ACCC Essentials – understanding the Australian Competition and Consumer Commission’s 2018 Compliance and Enforcement Priorities

Introduction

It is vitally important for all Australian businesses to have a thorough understanding of the way in which the ACCC prioritises its enforcement activities, given the highly interventionist and aggressive approach which the ACCC takes to both competition law and consumer protection matters.  Indeed, the ACCC is one of the most aggressive enforcers of the competition law provisions in the world.

Furthermore, the ACCC has been successful in its calls for significant increases to the maximum financial penalties for contraventions of the Australian Consumer Law 2010 (ACL), with the proposed changes likely to be in effect by 1 July 2018.   

It is also important to recognise the strong reputation which the ACCC has amongst consumers as an active and effective regulator. One of the implications of the ACCC’s strong reputation is that any business pursued by the ACCC is usually judged very harshly by the Australian public, the media and their customers.  As a result, businesses which become the subject of an ACCC investigation or legal proceedings brought by the ACCC often suffer significant and long-lasting reputational and brand damage.

This paper will outline the Australian Competition and Consumer Commission’s (ACCC) approach to enforcement and identify the key enforcement and compliance priorities.

Why does the ACCC have priorities?

The main explanation for having priorities is that it provides greater transparency in the way the ACCC will be using its resources. However, there are also important practical reasons for having priorities.

As explained by ACCC in its most recent Annual Report it received 405,382 contacts in the 2016-2017 financial year, of which 234,913 were recorded on the ACCC database.[1]

The following table shows a rough breakdown of how those contact and complaints are processed by the ACCC:

As is apparent, there is no way that the ACCC could pursue all of these complaints. Rather, the only way the ACCC could pursue any of these complaints effectively is by establishing clear and specific enforcement priorities.

While the ACCC received 405,282 contacts last year it was only able to conduct initial investigations into 259 of those complaints. An initial investigation generally involves the ACCC writing a letter to the business which has been complained about, to ask for an explanation of their conduct. This number is significantly lower than in the previous year where the ACCC conducted 427 initial investigations. One explanation for the reduction is that the ACCC is becoming much more selective in the matters it is deciding to pursue.

The ACCC commences in-depth investigations in relation to a much small subset of the total complaints. These are investigations which the ACCC Commissioners have determined are important and need to be pursued in more depth.  These investigations would have been allocated an initial investigatory and/or legal budget and often result in litigation.  The number of in-depth investigations has also declined significantly, from 167 in the 2015-16 financial year to 79 in the last financial year.

Finally, the ACCC listed 24 litigation matters in its 2016-2017 Annual Report. However, if one considered all formal resolutions, such as section 87B undertakings and infringement notices, the total number of formal resolutions is likely to be much higher at around 50 formal resolutions in the 2016-2017 period.

What are the ACCC’s 2017 Enforcement and Compliance Priorities?

ACCC’s Goals

On 20 February 2018, the ACCC released its Compliance and Enforcement Priorities for 2018 (Priorities).[2]  These Priorities must be considered as a whole, as the ACCC takes a multifaceted approach to selecting the matters which it will pursue.

First, the ACCC will consider the overall goals of their legislation. Second, it will consider the outcomes which it is likely to achieve by pursuing a particular enforcement matter and the type of conduct which the relevant business is engaging in.  Finally, the ACCC will determine whether the conduct falls into the specific ACCC 2018 priorities or “hit list”.

As a guiding principle, the ACCC will not pursue any enforcement matter unless it is confident that:

(1)   it can achieve meaningful remedies; and

(2)   the conduct is of a type which has caused or may cause significant consumer detriment, including detriment to small business consumers.

There are many cases where the ACCC could achieve a meaningful outcome but decides not to pursue the matter because the complainant has the resources and motivation to achieve the same outcomes through private action.  Similarly, there are many matters that involve particularly egregious conduct, which the ACCC will not pursue because it will not be able to achieve worthwhile outcomes, for example in relation to some phoenix activity.

The ACCC’s enforcement activity is directed achieving the following three main goals:

·        promoting competition amongst businesses

·        promoting fair trading by business

·        protecting consumers in their dealings with business.

These goals reflect both the competition and consumer law functions of the ACCC, which is to fix market failure and to ensure that consumers have as near to perfect information as possible, so they can make rational purchasing decisions.

