AUSTRALIAN COMPETITION AND CONSUMER COMMISSION
Contents
Penalties and criminal prosecutions - the year that was
2
Major developments and 2018 enforcement priorities
3
Consumer protection
5
Record penalties ACCC v We Buy Houses -- Record penalty ACCC v Ford -- New car retailing and previous record penalty
Online marketplace
5 5 6 7
ACCC v Meriton -- Customer reviews manipulated ACCC v Trivago -- Comparison sites under scrutiny ACCC v Service Seeking -- Alleged false reviews caught out Online marketplace - Preliminary report released Broadband speed and performance claims
7 8 8 8 9
ACCC v MyRepublic -- Fine point disclaimers ACCC v Aussie Broadband -- Congestion free ACCC v Australian Private Networks -- Final broadband speed proceedings? Consumer guarantees
ACCC v Apple Inc -- `Errors' and eligibility for remedies ACCC v Jetstar Airways -- `Non-refundable' airfares Australian airlines review refund policies Product safety
9 9 9 10
10 10 10 11
Takata airbag recall ACCC v Thermomix -- Injury risk kept secret Protection of vulnerable consumers Truth in advertising
11 12 12 13
ACCC v Telstra -- Not so premium billing ACCC v GAIA -- `Organic' claims ACCC v Heinz -- Unhealthy food/healthy penalty ACCC v Pental -- Unflushable wipes ACCC v Click Energy -- Discounts and savings ACCC v Medibank -- Unfair conduct not unconsionable Protection of small businesses
13 13 14 14 15 16 17
Unfair contract terms
17
ACCC v Servcorp -- Unreasonable and unilateral ACCC v Mitolo -- Alleged unfair terms ACCC v Visy and Suez -- Price increase and penalty clauses Compliance with the Franchising Code of Conduct ACCC v Geowash -- Alleged serious misrepresentations ACCC v Luxottica -- Transparency of business structure and marketing funds ACCC v Husqvarna -- Definition of `franchise agreement' ACCC v Ultra Tune -- The new year starts with a bang Cartels and misuse of market power
17 18 18 19 19 19 20 20 21
Misuse of market power Cartel conduct
21 21
ACCC v Country Care Group -- First criminal prosecution ACCC v Yazaki -- Record penalty under the CCA ACCC v Flight Centre -- The push for higher penalties ACCC v Pfizer -- Market power and patent owners ACCC v Pacific National and Aurizon -- Alleged substantial lessening of competition ACCC v Cryosite -- Blood feud Industry studies
21 21 22 22 23 23 24
Analysis and 2019 predictions
25
Contributors27
Contact Us
28
1 2018 IN REVIEW ACCC
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Penalties and criminal prosecutions - the year that was
If any clear theme emerges from a review of the Australian Competition and Consumer Commission's (ACCC) enforcement activity in 2018, it would have to be `penalties'. In 2018, the ACCC had a laser-like focus on pushing the boundaries on penalties and in 2018 we saw another record set for the highest ever penalty for breaches of the Australian Consumer Law (ACL). The ACCC's efforts in the Courts to increase penalties were also complemented by it securing legislative reform to increase penalties for future ACL breaches. The ACCC had commented for some time that ACL penalties needed to be higher and not be seen as merely the `cost of doing business'.
The other notable development was the commencement of the first cartel proceeding in Australia against an individual. While previous years have seen the ACCC seek and obtain criminal prosecutions against a number of companies, the business community has waited almost 10 years for the first prosecution against an individual. As the matter is before the Courts, the ACCC has been uncharacteristically (but appropriately) quiet on developments in this case. Despite this, the outcome of the proceeding is definitely something to watch out for in 2019.
In this publication, we take a look at the ACCC's leading cases in 2018 and consider how well the ACCC performed against its 2018 enforcement priorities. As always, the ACCC was very active in pursuing those priorities (in the 2017/18 financial year the ACCC commenced 18 court cases and concluded 108 in-depth investigations). Having said that, there were a few key areas of focus where we expected to see more cases before the Courts or ACCC intervention (including for misuse of market power and in the area product safety) and so we predict these will continue to be a priority for the ACCC in 2019.
Shaun Temby Partner Dispute Resolution & Litigation
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2018 IN REVIEW ACCC
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Major developments and 2018 enforcement priorities
While not strictly related to enforcement action, one of the major developments this pastyear, which supports and will strengthen the ACCC's enforcement role, was the amendments to the Competition and Consumer Act 2010 (Cth) (CCA) in which the penalties for breaches of the ACL were significantly increased. This change followed years of commentary by both ACCC Chair, Mr Rod Sims, and the courts, that consumer law penalties were too low and could be regarded by larger companies as `merely the cost of doing business'.
According to Rod Sims at the time Parliament passed these changes,
"We have strongly advocated for higher maximum penalties to enable courts to impose more substantial penalties. Penalties need to hit the bottom line so they are not simply seen as the cost of doing business. Perhaps more important, penalties need to be high enough to be noticed by boards and senior managers so that compliance with the law is a higher priority. Increased penalties will help to deter large companies from breaching consumer laws. This is a profound change that I believe will improve corporate behaviour significantly, and so improve the Australian economy and how it works for consumers". In addition, in 2018 the ACCC focussed its advocacy work on pushing for stronger penalties for breaches of the ACL, in particular, for breaches of the unfair contract terms provisions and the Franchising Code of Conduct (Code).
Consumer law penalties
On 23 August 2018, Federal Parliament passed amendments to the CCA that align the penalty regime for ACL breaches with the significantly higher penalties that apply for breaches of the competition provisions in Part IV of the CCA. To date, the highest penalty imposed for competition law breaches is $46 million (in the ACCC's cartel proceedings against Yazaki) while the highest penalty imposed for ACL breaches is $12 million (handed down in 2018 against We Buy Houses Pty Ltd).
