Grocery Code Adjudicator bares her teeth

16 February 2015

Author: Rosie Timoney
Practice Area: Commercial Law, Corporate - M&A

R_timoney

New legislation has been laid before Parliament which, if passed will see UK supermarkets fined where they are found to have breached the Groceries Supply Code of Practice (Code).

Hot on the heels of this development comes the news that the GCA, Christine Tacon, will launch an investigation where she has “reasonable suspicion” that a supermarket has breached the Code. Whilst the GCA will not be able to impose any fines retrospectively, this action nonetheless may suggest that the Adjudicator isn’t all bark and no bite and will seek to use her powers to the full extent, starting with one of the biggest players in the field.

The Code, enacted in 2010 is enforced by the Groceries Code Adjudicator (GCA). The Code applies to “large retailers” being those which have an annual turnover of more than £1billion and aims to ensure that large retailers employ an overarching principle of fairness when dealing with their suppliers.

The Code was enacted to remedy adverse effects on competition within the UK supply of groceries sector as identified by the Competition Commission. The Code applies to household names including (amongst others) J. Sainsbury, Asda, Lidl and Marks and Spencer.

Whilst, at present, the Code includes specific provisions in relation to payment terms, supply terms and marketing and promotional costs and affords the GCA the power to name and shame those who breach the Code, there is no financial penalty imposed for breach.

In the past, politicians and members of the industry have expressed frustrations with the GCA, stating whilst it has a vital role, that role cannot be effectively exercised without giving it the teeth it needs to penalise those who breach the Code. If enacted, the new legislation entitled the “Groceries Code Adjudicator (Permitted Maximum Financial Penalty) Order 2015” will complement the existing framework and give the GCA the real powers it needs to impose fines on UK supermarkets for breaches of the Code. It is proposed that UK supermarkets will be fined up to 1% of their annual UK turnover, depending on the severity of the breach. The level of the fine has been criticised by retailers as being unnecessary and heavy handed. The adjudicator, Christine Tacon has responded by explaining that the fine must be set at a level to act as a deterrent and states that any fine “has got to hurt when I use it”.  

These developments have been particularly welcomed by farmers and smaller businesses. The Minister for Agriculture, Michelle O’Neill supported the decision stating: "My position on this important matter has consistently been that we need a GCA with real power. I therefore welcome the fact that the British Secretary of State for Business, Innovation and Skills has now introduced draft legislation to grant the GCA the power to fine large supermarkets that breach the Groceries Code of Practice."

For more information please contact Rosie Timoney or another member of our corporate team.

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