The Australian Competition and Consumer Commission said it would seek a substantial penalty in the case.

“It is very important that a penalty is not just able to be dismissed as a cost of doing business and that it becomes at a level that is a significant deterrent for such conduct,” Gina Cass-Gottlieb, chair of the commission, told a news conference.

The regulator filed suits against Coles and Woolworths in 2024 after persistent inflation and price hikes spurred a backlash against the country’s grocery duopoly by consumers struggling with a cost-of-living crisis. Together the two firms sell nearly two-thirds of Australia’s groceries.

Class-action lawsuits were also filed in tandem with the regulator’s action, and Federal Court judge Michael O’Bryan’s ruling applies to both.

Shares in Coles slid 3.7% in morning trade after the decision. Coles did not immediately respond to a request for comment.

Hearings for Woolworths have concluded but a judgment is still pending. Woolworths shares lost 1.7%.

In his ruling, federal court judge Michael O’Bryan said Coles was justified in putting up prices through 2022 and 2023 but misled shoppers by advertising discounts typically within four weeks.

For the discounts to appear credible to shoppers, supermarkets should have sold the goods at their higher prices for at least 12 weeks, O’Bryan said.

“Because the relevant products were not sold at the ‘was’ price stated on the ticket for a reasonable period and, as a consequence, the discount represented on the ticket was not genuine,” he added.