ACCC & AER annual report 2016-17

Analysis of performance: Support small business

Deliverable 2.4: Support a vibrant small business sector

The ACCC helps to ensure small businesses understand and comply with their obligations. It encourages them to exercise their rights under the Act as the customers of larger suppliers. Our aim is to promote a competitive and fair operating environment for small business and, importantly, ensure small businesses understand how the legislation can help them.

In 2016–17, a priority under our Compliance and Enforcement Policy was ensuring small businesses receive the protections of:

  • industry codes of conduct, including the Franchising Code of Conduct, the Food and Grocery Code of Conduct and the Horticulture Code of Conduct
  • the new unfair contract terms law.

To support the priority, we:

  • enforced provisions of the ACL that relate to small business
  • provided information, education and services to small businesses
  • developed partnerships to help us better engage with and inform small businesses
  • enforced codes of conduct
  • allowed collective bargaining in certain circumstances in the public interest.

Our new Agriculture Unit, established in 2015–16, is:

  • undertaking engagement
  • undertaking market studies such as the study into cattle and beef industry
  • an inquiry into the Australian dairy industry
  • investigations and enforcement in the agriculture sector
  • working with peak horticulture grower and trader organisations on education campaigns
  • working with the newly convened ACCC Agriculture Consultative Committee to establish an information platform for farmers and small agribusinesses.

Court cases

The following cases were instituted in 2016–17 in relation to issues in the agriculture sector.

Agriculture cases instituted

Unconscionable conduct in dairy industry

Murray Goulburn Cooperative Co. Ltd

Conduct

commenced

jurisdiction

28 April 2017

Federal Court Melbourne

The ACCC alleges that Murray Goulburn engaged in unconscionable conduct and made false or misleading representations to farmers in its southern milk region between June 2015 and April 2016 about the average farm gate milk price it expected to pay them during 2015–16.

Enforcement activities

The ACCC aims to make markets work for everyone, including small businesses. We aim to ensure an even playing field for competing small businesses and to protect their legitimate points of difference from misleading conduct.

Under the Act and the ACL small businesses have certain rights—for example, the Act gives small businesses authority to bargain collectively in some circumstances and protects small companies from misleading and deceptive conduct and anti-competitive behaviour (such as price fixing and market sharing agreements).

Case study: Example of action to protect small businesses against breaches of Australian Consumer Law

In December 2016 the ACCC instituted proceedings against ABG Pages Pty Ltd (ABG Pages) and Michelle McCullough. We allege that the company and Ms McCullough engaged in misleading or deceptive conduct, making false or misleading representations, undue harassment and systemic unconscionable conduct in its dealings with small businesses that were actual or potential customers of its online business directory service.

Since 2009, ABG Pages has offered an online business directory service to a range of customers, including small businesses. The businesses pay for ad listings, display ads and other services. However, the ACCC alleges that the service has little, if any, value. A number of small businesses have paid significant amounts of money to ABG Pages for advertising they did not want because ABG did not allow them to cancel their contracts. The ACCC received numerous complaints from small businesses about ABG Pages.

The ACCC alleges that ABG Pages breached the ACL by:

  • falsely representing that large businesses purchased their directory services
  • using high-pressure sales tactics to sell listings in its online business directory
  • misleading businesses into entering one or more contracts
  • refusing to cancel contracts which customers did not want and did not intend to enter into
  • refusing to accept customers’ attempts to cancel contracts
  • misleading businesses about the total duration and the total price of contracts
  • misleading businesses into entering into second or subsequent contracts for additional listings
  • unduly harassing three customers by repeatedly contacting them for payments.

The ACCC alleged that this conduct was part of a system of unconscionable conduct by ABG Pages.

The ACCC is seeking penalties, declarations, injunctions, a disqualification order against Ms McCullough, findings of fact, corrective notices and costs.

Under the ACL, small businesses are protected against unfair contract terms such as those contained in ABG Pages’ contracts. Also, businesses must not make claims about their services that are incorrect or misleading and they cannot accept payment where they know they have not provided the services they undertook to perform. Under our priorities in 2016–17, our focus remains on protection of small business against these types of breaches.

