ACCC Investigatory Insights – Part 2

The Investigatory Process

The Enforcement Committee is a subdivision of the full Commission. It is responsible for making decisions in relation to all enforcement matters – namely, restrictive trade practices, consumer protection, unconscionable conduct, franchise investigations and product safety matters.

The EC meets once a week and comprises a number of Commissioners and senior managers. It makes final decisions on most enforcement issues, except for the decision to institute legal proceedings, which has to be made by the full Commission.

Before staff are able to incur significant amounts of money on an investigation, they must first get the approval of the Enforcement Committee.

The EC may make a range of decisions including whether to:

• pursue a proposed investigation 

• pursue the proposed investigation in the way recommended by the case manager 

• take a different approach to an investigation 

• settle litigation 

• close an investigation. 

The final decision to issue a section 155 notice which must be made by the Chairman or Deputy Chairman after they are satisfied that they have “reason to believe” that a contravention of the Competition and Consumer Act 2010 (CCA) may have occurred.

There are a broad range of investigatory approaches which an ACCC officer may adopt in relation to a particular investigation. However, the way in which restrictive trade practices and consumer protection matters are investigated is usually very different.

Investigating consumer protection cases

In most consumer protection matters, the investigation will commence with either a consumer or competitor complaint. As the issues will often relate to a misrepresentation made to the general public, there is no point in the ACCC carrying out a covert investigation. Rather once the investigator is satisfied that the representation may be misleading, they will write a letter to the company raising the allegations. In addition to asking the company to respond to the allegations, the ACCC will usually ask the company to provide information and relevant documents on a voluntary basis.

The ACCC will ask for a significant amount of information and documentary evidence from traders on a voluntary basis, even in restrictive trade practices matters. The primary reason for asking for information on a voluntary basis is because the process for issuing section 155 notices is quite slow and cumbersome. Only the Chairman or Deputy Chairman of the ACCC can form a reason to believe to issue a section 155 notice. Therefore, all reason to believe papers have to be considered by the Chairman or Deputy Chairman personally.

The powers of the ACCC to issue section 155 Notices are very different to the process at ASIC to issue notices under Division 3 of the ASIC Act 2001. ASIC officers have the authority to issue notices under the ASIC Act.

Usually if the company the subject of the investigation has been quite cooperative in its first response to the ACCC, the ACCC investigator will already be looking for ways to resolve the matter. For example, in cases where the company responds to the ACCC with a credible explanation which demonstrates that their conduct did not result in a great deal of consumer detriment or was inadvertent, the investigator will usually close the matter with little further investigation.

It is usually only when the company has not been forthcoming in its response or has been dismissive of the ACCC’s letter, that the investigator will consider whether they need to pursue the investigation further, usually through issuing section 155 notices.

In most consumer protection investigations, the ACCC will not issue section 155 notices. If section 155 notices are issued in a consumer protection matter, the focus will generally be on obtaining documents to prove accessorial liability – such as the names of the individuals in the company who approved or signed off on advertisements which made the alleged misrepresentations. Section 155 notices requiring the attendance at an oral examinations are rarely used in consumer protection investigations.

Once the investigation has been completed, the investigator may seek legal advice on whether the evidence discloses a breach of the CCA. Legal advice may be sought from internal lawyers or from external lawyers or barristers. However, the ACCC cannot commence legal proceedings based on internal legal advice, except for one limited exception. Where litigation is being contemplated, the ACCC must seek legal advice from an external legal adviser, usually a barrister.

Investigating restrictive trade practices cases

In restrictive trade practices matters the first step in the investigation is to prepare a case theory document. This is simply a narrative which explains what conduct the investigator believes the company under investigation has engaged in and why such conduct constitutes a breach of the CCA. Usually, in more complex restrictive trade practices matters the investigator will also prepare an evidence matrix to identify the evidence that the ACCC either has or will need to obtain to establish each element of the contravention.

Covert and overt phases

Overseas antitrust regulators draw a very clear distinction between the covert and overt phases of an investigation. In the US, the covert phase usually involves a confidential investigation through the grand jury process and/or the use of listening devices. The covert phase usually ends with either the execution of a search warrant on the target’s premises or the issuing of indictments by the grand jury. The European Commission also conducts covert investigations during which it may conduct confidential interviews with whistle blowers or executives of the companies seeking immunity. The overt phase usually commences with a dawn raid.

This contrasts with the ACCC which does not draw such a clear distinction between the covert and overt phases of an investigation. Often the ACCC will write to a company at a very early stage in the investigation, raising the allegations and seeking information and documents on a voluntary basis.

Search Warrants and Dawn Raids

Overseas regulators such as the US Department of Justice (DOJ) and European Commission routinely commence the overt phase of their investigations with a search warrant or dawn raid. They do this because they are very sceptical about the likelihood of companies producing incriminating documents to the regulator on a voluntary basis or even pursuant to a compulsory notice.

The ACCC’s practice is much different. It relies extensively on voluntary production of documents and the use of section 155 notices. Section 155 permits the ACCC to issue compulsory notices to obtain information, documents and oral evidence from companies and individuals. There is no privilege against self-incrimination under section 155 to the extent that the evidence is only used in a civil court proceeding.

