Manufacturing Chaos: Country of Origin laws under the Australian Consumer Law

This article first appeared in the Australian Competition & Consumer Law Tracker, CCH, Issue 3, March 2012.

Introduction

In 1998 the country of origin defences were introduced into the Trade Practices Act 1974 (TPA). In 2001, these defences were re-enacted with the passage of the Competition and Consumer Act 2010 (CCA) and the Australian Consumer Law (ACL). Despite these laws being on the books for over 10 years, there has been no recognition that these laws are significantly flawed in a number of respects. A close reading of these provisions reveals not only a significant “hole” in the legislative protections which these laws were supposed to provide for business, but also a clear drafting error which entirely undermines the original parliamentary intent in relation to exported products. Furthermore, the ACCC’s approach to interpreting these country of origin laws has lacked common sense.

The country of origin laws have failed to provide any practical assistance to Australian manufacturers that wish to export goods as Made in Australia. Accordingly, it is imperative that the Commonwealth Government take appropriate steps to fix these problems with the country of origin laws so that they actually do what they were intended to do – namely, reduce regulatory burdens on Australian exporters so that they can compete more effectively in overseas markets.

Background

The main provision which governs the making country of origin representations about goods is section 29(1)(k) of the ACL (formerly section 53(eb) of the TPA). This provision states:

A person must not, in trade or commerce, in connection with the supply or possible supply of goods or services or in connection with the promotion by any means of the supply or use of goods or services make a false or misleading representation concerning the place of origin of goods.

Therefore, it is illegal to make a misrepresentation about the place of origin of a good, including a misrepresentation that a good comes for a particular country or regional location. For example, a representation that wine comes from the Barossa Valley will be caught by section 29(1)(k) if the wine comes from somewhere else.

Unfortunately, this relatively simple statutory provision became a source of great confusion after a series of conflicting Federal Court decisions. These decisions introduced a number of different tests for determining the country of origin of goods.

The three main tests used by the courts, prior to the 1998 amendments, to assess the country of origin of a good were:

• the substantial transformation test; 

• the essential characteristics test; 

• the value added test; or 

• the consumer expectation test. 

The substantial transformation test involved a consideration of whether goods had been altered substantially through manufacturing or processing in a particular country. Relevant considerations would be the degree to which the good in question has changed as a result of a particular step in the manufacturing process, the degree of skill or expertise used in affecting the change and whether it can be said that a new good has been created as a result of the preceding step or steps.

The essential characteristics test focused on the degree to which a good gained its essential function, shape or appearance in a particular country.

The value added test was adjudged by reference to the proportion of total costs attributable to manufacturing or processing of the good in a particular country.

Finally, the consumer expectation test focused on how a consumer would interpret the country of origin representation in relation to a good.

Federal Court decisions

The first case after the introduction of section 53(eb) to the TPA in 1986 was the Netcomm case.[1] In this case, Gummow J. appeared to apply both the substantial transformation test and the essential characteristics test. In effect, Gummow J. established a two step test in relation to country of origin claims:

• First, it was necessary to consider the various stages of manufacture which are undertaken in creating the goods which would involve determining the country of origin for each stage of manufacture. 

• Second, the Court would have to undertake a qualitative assessment of the relative importance of each manufacturing stage in terms of creating the final finished good.

It was the second step which appeared to require a consideration of where the good had acquired its essential characteristics.

The Netcomm case was followed shortly after by Thorpe v CA Imports Pty Limited.[2] In this case, Sheppard J unequivocally endorsed the essential characteristics test:

It seems to me that there were three essential steps in the process of manufacture that is in question....The first essential step was cutting and sewing of the material to form the casing, the second, the filling of the casing, and the third, the further sewing and checking procedures. It is true that, of these, only the first was carried out in Korea, but in my opinion that was the step that lead to the good acquiring its essential shape and appearance of a koala bear.[3]

The next significant case was the Bush Friends case[4] in which the Court appeared to reject both the substantial transformation test and the essential characteristics test, preferring instead what could be described as the “consumer expectation test”: As stated by Davis J. in that case:

I therefore approach the current issue by giving effect to the words used on the label the label their meaning in ordinary parlance, not the meaning which would be given by the application of the substantial transformation test, or its equivalent, the essential characteristics test which appears in the Trade Practices Amendment (Origin of Labelling).

The present issue is whether consumers in Australia would be misled or deceived or would be likely to be misled or deceived by the respondent's labelling and whether there has been a misleading representation in Australia as to the place of origin of the goods.[5]

The decision of Davis J to apply a consumer expectation test was subsequently upheld by the Full Federal Court on appeal.[6]

The main criticism which was levelled against the Bush Friends case was that it had failed to establish a clear set of rules governing country of origin claims which businesses could apply. Businesses had no way of knowing with certainty how to comply with section 53(eb) in relation to country of origin claims.

Unfortunately, the confusion created by Bush Friends case was further compounded by Lockhart J’s decision in the Lovelock Luke case[7] where he stated:

In this area of discourse it is desirable that rigid rules are not set down; the words of the statute speak clearly enough. Whether an article of commerce is "Made in Australia' must be determined by reference to the circumstances of each case.

