Stocktake of the ACCC’s new powers and remedies under the Australian Consumer Law – the first 18 months

Part 3: Pecuniary penalties, disqualification orders and non-party redress

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

Pecuniary penalties

Introduction
The most significant change to the remedies available to the Australian Competition and Consumer Commission (ACCC) has been the introduction of civil pecuniary penalties for contraventions of the consumer protection laws, including unconscionable conduct and product safety laws.

Previously, when the ACCC took civil proceedings for breaches of consumer protection laws, the only remedies it could seek were injunctions, declarations, non-punitive orders and compensation. If the ACCC wished to obtain a fine for a breach of consumer protection laws, its only option was to refer a criminal prosecution to the Commonwealth Director of Public Prosecutions, who would then take over the case.

The government recognised that the inability of the ACCC, state and territory fair trading regulators to seek civil pecuniary penalties for breaches of consumer laws was a "significant gap in the range of enforcement options available to consumer regulators".[1]

The report into the introduction of the ACL stated that the main reason for the introduction of pecuniary penalties was the greater deterrent effect that access to such civil penalties would have on businesses which may be tempted to breach the consumer protection law provisions.[2]

Legislation

Section 224 of the ACL establishes civil pecuniary penalties for unconscionable conduct, consumer protection (except breaches of s.52) and product safety breaches. The penalty for contravening these provisions is $1.1 million for a corporation and $220,000 for an individual per contravention.

Section 224(2) sets out the various factors which the court must have regard, in determining the relevant civil pecuniary penalty:

(a) the nature and extent of the act or omission and of any loss or damage suffered as a result of the act or omission; and

(b) the circumstances in which the act or omission took place; and

(c) whether the person has previously been found by a court in proceedings under Ch 4 or this Part to have engaged in any similar conduct.

The ACL makes it clear that corporations and individuals cannot be fined twice in separate civil and criminal cases for the same conduct – s.225.

Section 226 provides a defence to the imposition of civil pecuniary penalties. This section states that a person can be wholly or partly relieved from liability to pay a pecuniary penalty “if the person acted honestly and reasonably and, having regard to all the circumstances of the case, ought fairly to be excused.” Accordingly, the Court has broad discretion either to impose no civil pecuniary penalty or to reduce any civil pecuniary penalty being sought by the ACCC.

ACCC cases

Since civil pecuniary penalties became available to the ACCC for consumer protection breaches in April 2010, the ACCC has obtained such penalties in 14 cases resulting in total penalties of almost $13 million.[3]

The following table lists the various cases in which the ACCC has obtained pecuniary penalties showing the amount of the penalty imposed by the Court in each case:


Table: Civil pecuniary penalties imposed in ACCC cases - April 2010 to December 2011[4]

If one divides the total penalties obtained by the ACCC by the number of cases, the ACCC obtained approximately $900,000 in civil penalties in each of the cases which it has taken. However, such an approach would not provide an accurate insight into the size of the penalties being obtained by the ACCC given that the ACCC obtained $9.21 million or 70% of total penalties in three cases – ie the Optus, Yellow Pages Marketing BV and Harvey Norman.

Unfortunately, on the above table, it is not possible to identify any general principles about the way in which the court has gone about the task of determining the appropriate penalty. For example, in the Dimmey’s case the court imposed a total penalty of $400,000 for various breaches of mandatory consumer product safety standard for children’s nightwear, while in the Sontax case, the court only imposed $40,000 for a breach of the product safety standard for luggage straps.

Optus case

Justice Perram’s judgment in the Optus case is the most instructive in terms of explaining how the court will generally approach the task of calculating the appropriate civil penalty to impose in a consumer protection case under the ACL.[5]

By way of background, Optus was found by the court to have contravened the Trade Practices Act 1974 (TPA) in relation to its “Think Bigger” and “Supersonic” broadband internet plans. Optus had not sufficiently disclosed that the broadband service in relation to these plans would be speed limited to 64kbps at all times once a consumer exceeded their peak data allowance. The consequence was that any unused off-peak data would no longer be available at a broadband speed.[6]

Accordingly, Justice Perram decided to impose a total penalty of $5.26 million for Optus’ contraventions, which consisted of 11 separate contraventions.

