Clause 8: Investigations: enforcement using requirements to publish information
Clause 9: Investigations: enforcement using financial penalties
Clause 15: Review of the Adjudicator and guidance from Secretary of State
Clause 16: Transfer of Adjudicator functions and abolition etc
Schedule 3: Order conferring power to impose financial penalties
1.These Explanatory Notes refer to the Groceries Code Adjudicator Bill [HL] as brought from the House of Lords on 24 July 2012. They have been prepared by the Department for Business, Innovation and Skills to assist the reader of the Bill and to help inform debate on it. They do not form part of the Bill and have not been endorsed by Parliament.
2.The Notes are to be read in conjunction with the Bill. They are not, and are not meant to be, a comprehensive description of the Bill. Where a clause or part of a clause does not seem to require any explanation or comment, none is given.
3.This Bill creates a Groceries Code Adjudicator (Adjudicator).
4.Twelve years ago, the Competition Commission published a report which raised concerns about the relationship between large supermarket chains and their suppliers, who include farmers and small-scale producers. The report showed that suppliers felt that some practices carried out by these large retailers could reduce the incentives and ability of suppliers to invest and innovate in new product lines or production processes. The concerns raised by the Competition Commission included retailers demanding retrospective charges from suppliers and altering contractual arrangements.
5.In response, the Commission produced a Supermarket Code of Practice to regulate the market. However, over time it became clear that there was more that could be done. The Office of Fair Trading therefore initiated a new investigation through the Competition Commission in May 2006. In April 2008, the Competition Commission published its report.
| Bill 62EN | 55/2 |
6.The Competition Commission were concerned that some practices by big supermarkets were still having an anti-competitive effect, harming the long term interests of consumers. This led to a new Code of Practice the Groceries Supply Code of Practice (Groceries Code) which is designed to improve the relationship between big retailers and small suppliers by preventing certain practices from occurring. The Groceries Code is established by, and is part of, the Groceries (Supply Chain Practices) Market Investigation Order 2009 (Groceries Supply Order).
7.The Groceries Code Adjudicator Bill was published in draft on 24 May 2011, and underwent pre-legislative scrutiny. The Business, Innovation and Skills Committee published its report on this draft Bill on 28 July 2011, and the Governments response to the Committee was published on 15 October 2011. These documents can be found at http://www.parliament.uk/business/committees/committees-a-z/commons-select/business-innovation-and-skills/inquiries/parliament-2010/draft-groceries-bill/
8.The new Groceries Code currently applies to all retailers with a turnover of more than 1 billion in groceries in the United Kingdom. There are ten such retailers (referred to in the Bill as large retailers) in the UK, and further retailers can be designated by the Office of Fair Trading if they have such a turnover of over 1 billion.
9.The Groceries Code obliges these large retailers to do the following things:
deal fairly and lawfully with their suppliers;
not vary supply agreements retrospectively, except in circumstances beyond the retailers control which are clearly set out in the supply agreement; and
pay suppliers within a reasonable time.
10.In addition, the Groceries Code:
limits large retailers power to make suppliers change their supply chain procedures;
limits large retailers power to make suppliers pay marketing costs and compensation for wastage;
requires large retailers to pay compensation for forecasting errors in certain circumstances;
limits large retailers power to make suppliers obtain goods or services from third parties who pay the retailer for that arrangement;
limits large retailers power to make suppliers pay them for stocking their products;
limits large retailers power to make suppliers pay for promotions;
requires large retailers to take due care when ordering for promotions;
limits large retailers power to make suppliers pay for resolving customer complaints; and
limits large retailers power to de-list suppliers in other words, to stop dealing with a supplier or make significant reductions to the volume of purchases from a supplier.
11.The Groceries Supply Order requires large retailers to incorporate the Groceries Code into agreements for the supply of groceries for resale in the United Kingdom and to supply a written copy of the agreement and certain other information to the supplier. This means that if a large retailer breaches the Groceries Code it will be in breach of its contract with the relevant supplier, who may then have contractual remedies against the retailer such as a claim for damages.
