In a wide-ranging address to the Law Council's AGM in Sydney, Chairman Rod Sims outlines the ACCC's priorities. Mr Sims discusses the importance of infrastructure regulation and provides an update on the ACCC's compliance and enforcement activities, including a focus on product safety. He also explains the ACCC's approach to merger reviews and foreshadows changes to the process guidelines and separately the ACCC’s commitment to engaging in the wider Asian region. Mr Sims also pays tribute to the Trade Practices Commission’s first Chairman, Ron Bannerman.
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Tribute to Ron Bannerman
It is a pleasure to be here again. As always, the annual workshop and general meeting presents us with a great opportunity to reflect and share our thoughts with the legal community.
I would like to begin with a tribute to the Trade Practices Commission’s first Chairman, Ron Bannerman, who died two weeks ago at the age of 91.
Ron became Chairman of the Trade Practices Commission (TPC) on its establishment in October 1974 and held the post until his retirement in December 1984. Previously he had been the first and only Commissioner of Trade Practices from 1966 to October 1974.
Before taking on the role of Commissioner, Ron was a senior official within the Attorney General’s Department.
As Commissioner of Trade Practices, Ron had reported on the extensive restrictive practices that were then commonplace in business; he described this as “the web of anti-competitive restriction that lay across Australian industry”. These annual reports created a strong constituency supporting the strengthening of competition and consumer law in Australia which lead to the enactment of the Trade Practices Act (TPA).
Ron considered his greatest achievement as Chairman of the TPC was to lay solid foundations and achieve credibility for competition and fair trading. He described this in an interview published to commemorate 20 years of the TPA. He said that by 1983:
“it was clear that the Act had solid bipartisan and community support, also intellectual underpinning from academics and practising professionals, and its administration was respected in industry. The Act was permanent. It had passed from the stage of exaggerated fears of sudden death for much of industry, and unrealistic expectations of instant heaven from small business and the consumer. It was accepted as being longer term in its major thrusts and being a force for institutional change.”
This is a very insightful quote, and in many ways explains Ron’s success.
Although I did not ever work with Ron I know he was widely regarded as an outstanding lawyer and man of enormous integrity. He was a wise and highly effective leader of the Commission. He oversaw the development of competition and fair trading so that they became intrinsic parts of Australian business culture. As he said they went from “merely being words in a statute to becoming a living institution that is now part of our culture”. It is a great tribute to him that this achievement has endured.
The Australian community is indeed fortunate to have had Ron Bannerman as the early leader in this field.
Over the last week those within the Commission who remember working with Ron have been telling stories about him. His modesty and humility, his gentle demeanour and real interest in the welfare of the staff of the Commission have come through in the stories. I will repeat just one brief anecdote. When his term was about to expire staff wanted to present him with a gift to mark the occasion. Modestly he requested that he only be given a set of the annual reports of the Commission. This was done and from then until now he has been provided with a hand delivery of each of the Commission’s annual reports.
Two years ago I gave my inaugural address to the Law Council as Chairman of the ACCC. It seems like yesterday to me, but it may not to you.
In that speech, in August 2011, I stated my main objective as follows:
“It is that Australians see that a market economy and strong competition works for them, and that they see the ACCC working tirelessly for the long term interests of consumers”
This has not changed.
I also said we would be strategic, take on more cases where the outcome is less certain, we would make full use of the Australian Consumer Law (ACL), and I said that we would communicate clearly what we are doing and why.
In last year’s speech I emphasised our strategic approach, and said we would seek to make more room for competition cases. Today I will:
- Discuss some important regulatory issues before us;
- Explain some interesting propositions put to us in relation to merger assessment, and provide an update on our review of the Merger Process Guidelines;
- Make some observations on compliance and enforcement;
- Update you on the ACCC’s activities in ensuring safe consumer products, and
- Finally, I will discuss the ACCC’s progress in engaging in the wider Asian region.
The ACCC is a multi-sector regulator. In practical terms this means on a daily basis we are working on issues relating to water, communications, wheat ports and rail infrastructure. Our role also extends, as I now fully understand, to fuel monitoring and we also keep a weather eye on airports and the postal service. We are also open to whatever else might come up through the National Access Regime.
Indeed, there is a sound argument for including “Infrastructure regulation” in our name, except that our acronym would then be unwieldy and resemble that of some Commonwealth Government departments.
What can make our current title work, however, is that our infrastructure regulation role is much concerned with facilitating competition, in upstream or downstream markets, and our regulatory objective is in essence to work in the long term interests of consumers or end users. In any event, the efficiency objective in regulation is in the long term interests of end users or consumers.