ACCC’s 2018 Hit-List

The ACCC has made some changes in the 2018 Priorities document to the way in which it outlined its Priorities in the past. In previous versions of the Priorities, the ACCC would set out the general priority factors before listing the specific priority areas or “Hit List”. 

However, in the 2018 Priorities the ACCC effectively started with its “2018 Hit-List” or the specific areas where the ACCC will be focusing a large proportion of its enforcement resources in the coming year.

The 2018 “Hit List” is as follows:

• consumer issues in new car retailing, including responses by retailers and manufacturers to consumer guarantee claims, and other matters identified in the ACCC’s 2017 New Car Retailing Industry Report

• consumer issues in the provision of broadband services, including addressing misleading speed claims and statements made during the transition to the NBN

• systemic issues involving large or national traders avoiding or misrepresenting consumer guarantee rights

• competition issues in the financial services sector

• competition and consumer issues in the provision of energy as an essential service, including matters identified in the ACCC’s retail electricity pricing inquiry report and the ACCC’s wholesale gas inquiry

• competition and consumer issues concerning the use of digital platforms, algorithms and consumer data, with a focus on emerging markets and matters identified by the ACCC’s digital platforms inquiry

• ensuring small business receives the protections of industry codes and the unfair contract terms law, with a focus on Franchising Code of Conduct issues involving large or national franchisors

• ensuring better product safety outcomes for consumers in the online marketplace

• issues arising from the Takata airbags recall

• conduct that may contravene the new misuse of market power provisions and concerted practice provisions of the Act

• competition and consumer issues in the agriculture sector, with a focus on the dairy inquiry, Horticultural Code of Conduct enforcement, and analysis of the viticulture industry

• competition issues in the commercial construction sector

The interesting aspect of the 2018 Priorities is that many of these Priority areas were identified as Priorities in 2017.   For example, new car retailing, agriculture, commercial construction, unfair contracts, franchising, product safety issues in relation online platforms and broadband speed and performance claims were all identified as Priorities in 2017. This suggests that the ACCC did not achieve everything it wished to achieve in relation to these areas in 2017.

The ACCC has also identified a number of new Priority areas in 2018 - namely:

• financial services
• energy
• digital platforms, algorithms and consumer data
• Takata airbags recall
• misuse or market power and concerted practices.

That these specific areas would be Priority areas in 2018 was to be expected.  For example, it was anticipated that financial services would be a priority area given:

• that the government gave the ACCC additional resources in the 2017-2018 Budget to establish a dedicated Financial Services Unit; and

• the commencement of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry in February 2018

The ACCC has also been doing extensive work in the energy sector for some time, through market studies into the areas of gas and electricity.  The inclusion of energy in the 2018 Priorities may suggest that the ACCC will be looking at taking enforcement action in the energy sector in 2018.

Digital platforms, algorithms and consumer data is clearly a priority area in 2018 due to the commencement of the Digital Platforms Enquiry. In December 2017, the Government directed the ACCC to conduct an 18 months investigation into digital platforms, focusing on such companies as Google and Facebook amongst others. 

The ACCC has also had a long running involvement in the Takata airbag voluntary recall. However, the ACCC’s role was escalated significantly in February 2018 when the Assistant Minister to the Treasurer decided to issue a compulsory recall of the Takata airbags.

Finally, the ACCC will be focusing its attention in 2018 on the investigation and enforcement of conduct which is caught by the new changes to the Competition and Consumer Act 2010 (CCA), primarily the changes to the misuse of market power provisions and the introduction of the concerted practices provisions.

One interesting addition to the 2018 Priorities is the reference to “systemic issues involving large or national traders avoiding or misrepresenting consumer guarantee rights”.  It would appear specific area that this has been added to the 2018 Priorities due to a concern within the ACCC about large national traders are continuing to mislead their consumers about their consumer guarantee rights.[3]

There are also a number of industries which were on the 2017 Priority Hit List which can now breathe a collective sigh of relief as they did not make the cut in 2018 – namely:

• airlines in relation to their consumer guarantees;
• businesses involved in country of origin labelling;
• businesses involved in commission-based sales business models; and
• private health insurers.