12.Large retailers are required by the Groceries Supply Order to train their buying teams about the order and the Groceries Code. They must also appoint a compliance officer to act as a point of contact with suppliers and to prepare an annual compliance report for the Office of Fair Trading.
13.The Groceries Supply Order also includes a dispute resolution scheme. A supplier who believes that a large retailer has breached the Groceries Code may notify the retailers compliance officer. If the dispute is not resolved within 21 days then, at any time within four months of the dispute arising, the supplier may refer the dispute to arbitration. The Bill requires that such an arbitration will be carried out by the Groceries Code Adjudicator or another person appointed by him or her.
14.The Groceries Supply Order protects direct suppliers to the large retailers, wherever these suppliers are based in the world.
15.The Groceries Supply Order (apart from the Groceries Code) will not be enforced by the Groceries Code Adjudicator. The Office of Fair Trading is responsible, under the Enterprise Act 2002, for monitoring and reviewing the operation of the order. The Groceries Supply Order itself includes a power for the Competition Commission to direct large retailers and others to take or refrain from particular action to comply with the order.
16.The Groceries Supply Order and new Groceries Code came into force on 4th February 2010. However, the Competition Commission considered that the Groceries Code would be more effective with an ombudsman or adjudicator in place to enforce it in effect, to act as a referee and police the new rules. This was because many small suppliers were worried that raising disputes against retailers would jeopardise future commercial agreements with these companies.
17.After failing to gain sufficient agreement from the large retailers to establish such an enforcer voluntarily, the Competition Commission recommended the last Government to take the necessary steps to establish an Adjudicator as soon as was practicably possible. The consultation carried out by the last Government has been carried forward by the Coalition Government and is the basis for this Bill.
18.The sole purpose of the Adjudicator will be to enforce and oversee the Groceries Code in the ways described in the Bill. This will help to remedy some of the imbalance between large retailers and suppliers which was reported on by the Competition Commission. The report of the Competition Commission also considered that this would operate in the long term interests of consumers, because the Groceries Code would help to encourage innovation and investment by suppliers.
19.In order to help deliver these objectives, the Adjudicator established by the Bill will do the following things:
arbitrate disputes between large retailers and their direct suppliers, or appoint another person to do so. This will be part of the dispute resolution scheme provided by the Groceries Supply Order;
investigate possible breaches of the Groceries Code by large retailers;
where an investigation finds that a large retailer has breached the Groceries Code, decide whether to make recommendations to the retailer, require it to publish information about the investigation or (if the Secretary of State makes an order authorising the Adjudicator to do so) impose a financial penalty on the retailer;
publish guidance on when and how investigations will proceed and how these enforcement powers will be used;
advise large retailers and suppliers on the Groceries Code;
report annually on his or her work; and
recommend changes to the Groceries Code.
20.The Adjudicator will be funded by a levy, to be paid by the large retailers. The Secretary of State will also have the power to make grants or loans to the Adjudicator. This power will help ensure that the Adjudicator is adequately resourced to undertake his or her functions.
21.The Secretary of State will review the Adjudicators performance (initially after approximately two years, and then every three years) and will consider the effectiveness of the Adjudicator and whether the office should continue. The Secretary of State will also have the power to transfer the Adjudicators functions to a public body. This will give flexibility if a body which is more appropriate to carry out the functions is identified or established.
22.The Bill would extend to, and apply in, all parts of the United Kingdom.
23.This Bill does not contain any provisions which would require any Legislative Consent Motions in respect of devolved legislatures.
24.If there are amendments relating to devolved matters, which trigger the need for a Legislative Consent Motion, the consent of the respective devolved legislature will be sought.
25.This clause establishes a Groceries Code Adjudicator. The Adjudicator will be a statutory office holder appointed by the Secretary of State. Further provision about the Adjudicator is in Schedule 1.