In examining the facts I acknowledge the importance of having regard to the nature of the product itself and the expectations and likely understanding of purchasers.[8]

By stating that every case must be “determined by reference to the circumstances of each case” and denying the desirability of rigid rules, Lockhart J. effectively made the determination of liability under section 53(eb) a matter of judicial discretion.

Legislative response

By 1998, the Australian Government had accepted the proposition that the current state of the law in relation to country of origin claims was in disarray and needed to be amended. Accordingly, the TPA was amended to create a number of new defences for businesses seeking to make country of origin claims.

The main reasons for the amendments can be discerned from the Second Reading Speech made by Mr Warren Truss, the then Minister for Customs and Consumer Affairs:

The Trade Practices Amendment (Country of Origin Representations) Bill is designed to restore public confidence in country of origin labelling claims. Persistent public complaints that many labels are misleading or dishonest have given consumers good reason to be sceptical about origin labelling claims. At the same time, recent court decisions have created confusion about the meaning of such commonly used terms as "Made in Australia" and "Product/Produce of Australia". As a result, the market value of Australian origin claims has been eroded to the point that producers and manufacturers are wary of making claims, and many consumers are losing confidence in labelling altogether.[9]

It is also apparent from the Minister’s comments that much of the blame for the confusion concerning country of origin claims was put on the Courts for their interpretation of section 53(eb). For example, later in Mr Truss's speech he refers to the "shifting legal interpretations and general uncertainty" created by the Courts.

The criticisms of the Court's interpretation of the provision also featured in the relevant Explanatory Memorandum (EM), where it was claimed that the Court has interpreted section 53(eb) in a "restrictive manner", particularly in relation to the Australian Made logo. The EM also criticised the case-by-case approach promoted in Lovelock Luke as a "considerable impediment to compliance."

The primary purpose of the new amendments was to provide a defence to actions under section 53(eb) where two criteria were satisfied. The defences were to apply to both section 53(eb) and section 52 because of a recognition that an action against a business for a misleading country of origin representation could also be pursued under section 52.

In 2011, the TPA was repealed and the CCA enacted with the consumer protection provisions and the country of origin defences being moved to the ACL. The country of origin defences were contained in the new Part 5-3 of the ACL.

When the new Part 5-3 was enacted it was clear that the defences could be pleaded in response to an allegation that the business had made a misleading country of origin representation under any of the following provisions of the ACL:

• section 18 - (s52 TPA)

• section 29(1)(a) - (s.53(a) TPA)

• section 29(1)(k) - (s.53(eb) TPA)

• section 151(1)(a) - (s.75AZC(1)(a) TPA)

• · section 151(1)(k) - (s.75AZC(1)(i) TPA)

The fact that the defence in Part 5-3 was extended to 29(1)(a), in addition to section 18 and 29(1)(k), was a recognition that this provision could also be used in relation to country of origin claims. Section 29(1)(a) prohibits false and misleading representations about a range of issues including misrepresentations about the particular history of a good, which would no doubt include the country of origin of a good.

The defences were also extended to sections 151(1)(a) and (i) of the ACL which are the mirror criminal provisions of sections 29(1)(a) and (k) respectively.

Part 5-3 provides defences in relation to five different types of country of origin representation:

• general country of origin representations; 

• product of / produce of a country representations and 

• representations by means of the use of a prescribed logo;
  •  

• representations that goods were grown in particular country; and
  •  

• representation that ingredients or components of goods were grown in a particular country

The general test for country of origin representations is contained in section 255 which establishes a two step process — firstly, the goods must have been substantially transformed in a country and secondly, that 50% or more of the total cost of producing or manufacturing the goods are attributable to production or manufacturing processes in that country. Both elements need to be satisfied before the defence can be invoked in relation to a country of origin claim.

The term substantial transformation is defined in section 255(3) as follows:

Goods are substantially transformed in a country if they undergo a fundamental change in that country in form, appearance or nature such that the goods existing after the change are new and different goods from those existing before the change.

Sections 256 and 257 provide the methodology to be used to calculate the cost of production and manufacture in terms of the second limb of the general test for country of origin representations. 

The categories of costs which are recognised under the ACL are materials, labour and overheads. In each case, the costs must be incurred by the producer / manufacturer, related to the production / manufacture of the goods in question and reasonably allocated to the production / manufacture of the goods.

The regulations may prescribe that certain costs are not allowable for the purposes of the cost calculations and also the manner for working out such costs.

Section 257 provides that regulations may prescribe rules for determining the percentage of total cost or production / manufacture attributable to a particular country.

Section 255 also establishes the tests for product of / produce, grown and ingredients / components country of origin representations. There are range of different criteria which must be satisfied in order to qualify for the particular claim.

The final test is for representations made by means of the use of the prescribed logo. This provision creates a defence for goods represented by a logo which have been prescribed under the Regulations.

Although the test for being permitted to affix the prescribed logo is similar to that established for general country of origin representations, the main difference is that the regulations may prescribe a percentage of between 51% and 100% in terms of costs of manufacture. It would appear that there is scope for creating a range of prescribed logos with an escalating range of percentages. The primary purpose of this provision was to "reinvigorate the Australian made logo" which was described as having "fallen into disuse because of the legal uncertainties and confusion generated about 'Made in Australia'."

