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

ACCC will not appeal the Australian Competition Tribunal's authorisation of AGL Energy's acquisition of Macquarie Generation assets

Recently, we reported on the Australian Competition Tribunal's (the Tribunal's) decision to grant conditional authorisation for AGL Energy Limited's acquisition of Macquarie Generation. The ACCC had opposed the decision, but the Tribunal concluded that the public detriments identified by the ACCC (including the inhibiting of smaller retailers' ability to participate in the retail electricity market) were unlikely to arise and that the introduction of a third 'gentailer' to compete against Origin and EnergyAustralia would be a benefit to the public. The Tribunal also identified as benefits the funds that will flow into the Restart NSW Fund for infrastructure, and the investment by AGL into the efficient operation of the Macquarie Generation assets and upgrade.

The only available option for the ACCC to challenge the Tribunal's decision was to seek judicial review of the decision within 28 days of the authorisation. A judicial review would consider whether the Tribunal acted within its powers and followed correct procedure, rather than considering the merits of the decision. As a result, the ACCC has decided there is no value in applying for judicial review. Read the ACCC media release

New proposed penalties for breaches of industry codes

A Bill has been introduced into Federal Parliament proposing to amend the Competition and Consumer Act 2010 (Cth) to allow for the imposition of pecuniary penalties and the issue of infringement notices by the ACCC for contraventions of industry code civil penalty provisions. Currently, the Competition and Consumer Act does not allow a pecuniary penalty to be imposed for a contravention of an industry code. One industry code, the Franchising Code of Conduct is being revised to specify civil penalty provisions once the Bill has been passed.

ACCC News

ACCC begins consultation on access prices for Telstra's fixed line services and transmission services – 24 Jul 2014

Fixed line services

The ACCC has released a discussion paper seeking views on setting primary prices for the regulated fixed line services supplied using Telstra’s copper network. This consultation is part of the ACCC’s inquiry into making final access determinations (FADs) for the seven regulated fixed line services. Primary prices are the monthly and usage charges paid for the regulated services and include charges for access services (such as the unconditioned local loop service) and for resale services (such as wholesale line rental and wholesale ADSL).

The ACCC seeks views on several complex pricing issues including an assessment of Telstra’s expenditure and demand forecasts, approaches to the allocation of costs to access services, the impacts of declining demand and the impact of Australia’s transition from Telstra’s copper network to the NBN. Submissions on the discussion paper are due by 26 September 2014. The ACCC expects to release a draft decision on the fixed line services FADs for comment in late 2014 and will consider whether there is a need to consult further before releasing its draft decision. The ACCC expects to make its final decision by mid-2015. The discussion paper and further information on the ACCC’s fixed line services FAD inquiry are available on the Final Access Determination Inquiry website.

Transmission services

The ACCC has also commenced consultation on the primary price terms for the Domestic Transmission Capacity Service (DTCS) to be included in the DTCS FAD. The DTCS discussion paper reviews the domestic benchmarking approach that was used in the 2012 DTCS FAD. The ACCC adopted this approach because prices on competitive DTCS routes provide a good guide to the prices that should prevail on non-competitive (regulated) routes.

The ACCC seeks input on a range of issues relevant to the price terms that will apply to the DTCS, including views about the continued use of the domestic benchmarking approach and whether there are other suitable methodologies that might be considered in pricing the DTCS. The ACCC is also seeking comments on how stakeholders might best participate in developing prices for the DTCS and, if domestic benchmarking is the preferred approach, how the regression model can be refined and improved. Stakeholders will have the opportunity to comment on the approach that is adopted as the Inquiry progresses. Responses to this consultation will be accepted until Friday 12 September 2014. Further information on the 2014 DTCS FAD inquiry is available on the 2014 DTCS FAD website. Read the ACCC media release

ACCC proposes to grant authorisation to owner drivers to collectively bargain with Toll – 22 Jul 2014

The ACCC has issued a draft determination proposing to grant authorisation for three years to owner driver members of the Transport Workers’ Union (TWU) in Queensland to engage in collective bargaining with Toll for air freight courier transport services. The application relates to owner drivers engaged by Toll in Queensland who provide freight services from the Toll Priority Brisbane depot located near Brisbane Airport. The ACCC has also granted interim authorisation to the TWU to commence collective bargaining (but without entering into contracts) while the application is being assessed.

