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.

Harper Review news

The Harper Review Panel continues to receive submissions in response to its draft report. You can view all non-confidential submissions here.

The final report is due for release in March this year, and Allens will keep you informed about all significant aspects of the final report. We look forward to discussing it with you.

ACCC news

False or misleading representations – Penalties for misleading consumers about energy plan discounts – 10 Feb 2015

The Federal Court has ordered, by consent, that Origin Energy Ltd and two of its subsidiaries contravened the Australian Consumer Law (the ACL) by making false or misleading representations about the level of discounts residential consumers in SA would receive under a DailySaver energy plan in 2013. The court held that the representations made on Origin's website and in confirmation packs sent to consumers on the plan were false or misleading, as the rates used to calculate the charges under the energy plan were higher than the rates under Origin's standard retail contracts. The court ordered Origin and its subsidiaries to pay penalties totalling $325,000. Read the ACCC media release

Merger clearance – JBS's acquisition of Primo – 6 Feb 2015

The ACCC will not oppose JBS USA Holdings Inc’s acquisition of Australian Consolidated Food Holdings Pty Limited (Primo). The ACCC determined that Primo is currently not a strong competitive constraint on JBS, as the companies' abattoirs are located more than 500km apart in Queensland, and the increase in JBS's market share as a result of the acquisition would be relatively small. Read the ACCC media release

Franchising Code – Changes take effect from 1 January 2015 – 21 Jan 2015

A number of changes to the Franchising Code of Conduct took effect from 1 January 2015, including the introduction of a 'good faith' obligation which requires both parties to a franchise agreement to remain loyal to the contract. The changes also include requirements for increased disclosure before entering into a franchising agreement, greater transparency around the use of marketing funds and clarity about whether the franchisor or franchisee can operate online.

The changes also give the ACCC new powers, including to issue infringement notices and to seek penalties for serious breaches of certain Code provisions. Further guidance is available on the ACCC's website. Read the ACCC media release

Petrol prices – ACCC to provide new petrol price reports – 15 Jan 2015

In response to the direction by Federal Minister Bruce Billson to monitor fuel markets in a more regular and comprehensive fashion, the ACCC will produce at least eight reports in 2015: four macro reports on petrol price movements, and four market studies on micro issues such as the drivers of petrol prices in regional markets. Read the ACCC media release

Unfair contract terms – false or misleading representations – ACCC takes action against Chrisco Hampers – 22 Dec 2014

The ACCC has instituted proceedings against Chrisco Hampers Australia Ltd alleging it contravened the ACL by including an unfair contract term in its 2014 lay-by agreements, making false or misleading representations that customers could not cancel their lay-by agreement after making final payment and charging consumers a termination fee in excess of its reasonable costs in relation to those lay-by agreements. Read the ACCC media release

Misleading or deceptive conduct – unfair contract terms – Online buying group – 19 Dec 2014

The ACCC has accepted an undertaking from LivingSocial Pty Ltd in which LivingSocial acknowledged that:

• it may have made false or misleading representations on its website about consumers’ refund rights and the price of certain deals, in contravention of the ACL; and
• its terms and conditions contained a term likely to be an unfair contract term permitting LivingSocial to make substantive changes to those terms and conditions without notifying consumers.

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

Product safety – Qantas penalised for selling banned products

Director of Consumer Affairs Victoria v Alpha Flight Services Pty Ltd [2014] FCA 1434 (Justice Pagone, 24 December 2014)

Key issue

• The lack of appropriate compliance programs is a factor the court may consider when assessing penalty amounts

Summary

During 2013, Qantas sold a product supplied by Alpha Flight Services, in the form of a toy or puzzle on its international flights. The product was subject to a permanent ban under a Consumer Protection Notice.

