Wednesday, 3 April 2013

The ACCC and Infringement notices: A Guide for Business


Introduction
Both Commonwealth and State governments have shown a greater willingness over the past few years to supplement the powers of regulators by giving them additional powers to issue infringement notices, or on-the-spot fines. For example, such powers were given to the Australian Securities and Investments Commission and the Australia Communications and Media Authority some time ago and more recently to the Australian Competition and Consumer Commission (ACCC) and its state and territory counterparts. 

This trend of giving regulators the power to impose what are effectively on-the spot fines raises a number of concerns, particularly whether such fining powers blur the separation of powers between the executive and judicial branches of government.  However, as it appears that such powers are here to stay (and are likely to become even more common in the future) it is essential for both legal practitioners and their small business clients to understand the scope of the regulator’s powers and also what they should do if they called upon to deal with an infringement notice.

In this post, I will be explaining how the ACCC’s infringement notice powers under the Australian Consumer Law (2010) (ACL) work, as well as the way in which these powers have been used by the ACCC since their introduction in April 2010. Even though these powers were introduced over two years ago, the ACCC only issued its Guidelines on the use of infringement notices in October 2012 (Guidelines)[1].

Why did the ACCC get an infringement notice power?
The reasons why the government decided to give the ACCC the power to issue infringement notices was explained in the Explanatory Memorandum as follows:[2]

8.2  Infringement notices will supplement existing criminal sanctions and civil penalties, as well as the other enforcement powers proposed in the Bill.  They will remedy a significant gap in the current enforcement framework by facilitating the payment of relatively small financial penalties in relation to relatively minor contraventions that may not otherwise be pursued through the Courts.

8.4  The power is intended to provide the ACCC and ASIC with greater flexibility to respond to less serious contraventions…

As stated above, the purpose of providing this power to the ACCC was to fill a perceived gap in the then existing laws.  The government was concerned that there was no specific provision in existing laws to impose relatively small financial penalties in relation to minor contraventions. 

In reality, this alleged gap in the law did not exist, as it was clearly open to the ACCC at that time to pursue these “relatively minor contraventions” through the courts and to obtain “relatively small financial penalties”.  All of the financial penalty provisions which existed in the Trade Practices Act 1974 (TPA) at the time were expressed as maximum financial penalties.  Therefore, courts had a broad discretion to impose financial penalty which are much lower than the statutory maximum, if they considered that the contravention was “relatively minor” or “less serious”.

In truth, the main problem facing the ACCC at that time was that the legal costs of pursing these “relatively minor contraventions” through the courts was prohibitive.  Such cases would invariably result in the legal costs of the action dwarfing the actual financial penalties which were ultimately imposed by the Courts. Therefore, the infringement notice power was introduced to the ACL to assist the ACCC in pursuing relatively minor contraventions of their legislation in a cost effective manner.

The financial penalties which can be obtained through the use of an infringement notice were limited to reflect that they were only to be sought in relation to “relatively minor contraventions”. As stated in the Explanatory Memorandum:[3]

8.38 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.

What conduct can be the subject of an infringement notice?
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 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)
·  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, ss.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.

When can the ACCC issue an infringement notice?
The onus the ACCC needs to satisfy in order to issue an infringement notice is set out in s.134A(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.

What is the effect of an infringement notice?
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[4] in relation to the conduct the subject of the infringement notice.

What do the ACCC’s Guidelines say?
The ACCC issued its Guidelines in October 2012  The purpose of the Guidelines was to “provide background information and general guidance to businesses and their advisors on the (ACCC’s) approach to issuing infringement notices”.[5]

The ACCC reinforces the view that infringement notices “are designed to provide a timely, cost-effective enforcement outcome in relation to relatively minor contraventions” of the ACL.[6]

The ACCC makes it clear in the Guidelines that “generally speaking the ACCC will only consider issuing an infringement notice where it is likely to seek a court-based resolution should the recipient of the notice choose not to pay.” In other words,  the ACCC will not issue an infringement notice unless it is willing to go to court to enforce compliance with the notice if the business does not pay.