Legislative oversight

Unfortunately, there is a clear legislative oversight in relation to country of origin amendments which was first enacted in 1998 and then re-enacted in 2011.

The oversight is that the defences in Part 5-3 of the ACL only apply to sections 18, 29(1)(a) and (k) and sections 151(1)(a) and (i), but not to sections 33 and 155 of the ACL. Section 33 of the ACL provides:

A person must not, in trade or commerce, engage in conduct that is liable to mislead the public as to the nature, the manufacturing process, the characteristics, the suitability for their purpose or the quantity of any goods.

As is apparent, section 33 can quite easily be used by either the ACCC or a private litigant to take action against a business which is making a country of origin claim by arguing that the country of origin representation is a representation about the nature, manufacturing process and characteristics of a good. If this approach were taken, the defences contained in Part 5-3 would not be available to the business because section 33 has not been included as one of the sections to which the defences apply.

If a business was subject to ACCC enforcement action or private action in relation to its country of origin claims under section 33 of the ACL, it would have to defend itself by using the various common law tests which applied prior to the enactment of the country of origin laws in 1998. As discussed above, these laws were in a state of utter disarray prior to 1998 and provided business with no legal certainty.

Furthermore, the defences contained in Part 5-3 do not extend to section 155 of the ACL which is the mirror criminal provision to section 33.

It is clear that the failure to extend the defences contained in Part 5-3 to an action under section 33 of the ACL is a significant legislative oversight. This oversight threatens to undermine the entire purpose of Part 5-3, which is to give business some certainty about the circumstances in which they can make a country of origin claim about their goods.

Drafting error

However, the problems with the country of origin provisions do not end with the legislative oversight described above. Unfortunately, there is a also a serious drafting error in section 5 of the CCA which has the effect of excluding the defences in Part 5-3 of the ACL entirely in relation to exported products.

Section 5 of the CCA reads as follows:

(1) Each of the following provisions:

(a) Part IV; 

(b) Part XI; 

(c) the Australian Consumer Law (other than Part 5-3);

(f) the remaining provisions of this Act (to the extent to which they relate to any of the provisions covered by paragraph (a), (b) or (c));
extends to the engaging in conduct outside Australia by: 

(g) bodies corporate incorporated or carrying on business within Australia; or 

(h) Australian citizens; or

(i) persons ordinarily resident within Australia.

The effect of section 5 of the CCA is to extend the operation of the CCA to conduct engaged in outside Australia. Particular overseas conduct will be subject to the CCA if it is engaged in by bodies corporate incorporated or carrying on business within Australia, Australian citizens, or persons ordinarily resident within Australia.

The anomaly in the operation of section 5 occurs in subsection 5(1)(c) which specifically excludes Part 5-3 of the ACL. 

The drafting of section 5 of the CCA has had the practical effect of excluding the defences contained in Part 5-3 of the ACL to country of origin claims made in places outside Australia by bodies corporate incorporated or carrying on business within Australia, or Australian citizens, or persons ordinarily resident within Australia. In other words, Australian exporters will be unable to take advantage of the statutory defences contained in Part 5-3 in relation to country of origin claims which they make in relation to export goods.

Parliamentary intention

A review of the relevant Explanatory Memorandum shows that the drafting error in section 5 initially occurred in 1998 with the enactment of the Trade Practices Amendment (Country of Origin Representations) Bill 1998. Item 2 of this Bill introduced the relevant amendment to section 5 of the TPA.

The relevant Explanatory Memorandum explained the purpose of the amendment to section 5 of the TPA in the following way:

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).[10]

Therefore, Parliament’s intention in 1998 was to exempt Australian manufacturers from having to comply with Australian country of origin laws in relation to their exports. Parliament intended that such Australian exporters would be subject only to the country of origin laws which applied in the country where they were selling their Australian made goods.

Obviously the amendment to section 5(1)(c) of the TPA / CCA has not had the legal effect of making Australian exporters exempt from compliance with Australian country of origin labelling laws. Rather, Australian exporters now have no statutory defences to an action against them alleging that their country of origin claims constitute a breach of sections 18, 29(1)(a), 29(1)(k), 151(1)(a) or 151(1)(k) of the ACL.

ACCC’s position

Unfortunately, the ACCC has taken advantage of this clear drafting error to assert jurisdiction in relation to country of origin claims made by Australia exporters about goods which they are selling outside Australia.

In 2011, the ACCC conducted an investigation into a small business which was making country of origin representations about its export goods. This small business had previously exported manufactured goods to Europe and was currently exporting manufactured goods to a number of Asian countries, including China.

When approached by the ACCC about its country of origin claims, the small businesses pointed out to the ACCC the clear drafting error in section 5 of the CCA. The ACCC responded as follows:

The ACCC does not agree that the current provisions of the CCA exclude export goods from the prohibitions on false, misleading or deceptive conduct. While the Explanatory Memorandum may express such an intention, the words of section 5 cannot be read as having such an effect.

The effect of s.5(1)(c) is to exclude from the extended application of the Act to conduct outside Australia, the tests used to establish whether or not country or origin representations contravene sections 18, 29 or 151 of the ACL. However, s.5 otherwise applies the ACL to conduct outside Australia by bodies corporate incorporated or carrying on business within Australia. Therefore, the Commission’s view is that sections 18, 29 and 151 of the ACL remain in force in relation to export goods.[11]

The small business responded to the ACCC in the following way:[12]

It is not the case that the ACCC’s approach to section 5 will mean that all Australian exporters will now be subject to Australian country of origin labelling laws as set out in Part 5-3 of the ACL.

