NOTICE OF FILING. Details of Filing. ACCC v Coles Supermarkets Australia Pty Ltd VICTORIA REGISTRY - FEDERAL COURT OF AUSTRALIA

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1 NOTICE OF FILING This document was lodged electronically in the FEDERAL COURT OF AUSTRALIA (FCA) on 16/10/2014 9:27:08 AM AEDT and has been accepted for filing under the Court s Rules. Details of filing follow and important additional information about these are set out below. Details of Filing Document Lodged: File Number: File Title: Registry: Statement of Claim - Form 17 - Rule 8.06(1)(a) VID609/2014 ACCC v Coles Supermarkets Australia Pty Ltd VICTORIA REGISTRY - FEDERAL COURT OF AUSTRALIA Dated: 16/10/ :46:41 AM AEDT Registrar Important Information As required by the Court s Rules, this Notice has been inserted as the first page of the document which has been accepted for electronic filing. It is now taken to be part of that document for the purposes of the proceeding in the Court and contains important information for all parties to that proceeding. It must be included in the document served on each of those parties. The date and time of lodgment also shown above are the date and time that the document was received by the Court. Under the Court s Rules the date of filing of the document is the day it was lodged (if that is a business day for the Registry which accepts it and the document was received by 4.30 pm local time at that Registry) or otherwise the next working day for that Registry.

2 Form 17 Rule 8.05(1 )(a) STATEMENT OF CLAIM FEDERAL COURT OF AUSTRALIA DISTRICT REGISTRY: VICTORIA DIVISION: GENERAL NOVID OF 2014 AUSTRALIAN COMPETITION AND CONSUMER COMMISSION Applicant COLES SUPERMARKETS AUSTRALIA PTY LTD (ACN ) and other named in the Schedule Respondents Filed on behalf of the Applicant, ACCC Prepared by: Glenn Owbridge Australian Government Solicitor. Address for Service: Australian Government Solicitor, Level 11, 145 Ann St, Brisbane, OLD 4000 Glenn. ags.gov.au File ref: Telephone: Lawyer's Facsimile: OX 119 Brisbane

3 CONTENTS Part 1: Background... 3 Parties... 3 Coles business... 4 PART II: Organisation of the Coles business... 4 Grocery product categories... 4 PART Ill: Circumstances relevant to Coles' conduct and bargaining power... 5 PART IV: Coles' conduct in relation to claims from individual suppliers Claims made against E. D. Oates Pty Ltd (ACN ) Purported Profit Gap Claim Unauthorised withholding and retention of money due to Oates Unconscionable conduct Claims made against Austech Products Pty Ltd (ACN ) Purported Profit Gap Claim Claim for retrospective waste payment Refusing to end deferred deal Unconscionable conduct Claims made against Colonial Farm (Aust.) Pty Limited (ACN )...43 Claims for retrospective waste payment and requiring a 100% waste agreement...44 Unconscionable conduct Claims made against Bayview Seafoods Pty Ltd (ACN ) Requiring a 100 /o waste agreement Penalty for late deliveries Unconscionable conduct Claims made against Benny's Confectionery Pty Ltd (ACN ) Penalty for short deliveries Unconscionable conduct Page 2

4 PART!: BACKGROUND Parties 1. The Applicant (the ACCC) is: 1.1. a body corporate established pursuant to section 6A of the Competition and Consumer Act 2010 (Cth) (the Act); and 1.2. entitled to sue in its corporate name. 2. The First Respondent (Coles Supermarkets): 2.1. is and was at all material times a company incorporated in Australia; 2.2. is and was at all material times a corporation within the meaning of section 4 of the Act; 2.3. is and was at all material times a wholly owned subsidiary of Coles Group Limited (ACN ) (Coles Group); 2.4. is and was at all material times a related body corporate of Coles Group within the meaning of section 4A of the Act; 2.5. is and was at all material times a related body corporate of the Second Respondent (GHPL) within the meaning of section 4A of the Act; 2.6. carries on, and at all material times carried on, business in trade or commerce as a supermarket retailer; and 2.7. supplies, and at all material times supplied, grocery products for retail sale to customers in Australia. 3. GHPL: 3.1. is and was at all material times a company incorporated in Australia; 3.2. is and was at all material times a corporation within the meaning of section 4 of the Act; 3.3. is and was at all material times a wholly owned subsidiary of Coles Group; 3.4. is and was at all material times a related body corporate of Coles Supermarkets within the meaning of section 4A of the Act; 3.5. is and was at all material times a related body corporate of Coles Group within the meaning of section 4A of the Act; 3.6. carries on, and at all material times carried on, business in trade or commerce as a supermarket wholesaler; and Page 3

5 3.7. acquires, and at all material times acquired, grocery products from manufacturers and other suppliers (collectively Suppliers) for retail sale by Coles Supermarkets to customers in Australia. Coles business 4. During the period from about December 2010 to about December 2011 (the relevant period), Coles Supermarkets and GHPL (together, Coles) engaged in a business of acquiring grocery products from Suppliers and selling those products to customers in Australia through Coles' retail stores (the Coles business). 5. During the relevant period: 5.1. GHPL acquired grocery products from Suppliers and distributed those grocery products to Coles Supermarkets for retail sale; 5.2. Coles Supermarkets sold the grocery products acquired by GHPL to customers in Australia through Coles' retail stores; 5.3. Suppliers negotiated the terms on which their grocery products were to be acquired, or to continue to be acquired, by Coles with representatives of either GHPL or Coles Supermarkets; and 5.4. Suppliers received orders for the acquisition of their grocery products from representatives of either GHPL or Coles Supermarkets. PART II: ORGANISATION OF THE COLES BUSINESS Grocery product categories 6. During the relevant period, the Coles business was structured by reference to groups of similar or related grocery products (General Categories). 7. Prior to about June 2011 in the relevant period, the General Categories included: 7.1. Non-Food; 7.2. Grocery and Food; 7.3. Deli, Dairy, Bakery & Frozen; and 7.4. Meat. 8. From about June 2011, the General Categories included: 8.1. General Merchandise and Apparel and Merchandise Support; 8.2. Fresh Produce and Bakery; 8.3. Grocery and Frozen; and Page 4

