The world is grappling with an unprecedented health and economic crisis. We are all adjusting to a new world order of social distancing, increased working from home, and sadly, in some cases serious illness.
This pandemic has also brought significant challenges for the global economy and may raise new issues for businesses in how to respond. In times such as these it may be easy to lose focus on our legal obligations. Despite this, companies need to remain vigilant in complying with their competition and consumer law obligations as they respond to economic issues caused by the COVID-19 pandemic. Companies should also be aware, however, that the ACCC has indicated that it is willing to expedite requests from business to grant temporary relief from some of these obligations provided it is satisfied that that any public detriment from the conduct will be less than the public benefit.
Our FAQs in the link below will help you respond to key competition and consumer law issues that may be relevant for your business in these difficult times.
We wish you and your families all the best in navigating the challenges ahead.
Q: TALKING WITH COMPETITORS AND OTHERS IN OUR INDUSTRY – WHAT CAN WE SHARE AND DO?
A: You may want to know how others in your industry are responding to COVID-19, and potentially collaborate or coordinate with them in certain respects, such as ensuring or prioritising supply or implementing public health measures. While there may be avenues for permitted collaboration (which we discuss below), you must remain vigilant about complying with your competition law obligations if dealing with your competitors. It is important to remember that when dealing with competitors: + You must not engage in cartel conduct by making an agreement, arrangement or understanding with a competitor (or potential competitor) that: − maintains, controls or fixes prices, discounts, rebates or credits (price fixing); − restricts acquisition or outputs in the production and supply chain (restricting output); − allocates customers, suppliers or geographic areas (market sharing); or − interferes with a competitive tender process, for example by agreeing on who will bid or what they will bid (bid rigging). + In addition, whether dealing with competitors or any other industry participants: − You must not make any agreement, arrangement or understanding that has the purpose, effect or likely effect of substantially lessening competition. − You must not engage in “concerted practices”, which include any form of cooperation (or conduct likely to lead to cooperation) that has the purpose, effect or likely effect of substantially lessening competition. These are serious breaches of the Competition and Consumer Act 2010 (Cth) (the Act) which may attract significant penalties, and in certain circumstances for cartel conduct, criminal penalties including imprisonment can apply.
Q: CAN WE SPEAK TO OUR COMPETITORS AND OTHERS IN OUR INDUSTRY ABOUT HOW COVID-19 IS IMPACTING US AND WHAT WE CAN DO ABOUT IT? A: In many industries it is common to interact with competitors, whether through industry associations, joint ventures, or where your suppliers or customers will also be your competitors. Competition laws recognise that many of these interactions can be harmless or beneficial to competition, and do not prohibit them outright. However, there is a risk that when speaking with competitors you may engage in the conduct discussed above in breach of the Act. Generally, if you are speaking with your competitors (or potential competitors), you should apply the usual principles: + Make sure that you do not share competitively sensitive information, or come to any agreement, arrangement or understanding (even a “wink or a nod”) about pricing, customers, suppliers, output, territories or anything that may reduce competition between you. + Ensure that the discussion is for a clear and legitimate purpose, prepare an agenda (approved by your legal advisors) and take file notes or minutes. If you have concerns that information discussed could be competitively sensitive, raise the concern, and ask for your concern to be minuted (and leave the meeting if the discussion continues). + Avoid speaking on behalf the “industry”, for example “if we stand together…” or “the industry view is…” particularly in relation to issues on which industry participants would ordinarily compete. + Where industry coordination is contemplated, make it clear that nothing in the present discussions will constitute an agreement or understanding and that participants will continue to make independent decisions unless and until legal advice is obtained and any appropriate structure or regulatory approval for the coordination is secured. Of course, we are in extraordinary circumstances, and there may be good reasons to work together in ways that wouldn’t usually be contemplated. See below for how to do that in a way that doesn’t give rise to competition law risk.
