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.
Recommendations
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.
Fines
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.
Costs
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.
Appeals
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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