Competition law update

In brief

In touch: Competition law update is a regular publication by the Allens Competition group to keep you informed of the latest news and developments in this area. For more information or for legal advice, please contact one of the Partners listed below. We look forward to hearing from you.

Significant news

'Root & branch' review news

The ACCC lodged its submission to the Root & Branch review, entitled Reinvigorating Australia's competition policy on 25 June. The submission states that reinvigorating Australia's competition policy involves three things:

(a) Microeconomic reforms to remove regulatory barriers to competitive market structures and improve price signals.

The submission identifies a number of priority areas for potential reform, including privatisation, regulation and productivity, roads, congestion pricing, shipping, energy, water, intellectual property, human services and land use.

(b) Enhancing the effectiveness of the Competition and Consumer Act 2010 (Cth).

Key recommendations for reform include:

• amending section 46 by introducing an 'effects' test and overcoming limitations with the application of the 'taking advantage' limb;
• expanding the price signalling provisions, which currently only apply to the banking sector, to the whole economy;
• removing first instance merger authorisation by the Australian Competition Tribunal (the Tribunal), replacing it with merger authorisation by the ACCC, with a right of review by the Tribunal;
• amending the third line forcing provisions by introducing a 'substantial lessening of competition' test;
• clarifying where an overseas corporation is 'carrying on business within Australia';
• amending the drafting and structure of the cartel, authorisation and notification provisions;
• amending the ACCC's investigative powers, including its s155 compulsory information gathering powers, and providing greater protections for whistle-blowers;
• assisting small business in a number of ways including:
  • extending the 'unfair contract terms' provisions to contracts involving small business;
  • amending the collective bargaining/boycott regime to make it more accessible;
  • amending prescribed industry codes to improve their enforceability;
  • implementing a legally enforceable supermarket and grocery industry code of conduct; and
• continuing to make resale price maintenance an outright prohibition.

(c) Institutions and implementation

The ACCC submits that it needs a broad market study function to assess whether, in particular sectors, competition issues exist, and to support better targeted action by the ACCC or others in response, to bring it into line with comparable overseas regulators' functions. Read the ACCC media release

Discussing the submission, ACCC Chairman Rod Sims stated at the CEDA State of the Nation Conference in Canberra that the review provides an ideal opportunity to reinvigorate Australia’s competition culture. Mr Sims noted that the prevailing approach to privatisation raises particular concerns. Read the ACCC media release

Tribunal authorises AGL Energy's acquisition of Macquarie Generation assets

The Tribunal has given conditional authorisation for AGL Energy Limited’s proposed acquisition of Macquarie Generation. The conditions of authorisation place an obligation on AGL to offer a minimum of 500MW of electricity hedge contracts to smaller retailers in NSW per year for seven years.

The ACCC had opposed the acquisition, as it considered the acquisition was likely to have the effect of substantially lessening competition in the NSW retail electricity market. The Tribunal concluded that the public detriments identified by the ACCC (the inhibiting of smaller retailers' capacity to participate in the retail electricity market) are unlikely to arise. The Tribunal found that the introduction of a third 'gentailer' (to compete against Origin and EnergyAustralia) would lead to more competition in the market and be of benefit to the public.

The Tribunal found that this benefit was in addition to:

• the benefit to the State and the public of NSW of the $1 billion that would go into the Restart NSW Fund – the Tribunal found that this on its own was a sufficient benefit to warrant authorisation; and
• the investment by AGL into the efficient operation of the Macquarie Generation assets and investment into upgrades, which would serve the ultimate interests of electricity consumers in NSW.

