In Touch: Rod Sims marks 10th anniversary of the CCA; Full Federal Court clarifies the law on unconscionable conduct; Federal Court affirms $125m penalty against Volkswagen; and other developments

The latest in competition and consumer law 6 min read

Rod Sims marks 10th anniversary of the Competition and Consumer Act 2010, while continuing advocacy for further reform

Marking the 10th anniversary of the Competition and Consumer Act 2010 (CCA), ACCC Chair Rod Sims gave speeches on 3 March 2021 and 22 March where he reflected on the significant outcomes delivered by the introduction of the Australian Consumer Law (ACL), as well as the role of the CCA in Australia's economic recovery from the COVID-19 pandemic. 

Mr Sims called the introduction of the ACL a 'game changer' that heralded a new era in Australian consumer protection by introducing a single national consumer law and civil penalties. He highlighted that:

• in the past 10 years the Federal Court has imposed a total of almost $400 million in civil pecuniary penalties in proceedings instituted by the ACCC (compared to around $5 million in criminal fines obtained for consumer law breaches prior to the introduction of civil penalties with the ACL);
• the ACCC’s power to issue infringement notices has enabled the expeditious resolution of less significant or serious matters without resorting to legal proceedings. The ACCC has issued a total of 281 infringement notices against 140 businesses over the past decade; and
• consumer redress orders (such as refunds and requirements to vary contracts) have been important in facilitating redress for non-party consumers impacted by breaches of the ACL.

Mr Sims also highlighted perceived shortcomings of the CCA and outlined a range of reforms for which the ACCC is currently advocating:

• the introduction of a general prohibition on 'unfair trading practices'. Mr Sims suggested that such a prohibition would remove or avoid the need for some intrusive industry-specific regulation, and help lessen the overall regulatory burden;
• the introduction of a general safety provision to prohibit suppliers from supplying unsafe products;
• reforming Australia's merger control regime. Mr Sims considers that the merger control regime is skewed towards clearance, with insufficient weight placed on the risks to competition; and
• making a failure to comply with the consumer guarantee and unfair contracts provisions of the ACL a contravention and therefore subject to pecuniary penalties.

Full Federal Court clarifies the law on unconscionable conduct

The Full Federal Court has provided important clarification on the circumstances in which conduct will be unconscionable under section 21 of the Australian Consumer Law. See our detailed analysis here. 

Foul play: sporting goods distributor fined for resale price maintenance

On 24 March 2021, the Federal Court ordered B & K Holdings, operating as FE Sports (FE Sports) to pay a penalty of $350,000 after it admitted to engaging in resale price maintenance in over 240 agreements with existing or prospective dealers between February 2017 and June 2019.

The ACCC commenced proceedings against FE Sports in 2018, alleging that the Brisbane-based wholesale cycling goods distributor had:

• made known to prospective dealers that it would not supply those goods unless they were not advertised for sale below the recommended retail price (RRP); and
• actually entered into subsequent agreements with dealers including a term that the dealer would 'under no circumstances' advertise goods for sale below the RRP.

FE Sports reached an agreement with the ACCC prior to the hearing and made joint submissions to the Federal Court, proposing the imposition of various orders including a $350,000 penalty fine, injunctions, corrective letters to affected dealers and a compulsory training and compliance program for employees.

In determining that the proposed orders were appropriate, the Federal Court found that while FE Sports had engaged in serious misconduct that was 'frequent, widespread and occurred over a prolonged period of time', it did not engage in the more serious action of withholding supply from its dealers. Furthermore, the court noted other mitigating factors, including that the Marketing Manager overseeing the agreements in question was no longer employed by FE Sports, and that FE Sports co-operated with the ACCC during the investigation.

In a media release announcing the decision, the ACCC cautioned that this judgment serves as an 'important reminder to manufacturers, wholesalers and distributors, including those based overseas, that it is illegal to require independent retailers to sell goods or services at minimum or set prices'.

ACCC finds unfair contract terms in GrainCorp agreements with small business growers

On 22 March 2021, an ACCC investigation concluded that several terms in GrainCorp's grain warehousing agreements with small business growers were likely to constitute unfair contract terms under the ACL. In light of the ACCC's review, GrainCorp agreed to amend 19 contract terms.

