SUPPLIERS AND CUSTOMERS

As the owner or manager of a hardware store, you will be interested in finding out what legal obligations your suppliers have towards your store. Also, what obligations have you towards your customers? There are many Acts covering these situations. We shall look at some of the provisions which are brought into play by the Trade Practices Act.

CAN THE SUPPLIER REFUSE TO SUPPLY ME WITH GOODS?

Small businesses often complain to the Australian Competition and Consumers Association (ACCC) about suppliers refusing to supply them with goods. They believe that, if they tender cash, a supplier is always bound to supply them with goods. This is not correct. There are certain defined circumstances in which it is illegal to refuse to supply goods. It is illegal to refuse to supply goods 1) when attempting to maintain Resale Price Maintenance, 2) when there is a Misuse of Market Power, 3) Full-line forcing agreements, 4) Third-line forcing agreements, 5) Primary boycotts and 6) Secondary boycotts. However, it should be pointed out that suppliers can apply to the ACCC for exemption from all of the above prohibitions (with the exception of Misuse of Market Power). In such a case, the suppliers must persuade the ACCC that it would be in the public interest to allow such conduct.

We shall look at each of the above in turn.

RESALE PRICE MAINTENANCE

Resale Price Maintenance is an attempt by manufacturers to dictate the price at which shopkeepers can sell their goods. If the shopkeeper does not sell at the stated price, then the manufacturer refuses to supply him with any further goods. This practice was once legal but is now illegal. It stifles competition. Official policy is now that a trader should be able to sell at the lowest price he considers reasonable. However, it should be noted that a supplier can lawfully stipulate the maximum price at which goods may be offered for resale. A supplier may also lawfully recommend a resale price for goods. It is important to note that all he can do is to recommend the resale price. The storekeeper is free to ignore the recommended resale price if he wishes. If the supplier then refuses to supply him with any further goods, the supplier is breaking the law. The supplier also cannot force a storekeeper to advertise his goods at a minimum price. A supplier will break the law if he offers inducements to the storekeeper to maintain a minimum price. The inducements could take the form of "special deals" or subsidies such as contributing to advertising costs, giving you a cash rebate etc. In general, a supplier cannot bully you into not discounting goods. However, there is one case where a supplier can legally refuse to supply you if you have been discounting. This is "loss-leadering". If, in the past year, you have sold the supplier's goods at below cost, the supplier can stop supplying you with any further goods. However, disposal sales such as year-end sales, are not treated as "loss-leadering".

Price fixing agreements for goods or services are illegal. Some trade associations issue lists of recommended resale prices to their members. If these are purely "recommended" prices, they are legal. However, if all or nearly all of members of a trade put their heads together and agree to charge the trade association's recommended prices, then that is illegal. The ACCC suggests that trade associations would better serve their members by issuing "cost-sheets" instead of recommended resale prices to their members. Each member would then work out individually from the cost-sheet his resale price.

Many small businesses form themselves into groups and engage in joint buying and joint advertising. These activities are, on the surface, lawful. As mentioned above, in exceptional cases, the ACCC can authorise recommended retail price schemes by trade associations. The Courts, on a number of occasions, have imposed large fines on companies for engaging in Resale Price Maintenance. The Court can also order the offenders to pay compensation to the storekeepers who were injured by their actions.

If a supplier tries to pressure you into not discounting his goods, then you should contact the nearest branch of the ACCC in your State.

MISUSE OF MARKET POWER

A company which has a substantial degree of power in a market must not take advantage of that power to deter or prevent competitive conduct in that market. For example, suppose a supplier with a large share of the market supplies goods at two different prices to retailers. If the object is to force one group of retailers out of business, then the conduct of the supplier will be illegal. Discrimination can be in the form of prices, rebates, allowances, discounts, provision of services etc. However, it is legal for a supplier to give volume discounts to large supermarket chains etc. If you think that you are being forced out of business by the differential pricing activities of a large supplier, then you should contact the nearest branch of the ACCC.

FULL-LINE FORCING AGREEMENTS

It is illegal for a supplier to supply goods or services on the condition that the buyer will not buy from a competitor. However, this only applies if there would be a substantial lessening of competition in the market-place. If a supplier, who has a near monopoly, tries to pressure you into not buying from a competitor, contact your nearest ACCC office. It is illegal for a supplier to supply goods or services on the condition that the buyer will not a) resell to particular persons or b) resell the goods in a particular place. Again this only applies if there would be a substantial lessening of competition in the market-place. Small businesses often complain to the ACCC that the Shopping Centre in which they trade is breaching b) above by preventing them from selling what goods they like in the shopping centre. But, in most cases, the Shopping Centre is within its rights as imposing this restriction will not substantially effect competition in the market. If a supplier tries to pressure you into a) not selling certain goods or b) not selling them to certain persons, then you should contact the nearest branch of the ACCC to find it if it is legal.

THIRD-LINE FORCING AGREEMENTS

It is illegal for a supplier to supply goods or services on the condition that the buyer will also buy additional goods or services from a third party. For instance, it would be illegal for a financial institution to agree to grant a loan on the condition that the applicant must also take out loan insurance with a specified affiliated insurance company.

