Sims needs to fix ACCC Enforcement

Introduction

The ACCC’s enforcement capabilities have significantly declined over the last eight years during the reign of the previous Chairman. The new Chairman of the ACCC, Rod Sims must take urgent and decisive action to arrest this decline in enforcement standards. I doubt I am alone in my assessment of the ACCC’s enforcement area. Most practitioners who deal with the ACCC regularly are likely to share my view that the ACCC’s enforcement standards have declined.

In this article, I will be presenting a number of first hand examples which I believe are symptomatic of the significant deterioration in the ACCC’s enforcement practice over the last eight years. I will seek to identify the causes of this deterioration and then propose a number of solutions which may go some way to arresting this decline.

Background

My comments on the ACCC’s enforcement activities is based on my 15 years employment with the ACCC. During that time, I worked as a Director in a number of different areas, including enforcement. I also ran the ACCC’s Waterfront investigation and litigation teams during the 1998 Waterfront dispute and was the ACCC’s National GST Enforcement Coordinator during the GST implementation.

For the last four years, I have run my own sole practice, specialising in Competition and Consumer Law. During that time, I have had numerous interactions with the ACCC. I will be drawing on these interactions with the ACCC in this article.

Case Study 1

I was retained by a sole trader to provide him with Compliance Training pursuant to court order following ACCC legal action. From having worked at the ACCC, I understood that the ACCC almost always requires a person or company which has engaged in the illegal conduct to undertake three years of compliance training in the relevant provisions of the Competition and Consumer Act 2010 (CCA).

You can imagine my surprise when I discovered that this particular micro business had been required to undertake six years of Compliance Training – twice as much as is usually required.

When I queried my client about why he had been required to undertake six years of compliance training, he was entirely unaware that six years was twice the usual requirement.

I asked the client whether his lawyer during the court case had advised him about this issue. He said that whilst he had started the litigation against the ACCC with a lawyer, he had not been able to afford to keep paying the legal expenses. Therefore, by the time of the settlement he was unrepresented.

Was it appropriate for the ACCC to demand that an unrepresented litigant agree to six years Compliance Training rather than the usual three years?

Case Study 2

The ACCC is currently investigating one of my clients for the country of origin claims he places on goods which he is exporting to Europe. I have drawn the ACCC’s attention to the relevant provisions of the Explanatory Memorandum when the country of origin amendments were introduced into the TPA in 1998 which states:

Item 2 ensures that this extra-territorial element of the Act is not applied to the new Division, as to do so may subject Australian manufacturers to both the Trade Practices Act 1974 requirements and the labelling requirements of the country in which they are selling their goods. By explicitly excluding any extra-territorial reach, the new provision is limited to goods sold or made available for retail sale in Australia (at 17).

It is clear from the above extract that Parliament intended that Australian exporters should not be subject to Australian country of origin laws but only to the laws which apply in the country where they are exporting their products and where those products will be sold. This is a significant issue as the laws in relation to country of origin differ considerably between jurisdictions.

The complication arises from the way in which the Parliamentary drafters sought to give effect to the clear Parliamentary intention. The actual amendment to the CCA which was supposed to exempt Australian exporters from Australian country of origin laws was done incorrectly. Rather than exempting Australian exporters from these laws, the amendment actually “removed” the defences contained in Part 5-3 of the ACL for Australian exporters. Accordingly, Australian exporters are now in the remarkable situation, based on the ACCC’s interpretation, of having no statutory defences to an ACCC country of origin case.

Even thought I have pointed out the clear contradiction between the intent of Parliament as expressed in the relevant Explanatory Memorandum and the terms of section 5(1)(c) of the CCA to the ACCC, the ACCC has been unmoved.

They have claimed that that because the words of section 5(1)(c) are clear there is no need to look at the intent of Parliament as expressed in the Explanatory Memorandum.

Why is the ACCC ignoring the clear intent of Parliament in relation to Australian country of origin laws and the activities of Australian exporters?

Case Study 3

I assisted a client in a case against a large multinational corporation. Prior to my involvement, his then lawyer had written to the ACCC to seek their assistance in his matter. Given he was a very small business and his opponent was a large multinational company with annual revenues of $35 billion, it seemed sensible to try to get the ACCC to help him.

