Woolies Win Lets Dick Smith Execs Off The Hook
Former Dick Smith managers, and Woolworth execs, can breath a sigh of relief, after a federal court ruled that hitting up suppliers for additional money was not illegal.
Judge David Yates dismissed claims by the ACCC that Woolworths broke the law by demanding retrospective payments from suppliers to plug a hole in its profits in the weeks leading up to Christmas 2014.
“I’m not satisfied Woolworths has contravened section 21 of the Australian Consumer Law as alleged,” Justice Yates said.
“The originating application should be dismissed,” he said before ordering costs to be resolved between the two parties within seven days.
Woolworths and the Australian Competition and Consumer Commission originally expected Justice Yates to hand down his decision next March.
The ACCC claimed that suppliers who balked or questioned Woolworths’ request were deemed ‘problem suppliers’ and threatened with repercussions such as less support, range reviews and even delisting.
Woolworths admitted tapping suppliers for extra money after finding a hole in its December-half 2014 profits, but claimed its demands were common practice in grocery retailing.
“As a matter of legal principle, the mere fact that a person requests something for which they have no contractual entitlement cannot be unconscionable. Were it otherwise, every opening offer or attempt at negotiation or renegotiation would amount to unconscionable conduct,” Woolworths said in its closing submission last month.
They rejected the ACCC’s argument it took advantage of its superior market power to put pressure on suppliers, asserting that many of the suppliers approached were large multinationals and criticized the ACCC for failing to call any suppliers as witnesses.
This absence of testimony is likely the reason for both the quick turnaround in the case, and the overall verdict.
Judge Yates noted in his judgement that “the absence of evidence from the suppliers concerned makes it impossible to assess a number of the factors to which the Court must have” and added that “the email correspondence must be treated with care because, where different negotiating
He cited a lack of evidence towards on any retributions towards uncooperative suppliers on Woolworths part as a crucial omission from the case made by the ACCC.
Many expected the company to be fined upwards of $30 million after similar charges were levied against Coles back in 2014, who after being found guilty agreed to pay penalties of $11 million and refund $12 million to suppliers.
It’s very close to the same process that Nick Abboud the former CEO and Neil Merola the former Marketing Director along with several other senior management adopted at Dick Smith in a desperate play to try and boost profits at the struggling retailer.
One exec, Bill Wavish, told the NSW Supreme Court earlier this year that he encouraged Dick Smith to use the strategy to reduce its reliance on bank finance.
Mr Wavish said he taught the collapsed electronics retailer to rely on rebates by using suppliers rather than banks to get extended credits during the Christmas period.
The verdict is a loss for the ACCC chairman Rod Sims, who has previously slammed Woolworths conduct as an industry practice that needs to be stamped out.
“The ACCC took this action because we considered that Woolworths’ behaviour went well beyond hard commercial bargaining and is not consistent with business and community values. If you’re a supplier subject to arbitrary demands, it’s very hard to make future investment decisions in the face of financial uncertainty,” ACCC Chairman Rod Sims said.
“The ACCC will carefully consider the judgment. Pursuing unconscionable conduct remains an important area for the ACCC and we will continue to take enforcement action where appropriate, particularly in relation to supply chain issues,” Mr Sims said.
Looking forward, the ruling is likely to have major implications as creditors continue to dig through the rubble of Dick Smith as the federal court’s decision to let Woolworth’s off the hook may well prove a similar out for those involved in the collapse of the electronics retailer.