PRIMARY BOYCOTTS

Suppliers cannot put their heads together and decide not to supply a particular retailer.

If all suppliers refuse to deal with you without good reason, contact your nearest branch of the ACCC. However, a particular supplier may have good reason for not dealing with you. See below for examples of valid reasons for not dealing with you.

SECONDARY BOYCOTTS

It is illegal for suppliers to make an arrangement with an association that would prevent another person supplying goods to you.

REFUSAL TO SUPPLY GOODS

Refusal to supply goods is illegal in the six instances mentioned above. In all other cases, it may be legal. Examples of situations where it is legal to refuse to supply goods are as follows 1) you are a poor credit risk, 2) you are "loss-leadering", 3) you provide poor after-sales service, 4) your order is too small, 5) you lack particular skills or experience which are necessary to the business. A supplier may even be legally entitled to refuse to supply you because he thinks that your business is too close to an existing retailer who sells the same product. In some cases, a supplier can refuse to supply you if you refuse to agree not to sell outside a defined sales territory. This would only be illegal if it substantially reduced competition in the industry. For instance, if only one retailer had been appointed for each sales territory, then an agreement not to sell outside the territory would severely limit competition and would be illegal. On the other hand, such exclusive dealing agreements are often necessary for the protection of franchises, distributorships, agencies etc.

REPAIR FACILITIES AND SPARE PARTS

Manufacturers and importers have an obligation to ensure that repair facilities and spare parts are reasonably available for any goods they sell. The facilities must be available over the expected life-span of the product. However, the obligation is limited in all cases to 10 years from the date of the first retail sale. Repair facilities need not be provided for disposable products. Bulkier goods which are difficult to transport may need repair facilities located in strategic places throughout Australia. A central repair facility might be insufficient in such a case. Manufacturers must not charge excessive prices for spare parts.

If limited repair facilities only are available, a manufacturer can protect himself by informing the retailer or customer of this fact before the sale.

LABELLING OF GOODS

Goods must not state a false country of origin. If they say "Made in Australia", then they must have been substantially made in Australia. Assembly or repackaging in Australia is not sufficient.

YOUR OBLIGATIONS TO YOUR CUSTOMERS

Now, what are your obligations to your customers? Normally, if something is wrong with any goods sold, the customer brings them back to you for a refund. In such a case, you should, first of all, read the written warranty supplied with the goods. If the goods were bought for business use, then it is possible that the purchaser will be entitled to only the reduced warranties stated in the written warranty conditions. If the sale was to a consumer, he will be entitled to the full warranties conferred by the Act. In the normal course of events, the customer will first approach you with a claim. You will have to give the customer a refund and then claim the refund back from your supplier. When does a customer have a legal right to a refund? All consumer customers will have a legal right to a refund in the following circumstances.

1) If the goods were not of a merchantable (saleable) quality. Broadly speaking, the goods must be fit for the purpose for which they were bought. A certain basic performance is required. Top quality is not essential unless top prices were paid and top quality bargained for. Second- hand goods need only perform as might be expected of second- hand goods. Additionally, even if the goods are defective, the customer will be unable to return them if the defect was pointed out to the customer before he bought them.

2) If the goods were bought for a specific purpose and the buyer relied on your judgment when buying the goods, then you must refund the price if they don't measure up. For example, if the customer asked you for a drill to drill masonry and the drill which you sold him only drilled wood, then you would have to take back the drill and refund him.

You are not liable to refund a customer if it was unreasonable in the circumstance for the customer to rely on your skill. A general shop assistant cannot be expected to give specialist advice.

3) If you issue catalogs or brochures, then if a customer orders from the catalog, the goods sent to him must correspond to those described in the catalog. If goods are packed in a sealed box, the goods inside must match the description on the box. Otherwise, in both these cases, the customer is entitled to a refund. Likewise, if you hawk samples about and a customer orders from seeing a sample, the goods sent to him must correspond to the sample.

The manufacturer may also have included a written warranty with the goods. If this confers any additional rights and the goods do not measure up, you will have to take them back and give a refund.

Stores often display signs such as "No Refunds" or "No Refunds after 7 days" etc. These signs will be legally ineffective in all the situations mentioned above. In addition, the signs themselves will be illegal as they deceive customers as to their rights. Take them down, if you have any signs like this. You could be prosecuted by the Trade Practices Commission. A clothing company was fined $15,000 in 1989 for displaying such signs.

You do not have to give a refund 1) if the customer just changed his mind about the purchase or 2) discovered that he could buy the goods cheaper elsewhere. However, many large chain-stores advertise that they will give refunds in these two instances. If you advertise this fact, then you will be bound by it.

ADVERTISING

The Trade Practices Act contains a general prohibition against misleading or deceptive conduct. Section 52 says that " a corporation shall not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive." This prohibition is especially relevant to advertising. All adverts must be truthful whether they are adverts extolling the virtues of the goods that you sell or whether they are adverts seeking staff. The Trade Practices Commission can prosecute you for misleading or deceptive conduct.

DISCLAIMER: See disclaimer on home page.

Copyright 1997.



 home