Friday, 16 March 2012

Stocktake of the ACCC’s new powers and remedies under the Australian Consumer Law – the first 18 months


Part 2: Infringement notices

This article first appeared in the Australian Competition & Consumer Law Tracker, CCH, Issue 12, December 2011.

Introduction

Along with the public warning power, the most controversial new power given to the Australian Competition and Consumer Commission (ACCC) is the power to issue infringement notices. Under this power, the ACCC is able to issue on-the-spot fines to traders for particular conduct without taking a matter to court.


Section 134A of the Competition and Consumer Act 2010 (CCA) defines “infringement notice provision” to include:

  • unconscionable conduct
  • unfair practices
  • unsolicited consumer contracts
  • lay-by agreements
  • product safety provisions
  • warranties against defects
  • display notices
  • proof of transactions
  • itemised bills
  • repairer’s obligations
  • breaches of the substantiation notice provisions.

The ACCC cannot issue infringement notices for the following provisions of the Australian Consumer Law (ACL):

·  misleading or deceptive conduct (s 18)
·  some of the prohibitions on offering rebates, gifts and prizes without intending to supply (s 32(1))
·  some forms of bait advertising (s 35(1) [1]
·  most prohibitions on wrongly accepting payment (s 36(1), (2), (3)); and
·  unsolicited directory entries, goods or services (s 40, 43).

The operation of the infringement notice provisions is complicated because s 134A states that certain parts of sections will be infringement notice provisions, while other parts of the same sections will not be infringement notice provisions.

For example, s 32(1), which relates to offering a rebate, gift, prize or other free item without the intention of actually providing it, is not an infringement notice provision. However, s 32(2), which places an obligation on a person to supply a rebate, gift, prize or other free item either within the stipulated time or within a reasonable time, is an infringement notice provision.

Other examples relate to bait advertising and wrongly accepting payment. Section 35(1) prohibits a person from advertising a good or service if there are reasonable grounds for believing that they will not be able to supply the goods or services at all or in reasonable quantities. This section is not an infringement notice provision. However, s 35(2), which requires a person to supply goods or services which are advertised at a specified price at that specified price for a reasonable period, is an infringement notice provision.

Finally, s 36(1), (2) and (3), which prohibit wrongly accepting payment for goods or services, are not infringement notice provisions. However, s 36(4) which imposes an obligation on a person to supply a good or service within any stipulated time or within a reasonable time once they have accepted consideration or payment for that good or service, is an infringement notice provision.

There does not appear to be any hard and fast rule why certain of the provisions in s 32, 35 and 36 are infringement notice provisions and others are not infringement notice provisions.

The onus the ACCC needs to satisfy in order to issue an infringement notice is set out in s134A(1) of the CCA which states:

If the Commission has reasonable grounds to believe that a person has contravened an infringement notice provision, the Commission may issue an infringement notice to the person.

Infringement notices are not effective if issued in relation to conduct which is more than 12 months old.

Only one infringement notice may be issued in relation to an alleged contravention. The infringement notice penalty must be paid within 28 days of the notice being issued. The maximum penalties which can be obtained through the use of an infringement notice are $66,000 for a listed corporation, $6,600 for an unlisted corporation and $1,320 for an individual.

Once the infringement notice has been paid, no civil or criminal proceedings may be started or continued against the person by or on behalf of the Commonwealth[2] in relation to the conduct the subject of the infringement notice. The way that the Parliament intended the ACCC to use the new infringement notice powers was outlined in the relevant Explanatory Memorandum as follows:

The limitation on the size of the financial penalty specified in the infringement notice and restrictions preventing the ACCC or ASIC from taking other action in relation to conduct dealt with using this mechanism are intended to ensure that it is not used for more serious contraventions as an alternative to existing Court processes. However, if a person fails to comply with an infringement notice and a Court subsequently determines that a contravention has occurred, the Court can impose a significantly higher pecuniary penalty.[3]

Between the time that the ACCC obtained the power to issue infringement notices on 15 April 2010 and August 2011, it issued 63 infringement notices, of which 59 had been paid.[4]

