When is it legal to refuse supply?

It is not uncommon for a supplier to refuse the delivery of goods or services to a business and, generally, they have the right to do so. For instance, a wholesaler may opt not to be the supplier based on the unreliability of a company, excessive delivery costs, or how the products are presented. Likewise, a manufacturer may argue it is too expensive or difficult to provide to every business that requests their supply. Nevertheless, the advice of a competent commercial solicitor will help to spell out the issues for you. In the event that an agreement cannot be reached between your business and the supplier, and their reason to deny the supply is not unfair or ‘improper’, the terms may need to be renegotiated or, alternatively, a different supplier may need to be approached. The commercial solicitor will qualify your case for you, explaining what your available options are.

When is it illegal to refuse supply?

In certain circumstances it will be unlawful for a supplier to decline to supply your business. A commercial solicitor will inform you when this is the case. This can happen if a supplier shows:

  • Misuse of their market power

This means that a business that has considerable leverage in a market cannot exercise this power to remove or harm a competing business, or to frustrate another business’ entry into a competitive market.

  • Involvement in a collective boycott

Normally, businesses are engaged with one another in a process called collective bargaining, whereby competitors discuss mutually beneficial commercial arrangements with a supplier to enable all parties to negotiate at arm’s length the Ts & Cs and pricing arrangements. Sometimes these businesses will have a representative, like an industry union or a commercial solicitor bargain on their behalf. However, a collective boycott arises when a number of competitors arrange not to purchase any products or services from, or not to sell products and services to, another business that is part of these negotiations unless it agrees to the (possibly unfair) Ts and Cs the group has offered.

  • Imposition of minimum resale prices on retailers

This can arise when a supplier makes a recommendation to businesses that resell the products that a minimum price is charged on those particular products. This practice, however, will not prevent resellers from advertising their products below that recommended price.

  • Engagement in exclusive dealing

This type of conduct occurs when one business imposes limitations on another with whom it is trading. These limitations are imposed on a business in order to restrict its ability to trade freely. While the majority of exclusive dealings are illegal contingent on their impact on competition, certain exclusive dealings will always be against the law. A commercial solicitor can explain the difference and whether the type of dealing is against the law outright, or whether it depends on its impact on competition levels.

  • Unconscionable conduct

This refers to conduct which is so severe that it is objectively immoral. According to current Australian Consumer Law, businesses should not engage in such conduct in their commercial dealings with individuals or other businesses. If you feel that another business has, in its dealings with you, acted unconscionably, you shouldn’t hesitate to contact an expert commercial solicitor to receive advice on how best to proceed.

What can I do if my supply is unfairly withheld?

First, you may like to get in touch with the supplier to enquire as to why they have refused to supply. Negotiation is always an appropriate first step. If direct negotiations fail to yield a mutually beneficial result, the next move may be to approach the appropriate industry representatives who may be able to assist by facilitating arbitration to resolve the matter. If this fails, it’s not unreasonable to try and find another supplier to service your needs. If you cannot find an alternative supplier, consider taking legal action by contacting a commercial solicitor with experience in this area to attend to the matter. To help support your claim, you may also want to collate all of the documentary evidence available and bring this to the ACCC to further investigate the issue.

Conclusion

If you are concerned that a supplier is unfairly denying your business, you should contact a commercial solicitor for advice on how to resolve the dispute. It is important to understand the distinction between the varying circumstances in which a supplier may refuse to do business with you. Understanding this legal distinction can be difficult and it is always advisable to seek the assistance of a professional commercial solicitor, as this can ultimately save time and money in the long run.

Lachlan McKnight

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