6 8.4. Meat, Deli and Dairy. 9. During the relevant period: 9.1. each General Category was managed by a General Manager (GM); 9.2. each GM of a General Category reported to the Coles Merchandise Director (CMD); 9.3. within each General Category, the Coles business was managed by reference to smaller groups of similar or related grocery products (Business Categories); 9.4. each Business Category was managed by a Business Category Manager (BCM); 9.5. each BCM reported to a GM; 9.6. within each Business Category, the Coles business was managed by reference to smaller groups of similar or related products (Categories); 9.7. each Category was managed by a Category Manager (CM); and 9.8. each CM reported to a BCM. 10. During the relevant period, the CMD, GMs, BCMs and CMs acted on behalf of Coles in relation to the matters alleged below. PART Ill: CIRCUMSTANCES RELEVANT TO COLES' CONDUCT AND BARGAINING POWER 11. During the relevant period, Coles: operated retail stores in every Australian State and mainland Territory; supplied approximately 30-35% of the grocery products supplied for retail sale to customers in Australia; and together with Woolworths, supplied approximately 60-70% of the grocery products supplied for retail sale to customers in Australia. 12. During the relevant period, Coles acquired grocery products for retail sale from Suppliers pursuant to arrangements negotiated between Coles and the Supplier (Trading Arrangements). 13. Where Trading Arrangements were documented, the documentation could include one or more of the following documents produced by Coles: a Trading Terms Letter; a Consolidated Trading Terms Form (Trading Terms); Standard Terms and Conditions. Page 5

7 14. In the case of each of the Suppliers who are referred to below, the Trading Arrangements required that the Supplier pay Coles rebates, when Coles acquired the Supplier's grocery products, calculated as a percentage of the price Coles paid for the Supplier's products. 15. During the relevant period, representatives of Coles: determined the number of units of each grocery product that Coles would acquire from a Supplier; determined the frequency with which Coles would place orders for a grocery product with a Supplier; determined the time frame within which Suppliers were required to deliver grocery products that had been ordered by Coles; determined the price at which Coles would sell each grocery product acquired from a Supplier; determined 'hurdle rates' for grocery products acquired from a Supplier, being a rate of retail sales the product was expected to achieve; determined whether Coles would continue to acquire grocery products from a Supplier; determined whether Coles would substitute grocery products it was acquiring from one Supplier with products acquired from another Supplier; conducted, through its CMs, a 'range review' process at regular intervals, during which consideration was given to whether a Supplier's grocery products would be deleted from the range of products available for sale in Coles' retail stores; determined the amount and location of shelf space in each of Coles' retail stores that would be allocated to grocery products acquired from a Supplier; determined whether grocery products acquired from a Supplier would be the subject of promotion by Coles, for example by way of a markdown in the retail price, an entry in a Coles sales catalogue, or otherwise; determined the timing, frequency, duration and financial terms of any promotions it decided to undertake for grocery products acquired from a Supplier, including the amount of any payment or other financial contribution Coles required a Supplier to make for the promotion; and required any Supplier who wished to increase the price at which it sold any of its grocery products to Coles to make an application for approval of a price increase to Coles, which approval was at the discretion of Coles. Page 6

8 16. During the relevant period: Coles set profit targets for its General Categories and Business Categories; Coles encouraged and/or required its CMs and BCMs to meet the profit targets referred to in paragraph 16.1, above, including by demanding payments from its Suppliers: notwithstanding that Coles had no contractual entitlement to that payment; regardless of whether Coles had, or genuinely believed it had, any legitimate basis for demanding that payment; including by the practices alleged in paragraphs 17 to 19, below Coles set aside at least one day each calendar year, which was referred to within Coles as "Profit Day'' or "Perfect Profit Day", and set targets for Business Categories of money to be 'secured' by the Business Categories from Suppliers in accordance with the encouragement and/or requirement as alleged in paragraph 16.2 and including by the practices alleged in paragraphs 17 to 19, below. (a) (b) (c) (d) (e) During the relevant period, "Profit Day" or "Perfect Profit Day" occurred on 15 December 2010 in Grocery and Food, 22 December 2010 in Deli, Dairy, Bakery & Frozen, and on 14 December 2011 in Grocery and Frozen; The best particulars that the ACCC can presently give of the encouragement and/or requirement alleged in paragraphs 16.2 and 16.3, above, are that it included the s particularised in (c) to (1), below, and is to be inferred from the matters alleged in paragraphs 24 to 56, 68 to 122, 134 to 158, 166 to 193 and 203 to 222, below. On 1 August 2011 at 3:32pm, Philip Armstrong, the BCM of the Snacks and Beverages, also known as Impulse, Business Category (Impulse), sent an to the CMs in Impulse setting out his 'expectation' that the CMs in Impulse would be 'challenging lines for profit' with Coles' Suppliers every week, and his 'expectation' that Impulse would achieve its profit each week, period and financial year end'. On 15 September 2011 at 12:16pm and 4:45pm, Philip Armstrong sent s to the CMs in Impulse reiterating the need to meet the profit target for that week. On 15 September 2011 at 12:58pm, Steve Martin, a CM in Impulse, responded to the first of the two s referred to in (d) above, and listed a number of actions for meeting profit targets, which included, Page 7

