Chapter 6
Legal issues and trade practices concerns
6.1
The committee heard evidence during the inquiry relating to legal
concerns about the GROCERYchoice website, including the potential for breaches
of the Trade Practices Act 1974 (TPA).
6.2
During the February 2009 meeting between CHOICE and industry
stakeholders, some industry representatives expressed concern about the
potential for unintentional breaches of the TPA, noting that 'the very
discussion of pricing issues as a group was unwise'.[1]
6.3
CHOICE's submission stated that it sought legal counsel to address the
concerns regarding the potential for, or appearance of, price collusion.
CHOICE was advised that any potential breach of the TPA 'would be mitigated if
discussions with supermarkets at Industry Forums concentrated
on prices, not pricing'.[2]
CHOICE invited a legal representative to attend industry meetings to allay such
concerns.
Should CHOICE have been allowed to take on GROCERYchoice?
6.4
CHOICE's commercial activities were also of concern to the National
Association of Retail Grocers of Australia (NARGA), raising the question of a
potential conflict of interest:
Although CHOICE, as the self-appointed representative of
consumers, purports to represent their interests, its consumer advocacy activities
might also be seen as a public relations program to promote the sale of its
products.
In seeking to acquire control of the GROCERYchoice website,
CHOICE could be seen as providing a commercial service to government for a fee,
potentially being in conflict with its purported role as an independent
consumer advocacy organisation.[3]
6.5
Unease about such risks played out within the organisation itself, with
the resignation of a CHOICE board member, Mr Robin Brown, who disagreed with
the board's decision to take on GROCERYchoice:
My view is that this was such a momentous decision for
CHOICE, quite unprecedented in its 50-year history; a large amount of
government money and a matter that was clearly quite political. I thought that
there was a significant risk to CHOICE's reputation as an independent
commentator on public policy, on the way markets work and so on; and a risk to
its bipartisan approach to politics ... But this particular process was just not
quite right and I think it was an error to proceed in quite the way it did and
I think there ultimately should have been some kind of process that involved
all the members of CHOICE so that everyone involved could be sure that they
were getting into something that was appropriate. If that had happened then I guess
my resignation mightn't have happened.[4]
6.6
Giving evidence to the inquiry, CHOICE responded that 'the vast majority
of board members' were fully supportive of the move and that no conflict of
interest was perceived:
We are a fundamentally independent organisation ... Our only
interest is that of the consumer. We believe that this site would radically
transform the grocery sector. Therefore, we had a duty to take it on. I think
it would have been a conflict had we not taken it on.[5]
6.7
CHOICE's submission responded to the concern that the website might have
been used as a promotional tool:
Under the terms of the contract, CHOICE had the discretion to
brand the website as a CHOICE product and to include extra information in
keeping with CHOICE’s charter as a well-known and respected social enterprise.
CHOICE does not accept advertising in any of its publications and did not
intend to do so in GROCERYchoice.[6]
Price accuracy and 'bait advertising'
6.8
The inquiry heard from retailers that the potential for breaches of the TPA
was a serious concern under CHOICE's proposed model. The Australian National
Retailers Association (ANRA) argued that CHOICE had not sufficiently addressed
the question of who would bear the legal liability were they to participate in
providing data for the website.
6.9
ANRA cited section 52 of the TPA, which relates to misleading and
deceptive conduct, and argued that under the new version of the GROCERYchoice
website, pricing information provided in good faith that was later found to be
inaccurate could represent a breach of the law:
... it could be deemed to be a technical form of misleading and
deceptive conduct if you engage in a process of advertising a product and then
you cannot subsequently have any real attempt to make that product available.
That is the sense in which the concern was raised. In other words, only in
terms of the accuracy of the material presented on the website.[7]
6.10
In addition, ANRA also raised concerns about section 56 of the TPA and
the potential for 'bait advertising':
Another legal concern related to
the potential risk of breaching the Trade
Practices Act by providing a “discounted
price” for discontinued items or items in
limited supply. The Australian Competition
and Consumer Commission (ACCC) insists retailers
who advertise products at a certain price
must be able to offer to supply
those goods at that discounted price for
a period that is reasonable, and in
quantities that are reasonable. The proposed
scheme did not provide sufficient assurance
that there it would have in no
way risk creating the unintended consequence
of a technical breach of breach of
s.56 of the Trade Practices Act.[8]
6.11
Tasmanian Independent Retailers echoed ANRA's concerns in relation to sections
52 and 56, referring to recent Federal Court decisions and ACCC settlements in
relation to bait advertising and associated activities.[9]
6.12
CHOICE argued in its submission that it did address the issue of data
integrity:
CHOICE also sought to address risks in publishing information
in good faith which is found to be inaccurate. The legal position confirmed
that prices on the GROCERYchoice website are prices valid at a particular point
in time and subject to local variation ...[10]
6.13
During consultation with industry, CHOICE sought to alleviate concerns
about the accuracy of prices to be displayed on the website:
CHOICE undertook to clearly state that the website is a price
guide at a defined point in time and that prices may vary at the point-of-sale.