Under the amended legislation, if an individual or
corporation is found guilty of an offence under the ACL, they can face the following penalties:
for an individual up to $500,000 for a company the greater of:
$10 million, or if the Court can determine the value of the benefit
obtained from the offence (either directly or indirectly) three times the value of the benefit, or if the Court cannot determine the benefit 10 percent of the annual turnover of the corporation and related bodies corporate (there are some exceptions which apply).
Consequently, we can expect the ACCC to push for significantly higher penalties for ACL breaches and for penalties for these breaches to increase over time.
Stronger penalties required for Franchising Code of Conduct
In a speech to the Franchise Council of Australia in October 2018, ACCC Deputy Chair, Mr Mick Keogh, stated that Australia's Code needs strengthening to better protect franchisees, including significantly increased penalties for Code breaches, and requiring improved and more meaningful information disclosure to franchisees. According to Mr Keogh, these changes, in combination with stronger unfair contract terms laws, would help to improve the operations of franchise businesses in Australia. In his speech, Mr Keogh also recognised the importance of franchisees doing their due diligence, including by seeking independent advice before investing in a franchise.
Mr Keogh stated:
"It is in the interests of all involved in the sector to have a clear understanding of what is required by law, so that businesses focus on becoming more competitive and growing market share, rather than being tempted to take shortcuts that will ultimately damage the business, but also the reputation of the franchise sector as a whole."
3 2018 IN REVIEW ACCC
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Major changes needed to get rid of
unfair contract terms
On 31 August 2018, Rod Sims addressed the Council of Small Business Organisations Australia National Small Business Summit 2018, advocating that there is a strong case to both strengthen the law and introduce penalties for breaking it. In particular, Mr Sims said this will be the next major law change sought by the ACCC noting:
"The regime has two significant flaws: first, unfair contract terms are not illegal, and second the ACCC cannot seek penalties when the court has declared an unfair contract term void, nor can we issue infringement notices for contract terms that are likely to be unfair."
Inquiry into the Franchising Code and Oil Code
On 22 March 2018, the Senate referred an inquiry into the operation and effectiveness of the Code to the Parliamentary Joint Committee on Corporations and Financial Services. The terms of reference also cover the Oil Code of Conduct and business-to-business unfair contract term legislation. On 11 May 2018 the ACCC made a submission to the inquiry.
The key recommendations in the ACCC's submission were that:
infringement notices and civil pecuniary penalties should be made available for all breaches of the Code and the Oil Code and the quantum of penalties currently available should be increased; and
civil pecuniary penalties should be available for breaches of unfair contract term legislation and the threshold for the up-front value of the contract as well as the threshold to be considered a small business be reviewed.
The final report from the Committee is expected in early 2019. Following publication of the report, we can expect to see continued ACCC advocacy in this area. Whether the Commission has yet made the case for these changes or if it's still too soon to be talking about penalising a concept as vague as `fairness' is still to be seen.
Criminal prosecution
2018 also saw the first criminal prosecution of an Australian corporation and individual under the criminal cartel provisions of the CCA. Following an investigation by the ACCC, in February 2018, criminal charges were laid against The Country Care Group Pty Ltd (Country Care), its Managing Director, Robert Hogan, and a former employee, Cameron Harrison. Given the criminal nature of the proceedings, their precise current status is unknown. However, it will be interesting to see how Australian Courts deal with complex economic issues in a criminal context for this first time. We will provide a further update when any further information comes to hand.
Enforcement priorities
As it does every year, in February 2018, the ACCC released its enforcement priorities for 2018. In summary, those priorities were:
consumer protection, particularly in the following areas: motor vehicles and new car retailing consumer issues concerning the use of digital platforms and consumer data (ie the online marketplace) broadband speed and performance claims systemic issues involving large or national traders avoiding or misrepresenting consumer guarantee rights ensuring better product safety outcomes for consumers in the online marketplace (as is always the case) the protection of vulnerable consumers
protecting small businesses through: taking action against companies utilising unfair contract terms raising compliance with the Code
misuse of market power and cartel conduct.
In the 2017/18 financial year, the ACCC secured nearly
$170 million
in penalties for breaches of competition and consumer law
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2018 IN REVIEW ACCC
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Consumer protection
2018 saw record penalties awarded in the consumer protection space and the ACCC take significant action against businesses to ensure they comply with their obligations in the online marketplace.
Record penalties
ACCC v We Buy Houses Record penalty
In November 2018, in proceedings brought by the ACCC, the Federal Court imposed record penalties totalling $18 million against We Buy Houses Pty Ltd (We Buy Houses) and its sole director, Rick Otton, for making false or misleading representations.
The penalties of $12 million imposed against We Buy Houses, and $6 million imposed against Mr Otton personally, were in response to free seminars, paid `boot camps' and mentoring programs that made false or misleading claims to vulnerable consumers about creating wealth through buying and selling real estate. In particular, the programs asserted that people could buy a house for as little as $1 without the need for a deposit or bank loan. The Court found these (and other similar) representations were false and misleading.
5 2018 IN REVIEW ACCC
In the 2017/18 financial year, the ACCC obtained
$48.7 million
in penalties from litigated consumer protection matters
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ACCC v Ford
New car retailing and previous record penalty
In April 2018, in what was (then) a new record penalty, the Ford Motor Company of Australia Ltd (Ford) was ordered to pay $10 million in penalties after the Federal Court declared it engaged in unconscionable conduct in connection with its handling of customer complaints about PowerShift Transmission (PST) vehicles.
Ford and its dealers received numerous complaints from customers about issues with PST vehicles including excessive clutch shudder and excessive transmission noise. However, despite knowing that the above issues were symptoms of quality issues with the transmission, Ford often attributed the symptoms to the customers' driving style. Further, Ford knew the issues would appear intermittently but still required customers to demonstrate the issues on demand in order for repairs to be undertaken.