The ACCC does not routinely execute search warrants in its matters. For example, in the 2009-2010 Financial Year the ACCC executed only 4 search warrants throughout the whole of Australia in all its investigations. These four search warrants were all executed in relation to consumer protection matters.

Next instalment

In the next instalment of ACCC Investigatory Insights I will discuss how to respond to an ACCC section 155 Notice.

ACCC Investigatory Insights – Part 1

Introduction 

While a great number of Australian businesses have been the subject of an ACCC investigation at some time in the past, it is likely that most of these businesses did not gain a good understanding at the time of how the ACCC actually conducts its investigations. However, it is only by gaining a good understanding of how the ACCC conducts its investigations, that businesses may be able to avoid having further problems with the ACCC in the future. In this article, I will endeavour to provide some insights about how the ACCC conducts its investigations in order to assist businesses in avoiding the ACCC’s unwanted attentions in the future.

Case selection

Cases come to the ACCC from a variety of sources. Most complaints come from telephone complainants through the ACCC’s centralised call centre.

The call centre operators are able to answer most enquiries, including simple complaints about contraventions of the consumer protection provisions of the Competition and Consumer Act 2010 (CCA) (formerly the Trade Practices Act 1974). These complaints are recorded on a national database usually on the same day they have been received by the ACCC.

Call centre operators are required to refer complainants about alleged contraventions of the restrictive trade practices and unconscionable conduct sections of the CCA to a regional office. These calls are automatically referred to regional offices because the ACCC sees them are more complex and thus more appropriately directed to more experienced officers. Call centre staff are also required to refer particular complainants about cartel conduct directly to a senior officer in a regional office. Usually these types of complaints involve a whistleblower or a person with direct evidence of a suspected cartel.

The call centre operators have developed a good sense of what complaints may constitute a significant breach of the CCA. Accordingly, call centre operators will often refer promising consumer protection matters to regional offices or flag them on the database.

The way the ACCC call centre operates is a particular strength of the ACCC. There are very few antitrust or consumer protection regulators in the world that could claim that significant complaints are escalated to an investigator on the very same day that the complaint is received.

Despite the bulk of complaints coming to the ACCC through the call centre, most investigations begin with a written complaint. This is because written complaints are generally more substantive as they provide more evidence in support of the allegations.

The main groups which write to the ACCC to lodge a complaint are:

• companies complaining about the conduct of one of their competitors 

• sophisticated consumers 

• government departments 

• non-government organisations, particularly in the environmental area 

• industry associations 

• politicians 

• companies which are self-reporting their conduct. 

Only a small proportion of total complaints received by the ACCC are escalated to a regional office for further investigation.

The types of matters that are routinely not investigated by the ACCC include:

• conduct which may be more suitable for private action, such as misleading representations about a competitor 

• matters which are very difficult to investigate for jurisdictional reasons, for example an overseas-based lottery scam which required consumers to send money to an overseas post office box 

• franchise matters where the franchisee complainant has not already been to the Office of Mediation Advisor 

• contraventions which do not appear to cause a great deal of consumer detriment 

• matters involving small local traders or unincorporated businesses

Each regional office around Australia may received between 10 and 40 written complaints a week plus a further 20 call centre referrals. This means that ACCC directors have to make difficult decisions about which matters to pursue. Obviously, directors will try to take on a manageable number of cases. Director will also try to ensure that their case load is somewhat representative of the major enforcement areas under the CCA – ie restrictive trade practices, consumer protection, unconscionable conduct, franchisee matters and product safety.

Unfortunately, given the volume of complaints, there can be a tendency for the ACCC directors to select matters which may be easier to prove, rather than matters which may raise more complex issues. Therefore, an ACCC director may decide to pursue a resale price maintenance complaint, rather than a misuse of market power complaint, because the former case is generally much easier to prove.

Another source of complaints to the ACCC are private law firms. These firms approach the ACCC to either – 

• advise the ACCC that their client has engaged in a contravention of the CCA; or 

• complain to the ACCC about an alleged contravention of the CCA by their client’s competitor. When a company complains about a competitor, the ACCC will generally ask the company why it is not taking its own legal action, particularly if it is a large publicly listed company.

Another source of potential cases investigations from publicly available information which may come to the attention of an ACCC staff member. For example, a report in a newspaper may suggest that a company has engaged in conduct which contravenes the CCA or a staff member may see an advertisement in the newspaper or on television which they believe is misleading.

The ACCC’s regional offices have considerable discretion whether to commence an investigation into a complaint. The absence of clear priorities gives staff considerable discretion to pursue whatever matters they want.

However, there are a number of informal priorities within the ACCC at any one time. For example, it appears that the following areas are informal ACCC’s priority areas at the current time: 

• cartels; 

• environmental misrepresentations; 

• health related misrepresentations; 

• two price advertising; 

• failure to state the full cash price; 

• misrepresentations in relation to telecommunications products and services; 

• misrepresentations about statutory warranties. 

Next instalment

In the next instalment of ACCC Investigatory Insights, I will discuss the ACCC’s Investigatory Processes.