9 relevantly, references to the types of practices alleged in paragraphs 17 to 19, below. (f) (g) (h) (i) (j) (k) On 5 October 2011 at 6.59am, Philip Reidy, the BCM of the Frozen Business Category (Frozen), sent an to the CMs in Frozen, which relevantly stated that: '... our profit position still well behind budget we now need to be chasing all suppliers for any profit gaps we have to sales'. On 27 October 2011 at 6.51am, Philip Reidy sent an to, among others, the CMs in Frozen, which relevantly attached a list of actions to get the profit in Frozen back to budget, including the types of practices alleged in paragraphs 17 to 19, below. On 8 November 2011 at 7.58am, Philip Armstrong, sent an to the CMs in Impulse, which relevantly stated that: '... 1 want to get out of the Friday morning "panic" please. Our profit budget is a given... Ring suppliers today if you are short on profit.' On 8 November 2011 at 7:35am, Anna Croft, the BCM of the Home-care Business Category (Homecare), sent an to, among others, the CMs in Homecare, which contained a list of 'actions' for "[p]erfect profit day", which included, relevantly, references to the types of practices alleged in paragraphs 17 to 19, below. On 11 November 2011 at 3:32pm, Philip Reidy sent an to, among others, the CMs in Frozen and Richard Pearson, the GM for the Grocery and Frozen General Category, which referred to Profit Day and relevantly stated that: 'We have been set a target of want money we need to secure as a team for the day, as this number is $750,000 which is just over $100,000 per category... Let's aim to secure 1 million dollars for our profit day.' The also provided suggestions for demanding money from Suppliers in 'areas that have delivered income', including, relevantly, by the types of practices alleged in paragraphs 17 to 19, below. The particularised in U), above, was forwarded by others within Coles, including as follows: (i) (ii) (iii) by Richard Pearson to the BCMs in the Grocery and Frozen General Category on 11 November 2011 at 5:04pm; by Matthew Hankin, the BCM for the Breakfast and Condiments Business Category (Breakfast), to, among others, the CMs in Breakfast on 11 November 2011 at 10:24pm; by Philip Armstrong, to, among others, the CMs in Impulse on 14 November 2011 at 6:48am, who also indicated that the target in Impulse for Profit Day was $2 million. Page 8

10 (I) (m) On 14 December 2011 at 7:52am, Philip Armstrong sent an to, among others, the CMs in Impulse, which relevantly stated "Just a reminder today is perfect profit day, it is meant to be kept low key (we seem to have perfect profit day every day in Impulse!)". Further particulars may be provided after discovery. 17. During the relevant period: Where Coles considered that it had not made as much profit as it wanted to make from sales of a Supplier's products, it referred to the difference between the profit it actually made on selling a Supplier's products and the profit it wanted to make on selling a Supplier's products as a "profit gap"; Coles knew that so-called "profit gaps" could be caused by Coles' own acts and omissions and by other matters which were largely or entirely outside the control of Suppliers; Coles encouraged and/or required its CMs and BCMs to demand payments from Suppliers in order to make up purported "profit gaps", despite the fact that Coles: had, and knew that it had, no contractual or other lawful entitlement to the payments; had not identified the cause of the purported "profit gaps" or had not identified the Supplier as the cause of the "profit gaps"; had no legitimate basis and, or alternatively, had no genuine or reasonable belief that there was a legitimate basis, for seeking the payments. (a) (b) The persons who had the knowledge attributed to Coles in paragraph 17.2 included Richard Pearson, Philip Armstrong, Anna Croft and Sue Campbell. The best particulars that the ACCC can presently give of the encouragement and/or requirement alleged in paragraph 17.3, above, are that it: (i) (ii) (iii) included the s particularised in (e), (f), (g), (i), (j) and (k) of the particulars to paragraph 16, above; included the s particularised in (c), (e) and (f), below; is to be inferred from the matters particularised in (d) and (g), below; Page 9

11 (iv) is to be inferred from the matters alleged in paragraphs 24 to 56 and 68 to 88, below; (c) (d) (e) (f) (g) On 4 July 2011 at 1:30pm, Philip Armstrong, after seeking a payment from a Supplier for a purported "profit gap" based on a report that Coles had generated, sent an to, among others, Mr Pearson and the BCMs in the Grocery and Frozen General Category describing the review of the report as resulting in a "pot of gold" and encouraging the use of the report to obtain payments for purported "profit gaps" from Suppliers. None of the recipients of Mr Armstrong's particularised in (c), above, responded to say that the view conveyed by Mr Armstrong's was unreasonable or inappropriate; On 23 August 2011 at 7:18am and on 12 September 2011 at 2:55pm, Anna Croft sent s to, among others, the CMs in Homecare, instructing them to identify Suppliers with purported "profit gaps" and instructing them to obtain payments from those Suppliers on the basis of the purported "profit gaps" to achieve a 'target' of $770,000. On 7 August 2011 at 8:20pm, 12 September 2011 at 11 :44am, 12 September 2011 at 3:00pm and 28 November 2011 at 12:1 Opm, Matthew Hankin sent s to, among others, the CMs in Breakfast, instructing them to identify Suppliers with purported "profit gaps" and instructing them to obtain payments from those Suppliers on the basis of the purported "profit gaps" as a way to achieve Coles' profit targets. Coles did not give written instructions to its BCMs or CMs that Coles should not demand money from Suppliers to make up purported "profit gaps" unless: (i) (ii) (iii) the reason why a purported "profit gap" had arisen had been determined; the Supplier was responsible for the purported "profit gap"; Coles' legitimate interests justified Coles seeking a payment from the Supplier for the purported "profit gap". (h) Further particulars may be provided after discovery. 18. During the relevant period: Coles recorded what purported to be the cost to it of: products that Coles acquired from a Supplier that were lost, damaged or became unfit for sale while in Coles' retail stores (waste); Page 10

