Time to bring on the referee? The Government's proposed Adjudicator for the Groceries Code - Business, Innovation and Skills Committee Contents

4  How the Adjudicator will investigate

What the draft Bill provides for

55. Clauses 4 and 5 of the draft Bill set out the powers of the Adjudicator to carry out investigations, and define the sources of information which can be used to trigger an investigation. Clause 19 prohibits disclosure of information that would identify parties to an arbitration or a complainant. Schedule 2 contains substantial powers of investigation including powers to require production of documents and other information, together with powers to compel oral testimony.


56. Clause 4 sets out how an investigation can be triggered. Clause 4(1) allows an investigation to proceed where the Adjudicator has "reasonable grounds to suspect that a large retailer has broken the Groceries Code."[43] Clause 4(2), however, states that in deciding whether to carry out an investigation the Adjudicator may consider only information that is publicly available or information provided by a supplier although, once an investigation is under way, the Adjudicator is free to consider any appropriate information. This is provided for in Clause 5.


57. The draft Bill's definition's of "supplier"[44] allows for information from both direct and indirect suppliers to be used to trigger an investigation by the Adjudicator. GSCOP, it will be recalled, governs the contractual relations only between large retailers and the suppliers who directly supply them; it does not concern itself with relations further back down the supply chain. However, the Government has taken the view that indirect suppliers in the supply chain might be aware of problems between a direct supplier and a large retailer. [45] By contrast, the Government did not believe that third parties such as trade associations would have sufficient awareness of the contractual relations between direct suppliers and large retailers to be able to contribute usefully to the Adjudicator's decision on whether to start an investigation. This was how it explained its position in the Response to Consultation:

The Government proposes that only information provided by direct and indirect suppliers in the UK and overseas should be able to be used by the Adjudicator as the basis for starting an investigation. As these are contractual matters it is likely that only a direct or indirect supplier would have sufficient information to make an appropriate complaint. Third parties, trade associations and non-governmental organisations (NGOs) will still have a useful role to play in offering advice and assistance to their stakeholders, but information on which the Adjudicator may base an investigation must come direct from the business affected. The Adjudicator will also be able to act on other appropriate information it obtains that is in the public domain.[46]

58. The question of whether complaints from indirect suppliers and from third parties should be admissible to trigger an investigation was controversial and we now address it in some detail.

Coverage of indirect suppliers

59. The Co-op was opposed to extending the rights of complaint to indirect suppliers and cited the Competition Commission's position in support of its position:

    The shift to allow indirect suppliers the right of complaint to the Adjudicator was not deemed necessary by the Competition Commission and, in the absence of a compelling evidence base, should be removed from the draft Bill. The definition of 'supplier' in Clause 23 should remain consistent with that defined in Article 2 of the Groceries Supply Order.

The Co-op further argued that indirect suppliers would not have "sufficient information" to assess whether or not a breach of the Code had occurred and therefore would be unable to:

ascertain whether a particular "wrong" they believe they have suffered has ultimately been as a result of the behaviour and practices of a large retailer or of some other body or enterprise not in scope to GSCOP.[47]

60. It is worth setting out the Competition Commission's position, in terms, however:

In order to increase transparency with respect to supply chain practices, the CC considered that primary producers and other suppliers to intermediaries and processors should also be permitted to make complaints to the adjudicator about alleged breaches of the GSCOP (i.e. retailers' conduct with respect to processors and intermediaries) where the primary producer or other supplier reasonably considers that the breach has had a direct or indirect effect on its interests. Increased transparency would help to reveal supply chain practices and the exercise of buyer power, which might in turn benefit those parts of the groceries supply chain with little or no market power.[48]

61. The British Retail Consortium was, like the Co-op Group, also opposed to the inclusion of indirect suppliers. It argued that the complexity of the supply chain meant that indirect suppliers would be unable to trace a complaint down to an individual retailer:

    There are thousands of dairy farmers in the UK sending their milk to dairies to be processed. That dairy could have a variety of customers some for milk to be further processed or some for liquid milk. Those customers might be retailers covered by GSCOP or they might be manufacturers, retailers not covered by GSCOP, hospitality sector or the Government's own procurement. We believe it will be impossible for an individual farmer whose milk is mixed with hundreds of other farmers to identify that a breach by a retailer has occurred.