On page 4 of the Guidelines, the ACCC lists some examples of the circumstances where it is more likely to consider the use of an infringement notice:

·  where it forms the view that the contravening conduct is relatively minor or less serious
·  where there have been isolated or non-systematic instances or non-compliance
·  where there have been lower levels of consumer harm or detriment
·  where the facts are not in dispute or where the ACCC considers the circumstances giving rise to the allegations are not controversial, and
·  where infringement notices form part of a broader industry or sectoral compliance and enforcement program following the ACCC raising concerns about industry wide conduct.

As is apparent, the ACCC will issue infringement notices where conduct is relatively minor or less serious, for example where there are lower levels of consumer harm or detriment.  The ACCC will also use the power where the facts of the contravening conduct are not controversial.

The most interesting situation where the ACCC will use its infringement notice powers is to achieve broader sectoral compliance.  In other words, the ACCC may issue notices to a number of businesses in the same industry in an effort to stamp out a particular type of contravening conduct.

The ACCC states in its Guidelines, that is less likely to issue an infringement notice in the following circumstances:[7]

·  the ACCC considers the concerns are more serious in nature and warrant consideration by the Court
·  there has been significant detriment arising from the alleged conduct
·  the ACCC has concerns that the alleged conduct may be continuing
·  there are questions about whether the alleged conduct occurred within the 12 months period in which the ACCC may issue an infringement notice
·  the matter raises complex questions about the interpretation of a provision of the ACL, and
·  the ACCC or another ACL regulator has previous taken action against the persons involved in the alleged contravention – particularly where recent or very similar.

The above list is very much a mirror image of the situations when the ACCC is likely to issue an infringement notice.  The main differences relate to continuing conduct and the 12-month time limit. 

It seems appropriate that the ACCC will not issue an infringement notice where the business is continuing to engage in the contravening conduct.

The ACCC will also not issue an infringement notice were there may be doubt that relevant contravening conduct occurred in the 12-months period prior to the date of the infringement notice.

How often has the ACCC used its infringement notice powers?
Between the time that the ACCC obtained the power to issue infringement notices on 15 April 2010 and April 2013, it has received payment of 95 infringement notices. The total penalties obtained through these 95 infringement notices was $627,000.

How has the ACCC used 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 a breach of the former s.53C of the TPA.[8] 

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.[9]  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.[10] 

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.[11]

This particular use of the infringement notice power appears to be an example of the ACCC seeking to achieve sectoral compliance in the restaurant and café industry by targeting component pricing.  

These cases also demonstrate that:

·  the ACCC will not hesitate to take legal action against a business for the underlying breach if it fails to pay an infringement notice by the due date; and

·  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/s.

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.

In the Guidelines, the ACCC states that it may issue more than one infringement notice to a business in certain circumstances, for example, where it believes that a business has engaged in multiple contraventions of infringement notice provisions or the contraventions by the business have involved the use of different types of media.

An example of a case where the ACCC issued multiple infringement notices was in relation to the David Lawrence, Marcs and Jigsaw retail stores, which were all owned by M Webster Holdings Pty Ltd.[12]

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.  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 appropriate to issue three infringement notices because there were three distinct contraventions of the TPA — ie each of the retail chains had promoted a misleading refund policy.

Shortly after this matter, the ACCC issued four infringement notices to Dodo Australia Pty Ltd (Dodo).[13]  In this matter, the ACCC was concerned that Dodo had made false and misleading representations about the price of its Unlimited ADSL2+ broadband plan. 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 on TV, its website, billboards and radio. Accordingly, Dodo was required to pay a total penalty of $26,400.

By far the most controversial use of the ACCC’s new infringement notice powers was the decision to issue 27 infringement notices to Optus in relation to its “Max Cap” plans.[14]  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 explained its decision as follows:

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.

This case appears to involve a combination of two principles as set out in the ACCC’s Guidelines – namely a situation where a business has engaged in a number of contraventions, in a wide range of media.   

Having said that, it is hard to see how the use of the infringement notice power in this case was consistent with the more fundamental principle identified in the ACCC’s Guidelines, namely, that infringement notices should only be used where the contravening conduct is relatively minor or less serious.  A total financial penalty of $178,000 appears to signify a fairly serious contravention of the ACL.

Another matter which raised some concerns was the ACCC’s decision to issue infringement notices to six separate Harvey Norman franchisees in relation to bait advertising.[15]  This seemed an odd use of the infringement notice power, given that Harvey Norman had previously been the subject of a successful ACCC legal action for bait advertising in 2004. 

