Submission on Grocery Code of Practice and Ombudsman
5 November 2009
The National Consumer Agency has made the following submission to the Department of Enterprise, Trade and Employment on the proposed Code of Practice and Ombudsman for Grocery Goods Undertakings
1. The NCA shares the Tánaiste's concern that there be a balance in the relationship between grocery goods undertakings taking into account the need for a fair return to both suppliers and retailers, the need to enhance consumer welfare and the need to ensure that there is no impediment to the passing on of lower prices to consumers.
The Agency notes the comment in the consultation paper that "while contractual arrangements between suppliers and retailers are essentially matters for themselves, subject to compliance with the provisions of the Competition Act 2002 and the Competition (Amendment) Act 2006 as these apply to the grocery retail sector, the justification underlying the introduction of a Code of Practice in this area is to provide a framework in which the different elements of the retail chain can enter into negotiations and agree contractual arrangements between themselves which will help ensure that those arrangements are balanced and fair and ultimately ensure that the interests of all parties, including consumers, are respected."
2. There will always be a natural tension in the relationship between the various players in the supply chain, and such a tension is beneficial in that it leads to a more effective use of resources, greater innovation and ultimately better prices for consumers.
However, such an engagement should, in the Agency's view, be fair and should not be abused.
Contractual arrangements between retailer and supplier should provide a fair degree of certainty to both sides for the duration of the contract and suppliers should not have costs imposed on them unexpectedly or unfairly by retailers; in essence, retailers should not be able to transfer excessive risk to suppliers at short notice. (The same principle might apply to the relationship between suppliers and sub-suppliers).
3. There are two fundamental aspects to the consultation paper:
- The introduction of a Code of Conduct either on a voluntary or statutory basis and its content and
- The enforcement of such a Code, potentially by an Ombudsman's office or the body which will be set up on the amalgamation of the National Consumer Agency and the Competition Authority and the funding thereof
The Agency would like to offer an alternative approach, which it believes will deliver the primary objective of fair and balanced contractual arrangements while avoiding implementation issues in relation to a Code of Conduct (which has not worked in the UK) or the very difficult question of how an Ombudsman function might be carried out and the strong possibility that there would not be complaints to an Ombudsman or regulatory body given fears of delisting.
The Agency's proposed alternative approach would also sidestep any issues arising from the different markets which operate in Ireland and the UK.
4. NCA Proposal
When the Unfair Commercial Practices Directive (implemented in the Consumer Protection Act 2007) was under discussion, it was quickly recognised that it would be impossible to seek to regulate all aspects of the trader/consumer relationship.
This recognition led to the introduction of a general, autonomous clause that captured "other" practices that were neither misleading or aggressive but unfair nevertheless (s.41 of the Consumer Protection Act - a general prohibition on unfair commercial practices - refers).
A general prohibition also "future-proofs" any future practices that would not otherwise be catered for within a tightly drafted code of practice.
We propose the introduction, in legislation, of a general prohibition on unfair commercial practices between grocery undertakings.
This would be accompanied by a non-exhaustive list of practices which are deemed unfair in all circumstances, along the lines of some of the provisions in the proposed Code.
Such an approach would allow the introduction of professional diligence requirements and good faith in assessing the conduct of impugned business. (Provision might be made for an extension of this principle to other sectors of the economy by means of a statutory instrument).
A possible drafting provision to give effect to the general prohibition is as follows:
"A trader shall not engage in an unfair business practice. A business practice is unfair if it is contrary to the general principle of good faith in the trader's field of activity. In determining whether a business practice is unfair, the business practice shall be considered in its factual context, taking account of all of its features and the circumstances. In assessing whether the general principle of good faith has been contravened, regard will be taken of but not limited to: (i) The strength of the bargaining position of the parties. (A "need to deal" test). (ii) Whether or not the goods supplied were of a special order to the receiving party. (Special orders would be treated in isolation; that is aside from the general contractual provisions). (iii) Whether both parties dealt fairly and equitably with each other (This would cover most of the detrimental practices that the grocery Ombudsman would seek to provide for). (iv) The legitimate expectations of both parties. (This would counter any major deviations from the original contractual provisions)." |
5. Enforcement of NCA proposal
The NCA's proposal lends itself to enforcement through
(a) a risk-based audit across an entire sector or of all the suppliers to a particular retailer to ascertain compliance with the relevant legislative provision or
(b) a complaint driven enquiry.
Should an enforcement action result in a conclusion of wrongdoing, available options might include those currently provided for under the Consumer Protection Act - compliance notices, undertakings, prohibition orders or court action.
We suggest that the legislation amalgamating the NCA and the Competition Authority might be the most appropriate vehicle.
National Consumer Agency