Articles

The Competition Commission published a report in April 2008 where it concluded that there were features of the groceries market which prevent, restrict or distort competition; including the adoption of supply chain practices by grocery retailers which transfer excessive risk and costs to suppliers[1]. In order to address these effects, the Competition Commission introduced the Groceries Supply Code of Practice ("GSCOP") in a schedule to the Groceries (Supply Chain Practices) Market Investigation Order 2009 (the "Order") which comes into force on 4 February 2010. This will replace the existing Supermarket Code of Practice. The Order binds those retailers listed in Schedule 2 (namely Asda, Co-op, Marks & Spencer, Morrisons, Sainsbury, Tesco, Waitrose, Aldi, Iceland, Lidl) and any future retailers with a turnover exceeding £1bn as designated by the OFT.

The Order envisaged the appointment of an ombudsman, to ensure that retailers comply with the schedules to the Order (of which GSCOP is one). The Competition Commission does not have the power to appoint an ombudsman and unsuccessfully sought undertakings from retailers to appoint one. Therefore, the Competition Commission recommended on 4 August 2009 that the Department for Business, Innovation and Skills legislate to establish one[2]. As yet there has been no such legislation. However a private members bill dealing with the issue was introduced just before Christmas and following an Opposition statement that they would legislate to introduce an ombudsman[3], the Government announced on the 13 January 2010 that they "accept in principle the need for a body to enforce the GSCOP, and plan to consult in February who that body might be (including possibly the OFT) and the powers that it might have"[4].  . The decision to appoint an ombudsman will be news welcomed by many; but in the meantime no individual or organisation is responsible for ensuring retailers' full compliance with GSCOP.

Until an ombudsman is appointed, complaints from suppliers are the only enforcement mechanism, as the OFT's duties are merely to:

• designate retailers to whom the Order should apply;
• ensure that GSCOP is incorporated into supply agreements;
• that relevant retail staff are trained on retailer's obligations under the Order/GSCOP;
• that retailers appoint Compliance Officers independent of the buying team;
• that dispute resolution proceedings are initiated at the request of suppliers; and
• that compliance reports are produced annually and submitted to the OFT.

Without the ombudsman, complaints about breaches of GSCOP can be pursued only by suppliers directly with retailers and will be handled by the retailer in accordance with the dispute resolution procedure set out in the Order, summarised below.

• The supplier must inform the Code Compliance Officer at the relevant retailer that it believes that the retailer has not fulfilled its obligations and that it wishes to initiate the dispute resolution procedure. 
• If the issue is not resolved, the matter may be referred to independent binding arbitration, with costs to be paid by the retailer (unless the arbitration is wholly without merit).
• Alternatively, the supplier can bring an action under contract law.

Complaints about breaches of the Order will, however, be pursued by the OFT. These include, but are not limited to:

• failure to incorporate GSCOP into supply agreements;
• failure to provide a written copy of the agreement; and
• failure to follow the above dispute resolution procedure.

The OFT may try to resolve matters informally. Failing that they (or the Competition Commission) can apply for an injunction.

This situation is far from satisfactory as a period of time currently exists (from the Order coming into force, to the appointment of an ombudsman) in which suppliers are exposed. Some argue that it is a step backwards from the previous Supermarket Code of Practice as it does not ensure the suppliers' anonymity , but still relies on them to enforce breaches of GSCOP until an ombudsman is appointed (which may take some time following the Government's planned consultation in February). In the meantime, despite the safeguards that are in place, it appears unlikely that suppliers will use the dispute resolution procedure widely owing to the commercial risks of bringing a complaint.