Business Irish

Monday 24 October 2016

Tesco Ireland in €8.5m lawsuit over potato deal

Published 07/06/2015 | 00:00

A lawsuit taken out by a former supplier concerns an alleged breach of contract by Tesco regarding the supply of potatoes
A lawsuit taken out by a former supplier concerns an alleged breach of contract by Tesco regarding the supply of potatoes

Tesco has said it will defend a lawsuit taken by one of its former suppliers, a potato trader, seeking €8.5m plus unspecified damages.

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Supplier Paul Sweeney & Company, a Dublin business which says it supplied Tesco with potatoes between 1998 and 2008, will seek to have the case fast-tracked through the Commercial Court tomorrow.

The lawsuit concerns an alleged breach of contract by Tesco regarding the supply of potatoes, one of its best-selling vegetables.

The potato supplier, which is currently not trading, is based in Newcastle in Dublin and owned by local businessman Paul Sweeney (53).

His company alleges it spent millions between 1998 and 2006 on investing in facilities based on an agreement that it would supply half of Tesco Ireland's potatoes. The agreement was not upheld, it argues, and was terminated without reasonable notice.

Paul Sweeney & Company is being represented by Dublin solicitor firm Lawlor Partners, junior counsel Bonnie Hickey and senior counsel Richard Kean - the brother of well-known celebrity solicitor Gerald Kean. Tesco is represented by Dublin 'big five' law firm A&L Goodbody.

"This is a long-standing case for damages arising out of the termination of a supplier relationship which Tesco Ireland will defend. As proceedings are ongoing, we would not comment further at this time," said a spokeswoman for Tesco.

As Ireland's joint largest supermarket chain - like SuperValu, it controls a quarter of the market - Tesco is one of the most important buyers of Irish foods.

Tesco Ireland employs over 15,000 people and operates around 140 grocery stores and 21 petrol stations.

There is no suggestion that the case appearing before the courts tomorrow relates to accounting problems with how Tesco handled supplier payments, which led to its massive £263m (€358m) overstatement of profits uncovered last year.

Those problems came to light last September.

The bulk of that overstatement related to supplier payments which had been incorrectly booked as profits.

In the UK, the matter is being investigated by the Serious Fraud Office, the grocery market watchdog - the Groceries Code Adjudicator - and the Financial Reporting Council, the UK's auditing and accounting body.

In Ireland, the Chartered Accountants' Regulatory Board said in May that it "is continuing to monitor the situation with regard to Tesco and specifically whether there are any issues relating to this jurisdiction which may warrant investigation."

The accounting scandal contributed to Tesco's biggest ever loss of £6.38bn, which was revealed last month.

The matter also drew attention to the practice of charging suppliers to get their products on shelves, widespread by supermarkets.

Tesco group chief executive Dave Lewis has pledged a radical overhaul of the way the grocer negotiates with suppliers as part of his strategy to rebuild the embattled retailer and create a culture of transparency.

The number of criteria it uses to extract charges from suppliers will plummet from 24 to five this year, before falling further to just three by 2016.

But Tesco will still expect to receive commercial income, Lewis said, though it will be "proportionate and fair".

The former Unilever executive said the supermarket giant will "behave our way" out of trouble, following what he called a "difficult year".

Meanwhile, a US law firm said it had signed up a number of international institutional investors to pursue compensation for losses relating to the supermarket's profits overstatement.

Tesco Shareholder Claims, which is supported by US law firm Scott and Scott, said it had also hired British barrister Philip Marshall, one of the lawyers who acted for Paddy McKillen in his long legal fight with the Barclay brothers over control of Claridge's hotel.

The group said that, following advice from Marshall, it was "already clear that the case against Tesco is strong and will involve a substantial claim".

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