The Federal Court recently ruled on the meaning of the undertaking obtained by the ACCC from Coles and Woolworths regarding the ‘shopper docket’ fuel discounts. The supermarkets and the ACCC found the undertaking did not mean what they thought.
In December 2013, the ACCC obtained court-enforceable undertakings from Coles and Woolworths to limit the amount of ‘shopper docket’ fuel discounts to 4 cents a litre. Within weeks, however, the ACCC and the supermarkets were at odds over the meaning of what they had agreed. The ACCC commenced proceedings in March 2014 to enforce what it believed had been agreed. The supermarkets then pre-emptively changed their discount offer and the revised offer was upheld by the Court. As the pre- March offer had been discontinued, the Court did not consider any order to be required even though the Court found that the pre-March offer breached the undertaking. It is likely that both parties will be ordered to bear their own costs of the proceedings.
We may well ask what has been achieved in the process. The case may be a salutary lesson that the ACCC should simply enforce the law laid down by the legislature, which is what it is, rather than attempt to legislate by agreement with powerful corporations, on terms which may not mean what the parties think.
The ACCC’s concerns appear to focus exclusively on the retail fuel market: they believe that ‘integrated’ supermarket and fuel retailers are leveraging power in the grocery market to cross-subsidize their fuel business to harm competition in the retail fuel markets. Arguably this misses the point that competition in both grocery and fuel markets is adversely affected by bundled discounts that manipulate the market. In an integrated business it does not matter where the burden of the discount lies because the business as a whole benefits from increased revenue attracted by the discount offer. Insofar as the undertaking seeks to prevent cross-subsidisation, it is hard to see what is achieved. Independent supermarkets and fuel retailers remain unable to compete with the integrated chains because there is as yet no mechanism for independents to share the net benefit of any revenue gains less the cost of the discount. This disadvantage applies even if the discount is limited to 4 cents. In fact, the discount is not effectively limited by the undertaking, which does not level the playing field.
What does the undertaking mean? The undertaking prohibits Coles and Woolworths offering or allowing fuel discounts funded in whole or part by the grocery division, or greater than 4 cents a litre contingent on the past or future acquisition of other goods or services (except goods or services acquired from the fuel outlet). The Court ruling addressed the meaning of ‘contingent’ and the scope of the exception.
The supermarkets argued that a 4 cents shopper docket for grocery purchases could be combined with a second offer of 4 cents a litre discount when the customer spends $5 on goods from the fuel outlet. This was argued on the basis the second 4 cents was not contingent on the grocery purchase (although it was conceded that prior to March 2014 the second 4 cents was only available to customers with the shopper docket) and was in relation to excepted goods. The Court rejected both these arguments, and held that the pre-March offer breached the undertaking because the total offer of 8 cents a litre discount was contingent on the past grocery purchases. Accordingly, the pre- March offer breached the undertaking but, as it had been discontinued, there was no continuing breach to be restrained.
After proceedings were commenced in March 2014, the supermarkets revised the offer to de-link the grocery and fuel outlet purchase conditions. So a consumer can spend $30 in the supermarket and $5 in the fuel outlet and get a 4 cents a litre discount for each purchase, i.e. 8 cents a litre.
The Federal Court proceeding addressed only the meaning of the undertaking. Questions remain about the effect. For example, the power of the ACCC to obtain a court-enforceable undertaking is limited to the powers and functions of the ACCC, presumably to restrain conduct that would otherwise contravene the Act. It is no function of the ACCC to impose price controls, so the validity of an undertaking controlling prices or discounts must be questionable.
Arguably an undertaking could not permit conduct that would breach the Act, e.g. if a 4 cents a litre discount is anticompetitive, or a misuse of market power, seemingly the conduct would still amount to a contravention, and the undertaking would likely be invalid.Likewise, if Coles and Woolworths are able, as the Court ruling suggests, to structure discounts in excess of 4 cents a litre without breaching the undertaking,it does not follow that such discounts are lawful.