Saturday, 14 April 2012

The ACCC’s Carbon price claims Guide falls short of the mark

This article first appeared in the CCH Australian Competition & Consumer Law News, Issue 638, 17 February 2012, pp. 1-9.


The ACCC’s recently released Carbon price claims - Guide for Business[1] is aimed at providing businesses with an “understanding (of) their rights and obligations when making claims about the impact of a carbon price.”[2]  In many respects, the Guide is quite a helpful document in providing a general outline of what businesses can and cannot say about the carbon tax.  However, the Guide also fails to provide a great deal of practical assistance to businesses, particularly small and medium sized businesses, about how to represent and justify carbon price rises.

Summary of the Guide
As stated above, the ACCC explains that the purpose of the Guide is to assist businesses to understand their rights and obligations as a business operator when making claims about the impact of the carbon price. The ACCC then explains that the main prohibitions which will apply to such claims will be the misleading and deceptive conduct provisions in the Australian Consumer Law (ACL).

The ACCC’s role in relation to the carbon price will differ significantly to its role during the introduction of the GST.  During the GST, the ACCC could prevent both misrepresentations about the GST and price gouging, or attempts by businesses to increase their prices improperly during the GST period by more than the GST. 

The significant difference between the ACCC’s role in relation to the GST and the Carbon Price is that the ACCC has not been given any additional powers as part of its carbon price policing role to prevent what could be described as “carbon price gouging”. The ACCC’s role will be limited to investigating misrepresentations about the effect of the carbon price on the prices of goods and services.

The ACCC’s role
In this section of the Guide, the ACCC outlines its role in relation to the introduction of the carbon price. 

The ACCC states that it “has been directed by the Australian Government to undertake a compliance and enforcement role in relation to the claims made about the impact of the carbon price”.[3] This means that the ACCC will be aiming to both educate businesses and to take enforcement action against businesses if they breach the law.

Importantly, the ACCC states that:

You (businesses) are not generally required to justify or explain why your prices have increased – however, if you choose to claim that price increases are due to a particular cause, you should have confidence in your claim.  This includes where you choose to link your price increases to a carbon price.[4]

In other words, the ACCC will only be able to investigate a business where it attributes a price rise, either in full or in part, to the effect of the carbon price. If a business increases its prices due to the carbon price, but does not convey that fact to its customers through, either an oral or written representation, then the ACCC will not have jurisdiction to investigate that price rise.

The main issue which businesses must note in relation to the carbon price is that the policy intent behind the new laws is for businesses to pass the effect of the carbon price on to their customers. In other words, the purpose of the legislation is to create a market mechanism to increase the price of carbon, which will, in time, create economic incentives for businesses to move away from coal, and towards more sustainable and cleaner energy sources.

What small and medium sized businesses must avoid is trying to absorb the effect of the carbon tax in their existing profit margins simply because they are concerned about gaining the attention of the ACCC if they decide to pass these price rises on. 

Indeed, there was a great deal of anecdotal evidence during the introduction of the GST that many small and medium sized business did try to absorb the effect of the GST in their profit margins because they were concerned at either customer resistance or about being investigated by the ACCC.[5] 

In the current tough economic conditions, it would be a mistake for any businesses to try to absorb the effect of the carbon price in their existing profit margins.

Claims about the impact of a carbon tax
In this section, the ACCC advises businesses that when they are making a carbon price claim they have to ensure that their claims:

·       are truthful and accurate;
·       do not mislead consumers;
·       are based on reasonable grounds and
·       can be substantiated.[6]

The ACCC adds that if a business is in doubt about its claim it should not make the claim.

Problematic carbon price claims
The ACCC then gives some examples of the type of claims which are likely to mislead consumers, for example, inflating or exaggerating the carbon price effect on prices.

The ACCC provides an example of a hair salon which puts up its prices by 10% and represents to its customers that these price rises were “largely due to the carbon price”.  The ACCC states that this representation would be a concern under the ACL if only 4% of the price increase could be attributable to rising electricity costs due to the carbon price.[7]

The ACCC also provides the example of a waiter in a restaurant attributing all the price rises of the meals to the carbon price.  The ACCC states that if the business has no factual basis for this claim, then the business has made a misrepresentation.[8] 

This second example makes it clear how important it is for all businesses to train their staff about what to say to a customer in response to the inevitable questions about price increases.  In most cases, it will be sufficient for the business to direct its staff to make no mention of the carbon tax as the reason for the price increase. Businesses should direct staff to tell customers say that prices have increased due to increased costs, without mentioning the carbon price. 