Court cases

The following cases were finalised in 2016–17.

Table 3.49: Small business cases finalised

Small business and scam

Sensaslim Australia Pty Ltd & Ors

Conduct

commenced

concluded

jurisdiction

outcome

15 July 2011

11 May 2016

Federal Court Sydney

Injunctions

Pecuniary penalty of $3.55 million against Sensaslim.

Penalty of $660 000 against Mr Peter Foster and permanent disqualification from managing a corporation.

Penalty of $75 000 against Mr Michael Boyle and 3-year disqualification from managing a corporation.

Penalty of $55 000 against Mr Peter O’Brien and 10-year disqualification from managing a corporation.

Mr Foster and Mr O’Brien to pay ACCC costs.

Appeal by Mr Foster dismissed by Federal Court in November 2016.

The ACCC alleged that Sensaslim and several of its officers engaged in misleading and deceptive conduct and made false representations in relation to the identity of Sensaslim officers, the Sensaslim Spray and the business opportunities offered by Sensaslim.

Table 3.50: Small business cases instituted

Franchising

Geowash Pty Ltd

Conduct

commenced

jurisdiction

31 May 2017

Federal Court Perth

The ACCC proceedings will allege that Geowash made false or misleading representations and engaged in unconscionable conduct in breach of the ACL, and also failed to comply with the good-faith obligation in the Franchising Code of Conduct.

Franchising

Ultra Tune Australia Pty Ltd

Conduct?

commenced

jurisdiction

19 May 2017

Federal Court Sydney

The ACCC alleged that in 2015 Ultra Tune:

failed to act in good faith in its dealing with a prospective franchisee and failed to provide documents the Franchising Code of Conduct specifies must be provided before accepting a non-refundable payment

made false or misleading representations about the franchise site, in breach of the ACL

failed to provide marketing fund financial statements and audit reports to its franchisees for three financial years.

Franchising

Morild Pty Ltd

Conduct

commenced

jurisdiction

21 September 2016

Federal Court Perth

The ACCC alleged:

Pastacup’s current franchisor, Morild, and former director, Mr Stuart Bernstein, acted in breach of the Franchising Code of Conduct in that Morild did not disclose to potential franchisees that Mr Bernstein had directed and managed two previous Pastacup franchisor companies that became insolvent

Mr Bernstein was knowingly concerned in Morild’s conduct.

Undertakings

The following s. 87B court enforceable undertakings were finalised in 2016–17. Details of the s. 87B undertakings are in appendix 8.

Table 3.51: Small business undertakings finalised

Sensis Pty Ltd

s. 87B undertaking dated 11 May 2017

The ACCC accepted a court enforceable undertaking from Sensis Pty Ltd following an investigation of its online automatic renewal and cancellation processes, which were represented in a false or misleading manner to small business customers.

Young Sang & Co. (Aust.) Pty Ltd

s. 87B undertaking dated 14 September 2016

The ACCC accepted a court enforceable undertaking from a Melbourne-based fruit and vegetable wholesaler, Young Sang & Co. (Aust.) Pty Ltd, for breaches of the Horticulture Code of Conduct.

Infringement notices

The following infringement notices were paid in 2016–17.

Table 3.52: Small business infringement notices paid

Domino’s Pizza Enterprises Ltd

4 May 2017

Two notices totalling $18 000

The ACCC issued the infringement notices against Domino’s as it had reasonable grounds to believe that Domino’s had failed to comply with the requirement in the Franchising Code of Conduct to provide franchisees with both an annual marketing fund financial statement and an auditor’s report within the time limits prescribed under the Code.

Public warning notice

The following public warning notice was issued in 2016–17.

Table 3.53: Public warning notices issued

Unsolicited goods

Lux International Sales ApS

Conduct

The public warning notice alleges that LuxStyle:

  • sent unsolicited goods to Australian consumers
  • demanded payment for the unsolicited goods
  • continued to make demands for payment to consumers who refused to pay
  • threatened to refer (and in some instances actually referred) the matter to debt a collection agency.