12 Coles' employees or agents reducing, or marking down, the price in Coles' retail stores of products Coles acquired from a Supplier (markdowns); Coles knew that waste and markdowns in respect of any particular product could be caused by its own act or omission rather than any act or omission by the Supplier of that product; Coles encouraged and/or required its CMs and BCMs to demand payments from Suppliers on the premise that Coles had recorded waste or markdowns for the Supplier's products, despite the fact that Coles: had, and knew that it had, no contractual or other lawful entitlement to the payments; had not identified the causes of waste and markdowns or had not identified the Supplier as the cause of the waste and markdown; had no legitimate basis and, or alternatively, had no genuine or reasonable belief that there was a legitimate basis, for seeking the payment. (a) (b) The persons who had the knowledge attributed to Coles in paragraph 18.2 included Richard Pearson and Sue Campbell. The best particulars that the ACCC can presently give of the encouragement and/or requirement alleged in paragraph 18.3, above, are that it: (i) (ii) (iii) (iv) included the s particularised in (e), (g), (i), (j) and (k)of the particulars to paragraph 16, above; included the s particularised in (c) to (f), below; is to be inferred from the matter particularised in (g), below; is to be inferred from the matters alleged in paragraphs 89 to 101, below; (c) (d) On 19 September 2011 at 9:05am, Philip Reidy sent an to the CMs in Frozen attaching a "waste and markdown report" and instructing the CMs to use the report to obtain payments from Suppliers in relation to waste and markdowns to "bring us back in line with budget". On 13 December 2011 at 10:18 am, Aleksandra Drazic, a Coles employee, sent an to the BCMs in the Grocery and Frozen General Category, which indicated that waste and markdowns could be an 'opportunity' for Perfect Profit Day and contained a link to be Page 11

13 forwarded to CMs containing information to be used for waste and markdown claims on Profit Day. (e) The in (d), above, was forwarded by others within Coles, including as follows: (i) (ii) (iii) (iv) by Anna Croft to the CMs in Homecare who reported to her on 13 December2011 at 10:21am; by Philip Armstrong to the CMs in Impulse who reported to him on 13 December 2011 at 1 0:22am; by Wayne Mcindoe, a CM in Breakfast, to the other CMs in Breakfast on 13 December 2011 at 1 0:45; by Michael Phillips, a CM in Frozen, as part of a chain of s, to the other CMs in Frozen and Philip Reidy, on 13 December 2011 at 1 0:58am. (f) (g) On 13 December 2011 at 9:51am, Rebecca Glover, a CM in Homecare, sent an to Anna Croft and the other CMs in Homecare, containing a template to be sent to Suppliers to obtain payments from Suppliers in relation to waste and markdowns on Profit Day. Coles did not give written instructions to its BCMs or CMs that Coles should not demand money from Suppliers on the premise that Coles had recorded waste or markdowns for the Supplier's products unless: (i) (ii) the causes of waste or markdowns had been identified; the Supplier was responsible for the causes of the waste or markdowns. (h) Further particulars may be provided after discovery. 19. During the relevant period: Coles determined that it would impose 'punitive measures' or 'fines', in the form of monetary penalties, on Suppliers in some or all of the Business Categories in the Grocery and Frozen General Category, that Coles had recorded as not delivering the products that Coles ordered from them on time and in full in accordance with the order placed by Coles (late or short deliveries); the monetary penalties referred to in paragraph 19.1 above were not calculated by reference to any assessment by Coles of the likely cost to Coles, if any, of the late or short delivery; Coles encouraged and/or required its CMs and BCMs to demand payments from Suppliers for monetary penalties in relation to late or short deliveries, despite: Page 12

14 the matter alleged in paragraph 19.2 above; the fact that late or short deliveries may not lead to any loss to Coles; the fact that Coles had, and knew that it had, no contractual or other lawful entitlement to the payments; the fact that Coles had no legitimate basis and, or alternatively, had no genuine or reasonable belief that there was a legitimate basis, for imposing the 'punitive measures' or 'fines' referred to in paragraph 19.1 above. (a) The best particulars that the ACCC can presently give of the encouragement and/or requirement alleged in paragraph 19.3, above, are that it: (i) (ii) (iii) (iv) included the s particularised in (e), (g), (i), (j) and (k) of the particulars to paragraph 16, above; included the s particularised in (b) to (d), below; is to be inferred from the matter particularised in (e), below; is to be inferred from the matters alleged in paragraphs 176 to 193 and 203 to 222, below; (b) (c) On 2 August 2011 at 11 :23am, Steve Martin sent the referred to in paragraph 203, below; The in (b), above, was forwarded by others within Coles, including as follows: (i) by Richard Pearson to the BCMs in the Grocery and Frozen General Category on 2 August 2011 at 12:01 pm, who suggested that the BCMs send it to the CMs in their Business Categories; (ii) by Philip Armstrong to the CMs in Impulse on 2 August 2011 at 12:03pm, who suggested that the CMs in Impulse send the same to the Suppliers for whom they were responsible; (iii) by Philip Reidy to the CMs in Frozen on 2 August 2011 at 1:08pm, who suggested that the CMs in Frozen send a similar to the Suppliers for whom they were responsible; (d) On 24 October 2011 at 9:50am and 8 November 2011 at 7:58am, Philip Armstrong sent s to, among others, the CMs in Impulse Page 13