Rather, the ACCC’s literal reading of section 5 will mean that the defences to alleged breaches of country of origin labelling laws, contained in Part 5-3 of the ACL, will not apply to Australian exporters in any way.

This will result in the following perverse situation:

• importers of products to Australia and domestic manufacturers who sell products within Australia are able to plead the defences contained in Part 5-3 of the ACL in response to an allegation that they have made a misrepresentation concerning the country of origin of their products;

• while Australian exporters will be unable to plead such defences in response to an allegation that they have made a misrepresentation concerning the country of origin of their products and, as such, will be subject to the laws which existed prior to the enactment of the country of origin labelling defences in 1998. 

In other words, the practical effect of the ACCC’s interpretation of section 5 of the CCA will be that all Australian exporters will be required to comply with the country of origin laws which existed prior to 1998 or over 13 years ago.

As the ACCC is no doubt aware, prior to 1998 Australian country of origin labelling were in a state of utter disarray.

The ACCC responded as follows:

Section 5 of the CCA extends the operation of the CCA and the Australian Consumer Law (the ACL) to conduct outside Australia by bodies incorporated in Australia, but excludes the operation of Part 5-3 of ACL. In effect, this means that Australian corporations which make country of origin claims about goods they export are subject to the prohibitions on misleading conduct in the ACL, but they are not able to make use of the defences concerning country of origin representations found in Part 5-3. As such, judicial consideration of such country of origin claims would apply the common law tests. The ACCC notes that such consideration could also take into account the tests in Part 5-3.[13]

Therefore, in this particular case, the ACCC decided to apply Part 5-3 in its consideration of the country of origin claims made by the small business about its export goods. The ACCC took this approach despite:

• the clear Parliamentary intent that the TPA/CCA should not apply to country of origin representations made in relation to Australian exports; and 

• the words of section 5 of the CCA which state that Part 5-3 is not to apply to country of origin representations concerning goods sols outside Australia.

In other words, the ACCC appears to have interpreted the legislation in a way which is inconsistent with both Parliament’s clear intent, as expressed in the relevant Explanatory Memorandum, and the actual words of section 5 of the CCA.

ACCC’s Guidelines

A brief consideration of the ACCC’s main publication concerning country of origin laws, Country of Origin Claims and the Australian Consumer Law,[14] reveals further anomalies in the way in which the relevant country of origin laws are being explained and applied.

In the ACCC’s publication, it provides a detailed discussion of the relevant legislation. However, the guideline is quite deficient in its discussion of the key concept contained in Part 5-3 – namely the meaning of the concept of substantial transformation. Indeed, the ACCC devotes effectively only one page of its guide to discussing this particular concept and even this limited discussion focuses primarily on providing various examples of goods which, in the ACCC’s opinion, have and have not been substantially transformed.[15]

The ACCC should be providing business with a much greater degree of guidance about when a good will be considered to have been substantially transformed in a particular country.

Indeed, it is very surprising that the ACCC has not provided more guidance, given that the relevant legislation itself appears to provide a clear analytical process which can be applied to determine whether a good has been substantially transformed in a particular country.

As stated above, the test for determining whether a good has been substantially transformed is contained in section 255(3) of the ACL which states:

Goods are substantially transformed in a country if they undergo a fundamental change in that country in form, appearance or nature such that the goods existing after the change are new and different goods from those existing before the change.

Therefore, it is apparent that a good will be substantially transformed if it undergoes a fundamental change in either its:

• form; or

• appearance; or 

• nature.

A person need only meet one of these three criteria to satisfy the substantial transformation test. In other words, either:

• the form of the good or 

• the appearance of the good or 

• the nature of the good 

must fundamentally change for there to be a substantial transformation.

The resultant goods which are the subject of this fundamental change have to be either new goods or simply different goods.

Therefore, the analytical steps which have to be undertaken in applying the substantial transformation test are:

(1) identify the relevant manufacturing step which you are seeking to assess; 

(2) analyse the good which exists prior to the manufacturing step identified in (1) above; 

(3) analyse the good which results following the manufacturing step identified in (1) above; and 

(4) compare the differences between the goods at (2) and (3) in terms of their form, appearance and nature.

The form and appearance of a good are relatively easy to define. The “form” appears to be a reference to the shape or structure of the good. This could also refer to a change in the chemical composition of a good.

The “appearance” of the good is simply a reference to the visual aspect of the good or how it looks.

The more difficult criteria to define is what is the “nature” of a good. The most appropriate way to work out what the Parliament meant by using the word “nature” is to have recourse to the initial EM in 1998 when the term was introduced into the TPA. These EM explained the concept of substantial transformation as follows:

This new provision provides a definition for ‘substantially transformed’, the first element of the general test for country of origin representations set out in section 65AB. The test, in broader form, is that a good must undergo a change, in the country indicated in the representation to how it looks, operates or to its purpose, for a substantial transformation to have occurred.[16]

This definition indicates that a good will be fundamentally transformed if a particular manufacturing step alters the way the good “operates” or its “purpose”. In other words, the analysis should focus on how the good operates or functions before the manufacturing step and how the good operates or functions after the manufacturing step.