In March 2017 the ACCC alleged that online retailer Lux International Sales ApS, a company based in Denmark that trades under the name LuxStyle, advertised its products on social media, directing potential customers to a website that did not display prices unless the consumer entered a mailing address and an email address. Consumers have complained that, even though they did not proceed to order or purchase the goods and simply closed down the website window after viewing the price of the product, LuxStyle then posted the goods to consumers along with an invoice demanding payment and followed this up with subsequent invoices if consumers did not pay.

Consumers reported that, on some occasions where they did not pay, LuxStyle referred the matter to Australian-based debt collectors.

Extending unfair contract term protections to small business

The Treasury Legislation Amendment (Small Business and Unfair Contract Terms) Act 2015 (Cth) received Royal Assent on 12 November 2015. The law gives small businesses protections against unfair contract terms offered by other (usually larger) firms. This law supplements the existing law on unfair contract terms for consumers. The protections came into effect on 12 November 2016, following a 12-month transition period. The ACCC, ASIC and state and territory offices of fair trading are responsible for enforcing the law.

The law applies to standard form contracts between businesses where one of the businesses employs fewer than 20 people and the contract is worth up to $300 000 in a single year or $1 million if the contract runs for more than a year. Standard form contracts provide little or no opportunity for the responding party to negotiate the terms—they are offered on a ‘take it or leave it’ basis.

To promote compliance with the new law, the ACCC reviewed 46 standard form contracts across the advertising, agriculture, franchising, independent contracting, retail leasing, telecommunications and waste management industries to identify problematic terms.

The ACCC engaged with some of Australia’s largest businesses, including Australia Post, News Limited, Optus and Scentre Group (Westfield). As a result of the review, a range of businesses agreed to amend or remove contract terms that may have raised concerns under the new law.

The ACCC’s Unfair terms in small business contracts: a review of selected industries report was released on 10 November 2016. The report provides an industry-by-industry breakdown of the common terms of concern identified during the review.

During the 12-month period leading up to the law’s commencement, the ACCC also developed a range of online guidance materials and undertook educational activities to ensure that businesses were aware of their rights and obligations and to promote a fair operating environment for small business.

Country of Origin labelling

The Country of Origin Food Labelling Information Standard 2016 commenced on 1 July 2016. It provides for a two-year transition period to allow businesses time to change their labels to comply with the new law before it becomes mandatory on 1 July 2018.

The standard applies to food sold or offered for retail sale in Australia. Under the standard’s new country of origin labelling requirements, most foods grown, produced or made in Australia must carry or display a graphic and text label (known as a standard mark), which comprises the ‘Australian made, Australian grown’ kangaroo logo, a bar chart that shows the proportion of Australian ingredients in the food, and a statement indicating whether the food was grown, produced or made in Australia.

On 1 July 2016 the ACCC released industry guidance on the standard, including content on our website and a guide to assist businesses to comply with the standard. Our website guidance has been updated to reflect amendments to the standard that occurred at the end of 2016. We have also produced an online education module and a short factsheet to assist businesses to understand the new law.

In March 2017 the ACCC participated in a number of country of origin food labelling forums in Adelaide, Townsville, Brisbane, Armidale, Sydney and Melbourne to raise business awareness of the standard. The forums were hosted by the Department of Industry, Innovation and Science.

On 22 June 2017 the ACCC’s Deputy Chair, Dr Michael Schaper, together with representatives from peak industry bodies, hosted a webinar that discussed key tips and potential traps for businesses transitioning to the new food labelling requirements. The prerecorded presentation was done in partnership with the Australian Food and Grocery Council (AFGC) and Voice of Horticulture. The AFGC is a peak industry body representing manufacturers and suppliers in the food and grocery sector. Voice of Horticulture is a member-based organisation that represents horticulture growers and businesses. Over 185 people streamed the presentation when it went live. The video presentation is available on our YouTube channel.

In February 2017 the ACL’s country of origin safe harbour defences were also amended. The amendments changed the criteria that a business must satisfy to claim a ‘safe harbour’. If a business is able to meet the conditions of a safe harbour, they will have an automatic defence against allegations that they have contravened the ACL by making that country of origin claim. To assist businesses to understand when they can safely make a country of origin claim, the ACCC released an updated guide for businesses and two short educational videos.

