Metcash settles court case with IGA food retailer

Sue Mitchell
March 6, 2015
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The Metcash-Arora case was settled on confidential terms on Friday. Photo: Craig Sillitoe
Metcash has settled a multi-million court case with a collapsed IGA supermarket retailer, heading off a potential confrontation with independent retailers who bought former Franklins stores.
Ajay Arora and his wife Pooja Arora had sued Metcash for more than $12 million, alleging that the grocery wholesaler breached the Competition and Consumer Act and contravened the Franchising Code of Conduct when it sold the couple 16 former Franklins stores and converted their existing two Franklins stores to IGA supermarkets.
The Aroras claimed – and Metcash denied – that the deals constituted franchise agreements and that Metcash failed to provide the necessary disclosure documents and information required under the Franchising Code of Conduct.
The Aroras argued they would not have bought the former Franklins stores or agreed to the trading terms set down by Metcash if they had had more information.
Within months of the transactions, the Arora’s relationship with Metcash had turned sour. Metcash was late paying rebates and the Aroras requested longer payment terms. Metcash agreed, but only if the Aroras settled overdue accounts and increased their teamwork score, or the proportion of stock they bought from Metcash, to 90 per cent from 65 per cent.
In June last year, Metcash suspended supply of stock to the family company before demanding cash on delivery for orders. In July, Metcash issued a notice of default seeking payment of $7.1 million and in December Metcash appointed Mark Robinson and Kenneth Whittingham, of PPB Advisory, as receivers over the Arora’s supermarkets.
The Aroras launched proceedings in the Federal Court last month, seeking damages of more than $12 million for the purchase of the stores and lost income, declarations from the court that the Franchising Code applied to the arrangements and declarations that Metcash had contravened the Franchising Code.
However, the case was settled on confidential terms on Friday and no declarations were made.
As a result, other IGA retailers who paid Metcash about $100 million for about 55 Franklins stores will remain in the dark over whether their agreements with Metcash constituted franchise agreements and whether Metcash should have supplied more information at the time of the deals.
Metcash fought hard for the right to acquire the 80-store Franklins chain from South African retailer Pick n Pay, taking the Australian Competition and Consumer Commission to court in 2010 after it blocked the $215 million deal on the grounds it would lessen competition.
However, by the time Metcash finally took control of Franklins in 2011 and started selling stores to independent retailers, the supermarkets were trading much worse than expected. About 25 stores were subsequently closed and Metcash booked trading losses of more than $70 million in 2013 and 2014.
Metcash is also embroiled in an unconscionable conduct claim brought against it by two suppliers, Cofco Distributors and Fasttrack Logistics. The companies, which are owned by a group of Indonesian businessmen, have accused Metcash of using unfair tactics to force them to hand over more than $11 million in rebates and payments over the last six years.
Lawyers for Cofco and Fasttrack told the Federal Court on Friday the case would be complex and lengthy, with “tens of thousands” of documents and 20,000 emails involved. The case is due to return to court on July 24 and will be heard in March or April next year.
Read more: http://www.smh.com.au/business/metcash-settles-court-case-with-iga-food-retailer-20150306-13x4nu.html#ixzz3Ta0OhL3M