There are fundamental economic principles common to regulation which means there are benefits in using our experience in one sector and applying and adapting it to another. It is an advantage that was anticipated in the Hilmer report 1993.
For the rest of 2013, there are several important regulatory tasks before us.
Regulating the NBN
The NBN will be a wholesale only network, so regulation is less complicated than the previous experience with the vertically integrated Telstra. But it will still be a monopoly, with the usual incentives of all monopolies to raise price or offer inadequate service quality.
Also, as the NBN will be a new build, the standard approaches to regulation are not readily applicable. So we have been grappling with the details of how to balance, on the one hand, the long term interests of consumers in reasonably priced services, and on the other, NBN Co’s legitimate interests in recovering its costs. All the while, of course, aiming to maintain incentives for NBN Co to undertake its major construction task in the most efficient way possible within its policy mandate.
These are the types of issues that the ACCC has been working through with NBN Co and the access seekers to further refine and respond to proposed amendments to NBN’s Special Access Undertaking (SAU). Ultimately, the ACCC wants the SAU to deliver a framework for the regulation of NBN Co services that allows for vigorous retail competition, while providing sufficient certainty to NBN Co that it will be able to recover the prudent costs of its investment, subject, of course, to demand for its services meeting expectations.
Fixed Services Review – reviewing the regulation of Telstra’s copper network
The Fixed Services Review will involve the review of access regulation for fixed line telecommunication services. It includes a declaration inquiry (which services should be declared?) as well as an inquiry regarding the appropriate terms and conditions to be included in final access determinations.
It will be a tremendously important review.
There have been significant changes in the telecommunications industry, including those relating to the NBN, since the last review in 2009. The review will consider what these changes are likely to mean for the future of fixed line service regulation. A separate but related inquiry reviewing regulation of transmission services is also to occur, so we will have a unique opportunity to consider essentially all regulated non-NBN services at the same time. This will, for example, ensure there is no double counting of costs.
Water pricing determinations
The NSW State Water Corporation pricing determination relates to water charges for 2014 – 2017 for eight valleys and one water supply scheme serviced by State Water within the Murray Darling Basin (MDB).
State Water’s bulk water supply charges in the MDB were previously regulated by the NSW Independent Pricing and Regulatory Tribunal (IPART) and this is the first water price review undertaken by the ACCC.
State Water is proposing to change its tariff structure and price control mechanism with the proposed aim of mitigating the risk of revenue volatility whilst minimising price shocks on customers where possible. This is an extremely difficult balance.
The ACCC will test the proposed tariff structure under the Water Charge (Infrastructure) Rules and having regard to the water charging principles and objectives in the Water Act 2007.
The development of a mandatory code for wheat ports
After Australia’s wheat export markets were liberalised in 2008, Australian policy makers decided that vertically–integrated wheat port operators should be required to provide access to competing exporters. This was a logical approach.
Access undertakings to the ACCC were considered to be the best mechanism to use to achieve this goal. Current regulation involves the assessment and compliance monitoring of access undertakings accepted by the ACCC from four port terminal operators.
The ACCC also assesses variations to the undertakings, as well as examining proposed changes to the port terminal rules under which port terminal operators allocate scarce port terminal capacity. However, regulation in this area is currently undergoing significant change. From October 2014, access to port terminal services for bulk wheat export is expected to be governed by a mandatory code of conduct, to be enforced by the ACCC.
The ACCC is currently involved in the development of this code of conduct, with Department of Agriculture, Fisheries and Forestry and Treasury, with input from the industry representatives from port operators, exporters and producer groups on the Code Development Advisory Committee.
The key issue is to ensure an effective code that can achieve the objectives of the previous undertaking regime.
Rail access undertakings
The ACCC assesses proposed third party access undertakings, monitors compliance with accepted undertakings and may arbitrate access disputes in relation to rail infrastructure.
Currently this involves assessing Australian Rail Track Corporation’s (ARTC’s) compliance with access undertakings for the Hunter Valley rail network in NSW and for the national interstate rail network.
The ACCC is currently assessing a variation to incorporate track used by coal producers in the Gunnedah Basin into the Hunter Valley access undertaking. The ACCC is also involved in discussions regarding access to proposed new rail infrastructure projects in places such as the Pilbara region of Western Australia.
Approach to merger reviews and the ACCC’s process guidelines
Having been involved first hand in informal merger assessments at the ACCC for almost two years now, I consider that merger policy in Australia works very well on the whole.
However, I expect that this view is not always shared by some of you in the audience, particularly when the merger you are representing is not one of the significant majority of matters that are cleared relatively easily by the ACCC.
