In his annual CEDA address, Chairman Rod Sims announces the ACCC’s compliance and enforcement priorities. Mr Sims outlines several new priorities and some continuing areas of focus in protecting consumers and small businesses. He also discusses key competition cases as well as the ACCC's approach to advocacy and market studies.
Check against delivery
Thanks very much to CEDA for holding this event, and for your attendance.
CEDA was, of course, formed in 1960 by Sir Douglas Copland, one of Australia’s foremost economists. I studied economics at the University of Melbourne, usually sitting in the Copland lecture theatre.
We always need to remember that economics is not a science. While it has produced many brilliant analytical insights, it does not, I would argue, produce universal truths.
The analytical insights are very many. From the ideas of comparative advantage and economic rent that we associate with David Ricardo; to the notions of general equilibrium and opportunity cost, which we often link to Leon Walras; to consumer surplus and the elasticity of demand, which we largely attribute to Alfred Marshall, to name a very few.
The prevailing central beliefs in economics, however, have and will constantly change. This is, first, because economists are always trying to make sense of the world immediately around them, which constantly changes. Second, of course, they bring their own particular interest and philosophy to bear; or, as Joseph Schumpeter famously said;
“the way in which we see things can hardly be distinguished from the way in which we wish to see them.”
For at least 200 years prior to Adam Smith mercantilist theories dominated. These theories favoured a strong interventionist nation state that would facilitate exports and limit imports, to the benefit of the merchants who usually dominated debate.
Adam Smith was first a philosopher who believed in a natural order of things, and instinctively disliked human intervention. His belief in the “invisible hand” was both a statement of philosophy and a reaction against the state-sanctioned monopolists favoured by the mercantilists.
Keynes, of course, saw the great depression and revolutionised economic thinking by rejecting the assumption of classical economics that the economy would naturally produce full employment. His work drastically changed perspectives on the role and responsibility of government.
Post World War II the role of government exploded. This, plus problems such as stagflation, saw a reaction, first through Milton Friedman’s strict monetary rules, and then from those using the theory of rational expectations, to argue against most government interventions.
How recent theories survive against Alan Greenspan’s admission, in relation to the recent global financial crisis, that he made a mistake in presuming that the self-interest of banks would see them protect themselves, only time will tell.
All this leads to one of the great economist jokes; great because it is funny, but also because it contains an element of truth.
A man returns to his old university and spots his economics professor, and they discuss current teaching. When shown the current economics exam paper the man exclaims; “but that’s the same exam paper I sat; don’t you realise students pass these onto the next year’s students?” “Of course” said his wise professor, “but in economics we change the answers.”
We do the same at the Australian Competition and Consumer Commission (ACCC). While keeping a common purpose, as set down in our Act, “to enhance the welfare of Australians by promoting competition and fair trading”, each year we reset our priorities.
And each year I announce these at the first CEDA event of the year, which I happily do again today.
As with economic theories, our priorities change with circumstances and the observations and value judgments of the Commission.
Consumer & Small Business
The case for regularly reviewing our consumer protection priorities is strongest; our consumer laws are quite broad, new consumer problems emerge and old practices can re-surface.
We also receive between 160,000 and 200,000 contacts per year, which means we need filters to help us direct our resources.
To assist with this process we publish a Compliance and Enforcement Policy.
Each year we review the policy seeking input from consumer groups, industry ombudsmen, other regulators and many others. This year was our first in making the survey available for public comment.
The 2016 policy, which I am pleased to launch today, lists the factors we take into consideration in deciding on whether to take action and sets out our priority areas.
This year, we have elevated Indigenous consumer protection to an enduring priority.
This is a significant change to our policy recognising that Indigenous consumers, particularly those living in remote areas, continue to face challenges in asserting their consumer rights. The elevation means that the ACCC will always prioritise its work in these areas while these challenges remain.
Unfortunately, Indigenous consumers continue to face some of the most outrageous selling tactics.
In the past year or so, we have taken action against businesses selling training courses, portrait photography, first aid kits and tax return services.
We will continue our successful Your Rights Mob project, which helps inform Indigenous consumers about their rights through social media and community visits.
Through the project, and this is fundamental, we are building partnerships with Indigenous communities and other support agencies to detect more breaches of the law at an earlier stage.
