UltraTune penalty put in reverse; record penalties for vocational course provider; and ACCC's coal cartel appeal comes cascading down

8 min read

UltraTune penalty put in reverse

In January this year, Ultra Tune Australia Pty Ltd was fined $2.6 million for breaches of the Franchising Code of Conduct, and for making false or misleading representations in its dealings with prospective franchisees. Ultra Tune appealed aspects of this decision, including the penalty imposed, and the finding that it had failed to ensure its disclosure documents contained sufficient detail regarding marketing expenditure (in contravention of the Franchising Code).

On 20 September 2019, the Full Federal Court upheld the trial's judge's finding in relation to disclosures about Ultra Tune's marketing fund expenses. By only disclosing that the funds had been spent on television advertising, Ultra Tune did not provide sufficient detail to give meaningful information about the item of expenditure. In its decision, the Full Court noted that 'a franchisor would be well advised to err on the side of candour'.

The Full Court, however, took a different view in relation to penalties, and reduced the penalty imposed on Ultra Tune to $2 million. The Full Court did not agree with the trial judge's characterisation that Ultra Tune's disclosure contraventions were in or towards the worst category of case. While objectively serious, the conduct was inadvertent and did not involve a wilful failure on Ultra Tune's part to do what was required of it. 

ACCC's coal cartel appeal comes cascading down 

On 4 September 2019, the Full Federal Court dismissed an ACCC appeal in relation to alleged bid rigging in the market for coal exploration licences (ELs).

In 2015 the ACCC instituted proceedings in the Federal Court against Cascade Coal Pty Ltd and certain other respondents associated with the Obeid family. The ACCC's allegations focused on whether Cascade Coal had entered into an arrangement with Loyal Coal Pty Ltd, Voope Pty Ltd and Buffalo Resources Pty Ltd to rig a bid for exploration licences over the Mount Penny and Glendon Brook coal tenements in New South Wales. The arrangement involved Loyal agreeing to withdraw its bid from the tender in return for Cascade granting Buffalo a 25% interest in the Mount Penny coal release area.

The Federal Court dismissed the case in July 2018. It found that Cascade, Loyal and Voope were not competitors under the tender (as required under the relevant cartel provision); that their agreement did not have an anti-competitive purpose; and that even if it did, the then joint venture exception under section 76 of the Trade Practices Act 1974 (Cth) would have applied.

The Full Court has dismissed the ACCC's appeal from that judgment, upholding all of the trial judge's conclusions. In a unanimous judgment, it found that Cascade was not competing with Loyal and Voope for coal exploration licences, because:

• Loyal and Voope were never participants in the expression of interest process, which determined who would be invited to apply for and obtain a coal exploration licence; and
• the 'commercial reality' was that Loyal and Voope 'lacked the financial resources and intention to engage in the ACCC's so-called actual or potential rivalry'.

The Full Court also reaffirmed the trial judge's finding that the parties' agreement did not have the proscribed purpose of preventing the acquisition of coal exploration licences. Consistently with the first instance decision, the Full Court found that the purpose of the agreement was to 'contribute to the foundation, protection, subsistence and success of the proposed joint venture' between the parties. The Full Court agreed that the joint venture defence would have applied, and considered the parties' contributions of intellectual property and equity, sharing of costs, and assistance to explore and develop the relevant tenements in this respect. In an important finding, the Full Court found that a provision of an agreement can be 'for the purposes of a joint venture' that has not yet been formed – stating that 'there is no requirement to show that the provision is for the purposes of an existing joint venture.'

Life's not good for LG after Federal Court orders $160,000 penalty 

The Federal Court has imposed $160,000 in penalties on LG Electronics Australia for making misleading representations to customers about their consumer guarantee rights.

In June 2018 the Federal Court found that LG made misleading representations to two consumers who believed they had purchased faulty televisions. You can read about this decision in our Insight: Clarity on what constitutes a misleading consumer guarantee representation.

In its penalty judgment on 6 September 2019, the Federal Court imposed a penalty of $80,000 per contravention. It considered this appropriate because:

• the contravening representations were made by low-level agents and in violation of LG's internal policies;
• the training and ongoing supervision provided to LG employees was neither inadequate nor flawed to the extent alleged by the ACCC; and
• the contravening representations had little or no impact on the market or other innocent third parties.

The maximum penalty available for each contravention was $1.1 million. The ACCC had sought higher penalties based on LG's financial capacity. This submission was rejected – the Federal Court noting that pecuniary penalties are not to be imposed at a higher rate than is otherwise appropriate just because a company has significant financial resources.

Record penalties against vocational course provider Empower Institute

The Federal Court has ordered record penalties for unconscionable conduct and false or misleading conduct under the Australian Consumer Law (the ACL) against vocational course provider Cornerstone Investments Aust Pty Ltd, trading as Empower Institute.

The Federal Court's judgment on liability was handed down on 19 September 2018. It found that, from June to December 2014, Empower Institute had a system of inducing vulnerable consumers into enrolling in its courses in order to boost its receipts of Commonwealth higher education subsidies. Many of the students were from disadvantaged rural and Indigenous communities, and had little awareness of the courses they were enrolling in or the fees they would incur. The Federal Court found that Empower Institute's systematic targeting of vulnerable persons for its own financial gain amounted to unconscionable conduct under the ACL (see our earlier coverage in our Insight: Federal Court reverses systemic unconscionability finding against vocational education provider.

The penalties ordered on 20 September 2019 include the following:

• $26.5 million in pecuniary penalties, which included $25 million for its systemic unconscionable conduct over the relevant six-month period, plus an additional $1.5 million in relation to the enrolment practices concerning 15 individual students; and
• a $56 million repayment to the Commonwealth for the course subsidies Empower Institute received during the relevant period.

The court's record penalty was based on a number of aggravating factors, including the particularly serious nature of the conduct (which involved duping large numbers of vulnerable consumers), the 'callous indifference' shown by Empower Institute's senior management to the enrolling practices of its recruiters, a lack of ACL compliance training and awareness, and Empower Institute's lack of cooperation during the ACCC's investigation.

ACCC study examines customer loyalty schemes

The ACCC has released its draft report in its market study of customer loyalty schemes.

The ACCC's review has focused on consumer protection, data practices and competition issues in relation to Australia's major customer loyalty schemes. Its draft report has identified concerns with a range of business practices in relation to customer loyalty programs, including:

• providing consumers with limited ability to control data collected about them, including how it is delivered to third-party advertisers;
• loyalty scheme terms that allow the scheme operator to unilaterally change terms, such as reducing the 'earn rate', or the value of points (particularly where customers had already earned significant points); and
• loyalty schemes that allow the expiry of loyalty points without providing adequate warning to consumers about the expiry date.

The ACCC has also identified an imbalance in bargaining power and significant information asymmetries between consumers and loyalty schemes. The ACCC has put loyalty scheme operators on notice that they should improve the transparency of their data practices, and the ability of consumers to control how their data is collected, used and disclosed.

The ACCC's report is also considering the potential anti-competitive impacts of customer loyalty schemes. These potential concerns relate to the perceived ability of scheme operators to 'lock up' customers, raise barriers to entry for competing providers by raising customer switching costs, and reducing price transparency so customers find it hard to compare offers. At this stage, the ACCC has flagged it will consider these issues on a case-by-case basis in enforcement investigations, and merger and authorisation reviews.

The ACCC is seeking comments on the draft report by 3 October 2019. The ACCC expects to release the final report in late 2019.

ACCC clears Elders' proposed acquisition of AIRR Holdings Ltd

The ACCC has indicated it will not oppose the proposed acquisition of rural wholesale buying group Australian Independent Rural Retailers (AIRR) by Elders.

Elders provides a range of rural services, including retailing of rural merchandise, real estate and financial services, through a network of approximately 450 sites across Australia. It supplies its own rural merchandise stores. AIRR is a wholesaler of rural merchandise to independent retailers and a small number of its own retail sites.

The ACCC focused on the competitive impacts of the proposed acquisition on the wholesale and retail supply of rural merchandise. It found there is little direct competition between the parties, as their activities do not overlap significantly. The ACCC also considered whether Elders' increased vertical integration might negatively impact independent rural merchandise retailers, as Elders could preference its own retail sites when supplying wholesale goods. It found this would not be a significant concern, however, as independent retailers would continue to be able to compete effectively by sourcing products from other suppliers.