15 encouraging the CMs to obtain payments from Suppliers for late or short deliveries as a way to achieve Coles' profit targets; (e) Coles did not give written instructions to its BCMs or CMs that Coles should not demand money from Suppliers tor monetary penalties in relation to late or short deliveries unless: (i) (ii) the Supplier was responsible tor the late or short delivery; Coles had suffered a loss as a consequence of the late or short delivery and the amount of money demanded by Coles was reterrable to Coles' estimate of its loss as a consequence of the late or short delivery; (f) Further particulars may be provided after discovery. PART IV: COLES' CONDUCT IN RELATION TO CLAIMS FROM INDIVIDUAL SUPPLIERS Claims made against E. D. Oates Pty Ltd (ACN ) 20. During the relevant period, Coles acquired goods tor retail sale in Coles' retail stores from E.D. Oates Pty Ltd (ACN ) (Oates). 21. For the financial year ending 30 June 2012: Coles had annual revenue of $34.1 billion; Oates had revenue of less than 0.25% of Coles' revenue for that period. 22. During the relevant period: if Coles had ceased acquiring products from Oates: it would have been very difficult for Oates to replace those sales with sales to other customers of a similar value or volume; Coles could readily and fairly easily arrange supplies of substitute products in similar quantities from another Supplier, as Oates had at least one competitor capable of supplying such products to Coles; if Coles ceased acquiring products from Oates it would have: resulted in significant losses of economies of scale, revenue and profit for Oates; significantly increased Oates' cost of goods that it sold; reduced Oates' ability to offer competitive pricing to other retailers; Page 14

16 22.3. Oates was concerned about the possibility that Coles could delete one or more of Oates' products. One or more of Vanessa Stratos and David Birch had the state of mind attributed to Oates. 23. The Trading Arrangements between Oates and Coles during the relevant period were documented in: a Trading Terms Letter, for the period 13 April 2009 to 26 June 2011; and Trading Terms, for the period 27 June 2011 to, at least, January Purported Profit Gap Claim 24. For the financial year ending 30 June 2011 (2011 financial year), the Trading Arrangements between Coles and Oates did not include a term that entitled Coles to payments for a purported "profit gap". 25. On or about 21 June 2011, at a meeting between representatives of Oates and representatives of Coles, Coles: informed Oates to the effect that Coles had a purported profit gap of $326,590 on selling Oates' products in the 2011 financial year (Oates purported profit gap); required a payment from Oates of $326,590 due to the Oates purported profit gap; and did not provide Oates with: details of the cause or causes of the Oates purported profit gap; or information about how Coles had calculated the Oates purported profit gap. (a) (b) The meeting was attended by, inter alia, David Birch, Ross Miller and Vanessa Stratos, on behalf of Oates, and Anna Croft, on behalf of Coles, on or about 21 June Anna Croft made the statements on behalf of Coles alleged in paragraphs 25.1 and 25.2, above. 26. On 21 June 2011, Coles, by to Oates, amongst other things: confirmed the requirement that Oates make a payment of $326,590 for the Oates purported profit gap; Page 15

17 26.2. sought that Oates confirm by "first thing" the following morning that it would make the payment referred to in 26.1, above. The was sent by Anna Croft, on behalf of Coles, to Ross Miller, Vanessa Stratos and David Birch on behalf of Oates, and copied to Angela Clarkson of Coles, on 21 June 2011 at 5:56 pm. 27. Coles considered it had the Oates purported profit gap alleged in paragraph 25.1, above, because: it had determined that it wanted its profit on selling Oates' products to have grown by the same percentage as the growth in the cost to Coles of acquiring Oates' products, when compared with the previous financial year; it had not achieved the profit that it wanted. (a) (b) Anna Croft had the state of mind attributed to Coles. That Anna Croft had the state of mind is to be inferred from the s particularised to paragraphs 26, above, and 34, below. 28. Coles had not identified the cause of the Oates purported profit gap before it engaged in the conduct alleged in paragraphs 25 and 26, above. 29. A substantial cause of the Oates purported profit gap were actions taken by Coles during the 2011 financial year, without the agreement of Oates, to conduct a promotion on Oates' products by selling those products at a price below Coles' cost. 30. At no time did Coles identify any conduct or omission by Oates that had resulted in the Oates purported profit gap. 31. At no time did Coles have a reasonable basis to believe that it was entitled to seek the payment from Oates for the Oates purported profit gap because of the matters alleged in paragraphs 17.2, 24, 28, 29 and 30, above. 32. On 22 June 2011, by , Oates informed Coles that it would not make a payment of $326,590, because, among other things: making the payment of $326,590 to Coles would mean paying to Coles a very significant proportion of the earnings before interest and tax that Oates would otherwise have made on sales to Coles for the 2011 financial year; the price to Coles of Oates' products had remained unchanged for 2 years and Oates had absorbed increased costs in raw materials throughout this time, without increasing the prices it charged to Coles; Page 16