26.Article 11 of the Groceries Supply Order provides that, where a dispute arises under the Groceries Code and is not resolved to the satisfaction of the supplier within 21 days, the supplier may make an arbitration request. The large retailer must submit to that request.
27.The Groceries Supply Order envisages that an arbitration requested by the supplier will be administered by the Adjudicator (referred to in the Groceries Supply Order as the Ombudsman).
28.Where a supplier refers a dispute to arbitration, clause 2 therefore requires the Adjudicator either to act as arbitrator or to appoint another person to do so. The Government expects that in many circumstances it will be the Adjudicator who will arbitrate such disputes. However, the Adjudicator could appoint another person where a conflict of interest may exist (for example where the Adjudicator has previously advised on or investigated an issue which is relevant to the dispute) or where the Adjudicator does not have enough time to act as the arbitrator. Article 11 of the Groceries Supply Order provides for the arbitration to be conducted in accordance with the Rules of the Chartered Institute of Arbitrators, or such other dispute resolution body as is nominated by the arbitrator. Under Article 11, all costs of the arbitrator will be borne by the large retailer, unless the arbitrator decides that the suppliers claim was vexatious or wholly without merit, in which case those costs will be assigned at the arbitrators discretion. Article 11 also provides that all other costs of the arbitration will be assigned at the arbitrators discretion.
29.Article 11 of the Groceries Supply Order does not prevent large retailers from referring a dispute under a supply agreement to arbitration. Clause 2(2) allows the Adjudicator to accept appointment as arbitrator in such a case.
30.As regards England and Wales and Northern Ireland, section 94 of the Arbitration Act 1996 applies the provisions of Part 1 of that Act to arbitrations carried out under the Groceries Supply Order and this Bill, subject to the adaptations and exclusions specified in sections 95 to 98 of that Act and except so far as those provisions are inconsistent with the Groceries Supply Order or the Bill. As regards Scotland, section 16 of the Arbitration (Scotland) Act 2010 will have a similar effect in applying the Scottish Arbitration Rules, subject to the exceptions stated in that section and except so far as this would be inconsistent with the Groceries Supply Order or the Bill. Pending commencement of section 16, clause 21(6) of this Bill applies the Arbitration (Scotland) Act 2010 to arbitrations carried out by the Adjudicator, or a person appointed by the Adjudicator, as if that Act were in force in relation to those arbitrations.
31.This clause enables the Adjudicator to obtain information on an arbitration carried out by another person appointed by the Adjudicator to arbitrate a dispute. Together with information gained by the Adjudicator by acting as arbitrator, this helps to supplement the Adjudicators knowledge and experience of the operation of the Groceries Code, including those aspects which give rise to disputes. This should help the Adjudicator carry out functions such as preparation of the annual report and giving advice and guidance on the Groceries Code. However, clause 18 prevents the Adjudicator making unauthorised disclosures of information relating to an arbitration which would identify a party to the arbitration.
32.This clause enables the Adjudicator to carry out an investigation about whether a large retailer has broken the Groceries Code if the Adjudicator has reasonable grounds to suspect that a large retailer has broken the Groceries Code or has failed to follow a recommendation made under clause 7.
33.As the Adjudicator will have a limited budget, it may be necessary for the Adjudicator to prioritise which investigations to carry out in order to ensure he or she most effectively fulfils the role of enforcing the Groceries Code and encouraging compliance with it. This is a matter which the Adjudicator would be likely to address in the guidance published under clause 12.
34.The Adjudicator will be able to begin an investigation if he or she has reasonable grounds to suspect that a large retailer has broken the Groceries Code. In addition, if a large retailer has previously been found to have broken the Groceries Code and this has resulted in a recommendation by the Adjudicator under clause 7, then the Adjudicator will be required by clause 7 to monitor whether the recommendation has been followed. If the Adjudicator has reasonable grounds to suspect that a recommendation has not been followed, he or she may carry out an investigation. In some cases this further investigation could lead to the Adjudicator taking additional enforcement measures against the retailer if it had failed to follow the earlier recommendation. However, in order to take additional measures, the Adjudicator would need to be satisfied that there had been a further breach of the Groceries Code (see clause 6). This further breach could include a repetition of the breach which had led to the original recommendation being made.