Vulnerable and disadvantaged consumers
The ACCC will also continue to prioritise our activities to protect both older consumers and consumers who are newly arrived in Australia. In the past year, we have been working with the senior sector to get a better understanding of the consumer law issues affecting older Australians.
This culminated with our Consumer Consultative Committee hosting an Older Consumer Workshop in July last year.
We also have several other activities: for example, we are looking into potential issues relating to the sale of hearing aids by audiology clinics.
Recently, we took action to ensure a South Australian retirement village does not mislead residents about their right to choose a telecommunications service provider.
This month, two retailers of adjustable beds paid $20,400 in penalties for what the ACCC believed to be misleading claims about their adjustable beds and associated mobility equipment.
Our court case against Clinica Internationale Pty Ltd is a good illustration of the work we are doing to protect new consumers to Australia.
We alleged Clinica made false or misleading representations and engaged in unconscionable conduct in offering a cleaning job program.
We also alleged that new migrants paid significant sums of money on a misleading promise that they would be provided with sponsors and regional jobs, which would lead to permanent residency.
The Federal Court has delivered its judgment and indicated the orders it is proposing include significant penalties against the corporation and the operator, refunds and banning orders together with other protections for affected consumers.
In its judgment, the court stated that:
“The scheme took advantage of the vulnerable nature of the prospective clients, and their desperation to secure employment as a pathway to a visa, surpassed only by their desire for a visa. Clinica, and Mr Laski, promised them these things, in conduct which was calculated and systematic.”
Consumer product safety
Product safety is another enduring priority.
We prioritise product safety issues that have the potential to cause serious harm to consumers.
We recently received judgment in our action against Woolworths Ltd, where they were ordered to pay over $3 million in penalties for breaches of the ACL relating to safety issues. This judgment should send a warning to companies that they must do more to detect unsafe products and remove them from their shelves.
Like the economic theory noted in my introduction, our enforcement approach can be flexible and can evolve; in this case tackling a product safety concern through the general consumer protection provisions.
As with the past year, we will be looking to highlight the dangers of button batteries, quad bikes and Infinity cables.
I am often asked about timelines for mergers reviews and court cases, but no timeline is as important as the deadline for Infinity cables.
Experts predict that the insulation surrounding the cable will start to become brittle in 2016.
This could lead to electric shock or fires. We and our state colleagues will continue our efforts to get this cable removed from homes.
This year we will be returning to our efforts to crackdown on representations made by big business about express or extended warranties. This has been a focus in past years and its re-emergence as a priority reflects the important foundation consumer guarantees play in consumer protection.
If a product is faulty, you have rights under the Australian Consumer Law to a repair, replacement or, if there is a major failure, a refund.
These rights apply automatically and they apply for a reasonable time depending on the nature of the goods or services.
This means the law may protect you beyond the manufacturer’s warranty period, without the purchase of an extended warranty.
Large companies should avoid misleading consumers into paying for extra protections they already have under the law. Blunt misstatements of consumer rights (eg no refund statements) and blanket refusals to consider warranty claims after the expiry of a manufacturer’s warranty without considering the application of the consumer law will attract our attention. We have already taken important action.
There was the outcome against Fisher & Paykel; our first case alleging misleading representations about consumer guarantees in the context of businesses offering extended warranties.
We are currently in court with LG Electronics Australia Pty Ltd.
Separately, we welcomed undertakings volunteered by WFI Insurance Limited (trading as Lumley Retail Warranty) to improve their brochures offering extended warranties on behalf of retailers and to undertake important compliance training to retailers. They will also be implementing a program for monitoring retailer customer care plan selling practices, including mystery shopping. We are already approaching other extended warranty underwriters to adopt similar measures.
New car retailing
On the back of our Fiat Chrysler Australia (Jeep) investigation, we are calling on vehicle manufacturers and new car retailers to invest in aftersales care.
The consumer guarantees provide that vehicles will be fit for purpose, free from defects and as durable as a reasonable consumer would expect.
If a vehicle fails these guarantees, a consumer will have rights against the supplier and in some cases the manufacturer, who will have to provide a remedy. As mentioned earlier, these rights are not limited by a manufacturer’s warranty and blanket refusals to consider warranty claims after the expiry of a manufacturer’s warranty or solely through the strict conditions of those warranties will be of concern to us.
We will also be shortly concluding our important investigation into emission issues involving VW.
Competition and consumer issues in the health and medical sector remain a priority in 2016.