18 32.3. the actions of Coles alleged in paragraph 29, above, had, by Oates' estimate, eroded over $200,000 of Coles' profit. (a) (b) The was sent by Ross Miller, on behalf of Oates, to Anna Croft, on behalf of Coles, copied to David Birch of Oates, on 22 June 2011 at 11:58 am. Particulars of the proportion identified in the and referred to in paragraph 32.1 are confidential and will be delivered separately. 33. On 23 June 2011, Oates, by to Coles, made a request that Coles provide Oates with detail as to how Coles had arrived at the amount of $326,590 as the Oates purported profit gap. The was sent by David Birch, on behalf of Oates, to Anna Croft, on behalf of Coles, copied to Ross Miller and Vanessa Stratos of Oates, on 23 June 2011 at 5:57 pm. 34. On 24 June 2011, Coles, by to Oates: informed Oates that Coles: expected that Coles' profit would grow in line with any growth in the net cost to Coles of Oates' products; was not prepared to work collaboratively with Oates for the next year if Oates did not rectify the Oates purported profit gap; and Coles' net profit on the sale of Oates' products needed to improve by $326,909; provided the figures for the percentage growth in Coles' sales growth, Coles' net profit and the net cost to Coles of acquiring Oates' products in the 2011 financial year compared with the preceding financial year; and sought a response from Oates in relation to this issue on the same day. The was sent by Anna Croft, on behalf of Coles, to David Birch, on behalf of Oates, copied to Ross Miller and Vanessa Stratos of Oates, and Angela Clarkson of Coles, on 24 June 2011 at 11:07 am. Page 17

19 35. On 24 June 2011, Oates replied to the referred to in paragraph 34 above, and, amongst other things, informed Coles that: the figures referred to in paragraph 34.2 above, were not sufficient; Oates required greater detail from Coles as to the Oates purported profit gap. The was sent by David Birch, on behalf of Oates, to Anna Croft, on behalf of Coles, copied to Ross Miller and Vanessa Stratos of Oates, and Angela Clarkson of Coles, on 24 June 2011 at 2:15pm. 36. Coles did not provide Oates with the details of: how the figures used to determine the Oates purported profit gap of $326,590 were calculated; the cause or causes of the Oates purported profit gap; or any basis tor any entitlement on the part of Coles to payment from Oates tor the Oates purported profit gap. Unauthorised withholding and retention of money due to Oates 37. On 24 June 2011, Oates, by to Coles, informed Coles that: Oates could not identify any cause of the Oates purported profit gap tor which it was responsible; and given the importance of its relationship with Coles, Oates offered to provide Coles with: a cash payment of $50,000, referred to as "straight monies"; and discounts on the price of products Coles acquired from Oates in June and July 2011 to the total value of $17 4,000. The was sent by Ross Miller, on behalf of Oates, to Anna Croft, on behalf of Coles, copied to David Birch and Vanessa Stratos of Oates, on 24 June 2011 at 4:03 pm. 38. On 8 July 2011, Coles, by to Oates, informed Oates that Coles agreed to Oates' proposal alleged in paragraph 37.2 above, except that Coles would that day raise a claim tor a cash payment, referred to as a "straight claim", of $224,000 (exclusive of GST). Page 18

20 The was sent by Anna Croft, on behalf of Coles, to Ross Miller, on behalf of Oates, copied to Vanessa Stratos of Oates and Joey Yeung of Coles, on 8 July 2011 at 10:53 am. 39. On 8 July 2011, Coles internally raised and processed a claim for $246,400 (inclusive of GST} against Oates, with the consequence that Coles would deduct $246,400 from the next payment due from Coles to Oates for products acquired by Coles from Oates. 40. Coles did not have Oates' authority or agreement to the raising or processing of a claim for $246,400 (inclusive of GST) against Oates when it undertook the conduct alleged in paragraph 39, above. 41. On 11 July 2011, Oates, by to Coles: informed Coles that a claim for the immediate payment of $224,000 (exclusive of GST) to Coles was unacceptable to Oates; and offered to provide Coles with payments totalling $224,000 over six weeks, comprised of: discounts on the price of products Coles acquired from Oates in July and August 2011 to the total value of $174,000; and a payment of $50,000, which could be claimed by Coles immediately upon acceptance of the discounts that had been offered. The was sent by Vanessa Stratos, on behalf of Oates, to Anna Croft, on behalf of Coles, copied to Ross Miller of Oates and Angela Clarkson of Coles, on 11 July 2011 at 3:25 pm. 42. On or about 14 July 2011, without the authority or agreement of Oates, Coles deducted the amount of $246,400 (inclusive of GST) from a payment due from Coles to Oates. 43. On 21 July 2011, Oates, by to Coles, referred to the deduction alleged in paragraph 42 above, and informed Coles that: the deduction had not been authorised, or agreed to, by Oates; the claim for $246,400 had been rejected; and the deduction needed to be reversed by Coles as a matter of urgency. Page 19

21 The was sent by Ross Miller, on behalf of Oates, to Anna Croft, on behalf of Coles, copied to David Birch, Les Buyers and Vanessa Stratos of Oates and Angela Clarkson of Coles, on 21 July 2011 at 11:31 am. 44. On 25 July 2011, Oates, by to Coles, reiterated that it wanted the unauthorised deduction of $246,400 by Coles to be reversed. The was sent by Ross Miller, on behalf of Oates, to Anna Croft, on behalf of Coles, copied to David Birch of Oates, on 25 July 2011 at 1 :36 pm. 45. On 29 July 2011, Oates, by to Coles, informed Coles that, amongst other things: there was an urgent need to resolve the unauthorised retention of money due to Oates by Coles; Coles could not withhold money due to Oates without agreement from Oates; and Coles had not provided any substantiating detail for the claim in respect of the Oates purported profit gap. The was sent by David Birch, on behalf of Oates, to Anna Croft, on behalf of Coles, copied to Ross Miller of Oates, on 29 July 2011 at 2:29pm. 46. On 29 July 2011, Coles, by to Oates, agreed that there was a need to resolve the issue referred to in Oates' alleged in paragraph 45 above, so that Coles and Oates could continue their commercial relationship. The was sent by Anna Croft, on behalf of Coles, to David Birch, on behalf of Oates, copied to Ross Miller of Oates, on 29 July 2011 at 5:03 pm. 47. On 9 August 2011, Oates, by to Coles, provided Coles with three proposals for resolving Coles' unauthorised retention of the $246,400, including: two proposals of a similar nature to the proposals alleged in paragraphs 37.2 and 41.2 above, both of which involved the immediate payment by Coles to Oates of the $246,400; and Page 20