The total penalties obtained through these 59 infringement notices were in excess of $300,000. By the end of October 2011, the ACCC had received payments for 61 infringement notices.[5]

ACCC’s use of its infringement notice powers
The first infringement notices were issued to eight small restaurant and café owners who had failed to have separate menus showing the total prices charged on weekends and public holidays. This conduct was considered to have breached the former s 53C of the Trade Practices Act 1974 (TPA).[6]

Interestingly, only four of these businesses paid the infringement notices by the due date. As a result, the ACCC commenced legal proceedings against four of the businesses for the underlying breach of s 53C.[7]  Two of the cafes subsequently agreed to settle the ACCC’s proceedings by consent. They were each penalised $13,200, which was twice the amount initially sought in the infringement notice.[8] 

In separate proceedings, the ACCC was able to secure a penalty of $15,000 against Signature Brasserie and $20,000 against the former owner of Babar Café and Bar for the underlying breach.[9]

This series of café cases provides a number of insights into how the ACCC has been using its infringement notice powers. First, the ACCC will not hesitate to take legal action against a business which fails to pay an infringement notice by the due date. Second, if the ACCC does take action against a company for the underlying breach it is likely to secure a significantly higher penalty than the amount initially sought under the infringement notice. In the three litigated café cases, the ACCC secured penalties which were 2 to 3 times higher than the amount which the ACCC had initially been seeking under the infringement notice.

The next significant case was the ACCC’s decision to issue infringement notices in relation to the conduct of the David Lawrence, Marcs and Jigsaw retail stores, which were all owned by M Webster Holdings Pty Ltd.[10]

In this case, the ACCC was concerned that the three retail stores were making misleading representations on their receipts and in-store signs about consumer guarantees. The ACCC alleged that these stores were advising their consumers that they did not have to offer exchanges, refunds or credits for sale items which were not of acceptable quality. Significantly, the ACCC decided to issue three infringement notices contributing to a total penalty of $19,800 rather than simply one infringement notice to the corporate entity, M Webster Holdings Pty Ltd. The ACCC appears to have formed the view that it was justified in issuing three infringement notices because there were three separate contraventions of the TPA — ie each of the retail stores had promoted a misleading refund policy.

Shortly after this matter, the ACCC issued four infringement notices to Dodo Australia Pty Ltd (Dodo).[11]  In this matter, the ACCC was concerned that Dodo had made false or misleading representations about the price of its Unlimited ADSL2+ broadband plan. However, rather than issuing one infringement notice to Dodo, the ACCC issued four notices on the basis that Dodo had made the alleged misrepresentations in four different types of media — namely, in TV advertisements, on its website, on billboards and on radio. Accordingly, Dodo had to pay a total penalty of $26,400.

In June 2011, the ACCC announced that six separate Harvey Norman franchisees had paid infringement notices in relation to alleged bait advertising.[12]  This decision immediately caused some confusion as most practitioners had understood that the infringement notice power did not apply to bait advertising. However, a careful reading of s 134A of the CCA shows that only s 35(1) of the ACL is excluded from the scope of the infringement notice power and not s 35(2). Therefore, the ACCC may issue infringement notices in relation to some forms of bait advertising.

By far the most controversial use of the ACCC’s new infringement notice powers was the ACCC’s decision to issue 27 infringement notices to Optus in relation to its “Max Cap” plans.[13]  Optus was required to pay a total penalty of $178,200 for allegedly making false or misleading representations about the price, nature and characteristics of its services. In its media release, the ACCC sought to explain its decision to issue 27 infringement notices to Optus:

The ACCC decided it was appropriate to issue 27 infringement notices ($6,600 for each notice) to Optus based on the number of advertisements published and the various representations made within those advertisements.

The obvious implication of this approach is that if a business makes a large number of misrepresentations for an extended period of time in a wide variety of different media, the size of the penalty could rise exponentially.

Concerns
There are quite a number of valid concerns about the ACCC’s power to issue infringement notices.

