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The Importance of Quality-Price Balance

Questions:

1. Explores the nexus between the private law of contracts and the public law of consumer protection. It explores the nexis in two ways: from the consumer viewpoint and from the supplier viewpoint.

2. What was the role of the ACCC (Australian Competition and Consumer Commission) in the case?
 

The consumers, as well as suppliers, have the same goal, which is to satisfy their ultimate want and desires. The suppliers aim to produce good quality products so that they can retain their market hold for a longer span of time. The consumers, on the other hand, desire to get the best quality product at the most affordable price. The reason behind this is both the consumers and the suppliers have access to limited resources. Therefore, they both must act in coordination to maximize their gains on the investment they make on the product. A supplier will wither away if he does not make reasonable profits and the consumers will be exploited if they are subjected to pay more on the said product. Therefore, a proper quality-price balance is required so that the interest of the consumers and the suppliers is protected. Apart from these, the law of the land also states certain rules to be observed by the suppliers so that no consumer stands deceived and they must always act in a good faith and must not undergo any unfair trade practice and discharge their duties with due honesty. 

The law of the land always emphasizes on the full discloser of the nexus of contract. The suppliers are required to observe honesty in their dealings with the consumers. No contract must be of a nature that would undermine the interest of the consumers. Any contract that violates the interest of the consumers will be set aside by the courts ("Justice Rares Steven, 2016).

In the modern era, the process of distribution of products is in such ways that it hardly gives a chance to the consumers to determine the quality of the product. The food is mainly packaged or canned that had deprived the consumers to judge the quality from outside. Thus, in the modern times, the courts had to relax the provision of caveat emptor in respect of food distribution (Federal Court of Australia, 2016).

The roles of the consumers are very important in the modern era to cope up with the changing market situations. They are required to be aware of their rights. They are expected to be confident, as they are the major contributors to the nation’s wealth. Consumer confidence acts, as an indicator to the extent the consumer feels confident about their income stability, which is reflected in their spending activities and purchasing powers. The consumer confidence is the key indicator of the overall state and shape of the nation's economy ("w", 2016).

The role of Australian Competition and Consumer Commission is to enforce the Competition and Consumer Act 2010 and other legislations involving fair trading, promoting competition and regulating infrastructures of the nation (ACCC, 2016). It is a statutory body that aims to improve and strengthen the efficiency of the economy and welfare of the consumers. They take appropriate actions when the interests of the consumers are endangered. They take the appropriate remedy for market failure and take efficient economic operations (“ACCC, 2012).

The Role of the Australian Competition and Consumer Commission (ACCC)

Coles had recruited the top fiercest critic Jeff Kennett, the former Victorian premier as the independent arbitrator to resolve the disputes between them and the other suppliers.  Kennett had made it clear that although he will be paid by Coles, he will act independently in respect of the supermarket chain. Kennett also added that his decisions will be binding on Coles but if the consumers are dissatisfied that they can move to the courts for adjudicating their rights. Coles had no idea that Kennett would turn out to be King Solomon (Mitchell, 2015).

On his appointment, Kennett found two faults on the part of Coles. Firstly, he drew the attention of ACCC and provided them with the sample of the bread and muffins, which Coles claims to be freshly baked in their advertisements. (irishecho, 2016). He complained ACCC that Coles in their advertisement tags stated, “Baked today, sold today” which was rather misleading than to be true. However, the bread was par-baked and came all the way from Ireland and finally they were fully baked at the time of sale. Kennett stated that the terms of the advertisement though technically correct was misleading. ACCC held that Coles had misled the consumers as freshly baked refers baked at the store at the time of sale (Heffernan, 2015).

However, Coles in their defense held three arguments. They said that had used the labels ‘Made in Ireland’ to make it clear to all the reasonable consumers whether or not the bread were baked fresh on each day. They also stated that commonly par-baked bread are offered to the customers in supermarkets, bakeries, restaurants and food outlets ("Australian Competition Law | ACCC v Coles", 2016). Lastly, they argued that they had stoked, at few stores in Victoria and NSW, the Cuisine Royale brand, which was imported from Ireland for trial in the month of July and August. However, the last defense was not proved to be true as documents showed that the bread was stoked in the month of October too which was three months after when Kennett had sparked the concern about Irish Bread, which was being sold as freshly baked bread ("Coles' half-baked defence", 2013). 


The Federal Court stated that ordinary consumers would assume fresh baked bread as baked from the scratch. The Court found Coles advertisement as sufficiently misleading and therefore, they had acted in contravention of Section 18 of Competition and Consumer Act 2010 (ACCC, 2016). Section 18 of the Act states that no person must engage in any conduct, which is deceptive or misleading or is likely to deceive or mislead (austlii, 2016).

