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Corporate & Commercial Insight - Trade Practices Special Edition
June 2009
Trade Practices
Update on legislative changes to criminalise cartel conduct New Prohibition
against Component Pricing A New Australian Competition and Consumer Act
Individuals may be personally liable for contraventions under the TPA
Update on legislative changes to criminalise cartel conduct
The Trade Practices Amendment (Cartel Conduct and Other Measures) Bill 2008
(the Bill) passed through Parliament on 15 June 2009. As a consequence,
there will be four new offences of “cartel conduct” under the Trade
Practices Act 1974 (the TPA) when the amendments take effect (which is expected to occur in July 2009).
Background
Previously, the restrictive trade practices provisions in Part IV
of the TPA were interpreted in such a way as to effectively prohibit
some forms of cartel conduct. The aim of the new provisions is to
provide sanctions for explicitly defined forms of conduct, so as to
bring Australia in line with other countries that have already
legislated to give effect to the OECD’s Recommendation on cartel
conduct.
Prohibited conduct
The conduct to be prohibited, in the form of both a criminal
penalty regime and a new parallel civil penalty regime, is the making
of or giving effect to a contract, arrangement or understanding that
contains a “cartel provision”. A provision is a cartel provision if:
- it is either directly or indirectly likely to have the effect of fixing, controlling
or maintaining (or allowing for the fixing, controlling or maintaining) of prices, or
- it has the purpose of either directly or indirectly preventing,
restricting or limiting the actual or likely production of, capacity to
supply, or supply of goods; allocating customers, suppliers or
geographical areas; or rigging bids, and
- at least two of the parties are or would otherwise be in competition with one
another
The four new offences derive from i) the offence of “making” a
contract, arrangement or understanding that contains a cartel provision
and ii) the offence of “giving effect to” a contract, arrangement or
understanding that contains a cartel provision, with both of these
types of conduct prohibited under both criminal and civil law regimes.
What distinguishes criminal conduct?
The new provisions distinguish criminal conduct from other prohibited conduct
by the “fault element”. The fault element is required to establish
a criminal, but not a civil, cartel offence.
The original exposure draft of the Bill required an element of
“dishonesty” to warrant the attraction of criminal liability. However
in its final form this element was replaced by the element of
“knowledge or belief” (as drawn from the Criminal Code).
This means that the criminal offence will be made out where it is
determined, beyond reasonable doubt, that the prohibited conduct
occurred and that the accused had “knowledge or belief” that the
relevant conduct was proscribed cartel conduct. A person will have
“knowledge” if they are aware that the relevant cartel conduct exists
or will exist in the ordinary course of events. “Belief” is a lesser
requirement that may be satisfied despite the accused having some doubt
as to whether the alleged conduct was proscribed cartel conduct.
Penalties
Corporations found in breach of the new criminal provisions will be liable to
pay the greater of:
- $10 million
- Three times the gain attributable to the cartel as a whole; or (ifthis amount
cannot be determined)
- 10% of the annual turnover of the corporation and its relatedcorporations
Individuals found in breach of the new criminal provisions are to be made subject
to imprisonment for a period of up to 10 years (increased from 5
years under the original exposure draft of the Bill), and criminal fines of up to $220,000. 
The penalties for breach of the new civil provisions are to remain the same
as those currently applied for the civil offences outlined in Part
IV of the TPA.
Defences and exceptions
The new provisions provide a complete defence where the impugned cartel provision
is for the purpose of a legitimate joint venture.
As it is now defined, the defence is broader than it was
originally. Initially applying as a defence to civil actions only, it
has been expanded to apply across the new criminal regime. As a
concession to this, defendants bear the evidentiary burden of proving
that the defence applies.
As further relief for the business community, a number of exceptions that are
contained in the existing civil regime but were omitted from the
previous versions of the Bill have now been included. Notably, the
anti-overlap provisions associated with exclusive dealing arrangements
(e.g. vertical supply arrangements) will continue to be considered
under section 47 of the TPA rather than under the criminal and civil
cartel conduct provisions. Conduct between related bodies corporate
that would otherwise contravene the cartel conduct provisions is
also exempt.
Immunity – an incentive to provide cartel information to regulators
The ACCC and the Commonwealth DPP (CDPP), both of which will be involved in
the application and enforcement of the new provisions, have each
released immunity policies relating to cartel offences.
Pursuant to these policies immunity applications are to be made to the ACCC,
which will coordinate the applications. However if the ACCC assesses
that a criminal cartel offence would be made out, the application
is to be forwarded to the CDPP for consideration. This process is
similar to that which is agreed to be adopted by the ACCC and CDPP
in relation to prosecution: upon assessment by the ACCC, cases of
“serious” cartel conduct will be referred to the CDPP.
Applicants for immunity should bear in mind two key points. First,
that under the ACCC’s immunity policy immunity will only be granted to
the first cartel participant, where they are not the “ringleader”.
