In 2018, the ACCC will focus on energy affordability, financial services and online markets, along with its enduring priorities to tackle cartel conduct, product safety and misrepresentations about consumer guarantees.
Priorities in a nutshell
As it does each year, the ACCC has announced its focus areas for the next 12 months. At a speech to CEDA, ACCC Chair Rod Sims released its 2018 Compliance and Enforcement Policy, detailing the primary sectors and industries that the ACCC will prioritise for investigation, enforcement and reform over the next year.
In his speech, Mr Sims looked both forward and back. He identified 2017 as a “landmark” and “significant year” for competition and consumer law, citing standouts as the passage of the Harper reforms, the second criminal cartel prosecution and the Australian Consumer Law (ACL) Review. In contrast, Mr Sims forecasts that 2018 will provide “many challenges” but be “an exciting and full year”.
At the top of the ACCC’s ‘to do’ list (or ‘hit list’, depending on your point of view), are tackling:
consumer issues in broadband and energy services;
competition in the financial services and commercial construction sectors;
systemic consumer guarantees problems in the new car market;
emerging competition and consumer issues in online markets;
enforcement of the recently revised Horticulture Code; and
unfair contract terms and compliance with the franchising code in B2B contexts.
These priority areas for 2018 are not surprising, and align with public statements and activities of the ACCC over the course of the last year or so.
2018 will also mark the first full year in which the ACCC can take action against contraventions of the amended misuse of market power provision, as well as the brand new concerted practices prohibition. Additionally, from mid-year there will be the spectre of increased penalties for the breach of certain ACL provisions. The ACCC has vowed to make use of all new powers and resources in its work.
While only one potential new market study was foreshadowed (in relation to financial services, see further below), Mr Sims highlighted the importance of being a proactive (and not purely reactive) competition champion through its market studies, which allow the regulator to develop a deep understanding of targeted commercial and economic markets. He observed that the five market studies the ACCC commenced last year are progressing or nearing completion. We will likely see some enforcement action in 2018 stemming from these studies, consistent with the ACCC’s previous approach.
Some key insights
Major areas of focus in 2018
Mr Sims has emphasised that the recent misuse of market power and concerted practices amendments to the Competition and Consumer Act (CCA) will be a key focus for the ACCC in 2018 given “the ACCC fought hard for these provisions”. The regulator has established a new unit, known as the Substantial Lessening of Competition Unit (SLC Unit), to undertake investigations that could give rise to enforcement action pursuant to these new prohibitions. Mr Sims has flagged that the SLC Unit is already in the early stages of some important investigations and that announcements about these investigations can be expected later this year. Interestingly, he also commented on the importance of case selection by the ACCC “given the bizarre debate prior to the passing of these laws”.
Larger penalties for large companies
The ACCC has been a vocal advocate over the last few years for an increase to the maximum penalties for certain breaches of the ACL. Last week, a bill was introduced into Parliament which, if passed, will increase the maximum penalties for companies from $1.1 million to the greater of:
three times the value of the benefit received; or
where the benefit cannot be calculated, 10 per cent of the annual turnover of the company in the preceding 12 months.
This move would align the maximum penalties under the ACL with the maximum penalties under the CCA.
However, the ACCC’s focus on larger penalties is unlikely to end there. Mr Sims has confirmed that in 2018, the ACCC will be continuing its commitment to seeking larger penalties for larger companies, on the basis that penalties should be commensurate to the size of the business being penalised, otherwise the objectives of specific and general deterrence are not adequately achieved.
The OECD is due to release a report on Australian penalties for breaches of competition laws shortly. Subject to the contents of this report, we expect the ACCC to vigorously campaign for an approach to penalties that places a greater emphasis on the relationship of the size of the relevant company in breach and the penalty that should be imposed.
A proposal to similarly increase penalties for consumer protection contraventions under the ASIC Act was recommended by the ASIC Enforcement Review Taskforce, which is awaiting a response from government.
Misleading representations about consumer guarantees
The ACCC will continue to focus on systematic issues concerning large national businesses misrepresenting or seeking to avoid compliance with the statutory consumer guarantee regime. This subject has featured a number of times in the ACCC’s priorities since 2011, with Mr Sims noting that “this is a perennial issue for the ACCC” with “two steps forward, one step back” each time it was prioritised.
The ACCC had a setback last year in its pursuit of consumer guarantee matters, with the Federal Court dismissing its case against LG for misleading guarantee representations, and no doubt raising the ire of a Harvey Norman subsidiary and others who had opted to resolve similar issues via section 87B commitments (although the ACCC has appealed this decision). Separately, Valve has also filed a special leave application to the High Court in relation to the Full Federal Court’s findings that the US based business misled Australian customers about the availability of consumer guarantee rights. This was a significant decision for the ACCC, setting a precedent that overseas-based companies that sell goods to Australians must comply with the consumer guarantees. The ACCC can be expected to vigorously defend the appeal.
Unfair contract terms and B2B
The ACCC confirmed its continuing commitment to pursing unfair terms in small business contracts, particularly where there is substantial detriment to the small business. The unfair contract terms regime was extended to small businesses in November 2016, and in 2017 the ACCC brought a number of actions against companies alleging that their contracts contained unfair terms.
A related priority for the ACCC in 2018 is ensuring that small businesses receive the protections of the Franchising Code of Conduct, with a particular focus on issues involving large or national franchisors.