The ACCC, in their letter back to the client, said they could not assist him because:

• many of the relevant issues appear to be issues of contract between the client and the large multinational corporation. The ACCC claimed that the issues fell outside the TPA and that accordingly, the ACCC did not have jurisdiction to intervene; and 

• there was insufficient evidence to suggest that the alleged conduct by the large multinational corporation constituted unconscionable conduct within the meaning of sections 51AA or 51AB of the TPA. In reality, the alleged conduct was a very straightforward section 52 case – hardly an issue which fell outside the TPA. 

The client’s then lawyer had also made a slight error in their letter to the ACCC by referring to sections 51AA and 51AB instead of section 51AC. Section 51AC would have been the appropriate provision as the conduct involved commercial unconscionability rather than consumer unconscionability. Strangely, the ACCC did not even consider the relevance of section 51AC even though it was clearly available on the facts.

The client ended up pursuing their own private legal action against the large multinational company in the NSW Supreme Court. The client was successful in their case under section 52 of the TPA and was awarded over $1.1 million in damages.

Should the ACCC have advised this small business that they did not have jurisdiction under the TPA to consider a run of the mill misrepresentation case?

Case Study 4

I was retained by a client to provide Compliance Training. This client explained to me the various allegations raised against his company by the ACCC. One of the allegations related to a claim that he had attempted to switch products. In other words, the ACCC alleged that his company had advised a customer that they would be supplying that customer with one particular product but that they had subsequently attempted to supply that customer a different product. The client actually received section 155 notices containing this particular allegation.

However, when I looked into the allegation it was absolutely clear from even a cursory investigation that the proposed replacement product was a much superior product to the product which had been originally promised to the customer. Furthermore, the replacement product was worth approximately $40,000 more than the initial product. Even the most rudimentary ACCC investigation would have shown that there was no substance to this allegation as product switching allegations require some detriment arising from the fact that the customer has been supplied an inferior and cheaper product to the one represented.

Did the ACCC conduct even a basic investigation of this allegation prior to issuing section 155 notices to the company?

Case Study 5

The ACCC decided to settle a large number of matters involving Coles and Woolworths concerning restrictive shopping centre leases by way of section 87B undertakings. This was in circumstances where one of the companies – Woolworths - had considerable prior form for contravening the competition provisions of the CCA. Indeed, both Coles and Woolworths had been pursued by the ACCC fairly recently for entering into restrictive agreements in the NSW liquor industry and fined millions of dollars.

When queried about why the ACCC had not taken legal action against these companies, Mr Samuel responded by saying that most of the agreements were not in fact contraventions of the CCA.

This is a strange response given that even one contravention of the competition provisions of the CCA carries a maximum fine of either $10 million, 10% of the annual turnover of the contravening company or three times the gain arising from the contravention.

Should the ACCC be letting off large publicly listed companies with a mere section 87B undertaking for serious Part IV breaches in circumstances where they have contravened these same provisions in the past?

In addition, why is the ACCC ostensibly seeking section 87B undertakings for some conduct which it knows does not contravene the CCA?

Case Study 6

I was retained by a client to assist them in complying with a number of court orders. The client had been taken to court by the ACCC because he was not complying with the Franchising Code of Conduct.

After speaking to the client, it became apparent that he had previously retained a lawyer to draft his agreements on the specific condition that they not be franchise agreements. The client had specifically wanted licence agreements so that he would not have to comply with the Franchising Code of Conduct. Unfortunately, the lawyer had not drafted the agreements in the way requested by the client. The agreements he had drafted were clearly Franchise Agreements.

I asked the client whether the ACCC had been aware of these facts prior to commencing legal action against him. He said that he had told the ACCC that he had asked a lawyer to draft up licence agreements and that he had relied on this lawyer’s advice that they were in fact licence agreements. Unfortunately, this very relevant fact made no difference to the ACCC’s decision to take legal action against this small business.

