What to expect for competition and consumer law in 2017
17 January 2017 Authors: Tony O'Malley, Murray Deakin, David Fleming
As the Government looks to implement key reforms recommended under the Harper Review and the ACCC reflects on recent wins in the enforcement area, 2017 promises to be a landmark year for Australian competition and consumer law. We kick off the year by sharing our expectations and insights on some key issues and likely developments in the areas that may impact your business. Competition law Cartel conduct we expect the ACCC to continue to vigorously pursue cartel conduct, following the
first criminal cartel proceedings being brought in 2016. The ACCC is understood to have 10-12 in-depth investigations underway and we would expect 1-2 new criminal cartel prosecutions in 2017. Dual distribution systems watch out for potential ramifications of the High Court's decision in ACCC v Flight Centre in December 2016 (where Flight Centre was held to be in competition with airlines in the sale of international airlines tickets, notwithstanding that it was also an "agent" of those airlines), particularly for parties using similar dual distribution models. Mergers while the ACCC "pre-assessed" (ie cleared without public review) a higher proportion of informal merger clearance applications in FY 2016 (around 90% versus around 75% on average for the previous five financial years), we expect the ACCC to continue to thoroughly investigate complex and contentious transactions. ACCC Chairman Rod Sims has been reported as stating that in 2017 the ACCC will be closely watching deals involving start-ups being bought out by established players. The ACCC is also undertaking two post-completion merger reviews, highlighting the importance of merger parties incorporating timely merger clearance advice into their pre-merger strategy. Harper Review implementation some of the most significant legislative changes to competition law in Australia over the last 20 years are expected in 2017, as the Government seeks to give effect to its response to the Competition Policy Review (Harper Review). A Bill to revise the misuse of market power provisions to adopt the much debated "effects test" was introduced into Parliament in December 2016, with further legislation anticipated to be introduced in early 2017 to implement other important Harper Review reforms adopted by the Government. Australian Consumer Law (ACL) Focus on B2B conduct we expect the ACCC to vigorously enforce the unfair contract terms for small business provisions which took effect from September 2016, and for unconscionable conduct in a business to business context to continue to be high on the ACCC's list of priorities. We also
anticipate that small business will increasingly use these provisions as part of their negotiating strategy when engaging with larger businesses. Push for higher penalties the ACCC is likely to continue to push for higher penalties for contravening the ACL, following its successful appeal of the penalty imposed on Reckitt Benckiser at first instance for conduct liable to mislead the public (with the Full Federal Court in December 2016 increasing the penalty from $1.7 million to $6 million). The Productivity Commission has also made a draft recommendation that the maximum penalties for contravening the ACL be increased. ACL reviews it is anticipated that final reports by Consumer Affairs Australia and New Zealand (CAANZ) in relation to its review of the ACL, and the Productivity Commission in relation to its parallel review of consumer law enforcement and administration, will be provided to Government in around March 2017, which may lead to further amendments to the ACL.
Competition law in 2017
2017 is likely to be an important year for competition law, including in relation to cartel conduct, dual distribution systems, merger clearance and the implementation of significant Harper Review reforms.
Serious cartel conduct will continue to be vigorously pursued We expect that the ACCC and Commonwealth Director of Public Prosecutions (CDPP) will continue to vigorously pursue serious cartel conduct in 2017. In 2016, criminal cartel cases were brought by the CDPP for the first time since the criminal cartel provisions were first introduced in July 2009. Following an investigation and referral from the ACCC, the CDPP brought separate criminal proceedings against Nippon Yusen Kabushiki Kaisha (NYK) and Kawasaki Kisen Kaisha (K-Line) in relation to alleged cartel conduct concerning the transport of motor vehicles to Australia between 2009 and 2012. NYK pleaded guilty in relation to the alleged conduct and awaits sentencing, while K-Line is defending the proceedings brought against it. The Chairman of the ACCC, Rod Sims, has been quoted in the media as stating that the ACCC is working on "10 to 12 detailed investigations" of cartel conduct, and we expect to see more criminal cartel cases being brought in the future. Notable civil cartel cases awaiting judgment in 2017 include the ACCC's appeal from the Federal Court decision in ACCC v Australian Egg Corporation Limited (where the ACCC failed at first instance to demonstrate an attempt to induce a cartel arrangement), and ACCC v Cascade Coal (where the ACCC is seeking to prove alleged big rigging in relation to coal exploration licences).