We are looking to build on some of our successful interventions in the past year involving:
- exclusive dealing conduct that was likely to have an anti-competitive effect on the supply of day surgery services in Wagga Wagga
- unconscionable conduct in promoting and supplying medical services and medications for men suffering from sexual dysfunction, and
- misleading conduct in claiming that pain relief products were each formulated to treat a specific type of pain, when the Nurofen products are identical.
This year, we will follow up on our 2015 report on the private health insurance industry to address concerns about incomplete policy information that are not only confusing but also misleading.
For example, in December, following an investigation, Calvary Bruce Private Hospital (in Canberra) agreed to provide patients with more information about potential out-of-pocket costs.
We also have some important investigations well under way in particular areas.
First, health service providers need to ensure their disclosure practices are in line with the Australian Consumer Law; we will likely take some action in this area shortly.
Second, we have focussed on misleading health claims in relation to certain food products, and have some well-advanced investigations in this area.
Complaints about scams continue to pour in.
Last year we received more than 105,000 scam related contacts, with relationship scams causing the most havoc.
There are two parts to our response.
First, we are providing consumers with information via our Australasian Consumer Fraud Taskforce campaign and our Scamwatch website.
Second, we are attempting to disrupt relationship scams by writing to people who are sending money to overseas scams hot spots. We are having many successes with this.
This year’s policy makes it clear that we are more likely to take enforcement action against larger companies ahead of smaller businesses.
We think this approach is appropriate for two reasons.
First, misconduct by larger companies is likely to cause greater consumer harm given their greater volume and reach.
Second, larger companies are often seen as benchmarks for behaviour and compliance and accordingly have a disproportionate influence on market place behaviour. Addressing poor behaviour at these levels is important to send clear messages to the market.
In addition, we have two priority areas aimed squarely at protecting small firms;
- Unfair contract terms, and
- Industry Codes of Conduct.
Unfair contract terms small business
In November this year, new laws protecting small businesses from unfair terms in standard form contracts take effect.
This is good news for small firms who are offered on average about eight standard form or ‘take it or leave it’ contracts a year.
Our priority in this area involves laying the groundwork for the new laws and ensuring small business owners know where they stand.
‘Concentrated industries’ have been a priority for the ACCC in the past few years.
We are shifting our focus.
In the area of supermarkets and their dealings with suppliers, we achieved a landmark judgment and outcome in the Coles unconscionable conduct case and our ‘mind the gap’ case against Woolworths is before the Federal Court.
We are moving our focus to the Food and Grocery Code of Conduct.
We will take enforcement action whenever needed to ensure the Code succeeds.
Indeed, we have decided to make industry codes of conduct a wider priority also including the Franchising Code of Conduct and the revised Horticulture Code of Conduct.
In the area of competition law, we will continue to take a strong line on:
- cartel conduct
- anti-competitive conduct and practices, and
- where we can, misuse of market power.
Detecting and deterring cartel conduct continues to be a major focus for the ACCC, not to mention our international counterparts.
We have around 20 cartel investigations under way at any one time and we expect one or two criminal prosecutions this year and some other important civil proceedings.
Later this year the Court will also hear an application for a penalty against Yazaki Corporation after finding a contravention in the automotive wire-harness cartel case.
The Full Court of the Federal Court will determine our appeal in the Garuda and Air New Zealand air cargo matters.
We were disappointed that the Court did not find a contravention of the law by the parties in the recent Australian Egg Corporation case. The Court did find that the parties were trying to have egg producers cull their stock of chickens. We took the case because of our concern that prices of eggs to consumers would inevitably increase in the face of reduced supply. We are considering our options, which of course include the possibility of an appeal.
Before the Court, we also have the alleged laundry powder case, involving Colgate and Cussons. That is listed for a very lengthy trial in the middle of this year.
In general, we also think there is still more work to do in the area of government procurement.
For example, last year, we took court action alleging cartel conduct in the NSW Government’s Mount Penny coal exploration licence tender process. That case has been listed for a Federal Court trial this year.
Anti-competitive conduct and practices
With around 20 investigations, we continue to place priority on conduct and practices that are likely to substantially lessen competition in a market.
Late last year, we concluded our case against several petrol retailers and Informed Sources(Australia) Pty Ltd in relation to the petrol price information exchange service operated by Informed Sources.