35.The Adjudicator may consider any information that it seems appropriate to consider, both when determining whether or not to commence an investigation and when carrying out an investigation. During an investigation, the Adjudicator has extensive powers to require people to provide information, which are set out in Schedule 2. The Adjudicator has no similar power to require people to provide information for the purpose of deciding whether to commence an investigation, except for the powers in Schedule 2 which allow the Adjudicator to require retailers to provide information about whether they have complied with a previous recommendation. This limit on the Adjudicators information gathering powers does not prevent the Adjudicator from making contacts and receiving information voluntarily, so far as this is permitted by the general law.
36.It is not intended that the findings of an investigation need be limited to the possible breaches, or possible failure to follow a recommendation, that gave the Adjudicator reasonable grounds for suspicion as referred to in clause 4(1).
37.Before carrying out the first investigation the Adjudicator must publish guidance under clause 12(1). This will ensure that large retailers, suppliers and others with an interest in the Adjudicators work know in advance how he or she proposes to go about investigations generally.
38.This clause requires the Adjudicator to publish a report at the end of an investigation.
39.The report must specify any findings, any action taken or proposed, and the reasons for these findings and actions. The report does not have to disclose the identity of the large retailer. This is because there may be cases where the Adjudicator considers that the objectives of the Groceries Code can be effectively achieved whilst dealing with the relevant retailer privately. A large retailer must be given an opportunity to comment on a draft of an investigation report in which it is identified. This should give that large retailer an opportunity to correct errors and give any views to the Adjudicator before publication.
40.Where an investigation finds that a large retailer has breached the Groceries Code, and this breach has affected a particular supplier, the finding of the investigation will not constitute a determination of liability of the retailer to that supplier on which the supplier can rely. The supplier would need to make its own claim against the retailer in order to obtain a remedy.
41.If the Adjudicator concludes that a large retailer has broken the Groceries Code the Adjudicator may make recommendations under clause 7, require information to be published under clause 8 or impose financial penalties under clause 9 (but financial penalties may only be used if the Secretary of State has made an order allowing this see also Schedule 3).
42.If the Adjudicator concludes that a large retailer has breached the Groceries Code, he or she can recommend what the large retailer should do to comply with the Groceries Code. The Adjudicator is then required to monitor whether recommendations are followed and report on this in the annual report under clause 14. For the purposes of this monitoring, large retailers can be required to provide information to the Adjudicator (see Schedule 2).
43.Recommendations are likely to be used in circumstances where the breach of the Groceries Code is less serious. They may also be used alongside a requirement to publish information or the imposition of financial penalties (if the Secretary of State has made an Order allowing this see clause 9 and Schedule 3) for more serious breaches of the Code. There is no express sanction for failure to comply with a recommendation, but failure to show that a recommendation has been followed could trigger a new investigation (see clause 4(1)) or be taken into account when considering what sanction to impose following a future investigation.
44.Clause 8 allows the Adjudicator to require a large retailer who the Adjudicator is satisfied has breached the Groceries Code to publish information about the Adjudicators investigation, including its outcome. The Adjudicator will need to inform the retailer in writing of the information required to be published, the manner in which it must be published and the time by which it must be published. For example, the Adjudicator could require publication by press release, through the large retailers annual report or website or through a newspaper advertisement. The information could then be taken into account by those dealing with that large retailer in future.
45.Financial penalties are the most severe of the enforcement powers available to the Adjudicator following an investigation. They may not be necessary in order to secure a high level of compliance. This power therefore applies only if the Secretary of State has authorised the Adjudicator to impose financial penalties. Further provision about authorisation is in Schedule 3 to the Bill. Any authorisation would be given generally, not on a case by case basis.