In addition, Ford largely refused to refund affected customers and essentially told consumers that refunds and replacement vehicles were not an option, when they may have been legally entitled to those remedies under the ACL.
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2018 IN REVIEW ACCC
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In the 2017/18 financial year, the ACCC obtained
$120.1 million
in penalties from litigated competition matters
Online marketplace
The ACCC has continued to take steps to ensure that companies operating predominantly in the online environment comply with their obligations under the ACL.
ACCC v Meriton
Customer reviews manipulated
In July 2018, the Federal Court ordered that Meriton Property Services Pty Ltd (Meriton), a provider of serviced apartment accommodation, pay $3 million in penalties for manipulating reviews on the TripAdvisor website, in breach of the ACL.
Meriton utilised TripAdvisor's `Review Express' service, which requires participating accommodation providers to provide TripAdvisor with the email addresses of recent customers (who have consented to having their information shared). TripAdvisor emails the customers to request that they submit a review of their experience with their accommodation provider.
In an effort to suppress any negative reviews, Meriton management instructed staff to alter or omit the email addresses of those customers who were expected to provide a negative review, so that the requests for a review did not reach these customers. Meriton's reviews on ratings on TripAdvisor were therefore positively skewed.
At the time the decision was handed down, ACCC Commissioner Sarah Court said that,
"people often make purchasing decisions for accommodation based on the rankings and reviews they read on third party sites like Trip Advisor. Manipulating these reviews is misleading to potential customers, who deserve the full picture when making a booking decision."
7 2018 IN REVIEW ACCC
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ACCC v Trivago
Comparison sites under scrutiny
In August 2018, the ACCC instituted proceedings in the Federal Court against Trivago N.V. (Trivago) alleging that it made misleading hotel pricing representations in its television advertising and on its website, in breach of the ACL.
Trivago is effectively a search engine that aggregates online hotel offers from online travel agents, hotel chains and independent hotels. According to the ACCC, its main source of revenue is the cost-per-click (CPC) payments it receives, where advertisers are charged a fee each time a user clicks on one of their offers.
The ACCC alleges that:
From at least December 2013, Trivago ran TV advertisements presenting its website as an impartial and objective price comparison service that would help consumers identify the cheapest prices for hotel rooms when, in fact, Trivago's website highlighted and prioritised advertisers who were willing to pay the highest cost per click fee to Trivago.
Because of the design of Trivago's website and the representations made, consumers were unable to make a genuine choice about a hotel price due to these misleading impression created by the Trivago website. In particular, consumers may have formed the incorrect impression that Trivago's highlighted deals were the best price they could get at a particular hotel, when that was not the case.
Trivago's online strike-through price comparisons were false or misleading because they often compared an offer for a standard room with an offer for a luxury room at the same hotel, creating a false impression of savings offered for the standard room.
Trivago is defending the proceedings. We understand that the proceedings were unable to be settled in a mediation in late 2018 and the ACCC must file its evidence in chief by 17 May 2019.
ACCC v Service Seeking
Alleged false reviews caught out
In December 2018, the ACCC announced it had commenced proceedings against Service Seeking Pty Ltd (an online tasking platform) for engaging in misleading or decpetive conduct regarding the customer reviews published on its website. The ACCC alleges that the company set up a `Fast Feedback' system whereby the businesses who provided services through the website could write their own reviews on behalf of their customers and send them to those customers by email. If the customers did not respond within three days, the ACCC alleges that the review was automatically published on the businesses' profile on Service Seeking's website.
The ACCC alleges that this conduct breached the ACL by misleading consumers, as at least 80% of the `Fast Feedback' reviews were not written by or approved by customers. Service Seeking must file its response to the ACCC's claim by 13 March 2019.
Online marketplace - Preliminary report released
On 10 December 2018, the ACCC released its preliminary report into Google, Facebook and Australian news and advertising. The report contained 11 preliminary recommendations and eight areas for further analysis as the inquiry continues. In particular, the report detailed the ACCC's concerns regarding the market power held by Google (in online research, search advertising and news referral) and Facebook (in social media, display advertising and online news referral) and the resulting ability of those businesses to monetise their content. The ACCC is seeking feedback on the report by 15 February 2019.
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Broadband speed and performance claims
In 2017, the ACCC took action against many of the major players in Australia and secured penalties or undertakings to clarify their promotion of data limits and broadband speeds. While the ACCC had indicated that this would continue to be a focus in 2018, the ACCC did not commence a large amount of proceedings in this space, which we think suggests that its attention might move elsewhere in 2019. By the end of 2018, with the commencement of proceedings against Australian Private Networks in December, it appears that the ACCC might have wrapped up its long period of scrutiny of broadband speed representations.
ACCC v MyRepublic Fine point disclaimers
ACCC v Aussie Broadband Congestion free
ACCC v Australian Private Networks Final broadband speed proceedings?
9 2018 IN REVIEW ACCC
In July 2018, the ACCC issued NBN provider MyRepublic Pty Ltd with infringement notices requiring it to pay penalties totalling $25,200 for alleged false or misleading representations about its NBN service performance. In particular, the company made a number of representations about its broadband speeds and the ACCC was concerned that the fine print disclaimers on its website were not prominent enough.
In September 2018, in response to concerns raised by the ACCC, NBN provider Aussie Broadband removed statements across its advertising which described its broadband services as `congestion-free'. `Congestion' occurs in broadband networks when demand from users exceeds available capacity and this results in slower speeds for customers particularly at peak times between 7pm and 11pm. The ACCC was concerned that Aussie Broadband's statements might lead consumers to believe that Aussie Broadband's services would not ever experience congestion, when that was not the case.