There are some of you who may think that we are too tough on mergers in Australia, particularly when it relates to a matter that doesn’t get clearance as expected or doesn’t get it as easily as expected. We see a certain degree of frustration from legal representatives at times which is not always helpful but nevertheless is understandable.
I ask that legal representatives in this position take a step back and recognise the ACCC’s perspective, and the possibility that your arguments may not be sufficient to address the competition concerns.
It is interesting to note that while you may think we are being too hard, we are seeing our United States or European Union counterparts raising concerns with a ‘6 to 5’ or ‘5 to 4’ mergers, while the ACCC will more commonly identify concerns with a ‘4 to 3’ or ‘3 to 2’ merger, subject most importantly to other merger factors such as barriers to entry and import competition.
The issues raised by mergers are, of course, often complex, and tend to manifest themselves in various shades of grey rather than black and white. This can lead to some unusual arguments that merger parties put to us. For example:
- In some matters, when we are trying to establish the appropriate counterfactual, an argument will be made that the ACCC must credibly establish the existence of an alternative potential buyer, and also one who will pay as much as what the target has been offered. If we are unable to point to the existence of such a party, then it is said that we must accept the vendor’s argument that there may be no alternative purchasers, when in fact there are a number of other interested buyers, but it just comes down to the question of price. It is often the case that parties with the most to gain in terms of market power will generally be prepared to pay a premium. In any event, where the fundamentals of the target business are broadly sound, it is enough to conclude that the target may continue in the market as a separate player either under its current owners or otherwise.
- In other matters, merger parties incorrectly expect the ACCC to be satisfied that the merged firm will have a specific intention to engage in tacit coordination with competitors if the acquisition proceeds, in order for us to oppose a merger based on the likelihood of coordinated conduct. This reflects a misunderstanding of the section 50 test, and the relevance of the potential for coordinated conduct. Some mergers create market conditions that are more conducive to coordinated conduct by reducing the number of firms among which to coordinate, by removing or weakening competitive constraints or by altering certain market conditions that make coordination more likely. Where, as a matter of commercial logic, the risk of coordinated effects is significantly increased, this will be an issue which we will need to give close consideration. The ACCC’s approach to coordinated effects is also consistent with that taken by regulators in other jurisdictions.
There is a more general point here. Our main focus will be on a real world understanding of market structure and import competition, entry barriers, countervailing power and the overall competition process.
We will focus on commercial incentives and what drives companies operating in the real world, rather than on complex theories and detailed modelling where the results are driven from some clear and some not so clear assumptions. The latter can be useful tools, but they will usually not determine the competition assessment.
From my experience, the gains from industry consolidation are often the prime driver of an acquisition. This is because the vendor is likely to achieve the best price when they sell the firm to their nearest competitor, who is willing to pay the highest premium for increased market power and reduced competition.
Another issue has recently arisen. It is the clear tension between the timeliness of merger decisions and the desire of the merger parties for a detailed engagement with the ACCC.
We have had a number of recent acquisitions where we were ready to state our views publicly fairly early. Since those views were not to the satisfaction of the merger parties, they continually sought more time to put additional arguments and information to us to persuade us to change our views.
In relation to some mergers, our view that the ACCC should oppose the transaction based on a likely SLC did not change, and we were then criticised for taking so long to make a decision, sometimes by the very parties that sought more time. This is an important issue for the ACCC, which we are reflecting on.
This point is a great segue to a discussion of our Merger Process Guidelines.
Merger Process Guidelines
Given that we last undertook a substantive review of the Process Guidelines in 2006, it is not surprising that after 7 years some aspects of the Guidelines no longer accurately reflect the way that the ACCC conducts informal merger reviews in 2013. We have been working diligently in the past months to update the Merger Process Guidelines.
While we are not quite there yet, we are close to finalising the revised Process Guidelines. We are extremely grateful for the thoughtful input provided by members of the Law Council throughout our public consultation on the Guidelines.
As a result, the revised Process Guidelines will not only align more closely with the ACCC’s current approach to assessing informal merger applications but also introduce a number of improvements which will facilitate even greater transparency and public understanding of the ACCC’s processes. I want to take the opportunity today to outline some of the key features.
One of the key changes introduced in this set of revisions is to move away from the practice of setting a standard 6 to 8 week review period for all public reviews at the outset of a review.
While we will still endeavour to complete the majority of merger reviews within the 8 week timeframe, there are necessarily some merger reviews which are highly contentious, whether because of the complexity of the industry or because of the likely competition issues, and therefore will warrant a closer examination. Realistically, dealing with such reviews will often take longer than 8 weeks and we think it is better to make this clear at the outset, rather than create expectations that cannot or are unlikely to be met.