Given the guidance provided by the legislation itself and the relevant EM about how the substantial transformation test should operate, the ACCC should be able to provide business with much more guidance about this issue than it has in its guide.

ACCC’s approach to substantial transformation

Unfortunately, the ACCC’s approach to the substantial transformation test as outlined in its guide appears to be much stricter than suggested by the relevant case law.

While there has only been one case which has considered the meaning of the term “substantial transformation” since the introduction to the country of origin laws into the TPA in 1998, this case is quite instructive about how to interpret this term.

In Australian Competition and Consumer Commission v Australian Dreamtime Creations Pty Ltd,[17] the ACCC took legal action against Australian Dreamtime Creations (ADC) for engaging in breaches of section 52 and 53(eb) of the TPA.

The ACCC alleged that ADC breached section 53(eb) by importing items from Indonesia, that were either:

(1) already painted and did not require further painting prior to sale; or

(2) unpainted and did not require painting prior to sale;

(3) unpainted and required painting prior to sale.

There was no dispute about items (1) and (2) above not having been substantially transformed in Australia.

The significant issue arose in relation to item (3) above – namely whether items carved in Indonesia entirely out of Indonesian wood but then painted in Australia were substantially transformed in Australia.

In relation to these items the ACCC submitted that they were all created from Indonesian material in Indonesia, and that the painting of those items in Australia does not qualify as having “substantially transformed” these items in terms of section 65AB(b) of the TPA (now section 255(3) of the ACL).

The ACCC submitted that once a carved wooden item is painted, it is not a new or different item from what it was prior to painting, and that it remains a carved wooden item which was carved in Indonesia. The ACCC said that the carving of the item is the process which provides the item with its inherent character, and that this process did not occur in Australia in respect of those imported items.[18]

In support of its proposition, the ACCC referred to several cases where the Court has considered what constitutes “substantial transformation”.

Judge Mansfield firstly rejected all of the prior case law in relation to “substantial transformation” relied on by the ACCC because he believed it was of no real assistance. This was because sections 65AB and 65AE (now Part 5-3 of the ACL) had been enacted since those cases were decided. Accordingly, the Court had to apply the statutory test which had been introduced in 1998 rather than earlier case law.[19]

The judge then dealt with the cost of manufacture test in the following way:

The evidence shows that the cost to ADC of the carved wooden bird (and like objects) was under $10. The amount paid to Mr Goodridge for painting it was in excess of $30. The precise figures varied, according to the size of the objects. Even allowing for shipment costs, I find that s 65AB(c) of the TP Act would be satisfied, if there had been a representation that those artworks were Australian in origin.[20]

Accordingly, the Mansfield J was satisfied that more than 50% of the cost of manufacture was incurred in Australia. Indeed, the Australian cost of manufacture appeared to be around 75%.

The judge then discussed the substantial transformation test as follows:[21]

90. The remaining issue is whether those items were substantially transformed by being painted in Australia: s 65AB(b). The alleged country of origin representations did not attract ss 65AC or 65AD, so s 65AB(d) was also satisfied. That is a question of fact, informed by s 65AE. In my judgment, those artworks including the carved wooden bird were substantially transformed by being painted in Australia. There was in evidence an example of the carved wooden bird, unpainted (it is then purely a flat white in colour). The difference is significant. As an unpainted object, it is quite unappealing. The shape itself seems to lack definition. The painting makes the object quite a different one: the shape emerges as clearly defined, and the colouring gives the object a real life and attractiveness. I think the description “new and different goods” is an appropriate one, even though fundamentally the shape itself does not change. It is, in a bland sense, and remains a carved wooden item but the qualities which make it an attractive object emerge only after it is painted. Analogy is always a little dangerous, but I essay one, albeit not a perfect one: a painter’s canvas may be imported, and although it does not change size, the canvas is substantially transformed by being painted. The carved wooden bird shape is, of course, not the equivalent of a canvas. It is already shaped. However, the dramatic change in appearance, including that the painting seems to add definition to the shape, has to my mind a not dissimilar transformation.

91. In my view, a similar conclusion should be reached in respect of the other imported carved wooden items that were painted in Australia. The ACCC did not suggest that there should be a different conclusion in respect of the carved wooden bird compared to the other carved wooden items imported from Indonesia.

92. Accordingly, even if the website representations as to country of origin were made, I would not find that s 53(eb) of the TP Act had been contravened in the circumstances.

The Court held that the mere act of painting the carved birds was sufficient to constitute a fundamental change in the good and thus satisfied the substantial transformation test in terms of s 65AB(b). In particular, Mansfield J stated that “the qualities which make it an attractive object emerge only after it is painted.” This appears to be a much lower threshold to satisfy the substantial transformation test than suggested by the ACCC in its guide.

The other significant findings in the case were that a good can be substantially transformed more than once and that it can be substantially transformed in more than one country. Justice Mansfield found that even though the products in question had been substantially transformed into carved birds in Indonesia, they had again been substantially transformed into painted carved birds in Australia.