Small business information, education and services

Under both the Act and the ACL, small businesses have certain rights—for example, the Act gives small businesses authority to bargain collectively in some circumstances and protects them from misleading and deceptive conduct and anti-competitive behaviour (such as price fixing and market sharing agreements).

The ACL also imposes obligations on small businesses—for example, it is illegal for small businesses to mislead or deceive their customers or use unfair selling practices such as pressure tactics. The ACCC works to ensure that small businesses know their obligations and comply with them.

To help small businesses to understand their rights and obligations under the ACL, we provide them with information, education and services.

Our main tools for communicating with small business are:

  • our website (which includes a link to a dedicated page for small businesses) and an online small business complaint form
  • the Infocentre small business hotline (1300 302 021)
  • the ACCC’s Information Network subscription services for small businesses, which provides information about enforcement action, new guides, events and changes to the Act. These include the:
    • Small Business Information Network (6643 subscribers)
    • Franchising Information Network (2513 subscribers)
    • Agriculture Information Network (1149 subscribers)
    • Oil Code Information Network (548 subscribers)
    • Cartels Information Network (717 subscribers)
    • Communications Information Network (1049 subscribers)
  • targeted publications, mobile apps, online education modules and videos
  • face-to-face and online education and compliance sessions.

Online education programs

The ACCC continues to promote three free online education programs:

  • The ACCC hosts an online education program for small businesses covering the major aspects of the Act and the ACL. New modules have been added to this education program to reflect legislative changes. This year there were almost 8200 users of the program, bringing the total number of users since the program’s launch in April 2013 to over 32 500.
  • The ACCC funds a franchise pre-entry program administered by Griffith University. More than 1900 people enrolled in this ACCC-sponsored program during 2016–17, bringing the total number of enrolments since the program’s launch in July 2010 to over 12 500.
  • The ACCC hosts an online education program for tertiary students studying subjects that touch on the Act or ACL—for example, law, commerce and marketing. Nearly 40 000 users have accessed this program since its launch in 2013.

Small business webinar

On 8 June 2017 in partnership with ASIC, the Australian Taxation Office, the Fair Work Ombudsman and the Australian Small Business and Family Enterprise Ombudsman, we ran a live webinar for small businesses. The webinar provided useful information on how these agencies are working to level the playing field for small business, together with information on the resources available and initiatives of each agency to assist small business. Over 1224 people registered to receive a recording of the webinar and 257 people watched the webinar live. A video of the webinar is available on our YouTube channel.

Speeches, presentations and publications

ACCC staff gave more than 71 speeches and presentations to small business audiences and attended many expos and other events.

We published two editions of Small business in focus—a twice-yearly summary of our activities in the small business and franchising sectors and update on industry codes.

Infocentre

The Infocentre serves the small business hotline (1300 302 021) as well as a dedicated web form for small business. The web form encourages small businesses to submit reports about possible breaches of the Act. Enquiries from small business generally concern rights and responsibilities under the Act and the industry codes we regulate, and questions about accessing ACCC guidance materials.

Small business contacts are submitted through other telephone lines and web forms too. When a small business calls our general enquiries line, they will select from the small business options to ensure their call goes to one of our highly trained staff members.

Partnerships for small business

Small Business and Franchising Consultative Committee

The Small Business and Franchising Consultative Committee is a forum where industry and government can discuss competition and consumer law concerns related to the small business and franchising sectors.

Membership of the committee includes industry representatives, legal professionals, small business and franchising advocates and academics. It is chaired by our Deputy Chair, Dr Michael Schaper. Committee meetings are held at least twice a year.

This year the committee met on 14 October 2016 and 5 May 2017. Topics discussed in detail with committee members in these meetings included:

  • current enforcement and compliance work of the ACCC
  • business-to-business unfair contract terms
  • excessive payment surcharges
  • country of origin labelling
  • the ACL review.

Small business commissioners

In 2016–17 we continued to work with the four state small business commissioners from Western Australia, South Australia, New South Wales and Victoria, as well as the newly appointed Queensland Small Business Champion, and the Australian Small Business and Family Enterprise Ombudsman, on a range of matters. The group meets several times a year and discusses the types of complaints that each of the commissioners has received, small business initiatives, and new and proposed laws affecting small businesses.