In December 2018 the ACCC instituted proceedings against internet provider Australian Private Networks Pty Ltd (trading as Activ8me) for allegedly making false or misleading representations in advertisements that consumers could access speeds of up to 100Mbps for $59.95 a month with no setup fee when this was not the case. Activ8me also told consumers that they would receive unlimited data when in fact Activ8me could suspend access or charge more for data use it deemed `unreasonable'.
This action followed the issuing of an infringement notice to Activ8me earlier in the year.
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Consumer guarantees
ACCC v Apple Inc
`Errors' and eligibility for remedies
In June 2018, Apple was ordered by the Federal Court to pay penalties of $9 million for making false or misleading representations to consumers about their rights under the ACL.
`Error 53' notifications appeared on some iPhones and iPads after users installed an updated to the `iOS' software on their device. This error effectively disabled the affected devices. Apple admitted that, after consumers sought the company's assistance, Apple made representations to at least 275 affected Australian customers that if their device had been repaired by a third-party, they were not eligible for a remedy. These representations were made on the Apple US website, by staff in Apple Australia stores and by telephone customer service representatives from February 2015 to February 2016.
In effect, the Court held that the mere fact that a device had been repaired by someone other than Apple did not, and could not, result in the consumer guarantee provisions ceasing to apply and accordingly the resignations were false or misleading.
ACCC v Jetstar Airways `Non-refundable' airfares
In December 2018, the ACCC instituted proceedings against Jetstar Airways Pty Ltd (Jetstar), alleging that the airline made false or misleading representations on its website that some fares were not refundable and that consumers could only get a refund if they purchased a more expensive fare. As part of the proceedings, Jetstar admitted that these representations were made and that they constituted false representations about consumer guarantee rights, in breach of the ACL. Jetstar also admitted that its terms and conditions contained representations that consumer guarantees under the ACL did not apply to its flight services.
The ACCC and Jetstar have jointly submitted to the Federal Court that Jetstar should be ordered to pay a $1.95 million penalty.
Australian airlines review refund policies
In December 2018, the ACCC announced that it had accepted court-enforceable undertakings from each of Qantas, Virgin, Jetstar and Tigerair which requires all of those airlines to review their refund policies, compliance programs, websites and booking system. The ACCC was concerned that each airline had made false or misleading representations on their websites that misled consumers about their rights to refunds and resupply in the event of significant flight delays or cancellations.
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Product safety
Takata airbag recall
In February 2018, following the ACCC's investigation and a long-running voluntary recall, the Assistant Minister to the Treasurer, the Hon Michael Sukkar issued a compulsory recall notice for vehicles containing faulty Takata airbags. The ACCC's safety investigation established that, due to the composition of the propellant in the airbags (when combined with factors such as age or exposure to high temperatures) the deployment of those airbags may result in sharp metal fragments shooting from the airbag, hitting vehicle occupants. More than 350,000 faulty Takata airbags were replaced in the quarter following 1 July 2018, equal to more than 3,000 replacements each day.
In the 2017/18 financial year, the ACCC published 591 voluntary recall notices
11 2018 IN REVIEW ACCC
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ACCC v Thermomix Injury risk kept secret
In April 2018, the Federal Court ordered Thermomix Australia Pty Ltd (Thermomix) to pay penalties totalling $4,608,500 for making false or misleading representations and misleading the public (through silence) regarding a known safety issue affecting its TM31 appliance. Specifically, the Court found that from July 2014, Thermomix knew that there was a potential risk of injury with the product but it continued to supply and promote it until September 2014. It also failed to notify consumers of the safety issue until 23 September 2014.
The Federal Court also found that Thermomix had made false or misleading representations to a number of consumers about their consumer guarantee rights, namely that either refunds or replacements were not available to them or, in one case, that their entitlement to a refund or remedy was conditional on the consumer signing a non-disclosure agreement.
Protection of vulnerable consumers
The record penalty obtained by the ACCC in its proceedings against We Buy Houses Pty Ltd (as noted on page 5) was a terrific result and shows that companies who take advantage of vulnerable consumers will certainly pay the price. In 2018, the ACCC continued to have success in this field, with the Federal Court finding in September that yet another training college (this time, Cornerstone Investments Pty Ltd trading as Empower Institute) had engaged in unconscionable and misleading or deceptive conduct, and made false or misleading representations when enrolling consumers into diploma courses. This is the latest in a long line of training colleges who have engaged in similar conduct and have similarly been dragged over the coals by the ACCC. The ACCC recently announced it was seeking a record penalty against Cornerstone Investments Pty Ltd.
Further, while the ACCC was unsuccessful in an appeal by Unique International College Pty Ltd in September, in arguing that that institution engaged in a system of unconscionable conduct, the Federal Court previously found in the ACCC's favour for a more narrow course of conduct. The Federal Court is currently determining what relief to award in those proceedings.
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Truth in advertising
Truth in advertising was and remains a priority area for the ACCC with a focus on ensuring that consumers are not misled and that honest traders are not put at a competitive disadvantage. However, in both 2017 and 2018, the ACCC also prioritised matters where large companies engage in national conduct that could potentially result in greater consumer detriment from their actions and there is a likelihood that the conduct of larger businesses can influence the behaviour of other market participants.
ACCC v Telstra Not so premium billing
In April 2018, following action by the ACCC, the Federal Court imposed penalties of $10 million against Telstra for making false or misleading representations to customers regarding its third-party billing service, `Premium Direct Billing' (PDB).
The ACCC alleged that Telstra did not adequately inform customers that PDB was set up as a default on mobile phone accounts and customers were billed even where they had unknowingly purchased digital content, such as games and ringtones. According to a report it provided to the ACCC, Telstra has since refunded $9.3 million to 72,000 customers, in addition to at least $5 million paid during the operation of PDB.
Telstra has ceased the PDB service entirely and has said it will review any further complaints in light of this action and in good faith.