Q: WE ARE WORRIED ABOUT WHAT’S GOING TO HAPPEN IN OUR INDUSTRY. CAN WE COLLABORATE WITH OUR COMPETITORS TO, FOR EXAMPLE, COME TOGETHER TO NEGOTIATE TERMS AND CONDITIONS WITH A CUSTOMER OR SUPPLIER? A: There are ways for competitors to collaborate on emergency responses to COVID-19, but to do so will require appropriate attention to competition law risk and careful management. Collaborating with a competitor (or potential competitor) to negotiate terms and conditions with a customer or supplier risks breaching the cartel provisions of the Act, creating an anticompetitive agreement and/or engaging in concerted practices. This is particularly risky if the subject matter involves prices, where or to whom the product will be sold or how much will be produced. If you want to collaborate with your competitors (e.g. to consider how to coordinate supply recognising potential shortages, or how to provide relief to customers impacted by COVID-19), there is a risk of contravention unless you pursue one of the following options. Authorisation It may be possible to collaborate with competitors if you obtain authorisation from the ACCC. Authorisation provides protection from legal action for conduct that might otherwise breach the competition provisions of the Act. Broadly, the ACCC may authorise the conduct if it is satisfied that the benefit to the public from the conduct outweighs any public detriment, including from a lessening of competition. An urgent interim authorisation may be available to avoid waiting for a final decision which may take 6 months or longer – which will be too late in many instances. The ACCC has said that it expects an increase in urgent interim authorisation applications to allow businesses to coordinate some conduct during the crisis. These applications will be an important priority for the ACCC during the crisis, and it has preparations in place to act on applications extremely expeditiously if necessary. Businesses should engage with the ACCC as early as they can if they expect they will submit an urgent application. The ACCC has already granted interim authorisation of conduct addressing the impacts of the COVID-19 pandemic on an extremely timely basis. For example: + On 20 March 2020 the ACCC granted urgent interim authorisation to allow the Australian Banking Association (ABA) and its member banks to work together to implement a small business relief package, deferring loan repayments for small businesses impacted by the COVID-19 pandemic. Interim authorisation was granted less than 24 hours after the application was lodged.
+ On 23 March 2020 the ACCC granted urgent interim authorisation to allow Australian supermarkets to engage in coordinated activities to ensure the supply and fair and equitable distribution of retail products during the COVID-19 pandemic, as recommended by the Supermarket Taskforce convened by the Commonwealth government. Interim authorisation was granted the next working day after the application was lodged. + On 25 March 2020 it granted urgent interim authorisation to the Medical Technological Association of Australia (the MTAA) to allow its members and other groups, such as suppliers or distributors of medical equipment, to share information between each other, co-ordinate orders and supply requests, prioritise requests and jointly tender to supply COVID-19 medical equipment. ACCC Chair, Rod Sims, has said that the ACCC is ready to act quickly on urgent interim authorisations and “has a team ready and raring to go on this. We’re being flexible and very fast... This is a crisis and we’re all in it together.” Mr Sims has said that the ACCC has received applications from most sectors of the economy and is in many cases approving them within 1-2 days. Class exemption The ACCC also has the power to grant class exemptions that provide businesses with a “safe harbour” to conduct specified activities without fear of breaching the competition laws. An exemption may be granted if the activities are unlikely to substantially lessen competition or are likely to result in a net public benefit. All businesses that engage in the specified conduct will be protected by the class exemption without the need to seek individual authorisations, if within the scope of the exemption. While there are no class exemptions currently in place, two are currently under consideration. Relevantly, one would enable small business to collectively bargain with customers or suppliers over common issues. A class exemption is a disallowable legislative instrument and the ACCC is not bound to follow any particular statutory process before granting one. However, it appears that at present the ACCC is seeking to deal with the exigencies of the COVID-19 pandemic through urgent interim authorisations rather than class exemptions.
Q: WHAT STATEMENTS CAN WE MAKE IN PUBLIC ABOUT HOW WE ARE PLANNING TO RESPOND TO COVID-19? A: It is fine to publicise your response to COVID-19 at a high level, and it is important that your customers, employees and other stakeholders are well-informed. However, in publicly sharing information about your business’s response to COVID-19 or any other matter, you must be careful not to share any commercially or competitively sensitive information, which may risk breaching the prohibitions in the Act against concerted practices and even cartel conduct. This information could include how you anticipate your pricing or output to change in the future, or strategic decisions that impact your competitiveness – unless you have authorisation or an exemption. You should also be careful not to overstate or misrepresent your response to COVID-19, as this could breach the Australian Consumer Laws. You may of course, be required to disclose certain information, for example under your continuous disclosure obligations under the Corporations Act 2001 (Cth). Read our recent publication here for guidance on this.