Justice Perram stated that in calculating the appropriate civil pecuniary penalty the court must first consider the mandatory factors set out in 224(2) of the CCA (formerly 76E(2) of the TPA)[7], listed above.

Justice Perram also found that the principles relevant to the imposition of a civil penalty in relation to the former section 76 of the TPA (which related to breaches of the restrictive trade practices provisions) were applicable to the imposition of civil pecuniary penalties for consumer protection matters.[8] These factors include:

1. the size of the contravening company;

2. the deliberateness of the contravention and the period over which it extended;

3. whether the contravention arose out of the conduct of senior management of the contravener or at some lower level;

4. whether the contravener has a corporate culture conducive to compliance with the Act (or the new Australian Competition and Consumer Law) as evidenced by educational programmes and disciplinary or other corrective measures in response to an acknowledged contravention;

5. whether the contravener has shown a disposition to co-operate with the authorities responsible for the enforcement of the Act in relation to the contravention;

6. whether the contravener has engaged in similar conduct in the past;

7. the financial position of the contravener;

8. whether the contravening conduct was systematic, deliberate or covert.

9. the effect of the contravening conduct on a functioning market together with any other economic effects of the contravening conduct

10. the degree of market power of the contravener as evidenced by its market share and the ease of entry into the market.

Disqualification orders

Introduction

The ACL also introduces disqualification orders for individuals who have engaged in conduct in breach of consumer protection laws.[9]

The ACL report stated that these orders may "ban or restrict individuals from participating in specific activities for a period of time, including managing corporations or undertaking specific business conduct".[10]

Legislation

Section 248 of the ACL creates the power to make a disqualification order. This section states that the court may make an order disqualifying a person from managing a corporation for a period of time that the court considers appropriate if it is satisfied that the person has engaged in or has attempted to engage in a contravention of the relevant provisions of the ACL and “the disqualification is justified”.

The relevant provisions of the ACL for which an individual can be disqualified are the unconscionable conduct, consumer protection (except for s.52) and product safety provisions of the ACL.

The most notable feature of the new disqualification order is the width of the court's discretion to make such an order. The only guidance provided about how the discretion should be exercised is contained in s.248(2) which states that the court can consider "the person's conduct in relation to the management, business or property of any corporation".

There is no indication in the legislation that a disqualification order should only be made in circumstances where the individual has been shown to have engaged in similar breaches of the ACL or TPA in the past and is therefore a repeat offender. Further, the length of the disqualification order is not subject to any statutory maximum period, but rather is subject to the court's opinion as to the appropriate period of disqualification.

ACCC cases

Since the introduction of this provision until August 2011, the ACCC had sought disqualification orders in relation to six individuals:

• four individuals involved in Sensaslim Australia Pty Ltd, including Mr Peter Foster;

• Mr Jacov Vaisman, the Managing Director of Advanced Medical Institute, and

• Mr Lawrence Hann, the director of Halkalia, one of the recipients of the first public warning notice issued by the ACCC.

In most of these cases, the ACCC has sought orders that these individuals be disqualified from managing corporations for a period of up to 20 years.

Unfortunately, the ACCC has not issued any guidance about the circumstances in which it will seek a disqualification order, nor the period of time it is asking the court to disqualify a person.

One would assume that a significant consideration for the ACCC in deciding to seek a disqualification order is evidence that the person is a repeat offender. For example, in the AMI proceedings the ACCC has sought a disqualification order against AMI’s Managing Director, Mr Jacov Vaisman. Prior to these ACCC legal proceedings, the ACCC had taken legal action personally against Mr Vaisman on at least two occasions.