The petrol retailers that subscribed to the service included:
- BP Australia Pty Ltd
- Caltex Australia Petroleum Pty Ltd
- Woolworths Ltd, and
- 7-Eleven Stores Pty Ltd.
We welcome and appreciate the decision of Informed Sources and the petrol retailers to make the pricing information available to consumers at the same time the retailers receive it.
This will help consumers make better and more informed decisions about where and when to buy petrol by helping them identify the best time to buy and the sites with the lowest price.
In 2015, we also concluded our case against VISA and subsidiaries.
The Federal Court ordered an $18 million penalty for exclusive dealing conduct by a VISA subsidiary which imposed a moratorium on direct currency conversion services being used in conjunction with VISA cards.
This year, we also expect some significant penalties.
The Federal Court will determine penalties in the Cement Australia case; we have argued that they should be substantial in order to adequately deter the misconduct found in that case.
In the courts, we also have the alleged secondary boycott case against the CFMEU, although part of that case has been stayed because of a criminal prosecution of two of the union officials involved.
The ACCC may currently have more union-related major investigations on our books than ever before.
Misuse of market power
We also have some in-depth investigations into allegations of misuse of market power.
We are currently awaiting judgment in our appeal in the Pfizer matter, where we have alleged that Pfizer misused its market power and engaged in exclusive dealing conduct for the purpose of substantially lessening competition in relation to its cholesterol lowering products.
Advocacy, market studies & compliance
In my personal view, the ACCC has not done enough competition advocacy and market studies in the past. Promoting competition and pro market reform should not wait for a Hilmer or a Harper review.
We will continue in 2016, for example, to advocate for appropriate regulation of monopoly infrastructure; there is much more debate to be had on this topic that is so important for Australia’s cost structure.
Market studies are also an important part of the mix for the ACCC and other international agencies.
They complement and support our compliance and enforcement activities and regulatory functions.
When a market or sector is not working well the studies help us identify what we or other agencies or government can do to improve the workings of the market.
Publishing this work can help inform consumers, encourage debate and inform our advocacy work, and bring about changes in industry.
I have already mentioned our study into private health insurance.
Competition and consumer issues in the agriculture sector are a new priority and will be a primary focus for our market studies.
The Federal Government’s Agriculture White Paper identified concerns about ‘increasing consolidation beyond the farm gate and unfair trading practices through the agricultural supply chain.’
In 2016, we are planning specific market studies to enhance our understanding of the competitiveness of particular agricultural supply chains.
The market studies will strengthen our ability to make decisions on key issues that affect the sector, and will ‘shine a light’ on problems that may require broader responses.
We have established a dedicated unit and the government will shortly appoint a new Commissioner to the ACCC with responsibility for, and deep knowledge of, agriculture issues.
Petrol market studies
The ACCC is also conducting regional market studies to get to the bottom of why petrol prices are higher in certain regional locations.
Although pricing to achieve very high margins is not against the law, it can be helpful to highlight where competition is inadequate.
Our study of Darwin petrol prices shows the benefits of such transparency.
Our report found two main reasons for the very high petrol prices and profits in Darwin:
- The decrease in independent retail sites, and
- Weak retail competition.
The market study also presented an opportunity to suggest ways to increase transparency and promote competition in the Darwin market.
This year, we will report on petrol prices in Launceston and Armidale.
In April this year we will finish our formal inquiry into Australia's East Coast Gas Market.
Holding the inquiry under Part VIIA of the Act allows the ACCC to use compulsory information gathering powers to cut through some of the opaqueness of the market, and the cloak of confidentiality that has left previous inquiries incomplete.
Publishing our Compliance and Enforcement Policy and announcing our priorities is the start of another exciting year at the ACCC.
Of course, we also have fascinating merger, adjudication, telecommunications, transport, water and many other issues to look forward to.
Throughout 2016, we will also be looking to provide greater transparency about the work we do.
We will seek to improve our explanation of our decisions and set out the factors we considered when deciding to take action.
The power of the profit motive works for the good of society, but only if it works within the boundaries set by our competition and consumer laws, which I am sure Adam Smith would have approved of.
The ACCC’s role is to explain where those boundaries are, both to act as a form of deterrence but also so that the wider community can have faith that a market economy works for them.
Thank you for your time today.
 Australian Competition and Consumer Commission v Clinica Internationale Pty Ltd (No 2)  FCA 62 http://www.austlii.edu.au/au/cases/cth/FCA/2016/62.html