Unfortunately, the ACCC appears to have completely ignored Mansfield J’s comments in relation to the substantial transformation test in the Dreamtime case when it drafted its guide on the country of origin laws. Indeed, the Dreamtime case is not mentioned even once in the ACCC’s guide, despite the case having been decided two years before the guide was published.

Accordingly, it would appear the ACCC has chosen to maintain its narrow and restrictive interpretation of the substantial transformation test in the face of a Federal Court decision which interpreted the substantial transformation test in a much broader and more liberal manner.

Conclusion

Unfortunately, Australia’s country of origin laws are again in a state of disarray. First, the failure to extend the defences contained in Part 5-3 to section 33 of the ACL creates a significant hole in the legislative protections for business in relation to their country of origin claims. Second, poor legislative drafting has seen a proposed exemption for Australian exporters, namely that they only have to comply with the country of origin laws in the country where they will be selling their goods, turned into a significant disadvantage for Australian exporters who now have to comply with two different sets of country of origin laws. Finally, the ACCC has failed to interpret aspects of the country of origin laws in a way which is consistent with the only decided case in the area.

If the government is serious about trying to assist Australian manufacturing, it should be proactively seeking to identify and correct such legislative oversights and mistakes which are adversely impacting on the manufacturing sector. There is little doubt that many more Australian manufacturers would be looking to export Australian made goods to world markets if the law was clear about the fact that they do not have to comply with Australian country of origin laws, but only the country of origin laws which apply in the country where they are selling their goods. This is a significant exemption given that Australian country of origin laws are not only among the strictest country of origin laws anywhere in the world, but also the most zealously enforced.

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[1] Netcomm (Australia) Pty Ltd v Dataplex Ply Ltd (1988) ATPR 40-883, 49,564.

[2] (1990) ATPR 40-996; 50,962.

[3] Ibid., p. 50,966.

[4] Trade Practices Commission v QDSV Holdings Pry Limited (trading as Bush Friends Australia) (1995) ATPR 41-371; 40,107

[5] Ibid., p. 40,114.

[6] QDSV Holdings Pty Ltd v Trade Practices Commission (1995) 59 FCR 301.

[7] Australian Competition and Consumer Commission v Lovelock Luke Ply Ltd (1997) 79 FCR 63.

[8] Ibid., p. 69.

[9] The Minister for Customs and Consumer Affairs, the Honourable Warren Truss MP, Second Reading Speech to the Trade Practices Amendment (Country^, of Origin Representations) Bill 1998, House of Representatives, Hansard, 8 April 1998.

[10] Explanatory Memorandum, Trade Practices Amendment (Country of Origin Representations) Bill 1998 - http://www.austlii.edu.au/au/legis/cth/bill_em/tpaoorb1998616/memo1.html

[11] Email from ACCC, dated 27 September 2011.

[12] Email to ACCC, dated 4 October 2011.

[13] Letter from ACCC, dated 27 November 2011.

[14] Country of Origin Claims and the Australian Consumer Law, ACCC, 15 April 2011 - http://www.accc.gov.au/content/index.phtml/itemId/303666

[15] Ibid., pp. 9-10.

[16] Explanatory Memorandum, op. cit., http://www.austlii.edu.au/au/legis/cth/bill_em/tpaoorb1998616/memo1.html

[17] [2009] FCA 1545 (21 December 2009) - http://www.austlii.edu.au/au/cases/cth/FCA/2009/1545.html

[18] Ibid., at para. 87.

[19] Ibid., at para. 88.

[20] Ibid., at para. 89.

[21] Ibid., at para’s 90-92.

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.

Introduction

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

Introduction

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.

Conclusion

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.

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[1] Carbon Price Claims: Guide of Business, ACCC, 2011 at - http://www.accc.gov.au/content/item.phtml?itemId=1017091&nodeId=22195ddaa7b152dc06b9a94b984f9fda&fn=Carbon%20price%20claims%20-%20Guide%20for%20business.pdf

[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.

The Untold Story: The ACCC’s role in the Waterfront Dispute - Part 16 - The Settlement

Part 16: The Settlement 

Introduction

After our successful interlocutory hearing before Justice North, our primary aim should have been to focus on preparing our two cases against the MUA for the final hearing.

However, events took a much different direction due to a number of leaked documents which showed that the then Howard Government had been heavily involved in the entire waterfront dispute. These documents, which included a number of cabinet-in-confidence documents, showed that the Howard government had been supportive of the implementation of an aggressive waterfront strategy to remove the power of the MUA once and for all.

Because of these revelations, it appeared to us that the Howard Government was now very keen to settle the matter with the MUA. The deal which emerged from these discussions was that the Federal Government would fund 400 MUA redundancies in return for the MUA dropping its conspiracy action against Patrick and the Howard Government. Ultimately, the redundancies were to be paid through an additional levy to be applied to all containers.

Unknown to the ACCC a further condition of the settlement (which had been insisted upon by the MUA) was that the ACCC drop both of its boycott cases against the MUA.

MUA’s position

The MUA made is very clear that there would be no settlement unless the ACCC agreed to drop its actions against them. For example, Mr Coombs stated:

If they (the ACCC actions) are not dealt with, the agreement goes absolutely nowhere. The ACCC seems somewhat less than interested in finalising arrangements.