Dual distribution systems need to be examined
On 14 December 2016, a majority of the High Court (4-1) overturned the decision of the Full Federal Court in ACCC v Flight Centre, holding that Flight Centre was in competition with airlines in the sale of international airlines tickets, notwithstanding that it was also an "agent" of those airlines in respect of the sale of the airline tickets.
One distinguishing characteristic between Flight Centre's relationship with the international airlines and the traditional principal and agent relationship is the fact that Flight Centre was not obliged to sell its airline tickets at the price nominated by the relevant international airline. As Flight Centre was free to sell the airline ticket at any price, it was taken to compete with the international airlines (which also sold tickets directly to consumers online). Flight Centre was found to be engaging in price fixing behaviour in seeking to influence the international airlines not to sell tickets to customers below the fares they made
available to travel agents. It was also relevant that Flight Centre was not constrained in the exercise of its authority to prefer the interests of the airlines to its own. While the decision relates to the price fixing provisions of the (previous) Trade Practices Act 1974 (Cth), the same reasoning applies to the current cartel provisions of the Competition and Consumer Act 2010 (Cth) (CCA), which require that parties to a contract, arrangement or understanding to be in competition with each other for the cartel prohibition to apply. Accordingly, the decision has significant implications for companies which supply goods or services through a dual distribution model involving the use of third party agents, as well supplying those goods or services directly to customers itself. The ACCC has also indicated that they consider the case to be "particularly relevant where businesses make online sales in competition with their agents", though its application will not be restricted to these circumstances. We encourage companies with this type of distribution model to urgently re-examine their agency and distribution agreements for potential cartel conduct issues, particularly any arrangements in relation to pricing, commissions, discounts, customer or territorial allocation, and terms and conditions of supply. Merger clearance While the ACCC "pre-assessed" (ie cleared without public review) a higher proportion of informal merger applications in FY 2016 (around 90% versus around 75% on average over the previous five financial years), we expect that the ACCC will continue to thoroughly investigate complex and contentious transactions. Notable proposed mergers the ACCC is considering in early 2017 include Tabcorp's transaction with Tatts Group, BP's acquisition of Woolworths' petrol portfolio, PMP's acquisition of IPMG, and the merger of APN Outdoor Group and oOh!media. The ACCC is conducting post-completion reviews of DC Payments Australasia's acquisition of First Data Corporation's "Cashcard" ATM business (which occurred in September 2016) and the merger of Menulog and Eat Now Services (which occurred in January 2015). The ACCC also accepted divestment undertakings from Primary Healthcare in 2016 following a post-completion review of its acquisition of pathology assets from Healthscope. These matters highlight the ACCC's continued willingness to investigate deals which have already been completed, and the importance of merger parties incorporating timely merger clearance advice into their pre-merger strategy. ACCC Chairman Rod Sims has also been quoted in the media as stating that in 2017 the ACCC will be closely watching deals involving start-ups being bought out by established players, being particularly concerned with situations "where you've got two or three main players gobbling up the new entrants". Implementation of significant Harper Review reforms Some of the most significant legislative changes to competition law in Australia over the last 20 years are expected in 2017, as the Government seeks to give effect to its response to the Harper Review, in line with the majority of the Harper Review's recommendations. On the last sitting day of Parliament for 2016, the Government introduced the Competition and Consumer Amendment (Misuse of Market Power) Bill (Bill), seeking to introduce the much debated "effects test" to the misuse of market power provisions of the CCA, as well as to repeal the telecommunications specific anti-competitive conduct laws in Part XIB of the CCA. The revised misuse of market power provision will prohibit a corporation with a substantial degree of power in a market from engaging in conduct which has the purpose, effect or likely effect of substantially lessening competition in that market, or any other market in which the corporation (or related body corporate) does, or is likely to, acquire or supply goods or services, directly or indirectly. This is broadly consistent with version of the misuse of market power provision contained in the exposure draft of the Competition and Consumer Amendment (Competition Policy Review) Bill 2016 (Exposure Draft) released by Federal Treasury in September 2016.