Separation of powers issues
The ACCC’s new power to issue infringement notices was considered as quite controversial when it was introduced due to a concern that it raised separation of powers issues — namely, the blurring of executive and judicial functions. The power to impose a pecuniary penalty on a business for a breach of legislation may be characterised as the exercise of a judicial function, which should properly reside in the courts, rather than with a federal government agency, such as the ACCC. There are still many practitioners who believe that giving enforcement agencies the power to issue on-the-stop fines in this way is likely to be unconstitutional.

Challenging the infringement notice
Section 134G of the CCA provides that a person who has been issued with an infringement notice may make representations to the ACCC seeking the withdrawal of the infringement notice. There is no more guidance in the CCA or from the ACCC about how this provision is to apply in practice. Obviously, the business will have to provide some quite compelling reasons to the ACCC to justify the ACCC withdrawing the infringement notice.

The ACCC has received a number of requests to have an infringement notice withdrawn and has also withdrawn an infringement notice in at least one case.

In the Goody case[14] and the Le Sands case[15], the solicitors for the respondents asked the ACCC to withdraw the infringement notice on the basis that they had rectified their menus to show the full price. In both cases, the ACCC notified the respondents that they would not be withdrawing the infringement notices.

Despite being advised by the ACCC that the infringement notices would not be withdrawn, the businesses did not pay the infringement notices by the due date. As a result, the ACCC commenced legal proceedings against the businesses.

Unfortunately, these cases do not provide any details as to why the ACCC did not agree to withdraw the infringement notices.

It appears that the ACCC will not agree to withdraw an infringement notice if the request is made outside the infringement notice compliance period. Section 134G(6) of the CCA states:

To be effective, the withdrawal notice must be given to the person within the infringement notice compliance period for the infringement notice.

Therefore, it stands to reason that if a withdrawal notice will only be effective if it is given to the person within the infringement notice compliance period, then the ACCC cannot withdraw a notice after the infringement notice compliance period has expired.

I also note the helpful commentary on this issue in the Australian Competition and Consumer Law Reporter:

The ACCC may refuse to withdraw an infringement notice, even if a contravention is rectified … If withdrawal is sought, the 28-day infringement notice compliance period must be kept in mind. It might be prudent to request an extension of the compliance period under s 134F(2) when seeking withdrawal of the infringement notice …[16] 

The ACCC can extend the time to comply with an infringement notice by a maximum of 28 days (s 134F(3)) where it believes it is appropriate to do so.

One obvious justification for requesting the withdrawal of an infringement notice would be if there was an error in the notice itself. This occurred in the Le Sands case where there was an error in one of the Schedules to the infringement notice. As a result, the ACCC withdrew the infringement notice and issued a new infringement notice in relation to the same conduct.

Another situation where it would be appropriate for the ACCC to consider withdrawing an infringement notice is where the business can show that the issuing of the notice is unfair in some way. Some examples of unfairness would include where the contravention arose from an honest mistake or where the business can show that the issuing of the infringement notice is going to have a disproportionately negative impact on the business.

It is also theoretically possible for a business to challenge the ACCC’s decision to issue an infringement notice on administrative law grounds. This would involve arguing that the ACCC did not have reasonable grounds to believe that a person had contravened an infringement notice provision. However, the costs of challenging the ACCC’s decision to issue an infringement notice on administrative law grounds is likely to be significantly greater than just paying the infringement notice.

Another option for a business which does not believe that it has contravened the ACL and believes that it should not have to pay the infringement notice, is to decide not to pay the infringement notice and fight the substantive case in court. Again, the cost of pursuing this option will be much greater than the financial penalty being sought under the infringement notice in the first place.

ACCC’s use of infringement notices
There is also a valid argument that the way in which the ACCC has used its infringement notice powers in a number of cases has been inconsistent with the way Parliament intended that the power should be used. As stated above, the Explanatory Memorandum, cited above, made it quite clear “that (the infringement notice power) is not [to be] used for more serious contraventions as an alternative to existing Court processes”.