The proposed Process Guidelines would also clearly spell out that the initial decision date published by the ACCC is a ‘provisional’ decision date. Following market inquiries and once the ACCC has a better understanding of the scope of the issues involved in the review, the ACCC will put in place a new ‘proposed’ decision date.
These changes are not a ‘back-door’ way for us to take longer to assess merger applications. Indeed, they will not affect timing.
Instead, they are intended to provide merger parties and the public with more meaningful information about the likely timing of the review by setting more realistic timeframes where it is clear from the beginning that a review will take longer than 8 weeks. We think it is of no service to anyone to set an arbitrary review period that applies to all merger transactions regardless of complexity.
The Process Guidelines also now describe the process by which the ACCC provides merger parties, in writing, details of any relevant issues or concerns raised during market inquiries as well as any preliminary views which have been reached about those issues or concerns. This has been our practice for some time now. This feedback may be provided following initial market inquiries as well as after the market consultation following a Statement of Issues.
Merger parties then have the opportunity to provide submissions in response to the concerns raised. This promotes fairness and transparency, and ensures that the merger parties are fully informed about the key issues raised by the market that the ACCC will take into account in its assessment.
The Process Guidelines also helpfully revise the list of information the ACCC expects to receive at the start of a review to enable reviews to commence expeditiously. Also, in recognition of the ACCC’s scaled approach to information requirements, the Guidelines clarify that the ACCC may request information from the merger parties or third parties at any time during a public review.
Public Competition Assessments
Public Competition Assessments (PCAs) is a topic which has generated some recent interest from the Law Council. We welcome this and have responded accordingly.
The process of publishing PCAs began following the Dawson Committee’s 2003 report and criticisms about the lack of transparency of the ACCC’s processes and decision-making. Since that time, the ACCC has published PCAs for certain categories of decision in order to provide guidance to the public about the ACCC’s reasons for its merger decisions and insight into its analysis of the competition issues.
Consistent with its previous approach, the ACCC will generally publish a PCA where a merger is opposed; where we accept undertakings; at the request of the merger parties or where a merger is cleared but raises important issues that the ACCC considers should be made public.
I acknowledge the Law Council’s concerns that, in recent times, we have taken longer to publish PCAs than previously. In response, we have undertaken steps internally to streamline our processes for preparing PCAs.
The ACCC will in future generally aim to publish PCAs within 30 business days after announcing its final decision. In addition, the ACCC has taken on board the Law Council’s comments and the Guidelines will clarify that the ACCC will publish a PCA even if a merger becomes the subject of litigation noting however that, in these circumstances, the ACCC’s publication of a PCA may be delayed.
While I note the Law Council’s comments that issuing PCAs accords procedural fairness, as I have just mentioned we now incorporate a number of stages into the informal review process which provide merger parties with the desired level of transparency.
Our letters to the merger parties outlining feedback from market inquiries is often an important element in our consideration as we are able to identify weaknesses and inconsistencies in, or support for, the merger parties’ submissions and their own internal documents. Yet due to the confidential nature of that feedback, it would not be included in a PCA.
In the early years following the Dawson Committee’s recommendations, the ACCC saw a greater need to publish PCAs in the interests of providing the public with a clearer understanding of the ACCC’s approach to merger reviews. Over the subsequent years, PCAs have been published in many matters and we now have established a considerable body of public reasons for decision. As a result, the ACCC now carefully weighs up the utility of publishing more PCAs in mergers which are not opposed with other priorities. I note however that this is unlikely to have much impact in practice as most mergers which generate a significant degree of public interest are likely to fall within the ‘oppose’ or ‘acceptance of undertaking’ categories for which we will publish a PCA.
Nevertheless, the ACCC is giving thought to providing more detailed public register entries for some cleared mergers. In some of these matters the ACCC may decide that a PCA is not warranted but that the public would benefit from additional detail on the ACCC’s approach and reasons for its decision. This may be the case where a Statement of Issues has previously been published or if a matter raises analytical or competition issues which warrant a longer public register entry.
With the growth in global commerce, and given that parties in international mergers often focus their efforts on the larger jurisdictions where the parent companies are located and notification is mandatory, our ability to liaise closely with international regulators is an important part of our merger review process.
The Process Guidelines will clarify that, in some instances, we may delay our decision pending discussion with overseas agencies.
In other cases, where the merger review raises issues of a global nature but does not raise particular competition issues that are unique to Australia, the ACCC’s review may be adjusted to coordinate with the timing of reviews by overseas agencies. This will allow the ACCC to take into account relevant information from overseas reviews.