The ACCC has yet to consider the detail of the conditions or reasons given by the Tribunal. There is no merits appeal available from the Tribunal’s decision, although there are limited grounds of appeal to the Federal Court based on errors of law. Read the decision (AustLII) and the ACCC media release

ACCC news

ACCC takes action against Spreets alleging it mislead consumers – 30 Jun 2014

The ACCC has instituted proceedings in the Federal Court against Spreets Pty Ltd, alleging that, in 2011 and 2012, Spreets engaged in misleading or deceptive conduct and made false or misleading representations about the price of certain deals, consumers' ability to redeem vouchers, and the applicability of consumer guarantees under the Australian Consumer Law (ACL), specifically in relation to consumers’ refund rights. At the time of the alleged conduct, Spreets operated one of Australia’s largest online group buying websites, selling vouchers for heavily discounted goods or services. Online group buying sites typically negotiate these deals with businesses and then market the deals to their members and the public by promotional emails, social media promotions and on their websites. Spreets no longer offers deals directly to consumers, and instead now gathers and publishes deals offered by a range of third party online group buying sites.

The ACCC is seeking declarations, pecuniary penalties and costs. Read the ACCC media release

ACCC takes action against tax agent providing services to Indigenous communities – 30 Jun 2014

The ACCC has instituted proceedings in the Federal Court against Adata Pty Ltd and Adata (Vic) Pty Ltd (together Adata), alleging that Adata has breached the unsolicited consumer agreement provisions of the ACL in relation to Adata’s supply of individual tax return services to Indigenous consumers receiving Centrelink payments in remote communities in the NT and WA. It is also alleged that Adata’s sole director, Wayne Wright, was knowingly concerned in, or a party to, the conduct of Adata.

The ACCC alleges that Adata breached the ACL by:

• receiving payments from consumers within the 10 business day cooling-off period;
• failing to inform consumers of their termination rights;
• failing to provide consumers with an agreement document;
• failing to use an agreement document which complies with the ACL; and
• calling on consumers on a Sunday.

The ACCC seeks declarations, injunctions, refunds for affected consumers, and costs. Read the ACCC media release

ACCC does not object to price increases by Airservices Australia – 26 Jun 2014

The ACCC has decided to not object to a proposal by Airservices Australia to increase prices for its monopoly services from 1 July 2014. Airservices Australia provides air traffic control and aviation fire-fighting and rescue services to airports and airlines.

In 2011, the ACCC undertook a detailed assessment of Airservices Australia's proposed price path for the five-year period from 2011 to 2016, and decided not to object to the prices. These proposed changes are consistent with those approved in 2011, including that:

• terminal navigation charges will increase at 21 airports by between 0.2 per cent and 3.6 per cent, and will fall at six airports by between 0.9 per cent and 5.2 per cent;
• charges for aviation rescue and fire-fighting (ARFF) services will increase at 22 airports by between 1.8 per cent and 10.2 per cent, and will fall at two airports by between 1 per cent and 10 per cent. These price changes reflect the need to transition ARFF services towards full cost recovery;
• charges for en route navigation services will fall by an average of 0.1 per cent; and
• out-of-hours charges for terminal navigation and ARFF services will also increase.

Airservices Australia intends to implement its proposed prices on 1 July 2014. Read the ACCC media release

NSW Government cost recovery decision to increase State Water charges – 26 Jun 2014

The ACCC has released its final decision on pricing for bulk water supplied by the State Water Corporation in the NSW Murray-Darling Basin (MDB) for the 2014-17 period. The decision incorporates the charges that the NSW Government recovers from irrigators through State Water for the MDB Authority.

The decision will increase State Water bills for Murray and Murrumbidgee customers. Bills will fall for the majority of customers in other valleys. The ACCC’s final decision adopts lower financing costs, investment spending and operating costs than proposed by State Water. Without the higher MDB Authority charges, most irrigators would have benefited from lower bills.

For the Peel Valley, State Water proposed substantial price increases as it moves to full cost recovery. To aid the transition and limit price shocks the ACCC has set a 10 per cent cap on annual increases in charges in the Peel Valley.

One of State Water’s proposals was to increase fixed charges in all valleys to an 80/20 fixed/variable ratio. The ACCC has rejected this proposal because of the financial burden of high fixed charges on irrigators during drought periods. The ACCC retained the current 40/60 fixed/variable charges ratio consistent with the ACCC’s draft decision.