Enduring priorities

The ACCC has also adopted a practice of identifying a number of enduring priorities defined as conduct which is so detrimental to consumer welfare and to the competitive process that the ACCC will always regard them as a priority. The enduring priority areas have not changed in 2018:

Cartel conduct

The ACCC will always prioritise cartel conduct causing detriment in Australia. When dealing with international cartels, the ACCC will focus on pursuing cartels that have a connection to, or cause detriment in Australia; that is, cartels that involve Australians, Australian businesses or entities carrying on business in Australia

Anti-competitive conduct 

The ACCC will always prioritise anti-competitive agreements and practices, and the misuse of market power.

Product safety

The ACCC will always prioritise product safety issues which have the potential to cause serious harm to consumers.

Vulnerable and disadvantaged consumers

The ACCC recognises that vulnerable and disadvantaged consumers can be disproportionately impacted by conduct in breach of the Act. The ACCC therefore prioritises conduct that impacts these consumers.

Conduct impacting Indigenous Australians

The ACCC acknowledges that certain conduct in breach of the Act has the potential to specifically impact on the welfare of Indigenous Australians. The ACCC also recognises that Indigenous consumers living in remote areas face particular challenges in relation to asserting their consumer rights. The ACCC will always prioritise its work in these areas while these challenges remain.

Priority factors

Finally, the ACCC outlines the general priority factors which it will weigh up when making a decision to pursue a “non-Priority area” matter. These general priority areas are:

• conduct that is of significant public interest or concern 

• conduct that results in substantial consumer or small business detriment 

• national conduct by large companies, recognising the potential for greater consumer detriment and the likelihood that conduct of large businesses can influence other market participants 

• conduct involving a significant new or emerging market issue or where our action is likely to have an educative or deterrent effect 

• where our action will assist to clarify aspects of the law, especially newer provisions of the Act.

The above factors largely duplicate the general priority factors set out in 2017.  Notably two factors which the ACCC will no longer take into consideration when deciding whether to pursue an enforcement action are the blatancy of the conduct and whether the relevant business is a serial offender – both of which appear to be surprising omissions.

                                                                               

Increased ACL penalties

Without doubt the most important development in 2018 will be the introduction of vastly higher penalties for contraventions of the ACL.

Currently, the maximum penalties for contravening the ACL are $1.1 million for corporations and $220,000 for individuals for each contravention.

However, in late 2017, Parliament released the draft amendment bill on ACL penalties.[4] If passed this bill will increase the maximum penalties for civil and criminal contraventions of the ACL to:

• $10 million; or
• if the court can determine the total value of the benefit obtained from the offence, three times the value of that benefit; or
• if the court cannot determine the value of the benefit, 10% of the corporation’s annual turnover in the preceding 12 months. 

The maximum penalties for individuals will increase to $500,000 per contravention.   

These changes are scheduled to take effect from 1 July 2018.

As is apparent, this amendment represents a quantum leap in terms of the size of penalties which may be awarded by the Court for contraventions of the ACL.  This change should be of particular concern for businesses with a history of previous contraventions of the ACL.  Courts are much more likely to impose multi-million-dollar penalties against companies which have engaged in multiple prior contraventions of the ACL.

Essentials

In order to minimise risks and avoid problems with the ACCC (and other State and territories regulators) it is important for businesses to conduct a detailed Competition and Consumer Law Risk Assessment of every aspect of their operation. This would start with an identification of all risks in the business both from a:

1. competition perspective – for example, the nature of all agreements with competitors, suppliers and service providers, and other third parties and

2. consumer law perspective – for example, the representations made to consumers in marketing and promotional materials, the fairness of standard form contract terms and how complaints handling procedures are managed

Once the business has conducted detailed Competition and Consumer Law Risk Assessment, businesses should take steps to implement a comprehensive and up-to-date Compliance Program, consisting of the following elements:

1. Compliance Policy

2. The appointment of a Compliance Officer

3. Other relevant policies such as a Complaints Handling Policy and a Whistle-blower Policy

4. The establishment of an effective Complaints Handling procedure and

5. Regular Competition and Consumer Law Compliance Training.

Taking steps to conduct a Risk Assessment and implement a Compliance Program will benefit the business by helping them to better identify and manage all competition and consumer law risks in the business. Taking these steps will also benefit the business in terms of mitigating the extent and severity of the much larger pecuniary penalties which the ACCC will be seeking from the Courts for ACL contraventions in second half of 2018.

