In Touch: ACCC's first enforcement action for an alleged breach of the Electricity Retail Code; Federal Court explores the meaning of 'prepayment'; and other developments

The latest in competition and consumer law 6 min read

ACCC in the ring with Sumo Power over alleged misleading conduct

The ACCC has instituted proceedings in the Federal Court against Sumo Power Pty Ltd (Sumo), alleging Sumo made false or misleading representations to Victorian consumers in relation to its electricity plans.

The ACCC alleges that Sumo enticed consumers to enter into electricity plans with the promise of low electricity rates, while at the same time planning a significant rate increase as part of a predetermined strategy that had not been shared with consumers.

According to the ACCC, between June and November 2018, Sumo promoted 12-month electricity plans with low electricity rates and large 'pay on time' discounts of up to 43% to residential consumers. However, in November 2018, Sumo substantially increased the underlying rates for certain consumers by approximately 30-46%, which also reduced or eliminated the 'pay on time' discount. The ACCC claims Sumo represented to consumers it would maintain, or not materially increase, these low rates and consumers would get the benefit of the 'pay on time' discount for 12 months.

The ACCC also alleges that:

• Sumo misled customers by stating that the price increases were due to wholesale costs as well as climate change 'forcing the closure of cheap coal fired power stations'; and
• Sumo used telemarketing agents who represented that they were calling from an independent energy consultancy and would perform a comparison of electricity plans across a number of retailers, but were in fact employed by Sumo to sell Sumo products. In some cases these agents allegedly told consumers they were 'not calling you from an electricity company'.

ACCC interim report finds Murray–Darling Basin water markets in need of change

The ACCC has released the interim report for its Murray–Darling Water Markets Inquiry.

The ACCC found that the governance, regulatory and operational frameworks supporting the water market have not developed sufficiently to support the significant growth experienced by the industry (now estimated to have an annual value of more than $1.5 billion a year).

Some of the key problems identified by the ACCC include:

• the fact that aspects of the market operate in an unregulated environment, which gives rise to conflicts of interest, the potential for the manipulation of market prices and no designated body to monitor the trading activities of market participants;
• information failures limiting the openness of markets and favouring certain traders; and
• overarching governance arrangements, resulting in regulatory fragmentation and overlapping roles of different governing bodies, which prohibits issues from being addressed in an effective and timely way.

The report states that the ACCC's preliminary view is that there is a need to reconsider governance frameworks to promote open and fair trade across the Basin. The ACCC will consider governance and other options to improve the water trading market ahead of its final report.

The ACCC is seeking feedback on the interim report by 28 August 2020, with a final report due to be provided to the Government by 30 November 2020.

ACCC faces out-of-plan costs: appeal dismissed in TPG 'prepayment' case

On 30 July 2020, the Full Federal Court dismissed the ACCC's appeal against TPG Internet Pty Ltd (TPG) in relation to the marketing and sale of some prepaid plans for internet, home phones and mobiles.

The relevant prepaid plans required customers to make a 'prepayment' of at least $20 for the potential use of services not included in the value of their plan. When the prepayment balance dropped below $10, TPG would automatically top up the prepayment balance to $20. Consumers would forfeit the prepayment balance if they cancelled their plan.

The ACCC argued that by representing this as a 'prepayment', consumers were misled into believing they could use the money they had prepaid for out-of-plan services, when this was not typically possible. The court rejected this argument, finding that the ACCC's case failed primarily because TPG's use of the word 'prepayment' did not convey the terms on which the prepayment would be held and applied by TPG, particularly at the end of the contract.

The court compared the word 'prepayment' with the word 'deposit' which, in and of itself, does not convey whether the deposit will be returned and in what circumstances it will be returned. Similarly, the court held that the use of the word 'prepayment' merely conveyed that a payment in the specified amount was required on sign up, and that it was a payment that would be applied toward services outside or above the plan. The word 'prepayment' was, in itself, silent on how any balance of the prepayment would be treated at the end of the contract.

Locality Planning Energy jolted with first penalty for an alleged breach of the Electricity Retail Code

The ACCC has taken its first enforcement action for an alleged breach of the Electricity Retail Code, with electricity provider Locality Planning Energy Pty Ltd (LPE) paying a $10,500 penalty after being issued with an infringement notice.

The alleged contravention involved LPE publishing an energy plan offer on its website without including:

• a comparison of the offered price and the reference price set by the Government;
• the total amount a customer using an average amount of electricity would pay in a year based on the offered price; and
• the distribution region and type of small customer to which the offer applied.

ACCC Chairman Rod Sims also stated that electricity retailers have had 'plenty of time to ensure they comply with the Code' and that the ACCC would not hesitate to take enforcement action 'against those that fail to do so'.

Customers hampered by Chrisco's lay-by agreements

Chrisco Hampers Australia Limited (Chrisco) has provided a court-enforceable undertaking to the ACCC in which it acknowledges that a term in its lay-by agreements for Christmas hampers and other items, known as a 'HeadStart Plan', may be an unfair contract term. Chrisco also admitted it likely made false or misleading representations to consumers in its promotions about the plan.  

The relevant term allowed Chrisco to continue to take payments by direct debit after the consumer had fully paid for their existing lay-by order, unless consumers expressly opted out. Chrisco has undertaken to require customers to opt in to the HeadStart Plan instead of opting out, and to confirm their participation from year to year. Chrisco will also update its terms and conditions to ensure the operation of this plan is clearly and prominently explained to consumers.

Chrisco has also admitted that some of its promotional emails and text messages were likely to be misleading. The emails and texts offered consumers a credit to be redeemed by clicking on an image, but once consumers clicked on the image, Chrisco signed them up to the HeadStart Plan without seeking their consent or requiring further steps. This included requesting payment or making deductions directly from customers' accounts. Chrisco has given an undertaking that its promotions will now require multiple steps before consumers can agree to create a HeadStart Plan. Chrisco has also agreed to implement a comprehensive consumer compliance program for three years.

This comes after the Federal Court's finding in November 2015 that the HeadStart Plan term contained in Chrisco's 2014 lay-by agreement was an unfair contract term, and that representations that customers could not cancel a lay-by agreement after making their final payment were found to have been misleading (as, under the Australian Consumer Law, consumers have the right to terminate a lay-by agreement at any time before delivery of goods).

Unsporting behaviour: ACCC institutes proceedings against Decathlon's allegedly unsafe sporting goods

The ACCC has instituted proceedings against Decathlon (Australia) Pty Ltd) (Decathlon), alleging it sold sporting and recreation goods that did not comply with product safety standards.

The ACCC alleges that between October 2016 and December 2019, Decathlon offered for sale 14 models of basketball rings and backboards and five models of portable swimming pools, which each failed to carry the required safety labelling, consumer warnings or installation and use instructions. Decathlon sold 500 basketball rings and backboards and nearly 300 portable pools during this period.

The ACCC also alleges that Decathlon made a false or misleading representation that some of the basketball rings and backboards were safe to attach to brickwork, when that was not the case.

These proceedings come after Decathlon recalled 51 different products in December 2019, including those the subject of the proceedings.

The ACCC is seeking penalties, costs and other orders.