The Groceries Code Adjudicator, Christine Tacon, has announced that she is to investigate Tesco for its conduct under the Groceries Supply code, after reports of accounting irregularities.
This raises the question - what will the first investigation mean for supermarkets?
The purpose of an investigation is twofold. Firstly, it acts as a useful auditing system of the Code to see whether it is sufficient for its stated purpose of providing for a fairer commercial relationship between supermarket and supplier. It's second and main purpose is to evaluate supermarket performance under the Code and to use enforcement powers to ensure greater adherence to the Code where it is found lacking.
The three methods of enforcement available include making recommendations, a requirement for information to be published and to impose financial penalties
This is the first investigation launched by the Adjudicator. It arrives too quickly, in fact, for the Adjudicator to be able to issue a fine against Tesco. However, for those supermarkets found to be in breach of the code from April 2015 onwards, could face a significant fine of up to 1% of its turnover. The Adjudicator can also recover its costs for the investigation from the supermarket.
A recommendation is a simple mechanism where the Adjudicator makes recommendations for the retailer to follow to ensure compliance with the Code. While failure to follow a recommendation cannot be enforced with other sanctions, repeated breaches of the Code will be dealt with more harshly. Whether the Adjudicator will ever need to make recommendations is difficult to say. Prior to this first investigation beginning, Tesco claimed that it had already reformed many of its practices to ensure full compliance with the Code but that will be for the Adjudicator to decide.
The option to require the publication of information, however, represents a significant enforcement measure. The Adjudicator can dictate what information is to be published by the supermarket and where the information is to be published. For an industry where consumer loyalty is at the core of its sustainability this type of measure could be the most damaging of all.
Given the criteria for assessing which sanctions to use each time, it is likely that the Adjudicator will rely on all three in the future to achieve balanced enforcement. The purpose of the sanctions is to encourage the offending supermarket to reform its practices and to eliminate any financial gain brought about the breach. Only a complement of the three is likely to achieve this.
What does an investigation mean for suppliers?
For her first investigation Ms Tacon has issued a call for all suppliers to provide any relevant information they have. Whether suppliers will be willing to provide information to the Adjudicator to assist investigations is likely to depend on the extent to which their anonymity can be protected. The law that enshrines the Adjudicator's power also guarantees confidentiality for those that provide information. The Adjudicator cannot make an unauthorised disclosure of information that may indicate where the information came from. Only by obtaining consent from the information provider, complying with an EU obligation or complying with a court order made for the purposes of legal proceedings can the Adjudicator release this information.
Moreover, the Adjudicator has the power to force any person who might hold relevant documentation or have relevant information to provide it. Any person who knowingly fails to provide the requested information or provides misleading information is guilty of an offence with the potential for an unlimited fine to be imposed.
Will this make a difference?
Many suppliers are likely to choose not to provide information during this first investigation as they wait and see for any potential impact on those who might come forward. After all it appears it was Tesco's own internal investigation that prompted this first investigation rather than any whistle blowing by supplier. However, if this investigation offers reassurance that anonymity will be guaranteed and that, in the event of non-cooperation through this first investigation, that the Adjudicator began to force suppliers to provide information, this may make the next investigation a more cooperative process.
At this stage it is unlikely that this first investigation will make a difference. Tesco has already suffered from this and will continue to suffer as the Serious Fraud Office investigation gathers pace. Whatever the outcome or effect of this investigation, there is no doubt that the Adjudicator will have a lasting effect on the power struggle between the supermarkets and their suppliers.
This document is for informational purposes only and does not constitute legal advice. It is recommended that specific professional advice is sought before acting on any of the information given.