The ACCC recognises that Murray and Murrumbidgee irrigators may want to discuss the impact of the increase in charges with the NSW Government. Should the NSW Government decide to change the level of MDB Authority costs it recovers through the irrigators, any savings will be passed on to irrigators in the form of lower State Water charges in those areas.

The decision is available at: State waters regulated charges – 2014-17 review. Read the ACCC media release

ACCC issues draft decision to approve CBH long-term arrangements – 26 Jun 2014

The ACCC has issued a draft decision to accept Co-Operative Bulk Handling Limited's (CBH) proposed 2014 Port Terminal Services Access Undertaking, subject to amendments. The undertaking would govern access by third party exporters to CBH’s port terminal services for bulk wheat export at CBH’s four port terminals in WA. Under the proposal, CBH would provide up to 66 per cent of total port terminal capacity to customers who are willing to book a minimum of 600,000 tonnes of capacity per year for three years. The remaining capacity not allocated by long-term agreements would be available to all exporters through the existing processes. Read the ACCC media release

ACCC acts on 'Victoria Honey' misrepresentations – 23 Jun 2014

Basfoods Australia Pty Ltd has paid penalties totalling $30,600 following the issue of three infringement notices by the ACCC in relation to Basfoods’ 'Victoria Honey'. The ACCC considered that Basfoods had misrepresented that its 'Victoria Honey' was honey produced by honey bees on product labelling and on its website, when it was mainly comprised of sugars from plants including corn and sugar cane. The ACCC also considered that by naming and labelling its product 'Victoria Honey', Basfoods had represented the product as originating from Victoria, when in fact it was a product of Turkey.

Basfoods has also provided an enforceable undertaking to the ACCC in which it has admitted that its conduct contravened the ACL; undertaken to only sell product as honey if it is entirely produced by honey bees; to regularly test its products; and to publish a range of corrective notices. Read the ACCC media release

ACCC varies fixed line services final access determinations – 20 Jun 2014

The ACCC has decided to vary the existing final access determinations (FADs) for four fixed line telecommunications services. These FADs, as varied, will remain in effect until new FADs for the seven regulated fixed line services are made, expected in mid-2015.

The ACCC is varying the FADs for the Unconditioned Local Loop Service, the Line Sharing Service, the Local Carriage Service (LCS) and the Wholesale Line Rental (WLR) service. The WLR and LCS FAD variations will ensure that regulated prices are available for the LCS and WLR services in CBD areas from 1 August 2014. This will allow consumers to benefit from the ACCC’s recent decision, in its fixed line services declaration inquiry, to regulate the supply of these services in CBD areas, where competition from fibre and other networks had not proven to be sufficiently effective. Read the ACCC media release

ACCC takes action against Jetstar and Virgin for drip pricing practices – 19 Jun 2014

The ACCC has instituted separate proceedings in the Federal Court against Jetstar Airways Pty Ltd and Virgin Australia Airlines Pty Ltd, alleging that each airline engaged in misleading or deceptive conduct and made false or misleading representations in relation to particular airfares. The conduct in each of these proceedings is an example of what is often referred to as ‘drip pricing’, where a headline price is advertised at the beginning of an online purchasing process and additional fees and charges are then incrementally disclosed.

The ACCC alleges that Jetstar and Virgin each made representations on their websites and mobile sites that certain domestic airfares were available for purchase at specific prices, when in fact those prices were only available if payment was made using particular methods. In relation to specific advertised airfares, the ACCC alleges that each airline failed to adequately disclose an additional booking and service fee. In particular, it is alleged that:

• Jetstar charged a booking and service fee of $8.50 per passenger, per domestic flight if payment was made by a credit card (other than a Jetstar branded credit card) or PayPal; and
• Virgin charged a booking and service fee of $7.70 per passenger, per booking if payment was made by a credit or debit card or PayPal.

