Problems obtaining supply

Refusal to deal

Refusal to deal is the technical term for a firm refusing to supply goods and/or services to business (or consumer) customers.

• Businesses small and large often complain to the ACCC that manufacturers or distributors have refused to supply them with goods or services.
• Consumers sometimes experience a refusal to supply from distributors and manufacturers.
• Manufacturers and distributors also ask about their obligations in relation to whom they have to supply, and when.

The general rule

In general, businesses may decide for themselves with whom they wish to deal. The Competition and Consumer Act 2010 does not give everybody an absolute right to be supplied, whatever the circumstances. There is no automatic right to be supplied and there is no obligation on a supplier to justify its decision.

When is a refusal to deal legal?

There may be sound commercial reasons why a customer is refused supply of goods or services such as:

• a wholesaler or manufacturer may find it too costly or inconvenient to sell to people who walk in off the street
• the supplier may already have enough retail outlets in the area
• the supplier may believe the buyer has the wrong type of retail business for the product
• the supplier may believe the buyer is a bad credit risk
• or there may be a personality clash between the two parties.

If the refusal to supply is legitimate the business will have to negotiate with the supplier or find an alternative source.

Resolving a refusal to deal

Before complaining to the ACCC a business needs to be sure the supplier has not refused to supply because of legitimate reasons. They should first approach the supplier to discuss the reason for the refusal—perhaps changes can be made to satisfy the supplier's requirements.

Trade associations or industry bodies may be able to help. It may be more practical to shop around for an alternative supplier.

If these approaches are unsuccessful, and the refusal to deal falls into one of the categories prohibited under the Act, the business affected can take its own court action or complain to the ACCC.

What the Competition and Consumer Act says about refusal to deal

In all but a few cases the Competition and Consumer Act does not force a manufacturer or wholesaler to supply goods or services to another business, even when it has previously done so.

Whether or not a refusal to deal is a breach of the Competition and Consumer Act often depends upon the effect the refusal has, or would have, on competition in the market concerned.

The Competition and Consumer Act provides the right to pursue private action, and businesses considering taking their own legal action should seek legal advice. The ACCC cannot provide legal advice.

When is a refusal to deal illegal?

There are only a few circumstances that make a refusal to deal illegal under the Competition and Consumer Act.

Sometimes refusal to deal is prohibited outright, other times it is subject to a competition test.

Below are some examples of refusal-to-deal conduct that may be illegal.

Agreements involving competitors

If such agreements restrict the supply of goods they are prohibited if they have the purpose or effect of substantially lessening competition in a market in which the businesses operate.

Primary boycotts

These are agreements between two or more competitors to refuse to deal, or limit dealings with another supplier or particular customer, or a class of competitor or customer. They are illegal.

Secondary boycotts

These generally occur when two persons together engage in conduct that hinders or prevents a third person from supplying to, or acquiring goods or services from, a fourth person. They are prohibited if their purpose is to cause substantial loss or damage to a business, or a substantial lessening of competition in a market.

Misuse of market power

This is when a firm with a substantial degree of power in a particular market (by market share or otherwise) takes advantage of that power for the purpose of damaging other businesses by refusing to deal or by offering to do business on such unrealistic terms that it borders on refusal to deal. However, this does not mean that the supplier has to supply everyone. The onus is on the customer to show that the supplier’s action was taken with the purpose of deterring or preventing the business or class of business from entering or competing in that market.

Exclusive dealing

When this occurs it is generally one person trading with another and imposing restrictions on the other’s freedom to choose with whom, or in what, it deals.

What can the ACCC do?

If a complaint is made to the ACCC, it will need as much information and documentary evidence as possible to support an allegation that a supplier has contravened the Act.

When considering whether to take action, the ACCC must give prime importance to promoting competition in the particular market as a whole. It will look at all relevant information, including matters that may not be directly related to the complaint.

It will then decide whether to try to resolve the matter by talking to the supplier, accepting enforceable undertakings provided by the supplier, or by instituting proceedings in the Federal Court.

Some anti-competitive conduct may be permitted if there are public benefits that offset the detriments.

The authorisation process within the Competition and Consumer Act provides for immunity from court action for some restrictive practices that could otherwise breach the Act, if they can be shown to have public benefit.

An exclusive dealing arrangement, including third line forcing, can also gain immunity from court action if the supplier lodges notification of the arrangement with the ACCC.

For more information on refusal to deal

For further information on refusal to supply, please refer to the ACCC's Refusal to Deal guide, available via the link at the bottom of this page. Alternatively, contact the ACCC Infocentre on 1300 302 502.

If any of the issues described above apply to your business situation, you may care to lodge a complaint using the ACCC’s small business complaints form.