Regulators group on small business issues

A range of Australian Government agencies have small business roles and responsibilities. The Federal Regulatory Agency Group—a cross-government group comprising the ACCC, ASIC, the Australian Taxation Office and the Fair Work Ombudsman and chaired by the Australian Small Business and Family Enterprise Ombudsman—was established to improve regulatory coordination on small business matters.

The group meets quarterly to discuss ways to more collaboratively engage with and educate small businesses. Its activities have led to initiatives such as the (now annual) joint regulator webinar for small businesses and ‘fix-it squads’ (rapid-design groups made up of small business operators and intermediaries and representatives from federal, state and local government, all working together to examine and solve small business problems).

Codes of conduct

An ACCC priority for 2016–17 was ensuring that small businesses receive the protections of industry codes of conduct.

We are responsible for promoting and enforcing compliance with five mandatory prescribed industry codes—the Franchising Code of Conduct, the Horticulture Code of Conduct, the Oil Code of Conduct, the Port Terminal Access (Bulk Wheat) Code of Conduct and the Unit Pricing Code—and one voluntary prescribed industry code, the Food and Grocery Code of Conduct. For more information on the codes, see www.accc.gov.au/business/industrycodes.

We use a structured process to actively assess reports we receive of misconduct in relation to industry codes, and we escalate matters for investigation where appropriate.

Food and Grocery Code of Conduct

The Competition and Consumer (Industry Codes—Food and Grocery) Regulation 2015 (the Food and Grocery Code of Conduct) came into effect on 3 March 2015. The Code governs certain conduct by grocery retailers and wholesalers in their dealings with suppliers. It requires that these parties act in good faith and that supply agreements be in writing. It also contains a dispute resolution procedure.

Coles, Woolworths, Aldi and About Life are signatories to the Code.

During the year, the ACCC dealt with complaints under the Food and Grocery Code of Conduct, investigated potential breaches and conducted compliance checks on Coles, Woolworths and Aldi. The main issue arising out of the compliance checks was a failure to comply with the code’s requirements for product delisting, including not providing reasons for delisting, and delisting notices that were effective immediately or gave a short period of notice. The supermarkets were advised that they would have to improve the way they notify suppliers when delisting their products to avoid breaching the code.

We will continue to monitor complaints under the Code, conduct compliance checks and investigate potential breaches.

Horticulture Code of Conduct

The Horticulture Code of Conduct is a mandatory industry code under s. 51AE of the Act and is enforced by the ACCC. The code aims to improve the clarity and transparency of trading arrangements between growers and traders in the horticulture sector.

In February 2017 the government announced that it would remake the Horticulture Code of Conduct. The new code took effect on 1 April 2017.

The ACCC is providing guidance and has commenced an education campaign to educate the industry in relation to their rights and obligations under the code and to encourage compliance with the law.

We have prepared guidance materials for industry to help it adjust to the changes to the Code, including:

  • updated website guidance on the Code with answers to common questions
  • example horticulture produce agreements to cover a grower’s trading relationships with both merchants and agents
  • two factsheets highlighting some of the major changes to the Code
  • a short video that features Commissioner Mick Keogh giving an overview of the changes to the Code
  • a suite of industry articles on key provisions of the code for peak industry bodies to include in their publications and newsletters.

We will continue to develop further guidance materials in consultation with industry.

We have also attended several events held by the industry and given presentations to peak industry bodies promoting the new Horticulture Code of Conduct.

Franchising Code of Conduct

The Franchising Code of Conduct aims to regulate the conduct of franchising participants and ensure that prospective franchisees are sufficiently informed before buying into a franchise. It also provides for a cost-effective and formal dispute resolution scheme for franchisees and franchisors.

The ACCC administers and enforces the Code and checks franchisors’ compliance with it.

