section 22 of the Australian Consumer Law (ACL) as it stood in 2011 (now sections 21 and 22 of the ACL and in substantially similar terms to the former provisions). The orders arose from two proceedings brought by the Australian Competition and Consumer Commission (ACCC) alleging that Coles engaged in unconscionable conduct in its dealings with particular suppliers in 2011.

Justice Gordon described Coles' conduct as serious, deliberate and repeated, and said that Coles treated its suppliers in a manner not consistent with acceptable business and social standards which apply to commercial dealings. Occurring in the midst of the Competition Policy Review and at a time when supermarkets are facing ongoing scrutiny regarding their commercial practices, the decision encourages us to re-evaluate whether Australia's competition and consumer laws sufficiently protect business-to-business commercial dealings.

BACKGROUND TO THE PROCEEDINGS

The following table provides a background to each proceeding:

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10 QUESTIONS FOR BUSINESSES TO CONSIDER IN THEIR COMMERCIAL DEALINGS

The unconscionable conduct provisions prohibit a person from engaging in conduct that is, in all the circumstances, unconscionable. Therefore, the particular circumstances of any case involving allegations of unconscionable conduct will be relevant, together with any relevant matters listed in the ACL which the court may choose to have regard to. The following circumstances were relevant in the Coles decision and may provide guidance to businesses querying whether conduct in commercial dealings involves unconscionable conduct:

  1. Is one business in a substantially stronger bargaining position relative to the other?
  2. Have sufficient details been disclosed to understand the basis of a particular demand?
  3. Has any undue pressure or unfair tactics been exerted, for example through repeated requests for a response or threats of commercial consequences if agreement is not reached?
  4. Have incorrect assertions been made about the value a process would bring to a party without specifically considering the value to that party?
  5. Has there been a willingness to negotiate the amount and timing of payments and engage in informed negotiations about the basis of payment requests?
  6. Is a payment demand being made with knowledge that there is no reasonable basis for asserting an entitlement to the payment?
  7. Is there awareness of the financial difficulties that the business is experiencing in making the payments demanded?
  8. Is the business retaining money that it knows or ought to know it has no lawful entitlement to withhold and retain?
  9. Is the business requesting an indemnity for particular costs, including those caused by its own conduct?
  10. Is the business refusing to give sufficient details to provide an understanding of the extent to which it has suffered loss due to the other business' conduct?

ARE BUSINESSES ADEQUATELY PROTECTED UNDER THE CURRENT LAW?

In the ARC Proceeding, Justice Gordon rejected Coles' submission that the contraventions were somehow distinguishable, or of a less serious nature, because they did not involve vulnerable consumers. Her Honour stated that the conduct involved vulnerable suppliers and "it is difficult to envisage circumstances involving a larger disparity in bargaining power".

The Coles decision reinforces that businesses need legal protection to regulate standards of conduct in their commercial dealings and encourages us to consider whether the ACL, the Competition and Consumer Act 2010 (Cth) (CCA) and other laws adequately provide that protection. The diagram below outlines some existing prohibitions and legal rights and others under consideration, which may contribute towards regulating standards of commercial behaviour.

The diagram on the following page shows that statutory unconscionable conduct appears to be the most appropriate protection for businesses in regulating standards of conduct in commercial dealings with other businesses. The Panel in the Harper Review was asked to examine the ACL provisions insofar as they relate to small businesses. Before the Coles decision was made, the Panel expressed the view that there is not a strong case that the current unconscionable conduct provisions are not working as intended to meet their policy goals.

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The unconscionable conduct provisions may work in leading to penalties for businesses, but the law must also ensure business are deterred from engaging in similar conduct in the future. In the Coles decision, Justice Gordon stated that but for Coles' admissions and acknowledgments 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, being $1.1 million for each contravention. Her Honour stated that the current maximum penalties are arguably inadequate for a corporation with annual revenue in excess of $22 billion. Time will confirm whether the unconscionable conduct provisions and their associated penalties encourage adherence to appropriate standards in business-to-business commercial dealings or whether further legal protections, such as those currently being considered by the Australian Government, are needed.