Industries in the ACCC’s spotlight
- The ACCC will focus on issues in the provision of broadband services to consumers to address concerns around misleading speed claims and statements made regarding the transition to the NBN broadband network. This area has become a more important priority for the ACCC over the past two years, with increasing enforcement action, including the regulator issuing speed claim guidance late in 2017 and accepting section 87B undertakings from several retail service providers in relation to misleading maximum speed claims.
- The ACCC’s first report of the Measuring Broadband Australia program is due to be released soon.
- The ACCC acknowledged that, as part of its Communications market study, it found strong price competition between the major service providers despite concentration in fixed and mobile retail markets. However it noted that there are areas for attention – watch this space.
Digital platforms, algorithms and consumer data
- Through its digital platforms inquiry, the ACCC is currently aiming to address issues concerning the use of digital platforms, algorithms and consumer data particularly in developing markets. This includes the impact of search engines, social media and other internet aggregators on competition in media and advertising services.
- Importantly, Mr Sims has noted that a central question will be consumers’ knowledge about “the amount and use of the data about them that is collected and sold by the digital platforms
- Mr Sims noted that the ACCC has the option to compel information from relevant companies under Part VIIA of the CCA – an implicit warning to digital and technology companies.
- The ACCC will release an Issues Paper at the end of this month, with a preliminary report due by 3 December 2018 and the final report due by June 2019.
- The ACCC has flagged its intention to continue market studies and enquiries to enhance its knowledge of competition and consumer law issues in agricultural supply chains, including completing the Dairy Inquiry and continuing to advocate for improved transparency and competition in the cattle and beef industries, following those market studies.
- Enforcement of the Horticultural Code of Conduct and analysis of the viticulture industry will be a big priority for the ACCC’s Agriculture Unit, along with enforcing the CCA and ACL in agricultural industries and continuing investigations into unfair terms.
- As a result of matters identified in the ACCC’s Retail Electricity Pricing Inquiry Report and Wholesale Gas Inquiry, the ACCC is directing further effort into addressing competition and consumer issues in the provision of energy as an essential service in 2018.
- Mr Sims stressed that Australia faces an energy affordability crisis that has impacted a source of competitive advantage for Australia and caused significant consumer harm. He also announced plans for the ACCC to make recommendations for reform in its final Electricity Pricing report, due to be released in June 2018.
The ACCC’s newly established Financial Services Unit (established with additional resources from the 2017/18 Federal Budget) is endeavouring to proactively identify and investigate competition issues in the financial services sector and will conduct market studies post 1 July 2018.
- As part of the investigation into the banking and financial services sector, the ACCC will be releasing its interim report into residential mortgage pricing in the coming weeks. The ACCC has foreshadowed that a key focus is transparency in the way banks balance the interests of consumers and shareholders when making interest rate decisions. The ACCC’s final report in this area will be issued in June 2018.
New car retailing
- The ACCC is looking to progress insights revealed in its 2017 New Car Retailing Industry market study, including responses by retailers and manufacturers to consumer guarantee claims.
- The ACCC will be taking action against traders who engage in practices inconsistent with the law (including responses by retailers and manufacturers to consumer guarantee claims) and address concerns relating to information given to independent repairers.
- Mr Sims emphasised that market studies are “the start of a process, not the end”, and that their focus on enforcement in new car retailing demonstrates that the ACCC does not merely prepare reports and “leave them in a drawer” without taking action or making changes.
- The ACCC’s Commercial Construction Unit will continue to examine competition and related issues in the construction industry, including allegations of cartel conduct, undue coercion, unconscionable conduct and unfair contract terms, as well as its engagement and advocacy work in this sector.
- It is likely that a number of enforcement actions will be progressed in 2018 in this sector.
In addition to the specific areas of focus for 2018 outlined above, the ACCC has also reiterated that it will continue to focus on five enduring priories in 2018 that relate to conduct “so detrimental to consumer welfare and the competitive process that the ACCC will always regard them as a priority”.
These enduring priorities have not changed from the ACCC’s 2017 Policy, namely:
- Cartel conduct Mr Sims reiterated the ACCC’s messaging about sanctions for a breach of the cartel provisions needing to be seen as more than a cost of doing business, however he also highlighted the importance of holding individual officers and directors personally accountable, citing the example of the County Care case (with criminal charges laid against the Managing Director and a former employee, in addition to the company) that the ACCC commenced last week. It’s the first criminal prosecution of an Australian company under the cartel provisions of the CCA and the first time that individuals have been prosecuted under such provisions. Mr Sims also mentioned that the ACCC has:
- five current cartel referrals with the Commonwealth Director of Public Prosecutions (CDPP) and a number of investigations that are at an advanced stage, with plans to announce outcomes progressively throughout 2018; and
- developed close working relationships with the CDPP, the Australian Federal Police and notably the regulator’s international counterparts, which enables the pursuit of international cartels with an Australian nexus.
- Anti-competitive conduct (including anti-competitive agreements and practices as well as misuse of market power).
- Product safety (especially in relation to issues that have the potential to cause serious harm such as the Takata airbags issue). The ACCC has a dedicated team to handle recalls.
- Vulnerable and disadvantaged customers (given the risk that these consumers are disproportionately impacted by conduct in breach of the CCA).
- Conduct impacting Indigenous Australians (with the ACCC acknowledging certain conduct in contravention of the CCA may specifically impact the welfare of Indigenous Australians, and also noting that Indigenous consumers living in remote areas face particular challenges when seeking to assert their consumer rights).