Secondly, that if the request for immunity fails, information provided
for this purpose may be used in later civil or criminal proceedings not
related to the cartel.
Conclusion
With the new cartel provisions taking effect very shortly,
corporations should familiarise themselves with the nature of the
conduct prohibited by the provisions, and self-educate on how to avoid
the risk of contravention (including through the implementation of
compliance programs).
New Prohibition against Component Pricing
In force from 25 May 2009, the Trade Practices Amendment (Clarity in Pricing)
Act 2008 (the Act) is a response to the use of component pricing in
representations by businesses to consumers.
The Act modifies sections of the Trade Practices Act 1974 (the TPA)
so as to prevent businesses from engaging in component pricing – the
practice of advertising prices in component parts, for example $X plus
$Y – without providing additional information of a specified nature.
The prohibition
The impetus for the prohibition is the perceived danger of component pricing:
that it can create the impression that a product or service is being
offered at a lower cost than its actual price.
The new section 53C prohibits corporations from using component pricing when
representing the price of a good or service, unless they also prominently
specify the total price that the consumer must pay (to the extent that this is quantifiable).
What conduct is affected?
The new component pricing obligations only apply to representations
made by corporations to non-corporations, and only where the
representations made are as to goods or services “of a kind ordinarily
acquired for personal, domestic or household use or consumption”.
However all representations “in connection with” the supply or promotion of
such goods and services are regulated.
Practical implications
If a corporation wishes to use component pricing in a regulated representation,
under the new laws it will also have to prominentlydisplay the minimum
total price a consumer is to pay for the product or service, with this expressed as a single figure.
Optional charges (such as some credit card surcharges) are not
required to be included in the single figure price. Conversely, taxes
and charges imposed on the corporation in relation to the supply and
then passed onto the consumer, e.g. GST, must be disclosed.
The requirement to convey total price is dependent upon it being
quantifiable (i.e. readily convertible into a dollar amount) at the
relevant time. Accordingly, the diverse elements of the total price –
such as charges – need only be included if they are quantifiable at the
time of making the representation.
The central obligation of the new s 53C requires that corporations
engaging in component pricing also include a single figure price for
goods and services “in a prominent way”, meaning in a manner that is
“at least as prominent as the most prominent of the parts of the
consideration for the supply”.
Penalties
Corporations should be aware that the consequences of noncompliance
will involve not only civil, but also criminal, sanctions. The amending
Act modifies TPA section 75AZ, meaning that contravention of the new
component pricing obligations may result in company fines of up to $1.1
million.
Conclusion
The section 53C and section 75AZF amendments are not intended to
outlaw the use of component pricing, but rather to impose conditions
upon such use. The primary obligation imposed by the amendments is the
obligation to prominently specify a single price that the consumer will
be required to pay for the relevant product or service, where this is
quantifiable.
Consequently corporations, and in particular those who make public
representations in connection with the sale of goods and services to
consumers, should remain vigilant in the making of such
representations.
General guidelines on how best to comply with the new provisions are available
from the Australian Competition and Consumer Commission website at
http://www.accc.gov.au/content/index.phtml/itemId/871339.
The website also provides specific compliance information for the
electrical goods, whitegoods and furniture industry, the travel
industry and the motor vehicle industry, at
http://www.accc.gov.au/content/ index.phtml/itemId/871346,
http://www.accc.gov.au/content/index. phtml/itemId/871368 and
http://www.accc.gov.au/content/index.phtml/itemld/871382 respectively.
A New Australian Competition and Consumer Act
Consumer regulation in Australia is currently constituted by the
Trade Practices Act 1974 (the TPA) at national level, and various laws
– for example the Victorian Fair Trading Act 1999 – at State level.
This obviously implies a lack of consistency, as well as the potential
for both overlap and gaps in regulation.
Following a Productivity Commission review of the nation’s consumer
policies, a COAG meeting in October 2008 reached some core agreements
on the modification of Australia’s consumer protection legislation. The
Government now proposes to introduce a national consumer law, in order
to (i) increase consistency and (ii) increase effectiveness.
Proposed changes
Through the introduction of a national consumer law to be applied
both nationally and in each State and Territory – and to be named the
“Australian Competition and Consumer Act” to better reflect its purpose
– the proposed reforms would seek to achieve the Government’s policy
objectives in three key ways:
(a) The introduction of a provision regulating unfair contract terms, modelled on
those already included in the Victorian Fair Trading Act
(b) The introduction of enhanced penalties and enforcement powers
(c) The incorporation of “best practice” provisions deriving from the State Fair Trading Acts
A new product safety regulatory framework and review of statutory
warranties is also proposed, with the current TPA providing the
foundation for all the suggested legislative changes.
Unfair contract terms
The proposed prohibition of “unfair” contract terms, which has already been
agreed upon by COAG, would only apply to standard form, non-negotiated
contracts, and not to terms that have been actively agreed upon by
the parties.