Arguably, the Dodo and Optus cases as well as the Harvey Norman bait advertising cases should all have been treated as more serious contraventions of the ACL and not been the subject of infringement notices.[17]

Admissions
The ACCC has also developed a practice in relation to infringement notices which has caused considerable consternation amongst legal practitioners, particularly the Law Council of Australia. The ACCC has adopted a practice in most matters where it has issued an infringement notice to also seek an s 87B undertaking from the business concerned.[18]

It makes a great deal of sense for the ACCC to seek a s 87B undertaking from a business when also issuing it with an infringement notice as there is little point in the ACCC simply fining a business for illegal conduct without also requiring that the business implement some measures to prevent further breaches of the CCA and ACL. The best way to achieve such preventative steps is to require the business to establish a compliance program consisting of the:

·  appointment of an in-house compliance officer;
·  introduction of specific annual compliance training; and
·  implementation of a complaints handling system.

However, the difficulty which arises in relation to the ACCC’s approach is that it is also the ACCC’s usual practice to seek admissions of a contravention of the CCA or ACL in all s 87B undertakings. As stated in the ACCC’s s 87B policy document a typical element of an s 87B undertaking will be:

… an acknowledgment or admission from the company or business that the conduct of concern constitutes or was likely to constitute a breach of the Act.[19]

The concern expressed by the Law Council was that the ACCC’s actions in requiring an admission from a business in an s 87B undertaking was inconsistent with the terms of s 134D of the CCA which states that the payment of an infringement notice does not constitute an admission by the business of the underlying breach.[20]

While the Law Council’s observations about this issue are valid, the simple solution in these circumstances is for legal practitioners to advise their clients not to agree to make any admissions in an s 87B undertaking when the undertaking is being provided to the ACCC in the context of an infringement notice. I think it is highly unlikely that the ACCC will simply abandon both the infringement notice and the s 87B undertaking, and commence legal proceedings against the business for the sole purpose of obtaining admissions, particularly as the conduct is, by definition, a “less serious” contravention.

Guidelines
Another valid point made by the Law Council in its submission to the ACCC relates to the failure by the ACCC to issue any substantive guidelines on how and when it will be exercising its infringement notice powers.[21]

Even though one can discern some broad principles about the ACCC’s use of its powers from reviewing the various matters discussed above, this is no substitute for formal guidance from the ACCC. Furthermore, while my brief review of ACCC cases has identified a number of broad principles about “how” the ACCC will use their infringement notice power, this review provides little guidance on “when” the ACCC will use these powers.

A more in-depth analysis of the particular matters where the ACCC has used its infringement notice powers may provide some guidance on “when” the ACCC is likely to use this power. The following table records the types of conduct which have been the subject of infringement notices from April 2010 until October 2011:

Table: Infringement notices paid between 15 April 2010 to 28 November 2011[22]


Conduct
No. infringement notices issued and paid

% of total
Price representations
32
52.0
Sponsorship and approval
11
18.0
Bait advertising
6
10.0
Misleading conduct (s 55A TPA)
6
10.0
Misrepresentations about warranties
and rights
4
7.0
Product safety
1
1.5
Testimonials
1
1.5

Totals

61

100.0


Based on the above table, it seems safe to conclude that the ACCC has tended to use its new infringement notice powers most extensively in relation to misrepresentations about price. One can also safely assume that the ACCC’s use of its infringement notice powers in relation to price misrepresentations is likely to increase quite significantly with the introduction of the carbon price.

The other major area where the ACCC has used its infringement notice powers is in relation to misrepresentations concerning sponsorship and approval. This encompasses both misrepresentations that a company has particular sponsorship or affiliations as well as misrepresentations that goods have sponsorship, approval, performance characteristics, accessories, uses or benefits they do not have.

Conclusions
The ACCC has shown a great propensity to use its new infringement notice powers since their introduction in April 2010. Although the ACCC did not issue and receive payment of its first infringement notice until July 2010, since then it has issued and received payment of a further 60 infringement notices. This is a rate of just under four infringement notices a month.

The failure of the ACCC to issue any guidelines on how and when it will use its infringement notice powers has created a great deal of uncertainty. This uncertainty has been compounded by the way in which the ACCC used its infringement notice powers in relation to the Optus “Max Cap” matter. 


The good news is that in September 2011 the ACCC advised the Law Council that it would be releasing draft guidelines on the use of its infringement notice powers in late 2011. (NB: Unfortunately this has not yet occurred). It is hoped that these guidelines will be able to provide both legal practitioners and businesses with some meaningful parameters on how and when the ACCC will be using its infringement notice powers in the future.