However such general guidance may not be appropriate for sales staff employed by larger businesses, such as manufacturers and distributors, who deal with retailers on a regular basis. Such staff will no doubt be asked about any price rises by their retailer customers, particularly whether any price rise is due to the introduction of the carbon tax. A general answer that the price rise is due to increased costs is unlikely to be acceptable to many retail customers who will want to know the specific reason/s for the price increases.

Accordingly, it would be advisable for such sales staff to have access to the hard data which explains each component of any price increases, including the component of the price increase attributable to the carbon price.

Claims made before 1 July 2012
In this section, the ACCC identifies the situations where carbon price related claims may be made prior to 1 July 2012:

·  in contract negotiations for the supply of goods or services after 1 July 2012 and
·  announcements of future price rises after 1 July 2012.

The ACCC also notes the dangers associated with general business representations such as “Beat the Carbon Tax – Buy Now”.[9] 

Unfortunately, the ACCC only provides very general advice about how to deal with such future claims – namely that businesses must be “careful”.

The ACCC then discusses representations about the supply of services before and after 1 July 2012. In this section the ACCC provides an example of contractor who hires a business advisor to model the impact of the carbon price on the contractor’s prices.   Based on this advisor’s report, the contractor is able to make future projections about the impact of the carbon price on his prices.[10]

This section is quite a key section in the ACCC’s Guide. Unfortunately, the way this section has been set out, and the explanations provided, is quite haphazard.  To tell businesses to be careful in relation to future representations about the effect of the carbon price on goods is not very helpful advice.

The crucial legal issue that all businesses have to be familiar with concerning future price representations about the carbon tax is the way future representation are treated under the ACL. Unfortunately, this issue is not dealt with at all in the section concerning goods and only quite briefly in relation to the supply of services.

Under section 4 of the ACL, a future representation shall be deemed to be false or misleading if the person making the representation has no reasonable grounds for making the representation at the time that they make the representation. In other words, if someone claims that the price of its goods or services will increase in the future due to the carbon price, they will contravene the ACL if they have no reasonable basis for making that representation. Therefore, future representations can be made as long as they are made on reasonable grounds.

Furthermore, the reverse situation is also true.  If a person makes a future representation about the effect of the carbon tax on their prices with reasonable grounds, they will not contravene the ACL if their future representation turns out to be wrong and prices actually increase by more or less than the claim. 

In other words, if businesses make a good faith effort to work out the effect of the carbon tax on their prices and make representations about those likely future price increases, they will not be held liable under the ACL if these future predictions turn out to be wrong. This is an important issue for businesses to understand.

This section of the ACCC Guide also fails to emphasise the importance of businesses keeping copies of all the documents which they have relied upon when working out their future price increases.  This is the type of information which the businesses will need to provide to the ACCC in the event that they become the subject of an ACCC carbon price investigation.

This section is also problematic because it appears to recommend an unrealistically high standard for businesses to meet to ensure compliance. The example of the contractor hiring a business advisor to model the effect of the carbon tax on future prices is an overly elaborate and expensive approach.  Small and medium sized businesses will not be able to afford to hire a business advisor to model such price effects.

Claims based on information from others
The next section of the ACCC Guide is a lengthy and unfortunately quite convoluted section. This section seeks to explain the types of information which businesses can rely on when working out the extent of any price increases due to the carbon price.

The ACCC list a series of questions on page 6 of the Guide which the ACCC believes businesses should ask to determine whether it is reasonable for the business to rely on particular sources of information.   Again, these questions seem appropriate for larger businesses rather than small and medium sized businesses. For example, it would be quite unrealistic to expect a small business to attempt to check the carbon price calculations of a large electricity supplier in order to make sure these calculations are correct.

This list of questions is followed by an example of a baker who not only considers letters about the likely effect of the carbon tax on prices from his suppliers, but then seeks to crosscheck this information with relevant carbon price information provided by both the government and his industry association.[11] 

This seems to be an overly elaborate process for a small businessperson to be expected to implement in order comply with the law. Rather, it would seem sufficient from a risk management perspective for the small business owner to rely entirely on the information provided to it by its suppliers. One would hope that if the information provided to the baker by its suppliers turned out to be wrong, that the ACCC would focus its enforcement activities on those suppliers rather than on the baker.

Carbon price calculators
On page 8 of the Guide, the ACCC cautions businesses against relying exclusively on the various carbon price calculators which are available in determining how much to increase their prices due to the carbon price.  The ACCC encourages businesses to work out the actual price effect of the carbon price on their own business costs.

The ACCC concludes that if the business is in doubt about the effect of the carbon tax on their prices they should avoid attributing the price rise to any specific cause.

Talking with your competitors
In this section, the ACCC warns businesses against talking to their competitors about the impact of the carbon price on input costs.[12] This is sensible advice as some businesses, particularly small businesses, will no doubt be tempted to ask their local small business competitor how much they are proposing to increase their prices due to the carbon price, as a means of checking their own calculations. This conduct could constitute price fixing although the intent of the business was not to fix prices.