On 11 May 2009, the Government released an Exposure Draft of the Trade Practices
Amendments (Australian Consumer Law) Bill 2009, which sets out the
proposed unfair terms regime and is expected to be introduced to
Parliament in its winter sitting. Comments on the Draft were received
for a mere 11 days, from 11 until 22 May.
Under the regime (which will most likely be put to Parliament
without amendment), a term would be considered “unfair” if it (i)
created a significant imbalance in the contractual rights and
obligations of the parties, and (ii) was not reasonably necessary to
protect the legitimate interests of the party advantaged by the term.
In considering whether an unfair term claim should succeed, the Court
would have to assess the extent to which the term would, or would be
likely, to cause detriment. It would also have to assess whether or not
the term was “transparent” – that is, in plain language and legible.
Although the Government also proposes that certain classes of term might, by
Regulation, be categorised as unfair (resulting in their being effectively
“banned”), the Exposure Draft merely provides “examples” of terms
that might be considered unfair.
If the Bill proceeds through Parliament without substantial
amendment, the unfair contract term regime will apply for the
protection of both businesses and consumers, and will be able to be
invoked by both the buyer and the supplier under a contract. In the
meantime, therefore, review of standard form contract terms is
recommended.
Enhanced penalties and enforcement powers
In addition to the extra powers that will be enjoyed by the ACCC if
the Government’s Cartel Conduct Bill gets passed, it is proposed that
ACCC powers be generally increased to match those of State regulators
and that, specifically, it be given that the ability to:
- issue infringement notices
- issue substantiation notices, and
- “name and shame” those who contravene relevant laws
- seek remedies on behalf of consumers, so that redress is
available to consumers without their having to be a party to
proceedings in court.
It is also proposed that both pecuniary penalties and
disqualification orders be introduced and be given extensive reach, so
that disincentive and punishment are proportionate in the face of
breach. Although consumer law already provides for criminal penalties,
the availability of civil pecuniary penalties would allow the lower
civil standard of proof to apply, and would add another layer of
response to infringing conduct.
“Best practice” reforms
In the augmentation of the TPA, the Government intends to identify
the “best practice” components of State and Territory consumer
legislation, so as to take the best from existing laws in crafting a
national standard.
Timeline for implementation
It is clear from Government statements that these reforms have been
placed on a fast track to becoming legislation, and a substantial
number are expected to be in force by the beginning of 2010.
Already concerns have been raised about the speed at which this is
to occur, especially given the short timeframe given for the making of
submissions on the Consultation Paper. Corporations are worried about
the amount of time they will be given to arrange their affairs, with
some calls for a transition period.
Practical considerations
Although the passing of the proposed reforms would – valuably
-increase national consistency, it is true that they will involve a
significant overhaul to Australia’s consumer laws. In the expectation
that the proposed changes will be made, businesses can familiarise
themselves with the mooted provisions – and in particular those on
unfair contract terms – with a view to ensuring future compliance.
Individuals may be personally liable for contraventions under the TPA
In a recent case the Federal Court has found that a nappy company
publicly making false claims as to its products’ biodegradability was
engaging in conduct falling foul of sections 52 and 53 of the Trade
Practices Act 1974 (the TPA). Claims that the nappies were “100%
biodegradable” were made on product packaging, in advertising and on
the company’s website. Upon finding that the nappies were not in fact
fully biodegradable, the Court held that the company had engaged in
misleading or deceptive conduct, and made false or misleading
representations, of the types prohibited by sections 52 and 53
respectively. This was punishable by injunction restraining the company
from engaging in further similar conduct, and by order that it publish
a corrective advertisement and implement a trade practices compliance
program.
Section 80 of the TPA gives the power to order an injunction
against a person who is “knowingly concerned” in the contravention of a
provision under Part V of the Act. Sections 52 and 53 fall within this
Part. The Court consequently ordered an injunction against a director
of the company who had approved the biodegradability claims when she
knew they were not true. The five year injunction disallows the former
director from being party to any nappy biodegradability claims without
having received independent scientific verification of the claims’
veracity.
Conclusion
This case serves as a reminder of two points. First, that given the
increasing interest in “green” matters, companies should take care when
making claims as to the environmental merits of their products and be
willing to verify their claims with scientific evidence. Secondly, that
– as highlighted by ACCC Chairman Graeme Samuel – “directors cannot
hide behind their companies”: “[i]f a director or employee is knowingly
concerned in their company’s misleading conduct, then those individuals
also risk personal fines and injunctions”. Directors and employees
should note that section 80 covers various forms of indirect liability,
and that the scope of the “knowingly concerned” element is broad:
persons need only be “in any way, directly or indirectly, knowingly
concerned in, or party to, the contravention”, or be proposing to be
knowingly concerned in such a way.
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