The ACCC undertook a number of investigations of alleged breaches of the Code by franchisors during the period. As discussed earlier, the ACCC has instituted proceedings in the Federal Court against:

  • Ultra Tune Australia Pty Ltd, a national motor vehicle repair franchisor, for a number of alleged failures to comply with the Franchising Code of Conduct and for alleged breaches of the ACL
  • Geowash Pty Ltd, a WA-based hand car wash franchisor, for a number of alleged failures to comply with the Franchising Code and for alleged breaches of the ACL.

Following the issuing of infringement notices, Domino’s Pizza Enterprises Ltd paid penalties for alleged non-compliance with the Franchising Code of Conduct.

On 21 June 2017 the ACCC published a factsheet to inform the franchising sector about the Franchising Code of Conduct. The factsheet includes updated guidance materials and information about the rights and obligations of franchisees and franchisors.

Oil Code of Conduct

The Oil Code of Conduct regulates the conduct of wholesalers and fuel resellers who are involved in the sale, supply or purchase of declared petroleum products, such as unleaded petrol and diesel.

Following the Department of the Environment and Energy’s review of the code, some minor technical amendments were made to the Code. The ACCC’s website guidance has been updated to reflect these changes.

Industry code compliance checks

The ACCC administers and enforces the Franchising Code of Conduct and conducts checks on franchisor compliance with the code’s obligations. We identify potential breaches of the code and take enforcement action where appropriate to supports our objective of promoting a fair operating environment for small businesses.

In 2016–17 we issued five notices under s. 51ADD of the Act to franchisors to check their level of compliance with the Franchising Code of Conduct and three notices to traders to check their level of compliance with the Food and Grocery Code of Conduct. A s. 51ADD notice requires the addressee to give information or produce documents to the ACCC that they are required to keep, generate or publish under an industry code of conduct. These traders were either selected because they had a history of Code-related complaints or were randomly selected from industries that appear to generate a disproportionate volume of complaints.

Since 1 January 2011 we have served 111 s. 51ADD notices to monitor compliance with industry codes under the Act. The majority of traders have been found to be compliant with the relevant code. Where compliance issues have been identified, these concerns have largely been addressed administratively.

We will continue to conduct industry disclosure compliance checks in 2017–18.

Voluntary codes of conduct

We support voluntary industry initiatives to develop codes that promote good business practices consistent with the Act. Effective codes potentially increase consumer protection and reduce regulatory burdens for business. Our Guidelines for developing effective voluntary industry codes of conduct are available on our website.

During 2016–17 we provided guidance to a number of parties in response to queries relating to voluntary codes. Parties included the Australian Environmental Pest Managers Association (about two codes of practice for termite management during construction), the Department of Health, the Department of the Environment and Energy and the Department of Agriculture and Water Resources.

Allowing collective bargaining in the public interest

Other decisions relating to small business

We can approve collective bargaining arrangements—whereby two or more competing businesses jointly negotiate with a supplier or a customer over terms, conditions and prices—where we are satisfied that the arrangement provides an overall public benefit. Without ACCC approval, such arrangements may contravene the Act.

Working together, small businesses might be able to negotiate better terms and conditions with large businesses than they could achieve on their own. Potential benefits include sharing the time and cost of negotiating contracts, coordinating ordering and/or delivery, accessing new marketing opportunities from combining volume, and gaining better access to information.

There can also be benefits for the business the group negotiates with, such as reduced negotiation costs, more certainty of supply and savings from aligning transport and distribution.

To assist small businesses to consider whether collective bargaining would suit their circumstances, we issued a guide for small businesses and farmers. The aim of the guide is to provide some basic information about what collective bargaining and collective boycotts are, some issues to take into account if small businesses are thinking of working together, and an outline of our approval process.

During 2016−17 we considered 16 collective bargaining proposals under the authorisation and notification provisions of the Act. The proposals we considered involving small businesses included those from cane growers, concrete cartage business operators, and retailers of furniture.

Table 3.54: Overview of authorisations 2016–17

Total authorisations decided (excluding minor variations)

27

Small business authorisations decided (excluding minor variations)

4

We also received and assessed more than 536 exclusive dealing notifications, a significant number of which involve small businesses—for example, to facilitate their participation in promotional and reward schemes or as part of a franchise supply arrangement.