Points of law to consider in supplier negotiations and knowing when to draw the line.
A good negotiation strategy is important in any dealings with suppliers or other businesses, but certain discussions, negotiations or terms in contracts with suppliers or other businesses can breach the competition and other provisions of the Competition and Consumer Act 2010 (Cth) and lead to serious civil and/or criminal penalties for the company and/or individuals concerned, as well as adverse publicity for your business.
Merely being involved in another's breach may also be enough to attract liability. The following are some tips to avoid breaches of the competition and other provisions of the act when negotiating with or entering into agreements with suppliers or other businesses.
Price fixing
This involves making, or giving effect to, a provision of a contract arrangement or understanding with a competitor that fixes prices, restricts outputs, allocates markets between competitors or rigs a bidding process.
When dealing with suppliers, avoid inquiring about or discussing the terms on which your suppliers sell or propose to sell their goods or services to your competitors. Negotiate your own terms with your supplier.
Avoid using your supplier to exchange any of your company's commercially sensitive information with your competitors (or, of course, discussing any of this information directly with your competitors). This includes information such as prices, the mechanism or formula you use to fix or determine prices, what rebates or discounts you provide or intend to provide, the timing of any price changes, what production plans you have or tenders or bids you are making or proposing to make, or how you wish to allocate customers or share or divide the market with your competitor.
Boycotts
A boycott occurs where two or more competitors agree to whom or from whom one or more of them will supply or acquire goods or services. Always make the decision as to whom or from whom you will supply or acquire goods or services. Avoid discussions with competitors that you each deal with.
Resale price maintenance
This is conduct by a supplier requiring resellers of its goods or services to sell at or above a specified price. This could include refusing to supply unless a reseller sells at or above a specified price, or a supplier providing less favourable terms to a reseller unless it sells at or above a specified price.
Never agree with your resellers that they will sell your goods or services at or above a minimum or floor price. A supplier can specify a maximum price or suggest a recommended retail price at which to sell its goods or services, provided it is a recommendation only and there is no obligation on the reseller to do so.
Third line forcing
This is where the supply of goods or services is conditional on the buyer acquiring other goods and services from an unrelated third party. A supplier cannot make the acquisition of its products a condition of the supply of another party's products (nor can you, as a reseller, require this of your customers). For example, a supplier cannot agree to supply certain goods or services to you on the basis that you must also purchase certain goods or services from another third-party supplier. This prohibition can be avoided by the supplier bundling its products so they are sold by the one supplier, or by notifying the ACCC of the conduct.
Exclusive dealing
This is the supply or acquisition, or refusal to supply or acquire, on a condition. Exclusive dealing is prohibited only if it has the purpose, effect or likely effect of substantially lessening competition in a relevant market.
Many forms of exclusivity can fall foul of this prohibition. Seek advice before agreeing to, or seeking to impose, a condition in an agreement with a supplier that restricts you from purchasing goods or services from or supplying goods or services to another supplier.
Misuse of market power
A company that has a substantial degree of market power is prohibited from taking advantage of that power for the purpose of damaging or eliminating your competitor, preventing a person from entering a market, or deterring or preventing a person from competing in a market.
An example might be a company that controls the supply of an essential ingredient in certain food products refusing to supply it to a third party because it also supplies products to a competitor. It is a difficult breach to establish but companies that do have market power need to be cautious about how they wield that power when it comes to attempts to prevent other parties competing.
Predatory pricing
This is taking advantage of your company's substantial market share by pricing your goods or services below 'relevant' cost for a sustained period, for the purpose of damaging or eliminating your competitor, preventing a person from entering a market, or deterring or preventing a person from competing in a market.
This is also a very difficult breach to establish but it is always wise never to sell or agree with your supplier to sell products below their cost of production for a sustained period with the purpose of damaging or eliminating a competitor. The prohibition is not intended to catch 'normal' sale activity.
Unconscionable conduct
Act fairly and honestly in all dealings with your suppliers and use extreme care when dealing with suppliers that are small businesses or disadvantaged.
Never insist on terms or act in a way that is an unfair use of an unequal bargaining power, or use language that suggests that you are taking advantage of a supplier's weakness.
Always give your supplier sufficient time to review and consider a proposition and provide it with adequate time to seek legal advice.
Make sure any contracts are comprehensive, easy to understand and do not include harsh, unfair or oppressive terms. Observe any cooling-off periods that may apply, or consider offering a cooling-off period and always consider the characteristics and vulnerabilities of your consumers.
Misleading conduct
Ensure that you are honest, accurate and clear in your dealings with suppliers. Never make misleading statements or misrepresent facts. Remember, silence can be misleading, so disclose all relevant information to your supplier and don't distort the truth.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