However, there was some good news. I assisted this client in taking legal action for negligence against the lawyer who had failed to draft the licence agreement properly in the first place. The respondent solicitor called in LawCover almost immediately and LawCover settled the negligence claim soon afterwards.

Should the ACCC be taking legal action against small businesses who have obtained incorrect legal advice and acted on that advice in good faith?

Case Study 7

I was retained by a company which had unfortunately been the subject of two ACCC search warrants. During the course of search, ACCC staff removed two hard disks from the premises and returned them within 72 hours as required by section 154GA.

Unfortunately, the ACCC did not appear to comply with the requirements of section 154GA(2) of the TPA which requires the ACCC to:

• advise the recipient of the search warrant when they were proposing to examine or process the information on the hard disks; and 

• allow that person to attend when the hard disks were being examined or processed by the ACCC, either in person or through a legal representative. When I queried the ACCC about this apparent failure to comply with the section 154GA(2) of the CCA, they blithely responded that they had not moved the hard disks pursuant to section 154GA but rather had seized them pursuant to section 154H.

Did the ACCC really seize these hard disks or were they in fact moved pursuant to section 154GA?

Case Study 8

I acted for a client who had been the subject of legal action by the ACCC. I looked into the case as part of my task of preparing compliance training. While the client had decided to settle the ACCC’s litigation by consent, prior to settlement the ACCC had filed a draft witness list.

The ACCC was proposing to call six non-ACCC witnesses. I was surprised to see that five of the proposed witnesses were employed by current competitors of my client. Of these five witnesses, two had been former employees of the client who had been dismissed by the client for performance issues. One of these two witnesses had been the subject of an AVO by the client for allegedly making death threats against the client.

This was not a cartel case where the five competitor witnesses were giving evidence pursuant to an immunity agreement. Rather this was a run of the mill misleading and deceptive conduct case.

Should the ACCC be more cautious in their selection of potential witnesses?

Case Study 9

I acted for a client who submitted an FOI request to the ACCC. The FOI request captured 54 documents, totalling 623 pages, and 160 video recordings.

The ACCC decided to release only two of the 54 documents or approximately 0.03% of all folios requested. It also decided not to release any of the video recordings which related to the execution of two search warrants at the client’s premises.

The two documents released by the ACCC were already in the possession of the client and had not actually been requested by the client pursuant to his FOI request.

The ACCC made absolutely no effort to redact any documents, nor did they provide any statement, as required under the legislation, as to why they had not tried to redact confidential information in any of the documents.

The ACCC also provided the client with a schedule of the documents as required under the legislation. The following is a list of the deficiencies in the schedule:

• 42 of the 54 documents had no addressee recorded; 

• 4 documents had inadequate identification of the addressee; 

• in other words, 46 of the 54 documents or 85% of the documents, had no addressees recorded, or inadequate identification of the addressees; 

• 45 of the 54 documents or 81% of the documents had no date recorded; 

• 20 of the 54 documents had no description recorded; 

• 32 of the 54 documents had incomplete descriptions; 

• in other words, 52 of the 54 documents, or 96% of the documents, had no description, or an incomplete description of the documents. 

When we queried the sparseness of the information provided in the schedule, the ACCC claimed that they had invoked section 26(2) of the Freedom of Information Act 1982 which states:

(2) A notice under this section is not required to contain any matter that is of such a nature that its inclusion in a document of an agency would cause that document to be an exempt document.

In other words, the ACCC invoked this exceptional provision in the FOI Act 73 times in relation to 54 documents.

Interestingly, the schedule provided to the client did not contain the word “Redacted” anywhere in the document. However, it is the ACCC’s usual practice when “Redacting” information in FOI Schedules to insert the word “Redacted” where they have redacted information.

Is the ACCC being transparent and accountable in the way it deals with inconvenient FOI requests?

Case Study 10

A client received a letter from the ACCC on 15 December 2010 asking it for detailed information about its operations. The due date for a response was 5 January 2011.

While I believed that it was appropriate for the client to ask the ACCC for an extension of time to provide a response, the client preferred to get the response submitted to the ACCC by the due date. Accordingly, we worked over the Christmas and New Year to finalise the letter. The ACCC’s investigation related to a quite complex area of law – exclusion clauses in relation to recreational services.