CHOICE was prepared to receive updated price files from retailers (daily,
weekly or as frequently as the supermarkets would like) and would clearly date
and time stamp prices. CHOICE would also educate consumers on the complexities
of grocery pricing through articles and directions on our website.
To further mitigate risks of inaccurate prices CHOICE
undertook to:
- draft a Memorandum of
Understanding [MOU] defining the retailer’s responsibility to provide accurate
information and CHOICE’s responsibility to accurately publish that information;
- ensure data integrity
by applying technical and manual Quality Assurance processes to information
supplied, and
- apply prominent caveats to the website.[11]
6.14
The retailers' response to the MOU has been discussed in chapter 4.
6.15
CHOICE also undertook to:
- republish the special prices as they appear in retailers’ catalogues
and re-iterate the same disclaimers as used by retailers (eg available while
stocks last);
- facilitate consumer reporting of advertised products which are
not available in reasonable quantities or for a reasonable time; and
- make clear to consumers the possible variation between price
reported and actual shelf price.[12]
6.16
Given that Woolworths has publicly stated that it is moving towards a
system of uniform pricing on packaged groceries, Senator Barnett asked what the
retailer's objection would be to providing such data for a GROCERYchoice
website:
You could set a national price for baked beans of $2 but once
you put that can of baked beans in every local market there are a lot of
factors that affect the price. A store manager has discretion to change that
price down to be able to meet local competition ... You have overstocks and
different things that happen during the course of the week. Food retailing is
a complicated science.[13]
6.17
It is notable that the advertising catalogues currently circulated by grocery
retailers already contain caveats and disclaimers about product availability at
certain times and locations. The retailers' objection to real-time pricing
data being out of date once it is on a website appears inconsistent given that
arguably 'out of date' information is already available through these
catalogues. Woolworths stated outright that 'we put our brochures out over
Sunday night and Monday morning, and they are basically out of date by Monday
afternoon' as local store managers price check their competition and adjust
prices accordingly.[14]
ANRA's role in the GROCERYchoice negotiations
6.18
CHOICE also raised concerns about ANRA stepping in to conduct
negotiations on behalf of its supermarket members (see chapter 4). CHOICE
recommended that the influence of ANRA be closely examined, suggesting that
'their work undermined a market development which may have increased
competition'[15]:
Whether or not ANRA’s behaviour was in breach of the Trade
Practices Act, it had the effect of advantaging sellers (supermarkets) at
the expense of buyers (consumers). The Committee should consider the power and
influence of ANRA as a barrier to the future competitiveness of the sector as
much as their role in the demise of GROCERYchoice.[16]
6.19
Associate Professor Frank Zumbo was also concerned by ANRA's behaviour
during the GROCERYchoice negotiations, suggesting the potential for breaches of
section 45 of the TPA.