The ACCC has previously authorised the TWU to collectively bargain on behalf of owner drivers with other businesses who transport freight services. Like those previous matters, participation in the current collective bargaining arrangement is voluntary for Toll and any of the owner drivers. The ACCC is seeking submissions from interested parties in relation to the draft determination before making a final decision. Read the ACCC media release

ACCC takes action against cleaning franchisor alleging unconscionable conduct – 21 Jul 2014

The ACCC has instituted proceedings against Coverall Cleaning Concepts South East Melbourne Pty Ltd (Coverall), alleging that Coverall engaged in unconscionable conduct in contravention of the ACL. The ACCC also alleges that Coverall made false or misleading representations, engaged in conduct that was misleading or likely to mislead, and contravened the Franchising Code of Conduct.

Coverall is a master franchisor of a franchise system that establishes and operates professional cleaning services. The ACCC alleges that Coverall represented to two franchisees that they would receive a volume of work that would enable them to earn specified amounts which they would receive each month. The ACCC alleges Coverall did not have reasonable grounds for making these representations and failed to make the payments as represented and on the terms required by Coverall's franchise agreements.

It is further alleged that Coverall failed to comply with requirements of the Franchising Code, including by not having reasonable grounds for the earnings information provided to the two franchisees in contravention of the Competition and Consumer Act. The ACCC alleges that Coverall’s failure to make payments to the franchisees, as well as other alleged conduct, was unconscionable, particularly as the franchisees had significantly weaker bargaining power than Coverall. The ACCC has joined Coverall’s sole director, Brett Jones, and sales manager, Astrid Haley, to the proceedings. The ACCC is seeking pecuniary penalties, injunctions and compensation for the two affected franchisees and costs. Read the ACCC media release

ACCC puts businesses on notice about carbon tax price reduction obligation – 17 Jul 2014

Now that Parliament has repealed the carbon tax, the ACCC will have new powers to take action against businesses that supply regulated goods that fail to pass through all cost savings attributable to the carbon tax repeal. Businesses which supply regulated goods such as electricity, natural gas, synthetic greenhouse gases (typically refrigerant gases) or synthetic greenhouse gas equipment (such as refrigerators and air conditioners) will be required to pass through all of the cost savings attributable to the carbon tax repeal. A supplier of regulated goods that fails to pass through all cost savings will breach the carbon tax price reduction obligation and may face court imposed penalties of up to $1.1 million per contravention for corporations, or $220,000 per contravention for an individual. Businesses that retail electricity and natural gas, produce electricity and sell into wholesale markets or bulk import synthetic greenhouse gas, will be required to provide evidence to the ACCC to show they have passed on the cost savings. The new provisions also enhance the ACCC’s capacity to address any misleading representations about the impact of the repeal. 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 finds that developers did not mislead buyers into purchasing an investment property

Lewis v Orchid Avenue Pty Ltd [2014] FCA 739 (Dowsett J, 11 July 2014)

Key issues

• In some circumstances, passing on a document could involve a tacit representation that its contents are accurate, so that representations as to future matters contained in it will become representations by the person passing on the document

Summary

In September 2009, Mr and Mrs Lewis (the Applicants) entered into a contract with Orchid Avenue Pty Ltd for the purchase of a holiday unit on the Gold Coast in the belief that the unit would be an investment from which they would obtain substantial revenue. The Applicants purported to terminate or avoid the contract after a bank representative suggested the property would not return the profits they had anticipated.

The Applicants argued that they had entered into the contract relying on misleading and deceptive representations made to them by, or on behalf of, Orchid Avenue in both oral statements and in an email sent to them by Mr Hendrick (a sales representative for Orchid Avenue). In relation to the email, the Applicants alleged Mr Hendrick had engaged in misleading and deceptive conduct in relation to a future matter, by forwarding them an email attachment and implying that the information related to the Orchid Avenue unit. This attachment was an evaluation of a different investment property prepared for one of Mr Hendrick's other clients, which contained figures relating to that property's value, net and gross rental yield and capital growth rate.

In a cross-claim, Orchid Avenue argued that the Applicants had defaulted in performance of the contract and sought damages for losses resulting from the difference in purchase and resale price.

Judgment

Justice Dowsett rejected the Applicants' evidence in relation to the representations concerning capital growth and the self-funding nature of the investment. While it was accepted that these topics were 'touched upon in a general way', Justice Dowsett did not accept that the pleaded representations were made (at [161]).

Justice Dowsett also rejected the suggestion that Mr Hendrick's conduct converted the email attachment into a representation as to future matters upon which section 51A of the Trade Practices Act 1974 (Cth) might operate. Justice Dowsett noted that in some situations, the passing on of a document could involve a tacit representation that its contents were accurate, 'so that representations as to future matters contained in it will become representations by the person passing on the document' (at [147]). However, the email attachment merely contained third-party assumptions and expressed opinions about a particular scenario involving another property. There was no basis for finding that Mr Hendrick had represented that the scenario contained in the email attachment was in any way comparable to the Applicants' situation.