ACCC v GAIA `Organic' claims
13 2018 IN REVIEW ACCC
In June 2018, the ACCC imposed a $37,800 penalty (by way of an infringement notice) against skin care company `GAIA Skin Naturals' relating to its Natural Baby Bath & Body Wash, Baby Shampoo and Baby Moisturisers products (the products) for alleged false or misleading representations. The ACCC took issue with GAIA using the label `Pure, Natural, and Organic' on the products when, in fact, the products contained two synthetic chemical preservatives (among their organic ingredients). At the centre of the ACCC's decision to impose a penalty was its concern that GAIA may have misled consumers into believing that they were mistakenly paying a premium to purchase organic products free from synthetic chemicals.
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ACCC v Heinz
Unhealthy food/healthy penalty
In 2016, the ACCC instituted proceedings against Heinz, alleging that images and statements on its `Shredz' products represented to consumers that they were a healthy and nutritious food for young children when this was objectively not the case (given the product was approximately two-thirds sugar). The Court found that the combination of imagery and words on the packaging, including prominent pictures of wholesome fresh fruit and vegetables and statements such as `99 percent fruit and veg', conjured up the impressions of nutritiousness and health.
In August 2018, the Federal Court of Australia ordered Heinz to pay penalties totalling $2.25 million for making the misleading health claim. Further, the Court found that Heinz nutritionists ought to have known that, given the product was approximately two-thirds sugar, a representation that the product was beneficial to health of children was misleading.
In the 2017/18 financial year, the ACCC commenced 18 court cases
ACCC v Pental Unflushable wipes
In April 2018, in proceedings instituted by the ACCC, the Federal Court ordered Pental Ltd and Pental Products Pty Ltd (together, Pental) to pay penalties totalling $700,000 and implement a compliance program for false and misleading representations about its White King `flushable' toilet and bathroom cleaning wipes. Between February 2011 and July 2016, the packaging and promotional materials for the wipes advertised them as `flushable' and stated that they would disintegrate like toilet paper. Pental has admitted that these representations were false.
The ACCC has separate ongoing proceedings against Kimberly-Clark Australia Pty Ltd (Kimberly-Clark) regarding its `flushable' personal hygiene wipes that were marketed and supplied between May 2013 and May 2016. Kimberly-Clark is defending the claims.
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ACCC v Click Energy Discounts and savings
In July 2018, the ACCC instituted proceedings in the Federal Court against Amaysim Energy Pty Ltd (trading as Click Energy) (Click Energy) alleging it made false or misleading marketing claims about discounts and savings that Victorian and Queensland customers could obtain.
The ACCC alleges that Click Energy represented to consumers that they could get discounts of between seven and 29 percent off Click Energy's energy charges if they paid their bills on time. In actuality, the ACCC alleges that these supposed `discounts' were higher than Click Energy's standing offer rates and accordingly, the representations were false or misleading.
Click Energy also represented that consumers would save an estimated amount if they switched providers, which the ACCC alleges is false or misleading as Click Energy had no proper basis for these representations.
At the time, Chairman of the ACCC, Rod Sims commented that,
"We believe that Click Energy's conduct is among the worst practices we see in retail electricity marketing. We allege that consumers were misled about discounts and savings, with some consumers not getting any discount or savings at all."
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ACCC v Medibank
Unfair conduct not unconsionable
In December 2018, the Full Federal Court dismissed the ACCC's appeal regarding Medibank Private Limited (Medibank). The ACCC had alleged at trial that Medibank made false, misleading or deceptive representations and engaged in unconscionable conduct in its failure to notify its members of its decision to limit benefits for in-hospital pathology and radiology services. The Full Federal Court found that, while Medibank had acted unfairly, its conduct fell short of the threshold for unconscionable conduct.
In the 2017/18 financial year, the ACCC concluded 108 in-depth investigations
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Protection of small businesses
Unfair contract terms
Following its successful B2B action in 2017 against JJ Richards, the ACCC has continued its hunt for companies that include unfair terms in their standard form contracts. A clear picture is emerging of the types of terms that are of interest to the ACCC, including terms which: permit unilateral termination of a contract; permit unilaterial variations to a contract; and unreasonably permit one party to limit their liability under the contract.
ACCC v Servcorp Unreasonable and unilateral
In July 2018, the Federal Court declared by consent that 12 terms in standard form contracts used by two Servcorp Ltd subsidiaries (Servcorp) were unfair and therefore void.
Among the terms declared to be unfair were those that had the effect of:
automatically renewing a customer's contract, unless the customer had opted out, and allowing Servcorp to then unilaterally increase the contract price
permitting Servcorp to unilaterally terminate a contract unreasonably limiting Servcorp's liability or imposing unreasonable liability
on the customer penalising a customer if it convinces another customer of Servcorp to move
to a competitor.
Servcorp was also required to implement a compliance program to ensure it did not contravene the legislation in future, and pay the ACCC's costs in the proceeding, fixed at $150,000.
In the 2017/18 financial year, the
ACCC progressed or completed
eight market studies
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ACCC v Mitolo Alleged unfair terms
In June 2018, the ACCC instituted proceedings against the largest potato wholesaler in Australia, Mitolo Group Pty Ltd and a related entity (Mitolo) claiming, among other things, that terms in its standard form contracts with potato farmers were unfair contract terms. Among the terms of concern in Mitolo's agreements were provisions that allowed Mitolo to:
unilaterally determine or vary the price Mitolo paid farmers for potatoes unilaterally vary other contractual terms declare potatoes as `wastage' without a mechanism for review prevent farmers from selling potatoes to alternative purchasers.
The parties will convene for a second attempt at mediation in February 2019.