6.20
He argued firstly that, assuming that there is a market for the supply
of information on grocery prices, the effect of the supermarkets—through ANRA—refusing
to supply price information to CHOICE could be seen as substantially lessening
competition for the provision of price information:
What is important to ascertain is what actual discussions
occurred between ANRA, Coles, Woolworths and Franklins. Were they collective
negotiations? Were they individual negotiations? What is the effect of those
negotiations?[17]
6.21
He also highlighted the commercial nature of the negotiations that ANRA
was undertaking:
If an industry association is making representations to the
government or government agencies, that is one thing; but, if an industry
association then undertakes bargaining negotiations, makes representations
about what could be a commercial proposition, what could be the provision of
information, what could be the refusal for providing information, then you are
in very dangerous ground, a very dangerous area.[18]
6.22
Secondly, Associate Professor Zumbo drew attention to subsection 45(4D)
which relates to exclusionary provisions:
Exclusionary provisions are defined as a provision of a
contract, arrangement or understanding whereby:
(b) the provision has the
purpose of preventing, restricting or limiting:
(i)
the supply of goods or services to, or the acquisition of goods or services
from, particular persons or classes of persons; or
(ii)
the supply of goods or services to, or the acquisition of goods or services
from, particular persons or classes of persons in particular circumstances or
on particular conditions;
You would need two or more parties that are competitive with
one another. Certainly Coles, Woolworths and Franklins were competitive with
one another, so the question is if there were discussions between Coles,
Woolworths and Franklins. If you have two or more parties that are competitive,
that is enough to capture all the parties, so in that case ANRA itself could be
party to a possible breach of section 4D and, in turn, section 45.[19]
6.23
When Senator Joyce suggested to the ACCC that the use of ANRA by Coles
and Woolworths could be seen 'as two major organisations working very closely
for a common purpose', Mr Brian Cassidy, Chief Executive Officer, responded:
I do not know. Maybe it is two major organisations using
their representative body ... That is the way representative bodies work.[20]
6.24
Associate Professor Zumbo commented:
These are very serious concerns, because it is an age-old
problem under the Trade Practices Act about what industry associations can and
cannot do. If they engage in collective bargaining, they should lodge a
notification with the ACCC. So a further question is: has ANRA lodged a
collective bargaining notification with the ACCC? If not, there would be
serious questions as to whether ANRA had entered into agreement with Coles,
Woolworths and Franklins that Coles, Woolworths and Franklins would refrain
from supplying price information to CHOICE or they would only supply price
information on conditions determined by ANRA and/or Coles,
Woolworths or Franklins.[21]
6.25
ANRA rejected the allegation that its role in negotiations on behalf of
its members was in any way a breach of the TPA:
The question turns in section 4D of the definition section of
the Trade Practices Act, which essentially says that exclusionary
dealing relates to when two competitors come together in a market and so
cooperate, come to an understanding or contract or agreement that would be seen
to form an intention to restrict competition. It is related very much to the
market in which the players operate. In this sector, the competition is between
grocery retail. That is where the members participate. Certainly what the
competitors are not competing over is the provision of information technology
products and consultation services like website design and so forth. It is
quite clear that there would be no breach whatsoever, in our view, in relation
to exclusionary dealing provisions, because they relate to a completely
different form of competition and not competition in the market in which our
members compete.[22]
6.26
ANRA stated that its role was to provide an 'efficient voice' for its
members and that it was simply acting as a 'good broker' to bring some focus to
discussions about the website.[23]
6.27
Senator Xenophon questioned ANRA further about its role:
Senator XENOPHON—Mrs Osmond, you have said that ANRA
has been ‘the good broker’ in relation to this and that you are an efficient
voice for your members. I do not doubt that. But you say that that relates to
policy and legislative issues. That is a fair statement. But isn’t this case
here, in relation to the GROCERYchoice website, going beyond policy and
legislation? Because of the very nature of what the website was attempting to
do, doesn’t it go beyond that into the actual commercial operations of those
members?
Mrs Osmond—It is no different from, for example, us
having a conversation on behalf of our members about the realities of how
something like unit pricing will operate, which we have done also ... We were
attempting to bring a single, focused voice to discussing the practicalities of
how this would go forward, and that is part of what we do.
Senator XENOPHON—Isn’t there a distinction, though,
between a debate about unit pricing, where each retailer sets its own prices,
and the issue here, which is what various stores will be charging, and for that
information to be disseminated to consumers? Unit pricing is a policy issue.
Isn’t it a little different, though, in terms of what GROCERYchoice was
attempting to achieve?
Mrs Osmond—No, I do not believe so ...
... Senator XENOPHON—But doesn’t the issue of
implementation involve commercial decisions being made by the individual
retailers as to how it will work in a practical sense? There is a distinction
between the two, isn’t there?
Mrs Osmond—It was our job to amplify the concerns of
our members, and that is what we did. As I mentioned earlier, those individual
members will have individual views and take their own individual actions in
terms of either a competitive or a commercial matter.
Senator XENOPHON—Sure. But they did not actually do
that here, because they chose you—Coles, Woolworths and Franklins chose ANRA to
represent their concerns to government.
Mrs Osmond—They had had extensive discussions up to
that point with CHOICE and continue to have some discussions past that point.
We were asked to become part of the discussion to bring some clarity.[24]
Committee view
6.28
The committee is concerned about the role played by the Australian
National Retailers Association during negotiations with CHOICE about the
GROCERYchoice website and believes the matter warrants further investigation.
Recommendation 7
6.29 The committee recommends that the Australian Competition and
Consumer Commission investigate any potential breaches of the Trade
Practices Act 1974 in relation to the role played by the Australian
National Retailers Association in negotiations with CHOICE over the
GROCERYchoice website.
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