There are significant benefits to be gained from international convergence and cooperation in merger analysis on a global level, both in terms of substantive issues and investigative techniques. To this end, the ACCC is an active participant in various forums which work towards convergence in international merger review, particularly the International Competition Network’s (ICN) Merger Working Group.
Coordination with overseas regulators is especially important where remedies are being considered for global transactions. Even if undertakings have been offered to an overseas competition regulator, the ACCC will generally require that undertakings are also provided to the ACCC to ensure that they address the competition issues in Australia and so that the ACCC has the ability to enforce them.
While the ACCC will undertake its own independent assessment of the remedy to ensure that it addresses the specific competition concerns which may arise in Australia, it will work closely with international regulators to ensure that a consistent approach is adopted so that the remedies also work in harmony from a global perspective to address the competition issues. This is particularly the case in relation to divestiture remedies where the ACCC will look to ensure that the purchaser of any global assets is likely to replace the competition lost in Australia as a result of the merger.
Another recommendation implemented following the Dawson Committee’s 2003 report is that all applications for authorisation of mergers on public benefit grounds be made directly to the Australian Competition Tribunal. The rationale for moving this function away from the ACCC was that direct application to the Tribunal would reduce the time taken in assessing merger authorisations as it would cut out the preliminary stage of an ACCC review.
As you are all aware, since this change came into effect, no merger parties have applied for authorisation by the Tribunal. It appears that this alternative avenue for mergers raising competition concerns with potentially offsetting public benefits may no longer be an attractive option.
The last merger authorised by the ACCC is a good example of the advantages of merger authorisation. The matter involved the proposed acquisition of St Vincent’s Hospital in Launceston by the Little Company of Mary Health Care in 2004. While the proposed merger was a ‘2 to 1’, authorisation was granted to the merger parties by the ACCC subject to a section 87B undertaking on the basis that the public benefits arising from the merger, being primarily cost savings, outweighed the public detriment which would arise from the loss of competitive tension. The review, while occurring over the Christmas holiday period, was completed within three months.
Compliance and enforcement
It is fair to say that the ACCC has enjoyed a high level of success before the courts. Indeed, we now seem to be winning around 80 per cent of the cases we take.
I have gone on the record saying that a 100 per cent is too high as it inevitably means we are not taking the more complex cases to court.
One case where the court did not agree with our arguments was the Lux case brought in the Federal Court last year.
The ACCC alleged that Lux had engaged in unconscionable conduct in relation to the sale of vacuum cleaners to five elderly women in their homes and, although that application was dismissed by the trial judge, we are certain that the case was one that needed to be brought. The ACCC has appealed this decision, and the appeal was heard last week by the Full Court comprising the Chief Justice and Justices Jacobson and Gordon.
Unconscionable conduct cases are notoriously difficult since they inevitably involve a value judgement, but we also prioritise them highly due to the intrinsically deplorable behaviour which is the basis for these cases. We think that trying to prevent unconscionable behaviour is one of our most important roles.
We will lose some more big cases, but we must be willing to take these cases on and, when we do lose, be glad for the clarity gained and the lessons learned.
This does not mean that we will take on a host of marginal cases in some sort of game of chance. This does not mean that we will turn companies—that are on the other end of these cases—into guinea pigs. After all, as a Commonwealth agency, we recognise our obligation to act as a model litigant, including the requirement to obtain reasonable grounds advice before commencing proceedings.
What this does mean is that we will back our judgement and that we are not intimidated by ‘losing’ a case – for example, we have issued several new proceedings alleging unconscionable conduct since we lost the Lux case at first instance. We are not attached to our win/loss ratio, and we won’t back away from the big companies for fear of losing. Our record this year speaks to that.
Consumer protection and fair trading
When it comes to consumer protection, strong enforcement by the ACCC is very important.
By taking action in cases where we believe there is significant detriment, we make it clear where the boundaries are and what the consequences are for crossing the line.
Over time companies will take our warnings on problematic behaviour even more seriously if we say what we will do, and then do what we say.
Our work, of course, has been made much more effective by the introduction of the Australian Consumer Law.
We now have sanctions such as $1.1 million civil pecuniary penalties and banning orders, as well as the flexibility of infringement notices. We have used these powers in a number of high profile consumer matters.
In the past two years, the courts have ordered pecuniary penalties in 33 cases, with penalties totaling almost $22 million.