46.If that authorisation is given, the Adjudicator will be able to impose a financial penalty on a large retailer who the Adjudicator is satisfied has breached the Groceries Code. The Adjudicator would need to specify in writing to the large retailer the reasons for the penalty, the amount of the penalty and the period within which it must be paid. The large retailer could appeal to the court against the imposition of the penalty, whether on grounds that it claims not to be in breach of the Groceries Code or otherwise. The retailer could also appeal against the amount of a penalty. Financial penalties would be paid into the Consolidated Fund and so would not be used to support the Adjudicators activities.
47.This clause provides that the Adjudicator may require the large retailer to pay some or all of the costs of an investigation if the Adjudicator finds that the retailer has breached the Groceries Code. The ultimate cost of the investigation would otherwise be likely to fall on all large retailers, who are required to pay the levy under clause 19, whereas clause 10 enables some or all of that cost to be recovered from a culpable large retailer.
48.Where a person has made a complaint which was found to be vexatious or wholly without merit, the Adjudicator may require that person to pay some or all of the costs of a resulting investigation. This is intended to be a high threshold but is intended, in particular, to deter false complaints or, in the case of complaints from suppliers, use of the Adjudicator for tactical reasons in contract negotiations.
49.The Adjudicator must inform the person who is required to make a payment of the requirement to pay costs in writing and should include the reasons for imposing the requirement, the amount to be paid and the time period within which it must be paid. The person required to pay could appeal the decision to the court.
50.This clause allows the Adjudicator to give suppliers and large retailers, whether generally or individually, advice about any aspect of the Groceries Code. This power is likely to be exercised with a view to encouraging compliance with the Groceries Code. As a public authority, the Adjudicator will be required to act responsively and reasonably in dealing with requests for advice, taking into account relevant circumstances including constraints on the Adjudicators resources, any effect the giving of advice might have on the ability to carry out other functions, and the facts of the particular case.
51.Clause 12 provides that, within six months of being established, the Adjudicator must publish guidance on (1) the criteria for deciding whether to carry out investigations, (2) the practices and procedures for investigations and (3) the criteria for using enforcement powers. This ensures that guidance is available before the coercive powers involved in investigations are exercised. If the Secretary of State makes an order authorising the imposition of financial penalties, the Adjudicator must also publish guidance about the criteria to be adopted in deciding the amount of financial penalties. The Adjudicator will be able to publish this guidance on the amount of financial penalties at any time, including before the Secretary of State makes such an order. This ability to publish at any time could enable financial penalties to be imposed more swiftly following an order by the Secretary of State. For example, the Adjudicator could consult on the guidance at the same time as the Secretary of State carried out the consultation required under Schedule 3 before making an order.
52.The Adjudicator may also publish additional guidance about practices and procedures to be followed in carrying out other functions and about any matter relating to the Groceries Code. For example, this power would enable the Adjudicator to give general guidance about the interpretation of a particular provision of the Groceries Code. Guidance about the Groceries Code can be used to encourage both compliance by large retailers and a good level of understanding of the code by retailers and suppliers. Indirectly, this may reduce the need for disputes and investigations. As a public authority, the Adjudicator will be required to act reasonably in considering whether to publish additional guidance, taking into account these and other relevant factors.
53.The Adjudicator must consult as appropriate before issuing any guidance. Guidance is not binding on any person but the Adjudicator must take it into account in carrying out functions. Therefore well advised large retailers and suppliers are themselves likely to consider any relevant guidance in complying and dealing with the Groceries Code because, for example, the guidance may be relevant when the Adjudicator is considering enforcement.
54.If the Adjudicator considers it appropriate for any changes to be made to the Groceries Code, he or she must make a recommendation to the Office of Fair Trading. The Office of Fair Trading is responsible under section 162 of the Enterprise Act 2002 for monitoring the Groceries Supply Order, which includes considering whether it should be amended.