The ACCC has a requirement to take into account the public interest. It could hardly be in the public interest for them to abort this agreement.[1]

On another occasion, Mr Coombs stated:

What I’m not going to do is allow the ACCC to get binding orders on the union when the union believes it has done nothing wrong other than protecting the rights of its members.

The ACCC ought to butt out…nothing will be implemented as long as the ACCC remain a threat.[2]

We were somewhat bemused at John Coombs invoking the public interest in support of his view that the ACCC should terminate its court actions. Coombs had shown scant regard for the public interest up until that date, preferring instead to zealously pursue the narrow private interests of his MUA members.

We were also surprised at Coombs’ statement that he believed that the MUA had done nothing wrong. It must have been abundantly clear to him on the basis of his legal advice that the conduct which he and his members had engaged in constituted clear contraventions of the boycott provisions of the TPA. While he may have felt that the MUA had done nothing morally wrong, it was hard to understand how he could have believed the MUA had not broken the law.

ACCC’s position

The problem facing the ACCC was that it could not terminate its legal actions without obtaining any sanctions against the MUA given that the MUA had engaged in blatant and premeditated contraventions of the TPA. Furthermore, the MUA’s actions had resulted in a large number of innocent businesses incurring significant financial losses, which were unlikely to be covered by insurance. The ACCC believed that it owed it to these innocent businesses to continue its legal actions with a view to recovering some compensation.

Initially, Professor Fels had been particularly guarded about the nature of the ACCC’s settlement negotiations with the MUA. For example, he stated:

I wouldn’t like to say whether they (settlement discussions) are going well or not well, just that they are going.

We’re talking with the MUA about their wish to try and get a resolution of it and there are also some other public interest questions so it’s not unusual for there to be discussions about these types of issues during a piece of litigation.[3]

Despite Professor Fels’ caution in explaining what the ACCC was seeking in the settlement, it was not very long until details leaked to the media – namely that the ACCC were seeking:

• injunctions to prevent the MUA engaging in similar conduct in the future and

• damages for the small businesses which had suffered financial loss during the dispute due to the MUA’s conduct

As reported at the time:

The competition watchdog is understood to be insisting that the Maritime Union of Australia pay damages of $10 million, a stand that is threatening to scuttle the peace deal that ended the bitter waterfront dispute.

It is understood the Australian Competition and Consumer Commission has estimated potential damages at $25 million and put a compromise proposal to the MUA that it set up a $10 million trust fund for damages payouts.

Such a settlement – of allegedly illegal boycott activity during the dispute – would financially cripple the MUA, which has net assets of $19 million.[4]

ACCC – MUA Settlement meeting

Contrary to some media reports at the time, we did not have a series of settlement meetings with the MUA. Rather I remember only one very high-level settlement meeting which was held at the ACCC’s Sydney offices.

The MUA were represented at this meeting by John Coombs of the MUA and Greg Combet of the ACTU. The ACCC was represented by Professor Fels, a number of Commissioners and senior legal staff. I did not attend the meeting. In hindsight, this was quite fortunate as I think I would have found it very exasperating to have had to sit there listening to John Coombs telling the ACCC that the MUA had done nothing wrong and should not be punished in any way.

As was the case with most events during the waterfront dispute, this settlement meeting did not go as planned. I remember that after a relatively short period of time had elapsed, the meeting broke up in disarray. When I asked the ACCC representatives who had been at the meeting what had happened, I was informed that Coombs had become so angry about the ACCC's demands, that he had stormed out of the meeting with Greg Combet chasing after him.

I was sitting in my office having a discussion with my colleagues about what we would do next, given that the settlement meeting had just imploded, when a member of my waterfront team came into my office and told us that Coombs and Combet would be back. He explained that he had been walking back to the ACCC offices after lunch when he had seen two men standing at the corner of Castlereagh and Market Streets shouting at each other at the top of their voices.

The ACCC officer explained to us that one of the men had been shouting at the other man, words to the following effect: “I’m not agreeing to any orders on the MUA”. The other man had responded with: “John, what you have to understand is that the ACCC will only sue you again if you do it again”. As you can probably work out, the first man was John Coombs and the second was Greg Combet.

Obviously, from this roadside discussion it was apparent that Combet knew that the ACCC could not settle its cases against the MUA, unless it had obtained some injunctive orders which prevented the MUA from engaging in similar boycott action in the future.

Luckily for us, Combet was able to get this message through to Coombs and they returned to the ACCC’s offices shortly after to resume the settlement discussions.

In late July 1998, Coombs became very irate about his suspicions that the Professor Fels had leaked confidential information to the media about our settlement discussions. In particular, Coombs claimed that Professor Fels had publicly disclosed without prejudice confidential correspondence from the MUA to the ACCC. This led Coombs to conclude that:

I think it brings into question the appropriateness of Allan Fels in his position. He seems to have lost all objectivity in terms of this and I think it’s unprecedented for anyone to disclose the content of information from my lawyers to him.[5]

These allegations seemed very strange given the fact that Coombs and Combet had quite recently been arguing about the proposed terms of the settlement at the top of their lungs on the corner of Castlereagh and Market Streets in Sydney in front of hundreds of passers-by.