The court imposed penalties of $50,000 on Alpha and $200,000 on Qantas for supplying and offering to supply banned products in contravention of section 118 of the ACL. Assessing the appropriate penalty, the court noted that:

• Qantas and Alpha were not aware of, and did not deliberately intend to contravene, the ban;
• Qantas and Alpha had not implemented safety compliance programs or other mechanisms to ensure prohibited products were not offered for sale; and
• Alpha expressed genuine regret about the contravention and acted with exemplary speed as soon as it became aware the product was banned.

Source: AustLII

Unconscionable conduct – Court endorses ACCC and Coles' agreed $10 million penalty

ACCC v Coles Supermarkets Australia Pty Ltd [2014] FCA 1405 (Justice Gordon, 22 December 2014)

Key issue

• The Federal Court has upheld a settlement reached between Coles and the ACCC in relation to two proceedings brought by the ACCC alleging unconscionable conduct by Coles in a number of dealings with its suppliers

Summary

In 2014, the ACCC commenced two proceedings against Coles in relation to:

• rebates negotiated with 200 smaller suppliers as part of Coles' Active Retail Collaboration supply chain program (ARC proceeding); and
• other rebates sought by Coles from five suppliers outside the formal trading terms including in relation to waste, late deliveries and profit shortfalls (Claims proceeding).

Penalty factors

Coles, by consent, agreed to pay a penalty of $3.7 million for five contraventions in relation to the ARC program and $6.3 million for 10 contraventions in relation to the Claims proceeding. In determining the appropriate penalty, the court took into account a range of factors including:

• that Coles' conduct had had a detrimental effect on each of the eight suppliers involved;
• Coles' size and share of the Australian grocery market;
• Coles' trade practices compliance policies at the time had not prevented the incidents;
• that some senior employees had been involved in the conduct or had not taken adequate steps to prevent the conduct;
• the steps taken by Coles in response to the contraventions, including a best practice compliance framework, additional training, a Supplier Charter and a dispute resolution framework which provided suppliers with the right to raise concerns on a confidential basis with an independent arbiter; and
• that Coles had cooperated with the ACCC during the course of its investigation and in relation to the resolution of the proceeding. This included Coles providing an undertaking to the ACCC under s87B of the Competition and Consumer Act 2010 (Cth) under which any small suppliers involved in the ARC supply chain program or in the Claims proceeding could apply to an independent arbiter to seek refunds or an adjustment to the rebates paid.

Read the ACCC media release

Source: AustLII

False or misleading representations – Court finds homeopathy company made false or misleading representations about whooping cough vaccine

ACCC v Homeopathy Plus! Australia Pty Limited [2014] FCA 1412 (Justice Perry, 22 December 2014)

Key issue

• The court will consider medical evidence in assessing the nature of representations about the effectiveness of medical treatments

Summary

Homeopathy Plus! (HP), a registered company that advocates homeopathic treatment and sells homeopathy products through its website, published three articles making representations about the effectiveness of whooping cough vaccine. The Federal Court found that HP and its sole director had engaged in misleading or deceptive conduct by representing that the vaccine was ineffective and by presenting homeopathic treatments as a safe and effective alternative to medical treatment. The matter will return to court for hearings on penalties and other remedies. Read the ACCC media release

Source: AustLII

Misleading or deceptive conduct – Fisher & Paykel and Domestic & General to pay penalties

ACCC v Fisher & Paykel Customer Services Pty Ltd [2014] FCA 1393 (Justice Wigney, 19 December 2014)

Key issue

• The courts continue to focus on the issue of extended warranties under the ACL

Summary

In 2011 and 2012, Domestic & General (a marketing and administrative company) on behalf of Fisher & Paykel sent letters to consumers who had previously purchased domestic appliances from them. After noting the purchased product came with a two-year warranty, the letters:

• stated that consumers had '12 months remaining – after that your appliance won't be protected against repair costs'; and
• offered consumers an extra two years of protection against repair costs and, if the product could not be economically repaired, a brand new replacement, at a cost of between $110 and $220.

The letter referred to the ACL in fine print in the terms and conditions on the reverse side.