The ACCC alleges that these fees applied to the substantial majority of online bookings and should have been disclosed upfront and prominently with or within headline prices. While both airlines made some adjustments to the disclosure of these fees during the period of the ACCC’s investigation, the ACCC remains concerned with these pricing practices. It is seeking pecuniary penalties, declarations, injunctions, corrective advertising and costs against each airline. Read the ACCC media release

ACCC proposes to allow coal producers to coordinate transportation – 19 Jun 2014

The ACCC proposes to grant authorisation for Rio Tinto, Peabody and Pacific National to coordinate the transportation of coal in the Goonyella Coal Chain. Rio Tinto and Peabody both operate coal mines in central Queensland. Coordination of coal transportation by the applicants has been underway since the ACCC granted interim authorisation to the arrangements in late March 2014, while it considers the substantive application for authorisation. The applicants have already been able to achieve some savings through greater coordination. The ACCC has also decided to extend interim authorisation to allow other coal producers and rail operators railing to the Dalrymple Bay Coal Terminal to participate in the coordination. Read the ACCC media release

ACCC reduces regulation at GrainCorp's Newcastle Port Terminal – 19 Jun 2014

The ACCC has accepted GrainCorp’s application to vary its Port Terminal Services Access Undertaking at its Newcastle bulk grain facility. GrainCorp applied to the ACCC to vary its undertaking to allow its Carrington terminal in Newcastle to be subject to less access regulation. GrainCorp submitted that it now faces competition from two other bulk wheat export facilities which are not subject to access regulation, and argues that it is at a competitive disadvantage as a result. The ACCC’s view is that there is a sufficient level of competition and capacity, such that the current level of regulation on GrainCorp is no longer required at that port. GrainCorp’s undertaking will continue to apply at the existing level of access obligations at its six other port terminals. Read the ACCC media release

ACCC decision may lead to lower prices for SMS services – 17 Jun 2014

The ACCC has concluded its inquiry into the regulation of mobile terminating access services (MTAS). It has decided to continue to regulate mobile voice termination services for a further five years, and to regulate SMS termination services for the first time.

During the inquiry, the ACCC found that charges for terminating SMS services have not changed for over a decade. It also found that SMS termination rates are many times higher than the cost of providing the service and that commercial negotiations have not been successful in lowering rates. The ACCC has commenced a public inquiry into making a new FAD for MTAS and will release a discussion paper on the pricing of MTAS shortly. The ACCC has extended the current FAD for MTAS until it makes a new FAD. Read the ACCC media release

Saskia Beer's Barossa Farm Produce misrepresented 'Black Pig' products – 16 Jun 2014

The ACCC has accepted a court-enforceable undertaking from Barossa Farm Produce Pty Ltd for false or misleading representations and misleading or deceptive conduct in contravention of the ACL. Between 2010 and 2013, Barossa Farm Produce made various representations that the pork used in its 'The Black-Pig' smallgoods was from heritage Berkshire pigs, or other heritage black pig breeds, and/or free range pigs, when that was not the case. Ms Saskia Beer, Barossa Farm Produce’s sole director, also made representations at a cooking class held at the Maggie Beer Farm Shop in 2013, that the pork used in 'The Black-Pig' smallgoods was from Berkshire or other black pig breeds, when that was not the case.

A statement made on the websites www.saskiabeer.com and www.barossafarmproduce.com that 'we know the origin of every animal that makes its way onto the plate' in relation to 'The Black-Pig' smallgoods was also misleading, as Barossa Farm Produce did not in fact know the origin of every animal used in those products.

Barossa Farm Produce has acknowledged that representations made on its product labelling, websites, social media, and at the cooking class were likely to have contravened the ACL. Barossa Farm Produce has provided the ACCC with a court-enforceable undertaking that it will not make any representations:

• about the breed or type of pigs used in Black Pig labelled smallgoods, in circumstances where it does not know the breed or type of pigs used; and
• that it knows the origin of every animal used in the production of Black Pig labelled smallgoods, in circumstances where it does not know the origin of every animal used.

Read the ACCC media release

Titan Marketing to pay $750,000 for unconscionable conduct and false and misleading representations – 13 Jun 2014

Titan Marketing Pty Ltd has been ordered by consent to pay total penalties of $750,000 for engaging in unconscionable conduct, making false and misleading representations, breaching the unsolicited consumer agreement provisions of the ACL and failing to specify a single price for goods. The court also declared by consent that Titan’s director, Mr Paul Giovanni Okumu, was knowingly concerned in the systemic unconscionable conduct engaged in by Titan and ordered him to pay a penalty of $50,000, and disqualified him from managing corporations for five years.