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[1] ACCC, ACCC – AER Annual Report 2016-2017, Commonwealth of Australia, p 143 at https://www.accc.gov.au/system/files/ACCC%20and%20AER%20Annual%20Report%202016-17_0.pdf

[2] ACCC, 2018 ACCC Compliance and Enforcement Policy, at https://www.accc.gov.au/about-us/australian-competition-consumer-commission/compliance-enforcement-policy-priorities

[3] Rod Sims, 2018 compliance & enforcement priorities, Speech presented at CEDA Sydney, 20 February 2018 at https://www.accc.gov.au/speech/2018-compliance-enforcement-priorities

[4] Treasury Laws Amendment (2018 Measures No.3) Bill 2018 (Cth).

Woolworths and Children's Safety

Introduction

Woolworths’ record in complying with product safety laws leaves a lot to be desired. Despite an extremely poor record of compliance with product safety laws, the ACCC recently settled yet another contravention with a mere slap on the wrist.[i] The ACCC has to get serious with Woolworths about its compliance with product safety standards.

Recent ACCC settlement

On 30 March 2010, the ACCC announced that it had reached a settlement with Woolworths, after its subsidiary, Big W, conducted a “major recall of children’s nightwear”. 

The ACCC News Release stated that “after being advised of the breach” by the ACCC, Woolworths “undertook a voluntary recall across dozens of styles across its nightwear range, including 19 styles from the Pink Sugar and Bed Bugs Single Nighties range and eight styles from the Selected Sleepwear Nite Club Nightwear range”. Obviously, Big W’s failure to comply with the mandatory standard for children’s nightwear was quite significant.

What action did the ACCC take in relation to this clearly significant breach of the product safety laws?

Woolworths were able to settle the mater by providing the ACCC with a section 87B undertaking. In other words, Woolworths were able to avoid court action and settle the matter administratively.

Woolworths also agreed to donate $200,000 to the Sydney Children’s Hospital and provide a further $200,000 to a research project into the mandatory safety standard. Therefore, Woolworths had to part with a mere $400,000 in relation to multiple contraventions of the Trade Practices Act 1974 (TPA).

It is important to put Woolworth’s conduct in context. In the present case, Woolworths contravened the TPA each time it sold one single item of children’s nightwear which did not comply with the mandatory standard. The maximum criminal penalty for a breach of the relevant product safety provision is $1.1 million per contravention.

Therefore, Woolworths incurred a maximum criminal liability of $1.1 million each time it sold one single item of children’s nightwear which did not comply with the mandatory standard. If Woolworths sold 10 items of clothing through Big W in breach of the mandatory standard, then it was potentially liable for a total criminal penalty of more than $10 million. No doubt, Big W sold a lot more than 10 items of children’s nightwear.

Woolworths also agreed to take other remedial steps such as:

• implementing an Action Plan to make sure Big W does not breach product safety standards in relation to children’s nightwear in the future; 

• auditing their compliance with the Action Plan; and 

• providing staff with training on product safety. One would have expected that any good corporate citizen involved in the sale of children’s nightwear would already have had these types of systems in place.

One very disconcerting aspect of the undertakings is the definition of “Children’s Nightwear products”. It appears that the term “Children’s Nightwear products” was defined in the undertaking to mean only Big W exclusive brands or products licensed exclusively to Big W. Accordingly, Big W’s obligations under the Action Plan and the related remedies appear limited only to this narrow range of products.

However, a retailer’s legal obligation to prevent the sale of products which do not comply with the mandatory standard is much broader. Section 65C of the TPA states that:

(1) A corporation shall not, in trade or commerce, supply goods that are intended to be used, or are of a kind likely to be used, by a consumer if the goods are of a kind:

(a) in respect of which there is a prescribed consumer product safety standard and which do not comply with that standard…

The equivalent criminal provision contains a similar prohibition – section 75AZS.

Therefore, it would appear that Woolworths has limited the scope of Big W’s Action Plan and related remedies to ensuring compliance with mandatory product safety standards for children’s nightwear products which are either Big W exclusive brands or products licensed exclusively to Big W. This is despite the fact that Big W has an obligation to ensure that all the children’s nightwear products which it sells comply with the mandatory standard.

First time offender?

One may take the view that Woolworths and Big W were treated appropriately in the present case because it was the first time they have breached product safety laws.

