Woolies defeats ACCC in unconscionable conduct battle over $60 million ‘Mind the Gap’ scheme

THE Federal Court has cleared Woolworths of wrongdoing over its controversial $60 million Mind the Gap scheme.

WOOLWORTHS has been cleared of wrongdoing in its controversial financial arrangements with suppliers.

The Federal Court today dismissed proceedings brought by the Australian Competition and Consumer Commission, accusing it of unconscionable conduct over its “Mind the Gap” scheme, which the retailer used to help plug a $50 million hole in its profits.

The ACCC alleged that Woolworths breached consumer laws by seeking about $60.2 million from suppliers under a scheme developed in December 2014.

Facing a significant half-year gross profit shortfall, the company directed category managers and buyers to contact a large number of suppliers to ask for urgent payments ranging from $4,291 to $1.4 million each.

The Federal Court ruled that Woolworths’ requests for these payments were not unconscionable within the meaning of the Australian Consumer Law.

Justice Yates noted the complex trading relationship between Woolworths and its suppliers and that trading terms were under constant negotiation, subject to change depending on circumstances.

During the week-long hearing last month, senior executives for the supermarket giant told the court that the practice of asking suppliers for support payments was “perfectly normal” and part of “ongoing commercial negotiations”, which had been industry practice for years.

The ACCC had sought injunctions, including an order requiring the refund of $18.1 million, as well as a pecuniary penalty of up to $1.1 million, plus its costs.

Woolworths welcomed the court’s decision, noting that Justice Yates had rejected all 13 propositions put forward by the ACCC that were alleged to have constituted the unconscionable conduct, while accepted the evidence of each of its witnesses.

“We defended the case because we firmly believed we did not act unconscionably and we did not break the law,” Woolworths Chief Legal Officer and Company Secretary Richard Dammery said in a statement.

ACCC Chairman Rod Sims defended the commission’s decision to pursue the action, which was taken “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,” Mr 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.”

Coles settled a similar case with the ACCC in late 2014, agreeing to pay more than $10 million in fines and refund more than $12 million to suppliers.

— With AAP