On 25 May 2011, or 140 days after the client had submitted their response, the client received a response from the ACCC. The ACCC had considered the client’s response and required further information. After taking 140 days to consider the client’s response the ACCC required a response from the client in nine days time.

The client again wanted to comply by the due date, so we did.

Is it appropriate for the ACCC to take an excessively long time to consider responses from a company under investigation and then demand responses from that company in very short time frames?

Summary of the problems

The above 10 case examples give some flavour of the current state of ACCC enforcement. In my view, the ACCC’s enforcement practices are currently characterised by a tendency to:

• take harsh and aggressive action against small and medium sized businesses; 

• treat some larger businesses too leniently, particularly Coles and Woolworths; 

• take excessively long times to respond to letters from companies while demanding responses from these same companies in very short time frames; 

• be oblivious to the competitive dynamics which may be motivating companies and individuals to complain or give evidence about their competitors; 

• not give appropriate weight to valid excuses or explanations from small to medium sized businesses for their illegal conduct; and 

• taking a highly legalistic and obstructionist approach to FOI requests. 

Other typical practices of ACCC enforcement in their correspondence includes:

• simply ignoring inconvenient questions - I recall many instances where I have written to the ACCC and asked them a valid but admittedly difficult question. The response from the ACCC in most cases has been to simply ignore the difficult question which I have asked; 

• providing “cute” answers to difficult questions – where the ACCC does in fact try to respond to a difficult question, it often chooses to provide a clever but ultimately elusive answer; 

• being highly defensive when responding to criticism – the ACCC does not welcome criticism despite its statements to the contrary; 

• being dismissive of complaints by not providing reasons or valid reasons for dismissing a legitimate complaint – the ACCC is failing to pursue many promising cases due to its poor complaints assessment processes; 

• misstating the law – I have often been queried by clients about particular parts of ACCC letters which they have not understood. On more than one occasion, I have had to explain to the client that the relevant section of the ACCC letter was simply an incorrect statement of the law. What are the causes of the problem?

I believe that the main causes of the problem in ACCC enforcement can be traced back to the influence of the former Chairman, Graeme Samuel.

First, the former Chairman was not a strong believer in priorities for the ACCC, with the possible exception of cartels. This resulted in staff being very unclear as to what types of matters they should be pursuing.

Second, the former Chairman was also very unpredictable which added to staff confusion as to which types of matters to pursue. Staff would often look for any signs from the former Chairman as to the types of matters which he considered to be important. These signs were often conflicting and changed from day to day.

Third, the former Chairman also placed a great deal of emphasis on getting quick results. An unintended result of this focus on quick results was to create a disincentive amongst enforcement staff to pursue longer and more complex cases, particularly: 

• franchise cases, 

• unconscionable conduct cases and 

• misuse of market power cases 

Another major cause of the problems which are besetting ACCC enforcement at the moment is the absence of any proper investigatory training for staff. When I started at the ACCC, I attended a one-week orientation / investigation training course. That was the extent of my investigatory training. The rest of the investigatory skills which I acquired was obtained from on the job training. Fortunately, I was able to work with some excellent investigators from whom I gained invaluable skills and experience.

I understand that ACCC investigators still do not receive a great deal of investigatory training, particularly in such crucial areas as conducting formal interviews and executing search warrants.

It is absolutely essential for ACCC investigators to get more and better investigatory training given that they will now be investigating criminal cartels. The investigatory skills required to obtain evidence to prove a criminal cartel are much more sophisticated than those required to prove a civil contravention. In a criminal cartel investigation, ACCC investigators will have to have the skills to:

• properly execute search warrants; 

• caution potential defendants prior to interviewing them; 

• conduct formal interviews with potential defendants rather than using section 155 powers; 

• maintain a proper chain of evidence; and 

• properly analyse recordings of telephone intercepts. 

How to fix the problems?

The first step in fixing the problems in ACCC enforcement is to set out some clear priorities. The new Chairman Rod Sims has already gone some way to addressing this problem in his first few speeches, where he has sought to clearly articulate the ACCC’s enforcement priorities.