Penalties in the order of a million dollars or more have been obtained in ten matters including:
- Apple Pty Limited for misleading 'iPad with WiFi + 4G' claims ($2.25 million)
- Optus for misleading advertising of its internet broadband plans ($3.61 million)
- Cotton On Kids Pty Ltd for selling unsafe children's nightware ($1 million), and
- Harvey Norman Holding Ltd in relation to its catalogue advertising and 3D TV promotions ($1.25 million).
To date, more than 100 infringement notices have been issued, some comprising multiple notices to a single company reflecting a range of contraventions, with over $620,000 in penalties paid.
I think it is evident that these penalty levels are improving compliance with the ACL. This is a KPI we set ourselves, and it is being met.
I have now, therefore, set a new KPI. It is that all of you, in future, describe yourselves as the competition and CONSUMER lawyers!
We will see how this goes.
It is worth commenting on some specific consumer issues.
On the energy side, we have encouraged energy retailers to address what was, in our view, reprehensible treatment of consumers by many involved in door to door sales.
The next area of focus in the energy sector is misleading discount claims. The ACCC is increasingly concerned about possible misleading conduct by energy retailers in their promotion of energy plans. These concerns relate to the promotion of discounts and savings off energy use and/or supply charges under those plans.
We refer to this new focus of our energy work as “discounts off what?”
To commence this stream of work, the ACCC will be writing to energy retailers to put them on notice about our concerns. No one should be surprised that the ACCC will take a firm approach where it forms the view that “saving” representations are likely to mislead consumers.
On another matter, following our consumer guarantees compliance campaign, we have now moved to enforcement.
We achieved an important result in July this year when the Federal Court ordered Hewlett-Packard Australia to pay a $3 million civil pecuniary penalty for making false or misleading representations to customers and retailers about their consumer guarantee rights.
The court found, by consent, that Hewlett-Packard made a number of misrepresentations which included, among other things, that the remedies available to consumers were limited to those available at Hewlett-Packard’s discretion, and that the warranty period for Hewlett-Packard’s products was limited to a specified express warranty period.
New to our priorities this year is an interest in credence claims, particularly those in the food industry, which have the potential to have a significant effect on consumers and importantly, the competitive process.
Consumers are increasingly placing weight on premium claims made by producers. Consumers are not in a position to fact check every claim and are in the hands of the producer who makes claims about their goods or services.
On the competition side, businesses should be able to compete on their merits. Misleading credence claims tilt the playing field away from suppliers who are doing the right thing. In other words, a supplier may lose their competitive advantage or unique selling point if others are making misleading claims.
We have tackled alleged misrepresentations in the labelling of extra virgin olive oil and taken on country (or region) of origin claims from sheepskins to meat.
Another example of our work in the credence claim field are the proceedings recently commenced against Coles in relation to its claims about partially baked bread. The ACCC has alleged false, misleading and deceptive conduct in the promotion of bread that was partially baked and frozen off site, transported to Coles stores and ‘finished’ in-store. These products were promoted as ‘Baked Today, Sold Today’ and/or ‘Freshly Baked In-Store’ at Coles stores with in-house bakeries. Coles is defending these proceedings.
As well as potentially misleading consumers, the ACCC considers that such representations may have a detrimental impact on competitors, often smaller franchised bakeries.
Also, in May 2012, the Big Olive Company paid two infringement notices for selling two types of “Oz Olio” extra virgin olive oil (Extra Virgin Olive Oil) products for which testing indicated were not Extra Virgin Olive Oil at the time of bottling.
Last month, the ACCC took court action against one of Australia’s largest online group buying sites, Scoopon. We are alleging it engaged in misleading and deceptive conduct and made false and misleading representations to both businesses and consumers.
The ACCC alleges that Scoopon misled consumers regarding their ability to redeem vouchers, their refund rights, and the price of goods advertised in relation to some of its deals.
The ACCC also alleges that Scoopon represented to businesses that there was no cost or risk involved in running a deal with Scoopon, when a fee was payable to Scoopon.
Further, it is alleged that Scoopon misled businesses by claiming that between 20 per cent and 30 per cent of vouchers would not be redeemed when there was no reasonable basis for this representation.
Scoopon is defending these proceedings.
Given the increasing number of consumers shopping online, another emerging area of complaint that we are interested in is fake testimonials and online reviews. Fake testimonials can mislead consumers and give an unfair advantage to unscrupulous traders.
We are working with consumer organisations, review platform sites and regulators (international and State) to learn about the market for reviews, industry trends and consumer/business detriment. We are putting together a position on how we will view and treat testimonials or reviews and how we will enforce that view.
I would also like to highlight that we have made significant progress in the area of unfair contract terms.
In March, the ACCC released a report on the outcomes of the unfair contract terms reviews in the telecommunication, hire car, domestic airline, online shopping and fitness sectors.