Q: I’M WORRIED ABOUT PRICES AND MARGINS IN MY INDUSTRY. WHAT CAN I DO TO INFLUENCE PRICES? A: The COVID-19 pandemic is already causing extreme volatility in supply and demand, which may have significant impacts on pricing and margins across the supply chain in many industries. Pricing is a key area of concern in all forms of economic regulation and it will be important to be aware of your obligations as the situation continues to evolve. Cartel conduct and concerted practices As always, you must make all your pricing decisions independently, without agreeing, coordinating or discussing your prices with your competitors, unless you have first considered competition law risk. Resale price maintenance If you supply through distributors, you have only limited influence over the prices at which they sell or advertise your products to their end-customers. You can stop them from raising their prices by setting a maximum resale price. For example, if you are a supplier of products experiencing greater than usual demand, you can require your distributors to price below a particular price to avoid exploitative pricing. You can’t stop distributors from lowering their prices by setting a minimum resale price: this is resale price maintenance and is prohibited in most circumstances. For example, if your distributors are heavily discounting your products due to a slump in demand, this is generally considered a benefit to consumers and cannot be prevented without authorisation from the ACCC, even if the purpose is to protect your distribution network or maintain the premium value of your products or brand. Of course, if your distributors or sales outlets are wholly owned within your corporate group, the group can set the prices at which those outlets will sell the group’s products. The same applies where your products are distributed through your genuine agents, though you should seek legal advice on the likely characterisation of your distribution arrangements as this will depend on all the circumstances and not only whether the distributor is described as an agent. You are always free to provide a recommended retail price to your distributors, as long as this is a genuine recommendation and the distributors will not suffer, or expect to suffer, any adverse consequences if they depart from the recommended price.
In limited circumstances you can withhold supply to a distributor who has recently sold your products below cost as a “loss leader” to attract customers likely to purchase other goods or otherwise promoting their business. Price gouging Generally, you are free to determine the prices at which you are willing to supply your products or acquire products from others in response to changing supply and demand conditions. In Australia, even if you have a substantial degree of market power, raising your prices above competitive levels will not by itself be considered an abuse of that power. If your input costs increase due to COVID-19, for example if you have to secure additional or alternative supply, you can generally raise your prices to maintain your margins. It is important not to mislead or deceive customers about the reasons for any price increase. For example, if you justify a price increase on the basis that the COVID-19 pandemic has increased your input costs, you should make sure that the whole of your price increase is attributable to those increased costs. In some circumstances an excessive price increase may also be considered unconscionable conduct, for example where your product is a necessity for your customers and they have a particular vulnerability or disadvantage. The ACCC has said that it is possible that extreme price gouging for essential products may amount to unconscionable conduct. Even where price increases are not prohibited under the current law, excessive and unjustified price increases are likely to attract consumer complaints and media attention and may lead to additional regulatory intervention. The ACCC has reportedly created a new team to look out for profiteering, scamming and other consumer issues. At present the ACCC’s intervention may be focused on drawing attention to instances of overcharging and encouraging customers to avoid these businesses, but it may pursue additional avenues in the future. The ACCC has said that price gouging for essential products is a significant public concern at this time and that the ACCC will prioritise its activities in relation to this conduct. Following its recommendation in the Digital Platforms Inquiry, this year the ACCC is likely to call for a prohibition of unfair business conduct, which would be broader than the prohibition of unconscionable conduct. Any such prohibition may affect pricing decisions during the COVID-19 pandemic or in its aftermath.
Q: OUR INDUSTRY WILL NEED SOME FORM OF CONSOLIDATION IF IT IS TO SURVIVE THE PANDEMIC AND ECONOMIC DOWNTURN. WILL THIS BE POSSIBLE UNDER COMPETITION LAW? A: Consolidation may take a number of forms, from a production joint venture that rationalises production capacity to increase economies of scale while the joint venture parties continue to compete in the sale of end-products, through to a merger between competitors. Production joint ventures and mergers can help businesses respond to changing industry conditions while avoiding the risk of cartel conduct (which is prohibited regardless of its effect on competition and can attract criminal charges for both companies and individuals). However, in some circumstances they may give rise to other contraventions of the Act, for example where they are likely to substantially lessen competition in any market. An acquisition of shares or assets, including a merger or an incorporated joint venture, can be approved by the ACCC through the informal clearance process on the basis that it will not substantially lessen competition, or through the formal authorisation process if it would provide a benefit to the public that outweighs any anti-competitive detriment. An unincorporated joint venture can be authorised by the ACCC on the basis that it provides a net public benefit. Without approval, there is a risk that the ACCC will intervene on the basis that the arrangement has the purpose or likely effect of substantially lessening competition. While some international regulators such as the New Zealand Commerce Commission, have signalled a more permissive approach to collaboration in the public interest during the COVID-19 epidemic, the ACCC’s current position appears to be that parties should seek urgent interim authorisation. In making these decisions, the ACCC or a court will compare the likely