The ACCC should also review the ACCC’s case selection processes. The processes which are currently applied are much too ad-hoc. They rely significantly on the personal preferences and workloads of individual officers and regional directors. Regional Directors should be meeting regularly to discuss their case loads to make sure they are focusing on the correct areas as identified in the ACCC priority statement.

The ACCC should also change its enforcement focus so that it commences more investigations into the conduct of larger corporations rather than the conduct of smaller businesses. The ACCC is taking formal action against too many small businesses who are first time offenders. The ACCC should also look at issuing more warnings to such small businesses rather than requiring them to enter into section 87B’s.

The ACCC needs to introduce some internal review processes to make sure that the cases it is pursuing are appropriate and being conducted properly. For example, there should be a senior person, somewhat akin to an Internal Ombudsman, within the ACCC to whom businesses can complain directly if they believe that some aspect of the investigation or litigation against them is not being carried out appropriately.

Currently, businesses can complaint to a senior manager or the CEO about such conduct. However, the complaint will invariably be referred back to the primary case officer for a response. This results in the responses to complaints being highly defensive and unfortunately, in some cases, quite evasive. The ACCC should set itself much higher standards in terms of complaints handling in relation to complaints about the ACCC. These standards should be similar to the standards that the ACCC itself sets for the companies which it has pursued for breaches of the CCA.

The ACCC must ensure that it does not take advantage of businesses who do not understand the law because they are without legal representation. I have been retained by many small businesses after they have entered into an s87B undertaking who had absolutely no understanding of what they had just agreed to. It is not adequate for the ACCC to say that such businesses should have obtained their own legal advice. Rather I believe it is incumbent on the ACCC to fully explain to these businesses what they are signing and what they are agreeing to do.

The ACCC needs to change its entire approach to responding to FOI requests. The ACCC is currently very legalistic and obstructionist in the way it responds to FOI requests. This approach is at entirely odds with current Commonwealth Government policy which is encouraging agencies to be more transparent and to release more information.

ACCC enforcement staff who are involved in investigations need to gain appropriate investigatory training. For example, in the US cartel investigations are carried out exclusively by the FBI. The FBI will be involved in interviewing potential defendants, obtaining information from members of the public about a particular cartel, chasing up investigatory leads, analysing documents provided by the defendant and giving expert evidence in court or before the grand jury. The FBI will also execute the search warrants.

An FBI agent receives 20 weeks of intensive basic training at the FBI Academy before becoming an agent. This training focuses on four core skills areas, two of which are interviewing and interrogation. FBI agents must then complete further training on a regular basis.

While I am not suggesting that ACCC investigators receive a similar level of training as FBI agents, the level of training which ACCC investigators receive has to be significantly increased and enhanced.

Finally, the ACCC enforcement area has to start using a great deal more common sense in the way it approaches its work. Unfortunately, I have found that ACCC enforcement staff often apply a decided lack of commonsense in the way they approach investigations and litigation. Generally, I have found that ACCC enforcement staff have either pursued relatively unimportant enforcement matters much too vigorously and aggressively or alternatively been much too casual and offhand in their approach to potentially significant matters.

Whilst there are examples of the ACCC getting the balance just right, these examples are unfortunately few and far between. The ACCC must be getting it right more often than not.

Conclusions

ACCC enforcement capabilities have declined considerably over the last eight years. Ironically, I have been able to discern the decline in standards much more vividly since I left the ACCC and started working as a private practitioner.

Unfortunately, I have rarely found myself in a position in the last four years of wishing to praise the ACCC’s enforcement efforts in particular cases. Rather, in almost every case in which I have been involved I have found significant mistakes, a lack of attention and a lack of commonsense. In some matters, I have found a decided lack of candour.

Sims now has an excellent opportunity to take decisive steps to try to fix the problems in ACCC enforcement. No time can be lost in implementing the necessary changes. Enforcement has always been the ACCC’s core area in terms of generating outcomes which consumers can understand and find meaningful. If the ACCC does not get enforcement right, it will rapidly lose relevance with its core constituent – the Australian consumer.