62. The BRC also argued that extending the powers to indirect suppliers ran the risk of increasing "spurious complaints" which would increase the operational costs of the Adjudicator:

    We believe many indirect suppliers will complain to the Adjudicator based not on any evidence of a breach of the code but instead based on general misconceptions of how the food chain operates. Such misconceptions are often exacerbated by the claims of particular interest groups. For example, it has been reported that the Adjudicator will help increase farm prices even though price is not an issue covered by GSCOP. Each of those enquiries will need to be checked and answered. A concerted campaign by indirect suppliers will put additional pressure on the Adjudicator to investigate a particular supply chain thus increasing the unnecessary costs and burdens on retailers.

    We believe unless clear and early guidance is given on the type of information from indirect suppliers that the Adjudicator will accept and making it clear this has nothing to do with increasing farm prices, there will be a large volume of spurious enquiries.[49]

63. Morrisons also highlighted the risk that ""potentially thousands" of complaints by indirect suppliers could "push up the cost of the GCA, which will be met by all retailers, regardless of whether there has been any breach".[50]

64. However, Waitrose felt that it was important for all suppliers to have a voice under the Code,[51] and argued that good administration could avoid a dramatic increase in costs:

    Waitrose supports the body's consideration of complaints from indirect suppliers and relevant anonymous sources who are not directly protected by GSCOP. This is in contrast to the BRC's position. However, we feel such complaints should be handled in a way that doesn't give rise to excessive costs.

    It is imperative that the Body uses a filtering mechanism to ensure that it only investigates complaints which it considers to be meritorious, whatever the source of the complaints. This will enable the most effective use of resources and minimise costs.[52]

65. The Association of Convenience Stores went so far as to say that a measure of success of the Adjudicator would be the extent to which it prompted retailers to go out and develop better relations with primary producers, intermediate processors and indirect suppliers.[53] Earlier, the large retailers had warned against the ramifications if large retailers were required to monitor the whole supply chain,[54] but we do not believe that that was what the Association was contemplating.

66. , Clearly concerns about a potential deluge of complaints have a measure of validity. However, the expectations are that the Adjudicator will be undertaking only a handful of investigations a year, possibly even less, and therefore one of his or her most important priorities will be to establish a 'triage' system to categorise the significance of complaints. If necessary, standardised responses can deal with correspondence on matters that are wholly outside the scope of the GSCOP. Guidance and press releases will also help in managing expectations around what is not within the Adjudicator's remit. It might be that a proportion of the Adjudicator's resources might initially need to be dedicated to dealing with issues that are either de minimis or of marginal relevance before the Adjudicator's 'customers' develop a proper understanding of his or her role. However, we are not convinced that indirect suppliers' behaviour will in practice be so persistently self-defeating as to swamp the Adjudicator with a continuous series of spurious claims.

67. The complexity of the supply chain and lack of awareness of GSCOP-governed contractual relations could provoke instances where an indirect supplier might incorrectly assume a large retailer to be at fault for, say, a retrospective contract variation affecting that indirect supplier. Equally, we find it extremely hard to believe that there are not instances where a farmer or indirect supplier is aware of contract terms or behaviours pertaining between the direct supplier and the large retailer at the end of the supply chain. In fact, we would be surprised if that were not the case given that contractual relations and behaviours between parties often ultimately affect that those further down the line. As the National Pig Association told us:

[…] we have no doubt in the pig industry that anything that affected the direct supplier would end up down the chain at the door of the producer.[55]

68. The point about multiplicity of suppliers and hence traceability of behaviour is valid, but we are not convinced that in practice it will confuse a claim. If an indirect supplier can only point to a grievance and not give any evidence of where that grievance can be traced to, that will simply be the end of the matter and the Adjudicator should say so.

69. We conclude that it is right for the draft Bill to include indirect suppliers within the scope of those whose information can found an investigation under the GSCOP. The Adjudicator will need to put effective filters in place to guard against irrelevant or spurious claims, but that should be an expected early objective in any event.

Whether information from non-suppliers should trigger investigations

70. We received evidence on the possible advantages and disadvantages of widening the available sources of information beyond suppliers. Some examples might assist in further illustrating the perceived problem with the currently drafted provisions, and the potential advantages of alternatives.
Example One

71. Supplier A is convinced about the merits of his complaint. He knows he is in a good negotiating position because he is not over-dependent on any one retailer. Nevertheless, he is glad of the protection of confidentiality in approaching the Adjudicator, at least initially. Being a supplier, he meets the Clause 4 test on sources of information. He convinces the Adjudicator that there are reasonable grounds for investigation. The Adjudicator then opens an investigation and the case proceeds.

Example Two

72. Supplier B is not confident about speaking to the Adjudicator because the Adjudicator is an unfamiliar body and although the Supplier understands the Adjudicator's duties of confidentiality, he is fearful, rightly or wrongly, that he might at some point come under pressure to disclose his identity.[56] Supplier B is, however, willing to approach his trade association and to authorise the association to pass on details of his complaint, fully anonymised, in the hope that it might prompt some action.

73. When the trade association receives the complaint, it realises that there are several other complaints just like it, all from suppliers who are afraid to approach the Adjudicator directly. The information is far too sensitive to be put into the public domain; indeed, it might even be commercially confidential information of the retailer. The trade association therefore contacts the Adjudicator to pass on all the anonymised information. However, even though the information might contain reasonable grounds for beginning an investigation (with the exception that it lacks any supplier names), the Adjudicator is powerless to open an investigation because there is no information that qualifies under Clause 4. The Adjudicator tries calling a couple of suppliers that he suspects might be behind the complaint but this unnerves them even more and the case does not proceed. Furthermore, there is some reputational damage to the Adjudicator as it is clear to a number of organisations that there was a valid grievance but no means to remedy it.

Example Three

74. Supplier C is in the same position as Supplier B, but the Bill has been amended to allow information from trade associations to trigger an investigation. Suppliers' anonymity is protected through the filter of the trade association and many more of them come forward because they are confident that, taken together, a number of anonymised cases will be convincing to the Adjudicator. They are right: when the Adjudicator receives the information, he announces an investigation. As a result, a further supplier comes forward openly. This encourages one or two others as well. The investigation gets seriously under way and there is a satisfactory resolution.

75. Although it makes a number of assumptions, this last example illustrates two points: that the knowledge that one's information might be available as a source might encourage substantially more such information to emerge, and that the announcement of an investigation might itself catalyse progress.

Discussion of issues

76. Although Clause 19 of the draft Bill offers the protection of confidentiality to complainants (the Minister urged us to "Scrutinise that [Clause] 19"),[57] a question remains as to whether suppliers will have sufficient confidence in that protection—and in the body exercising it—at least for the first few years of operation. In its evidence, the Food and Drink Federation confirmed the worries around confidentiality:

Many suppliers will not have the confidence to come forward to complain to the Adjudicator despite promises of anonymity to protect complainants.[58]

77. The NFU made a well-argued case for extending the scope of Clause 4:

The qualifications in Clause 4 will simply prevent some information from being used to launch an investigation, even if it provides strong evidence of a breach of the code. For instance, a whistle-blower within a retailer may be aware of breaches of the code by his employer. However, any evidence he supplies to the Adjudicator confidentially will be inadmissible as grounds for launching an investigation, as he is not a supplier. Furthermore, he would probably be unwilling to make such information publicly available in case it identified him to his employer. Therefore, no investigation can be launched.

Similarly, suppliers who are unwilling to provide information to the Adjudicator and risk their identities becoming known, may instead be happy to pass information to trade associations, who they trust to anonymise the evidence and provide it to the Adjudicator on their behalf. In such an event, the Adjudicator would not be able to launch an investigation under the provisions in the draft Bill. We believe that third parties, such as the NFU, can play a vital role in assisting the work of the Adjudicator. For instance, by allowing third parties to collate and present evidence on behalf of suppliers, important resource efficiencies can be achieved, and they can act as conduits for identifying systemic breaches of the code of which individual suppliers would be unaware, and which otherwise might not come to the attention of the Adjudicator.

This can be achieved in two ways. Firstly by simply removing Clause 4(2), the Adjudicator will be able to launch an investigation under the existing Clause 4(1) if he has "reasonable grounds" to do so. This is consistent with the powers granted to the Director General of Fair Trading under the Competition Act 1998 when launching an investigation into abuse of a dominant position or into anti-competitive agreements. Secondly, a third ground could be added to Clause 4(2) allowing the Adjudicator to launch an investigation where he has "credible evidence" of a breach of the code, regardless of source. What is meant by "credible evidence" could then be included in the Adjudicator's guidance obligations under Clause 13.[59]

78. The point about whistleblowers is noteworthy. The Food and Drink Federation also noted that whistleblowers could be a potentially valuable source of evidence.[60]

79. Several other bodies provided further arguments for allowing third party information to act as an informational trigger. The National Pig Association took the view that trade associations could save costs on the part of the Adjudicator by acting as a filter against vexatious complaints.[61] The need for trade associations to preserve their own reputations would act, it argued, as a self-regulator against frivolous or inaccurate reports.[62] The National Pig Association and the Food and Drink Federation were firmly of the view not only that trade associations were qualified to speak on relations between suppliers and retailers but that they had had to develop awareness of such relations to fulfil their role as trade representative bodies.[63] The Food and Drink Federation also believed that trade bodies would be possibly better able than the Adjudicator to pick up time-related trends such as patterns of behaviour that emerge at particular times of year.[64]

80. In oral evidence, the Minister highlighted his concerns that trade associations could promote their own agenda if they were allow to intervene:

Trade associations […] may want to make sure their reputation is not damaged, but they are also likely to feel that they need to show their members that they are doing a lot and that members' subscriptions are valuable. There could be a danger that trade associations are rather more proactive than the evidence might suggest.[65]

81. However, the comments of Mr Lewis, the Department's legal adviser, to some extent, addressed that concern:

There is some risk of an organised campaign just to cause trouble for a retailer and the Bill does cater for that in one sense, which is that when it comes to the costs of investigation being awarded—and this is under Clause 11 of the Bill—the Adjudicator has certain power to award costs in his or her discretion.[66]

Provided those costs provisions can practically be extended to all information sources, that and the other points made would seem to address the issue.

82. In its letter to the Committee, the Environment Food and Rural Affairs Committee invited us to recommend that the draft legislation be amended to provide for third parties to make complaints to the Adjudicator on behalf of direct or indirect suppliers. We are inclined to agree with that Committee.

83. On balance, we believe that there is a good case for amending the Bill at least to allow information from trade associations representing direct and indirect suppliers to trigger an investigation and possibly from whistleblowers who are employees or ex-employees of retailers, provided such information still clearly relates to an alleged GSCOP infringement. This could be achieved by extending Clause 4(2) to add: "(c) trade associations; and (d) current or former employees of large retailers." There is what would appear to be a suitable definition of trade associations in the Companies Act 2006.

84. The draft Bill might usefully be amended to grant the Secretary of State the power to add additional categories of informant in future, based on evidence and consultation.

85. We believe that the need for the Adjudicator to act on clear evidence should be made transparent on the face of the Bill. We recommend that Clause 4(1) be amended to read: "If the Adjudicator has reasonable grounds, based on evidence, to suspect that a larger retailer has broken the Groceries Code, the Adjudicator may carry out an investigation… (continue as in draft Bill)."

Whether the Adjudicator should be able to initiate investigations proactively

86. A so-called 'proactive' investigation power would essentially allow the Adjudicator to initiate an investigation without first receiving evidence of a complaint from a supplier or elsewhere. It its letter to us, the Environment, Food and Rural Affairs Committee cited the arguments it had heard in favour of allowing the Adjudicator to take a proactive initiative in commencing an investigation and recommended amendment of the Bill to allow for such proactivity:

Several witnesses argued that the Adjudicator should be able to make proactive investigations. The Agricultural and Horticultural Board's evidence argued that the Adjudicator should have powers to implement proactive compliance audits/investigations within supply chains in order to "...both discourage and help reveal malpractice in terms of the Groceries Code and also help to bring greater transparency and understanding to the whole supply chain to the benefit of all parties".

Laurence Olins, Chairman of British Summer Fruits, speaking for the PVGA, told us that the Adjudicator needed to be proactive rather than reactive and added that such an approach would enable the Adjudicator to look at generic issues that "might affect every crop and every sort of supplier". The NFU also referred to the need for the Adjudicator to investigate general issues such as haulage that might have an impact on suppliers across a range of products. Peter Kendall, President of the NFU told us that adjudicator must have the ability to proactively investigate.

The British Brands Group highlighted the fact that the Competition Commission had recommended the adjudicator have the ability to undertake proactive investigations in its 2008 report.

We were persuaded by the arguments in favour of the Adjudicator having the power to undertake proactive investigations. Such an approach might be of particular benefit when considering generic issues in the supply chain rather the relationship between a retailer and an individual supplier.

87. As currently drafted, the Bill does not permit proactive investigation because Clause 4 requires triggering evidence; the intention being to stop the Adjudicator to go on 'fishing expeditions' with their associated expenses. The Adjudicator would not be prevented from informally gathering information, but there would be no power to compel the production of information until an investigation had commenced.[67]

88. Subject to the Adjudicator retaining an ability to make informal contacts, we believe that the wish to avoid fishing expeditions is valid. We are not as convinced as the Environment, Food and Rural Affairs Committee that proactivity is a vital part of the Adjudicator's armoury.[68] In particular, we are not sure that we understand why generic issues (for example, around packaging ties that affect a number of suppliers) would be more successfully investigated with proactivity than without. The argument would seem to be that suppliers might not individually be so keen to press generic issues. However, the Bill as drafted does not require individual suppliers necessarily to press a case, but merely to provide some initiating evidence. Without at least some evidence we are not sure that the Adjudicator should launch an investigation on his or her own inception. Our suggested amendment to include trade bodies within Clause 4 would in any case open up further sources of such evidence.

89. We do not believe that the Adjudicator should be given the power to proactively initiate investigations without any triggering evidence. That said, the Bill and/or the Explanatory Notes should make clear that the Bill's provisions do not prevent the Adjudicator from making contacts that would otherwise be permissible under the general law.

Retailers' concerns around confidentiality

90. The Environment, Food and Rural Affairs Committee concluded that anonymity was a crucial part of the Bill's provisions. However, the large retailers were worried that allowing the Adjudicator to hear grievances anonymously could lead to a flood of vexatious or semi-vexatious[69] complaints that would have enough substance to avoid costs penalties while still presenting a problem in terms of wasting the Adjudicator's and the retailers' resources.

91. Sainsbury's, for instance, identified problems associated with anonymity as one of its significant objections to the draft Bill's content:

We foresee practical problems and significant burdens and costs of allowing anonymous complaints and there is a risk of burdening retailers with wide-ranging and costly investigations that cast an otherwise unnecessarily wide net in order to hide the identity of a complainant. There is also the risk that anonymity will encourage vexatious complaints. In both cases, there is the risk of significant burdens on the Adjudicator as well as retailers which would be inconsistent with the Government's Better Regulation policy. In any case, it will be difficult for a retailer to change its behaviour to address specific problems without knowing the details of a complaint.[70]

Sainsbury's further argued that, if anonymous complaints were to be permitted, the retailer concerned must be involved before any decision was taken to launch an investigation.[71]

92. The Co-op's consultation response highlighted some specific risks:

A cursory glance at the provisions of the GSCOP Code makes it clear that any retailer behaviours under it, if challenged, will need to be examined in their factual context: the definition of "Require", the principle of fair dealing, the text of predominance in promotions and the notions of "genuine commercial reasons" and significant reduction of volume of purchases in the context of de-listing (to name but five) underline this point […] All of these matters may very well demand to be placed under the spotlight of particular correspondence, telephone calls, meetings etc. held between the complaining supplier(s) and the retailer; certainly it would appear an ambitious assumption to state that, on a sufficiently overwhelming majority of occasions this would not be necessary, to the point where it is simply administratively expedient to deprive retailers of the identity of the supplier (s) that has prompted the investigation.[72]

93. The BRC also argued that this was at odds with natural justice:

We query whether such an approach is ultimately compatible with the right to a fair trial under the Human Rights Act. GSCOP already gives protection to all suppliers who raise complaints, not least through clear provisions against unjustified de-listing and we feel this negates the need to ignore human rights legislation.[73]

94. The BRC also pointed to the risk that investigations could be deliberately broadened to preserve anonymity, which brought with it major implications for costs:

An example demonstrates the practical complexity of this problem. If a carrot supplier complained to the Adjudicator and he decided to pursue that complaint he would have to find a way to obtain the information from the retailer without disclosing the carrot supplier's identity. As there are relatively few carrot suppliers it would be clear who that was if they were described as such so the Adjudicator would have to hide his identity amongst other suppliers. So the Adjudicator could ask for details of recent trading practices with all vegetable suppliers to ensure anonymity. That would maintain anonymity but at the same time require the retailer to examine thousands of records of correspondence and meetings with a number of companies to provide material that is only relevant to one complainant, which may not in itself lead to a further investigation.[74]

95. Waitrose's view was that there would always be a small number of spurious complaints but that properly drafted guidance and procedures would avoid any them causing any serious impact—"before they cost".[75]

96. The NFU[76] and the National Pig Association[77] both pointed to the extent of industry consolidation and the resultant culture of 'everyone knowing everyone else' as compelling justification for protecting complainants' confidentiality.

97. The Association of Convenience Stores took a slightly different view, believing that once sheltered by the Adjudicator by the prospect of an upheld complaint, suppliers would be more willing to shed anonymity, such that spurious complaints would not be a problem. The Rural Shops Alliance believed that a measure of success of the GCA would be when suppliers felt uninhibited from making complaints without a cloak of anonymity.[78]

98. We agree with the Environment, Food and Rural Affairs Committee and with the Government that confidentiality for complainants to the Adjudicator is vital. However, the Government, the Adjudicator and those reviewing the performance and operation of the Adjudicator should bear in mind the potentially large cost to retailers of having to respond to anonymised complaints. The retailers' concern in this area is valid and should be taken strongly into account in assessing the practicality and fairness of the regime put in place by the draft Bill.

43   The Adjudicator must also have published the guidance required under Clause 13 Back

44   See Clause 23 Back

45   It was the Competition Commission's position as well. See para 60. Back

46   See paragraph 4.2 Back

47   Ev 71 Back

48   Impact Assessment, paragraph 88, citing Competition Commission report paragraph 11.363 Back

49   Ev 64 Back

50   Ev w23 Back

51   Q 228, Dole Back

52   Ev 88 Back

53   Q 245, Brennan Back

54   Q 106 and Q 116 Back

55   Q 172, Houston Back

56   There was evidence that the OFT has experienced reluctance to come forward because of concerns that it might force the issue of whether anonymity can be preserved. This could be a concern with the new body until there is experience otherwise. Back

57   Q 312 Back

58   Ev 73 Back

59   Ev 76 Back

60   Q 198, Jones Back

61   Q 198, Houston Back

62   Q 200 Back

63   Q 199 Back

64   Q 198, Jones Back

65   Q 304 Back

66   Q 37, Lewis Back

67   Q 321 Back

68   The Competition Commission favoured proactivity but this appears to have referred more to a power beyond that of merely arbitrating Back

69   A shorthand way to describe a complaint that appears to be bone fide but which on further (costly) investigation is not Back

70   Ev 83 Back

71   IbidBack

72   Response to consultation, paragraph 14.2 Back

73   Ev 64 Back

74   IbidBack

75   Q 249, Dole Back

76   Q 174, Kendall Back

77   Q 182 Back

78   Q 250 Back

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© Parliamentary copyright 2011
Prepared 28 July 2011