One key difference is that the provision in the Bill is directed to conduct by the firm with substantial market power which affects a market in which it (or a related body corporate) participates, whereas the Exposure Draft wording applied more broadly to conduct which had an effect in any market. The Bill is currently before the Senate Economics Committee, with a report due 16 February 2016. Further legislation dealing with other broad ranging Harper Review recommendations adopted by the Government is expected to be introduced early this year. Based on the Exposure Draft (see LegalTalk Alert Draft legislation to implement Harper Review reforms to Australia's Competition Laws dated 15 September 2016), these additional amendments are likely to include: introducing a prohibition against concerted practices, and simplifying the CCA by repealing separate,
specific prohibitions on price signalling and exclusionary provisions broadening the definition of `competition' to include potential imports of goods and services confining the cartel conduct provisions to apply to conduct affecting trade or commerce in Australia,
or between Australia and places outside Australia consolidating the various authorisation processes (including those relating to mergers) into a single,
streamlined process broadening the exceptions for joint ventures and vertical trading restrictions to allow common,
pro-competitive business arrangements, and making provision for class exemptions making third line forcing conduct subject to a substantial lessening of competition test (rather than
being automatically illegal), and introducing a notification option for resale price maintenance extending the ACCC's s155 notice powers and introducing a `reasonable search' defence amending the National Access Regime declaration criteria to ensure third-party access is only
mandated where it is in the public interest strengthening the evidentiary mechanism for findings of fact and admissions made in proceedings
involving contraventions of the CCA, to be used in later proceedings for damages and compensation. We will continue to closely monitor these important proposed amendments. Australian Consumer Law in 2017 We expect to see a continued focus on business to business conduct under the ACL and push for higher maximum penalties by the ACCC, as well as the completion of ACL reviews currently being conducted by CAANZ and the Productivity Commission, which may lead to further ACL amendments. Continued focus on B2B conduct under the ACL We expect the focus on the application of the ACL to business to business conduct to continue in 2017, particularly in relation to unfair contract terms and unconscionable conduct. Unfair contracts terms for small business likely to be vigorously enforced As we previously reported (see LegalTalk Alert ACCC Report highlights common terms in contracts with small business as potentially unfair dated 21 November 2016) the new law against unfair terms in standard form contracts with small business became operational on 12 November 2016. An ACCC report released just prior to the commencement of the new law identified a range of contract terms across several industries which the ACCC considered would likely cause concern under the new law, including terms that allow the contract provider: to unilaterally vary terms that have a significant bearing on the contractual arrangement, or which
could cause detriment if varied, in an unconstrained manner potentially broad and unreasonable powers to protect themselves against loss or damage at the
expense of the small business by imposing broad indemnities or excessive limits on their liabilities an unreasonable ability to cancel or end an agreement as it suits them.
