Resolving disputes between supermarkets and suppliers under a new Food and Grocery Code

Background

On 23 September 2024, the Federal Government released an exposure draft of the Competition and Consumer (Industry Codes—Food and Grocery) Regulations 2024 (Proposed Code). The Proposed Code is intended to replace the existing Competition and Consumer (Industry Codes—Food and Grocery) Regulation 2015 (Food and Grocery Code), which will sunset on 1 April 2025.

The Food and Grocery Code is an industry code of conduct prescribed under Part IVB of the Competition and Consumer Act 2010 (Cth) (Act). It was introduced in 2015 to address concerns over bargaining power between supermarket retailers and wholesalers on the one hand, and their suppliers on the other hand. It requires signatories to deal with their suppliers in good faith, and sets specific standards for “grocery supply agreements” between supermarkets and suppliers.

The existing Food and Grocery Code is a voluntary industry code,¹ which only applies where a supermarket elects to be bound by it. There are no civil penalties for non-compliance.

In June 2024, the Federal Government released the independent review of the Food and Grocery Code conducted by the Hon Dr Craig Emerson (Review). The Review concluded that the existing Food and Grocery Code is ineffective due to its voluntary application, lack of civil penalties, and insufficient mechanisms for dispute resolution. It made 11 recommendations, including that the Food and Grocery Code should be mandatory, and that non-compliance should be penalised.

The Review also recommended improved dispute resolution processes.

In this update, we analyse the procedures contained in the Proposed Code for investigating complaints by suppliers and resolving supermarket-supplier disputes.

Grocery supply agreements

As noted above, the Proposed Code would be mandatory, not voluntary. It would apply to all “large grocery businesses”, which are supermarket retailers or wholesalers with revenue exceeding $5 billion during the previous financial year.

Under the Proposed Code:

• a grocery supply agreement must require a large grocery business to attend mediation under the Code if requested by the supplier; and
• a grocery supply agreement may also provide that the parties can attend arbitration under the Code (for example, if mediation fails).

In short, mediation must be available whereas arbitration may be available.² The reason arbitration is mentioned in the Proposed Code is to clarify that parties are not limited to using mediation to resolve disputes and can participate in other forms of alternative dispute resolution as well.³

It is important to note that mediation and arbitration are not different labels for the same process. Mediation is a non-binding process where parties engage a mediator to facilitate discussion between them aimed at resolving the dispute by agreement. By contrast, arbitration is a binding process where parties engage an arbitrator (or arbitrators) to hear arguments and evidence and then determine the dispute.

According to the Review, Woolworths, Coles, Aldi and Metcash have agreed in-principle to participate in arbitration if requested by a “small supplier” (with annual turnover of less than $10 million or fewer than 100 employees), and to pay compensation of up to $5 million as determined by the arbitrator.⁴

Dispute resolution framework under the Code

Under the Proposed Code, there are three avenues for resolving a disagreement between a large grocery business and a supplier:

1. The supplier can refer a complaint for confidential investigation by the Code Mediator.
2. Either party can refer a dispute to mediation conducted by the Code Mediator or an ADR practitioner.
3. Either party can refer a dispute to arbitration conducted by an ADR practitioner.

Those avenues can be pursued sequentially but not concurrently. The “Code Mediator” is a person appointed and paid by each large grocery business to, among other things, develop a complaints procedure, investigate complaints made by a supplier, and mediate disputes between suppliers and the business. An “ADR practitioner” is a person who is either an arbitrator or a mediator, and is named on a list kept by the Australian Small Business and Family Enterprise Ombudsman.

Investigation by Code Mediator

An investigation by a Code Mediator would be conducted on a confidential basis and must be concluded within 20 business days of the referral, unless the supplier agrees in writing to a longer period.

After investigating a complaint, the Code Mediator can make recommendations, including payment of compensation to the supplier or changes to the grocery supply agreement. The Code Mediator would not have the power to make binding determinations. According to the Review, however, Woolworths, Coles, Aldi and Metcash have agreed in-principle to be bound by a recommendation of the Code Mediator to pay compensation of up to $5 million, where the supplier agrees to that remedy.

The process used by the Code Mediator to investigate complaints would be subject to independent review by a Code Supervisor appointed by the Federal Government.

Mediation or arbitration by ADR practitioner

The Proposed Code uses the term “ADR process” to refer to both mediation and arbitration conducted by an ADR practitioner.⁵

Under the Proposed Code, an ADR process begins when one of the parties to a grocery supply agreement notifies the other party that it wishes to have a dispute resolved by either mediation or arbitration. If the parties cannot agree within 14 days on the ADR practitioner to be appointed as mediator or arbitrator, and there is no other complaint or dispute resolution process ongoing, then the supplier can appoint the ADR practitioner.

Once appointed, the ADR practitioner would decide the time and place for the mediation or arbitration. The process must be conducted in Australia, although attendees could join remotely. Each party would be required to:

• attend the mediation or arbitration (which includes being represented by a person with authority to settle); and
• try to resolve the dispute (which means making clear what the party is trying to achieve and not taking action that has the purpose of applying pressure to resolve the dispute).

These requirements would be civil penalty provisions.

If a dispute is not resolved within 30 days, then the ADR practitioner could terminate the process unless they are satisfied that a resolution is imminent.

Each party would pay its own costs of attending the ADR process, and unless otherwise agreed, the parties would be equally liable for the costs of the process including the cost of the ADR practitioner.

What’s missing from the Proposed Code?

The Proposed Code does not contain any detailed rules, or refer to any external rules, on how arbitration would be conducted. By contrast, the existing Food and Grocery Code provides that arbitration must be conducted in accordance with the Resolution Institute Arbitration Rules 2016.

If the new Code is to be silent on the applicable arbitral rules, then parties who wish to use arbitration will have flexibility to adopt rules and agree procedures that are tailored to their (anticipated) disputes. Large grocery businesses and suppliers could agree those aspects as part of their grocery supply agreement, or alternatively by way of a submission agreement after a dispute has arisen. Of course, any aspects agreed between the parties would need to be carefully articulated so as to be consistent with the mandatory provisions described above for ADR processes under the Code.

Given that there has been poor uptake by suppliers of the mediation and arbitration options under the existing Food and Grocery Code,⁶  the dispute resolution framework under the Proposed Code presents an opportunity for industry participants to create new industry practices for resolving disagreements efficiently and fairly.

Next steps

Consultation on the Proposed Code is open until 18 October 2024. There is a separate consultation on related amendments to the Act, which is open until 4 October 2024.

The Federal Government intends to present legislation by the end of 2024.

How we can assist you

If you would like more information on how the introduction of a mandatory Food and Grocery Code might affect your business, or would like assistance with preparing a submission on the Proposed Code or related amendments to the Act, please contact a member of our team.