[1] See the discussion of the Harvey Norman matters below.
[2] The expression “by or on behalf of the Commonwealth” is a reference to the ACCC and the various state and territory fair trading regulators. These organisations are referred to collectively as the ACL regulators. This article will only focus on the activities of the ACCC.
[3] Explanatory Memorandum to the Trade Practices Amendment (Australian Consumer Law) Bill 2009 (the No 1 Amendment Bill), para 8.38.
[4] The ACCC’s initial experience with Australian Consumer Law remedies and powers, Speech by Peter Kell, Deputy Chair of the ACCC to the 36th Competition and Consumer Workshop, 26–28 August 2011, 1, available at -http://www.cch.com.au/AttachmentLibrary/MarketingPromo/Peter_Kell_The_ACCC%E2%80%99s_initial_experience_with_Australian_Consumer_Law_remedies_and_powers.pdf (Speech by Peter Kell).
[5] ACCC Infringement Notices Register, www.accc.gov.au/content/index.phtml/itemId/939961/
[6] ACCC News Release, Misleading menus invite Infringement notices, NR 129/10, 1 July 2010.
[7] ACCC News Release, ACCC institutes against cafés for alleged menu breaches, NR 186/10, 9 September 2010.
[8] ACCC v Gourmet Goody’s Family Restaurant Pty Ltd [2010] FCA 1216; ACCC News Release, Restaurant menus misled consumers, NR 243/10, 4 November 2010
[9] Australian Competition and Consumer Commission v Le Sands Restaurant and Le Sands Café Pty Ltd t/as Signature Brasserie (2011) ATPR ¶42-342; [2011] FCA 105; Australian Competition and Consumer Commission v AI Constructions (ACT) Pty Ltd [2010] FCA 1377; ACCC News Release, Former café operator ordered to pay $20,000 penalty, NR 265/10, 8 December 2010.
[10] ACCC News Release, David Lawrence, Jigsaw and Marcs pay infringement notices, offers undertaking over refund policy, NR 274/10, 16 December 2010.
[11] ACCC News Release, Dodo pay infringement notices, NR 004/11, 6 January 2011.
[12] ACCC News Release, Six Harvey Norman franchisees pay for not stocking cameras, NR 090/11, 7 June 2011.
[13] ACCC News Release, Optus pays for ‘max cap’ advertising, NR 084/11, 18 May 2011.
[14] ACCC v Gourmet Goody’s Family Restaurant Pty Ltd [2010] FCA 1216.
[15] Australian Competition and Consumer Commission v Le Sands Restaurant and Le Sands Café Pty Ltd t/as Signature Brasserie (2011) ATPR ¶42-342; [2011] FCA 105.
[16] CCH, Australian Competition and Consumer Law Reporter at ¶35-110.
[17] The Harvey Norman group were the subject of a successful ACCC legal action in 2004 for bait advertising — ACCC News Release, Federal Court orders declarations, ACCC accepts undertakings from Harvey Norman over misrepresentation and bait advertising action, MR 151/04, 10 August 2004.
[18] An s 87B undertaking is a court enforceable agreement between the ACCC and a business whereby the business agrees to carry out a number of remedial steps.
[19] Section 87B of the Trade Practices Act: Guidelines on the use of enforceable undertakings by the Australian Competition and Consumer Commission, September 2009, p5.
[20] Law Council of Australia, Use of Infringement Notices by the ACCC, Submission to ACCC, 19 August 2011, 6–7, available at www.lawcouncil.asn.au/shadomx/apps/fms/fmsdownload.cfm?file_uuid=12FF2DD3-B378-8D68-32EE-E49B208FCDEF&siteName=lca.
[21] The ACCC did issue a Business Snapshot in 2011 entitled ACCC powers to issue infringement, substantiation and public warning notices, available at www.accc.gov.au/content/index.phtml/itemId/935285. However, this document could not be considered a guideline on how and when the ACCC will use its infringement notice powers.
[22] ACCC Infringement Notices Register, www.accc.gov.au/content/index.phtml/itemId/939961.


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