Unfortunately, Woolworths is not a first time offender.

Woolworths have been accused by the ACCC of breaching products safety standards on two earlier occasions.

In 1996, the ACCC took legal action against Woolworths and a number of its subsidiaries for selling and offering for sale six styles of children’s nightclothes which did not comply with the mandatory standard.[ii] Woolworths settled this litigation by admitting that it had breached section 52, 53(a), 53(c) and 65C of the TPA.[iii] It also provided a range of other undertakings:

• appoint an independent external investigator to report to Woolworths and the ACCC on how the contraventions occurred and who was responsible; 

• identify necessary modifications to Woolworths quality assurance, warehouse, inspection and product recall procedures; 

• routinely submit all new product lines of children's nightclothes to Woolworths quality assurance department for testing and certifying compliance with the standard; 

• routinely test representative samples of each batch of imported children's nightclothes for compliance with the standard; and 

• revise existing inspection and product recall procedures in consultation with the Commission. 

If these remedies sound familiar, they are. They are effectively the same remedies which Woolworths offered the ACCC in 2010 to settle their most recent product safety breaches. The only significant difference is that the measures agreed to by Woolworths in 1996 applied more broadly to all new product lines of children’s nightclothes sold by Woolworths, whereas the measures agreed to in 2010 are limited to Big W exclusive brands or products licensed exclusively to Big W.

At the time of the 1996 settlement, Professor Fels made the following comment:

Although Woolworths has for many years had a system of checking for compliance with this standard, it is quite clear that its systems were not fool proof. When human errors of this sort can get through it’s clearly time to revisit the controls the companies have in place. The aim of the review is to minimise the likelihood of such a problem occurring again, and at the same time to maximise the speed and efficiency with which products are removed from sale and recalled.

Unfortunately, these measures do not appear to have achieved their stated aims.

Two time loser

In October 2006, Big W was accused by the ACCC of having sold children’s swimming aid vests which did not comply with the mandatory product standard for flotation devices.[iv] Big W sold up to 4000 non-compliant Maui swimming vests exclusively through its stores on a national basis.

Big W was able to settle this matter administratively by agreeing with the ACCC to: 

• revise its checking procedures to ensure mandatory standards are met; 

• conduct refresher training for its staff; and 

• introduce procedures requiring its staff to proactively investigate products suspected of being non-compliant with mandatory products safety and information standards. 

One particularly curious aspect of this matter was the following comment by ACCC Chairman, Graeme Samuels about Big W conduct:

The ACCC was particularly concerned that Big W, once alerted by Brand Direct that there may have been a problem with the vests, continued to sell them for another week until it received written notification from Brand Direct requesting that the vests be withdrawn from sale.

Such an attitude towards compliance would ordinarily provoke a regulator to taking legal action against a trader. However, in this case, the regulator opted for an administrative settlement.

Conclusions

The ACCC’s response to repeated and blatant product safety breaches by Woolworths and its subsidiaries is unsatisfactory. This is particularly apparent when one recognises that the product safety standards that Woolworths has breached on three occasions all related to product safety standards specifically designed to protect children from injury and death.

Despite Woolworths being a three time loser, the ACCC has never instituted criminal proceedings against it for breaching product safety laws. In actual fact, the clear trend at the ACCC appears to be that it will settle such matters administratively, once Woolworth’s promises to review its product safety systems (yet again) and provide its staff with (yet another) product safety refresher course.

The ACCC has to realise that the only way it will ensure industry wide compliance with the product safety laws is by taking criminal proceedings against large corporations which continually breach product safety laws. Woolworths was a prime candidate for a criminal prosecution given the scale of its recent contraventions and its history of breaching product safety laws. Woolworths cannot be allowed to take any more chances with our children’s safety.

[i] Hospital, research benefits after nightwear code breach – at http://www.accc.gov.au/content/index.phtml/itemId/921010
[ii] ACCC seeks injunctions over children’s nightclothes - http://www.accc.gov.au/content/index.phtml/itemId/86875/fromItemId/378002
[iii] Woolworths / ACCC ‘first’ to protect children - http://www.accc.gov.au/content/index.phtml/itemId/86861/fromItemId/378002
[iv] ACCC acts against unsafe children’s swimming vests - http://www.accc.gov.au/content/index.phtml/itemId/764572