Groceries Supply Code of Practice – new powers and new actions

Power to impose fines

The much heralded powers for the GSCOP adjudicator to fine the major supermarkets that are regulated by GSCOP for breaches of the Code of Practice have finally come into force.

Christine Tacon, the adjudicator, now has the power to fine these supermarkets up to 1 per cent of annual turnover for GSCOP breaches – a maximum level of fines which should make supermarkets take compliance seriously. However these fines will not directly help suppliers who suffer from GSCOP breaches. They will still need to bring claims for damages against their supermarket customers, where there is potential to do so, in order to recover any compensation.

Are such claims likely to be brought and are suppliers likely to make complaints to GSCOP? Well in almost all cases we think this still seems unlikely in particular where the supplier remains commercially dependent on a continuing relationship with the supermarket customer to provide an outlet for its products. That relationship is, of course, unlikely to be enhanced by GSCOP based claims by the supplier or, indeed, by complaints to the adjudicator. Nonetheless, on the positive side, the existence of the potential for substantial fines will mean that GSCOP compliance is moved higher up the agenda for supermarkets and, subject to the constraints and limits of the Code wording, many of the more prejudicial and unfair supply chain practices targeted by the Code are likely to be eliminated voluntarily by the supermarkets.

Tesco investigation

In another interesting development the adjudicator has announced an investigation of Tesco’s supply chain practices in relation to the period from 2013 to February 2015. This is the period of trading which appears to have given rise to the misstatement of Tesco’s profits, which has received much press coverage. The adjudicator has already sought to encourage suppliers, who have been adversely affected by Tesco practices in breach of GSCOP and which may have been behind some of the misstatement of profits, to come forward and seek assistance from the adjudicator.

It is not clear if any suppliers have come forward to seek that assistance. However the adjudicator has now announced her own investigation into these issues. In announcing the investigation the adjudicator states that she has formed a reasonable suspicion that there may have been breaches of GSCOP by Tesco and that her investigation will focus on various practices which may have resulted in delayed payment to or deductions from amounts due to suppliers. These include practices in relation to short deliveries, customer complaints and deductions made for unknown items, for items which have not been agreed and for certain gate and promotional fees.

This is a major and wide ranging investigation and one which will need very comprehensive resources to be thorough and effective. Although some increases to the funding available to the adjudicator have been announced, it remains to be seen how the adjudicator will manage the investigation. The credibility of the adjudicator as an industry regulator will to some extent be dependent on the outcome of this investigation and the robustness of its findings. Whilst the adjudicator will potentially be able to exercise “naming and shaming” and certain other powers against Tesco should Code breaches be identified, she will not be able to impose fines for such breaches as the introduction of the power to fine post-dates the matters which are being investigated.