Titan sold first aid kits and water filters by door-to-door sales, including to consumers in Indigenous communities of Far North Queensland and the Northern Territory. From 2011, Titan entered into over 7,900 unsolicited consumer agreements.

The court declared that the system of sales employed by Titan was unconscionable and in breach of the ACL. The sales system included Titan's door-to-door representatives:

• making misrepresentations to consumers about the value of the first aid kits;
• making misrepresentations to consumers that Titan’s sales representatives were associated with a community group or charity;
• not taking reasonable steps to ascertain whether the consumer was capable of understanding the agreement documents, including how much the goods would cost, and how the consumer was to pay for the goods; and
• intentionally not informing the consumer about their cooling-off rights.

The court also declared that Titan had engaged in unconscionable conduct by using undue influence and unfair sales tactics to enter into unsolicited consumer agreements with two individual consumers in Indigenous communities who had a limited ability to read or write English or to understand the nature of the agreements they were entering into. One of these consumers was also a long-term resident in a care facility.

The court also ordered:

• injunctions against Titan and Mr Okumu, which include being conditionally restrained for five years from entering Indigenous communities that require permission from Elders or Administrators to enter to sell any goods;
• a community service order for Titan to deliver the remaining first aid kits in its possession to Indigenous community health care centres in two Indigenous communities particularly affected by Titan’s conduct; and
• Titan to pay costs of $100,000 and Mr Okumu to pay costs of $20,000.

Read the ACCC media release

* The summaries provided are a condensed version of the relevant ACCC media release linked at the conclusion of each news item.

Cases

Federal Court has close regard to legislation excluding liability for misleading or deceptive conduct

Quikfund (Australia) Pty Limited v Airmark Consolidators Pty Limited [2014] FCAFC 70 (Chief Justice Allsop, Justices White and Wigney, 16 June 2014)

Key issues

• The court will closely examine the language of a legislative provision that excludes liability for misleading or deceptive conduct so as not to give it an unduly wide interpretation

Summary

Quikfund (Australia) Pty Limited (Quikfund) and Enterprise Finance Solutions Pty Limited (EFS) are finance companies which respectively entered into rental agreements with Airmark Consolidators Pty Limited (Airmark) and Austec.Net Pty Limited (Austec) to supply office equipment. Airmark and Austec were induced to enter into these agreements by misleading and deceptive conduct on the part of employees or agents of the third party companies that supplied the office equipment, that included representations that the equipment would be provided free of charge, if Airmark and Austec entered into separate contracts for the supply of telephone services by other companies.

Airmark and Quikfund defaulted under the rental agreements and Quikfund and EFS sued to recover the outstanding rental payments or alternatively, damages for breach of contract. Airmark and Austec cross-claimed on the basis that Quikfund and EFS were liable for the conduct of third party equipment suppliers under s52 of the Trade Practices Act 1974 (Cth), as they were 'linked credit providers' for the purposes of s73 of the Trade Practices Act.

Primary decision

The primary judge found that Quikfund and EFS were both 'linked credit providers' and liable for the conduct of the third party equipment suppliers, rejecting the argument that their liability was excluded by s51AF, which operates where the conduct relates solely to financial services. Here, the conduct involved more than financial services.

Appeal

On appeal, Quikfund and EFS argued that s51AF should be given its ordinary meaning, with the effect that the provisions in Pt V of the Trade Practices Act, including s73, did not apply to the supply or possible supply of financial services.

The Full Federal Court rejected this argument, making a number of observations about the language of s51AF which led the court to conclude that only the supply of financial services was excluded. The court concluded that in relation to the provision of credit by a credit provider in respect of goods and services, other than financial services, the liability of a 'linked credit provider' was left untouched by s51AF.