The report highlights the key issues of concern identified by the ACCC regarding the use of unfair contract terms provisions across these industries.
A number of businesses made amendments to their standard contracts after we approached them about potentially unfair terms.
In July, the Federal Court declared that four clauses used by ByteCard, a Canberra based internet and fixed-line telephony company, in its services standard form consumer contract are unfair contract terms and are void. The clauses declared to be unfair enabled ByteCard :
- to unilaterally vary the price under an existing contract without also providing the customer with a right to terminate;
- exclude liability and provided ByteCard with virtually unlimited indemnity; and
- to unilaterally terminate the contract at any time with or without cause or reason.
Specifically, the Court declared that the clauses were unfair because they:
- created a significant imbalance in the parties rights and obligations;
- were not reasonably necessary to protect ByteCard’s legitimate interests; and
- if applied or relied upon would cause financial detriment to a consumer.
This litigation (which was commenced in April 2013) is the first proceedings that the ACCC has commenced based exclusively on the unfair contract terms provisions.
During the past 18 months we have seen what cumulatively are the largest penalties for cartel conduct in the history of the ACCC.
Since proceedings were commenced against 15 international airlines between 2008 and 2010, 13 airlines have paid a total of $98.5 million to date. Most recently Emirates, Singapore Airlines, Cathay Pacific and Thai Airways International have respectively had pecuniary penalties of $10 million, $11.75 million, $11.25 million and $7.5 million imposed.
We are proud of the work in the Air Cargo matter. The ACCC commenced investigations in 2006 into collusion by international airlines on fuel surcharges for air cargo services between 2000 and 2006. This result shows us that we can take on these big competition matters and achieve great results.
At last year’s Workshop I said we would take a:
“proactive approach to our competition cases so that we are sure they focus on important theories of harm and produce the most beneficial outcomes for competition and consumers…We have been investigating a number of potential cases which involve sections 45, 46 or 47, including some allegations of a substantial lessening of competition. I am hoping that our strategic approach will increasingly give us a higher return than previously and that it will be a matter that we can discuss at next year’s Workshop.”
In my first year at the ACCC we instituted proceedings in one competition case (against Flight Centre); in my second year there have been five cases; there will likely be more over the coming year.
The five in 2011/12 were as follows:
- Yazaki: We instituted civil proceedings in the Federal Court against Yazaki Corporation, a Japanese company, and its Australian subsidiary, Australian Arrow Pty Ltd. The ACCC alleges that Yazaki and Australian Arrow engaged in cartel conduct, market sharing and price fixing, in relation to the supply of wire harnesses to Toyota Motor Corporation and its related entities in Australia. Wire harnesses are electrical systems that facilitate the distribution of power and the sending of electrical signals to various components of a motor vehicle.
- Koyo: The ACCC instituted civil proceedings against Koyo for alleged cartel conduct relating to the supply of ball bearings for use in in motor vehicles and industrial applications. Ball bearings are not manufactured in Australia but they have a wide range of automotive and industrial uses – they are used almost anywhere there are moving parts. Cartel conduct in this industry can have a wide reaching effect on the prices consumers pay for a whole range of goods.
- Viscas/ Prysmian: This Japanese cable supplier was ordered to pay $1.35 million for bid rigging and price fixing. The penalty followed Visca’s admission that, in September 2003, it reached an anti-competitive agreement with other Japanese and European suppliers of land cables in relation to a tender invitation from Snowy Hydro Ltd. Proceedings continue against Prysmian Cavi e Sistemi & Ors.
- Supagas: In August 2012, the ACCC instituted proceedings in the Federal Court against Supagas and its competitor Speed-E-Gas, for allegedly giving effect to an anti-competitive cartel arrangement which included not supplying liquid petroleum gas (LPG) cylinders for forklifts to each others' customers.
- Visa: In February this year ACCC also instituted proceedings against Visa Inc in relation to its dynamic currency conversion services (DCC).
Each of these cases is being defended before the Federal Court.
General enforcement issues
There is one point I would like to raise explicitly with this audience.
We sometimes find that when companies realise we are serious about following through with litigation they offer to change their behaviour, and introduce or enhance a compliance program, as long as we do not litigate. This often applies, for example, in consumer issues.
If companies engage in behaviour that we judge represents a serious breach of the Act, however, there is a potential moral hazard if our approach was to drop the matter merely because the relevant behaviour ceases.
Companies could get the message that they can push and even cross the boundaries with impunity knowing all they need do is cease the alleged offending behaviour and promise to behave better in future when we knock on their door. They gain benefit from the offending behaviour; we, in effect, become their internal compliance department.