55.This clause provides that the Adjudicator must publish an annual report after the end of each reporting period and send it to the Secretary of State and the Office of Fair Trading. The Secretary of State must lay a copy of this report before Parliament. Reporting periods will end on 31st March. The annual report must include summaries of disputes which are referred to arbitration under the Groceries Supply Order, investigations conducted by the Adjudicator and the use of enforcement powers. Where the use of enforcement powers has included recommendations, the report should include an assessment of whether these have been followed. The report must also include any recommendations made under clause 13 to amend the Groceries Code.
56.Each annual report should therefore contain information which is useful to the Office of Fair Trading in monitoring the Groceries Supply Order and the Secretary of State in reviewing the Adjudicator under clause 15, as well as to users of the Groceries Code generally. These reports are in addition to the annual accounts required under paragraph 15 of Schedule 1.
57.The Secretary of State is required to review the performance of the Adjudicators functions after approximately two years, and then every three years. The Secretary of State must consult interested parties and publish a report of the findings. These requirements are in line with the Governments better regulation objective that all regulators should be reviewed as to their effectiveness and whether they are achieving their objectives.
58.The Secretary of State may issue guidance to the Adjudicator following a review. The guidance will not bind the Adjudicator but he or she will need to take it into account. For example, the Secretary of State might consider that enforcement powers might be exercised differently or that the Adjudicator should be more active in giving advice or guidance.
59.As a result of the findings of a review, the Secretary of State may also decide by order to restrict the classes of information that the Adjudicator may consider when deciding whether to carry out an investigation. Although there are advantages to the Adjudicator being able to consider as wide a range as possible of information, it may be the case that receiving such a wide range of information causes the Adjudicator to receive large volumes of poor quality or irrelevant information. As the Adjudicators budget is expected to be small, dealing with such information could impair his or her ability to carry out their functions. The Secretary of State can therefore restrict the information the Adjudicator may consider to four specific classes of information, which are those that might be expected to be most useful in determining whether or not a breach of the Groceries Code had occurred or a retailer had complied with a recommendation.
60.These classes would include suppliers (both direct and indirect) and information from workers employed by the relevant retailer or another company in its group. The latter class is intended to continue to allow the Adjudicator to consider information provided by whistleblowers. If the Secretary of State were to restrict the classes of information in this way, the Government would be able to amend the Public Interest Disclosure (Prescribed Persons) Order 1999 to make the Adjudicator a prescribed person to whom protected disclosures may be made in accordance with the Employment Rights Act 1996. The making of an Order to impose this restriction would not affect the information that the Adjudicator may consider during an investigation and for this purpose the Adjudicator would continue to be able to exercise the same information gathering powers set out in Schedule 2.
61.If the Secretary of State has not made such a restriction, he or she is obliged to consider doing so at each review. If he or she does decide by order to restrict the information that can be considered, this order would operate as a permanent restriction and would not be capable of being amended or revoked.
62.The Secretary of State may transfer some or all of the Adjudicators functions to a public body. This power (which is exercisable by order requiring approval by each House of Parliament see clause 23) need not necessarily be exercised following a review under clause 15. On 23 May 2012 the Enterprise and Regulatory Reform Bill had its first reading in the House of Commons. This Bill includes provisions to merge the competition functions of the Office of Fair Trading and the Competition Commission to create a single Competition and Markets Authority. Should this body be created then one possibility is that the Adjudicators functions could sit within this body. In exercising the power, the Secretary of State must consider whether the functions could be exercised effectively and with appropriate accountability to Ministers following any transfer. In the case of a transfer to a single Competition and Markets Authority, this might, for example, require the Secretary of State to consider appropriate separation of the Adjudicators functions from the other functions of that authority.
63.The Secretary of State can abolish the Adjudicator in three circumstances. The first (which requires an order approved by each House of Parliament see clause 23) is where a review by the Secretary of State (under clause 15) finds that the Adjudicator has not been sufficiently effective in enforcing the Groceries Code or that there is no longer a need for the Adjudicator. The second is where all the functions are transferred to another body. The third is where the Groceries Supply Order is revoked and not replaced.