Allsop CJ commented that the contravening action of Coles, in this case, was serious and substantial as goods in question were consumer’s the staple food notwithstanding the absence of any substantial proof of damage in case of both consumers and competitors. He added that the evidence clearly showed that Coles had engaged in such market strategy to improve its market shares. ACCC successfully won the case against Coles, and the Federal Court imposed a heavy fine of $2.5million on Coles. And further ordered Coles to not give any representation on the package, website and other promotional medium that the bead were freshly baked on the day of sale or have been baked entirely on the day of sale or baked from the freshly made dough which was not the same in this case for a period of three months. It was also ordered to give a corrective notice in its stores and website about the real baking procedure of the bread (Whyte, 2013).

Coles' Misconduct in Advertising Freshly Baked Bread and Muffins

Secondly, Kennett became deliberate to solve the disputes between Coles and the small suppliers where Coles had prepared a lengthy trail claiming extra payments using its powers by the virtue of its size and popularity from two hundred small consumers to strengthen its profits (Sue Mitchell, 2016).

Initially, Coles had rejected the allegations but later decided to settle the claims and compensated the suppliers for fines, rebates, and payment withheld by Coles. However, he did not state the amount, which Coles was expected to pay, but he said that the amount paid by Coles were near to the figure of the fines that the supplies talked about. Kennett contracted with 220 suppliers who were persuaded to join the ARC program and negotiated with those suppliers whom he felt eligible for compensation. There were 150 suppliers who were refunded (suppliers, 2014). Coles was ordered by him to refund $12 million to the suppliers who had joined ARC program and pay $324,000 to the suppliers who have forced pay fines or were deprived of payments due to late delivery, wastage in store and spoilage. He insisted that his decision may prove to be substantially expensive for Coles, but it will bring great results for Coles as well as for the suppliers. He even noted that a noticeable change was recognized in the relationship between the suppliers and Coles  (Jane Harper, 2016).

ACCC accused Coles by stating that they had tried to improve their earnings by demanding ongoing payments and rebates from the small suppliers ranging from 0.1% to 0.7% of sales to recover the cost of the new program. Coles threatened them with commercial ramification like range reviews if they refuse to pay the extra rebates. Further, Kennett mentioned that the said program failed to provide all the benefits as promised to the suppliers (ACCC, 2014).

However, threatening the consumers has proved to be an expensive mistake for Coles as they had to pay nearly $20 million as compensation. Gordon J mentioned that Coles had misused the bargaining powers deliberately and repeatedly (ACCC, 2016).

To posses, the market power alone is itself unlawful. To determine whether there has been any abuse of market power the court ascertains three things-

the substantial market power of the company

the advantage was taken by the company by that power

the power is being used for illegal purpose ("Misuse of market power", 2012).

According to Carr, Coles as a supermarket are auctioning off the shelf space in order to exclude competitors, deduct costs for services provided for stock handling, extract concession contracts by negotiation to deny access to the shelves, rescind contracts in mid-term, forcing them to pay more on freight charges and using their home brands to destroy the supplier’s intellectual property. In most cases, the main access to the customers has become through this supermarket (retailbiz, 2016). Thus, they have become confident enough that the small suppliers either have to do business with them, or they will be out of their business and thus, they engaged into those methods of abuses in respect of the small suppliers (futuredirections, 2016). 

Conclusion

The supermarkets must observe transparency in their dealings so that the consumers are not deceived or misled. A misleading of deception actions is those which makes the consumers believe something which is not true or takes any step which he would not have ordinarily taken if he understood the true implication of it. The heavy fine imposed on Coles acted as deterrence for those companies who intend to engage themselves in misleading and deceptive trade practices. As the consumers are the most important contributors of the nation's wealth, there must be kept at top priority and preserve their bargaining power. The Market abuses have become a great concern for the Australian Government. The financial pressure on the farmers and small suppliers has reduced the domestic food security. The government has adopted mechanisms to ensure that the retails do not hamper the balance between the buyers and the sellers of food to ensure the Australian food security. Further, the retailers must observe transparency and collaboration in their dealings with the suppliers so that their market strategies are not engaged at the expense of the competitive food system.  

Reference           

ACCC, C. (2014). Coles to refund suppliers as it settles cases with ACCC. The Sydney Morning Herald. 

ACCC,. (2016). Coles to pay $2.5m for misleading "Baked Today" and "Freshly Baked In-Store" bread promotion.

ACCC,. (2016). The role and functions of the Australian Competition and Consumer Commission

ACCC,. (2016). Australian Competition and Consumer Commission. Australian Competition and Consumer Commission.

austlii,. (2016). Australasian Legal Information Institute (AustLII). Austlii.edu.au. Retrieved 25 May 2016,

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