22 47.2. a third proposal, which involved Coles retaining the $246,400 if Coles agreed to acquire certain product lines from Oates on the terms outlined in the . The was sent by Vanessa Stratos, on behalf of Oates, to Anna Croft, on behalf of Coles, copied to David Birch and Ross Miller of Oates, and Angela Clarkson of Coles, on 9 August 2011 at 1 :35 pm. 48. By on or about 12 August 2011, Coles: had reviewed the circumstances in which it came to engage in the conduct alleged in paragraph 42 above; having reviewed the matter, it had decided that the $246,400 that it had withheld from money due to Oates on or about 14 July 2011 was an unauthorised deduction; and determined that instead of paying the $246,400 that was due to Oates in one lump sum, Coles would pay the amount over time by deducting it from monies that became due to Coles from Oates from time to time. Leslie Sargent conducted the review on behalf of Coles and made the decisions attributed to Coles. 49. On 17 August 2011, Oates sought to resolve the unauthorised withholding by Coles of the $246,400 due to Oates, by providing an offer to Coles in similar terms to the proposal alleged in paragraph 47.2 above. The offer was contained in a letter from Vanessa Stratos, on behalf of Oates, to Les Sargent, on behalf of Coles, dated 17 August In or around October 2011, Coles sought from Oates, and asked Oates to confirm that it would pay, an ongoing rebate to Coles in relation to Coles' Active Retail Collaboration (ARC) program (ARC rebate). Coles sought the ARC rebate, and asked Oates to confirm that it would pay the ARC rebate, by, among other things, an from Les Sargent, on behalf of Coles, to Vanessa Stratos, on behalf of Oates, on 17 October 2011 at 11 :26am. 51. On 24 October 2011, Oates, by to Coles, informed Coles that, amongst other things, it would not agree to the ARC rebate referred to in paragraph 50 above, and Page 21

23 noted that there was still no official resolution to the unauthorised withholding by Coles of the $246,400 due to Oates. The was sent by Ross Miller, on behalf of Oates, to Les Sargent and Anna Croft, on behalf of Coles, copied to David Birch of Oates, on 24 October 2011 at 11 :35 am. 52. On or about 25 October 2011, at a meeting between representatives of Oates and Coles, Coles reiterated its request for the ARC rebate referred to in paragraph 50 above and offered to pay the $246,000 which it had withheld from Oates, without the authority or agreement of Oates. The meeting was attended by, inter alia, Ross Miller, on behalf of Oates, and Les Sargent, on behalf of Coles, on or about 25 October On 25 October 2011, Oates, by to Coles, relevantly informed Coles that: if Coles agreed to the third proposal made in the referred to in paragraph 47 above, Coles could retain the money it had withheld; if Coles did not agree to the third proposal contained in the referred to in paragraph 47 above, Oates wanted to be paid the money that Coles had withheld. The was sent by Ross Miller, on behalf of Oates, to Anna Croft and Les Sargent, on behalf of Coles, copied to David Birch of Oates, on 25 October 2011 at 5:02pm. 54. On 27 October 2011, Coles, by to Oates, informed Oates that, amongst other things: Coles would pay Oates the $246,000; referring to a range review, Coles would endeavour to maintain a strong transactional relationship and honour its commitments, but it had concerns that Oates' supply may be adversely affected by it not agreeing to pay Coles the ARC rebate. The was sent by Les Sargent, on behalf of Coles, to Ross Miller, on behalf of Oates, and Anna Croft, on behalf of Coles, copied to David Birch of Oates, on 27 October 2011 at 1:32pm. Page 22

24 55. On or about 18 November 2011, at a meeting between representatives of Oates and Coles, Oates offered to make monthly payments of $41,500 (exclusive of GST) to Coles during the period November 2011 to July 2012, to the total of $365,200 (inclusive of GST), which was comprised of: $70,000, representing a lump sum equivalent to the ARC rebate; $295,200, representing a sum to address the Oates purported profit gap and paid in exchange for Coles providing Oates with a number of catalogue spots and product trials. The meeting was attended by Ross Miller, on behalf of Oates, and Les Sargent, on behalf of Coles, on or about 18 November Coles accepted Oates' offer, alleged in paragraph 55 above, on or around 18 November (a) Coles' acceptance of Oates' offer was communicated either: (i) (ii) orally, at the meeting between representatives of Coles and representatives of Oates on or about 18 November 2011, referred to in paragraph 55; or orally or in writing, after the meeting on 18 November 2011 but before 20 February (b) Further particulars may be provided after discovery. 57. On 3 January 2012, Coles returned the $246,400 to Oates. Unconscionable conduct 58. In its dealings with Oates alleged above, Coles was in a substantially stronger bargaining position relative to Oates: because of the matters alleged in paragraphs 11, 15, 21 and 22, above; which is further to be inferred from the fact that Coles engaged, and considered itself able to engage, and was in fact able to engage, in the conduct alleged in paragraphs 25 to 54, above; 59. The conduct of Coles alleged in paragraphs 25 to 36, above, of demanding a payment in respect of the Oates purported profit gap, was unconscionable, in contravention of section 22 of Schedule 2 of the Act as in force during the relevant period after 1 January 2011 (the Australian Consumer Law), in all of the circumstances, including that: Page 23