In deciding on an appropriate response, including whether to seek sanctions or penalty, we will always give appropriate credit for action taken to stop unlawful conduct, improve compliance and cooperate with our investigation or enforcement action. Much can, of course, depend on the speed and breadth of the response, and a clear acknowledgement of the problem. We will always weigh these matters up with other matters such as the seriousness of the breaches, extent of consumer harm or competitive detriment and the history of compliance of the business concerned.
There are numerous times, therefore, when we do judge it to be appropriate in the circumstances to cease our investigation when the offending behaviour ceases. Indeed, this is one of the key ways we are effective.
My point is it is a mistake for companies to believe they can expect this. Where, for example, we see the behaviour as calculated, or where it includes conduct that has previously been the subject of warnings, litigation will often follow. And it needs to.
Our immunity policy is a very important tool for identifying and investigating cartel conduct. At its core, the policy encourages whistle-blowers to come forward and provide information about existing cartels to the ACCC.
As you may be aware, we are conducting a review of our immunity policy. This is the second time we have reviewed the immunity policy since its launch in 2005 and, like last time, we are looking now to:
- increase the effectiveness of the policy
- update guidance material to provide better clarity, and
- improve our related internal business practices.
I expect the review will be finalised in the coming months. During the review we have consulted with a range of people including regular users of the policy. We are planning to release a discussion paper in September inviting comment on some specific proposals for changes to our policy. We would very much welcome a contribution from the Law Council in response to that invitation.
Product safety issues which have the potential to cause serious harm to consumers will always be priority for the ACCC.
Our product safety role covers so many everyday items – from babies’ dummies and bicycles through to the labelling on cosmetics and trolley jacks.
In the past year, product safety has been a hive of activity for us and our state counterparts.
The ACCC has received and assessed in excess of 3000 reports related to safety of unregulated consumer products.
The ACCC actively monitors around 250 recalls annually, and liaises with other regulators in relation to a further 250 recalls (that are also listed on our website).
We have worked with the battery industry to improve education, labelling and packaging on button or coin sized lithium battery products. If swallowed, button batteries are a severe and little known risk for children. An estimated five children per week in Australia present to an emergency department with a button battery related injury.
The ACCC led a joint market surveillance operation into things that burn and we have been active in ensuring compliance with the new ban on high powered magnets (bucky balls).
The ACCC has an active product safety education program. Recently we have warned consumers about the dangers of quad bikes, trampolines and laundry pods.
Internally we have re-structured our product safety team to allow for an increased focus on chemical safety and consumer products.
We are also preparing for the introduction of the safety standard for portable swimming pools. The standard mandates warning labels on children’s portable swimming pools and comes into effect in March 2014.
Later this year, the ACCC will join with the International Consumer Product Health and Safety Organisation to host a major international product safety conference on the Gold Coast. This event is open to anyone who has is involved in selling, importing, exporting, or regulating consumer goods in our region.
This leads on to our international activities. The ACCC’s efforts to maximise our engagement with the Asian region are continuing
We continue to participate in regional workshops to increase the capacity of consumer and competition regulation in the region, including running some of the first ASEAN workshops on consumer protection with our Korean and US counterparts.
Importantly, with the support of our regional counterparts, the ACCC has recently been welcomed into regional forums for planning the development of effective regional competition regulation and cooperation.
For the first time, later this month, I will take part in the East Asia Top Level Officials Meeting on Competition Policy in Manila, at the invitation of our East Asian counterparts.
As our most immediate Asian neighbours in ASEAN make strong progress towards their goal of each member country introducing a competition law and agency by 2015, ASEAN Ministers are meeting later this month to decide whether to establish a Competition Committee under the ASEAN, Australia and New Zealand Free Trade Area.
Building on work the ACCC, New Zealand Commerce Commission and the ASEAN Experts Group on Competition have done to date, this Committee would provide an institutional mechanism to cooperate on implementing efficient and effective competition regulation throughout the region.
Competition law in our region will also be firmly on the map, so to speak, when Australia and the ACCC play host to 2015 International Competition Network annual conference. Securing this event in our region is important for all of us.
From the regulation of access to wheat port infrastructure to court proceedings against companies such as Visa and Apple, and to the safety of magnetic balls, there is never a dull moment in the world of competition and consumer law.
I look forward to the workshop discussions, and I also look forward to providing you with the next instalment in 2014, which will be a milestone year for competition and consumer law in Australia. Thank you.
 National Competition Policy, Report by the Independent Committee of Inquiry, chaired by Professor Fred Hilmer