ACCC v Visy and Suez
Price increase and penalty clauses
In December 2018, the ACCC announced that, following an investigation into the use of unfair contract terms in the waste management industry, Visy Paper Pty Ltd (trading as Visy Recycling), Cleanaway Pty Ltd and Suez Recycling & Recovery Pty Ltd had voluntarily reviewed and amended potentially unfair contract terms in their standard form contracts.
Of particular note, all three companies agreed to amend their price variation and liquidated damages clauses that previously allowed them to unilaterally increase their prices (in specified circumstances) and impose penalties on customers who wanted to exit their contracts before the end of the term.
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Compliance with the Franchising Code of Conduct
ACCC v Geowash
Alleged serious misrepresentations
In 2017, the ACCC was granted leave to commence proceedings against Geowash Pty Ltd (subject to deed of company arrangement) (Geowash), a former national franchisor that marketed and sold hand car wash franchises between 2013 and 2016.
The ACCC alleged that Geowash made false or misleading representations to prospective franchisees on its website that:
they could make revenues of $70,216 and estimated profits of $30,439 in an average 28-day period, when Geowash did not have reasonable grounds for making those representations
Geowash had a commercial relationship or affiliation with companies such as Nissan, Kia, Renault, Audi, Emirates, Shell, Hertz, Holden, Ikea, and Thrifty, when it did not.
The ACCC also alleged that Geowash directed a substantial part of franchisee funds for purposes not permitted under the franchise agreement and did not disclose to franchisees, including payment of commissions to the directors. Geowash and its directors deny the allegations.
The substantive hearing took place in June and September 2018 and judgment has been reserved.
ACCC v Luxottica
Transparency of business structure and marketing funds
In September 2018, following an ACCC investigation, Luxottica Franchising Australia (Luxottica), the franchisor of eyewear retailers OPSM and Laubman and Pank, voluntarily committed to change its marketing fund financial statement and disclosure document to be more transparent about the structure and operation of its franchise system.
The ACCC's investigation found that those documents were unlikely to comply with the Code. In particular, Luxottica's marketing fund statement did not provide information about how much money the Luxottica associate that operated the corporate stores paid for marketing, or what marketing services were purchased using money contributed by company-owned stores.
Further, the statement did not disclose enough specifics about marketing expenses, such as which brands (OPSM or Laubman and Pank) the marketing funds were being spent on, or in what geographic locations the advertising was run.
Luxottica's disclosure document was also unlikely to comply with the Code as it did not identify the Luxottica associate that operated the corporate stores or that this associate managed the marketing for all corporate-owned and franchised stores.
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ACCC v Husqvarna Definition of `franchise agreement'
ACCC v Ultra Tune The new year starts with a bang
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In August 2018, the ACCC accepted a court enforceable undertaking from Husqvarna Australia Pty Ltd (Husqvarna), a supplier of outdoor power products, after it admitted it likely misled its franchisees when it stated that the Code did not apply to their contracts.
Husqvarna effectively told its dealers that their dealership agreements were not franchising agreements and were therefore not subject to the Code. An agreement will be covered by the Code if it meets the definition of `franchise agreement', regardless of whether or not it is called a `franchise agreement'.
The ACCC was concerned that, by claiming that the dealership agreements were not franchising agreements, Husqvarna likely gave dealers the impression that they were not entitled to protections under the Code. Husqvarna acknowledged its representations were likely to be misleading and in breach of the ACL.
Although slightly outside the scope of this `2018 in review' article, it would be remiss of us not to mention the ACCC's success in its proceedings against Ultra Tune, handed down in the early days of 2019. These were the first proceedings that the ACCC has brought against a franchisor alleging a breach of the Code obligation to act in good faith in business dealings with franchisees.
The Federal Court found that Ultra Tune breached this obligation and made false or misleading representations to a prospective franchisee about the price of a franchise, the ongoing rent of the premises, and the age of the franchise. It also found that Ultra Tune breached the Code in the way it dealt with its marketing fund statements and then attempted to cover up all of its conduct by relying on documents which were not provided to the franchisee.
For its trouble, Ultra Tune has been ordered to pay a penalty of $2.6 million for what Justice Bromwich described as `a most serious and fundamental breach of the Franchising Code.' Is this the `big scalp' the ACCC has been searching for? One thing is for sure, franchisors now need to be on heightened alert and ensure they strictly comply with the Code.
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Cartels and misuse of market power
Misuse of market power
Although the ACCC announced that the amendments to the Competition and Consumer Act 2010 (Cth), which came into force in November 2017 (implementing the Harper Report recommendations), would be a major focus for the ACCC in 2018, the ACCC is yet to take any major steps in this space. This is to be expected, given that investigations of this kind take time. As a result we expect this area to be an ongoing focus for the ACCC in 2019.
Cartel conduct
ACCC v Country Care Group First criminal prosecution
As noted above, in February 2018, following an investigation by the ACCC, criminal charges were laid against The Country Care Group Pty Ltd (Country Care), its Managing Director, Robert Hogan, and a former employee, Cameron Harrison.
This marks the first criminal prosecution of an Australian corporation under the criminal cartel provisions of the CCA. It is alleged that Country Care, a Mildurabased company, engaged in cartel conduct involving assistive technology products used in rehabilitation and aged care, including beds and mattresses, wheelchairs and walking frames.
ACCC v Yazaki Record penalty under the CCA
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In December 2012, the ACCC instituted proceedings against Yazaki Corporation (Yazaki), a Japanese company, and its Australian subsidiary, Australian Arrow Pty Ltd alleging that the companies engaged in cartel conduct in the supply of wire harnesses to Toyota and its related entities in Australia between 2003 and at least late 2009. The ACCC's action followed similar enforcement action against Yazaki and other cartel participants by competition regulators in the US, Canada, and Japan.
In November 2015, the Federal Court found that Yazaki engaged in collusive conduct with its competitor and that the conduct breached the CCA, even though much of the conduct occurred in Japan. The Court imposed penalties of $9.5 million against Yazaki.
The ACCC appealed the decision because it believed that the penalties imposed were insufficient to adequately deter Yazaki or other businesses from engaging in cartel conduct in the future. It submitted to the Court that Yazaki should be ordered to pay a penalty of between $42 million and $55 million to reflect both the size of Yazaki's operations and the very serious nature of its collusive conduct.
In May 2018, the Full Federal Court ordered Yazaki to pay increased penalties of $46 million. This is the highest penalty ever imposed under the CCA. Yazaki then sought special leave to appeal to the High Court, which was refused.
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ACCC v Flight Centre The push for higher penalties
In April 2018, the Full Federal Court ordered Flight Centre to pay penalties totalling $12.5 million for attempting to induce three international airlines to enter into price-fixing arrangements between 2005 and 2009. Under the arrangement, each airline would agree not to offer airfares on its own website that were lower than those offered by Flight Centre.
In March 2014, the Federal Court imposed a penalty of $11 million against Flight Centre. Flight Centre appealed the liability finding and the ACCC appealed the $11 million penalty orders because it considered that the penalty would not send a strong deterrence message to Flight Centre and other businesses. In May 2014, the Full Federal Court found that Flight Centre's conduct did not breach the CCA.
The ACCC sought special leave to appeal and, in December 2016, the High Court allowed the ACCC's appeal. The matter was remitted to the Full Federal Court and, in April 2018, the Full Federal Court ordered an increase in penalties payable by Flight Centre to $12.5 million.
ACCC v Pfizer Market power and patent owners
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In early 2012, Pfizer offered significant discounts and the release of rebates accrued on previous sales of Lipitor to pharmacies. Pfizer's offer was conditional upon pharmacies acquiring a minimum volume of Pfizer's generic atorvastatin and agreeing to restrict their re-supply of competing generic atorvastatin products. The ACCC alleged that Pfizer misused its market power resulting from its position as the patent holder of atorvastatin to prevent or deter competition from other suppliers selling generic products to pharmacies. The ACCC also alleged Pfizer's conduct was exclusive dealing conduct with the purpose of substantially lessening competition in the market for atorvastatin.
On 19 October 2018, the High Court dismissed the ACCC's application for special leave to appeal the Full Federal Court decision in a case against Pfizer Australia Pty Ltd (Pfizer). While the Full Federal Court found that Pfizer took advantage of its substantial market power, it didn't agree with the ACCC's allegation that Pfizer had acted for the purpose of substantially lessening competition or deterring or preventing competitors from competing.
The ACCC sought special leave to appeal to the High Court, which was refused on 19 October 2018.
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ACCC v Pacific National and Aurizon
Alleged substantial lessening of competition
On 19 July 2018, the ACCC instituted proceedings in the Federal Court against Pacific National and Aurizon for allegedly reaching an understanding in relation to Aurizon's intermodal business that had the purpose and/or would be likely to have the effect of substantially lessening competition in the supply of intermodal and steel rail linehaul services. The ACCC is seeking declarations, pecuniary penalties, orders restraining Pacific National from acquiring the Acacia Ridge Terminal and Aurizon's Queensland intermodal business, and costs. Pacific National and Aurizon are defending the proceedings which are scheduled to resume on 12 February 2019.
ACCC v Cryosite Blood feud
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On 12 July 2018, the ACCC instituted proceedings in the Federal Court against Cryosite Limited (Cryosite) for alleged cartel conduct in its entry into an asset sale agreement with Cell Care Australia Pty Ltd (Cell Care).
In June 2017, Cryosite signed an agreement to sell its assets in its cord blood and tissue banking business to Cell Care. Prior to this, Cryosite and Cell Care were the only private suppliers of cord blood and tissue banking services in Australia. The stem cells in cord blood and tissue, which are collected at the birth of a child and then stored, can be used in the treatment of certain blood disorders. The asset sale agreement required Cryosite to refer all customer enquiries to Cell Care after the agreement was signed but before the acquisition was completed.
The ACCC alleges this amounts to cartel conduct (in particular, gun jumping) because it restricted or limited Cryosite's supply of cord blood and tissue banking services and allocated potential customers from Cryosite to Cell Care. The ACCC is seeking declarations, pecuniary penalties, a compliance training program and costs.
Cryosite is defending the proceedings.
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Industry studies
In 2018, the ACCC continued its work in relation to a number of market studies and inquiries:
The communications sector market study final report was released in April 2018. The report included 28 recommendations and actions on competition and consumer issues. It highlighted encouraging progress on issues such as NBN speeds, competition and work towards improved service standards.
In March 2018, the ACCC issued its interim report for the Residential Mortgage Products Price Inquiry, which is monitoring the prices charged by the five banks affected by the Government's Major Bank Levy. The interim report revealed signs of less than vigorous price competition, especially between the big four banks.
In April 2018, the ACCC issued the final report for our Residential Mortgage Products Price Inquiry. The inquiry examined the competitiveness of prices, trading practices and the supply chain in the Australian dairy industry. The report made eight recommendations for improved transparency and the allocation of risk in the commercial relationships between Australian dairy processors and farmers.
In June 2018, the ACCC provided an updated report to the Treasurer on their inquiry into the supply of residential building (home), contents and strata insurance products to consumers in northern Australia. The report contains preliminary observations about the northern Australia insurance market drawn from public consultation and information gathered from insurers.
In the 2017/18 financial year, the ACCC assessed 281 mergers
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Analysis and 2019 predictions
We set out below our thoughts as to how the ACCC performed against its 2018 enforcement priorities and our views on what lies ahead for 2019.
Consumer protection
As with every year, the ACCC was very busy in this area in 2018. 2019 will not be any different and we predict that the ACCC will be aggressively pushing for increased penalties throughout the year and with a particular focus on the online marketplace (in particular, price comparison sites) and the failure of retailers and manufacturers to comply with Australia's consumer guarantee regime.