On an alternative analysis, the court reasoned that s73 could be characterised as a remedial provision as it provided that in defined circumstances, a customer would have a remedy against both the supplier and the linked credit provider in the case of goods and/or services. Therefore, due to its remedial character, s73 was not a provision concerned with the supply, or possible supply, of financial services to which s51AF(1) was directed.

Source: AustLII

Federal Court considers whether consumers were misled by a phone directory which used yellow pages and a yellow cover

Telstra Corporation Limited v Phone Directories Company Pty Ltd [2014] FCA 568 (Justice Murphy, 30 May 2014)

Key issues

• Even where a corporation has acquired a secondary reputation for a colour, others may use that colour with sufficient product differentiation

Summary

Telstra Corporation Limited commenced proceedings for misleading or deceptive conduct and passing off against Phone Directories Company Pty Ltd (PDC), Australian Local Directories Pty Ltd and Local Directories Company Pty Ltd (collectively, the respondents), and against three executive officers of PDC alleged to have been accessories to the conduct.

In 1994 PDC began publishing directories (PDC directories) under the names 'Phone Directories', 'PDC' or with a PDC logo, in some cities and regions in Queensland and the Northern Territory. It used yellow pages for the business classified section of its directories, and from 1996, the directories also featured yellow covers. From June 2005, the directories were published in Queensland, the Northern Territory and New South Wales under the Local Directories name and logo.

In its claim, Telstra noted that it had published print telephone directories in Australia since 1880, and that since 1975, these directories featured yellow pages and yellow covers on its business directories. Telstra claimed that by 1996 it had achieved a secondary reputation in the colour yellow, which became associated in consumers' minds with Telstra as the producer of the Yellow Pages directories and associated products.

Telstra contended that the respondents' conduct represented to consumers that:

• the respondents' print directories were Telstra's directories, Yellow Pages directories or local or regional versions of them;
• the respondents' print directories were produced by, connected, associated, sponsored, approved, licensed, endorsed and/or affiliated with Telstra or its directories; and/or
• the respondents had a connection, affiliation, commercial and/or other agreement with Telstra.

Telstra made similar allegations in relation to the respondents' website and their mobile application.

The respondents filed a cross-claim alleging misleading or deceptive conduct by Telstra in publishing advertisements in its directories between 2004 and 2007, which purported to set out the comparative customer usage of Telstra's and PDC's directories. The advertisements stated that 57 per cent of consumers surveyed in regional markets referred to the Yellow Pages as their most used source for finding relevant products and services, while only 2 per cent of consumers used PDC's directories.

The decision

The court dismissed Telstra's claim as it was not satisfied that the respondents' conduct:

• created the impression or conveyed the representations alleged;
• was misleading or deceptive or likely to mislead or deceive as alleged; or
• amounted to passing off.

The court accepted that Telstra had acquired a secondary reputation in the colour yellow but did not consider that the claimed association in the minds of consumers between 'yellow' and 'Telstra' was a b one as:

• yellow is not distinctive in itself, and is a colour widely used on products and services;
• yellow is internationally recognised as a standard colour of classified directories and to some extent was so recognised by Australian consumers;
• Telstra only ever used the colour yellow coupled with its well-recognised 'Yellow Pages' trade marks, including the 'Walking Fingers', and never used the colour independently; and
• Telstra's use of yellow on its directory covers after 1996 was inconsistent and declined over time.

As Telstra had not acquired a b reputation in connection with the colour yellow, it was sufficient that PDC had distinguished its directories by the use of a different logo and a different cover design. It was also relevant that PDC directories were physically smaller in size and contained a high quality street map.

The cross-claim

The court considered that Telstra's 'comparative customer usage' advertisements were misleading as they did not seek to provide a fair or accurate picture of the comparative usage of the rival directories. The surveys covered different geographical areas to the areas in which the respondents published their directories. In many cases, the individuals surveyed did not have access to PDC's directories as an alternative to the Yellow Pages. The court was therefore satisfied that Telstra had engaged in misleading or deceptive conduct or conduct that was likely to mislead or deceive.

Source: AustLII