ACCC digs in

Despite the pressure on the ACCC to simply drop its legal actions against the MUA without seeking any remedies, the ACCC was always committed to settling its cases against the MUA in way it usually settled litigation – namely, with the respondent providing appropriate remedies.

Professor Fels had made it clear to the MUA that it had to offer “tangible concessions to the victims of the illegal boycotts” if they wanted the court action to end.[6]

These public comments by Professor Fels provoked a hostile response not only from the MUA but also from Greg Combet who stated:

To debate the issue in public as Professor Fels seems to like to do provides no assistance at all in solving the issue and may indeed be counterproductive.[7]

Rather than accepting Combet’s premise that any settlement had to be done quietly and in private, Professor Fels responded by issuing a comprehensive media release on 3 August 1998 which ensured that all the relevant issues were made entirely transparent. The media release also ensured that the already strained relations between the ACCC, MUA and ACTU about the settlement would deteriorate even further.

Waterfront dispute[8] 

The Australian Competition and Consumer Commission is not responsible for any delay there may have been so far in resolving the waterfront dispute, ACCC Chairman, Professor Allan Fels, said today.

'The parties approached the ACCC around June 19, about six weeks ago, to ask about a settlement. The ACCC indicated its interest in a settlement and following discussions with the Maritime Union of Australia and its lawyers outlined the relevant parameters and set these out confidentially in a letter to the MUA, copied to Patricks. The proposals included some modifications in light of the discussions. Subsequently, some selective details of this letter appeared in the Press. Essentially we've not heard from the parties since then.

There have been a few inconclusive discussions at lawyer level. There have been around 30 public statements to the media by the MUA about the matter. The parties have repeatedly told us that they will come back to us with a proposal and that there has been no need to settle the matter with them up till now. 'The ACCC has been available at all times, and remains so, to discuss the issues.

The parties have effectively not been in touch with us and so it has not been possible to advance discussions. 'Suggestions last week that the ACCC was causing a delay on the settlement are wrong. ' 

The ACCC has advice from the parties that there has been no need for the ACCC matter to be resolved until after the creditors' meeting and that there has been no urgency to this stage.

'Maritime Union of Australia lawyers have also advised that they will come back to the ACCC with something.

'The parties to the waterfront dispute, which is essentially a private dispute, have reached or nearly reached a private settlement of their dispute.

'They have apparently made it a condition of the settlement that the ACCC withdraws its case.

'The ACCC has never taken sides on the rights and wrongs of the dispute.

'Its role has been to try to see that there is compliance with the Trade Practice Act 1974, including recent laws passed by Parliament relating to boycotts affecting 'the movement of goods into or out of Australia'.

'In the course of the private dispute, some actions were taken which the ACCC believes breached the laws and which caused some damage to some small businesses and exporters. It is up to the parties to come forward and address those issues if they want the case to be dropped.

'One matter of concern to the ACCC is that: in the course of a private dispute economic damage has been done to small business and exporters. We have details. The damage in our view was done by unlawful boycotts, in breach of the Trade Practices Act. Something needs to be done about this.

'The ACCC has not sought a penalty in regard to the boycotts but everyone else in Australia who breaks the Trade Practices Act in any substantial way has to give some kind of commitments undertakings about not repeating unlawful behaviour in future.

'Some people are suggesting that there are only two alternatives: That the ACCC backs off totally or that the settlement collapses as a result of the self-imposed condition of the parties to that settlement. These are false alternatives.

What is required is that some steps be taken by the parties to meet the ACCC concerns. Once this is done it will be possible to move forward.

'Let me emphasise, the ACCC has not taken sides in the dispute. It has been investigating behaviour on both sides of the waterfront. 

Its duty is to seek compliance with the law. Following private and then public warnings, boycott action affecting Australian exports and small business that we considered unlawful continued. We had no choice but to go to Court. To turn a blind eye to substantial, very public breaches of the law would have been to override the clear intent of Parliament and would damage the credibility of the Trade Practices Act.'

Professor Fels believed it was important to emphasize how the MUA had been making public comments about the settlement in a selective way to put maximum pressure on the ACCC to settle on the MUA’s terms. The MUA did not want to have any sensible discussions with the ACCC – rather its approach was to try to use the media to stir up public opinion against the ACCC, yet again.

Fels also wanted to make it clear that the MUA was the party which had delayed in coming to talk to the ACCC about a settlement rather than the other way around. It would be the MUA’s fault alone if the broader settlement were derailed.

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[1] MUA wants watchdog’s action to be called off, Financial Review, 24 June 1998, p. 3.

[2] It’s almost over: wharfies agree to back settlement, Sydney Morning Herald, 25 June 1998, p. 8.

[3] ACCC urged to drop MUA case, Daily Commercial News, 1 July 1998, p. 1.

[4] ACCC demands MUA pays up, Australian, 17 July 1998, p. 5 and ACCC urges an MUA strike trust fund, Financial Review, 17 July 1998, p. 9.

[5] MUA boss slates Fels over delay in dispute resolution, Australian, 24 July 1998, p. 2.

[6] Fels warns on wharf peace, Australian, 30 July 1998, p. 2.

[7] Ibid.

[8] Waterfront dispute, ACCC news release, 3 August 1998 - http://www.accc.gov.au/content/index.phtml/itemId/87253/fromItemId/378006