Justice Dowsett found that the Applicants were in default of their contractual obligations and ordered the Applicants to pay Orchid Avenue any deficiency between the purchase price and the price on resale including interest.

Source: AustLII

Federal Court finds no misleading or deceptive use of the name 'Thredbo'

Kosciuszko Thredbo Pty Limited v ThredboNet Marketing Pty Limited [2014] FCAFC 87 (Siopis, Rares and Katzmann JJ, 21 July 2014)

Key issues

• The court is very reluctant to give effect to a restraint of trade clause where the result would lead to an 'extraordinary' limitation on the trading ability of the party subject to the restraint
• The court considered that there could never be a restraint on the use of a geographical name in a situation where the party subject to the restraint needed to use the name in the course of its business to give its business address
• The court assumed that consumers have a reasonable ability to assess material presented on websites and discern differences between websites that use similar names

Summary

This was an appeal from the decision of Justice Cowdroy in Kosciuszko Thredbo Pty Limited v ThredboNet Marketing Pty Limited [2013] FCA 563.

Kosciuszko Thredbo Pty Limited (KT) holds an area of approximately 956 hectares under a head lease in an area of the Snowy Mountains of NSW, within which it operates the Thredbo Village and Thredbo Resort, the Thredbo Alpine Hotel and the Thredbo Resort Centre (the second appellant). KT's operations are widely advertised in print and electronic media, and each of KT's businesses contains the word 'Thredbo'. KT also uses the domain name www.thredbo.com.au.

Mr Smith and his company, ThredboNet Marketing Pty Limited, run an online business in competition with KT managing and leasing rental accommodation in Thredbo through a number of websites, the domain names of which incorporate the Thredbo name. Mr Smith also holds subleases from KT over two properties at Thredbo. Clause 4.3 of each sublease purports to prohibit Mr Smith from using the word 'Thredbo' in connection with any business unless KT gives its written consent. Clause 20 of the subleases provides that Mr Smith must make the subject premises available for holiday letting to the public when not occupied by the sublessee.

At first instance, Justice Cowdroy dismissed the appellants' claim for misleading or deceptive conduct, holding that the appellants had not proved that they had an exclusive right to use the word 'Thredbo', which Justice Cowdroy held was required to establish a secondary meaning in the word 'Thredbo'. Justice Cowdroy also held that clause 4.3 was a restraint of trade and that even though Mr Smith was prima facie in breach of the clause, the clause itself was an unreasonable restraint of trade that could not be read down to make it reasonable.

On appeal, the Full Court considered:

• whether Justice Cowdroy erred in concluding that the appellants had not established a secondary meaning in the word 'Thredbo';
• whether the appellants had proved that the respondents' conduct was misleading or deceptive or likely to mislead or deceive; and
• whether clause 4.3 of each sublease was invalid.

Issue 1 – Secondary meaning

The Full Court held that Justice Cowdroy had applied the wrong test in assessing that the appellants had not established a secondary meaning of 'Thredbo'. The Full Court said that the correct test was whether the use by the respondents in relation to their 'product' is likely to mislead or deceive persons familiar with the appellants' 'product' to believe that the two 'products' are associated. However, the Full Court noted that the issue of exclusivity did not affect Justice Cowdroy's reasoning in relation to the key question of whether the respondents' conduct was misleading or deceptive.

Issue 2 – Misleading conduct

The Full Court considered that the respondents' websites were sufficiently distinguished from those of the appellants by their use of disclaimers and their limited offerings of accommodation, and that an ordinary reasonable consumer would not be led into a belief that they were associated with the appellants' businesses. The Full Court therefore held that the appellants had not established that the respondents had engaged in misleading or deceptive conduct, false or misleading representations nor passing off.

Issue 3 – Restraint of trade

Noting that because clause 20 of the subleases requires the respondents to make the premises available for subletting when not being used by the respondents, the Full Court held that clause 4.3 could not possibly be interpreted as requiring the respondents to seek the appellants' consent to giving the address of the accommodation to those who sublet the accommodation. As such, the respondents did not breach clause 4.3 when offering the sublet accommodation for holiday rentals.

In relation to the appellants' argument that a restraint such as that contained in clause 4.3 was an 'accepted part of a trading society', the Full Court commented that it would be 'extraordinary' (at [78]) to find that this was a generally necessary and acceptable incident of commercial leases.

As the Full Court found that the respondents were not in breach of clause 4.3, the Full Court was not required to consider whether clause 4.3 is an unreasonable restraint of trade, but noted that they were not 'persuaded' that it was a reasonable restraint and considered it was void at common law (at [85]).

Source: AustLII