As is with most enforcement agencies, resource limitations require the prioritization of activities and enforcement actions. In releasing the Australian Competition and Consumer Commission's (ACCC) 2014 Compliance and Enforcement Policy, the agency has sought to identify its priority enforcement areas for the year ahead.
Businesses should pay particular attention to four key themes:
- The ACCC will rely more on the detection through international collaboration. It is therefore important for businesses operating across a number of jurisdictions to tightly manage consistency in interactions with competition authorities around the world.
- The regulator is also prioritizing resources on the carbon tax repeal. Carbon cost intensive businesses must be careful not to fall afoul of the new price exploitation prohibition and additional consumer protection measures proposed to accompany the repeal.
- Secondary boycotts (explained below) are targeted by the ACCC this year. Businesses facing threats of secondary boycotts from labor unions or environmental groups may find an ally in the ACCC as it enforces the relevant prohibitions.
- The enforcement of unfair contract terms is also identified as a priority for the year ahead. Businesses that use standard form contracts should ensure that they have been reviewed since the introduction of the unfair contract prohibitions in 2011, as the regulator is now moving from a focus on education to enforcement.
In line with previous years, the ACCC continues to prioritize the detection and prosecution of cartel conduct, anticompetitive agreements, and misuses of market power, as these are considered "so detrimental to consumer welfare and the competitive process that the ACCC will always assess them as a priority."
Although not a major focus of recent announcements, it is significant that ACCC has also specifically identified secondary boycotts to be in a class of conduct that is "extremely detrimental to businesses, consumers and the competitive process" and stated that where the ACCC becomes aware of such conduct, it will investigate.
ACCC also has identified a number of consumer protection priorities for 2014, including misleading carbon pricing representations and complexity and unfair terms in consumer contracts.
Boycotts are agreements between entities not to deal with a specific entity or class of entities. Secondary boycotts go one step further: agreements that hinder or prevent a third party dealing with a specific entity or class of entities; it is this type of conduct that has been specifically identified by the ACCC as a key area of concern in 2014.
There are two general species of secondary boycotts:
- Those that hinder or prevent a person (A) from supplying another person (B) with the purpose or effect of damaging the business of B or of substantially lessening competition in a market in which B supplies or acquires goods or services; and
- Those with the purpose or likely effect of preventing or hindering A from engaging in international trade to/from Australia.
These two types of secondary boycotts are currently allowed only where the dominant purpose of the conduct relates to one of three exempted areas: employment matters, environmental protection and consumer protection. A third species of secondary boycott only applies in an industrial relations context and concerns indirect initiatives taken by a workers union to hinder the business of an employer.
The inclusion of secondary boycotts as an enforcement priority for the ACCC may provide comfort to companies that believe they are targeted by their suppliers or customers, where the purpose of those targeting the company fall outside of the narrow environmental and consumer protection exemptions. In relation to industrial relations, the ACCC may also be looking to gain favor with the conservative Government by actively policing the conduct of employee organizations that fall afoul of the secondary boycott prohibitions.
This focus is timely given that the Government has recently flagged that it is considering whether or not the exemptions identified above should continue to apply, particularly in relation to the conduct of environmental groups. The Government’s stance comes as little surprise in light of vocal opposition from members of the Government against campaigns run by environmental organizations targeted at customers and suppliers of both timber companies engaging in old-growth logging and agricultural producers engaging in live-animal exports.
Misleading carbon pricing representations
Following the Government’s election promise to repeal the carbon tax, one of the ACCC’s priorities for 2014 is to ensure that business’ prices, particularly in the energy sector, reflect the lower costs experienced as a result of the repeal of the carbon tax. While the repeal is expected to lower consumer prices in most markets, in a number of markets, particularly where competition is limited, the concern is that businesses may not be sufficiently constrained by competitive forces such that they are able to resist passing through savings from the carbon tax repeal.
Australian businesses will be well aware that the Government also plans to provide the ACCC with additional powers to monitor prices and take action against businesses that it considers are attempting to charge “unreasonably high” prices or make false or misleading claims about the effect of the carbon tax repeal on prices.
It is important for businesses that were affected by the imposition of the carbon tax to take a great degree of care in adjusting or setting new prices. While businesses should of course continue to make pricing decisions in line with commercial objectives, during this turbulent time it would be prudent to seek advice where adjustments in prices are attributed to or largely as a result of carbon tax related costs.
Complexity and unfair terms in consumer contracts
In relation to the national unfair contract terms prohibitions introduced as part of the Australian Consumer Law (ACL) and applying from 2011, the ACCC’s emphasis has now shifted from promoting compliance with these new prohibitions to ensuring compliance through vigorous enforcement.
An unfair contract term is a term, contained in a standard form contract, that:
- Causes a significant imbalance in the parties’ rights and obligations arising under the contract;
- Is not reasonably necessary to protect the legitimate interests of the party who would be advantaged by the term; and
- Would cause detriment (whether financial or otherwise) to a party if it were to be applied or relied on.
For example, in the first case taken by the ACCC in relation to this prohibition last year, the Australian court found that a term enabling an internet service provider unilaterally to vary the price under an existing contract, without providing the customer with a right to terminate the contract, constituted an unfair contract term. The court also considered that a term enabling the provider to unilaterally terminate the contract at any time with or without cause or reason constituted an unfair contract term.
Businesses using standard form consumer contracts should by now have reviewed these contracts to ensure compliance with the national unfair contract terms prohibitions. Businesses may also be aware that the national prohibitions reflect similar prohibitions that previously existed in a number of individual states and may have undertaken steps to standardize state specific contract terms.
Given the ACCC’s prioritization of enforcement action in this area, in addition to ensuring contracts have been reviewed for compliance, businesses should exercise particular caution in seeking to apply contract terms where there may be a question of whether those terms would constitute unfair contract terms to avoid attracting the regulator’s ire.
Outlook for 2014
It is likely that we can expect to see a greater degree of internationalization of the ACCC’s enforcement efforts in relation to core competition concerns (cartels, misuse of market power, anti-competitive agreements). Given limited resources, the ACCC will rely to a greater degree on the benefits available through shared investigatory and detection efforts, particularly in relation to international cartels.
For this reason it is important for businesses operating across a number of jurisdictions to coordinate very closely on issues of competition compliance. A detected instance of failed compliance in one jurisdiction, particularly in those jurisdictions with only recently active enforcement agencies, can quickly spiral into an international investigation requiring great effort and expense to address.
In relation to its consumer protection role, clearly the ACCC will be prioritizing its efforts on issues associated with the carbon tax repeal. The regulator must find a pathway forward to use essentially the same powers it was provided to support the introduction of the GST in 2000 in the context of the repeal of the carbon tax, a very different kind of tax. Clearly the regulator will not be able to just broadly announce that no seller should adjust its price by more or less than a certain percentage this time around.
It is likely that there will be a number of points of contention between industry and the ACCC in relation to how the new carbon tax repeal specific powers should be interpreted and fairly applied to the benefit of both consumers and compliant businesses. One challenge for the regulator will be to apply these powers without significantly increasing the costs of both compliance with the carbon tax repeal framework and the administration of actually effecting the removal of the tax in business’ internal systems.
The year ahead sees a number of important developments in the Australian competition landscape:
Repeal of the carbon tax, one of the single largest regulatory frameworks imposed on Australian businesses in recent years.
- Commencement of the "root and branch" review of the competition regime.
- A resource limited regulator looking to take a small number of high profile "scalps" to gain maximum leverage for their limited enforcement budget.
In these areas businesses should seek advice proactively to avoid having to respond to ACCC allegations at a later date or claims by private litigants which is always significantly more costly.