CC groceries investigation: ombudsman and land order consultations

The Competition Commission has launched consultations on two remedies stemming from its investigation of the UK groceries sector, namely:

• the establishment of an Ombudsman to oversee the functioning of the Groceries Supply Code of Practice (GSCOP); and
• a draft order aimed at limiting the ability of designated large grocery retailers to prevent land being used by their competitors for grocery retailing in the future. This will be achieved through a requirement that designated large grocery retailers (i) release certain restrictive covenants, (ii) do not enter into new such covenants, (iii) do not enforce certain exclusivity arrangements and (iv) do not enter into new such covenants.

Responses are requested by 28 May 2009 for each of the consultations.

The CC has already consulted on the GSCOP (see our earlier Law-Now on this). As regards the Ombudsman scheme, the CC is requesting that designated retailers voluntarily sign up to undertakings that they will comply with the scheme. The CC notes that while it does not have the power itself to establish the Ombudsman, or make retailers sign up, if they fail to sign up, it will recommend to DBERR (Department of Business, Enterprise and Regulatory Reform) that it take steps to establish the Ombudsman instead. However, passing the matter to DBERR would be likely to lead to significant delay in establishing the Ombudsman.

As regards the order regarding the control of land, this is to become a statutory instrument so the consequences of failure to comply include injunction proceedings and actions for damages by those suffering loss due to failure to comply.

These proposals show that the CC means to effect changes in the groceries market, so it is important for businesses to consider how they will be affected and whether they wish to have a say in how the proposals progress.

The OFT has also published a provisional recommendation on the selection of software used to calculate drive times which form a crucial part of its market analysis in supermarket cases.

Ombudsman consultation

The Ombudsman will monitor and enforce compliance with the GSCOP. The Ombudsman scheme as currently proposed covers only designated retailers, but they will be required to procure that their subsidiaries also comply with the GSCOP. The functions of the Ombudsman are:

• to act as an arbitrator between designated retailers and suppliers inr elation to disputes arising under the GSCOP in certain circumstances;
• to receive complaints in relation to a breach of the GSCOP and where appropriate to conduct investigations;
• to publish guidance on specific provisions of the GSCOP;
• to make recommendations to designated retailers on how to improve compliance with the GSCOP;
• to advise and report to the OFT on the operation of the Ombudsman’s scheme and of the GSCOP.

The consultation draft:

• addresses potential conflicts of interest on the part of the Ombudsman in some detail. While one of the Ombudsman’s functions is to give guidance on the GSCOP, it states that a conflict of interest will be present where the Ombudsman has provided advice to a supplier on an issue which is subsequently the subject of a dispute;
• notes that the Ombudsman must not facilitate or encourage coordination among retailers or suppliers, for example through round table meetings, dissemination of best practice or the encouragement of any dialogue between suppliers and retailers outside normal bilateral commercial arrangements;
• states that the Ombudsman will consult on general guidance he will publish on the procedures that will apply to his investigations, including determining when an investigation is justified;
• requires the Ombudsman to publish reports on his investigations;
• allows the Ombudsman to disclose any information he receives to the OFT;
• contains restrictions on publication of information obtained by the Ombudsman. These are similar to the disclosure restrictions which apply to the OFT and CC when investigating cartels, dominance concerns, mergers and market investigations;
• provides that the OFT alone will set the Ombudsman’s budget;
• sets out a formula for calculating the share of the Ombudsman’s costs borne by designated retailers.

Land Order

As noted above, the Order is designed to limit the ability of designated grocery retailers to prevent land being used by their competitors. It essentially requires designated retailers:

• to use their best endeavours to release particular restrictive covenants by entering into a deed of release and procuring the removal of the entry referring to the restrictive covenant from the relevant register;
• not to enter into particular restrictive covenants/similar agreements which may restrict grocery retailing or have equivalent effect or procure the same;
• not to enforce exclusivity arrangements whereby landowners or developers agree with a grocery retailer not to allow another grocery retailer to open a grocery store from that site or have equivalent effect;
• not to enter into or seek to enter into such exclusivity arrangements with a duration of more than five years.

Designated grocery retailers are Asda, Co-operative Group, Marks and Spencer, Wm Morrison, Sainsbury's, Somerfield, Tesco and Waitrose.