The ACCC was particularly critical of a limitation of liability clause in GrainCorp's contracts which limited GrainCorp's liability on damaged or lost grain to $100,000, even in circumstances where the loss was caused by GrainCorp's own negligent acts or omissions. The ACCC found that the value of grain stored can substantially exceed $100,000 and that it was therefore unfair to limit liability to that amount, as this created an unreasonable imbalance in obligations with the potential to cause substantial financial detriment to small business growers.

GrainCorp agreed to amend this term so that the limitation of liability will not apply for cases of gross negligence, fraud, criminal conduct or wilful misconduct by GrainCorp. It will also increase liability for all other losses to $200,000.

GrainCorp additionally agreed to change several other terms, including its unilateral right to renew or amend terms, limitations to its service performance obligations, and having a broad discretion under the Agreement to deny inspection requests or vary the goods and services it provided to growers.

ACCC Deputy Chair Mick Keogh noted that these amendments would provide greater protections to the rights of small business growers in dealing with a larger company.

Wake-up call: Superfone to pay $300,000 for making unsolicited calls and misleading consumers

The Federal Court has ordered telecommunications reseller Superfone Pty Ltd (Superfone) to pay a penalty of $300,000 for making false and misleading representations and making unsolicited sales calls in breach of the ACL. In addition to the fine, the court also ordered Superfone to contact affected consumers to offer them the opportunity to terminate their contract without paying an exit fee or, if they have terminated their contract and paid an exit fee, to refund those amounts.

The ACCC brought proceedings against Superfone in December 2019, alleging that, between June 2017 and December 2018, telemarketers acting on behalf of Superfone had cold-called over 1,400 consumers to offer them discounted plans on their existing network by signing up to a new contract via Superfone. In June 2020 the court found that Superfone misled consumers by representing that Superfone was affiliated with the consumer's existing provider when this was not the case and that Superfone breached unsolicited sale requirements, including by failing to offer consumers a cooling-off period or inform them about their right to terminate the contracts. The court also noted that Superfone appeared to have targeted vulnerable consumers with less capacity to protect their own rights.

Superfone admitted liability but contested the proposed orders, including the penalty amount. In approving the penalty, the court acknowledged the possibility that the $300,000 fine, coupled with consumer redress orders and costs, may push the company into insolvency. Notwithstanding this, the court ruled that the penalty was appropriate, having regard to the 'predatory dimension' to Superfone's breaches, as well as the need to deter similar conduct by other companies in the telecommunications industry.

ACCC Deputy Chair Delia Rickard stressed the importance of the relevant ACL provisions concerning unsolicited consumer agreements provisions and reiterated that the ACCC would continue to take enforcement action against contraventions of these laws.

Federal Court affirms $125m penalty against Volkswagen

Volkswagen has lost its appeal in the Full Federal Court against a record $125 million penalty imposed by the Federal Court for making false representations about compliance with Australian diesel emissions standards.

Volkswagen had admitted to making false representations about whether vehicles complied with environmental standards when it imported 57,082 Volkswagen-branded cars between 2011 and 2015. When Volkswagen submitted approval applications to the Minister for Infrastructure and Regional Development in order to lawfully import those vehicles, it failed to disclose that the vehicles were fitted with two-mode software. This software caused them to operate in one mode for the purposes of emissions testing and another when being driven (in which mode the vehicles would have breached Australian emissions standards).

Volkswagen and the ACCC had submitted an agreed penalty of $75 million to the Federal Court for its approval, but the Federal Court ordered a much higher penalty of $125 million because it considered that the lower amount was not sufficient to prevent specific and general deterrence in light of the intentional nature of the conduct, the involvement of senior management and the impacts on consumers and the environment.

Volkswagen appealed the penalty, arguing that the Federal Court had not given sufficient weight to its previous compliance track record or the penalties imposed by regulators in other jurisdictions, that it went beyond what was necessary to prevent specific and general deterrence, that it undermined the public policy in promoting predictability in penalty proceedings and that it was manifestly excessive.

The Full Federal Court upheld the Federal Court's $125 million penalty on the basis that it was not excessive and that the original agreed penalty of $75m was not appropriate having regard to the objective seriousness of Volkswagen's conduct, which it regarded as 'extremely grave and serious contraventions of the Consumer law'.