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If you are a supplier considering whether to supply goods or services as part of a new commercial arrangement, you can generally choose whether to supply. Sometimes, it may not be feasible for you to supply, in which case you may refuse to supply and the customer will look elsewhere. However, businesses should note that there are some circumstances where the reason for denying the supply is unlawful. These circumstances are particularly to do with anti-competitive behaviour. If the reason a supplier refuses to supply is considered anti-competitive, it may be unlawful. This article explores:

  • instances where refusing to supply is allowed; 
  • Instances where refusing to supply is not allowed; and 
  • what you can do as a customer if a supplier is refusing to supply to you. 

When Can a Supplier Refuse to Supply? 

There are a number of reasons a supplier might choose not to provide goods or services to a potential customer. A supplier might refuse or choose not to supply because:

  • the cost of supply is too expensive;
  • they have a shortage of stock; 
  • they cannot agree on the commercial or legal aspects of the contract with their potential customer;
  • the delivery or export costs are too high; or
  • the logistics of supply are too difficult to manage. 

Unless the parties can resolve any of these issues, perhaps by renegotiating the contract, the customer may need to choose a different supplier. 

When is it Unlawful for a Supplier to Refuse to Supply? 

A supplier often has discretion regarding whether it provides goods or services to a potential customer. However, there are certain circumstances where it is illegal to refuse to supply. 

Certainly, where the supplier is already contractually bound to supply goods or services, they must carry on their obligations under the contract. 

There are other circumstances where a supplier’s refusal to supply is unlawful. Most of these circumstances are where choosing not to supply promotes anti-competitive behaviour. 

Misusing Market Power

It is common knowledge that many businesses possess substantial market power. Having this power in itself is not unlawful. However, where a business misuses this market, in particular, where a business uses its power to lessen competition, this may be unlawful. Where a supplier chooses not to supply, and this decision is likely to or does have the effect of lessening competition, this is unlawful. 

Being Involved in a Boycott

A collective boycott occurs when a group of similar businesses agree not to supply unless the customers accept the terms and conditions offered by the group. If a supplier is engaged in such a boycott and chooses not to supply, this will be unlawful.

Imposing Minimum Retail Prices

Suppliers may recommend retail prices to their customers. However, a supplier may not impose a minimum retail price to be charged for their products. It would be unlawful for a supplier to require that a business sells products at a particular price. It would be unlawful to refuse to supply unless a customer uses the recommended retail prices.

Engaging in Exclusive Dealing

If a supplier imposes limitations on a customer to restrict the customer’s ability to trade freely, this is unlawful. ‘Third line forcing’ is an example of this. For instance, where a supplier only supplies to a customer on the condition that the customer buys goods or services from a particular third party. 

Engaging in Unconscionable Conduct

Unconscionable conduct is conduct that is so harsh that it flies in the face of good conscience. Businesses may not engage in unconscionable conduct when dealing with other businesses. If a supplier refuses to supply unless its customer signs a contract on the spot, this might be unconscionable conduct. 

What Can My Business do if a Supplier is Refusing to Supply to Me? 

If you think your supplier is refusing to supply for one of the unlawful reasons above, there are a number of steps you can take:

  1. firstly, attempt to negotiate with the supplier and ask them to explain their reasons for withholding supply;
  2. if negotiating directly with the supplier does not work, you might approach an industry representative who can facilitate discussions;
  3. consider using an alternative supplier, as a supplier who refuses to supply, or will only supply on conditions you cannot accept, may not be the best fit for your business; and
  4. notify the ACCC with as much documentary evidence as possible to investigate the issue.

Key Takeaways 

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. Therefore, it is always advisable to seek the assistance of a lawyer, as this can ultimately save time and money in the long run. If you are concerned that a supplier is unfairly refusing to supply your business and would like assistance as you negotiate with the supplier, contact LegalVision’s contract lawyers on 1300 544 755 or fill out the form on this page.

Frequently Asked Questions

When can a supplier refuse to supply?

A supplier might choose not to provide goods or services to a potential customer for a number of reasons. For example, because the cost of supply is too expensive or they have a shortage of stock. Other reasons include that they cannot agree on the commercial or legal aspects of the contract with their potential customer. Or additionally, the delivery or export costs may be too high or the logistics of supply too difficult to manage. 

When is it unlawful for a supplier to refuse to supply?

Some instances where it is unlawful for a supplier to refuse supply include where they are misusing market power, involved in a boycott, imposing minimum retail prices, engaging in exclusive dealing or engaging in unconscionable conduct.

What can my business do if a supplier is refusing to supply? 

If you think they are refusing to supply for an unlawful reason, you firstly can attempt to negotiate with the supplier and ask them to explain their reasons for withholding supply. Secondly, you may approach an industry representative who can facilitate discussions. Thirdly, you can consider using an alternative supplier. Finally, you may notify the ACCC to investigate the issue.

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