In an address to the Commonwealth Club of Adelaide, ACCC Commissioner Sarah Court outlines compliance and enforcement priorities. Ms Court discusses recent activities and covers issues such as credence claims, energy promotions and consumer guarantees.
Good afternoon to you all. As the only ACCC Commissioner living in Adelaide, but working in Canberra, it is a delight to receive an invitation to speak to an Adelaide gathering.
Greg has kindly given me a very wide scope in relation to the topics I am speaking about today, so I have chosen to speak about that part of the Commission’s work that I am most engaged with, and that is our enforcement role and priorities.
Before I turn to that area though, the Australian Competition and Consumer Commission plays a fundamental role in our market economy. We have four main functions:
First, as the competition regulator. This involves preventing agreements or mergers which substantially lessen competition, preventing cartels and preventing a misuse of market power for purposes of damaging competition. These laws are essentially about protecting the competitive process.
Second, the ACCC is the national consumer regulator, which in essence means making sure that consumers aren’t misled. Consumers in this case include small businesses who are buying from larger businesses. As the consumer regulator, the ACCC also has a role in preventing unconscionable conduct, either between business and consumers or between businesses and other businesses.
Third, the ACCC is the product safety regulator. The ACCC gets involved in recalling faulty products, and setting and enforcing safety standards.
Finally, the ACCC has a role where normal market mechanisms don’t work, in essence where you have monopoly infrastructure. The ACCC has a role in communications, transport, rural water and energy through the Australian Energy Regulator.
What this remit means is that the Competition and Consumer Act 2010 is likely to be a part of your working and home life more than you imagine.
Product safety is a classic example. Product safety standards cover a host of everyday items such as sunglasses, bicycles and cosmetics.
Our laws are on display in the supermarket aisle. You might glance at the unit price to see which product is best value for money. Unit pricing falls under the ACCC’s umbrella.
When you’re not dining with your friends here at the Commonwealth Club you might grab a bite to eat on Rundle Mall at any one of the franchise food outlets. The code of conduct which governs franchise relationships is mandatory under the Act.
The list goes on. Another facet of our current work involves the rapid take-up by Australian consumers of tablets and smartphones. As I speak the ACCC is establishing the regulatory arrangements which underpin the National Broadband Network.
You might have been to the airport lately. Again, the ACCC monitors and publishes information relating to prices, costs, profits and service quality Australia’s five largest airports.
Mergers, advertising claims, shopping rights and scams, are just some of the many other things which come across our desk.
Today, I will provide you will an insight on the ACCC’s enforcement priorities—that is the types of conduct which we think are most harmful to consumers and competition.
Before I turn to those specific issues it may be helpful to tell you a bit about how the Commission works. There are seven Commissioners, including the Chairman Rod Sims and two Deputy Chairs. One Deputy Chair has a specialist role in relation to Small Business, and the other has a similar role for consumer protection. The remaining Commissioners, of which I am one, have specialist trade practices or regulatory experience. The Commission meets in Canberra each week to make its decisions, and much of the real work of the Commission is done in Committee. The Commissioners work closely with staff and make decisions based on papers and recommendations from staff.
Enforcement and Compliance Priorities
The key to maximising the ACCC’s contribution is to identify the most important problems for competition and consumers—and then to decide whether the ACCC is the best placed agency to fix them. And if so, how does it best fix them, that is, what combination of enforcement and compliance tools should we use.
We cannot pursue every matter that comes to our attention. Indeed, one of our key roles is to make choices and pick the right interventions. While it varies from year to year, as an illustration each year we:
- start with more than 160,000 complaints and queries
- commence about 550 investigations
- progress around 140 of these to in-depth investigations
- institute court action in more than 30 cases, with another 30 enforcement outcomes such as court enforceable undertakings and the payment of infringement notices.
Since 2011 we have conducted an annual strategic review aimed at identifying our priorities for the year ahead.
The review process involves a thorough assessment of information about consumer and competition issues gathered from a wide range of sources including state regulators, consumer groups and industry bodies.
Earlier this year, we announced the results of our most recent review which is reflected in our revised Compliance and Enforcement Policy.
The policy sets out our areas of focus and explains the factors we take into account when deciding whether or not to pursue particular cases.
The 2013 edition of the policy emphasises that some forms of conduct are so detrimental to consumer welfare and the competitive process that the ACCC will always assess them as a priority, irrespective of the sector of the economy in which the activity occurs. These are:
- cartel conduct, that is, price fixing, market sharing, bid rigging and agreements on output between competitors
- anti-competitive agreements
- misuse of market power, and
- product safety issues which have the potential to cause serious harm to consumers.
In addition, for the year ahead the ACCC is prioritising its work in the areas of:
- consumer protection in the telecommunications and energy sectors
- online competition and consumer issues including conduct which may impede emerging competition between online traders or limit the ability of small businesses to effectively compete online
- competition and consumer issues in highly concentrated sectors, in particular in the supermarket and fuel sectors
- credence claims, particularly those in the food industry with the potential to have a significant impact on consumers or the competitive process
- misleading carbon pricing representations
- the ACL consumer guarantees regime, and
- consumer protection issues impacting on indigenous consumers.
To explain how our priority setting works in practice, I will take you through some our recent activities.
On the competition side, most significantly during the past 18 months we have seen the largest combination of 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. The airlines have been held to have engaged in price fixing the costs of air freight surcharges, and the proceedings have included Qantas, British Airways and more recently Emirates, Singapore Airlines, Cathay Pacific and Thai Airways International.
In recent years the number of legal proceedings instituted in competition cases has been increasing. Last financial year there were five cases—and there will more this year.
Most of the five in 2011/12 involved international cartels which the ACCC alleges have impacted on Australian consumers.
For example, we have 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 – that is, market sharing and price fixing, in relation to the supply of wire harnesses to Toyota in Australia. Wire harnesses are an electrical system car part that facilitate the distribution of power and the sending of electrical signals to various components of a car. This case is being defended in the Federal Court.
Consumer protection and fair trading
Moving to consumer protection matters, strong enforcement of these laws is important. By taking action in cases where we believe there is significant consumer detriment, we make it clear where the boundaries are and what the consequences are for traders crossing the line.
Our work has been made much more effective in recent years by the introduction of the Australian Consumer Law. We now have sanctions such as $1.1 million civil pecuniary penalties that can be imposed by the Courts, 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 a number of 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).
In addition, to date more than 100 infringement notices have been issued. In our view this combination of Court imposed penalties and infringement notices for consumer protection issues is having an effective deterrent effect on problematic conduct and improving compliance with the consumer laws.
Turning now to some of the specific priority areas I mentioned earlier.
On the energy side we are seeing significant retail price increases having a very real impact on many consumers. The choice of retail plan and provider is therefore an important one for consumers, and we have encouraged energy retailers to address what has been, in our view, reprehensible treatment of consumers by many involved in door-to-door energy sales.
The ACCC has taken a national enforcement and compliance approach to these issues. On the compliance side we have commissioned research about the vulnerabilities of consumers in sales at the door, and then used this to work with consumer agencies to educate consumers and distribute ‘do not knock’ cards.
On the enforcement side, the Federal Court has ordered Neighbourhood Energy and its former marketing company to pay total penalties of $1 million for illegal door-to-door marketing practices; two AGL companies were ordered to pay $1.55 million and its sales representatives $200,000 for false and misleading representations and breaches of the UCA provisions, and proceedings have been instituted against EnergyAustralia (formerly TRUenergy) and APG for similar conduct.
The result of this attention appears to be that some of the largest energy companies have withdrawn from door to door sales.
Our 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?”
Consumer guarantee laws provide shoppers with rights if a product or service doesn't work or doesn't perform as expected. We consistently receive high levels of complaint in this area.
Following an initial awareness campaign, we have moved to enforcement.
Our work in this area is about making clear that the rights of consumers cannot be excluded, modified or limited.
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. A credence claim is a claim made about a product designed to attract consumers to purchase the product – in the food area, which we are currently focussing on, a credence claim might be something like ‘organic’, ‘free range’, ‘made in Australia’ and the like.
We know that consumers are increasingly placing weight on premium claims – and willing to pay a premium for such goods (for example, free range eggs now make up about 30% of egg sales despite their higher pricing). But 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.
There is a competition side to credence claims as well - 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 its competitive advantage or unique selling point if others are making misleading claims.
An example of our work in the area of credence claims is the proceedings recently commenced against Coles in relation to its claims about partially baked bread. These products were promoted as ‘Baked Today, Sold Today’ and/or ‘Freshly Baked In-Store’ at Coles stores with in-house bakeries.
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. As well as potentially misleading consumers, the ACCC considers that such representations may have a detrimental impact on competitors, often smaller franchised bakeries. Coles is defending these proceedings.
Competition and consumer issues in highly concentrated sectors, in particular in the supermarket and fuel sectors, are a priority area for the ACCC.
We continue to dedicate considerable resources to investigating claims made against the major supermarket chains in their dealings with suppliers.
We understand concerns about the power imbalance between suppliers and supermarkets. In some ways, that is at the heart of the issues we are considering. This power imbalance has meant that suppliers have been reluctant to speak to the ACCC for fear of consequences.
The ACCC has promised confidentiality to industry participants who come forward to speak to us, and we have now spoken to around 50 industry participants on a confidential basis. We will continue to maintain that confidence.
The ACCC has identified a range of allegations against the major supermarket chains that may be unconscionable or a misuse of market power. The concerns can be divided into two distinct issues:
- first, a concern that the major supermarkets may have engaged in unconscionable conduct in their dealings with their suppliers including, for example, by unilaterally deducting amounts due to suppliers, contrary to the relevant supply contracts; and
- secondly, a concern that the major supermarkets may be misusing their market power by discriminating in favour of their own home brand products to deter or prevent suppliers of proprietary brands from engaging in competitive conduct.
This investigation is ongoing.
The ACCC has been investigating shopper docket offers by the major supermarkets since mid-2012, and we have previously signalled our concerns about the impact of shopper docket petrol discounts on the competitive process. Our concerns have been intensified by the expanded use of shopper docket and other discounts by both Coles and Woolworths recently. These have varied in level of discount, frequency and duration, and have now reached up to 45 cents per litre.
While large shopper docket discounts provide short term benefits to some consumers, the likely harm to other fuel retailers and therefore to competition and the competitive process for petrol retailing could be substantial.
The ACCC has no power to ban shopper dockets offers. As an enforcement body, however, the ACCC can investigate market activity and, where appropriate, take court action seeking injunctions to stop the conduct and seeking penalties in appropriate cases. Our investigation is nearing completion and will be finalised in the next few months.
That brings me to the end of my remarks. As I hope this brief journey through some of the ACCC’s recent activities has demonstrated, we are very busy protecting and promoting effective competition for the benefit of consumers. Thank you for your attention.