Motor vehicles
With the Takata airbag recall ongoing and the decision in the ACCC's proceedings against Ford handed down, the motor vehicle sector took up a fair degree of the ACCC's time this year. However, we think that current structural changes happening in the sector mean that the sector will continue to be a focus for the ACCC for the foreseeable future and we anticipate at least one prosecution in this sector in 2019.
Broadband speed and performance claims
By the end of 2017, the ACCC had taken action against many of the major players in Australia and secured penalties or undertakings to clarify promotion of data limits and broadband speeds. Apart from the ACCC's ongoing proceedings against Australian Private Networks, we expect that the ACCC's attention will move elsewhere in 2019.
Consumer guarantees
2018 saw less prosecutions than we expected in this area. Given that businesses still regularly fall foul of these provisions, it will be an ongoing priority for the ACCC.
Product safety
This was arguably another quiet area for the ACCC in 2018. Following their usual pattern, once the ACCC has completed its industry engagement, we can expect to see some prosecutions in 2019, particularly against online retailers.
Protecting vulnerable consumers
This has been an ongoing priority for the ACCC for some time and will always be a part of the ACCC's `business as usual'. Although we didn't address this issue in detail, in 2018 the ACCC continued its work in this area, continuing its investigations and prosecutions of training colleges who have engaged in unconscionable conduct and misleading or deceptive conduct. Expect to see the ACCC identify one or more new communities of vulnerable consumers being targeted by opportunistic and unscrupulous businesses.
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Unfair contract terms
Curiously, while the ACCC regularly states that this area is very problematic, the number of proceedings commenced tends to contradict this assertion. It could be that the ACCC's extensive education program is succeeding in driving market changes, or possibly the ACCC may be deterred from taking action in any but the most extreme cases due to the fact that there are (presently) no penalties for breaches of these provisions. Based on the public comments made by ACCC personnel last year, we expect that we will see a big push for legislative reform in this area in 2019. In particular, a push for penalties to further deter businesses from attempting to rely on unfair contract terms.
Franchising Code of Conduct
We've been saying for the last year or two that the ACCC has been searching for a big name scalp. Was Ultra Tune the big scalp the ACCC has been searching for? It certainly should send some shock waves through the sector given the size of some of the penalties and the approach taken by the Court to disclosure obligations under the Code. Given the completion of the Senate Inquiry and the publication of its report early in 2019, we predict this will be an ongoing area of focus for the ACCC, as it looks to prosecute a big brand national or multinational franchise systems in 2019 to bolster its arguments for further legislative reform in this area.
Misuse of market power
As set out above, although publicly there may have been little evidence of the ACCC taking any major steps in this area, investigations of this kind take time and we expect this area to be an ongoing focus for the ACCC in 2019, with possibly a prosecution or two towards the end of the year or (more likely) in 2020.
Cartel conduct
With a record penalty and the first criminal prosecution, 2018 was a big year for cartel prosecutions. Consistent with previous years, 2018 also saw a small number of new proceedings commenced. The big news in 2019 will be how the Courts and the ACCC deal with criminal prosecutions, including the ongoing Country Care proceedings.
A busy year ahead
On 26 February 2019, the ACCC will formally release its enforcement priorities for the year. With the result of the parliamentary review into franchising due early in 2019 and the ongoing effects of the Banking Royal Commission still yet to be fully realised, 2019 is shaping up to be another very busy year for the ACCC.
In the 2017/18 financial year, the ACCC received 12.4 million website views
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Contributors
Shaun Temby Partner
Dispute Resolution & Litigation
Shaun is experienced in competition and consumer law advice and litigation, and property disputes, including retail and commercial leasing matters, and large-scale commercial and contractual disputes.
With an in-depth understanding of competition and consumer law, Shaun regularly acts for clients in matters involving restrictive trade practices, and the Australian Consumer Law. Having acted for the ACCC in both New
South Wales and Western Australia, Shaun has unique experience resolving Competition and Consumer Act 2010 investigations and prosecutions.
Shaun regularly acts for clients at all levels of the franchising and consumer markets sector across Australia. He is highly regarded for his legal knowledge, strategic advice and negotiating skills.
Christopher Marsh Senior Associate
Dispute Resolution & Litigation
Christopher specialises in competition and consumer law advice and litigation and advising clients on general contractual and commercial disputes.
Christopher's practice has a strong focus on the franchising industry, where he acts for and provides advice
to franchisors on compliance with the Franchising Code of Conduct and disputes with franchisees.
Christopher also has significant experience assisting clients in investigations by the Anti-Dumping Commission.
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Contact Us
Shaun Temby Partner 61 2 9291 2287 [email protected]
Timothy Atkin Partner 61 2 9291 6248 [email protected]
Brendan Coady Partner 61 2 9291 6258 [email protected]
Robert Gregory Partner 61 3 9258 3770 [email protected]
Greg Hipwell Partner 61 3 9258 3354 [email protected]
Gina Wilson Partner 61 3 9258 3005 [email protected]
Christopher Marsh Senior Associate 61 2 9291 6196 [email protected]
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Disclaimer This publication provides general information which is current as at the time of production. The information contained in this communication does not constitute legal or other advice and should not be relied on as such. Professional advice should be sought prior to any action being taken in reliance on any of the information and any action taken or decision made by any party based on this publication is not within the duty of care of Maddocks. Maddocks disclaims all responsibility and liability (including, without limitation, for any direct or indirect or consequential costs, loss or damage or loss of profits) arising from anything done or omitted to be done by any party in reliance, whether wholly or partially, on any of the information contained in this publication. Any party that relies on the information contained in this publication does so at its own risk. Access to this publication is not intended to create nor does it create a solicitor-client relationship between the reader and Maddocks.
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