What the ACCC can do
In this section, the ACCC explains how it is likely to conduct investigations into allegations that businesses have misrepresented the effect of the carbon price.[13]  The impression gained from the ACCC’s guidance in this section is that it is proposing to make extensive use of its substantiation notice powers in carbon price investigations.

Under s 219 of the ACL, the ACCC has the ability to issue a substantiation notice to persons who have made a claim or representation promoting the supply of goods or services, or an interest in land or employment. The person (which includes a corporation) can be required to provide information or documents to substantiate or support their claims or representations. The period for compliance with a substantiation notice is 21 days.[14]

The ACCC emphasises the importance of a business keeping copies of all relevant information and documents which the business has relied upon to estimate the effect of the carbon price.

The ACCC also makes it clear that it will be focusing its enforcement efforts on complaints which reveal significant or widespread consumer detriment or demonstrate a blatant disregard of the law.

Shortcomings of the Guide
In addition to the shortcomings already identified above, the ACCC’s Guide unfortunately has a number of other significant shortcomings.

First, the Guide fails to provide businesses with a great deal of practical guidance. For example, the ACCC concludes particular sections of the Guide with general advice that businesses must exercise caution and that, if in doubt, the business should not mention the carbon price as a cause of a price increase at all. 

While this advice is legally correct, it is not very practical advice. Business people who operate in highly competitive industries know that they will have to justify all their prices to their customers or risk loosing those customers. Accordingly, businesses must be in a practical position to answer questions about their price increases.

Second, the Guide does not contain any checklists on how to comply with the law. Such checklists would no doubt have greatly assisted small and medium sized businesses in meeting their obligations in relation to the carbon price. Indeed, checklists have been a feature of other ACCC guides, particularly guides in relation to environmental representations. 

Third, the ACCC does not emphasise the importance of businesses briefing all their staff about what they should say to customers in the event that they are asked why prices have risen.  This is an important issue, as businesses can be liable for statements made by any of its employees, regardless of the employee’s seniority in the business. Indeed, a business can be liable under the ACL for a statement made by an employee, even if it is outside their actual or apparent authority.

Accordingly, it must be a priority for all businesses to train all the staff to either:

·  say nothing about the cause of any price increases; or

·  be in a position to provide a clear and accurate explanation of the impact of the carbon tax on prices.

Fourth, the ACCC does not advise businesses that have an existing compliance program to update those programs in the light of the introduction of the carbon tax. Furthermore, the ACCC does not encourage businesses that currently provide annual consumer law training to their employees to update that training to include guidance on the issues arising from the introduction of the carbon price. 

Fifth, the ACCC does not advise businesses to ensure that they record, in a written document, the reasoning processes which they undertook when deciding to increase their prices due to the carbon tax.  Such a document would provide businesses with a quick and efficient way of responding to any ACCC enquiry or investigation about the reasons for their price increases.

Sixth, as stated above, the ACCC does not either clearly or fully explain the way in which section 4 of the ACL operates in relation to future representations about the impact of the carbon price.   Businesses should understand that s. 4 can act as shield for a business which makes a future representation about the effect of the carbon price which subsequently proves to be incorrect, if they made the representation on reasonable grounds.

Finally, the Guide does not deal adequately with effect of any rebates or assistance which the business may receive from the Government in relation to the carbon price. These businesses will be expected to reduce the impact of carbon price on their prices by the level of the financial assistance which they have received from the government.  Despite the importance of this issue, particularly for the agricultural sector, it is only dealt with briefly by the ACCC in the Guide.

While ACCC may have intended to provide businesses with only high-level guidance in its Carbon price claims - Guide for business, unfortunately, such high-level guidance is of little practical use for small and medium sized businesses. SME’s will need to know how to pass on carbon price in their prices, as well as what they can legally say to customers about the effect of the carbon price. It is hoped that the over the next few months the ACCC can supplement the high level guidance provided in the Guide with more practical and detailed information about how to make legal carbon price claims without falling foul of the ACCC.  

[2] Ibid., p. 1.
[3] Ibid.
[4] Ibid.
[5] The author we the ACCC’s National GST Enforcement Coordinator during the GST Transition Period.
[6] Ibid., p. 2.
[7] Ibid., p. 3.
[8] Ibid.
[9] Ibid., p. 4.
[10] Ibid.
[11] Ibid., p. 6.
[12] Ibid., p. 9.
[13] Ibid., p. 10.
[14]  For a more detailed look at substantiation notices please see Michael Terceiro's article, Stocktake of the ACCC's new powers and remedies under the Australian Consumer Law - the first 18 months.

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