What to do if you receive an infringement notice?
The ACCC states in its Guidelines that the recipient of an infringement notice will generally have had some prior contact with the ACCC before receiving the infringement notice.[16] In other words, an infringement notice should not come “out of the blue” but rather will be issued at the conclusion of an in-depth ACCC investigation into the businesses’ conduct.

The first thing a business should do when they receive an infringement notice is to seek legal advice.  Given that the consequences of not paying the infringement notice by the due date are that the ACCC is likely to commence legal proceedings against the business for the underlying breach, it may be risky to attempt to respond to the notice without first having obtained legal advice.

The main issues which a business should consider if they receive an infringement notice are:
  1. is the infringement notice addressed to the correct legal entity
  2. did their business engage in the contravening conduct as alleged by the ACCC
  3. did the contravening conduct occur within the 12-month period prior to the date of the infringement notice, and
  4. will the business be able to comply by the due date.

In the event that the business needs more time to comply, they are able to ask the ACCC for a further 28 days.[17]

The ACCC states in its Guidelines that, when making a request for an extension, the recipient should advise the ACCC, in writing:

·  whether they intend to pay the infringement notice penalty
·  the circumstances as to why they are not able to pay the infringement notice penalty within the current compliance period, and
·  why they anticipate they will be able to comply if the compliance period is extended.

The ACCC also states that the request must be made no later than one week before the payment due date. This suggests that the ACCC will not extend the period for compliance with the notice if the request for an extension is made after the date for compliance.

A recipient of an infringement notice may also ask the ACCC to withdraw the infringement notice.[18]

The ACCC explains its approach to such requests on page 8 of the Guidelines – namely that a request for withdrawal could be based on a claim by the recipient that they did not engage in the contravening conduct or that there was additional relevant information which the ACCC was not previously aware.

If a recipient wishes to request the withdrawal of an infringement notice their request must be in writing, made prior to payment date and include all relevant information which the recipient wishes the ACCC to take into consideration. The ACCC states that such requests should be made no later than two weeks before the payment date.

Interestingly, the ACCC states that any information provided to the ACCC as part of a request to withdraw a notice will not be used in evidence against the recipient in the event that the ACCC subsequently takes legal proceedings

Finally, the ACCC points out that it does not have any discretion to reduce the penalties stipulated for infringement notices. Contrary to other financial penalties in the CCA and ACL, the infringement notice penalties are not a maximum penalty but rather a set or prescribed penalty.

In the Goody case[19] and the Le Sands case[20], 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 cash price. In both cases, the ACCC notified the respondents that they would not be withdrawing the infringement notices. Despite being advised that the infringement notices would not be withdrawn, the businesses did not pay the infringement notices by the due date. Both business were subsequently sued by the ACCC.

In reality, the ACCC is only likely to withdraw an infringement notice in the most exceptional circumstances, for example, where 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. The ACCC subsequently withdrew the infringement notice and issued a new infringement notice with the error rectified.

Other situations where the ACCC may withdraw a notice would be where the notice identifies the wrong legal entity or where the recipient can prove that the relevant conduct occurred more than 12 months before the date of the infringement notice. 

It is also unlikely that the ACCC will agree to an extension to comply with a notice unless the recipient can provide very compelling reasons why they cannot comply by the due date. An example may the fact that a key decision maker in the business is unavailable within the prescribed 28 day time-frame.

Will the ACCC demand admissions?
The ACCC has also developed a practice in relation to infringement notices of also seeking an s 87B undertaking from the business concerned. This practice has caused considerable concern amongst some lawyers.[21]

However, one can understand why the ACCC seeks an s.87B undertaking from a business at the same time that it issues them with infringement notice. From a compliance perspective, there is little point in the ACCC simply fining a business for illegal conduct without also requiring that the business implement measures to prevent further contraventions in the future.

The difficulty which arises in relation to the ACCC’s approach is that it is also their practice, when agreeing to a s.87B undertaking, to seek admissions. As stated in the ACCC’s s.87B guide an s.87B undertaking will usually include:

… 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.[22]

The Law Council expressed a concern that the ACCC’s approach of requiring an admission from a business in an s.87B undertaking, in the context of an infringement notice matter, 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.[23]

Unfortunately, while the ACCC mentions the broader issue of s.87B undertakings in its Guidelines, it does not address the specific issue of admissions.

