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.
WHAT CAN TRIGGER AN INVESTIGATION
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.
WHICH SUPPLIERS CAN PROVIDE INFORMATION
TO TRIGGER AN INVESTIGATION?
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.
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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 protectionand in the body exercising
itat 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 awardedand this is under Clause 11 of the Billthe
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
Ibid. Back
72
Response to consultation, paragraph 14.2 Back
73
Ev 64 Back
74
Ibid. Back
75
Q 249, Dole Back
76
Q 174, Kendall Back
77
Q 182 Back
78
Q 250 Back
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