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

5  Enforcing decisions

What the draft Bill provides for

99. Clauses 6 to 10 deal with the means for the Adjudicator to report following investigations, and with three proposed methods of enforcement available to the Adjudicator: making recommendations, requiring information to be published ('naming and shaming') and imposing penalties (not to be available immediately). Clause 11 deals with awards of costs in investigations. Schedule 3 sets out further detail applicable to penalties should they become available as an enforcement tool.


100. The Department has stressed that the Adjudicator will often undertake investigations on a thematic basis so as to avoid the risk of recommendations identifying particular suppliers. The Food and Drink Federation explained how this might work:

You could make the recommendations for the category as a whole, not reveal the identities of the complainant or the group of complainants, and have clear accountability for the recommendations that you have driven through.[79]

101. Retailers have argued at length that this will unnecessarily inflate costs.[80] The Minister accepted that there would be a cost, but argued that it was proportionate:

I am not going to deny that there will be a cost to the retailers of having to participate in an investigation. To that extent, there is a regulatory impact; I am not trying to deny that. The Competition Commission estimated the total cost of this in terms of cost to the taxpayer and the industry of about £5 million a year.[81] But given we are talking about a groceries sector with over £70 billion turnover, I do think that we should see the regulatory impact in that context. This is pretty light-touch regulation. It is quite difficult to argue that we are taking a sledgehammer here; this is extremely proportionate and therefore, while I am sure the retailers wish they were not going to have to face these investigations, it is not unreasonable. Let's remember the whole purpose of this is to try to get rid of the consumer detriment the Competition Commission foresaw. This is in the interest of consumers.[82]

102. We acknowledge that investigations into categories of product rather than specific products carry with them the risk of increasing costs both to the Adjudicator and to the parties. The Adjudicator will need to find ways of working to seek to minimise such effects while recognising that some cost might be inevitable. It should be remembered that investigations by category might not necessarily be as artificial as they at first appear: bad practice in one product area might well be reflected in a closely related area.


103. The Competition Commission's report on its 2006-08 investigation said:

    [w]e concluded that a power to impose monetary penalties on retailers […] would help ensure their compliance. We recommend to BERR that, if it does not prove possible to secure undertakings from retailers in order to create the Ombudsman and BERR instead establishes the Ombudsman, then the Ombudsman should be given powers to impose monetary penalties on retailers […]

    However, […] this should only be done where [the Ombudsman] has strong and convincing evidence that a retailer has committed a breach […][83]

104. Schedule 3 of the draft Bill, however provides that financial penalties will be available only if the Secretary of State makes an order under Clause 10, which the Secretary of State may do only if he or she thinks that the Adjudicator's other powers are inadequate.[84]

105. The Policy Document explained the thinking behind this:

    The Government's view is that a requirement for a retailer to publish information about an investigation which finds it in breach of the Code will be an effective deterrent. That information could be taken into account by those dealing with the retailer in future. That is why the Government thinks that the Adjudicator's primary lever should be to require a retailer found to be in breach of the Code to publish information about the investigation and its outcome and publicise it, for example, through a press release, in the retailer's annual report, online and in national newspapers.

    However, should this level of deterrence prove insufficient in promoting successful compliance with the Code, the Government will consider introducing financial penalties against retailers who breach the Code. The draft Bill provides the Secretary of State with a residual power to enable the Adjudicator to levy penalties. Prior to activating this power, the Secretary of State would consult the Adjudicator, the retailers, the OFT and Competition Commission and consumer bodies. The Secretary of State would need to set a maximum penalty when activating this power.[85]

106. The large retailers consistently asserted that the reputational damage of 'naming and shaming' was both an effective and efficient deterrent against Code infringement. The Co-op said:

We believe that the proposal to allow the Adjudicator to levy financial penalties upon retailers (Clause 10) is disproportionate and runs the risk of having consumers carry some of the "pain".[86]

107. However, this was not the view of a number of our witnesses. The Church of England's Ethical Investment Advisory Group believed that naming and shaming alone would not be enough:

There has already been a good deal of publicity about problems in the groceries supply chain, including mention of specific supermarkets, and this has not been sufficient to bring an end to long-standing unreasonable practices.[87]

108. NFU Scotland told us that "the general public will only truly appreciate negative publicity if a 'fine' amount is attached. Without a system of fines, media attention is likely to be minimal […]".[88]

109. ActionAid agreed:

    The effectiveness of negative publicity rests to a large extent on the assumption that consumers will boycott a retailer in protest at unfair treatment of suppliers. However, consumers may not act as the GCA would wish them to. Market research consistently shows that considerations such as price, quality and convenience drive consumer choice of retailer to a far more significant extent than supplier relations, or even ethical performance more broadly.