Having said this, it appears that the simple solution to this perceived problem if for businesses faced with this problem, to refuse to make any admissions in the s.87B undertaking because it is being sought in the context of an infringement notice. It is highly unlikely that the ACCC will abandon its quest for both the infringement notice and the s.87B undertaking, preferring instead to commence legal proceedings for the sole purpose of obtaining an admission for conduct which is, by definition, “relatively minor” and “less serious”.

Conclusions
It is very important for businesses and their legal practitioners to fully understand how to respond appropriately to an infringement notice given the ACCC’s propensity to use these powers. Although the ACCC did not receive payment of its first infringement notice until July 2010, since then it has received payment for a further 90 infringement notices, which is a rate of just under three infringement notices a month.

It is also very welcome that after more than two and a half years since the ACCC first obtained the power to issue infringement notices, it has finally issued Guidelines explaining how it has and will be using this power.  Indeed, the Guidelines are very helpful in explaining the circumstances in which the ACCC will and will not issue an infringement notice. This guidance will also serve the purpose of assisting businesses and their legal advisers in submitting to the ACCC that a particular investigation should, in fact, be resolved by the ACCC through the use of an infringement notice rather than through the commencement of costly and time consuming litigation.



[1] Guidelines on the use of infringement notices, ACCC, 16 October 2012 at http://www.accc.gov.au/content/index.phtml/itemId/1085234
[2] Explanatory Memorandum to the Trade Practices Amendment (Australian Consumer Law) Bill 2009.
[3] Ibid.
[4] The expression “by or on behalf of the Commonwealth” is a reference to the ACCC and the various state and territory fair trading regulators.
[5] Ibid, p.1.
[6] Ibid, p.2.
[7] Ibid, p.6.
[8] Misleading menus invite Infringement notices, ACCC News Release, 1 July 2010 - http://www.accc.gov.au/content/index.phtml/itemId/935728.
[9] ACCC institutes against cafés for alleged menu breaches, ACCC News Release, 9
[10] ACCC v Gourmet Goody’s Family Restaurant Pty Ltd [2010] FCA 1216; Restaurant menus misled consumers, ACCC News Release, 4 November 2010 - http://www.accc.gov.au/content/index.phtml/itemId/954781/fromItemId/927069.
[11] ACCC v Le Sands Restaurant and Le Sands Café Pty Ltd t/as Signature Brasserie [2011] FCA 105; ACCC v AI Constructions (ACT) Pty Ltd [2010] FCA 1377; Former café operator ordered to pay $20,000 penalty, ACCC News Release, 8 December 2010 - http://www.accc.gov.au/content/index.phtml/itemId/960772.
[12] David Lawrence, Jigsaw and Marcs pay infringement notices, offers undertaking over refund policy, ACCC News Release, 16 December 2010 - http://www.accc.gov.au/content/index.phtml/itemId/962688.
[13] Dodo pay infringement notices, ACCC News Release, 6 January 2011 - http://www.accc.gov.au/content/index.phtml/itemId/966282/fromItemId/621575.
[14]Optus pays for ‘max cap’ advertising, ACCC News Release, 18 May 2011 - http://www.accc.gov.au/content/index.phtml/itemId/988219/fromItemId/2332.
[15] Six Harvey Norman franchisees pay for not stocking cameras, ACCC News Release, 7 June 2011 - http://www.accc.gov.au/content/index.phtml/itemId/991421.
[16] Guidelines, op. cit., p.7.
[17] s.134F(3) CCA
[18] s.134G CCA
[19] Goody’s case, op. cit.
[20] Le Sands Restaurant case, op.cit.
[21] 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.
[22] Section 87B of the Trade Practices Act: Guidelines on the use of enforceable undertakings by the Australian Competition and Consumer Commission, September 2009, p.5.
[23] Use of Infringement Notices by the ACCC - Submission to ACCC, Law Council of Australia, 19 August 2011, pp.6–7, at www.lawcouncil.asn.au/shadomx/apps/fms/fmsdownload.cfm?file_uuid=12FF2DD3-B378-8D68-32EE-E49B208FCDEF&siteName=lca.

No comments: