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Grocery Code Adjudicator

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A bill is in parliament for the introduction of a Groceries Adjudicator, the aim being to make it easier for suppliers to enforce the Grocery Supply Code of Practice, and give small businesses better protection when dealing with more powerful retailers.

The new office of Groceries Code Adjudicator (introduced by the Groceries Code Adjudicator Bill, currently before the House of Lords) will be responsible for overseeing and enforcing the Grocery Supply Code of Practice. Despite having been in existence for some time, the Code has been largely ineffective in redressing the imbalance of power between large retailers and their suppliers. The government hopes that the introduction of a Groceries Adjudicator will make it easier for suppliers to enforce the Grocery Supply Code of Practice, and ultimately afford them better protection when dealing with more powerful retailers.

THE GROCERIES CODE OF PRACTICE (BACKGROUND)
The Code was established in 2009 (coming into force in February 2010) following an investigation by the Competition Commission (the “Commission”) into the UK groceries market. In its investigation the Commission concluded that, in many cases, large grocery retailers were transferring excessive risks and unexpected costs to their suppliers. Such behaviour limits the ability of those suppliers to invest and develop their businesses, and ultimately will lead to reduced competition in the marketplace. The Code was introduced by the Commission in an effort to establish a fairer system.

The Code places a number of duties on retailers, most significantly requiring that they:

• deal fairly and lawfully with their suppliers (meaning dealing with suppliers in good faith, without duress and with regard to their suppliers’ needs to address the risks and costs of trading);
• not vary supply agreements retrospectively (unless due to circumstances beyond the retailer’s control and which are clearly documented in the supply agreement);
• pay suppliers within a reasonable time after the date of invoice; and
• incorporate the Code into any agreement for the supply of groceries for resale in the UK.


THE GROCERIES CODE ADJUDICATOR
In the years following its inception the Code has, despite having raised some awareness of the relevant issues, remained relatively “toothless”. In May 2012 the Commission asked the Department for Business Innovation and Skills (“BIS”) to set up a body to oversee and enforce the Code. After considering various options, BIS decided to create the Adjudicator.

Amongst its powers the Adjudicator will:

• advise large retailers and suppliers generally regarding the Code and publish guidance;
• be able to investigate complaints as well as act as an independent ombudsman and arbitrate disputes between suppliers and retailers;
• protect the identities of Suppliers who make complaints by treating them confidentially; and
• be able to exercise powers from the Government to “name and shame” offending retailers, or even impose financial penalties where necessary.
The Groceries Code Adjudicator Bill is currently before the House of Lords with committee stage (typically consisting of a line by line examination of the bill) scheduled for 26 June 2012.

DIFFERENCE TO THE CURRENT POSITION
Currently, without an Adjudicator, there are only two real options open to a supplier in respect of a breach of the Code:

• use the dispute resolution procedure (set out in the order establishing the Code); or

• provided that the Code has rightfully been incorporated into the relevant supply agreement, bring a legal action for breach of contract.

Neither of these options are ideal. The first option is unattractive as many suppliers will be understandably reluctant to complain if their identities are not protected for fear of reprisals. The second option is also unattractive as it will most likely lead to lengthy and costly actions which again do not protect the anonymity of the supplier involved.

The introduction of Adjudicator is designed to provide a third alternative for aggrieved suppliers. The aim is to make enforcing the Code simpler and anonymous, while also providing general oversight of the Code and its impact.

REACTION TO THE ADJUDICATOR
The prospect of an Adjudicator has been met with a largely positive reaction from those in the retail supply industry. Many are pleased that the government is finally “giving some teeth” to the Code, and the proposal has been met with support from the likes of the National Farmers Union. In addition to suppliers, small retailers have also welcomed the move with the Association of Convenience Stores (“ACS”) describing the proposed introduction of an Adjudicator as: “an important step towards a fairer market”.

Reaction from larger retailers has (perhaps unsurprisingly) been more negative. Andrew Opie, food director at the British Retail Consortium commented that the introduction of an Adjudicator was: “in danger of adding to the cost and bureaucracy of running a grocery business without adding to the strong protection which already exists for suppliers”.

FURTHER INFORMATION
We regularly advise clients in the retail supply industry regarding developments such as the above. If you would like further information concerning the introduction of the Adjudicator, or an informal chat about how this development might be able to benefit your business, members of our commercial team would be happy to speak to you.
 

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