    Reliance on negative publicity as a deterrent also assumes consumers will be aware that a specific retailer had been 'named and shamed'. However, it is not certain that the GCA's reports will always be covered by major news outlets, or if they were covered, how much prominence will be given to them. Conversely, a financial penalty given to a retailer would sharply increase media coverage and public awareness of a retailer's behaviour.[89]

110. The Food and Drink Federation was concerned that without fines "adjudicator fatigue" could undermine the impact of naming and shaming:

If we were in a position where [the media] were no longer interested in the story, we could lose the lever that we require to change behaviours.[90]

111. The Minister, however, pointed to the deterrent effect of keeping fines as a backup remedy:

Retailers do not just think about the next six months or the next year; they are thinking about the next 10 years. They will know that if they continually breach the code, the Government might say, "Hold on a minute. The sanctions are not proving tough enough. We will come back with financial penalties." Given that it is an order making power, the Government will be able to do that relatively swiftly. We are holding a sword, in effect, over the sector: "There are sanctions here. There are recommendations and there is the naming and shaming requirement, but if you don't get your act together, we will come back with financial penalties." I think that both gets the balance right and sends a really strong signal to the sector.[91]

112. In its letter to us, the Environment, Food Rural Affairs Committee noted that the Competition Commission recommended that financial penalties should be available the Adjudicator if large retailers were found to be breach of the Code. That Committee concluded that:

We see no reason for the Adjudicator's powers to levy fines on retailers found to be in breach of the GSCOP to be delayed by the requirement for the Secretary of State to make an order. We therefore consider it appropriate for the legislation to be amended to provide the necessary powers from commencement of the Act.[92]

113. The arguments on whether to introduce fines from inception are finely balanced but we agree with the Committee on Environment, Food and Rural Affairs that the Competition Commission's recommendation on this should be adhered to. We therefore recommend that the Government amend the draft Bill to include fines as a sanction available to the Adjudicator. This would allow the Adjudicator's effectiveness to be evaluated on the basis that a full spectrum of remedies was available from the start.


114. Clause 11 provides that large retailers may be required to pay some of all of the costs of an investigation. Suppliers can only be required to pay costs if an investigation resulting from their complaint was vexatious or wholly without merit. Appeal is to the High Court (or the Court of Session in Scotland), where costs would usually follow the event (that is, be awarded to the successful party).

115. The upshot of this for unappealed cases is that if a retailer were exonerated in circumstances where the supplier's claim was neither vexatious nor wholly without merit, that retailer would end up bearing its own costs and the large retailers would pick up the Adjudicator's costs between them, in accordance with the levy apportionment. Retailers would be unlikely to appeal cases in which they had been exonerated, so this would be the default position for such cases.

116. We believe that the provisions on costs allocations are reasonable, but the fact that retailers would in certain circumstances be liable for a substantial share of costs despite being exonerated suggests that the Adjudicator's guidance should set a demanding evidential threshold for the launch of an investigation.


Clause 10(4) provides for appeals to the High Court against the imposition of a penalty. Clause 11(4) provides for appeals against awards of costs, likewise to the High Court. There is no provision for other appeals, but there would be a right under general law to seek judicial review of a naming and shaming decision.

117. The Co-op believed that the draft Bill should include a general right of appeal in relation to the Adjudicator's findings, presumably including any recommendations.[93] Asda also argued for a right of appeal across all forms of enforcement measures.[94] Sainsbury's did not expressly argue for a right of appeal in relation to naming and shaming, although its response to the 2010 consultation sought a general right of appeal against "decisions of the enforcement body".[95]

118. We asked the Department officials about why there was only a right of judicial review against naming and shaming, because we were concerned that the Government might have underestimated the impact of a wrongful decision on a large retailer. We received an indication from the Department that it may reconsider its position but when the Minister came before us he told us that the Department's position was unmoved.[96]

119. We are not convinced that a right of judicial review, restricted as it is to grounds of illegality, irrationality and procedural impropriety, is an entirely adequate remedy against a wrong decision of the Adjudicator leading to a large retailer being named and shamed. We invite the Government to reconsider its position on this further and investigate the potential for a speedy and effective appeal mechanism which would also negate the ability to proceed by judicial review.

Escalation of enforcement remedies

120. At present the draft Bill would not permit the Adjudicator to escalate from one enforcement mechanism to another, although there is a duty to monitor:

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 15. Recommendations are likely to be used in circumstances where the breach of the Groceries Code is less serious. There is no express sanction for failure to comply with a recommendation, but failure might be taken into account in a future arbitration or investigation.[97]

121. The Adjudicator can report on non-compliance as part of the Adjudicator's Annual Report, so there is in a sense in which non-compliance can be escalated. However, the Annual Report may come too late for that approach to be effective.

122. Shane Brennan of the Association of Convenience Stores pointed out a practical reason why timing might be important:

My worry is that […] the supplier has to make another complaint. If that supplier [has gone] out of business, how it going to make a complaint? There needs to be a proactive role for the GCA, after the fact, to keep an eye on the aftermath of its decision.[98]

123. On the face of it, the common sense position would be for the Adjudicator to be able to sanction a retailer's non-compliance by imposing a higher-level penalty. The Minister intuitively believed that provisions in the draft Bill already allowed for an escalation of remedies for non-compliance:

There is a duty in the Bill for the Adjudicator to make sure that recommendations are monitored; he must monitor that recommendations are being followed. Clearly, if they are not being followed they are much more likely to want to escalate to a naming and shaming.[99]

However, he later clarified his position, pointing to the Adjudicator's ability to report on non-compliance.[100] Nevertheless, his intuitive response was significant.

124. We acknowledge that there is a problem with escalation. If the Adjudicator could escalate from a recommendation to naming and shaming, that would suggest that there should be at least the same right of judicial review for recommendations as for naming and shaming, but recommendations are non-binding and therefore non-appealable and non-reviewable. Similarly, if the Adjudicator could escalate from naming and shaming to a fine, that would suggest that naming and shaming should be fully appealable as is envisaged for fines.

125. Those objections have substance, but taken with the need to protect suppliers who might not be in a position to complain further, the intuitive position has the virtue of common sense and is stronger, and we believe that a way should be found to address it. For instance, the retailer might be given a right to appeal that is triggered only when escalation occurs. Alternatively, the Adjudicator could make it clear that flagrant non-compliance would in most cases result in a fresh, expedited investigation that would automatically result in a higher level of penalty (in which case we do not believe it would be appropriate for him to recuse himself from the further investigation on grounds of conflict of interest, because the case would essentially be the same as before).[101]

126. We believe that the Adjudicator should be given the power to escalate penalties for non-compliance in the event of continuing breach. The Government should consider ways to achieve this, consistent with there being appropriate judicial review and/or appeal rights for large retailers.

79   Q 219 Back

80   See their evidence, passim Back

81   The Impact Assessment (paragraphs 70ff) reports that the actual estimate was some £1.7m. A Competition Commission press release of4 August 2009 referred to total costs of £5m per year including set-up costs. See www.competition-commission.org.uk/press_rel/2009/aug/pdf/36-09.pdf Back

82   Q 324 Back

83   Competition Commission report, paragraphs 11.371-11.372 Back

84   See Clause 10(1) Back

85   Paragraphs 5.1-5.2 Back

86   Ev 72 Back

87   Ev w11 Back

88   Ev w25 Back

89   Ev w3 Back

90   Q 220, Jones Back

91   Q 326 Back

92   See Appendix Back

93   Ev 72 Back

94   Ev 57 Back

95   Consultation response, page 6 Back

96   Q 328 Back

97   Explanatory notes, paragraph 37 Back

98   Q 250, Brennan Back

99   Q 326 Back

100   Q 333 Back

101   C.f. explanatory note 26 Back

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Prepared 28 July 2011