state of competition in the relevant market following the proposed arrangement against the likely state of competition if the arrangement did not proceed, generally looking up to five years into the future. The ACCC may be prepared to let struggling companies fail and exit the market if they consider that to be a more competitive outcome in the longer term, for example by freeing up assets or customers that can provide an opportunity for new entrants in the future. They may also be reluctant to approve an arrangement that they see as a long-term structural change in response to a short-term disruption, even a very serious one. In relation to the COVID-19 pandemic, the ACCC has said that it expects additional merger proposals arising from concerns and uncertainty about the ongoing financial health of some businesses. It will assess each proposal on a case-by-case basis, taking into account not only the present situation but also the longer term impact on competition of any change in the structure of markets, in an assessment that looks beyond the immediate impact of the crisis on the profits and share value of the merger parties. ACCC Chair, Rod Sims, has said that businesses should not expect a different or more lenient approach to merger assessments as a result of COVID-19. You should seek legal advice at the earliest opportunity if you are considering any consolidation to understand the options and give them the best chance of success. You should be particularly careful to ensure that any consideration of these options cannot be interpreted as an opportunity for coordination between
Q: WE ARE DECIDING WHETHER TO CANCEL OUR SCHEDULED EVENTS OVER THE NEXT FEW MONTHS DUE TO COVID-19 CONCERNS. THE CUSTOMERS HAVE ALREADY PAID FOR THEIR TICKETS. IF WE CANCEL THE EVENT, DO WE NEED TO PROVIDE REFUNDS TO CUSTOMERS? A: The consumer guarantees in the Australian Consumer Law provide consumers with a basic set of rights when they acquire goods and services. The consumer guarantees apply automatically and cannot be excluded, restricted or modified by contract, except in very limited circumstances set out in the Australian Consumer Law. The consumer guarantees that apply to services include that the services are to be fit for purpose, and both provided with due care and skill and within a reasonable time frame (when no time is otherwise set). If a business fails to meet these guarantees, consumers may be entitled to certain remedies depending on the circumstances and extent of the failure (i.e. if it is a “major” failure). However, a consumer does not have the same rights if they decide to cancel a product or service, including because their individual circumstances change, or they do not wish to proceed with the purchase (i.e. for “change of mind”). Where there is a major failure, consumers are entitled to choose between terminating the contract and obtaining a refund, or seeking compensation for the difference in the reduction in value of the services below the price paid for them, unless the failure was due to either the actions of a third party or “a cause independent of human control after the services were supplied”. A “major failure” in respect of a service includes where it is substantially unfit for its purpose or creates an unsafe situation. Proceeding with an event may create an “unsafe situation” resulting in a major failure of the consumer guarantees, whereas cancelling the event may also result in a major failure of the consumer guarantee as the ticket purchased is no longer fit for its purpose. On 17 March 2020, the Prime Minister declared a national ‘Human Biosecurity Emergency Period’ under the Biosecurity Act 2015 (Cth). The Commonwealth Government has used its powers under the legislation to ban international cruise ships from entering Australian ports and the entry of non-citizens and non-permanent residents. In coordination with the Federal Government, the State Governments have also imposed restrictions under their respective health acts. Various national responses have been coordinated by the “National Cabinet” of Federal and State Governments.
The State Governments have also used emergency powers under their respective health acts to implement varying orders to prevent the spread of COVID-19, such as the closure of non-essential businesses where people gather, and border restrictions in some states. Failure to comply with these bans and orders are an offence. In addition, both the Federal and State Governments have issued a number of instructions to consumers during this time of uncertainty. If an event is cancelled solely as a result of a government ban or other government-imposed restrictions, suppliers may not be required to provide customers with a remedy under the Australian Consumer Law, although suppliers will also need to consider their obligations under the terms of their agreement with consumers. However, every situation is different and the law is technical. You should seek legal advice as to whether your particular circumstances fall within the exceptions in the Australian Consumer Law relating to actions of third parties and / or causes independent of human control that occurred after the services were supplied. Each case will be different. Where there has been a failure of consumer guarantees, a customer is also entitled to bring an action for damages for any loss or damage suffered where reasonably foreseeable. For example, this may extend to flights or accommodation associated with the customer’s tickets. Again, you should seek legal advice as to whether the loss or damage is reasonably foreseeable. The ACCC has issued guidance titled “COVID-19 (coronavirus) information for consumers” to assist consumers who might be experiencing travel and event cancellations due to COVID-19. The guide is available here. Notably, irrespective of businesses’ legal obligations, the ACCC is “encourage[ing] all businesses to treat consumers fairly”. Some State and Territory regulators have also issued their own guidance – see here the guidance issued by NSW Fair Trading, which states that consumers “may not be entitled to a refund under the consumer guarantees if the event is cancelled due to matters outside [a supplier’s] control”, but also “suppliers are required to take reasonable precautions and exercise due diligence to ensure that supply will not be affected by a ban before they agree to supply”. The ACCC has also established an internal COVID-19 Taskforce which is communicating directly with businesses to educate them about their obligations in relation to cancellations, refunds and suspension of services as a result of COVID-19.
