The UK government has decided that the proposed Groceries Code Adjudicator ("Adjudicator") will have "more teeth" to protect suppliers from unfair practices by large supermarkets. The Adjudicator will be able to impose fines to enforce compliance with the existing Grocery Supply Code of Practice ("Code").
In its 2008 investigation, the UK Competition Commission ("CC") found that exercise of buyer power by certain supermarkets transferred excessive risks and unexpected costs onto suppliers and had an adverse effect on competition.
The CC decided to introduce a strengthened Code of Practice to govern the relationship between the major grocery retailers and their suppliers.1 The Code, which has been in force since 4 February 2010, and covers fair dealing, variations to terms of supply, prices and payments, promotions, and consumer complaints, must be incorporated into all grocery supply contracts concluded by every supermarket with sales of groceries exceeding £1 billion in the UK.
The CC also recommended that the UK Department for Business, Innovation & Skills ("BIS") establish an Ombudsman to oversee and enforce the Code. BIS has therefore introduced legislation to establish the Groceries Code Adjudicator, set to be operational next year.2 The Adjudicator will sit within the Office of Fair Trading, but will have decisional autonomy to:
Adjudicate disputes under the Code
Investigate complaints about breaches of the Code (complaints may be made by anyone that is active in the supply chain, whether a domestic or foreign supplier, and can be anonymous)
Make recommendations to supermarkets to take action to comply with the Code
Require information to be published ("naming and shaming" the offending supermarket)
Addressing concerns expressed by stakeholders during public consultation, BIS has now decided that the Adjudicator will also have power to directly impose financial sanctions.3 There will be a proposed maximum level of fine that will be established by Order by the Secretary of State, and supermarkets will have a full right of appeal against any fines imposed.
Whilst the power to fine may further deter Code breaches by supermarkets, enforcement is still likely to be hampered by the reluctance of suppliers to complain to the Ombudsman about Code breaches by supermarkets that may be their largest, or only, customers.
1. The Grocery Supply Code of Practice (the Groceries Code) was established by the Groceries (Supply Chain Market Practices) Market Investigation Order 2009 (the Groceries Supply Order), which entered into force 4 February 2010.
2. The Adjudicator is to be established by the Groceries Code Adjudicator Bill, which is currently passing through Parliament (the House of Commons Committee stage is about to start).
3. The original Bill included provision for the Adjudicator to be given the power to impose financial penalties for breach of the Groceries Code, but only if the Secretary of State made an order empowering it to do so.
Client Alert 2012-276