Fisher & Paykel and Domestic & General admitted that they had engaged in misleading or deceptive conduct and made false or misleading representations to consumers concerning the need for extended warranties and the existence and effect of the statutory consumer guarantees in the ACL, as the ACL provides both a guarantee of acceptable quality that cannot be excluded, restricted or modified by contract, and a right of action against suppliers for non-compliance with the guarantee of acceptable quality.

The court held that the extended warranty offered in the letters was a 'financial product', and that offering the financial product was a 'financial service' within the Australian Securities and Investments Commission Act 2001 (Cth). The conduct was therefore excluded from the operation of the Competition and Consumer Act but was within the misleading or deceptive conduct provisions of the ASIC Act. Fisher & Paykel and Domestic and General were found to have contravened the relevant sections of the ASIC Act, and were each ordered to pay a pecuniary penalty of $200,000. The terms of an injunction and other orders are still to be finalised. Read the ACCC media release

Source: AustLII

Misleading or deceptive conduct – Energy company found to have made false or misleading representations about energy plan discounts

ACCC v AGL South Australia Pty Ltd [2014] FCA 1369 (Justice White, 15 December 2014)

Key issue

• The court will take into account what consumers would consider to be the 'essence' of an offer in assessing whether conduct is misleading or deceptive

Summary

During 2012, residential consumers who contacted AGL SA were offered discounts on the general energy usage charges if they signed up for a fixed period, usually two years. Although consumers initially received the discount, AGL SA subsequently advised these consumers of rate increases, stating that they would continue to receive their discount, when this was not the case. The increased rates were in fact higher than the rates that applied to consumers who commenced an energy plan under AGL SA's standard energy contract after July 2012.

The court found that AGL SA had engaged in misleading or deceptive conduct when offering the relevant discounts to residential consumers. The court considered that consumers would have understood that the essence of the bargain was that they were being offered a discount on the general rates AGL SA offered to consumers, with a fixed-term commitment. The 'welcome packs' sent out to consumers were found not to have 'neutralised' the impression created by AGL SA's earlier sales pitch. Significantly, the welcome packs were sent out after the consumer had committed to the energy plan.

A hearing will be held at a later date in relation to the relief sought by the ACCC. Read the ACCC media release

Source: AustLII

Unconscionable conduct – Court makes orders against cleaning franchisor

ACCC v South East Melbourne Cleaning Pty Ltd [2015] FCA 25 (Justice Murphy, 29 January 2015)

Key issue

• The court will consider the equality of bargaining power as a relevant factor in determining whether conduct is unconscionable

Summary

During 2013 and 2014, a franchisor that establishes and operates professional cleaning services (Coverall) offered to provide franchisees with cleaning work which, for a fixed period, allowed the franchisee a guaranteed minimum monthly amount of gross billings if the franchisee paid an up-front acquisition price.

The ACCC brought proceedings against Coverall and its director in relation to their dealings with two franchisees, claiming that Coverall had deliberately exploited its significantly greater bargaining power in order to gain an illegitimate advantage for itself.

The parties filed a statement of agreed facts, admissions and proposed orders. Justice Murphy declared that Coverall had engaged in misleading conduct, made false or misleading representations and contravened the Franchising Code of Conduct and engaged in unconscionable conduct. In declaring that the respondents had engaged in unconscionable conduct, Justice Murphy noted the manifest inequality in the bargaining power of the parties and Coverall's failure to provide proper earnings information, and concluded that Coverall had not acted in good faith.

The director was held to have been knowingly concerned in Coverall’s unconscionable conduct and was ordered to pay a penalty of $30,000 and compensate the two franchisees for the franchise fees they had paid and monies owing for work completed. The relevant franchise agreements were declared void. Justice Murphy also granted the other agreed orders against the director, including a disqualification order and an undertaking not to be involved in managing or marketing a franchise business. Read the ACCC media release

Source: AustLII