25 59.1. Coles was in a substantially stronger bargaining position relative to Oates, as alleged in paragraph 58, above; Coles knew, or ought reasonably to have known, that it had no legitimate basis for demanding a payment from Oates in respect of the Oates purported profit gap, having regard to the matters alleged in paragraphs 17.2, 24, 28, 29 and 30, above; Coles failed to disclose details about the Oates purported profit gap to Oates so as to enable Oates to understand the basis upon which the demand was made, how the payment was calculated and how the purported profit gap was caused, despite several requests for such information, as alleged in paragraphs 33 and 35, above; Coles applied undue pressure to Oates by: making the explicit threat alleged in paragraph above that Coles would take measures that were commercially detrimental to Oates if Oates did not agree to make a payment in respect of the Oates purported profit gap; and pressing Oates for an urgent response to Coles' requests for the payment as alleged in paragraphs 26.2 and 34.3, above the conduct was consistent with the encouragement and/or requirement of Coles, as alleged in paragraphs 16 and 17, above; Coles took advantage of its substantially stronger bargaining position relative to Oates by demanding payment in respect of the Oates purported profit gap, pressing the claim without disclosing details about the Oates purported profit gap and making the explicit threat of Coles taking commercially detrimental measures against Oates. 60. The conduct of Coles alleged in paragraphs 37 to 54 above, of unlawfully withholding money due to Oates, was unconscionable in contravention of section 22 of the Australian Consumer Law in all of the circumstances, including: Coles was in a substantially stronger bargaining position relative to Oates, as alleged in paragraph 58 above; Coles failed to disclose details about the Oates purported profit gap to Oates so as to enable Oates to understand the basis upon which the demand was made, how the payment was calculated and how the purported profit gap was caused, despite several requests for such information as alleged in paragraphs 33 and 35, above; Coles applied undue pressure to Oates by making the implicit threat alleged in paragraph 46 above; Page 24

26 60.4. the circumstances in relation to the demand for payment in respect of the Oates purported profit gap, as alleged in paragraph 59, above; Coles had no lawful entitlement to withhold the money; Coles knew or ought to have known that it had no lawful entitlement to retain the money having regard to the matters alleged in paragraph 48 above, as well as the matters alleged in paragraphs 24, 29, 30 32, 36.3, 37, 41, 43, 44, 45, 51 and 53, above; while refusing to repay the money to Oates that it knew it had no lawful entitlement to retain, Coles sought Oates' agreement to make ongoing payments of the ARC rebate to Coles and made the implicit threat alleged in paragraph 54.2 to attempt to obtain Oates' agreement to pay the ARC rebate; Coles took advantage of its substantially stronger bargaining position relative to Oates by withholding and retaining the money without lawful entitlement and where it knew or ought to have known it had no lawful entitlement to withhold the money. 61. Further or in the alternative to paragraphs 59 and 60 above, by engaging in the conduct alleged in paragraphs 25 to 54 above of asserting an entitlement to a payment and unlawfully withholding and retaining money due to Oates was unconscionable in contravention of section 22 of the Australian Consumer Law in all the circumstances alleged in paragraphs 59 to 60 above. Claims made against Austech Products Pty Ltd (ACN ) 62. During the relevant period, Coles acquired goods for retail sale in Coles' retail stores from Austech Products Pty Ltd (ACN ) (Austech). 63. The goods referred to in paragraph 62 above included household, laundry, cosmetic and toiletry products. 64. For the financial year ending 30 June 2012: Coles had annual revenue of $34.1 billion; Austech had revenue that was less than 0.25% of Coles' revenue for that year. 65. During the relevant period: if Coles had ceased acquiring products from Austech: it would have been very difficult or impossible for Austech to replace those sales with sales to other customers of a similar value or volume; Coles could readily and fairly easily arrange supplies of substitute products in similar quantities from another Supplier; Page 25

27 65.2. if Coles ceased acquiring products from Austech it would have: resulted in significant losses of economies of scale, revenue and profit for Austech; significantly increased Austech's cost of goods that it sold; reduced Austech's margins; Austech was concerned about the possibility that Coles could delete one or more of Austech's products. Andrew Chaney had the state of mind attributed to Austech. 66. During the relevant period, Austech retained Super-marketers Sales Brokers Pty Ltd (SSB) as its agent in relation to negotiations with Coles in respect of the Trading Arrangements between Austech and Coles. 67. The Trading Arrangements between Austech and Coles during the relevant period were documented in: terms and condition of purchase, for the period from August 2004 to an unknown date; Trading Terms signed by Austech on or about 20 October 2011, for the period 20 October 2011 to 20 October 2012; and amended Trading Terms signed by Austech on or after 11 November 2011 that replaced the Trading Terms referred to in paragraph 67.2 for the period 20 October 2011 to 20 October Purported Profit Gap Claim 68. For the 2011 financial year, the Trading Arrangements between Coles and Austech did not include a term that entitled Coles to payments for purported "profit gaps". 69. On 7 December 2010, Coles, by to Austech: informed Austech that Coles had a purported profit gap of $25,845 on selling Austech's products in the first five months of the 2011 Financial Year (the first Austech purported profit gap); made a request that Austech advise what payment of $25,845 it would make to Coles to remove the first Austech purported profit gap within three days; did not provide Austech with details of the cause or causes of the first Austech purported profit gap. Page 26