64.The Secretary of State will be able to require information from the Adjudicator to assist the Secretary of State in carrying out a review or other functions under the Bill.
65.This clause prohibits the Adjudicator from disclosing information about an arbitration if this would identify a party, either directly or by deduction. The broad intention is to protect the normal privacy of an arbitration whilst enabling lessons to be learned by other users of the Groceries Code where this is appropriate.
66.Secondly, the clause prohibits the Adjudicator from disclosing the identity of any person who has complained to the Adjudicator about a breach of the Groceries Code. This prohibition applies to any complaint made to the Adjudicator, whether or not the complaint is made in connection with an investigation by the Adjudicator. Protecting the identity of complainants was considered by the Competition Commission to be important in order to reduce the threat of retaliatory treatment by a large retailer if the retailer found out that a particular supplier had raised a complaint. The duty of confidentiality extends to all complainants rather than only suppliers: it would therefore include, for example, whistleblowers and trade associations (the identification of which might enable a retailer to draw inferences about particular suppliers).
67.The prohibitions in clause 18 do not apply if (1) the relevant parties consent to disclosure, (2) disclosure is required to comply with an EU obligation (as defined in Schedule 1 to the European Communities Act 1972; any such obligation could not be overridden by the Bill) or (3) disclosure is required by court rules or a court order for the purpose of legal proceedings. However, clause 18 is intended to prevent the disclosure of information to which the clause applies being required by a request under the Freedom of Information Act 2000 (see section 44 of that Act).
68.The prohibitions on disclosure in clause 18 are additional to those that apply under Part 9 of the Enterprise Act see clause 21.
69.The Adjudicator is to be funded wholly or mainly by the large retailers. This clause therefore enables the Adjudicator to require large retailers to pay a levy towards the Adjudicators expenses. It will be for the Adjudicator to decide when to impose a levy, and of how much, but each levy must be approved by the Secretary of State and the Adjudicator must publish an explanation of how the amounts have been decided. The Adjudicator may repay a surplus to large retailers at any time, and if a surplus remained at the end of a financial year, there would be an expectation that it would be taken into account in determining the levy for the following financial year.
70.Initially the levy will be equally divided between the large retailers. However, the broad intention is that large retailers who breach the Groceries Code should contribute more to the costs of the Adjudicator. Under Article 11 of the Groceries Supply Order, all of an arbitrators costs for arbitrations will be funded by the particular retailer involved (with the possible exception of where the suppliers claim was vexatious or wholly without merit). Costs for investigations may be required to be funded by a large retailer found to have breached the Groceries Code (see clause 11).
71.The Adjudicator is also able to require large retailers to pay differing amounts based on criteria reflecting the time and expense the Adjudicator expects to incur in dealing with matters relating to different retailers. The intention is that once the Adjudicator is functioning it will be easier to determine, based on evidence, which retailers, or which types of retailer activity, are creating the most work for the Adjudicator and determine a funding model which reflects this. Any unequal division of the levy would have to be based on such an assessment, and could not be based on more general factors, such as turnover (unless the Adjudicator found that there was a correlation between turnover and expense and time spent by the Adjudicator). The requirement for the Secretary of State to consent to a levy provides a safeguard in relation to its division by the Adjudicator. By implication, the prospect of the levy being divided on these terms may give additional incentives for large retailers to comply with the Groceries Code in order to reduce their contributions to the Adjudicators costs. It would however be important for the Adjudicator to avoid a model which risked double counting additional charges to certain large retailers, taking into account the existing means to charge additional amounts to retailers who breach the Groceries Code, as referred to above.
72.Clause 20 enables the Secretary of State to make grants or loans to the Adjudicator. This is only envisaged in limited circumstances, for example in raising sufficient funds for the set up costs of the Adjudicator, which the retailers will pay for in due course through the levy.