Other types of terms the ACCC noted as potentially unfair may come as more of a surprise to some businesses, such as "entire agreement clauses" which provide that the contract supersedes all written agreements, undertakings and communications, and automatic renewal clauses in some circumstances. With the ACCC identifying the new law as an enforcement priority, we encourage any business which has standard form contracts with a small business to urgently review their contracts, to the extent that they have not already done so, for compliance with the new law. Unconscionable conduct in B2B dealings likely to remain a focus In December 2016, the Federal Court dismissed ACCC proceedings alleging that Woolworths had acted unconscionably in designing and implementing its `Mind the Gap' scheme, through which Woolworths essentially sought to ask, negotiate and obtain additional financial support from suppliers who it assessed to be under-performing by reference to a number of metrics or `lenses' (see LegalTalk ACCC fails to `Mind the Gap' in unconscionable conduct case against Woolworths dated 12 December 2016). The Woolworths case forms part of a broader recent focus on unconscionable conduct in business to business dealings, including the ACCC's earlier case against Coles, where Coles admitted that it had engaged in unconscionable conduct in dealings with particular suppliers, ultimately resulting in a total pecuniary penalty of $10 million, and refunds of over $12 million to affected suppliers. While the ACCC did not appeal the Woolworths judgment, it has confirmed that "pursuing unconscionable conduct remains an important area for the ACCC, particularly in relation to supply chain issues". In addition to the ACCC continuing to focus on business to business conduct, we expect that small business will increasingly use the unfair contract terms and unconscionable conduct provisions of the ACL, and the corresponding threat of a potential complaint to relevant regulators, as part of their negotiating strategy in dealing with larger businesses. Push for higher ACL penalties On 16 December 2016, the Full Federal Court upheld the ACCC's appeal of the penalty imposed on Reckitt Benckiser for conduct that was liable to mislead the public in relation to Nurofen specific pain products, significantly increasing the penalty from $1.7 million imposed at first instance to $6 million, being the highest penalty imposed for such conduct under the ACL. The Full Court was satisfied that the penalty imposed by the trial judge was manifestly inadequate, including having regard to the need for deterrence and the consumer loss suffered. The ACCC has stated that it will "continue to advocate for higher penalties for breaches of Australia's consumer laws to ensure that they act as an effective deterrent and are not simply viewed as a cost of doing business". The Productivity Commission, which is undertaking a review of the arrangements for administering and enforcing the ACL (see below), recommended in its draft report released in December 2016 that maximum financial penalties for contravening the ACL be increased, with one option being to align them with maximum penalties for civil contraventions of the competition provisions of the CCA. If implemented, this would result in an increase in the current maximum ACL penalties of $1.1 million for corporations and $220,000 for individuals, to the greater of $10 million, three times the benefit of the contravention, or 10 percent of annual turnover in the preceding 12 months (if the benefit cannot be determined) for corporations, and $500,000 for individuals. ACL reviews by CAANZ and Productivity Commission In October 2016, CAANZ released an interim report in relation to its ACL review. The interim report called for further submissions on broad ranging issues that CAANZ had identified in relation to the scope and coverage of the ACL, the legal framework (including issues relating to consumer guarantees, product safety, unconscionable conduct, unfair contract terms, and unsolicited consumer agreements), the administration and enforcement of the ACL, emerging consumer policy and other issues.
The deadline for submissions has now passed, with CAANZ expected to provide the Government with its final report, including findings and options for reform of the ACL, in around March 2017. In December 2016, the Productivity Commission released a draft report on its review of consumer law enforcement and administration, which it is conducting in parallel with CAANZ's review of the content of the ACL. The Productivity Commission identified that there is scope to strengthen the ACL's administration and enforcement, with matters to be addressed including:
increasing maximum financial penalties for breaches of the ACL, and providing all State and Territory ACL regulators with the full suite of enforcement tools available to the ACCC
developing a national database of consumer complaints and incidents, and centralising powers for interim product bans and compulsory recalls in the ACCC
improving the transparency of the resourcing and performance of the ACL regulators. The Productivity Commission is undertaking further public consultation on its draft report (with written submissions due 23 January 2017), and its final report is expected to be provided to the Government in around March 2017. We will continue to closely monitor the progress of these ACL reviews.
Let's talk For a deeper discussion of how these issues might affect your business in 2017, please contact:
Tony O'Malley, Partner +61 (2) 8266 3015 firstname.lastname@example.org
Murray Deakin, Partner +61 (2) 8266 2448 email@example.com
David Fleming, Director
+61 (2) 8266 5257 firstname.lastname@example.org
Sylvia Ng, Director
+61 (2) 8266 0338 email@example.com
Joni Jacobs, Senior Associate
+61 (2) 8266 3684 firstname.lastname@example.org
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