Q: AM I ALLOWED TO TAKE ORDERS FOR PRODUCTS FOR WHICH I DON’T KNOW THE ARRIVAL DATE? A: COVID-19 has meant that many businesses are operating in times of uncertainty. You need to carefully consider if your business will accept orders and payment for products you are not sure when you can supply, as the consumer guarantees provide that goods must be supplied within a reasonable time. What is reasonable will depend on the product and circumstances. As every situation is different, you should seek legal advice regarding your specific business. However, generally you should be as upfront as possible with consumers regarding potential supply chain issues or delays. If you make any express representations about the future delivery of goods including your ability to supply goods, you need to have a reasonable basis for making such representations. If you do not have a reasonable basis, your representation is deemed to be misleading under the Australian Consumer Law. Separately, the Australian Consumer Law also provides that where you accept payment for goods, you must supply the goods within the period specified or within a reasonable time (where no period is specified). An exception exists where the failure was due to the act or omission of another person or some other cause beyond the person’s control. Failure to comply will attract civil penalties. As every situation is different, you should seek legal advice regarding your specific circumstances.
Q: WE ARE HAVING PROBLEMS WITH SUPPLYING ORDERS TO CUSTOMERS WITHIN OUR NORMAL PERIODS DUE TO COVID-19. WILL WE BE IN BREACH OF THE CONSUMER GUARANTEES? A: The consumer guarantees require you to provide goods of acceptable quality, fit for their disclosed purpose and, where a time period for supply has not been provided, “within a reasonable time”. Your consumer guarantee obligations also apply to the transportation of goods where the customer has purchased the goods for their own personal use, but do not apply where the goods have been acquired for business, trade, profession or occupation purposes. This is particularly important for online shopping platforms and other businesses who trade online whether or not there are representations about delivery times. To avoid false or misleading statements about delivery times, you should communicate any delay to customers as soon as possible. If you are aware that your supply chain will or may be affected by delays, you should make this clear upfront before consumers decide to purchase a product.
Q: WE HAVE CUSTOMERS WHO HAVE PURCHASED TICKETS FOR AN EVENT IN THE FUTURE BUT ARE NOW WANTING TO CANCEL DUE TO COVID-19 CONCERNS. DO WE HAVE TO GIVE THEM A REFUND IF THEY CANCEL? A: The consumer guarantees only require a remedy if one of the guarantees are not met. If the customer cancels their attendance/booking, you may not be required to provide a remedy because a “change of mind” is not covered by the consumer guarantees. Whether a customer’s cancellation is due to a change of mind will depend on the circumstances.
Q: HOW WILL OUR DEALINGS WITH THE ACCC CHANGE? A: Regulators as well as businesses around the world are adapting to COVID-19 and government responses to help control the pandemic. The ACCC has provided the following advice in relation to the operations of its Merger and Authorisation Review Division: + The ACCC is continuing to assess the matters before it and accepting new requests for clearance, authorisation applications and notifications. However, like many businesses it is implementing measures to protect staff and external parties and to allocate resources to ensure that it meets its objectives of protecting competition. + These measures include cancelling non-essential meetings with external parties and travel, transitioning to a larger proportion of staff working remotely and prioritising internal and external communication by phone and Skype. + While these measures are aimed to ensure that the ACCC is able to make decisions within its usual guidance, it expects that some timeframes may need to be extended in order to complete the necessary inquiries with merger parties and market participants. This will include applications with statutory timeframes such as authorisations. The ACCC will discuss any proposed extensions with the relevant parties. + The ACCC is not asking parties to delay applications for authorisation or merger clearance, but is encouraging parties to consider whether some of these applications could more appropriately be postponed, for example where they are not urgent or at an early stage. + The ACCC is asking merger parties to update the ACCC on a regular basis regarding any changes in the commercial timing or prospects of mergers under consideration. For example, where a merger is dependent on obtaining funding which is now unlikely to be obtained, or when the parties have decided to go-slow on a transaction. + The ACCC may need to prioritise matters further if the situation worsens, and will seek the assistance of parties and their advisers in meeting this challenge. + As discussed above, the ACCC expects the current market environment to result in additional merger proposals and urgent interim authorisation applications. It will act extremely expeditiously to assess urgent interim applications, but notes that its assessment will take into account not only the present situation but also the longer term competitive impact of any change in market structure.