In addition, the ACCC is seeking a disqualification order against Mr Foster, one of the respondents in the Sensaslim case. Mr Foster was previously a respondent in an ACCC case involving Chase Corporation in 2005.[11]

Non-party redress

Introduction

The ACL report described non-party redress as the power to seek an order from the court to "seek redress for persons who are not parties to the particular action".[12]

The ACL report specifically referred to the full Federal Court decision in Medibank Private Ltd v Cassidy where it was held that there was no power in the TPA to order a business to provide redress to non-parties to a proceeding. The High Court subsequently refused the ACCC’s special leave application.[13]

ACCC’s previous approach

In order to understand the significance of the new provisions concerning non-party redress, one needs to understand the powers which the ACCC previously had to obtain compensation for consumers under the TPA.

In the past, there were two ways that the ACCC could get financial redress for consumers for a contravention of the consumer protection provisions of the TPA – either the ACCC could:

• take an action under s.87(1B) of the TPA; or 

• commence a class action under the Federal Court of Australia Act (1976).

The ACCC had shown a clear preference for former type of proceeding because in a s.87(1B) action they would be able to control of proceedings – ie the ACCC would be able to decide when to settle the case and on what terms.

However, in a class action, it is the class rather than the ACCC that controls the course of the legal proceedings. For example, the class is usually content to settle for financial compensation, and has no interest in obtaining injunctions or declarations. However, the ACCC views both injunctions and declarations to be important remedies in terms of achieving specific and general deterrence, respectively.

The ACCC's preferred approach in taking an action under s.87(1B) was to adopt “the two-step approach”. Under the two-step approach the ACCC commenced litigation against a business alleging various breaches of the consumer protection provisions seeking the usual remedies - ie injunctions, declarations, corrective orders, and the implementation of a trade practices compliance program.

However, the ACCC did not seek compensation in these initial proceedings; rather it would foreshadow that it was going to seek compensation for consumers under s.87(1B) in a follow-up legal action.

The reason the ACCC took this approach is because under s.87(1B) the ACCC is required to have the written consent of all the consumers on whose behalf the ACCC was seeking compensation before making an application for compensation. As can be appreciated, getting written consent from potentially hundreds of consumers prior to commencing legal proceedings was a time-consuming process which would have significantly delayed the initiation of legal proceedings.

By adopting the two-step approach, the ACCC could seek to prove liability in an initial action and then commence a follow-up action (once liability had been established) to seek compensation for affected consumers.

However, the two-step process had two significant problems.

The first problem was delay. Because the ACCC has to run and win its initial action before running a second proceeding for compensation, it could take a number of years before consumers received any compensation.

The second problem was utility. Often, by the time the initial action had been completed, the business which had been the subject of the ACCC’s legal action might have had no money left to pay any compensation, particularly after it had paid the ACCC's legal costs. Under the Financial Management and Accountability Act 1997, the ACCC has a statutory obligation to recover the costs of its legal action.

Accordingly, the ACCC could find itself in the absurd position of commencing litigation (with the ultimate goal of getting consumers compensation) and winning its case, only to see the pool of funds available to pay compensation to consumers being diminished or even extinguished by its own legal costs.

Legislation

Section 239 creates the power to order non-party redress. The power contained in section 239 is very broad requiring only that person has engaged in contravening conduct and that a non-party consumer has suffered or is likely to suffer loss or damage due to that contravening conduct.

Contravening conduct includes all the consumer protection and unconscionable conduct provisions of the ACL, but does not include either the product safety provisions (Pt 3-3 and Pt 3-4) or the provisions concerning liability of manufacturers for safety defects (Pt 3-5).

Section 239(3) states that the court must not make an order unless the order will:

(a) redress, in whole or in part, the loss or damage suffered by the non-party consumers in relation to the contravening conduct or declared term; or

(b) prevent or reduce the loss or damage suffered, or likely to be suffered, by the non-party consumers in relation to the contravening conduct or declared term.[14]

Section 241 provides that a non-party consumer is bound by an order made under s 239. This provision is aimed at finalising any claims for redress in the one proceeding and also preventing double recovery by consumers.

Section 243 provides a list of the kinds of orders which the court can make to redress the loss or damage suffered by the non-party consumer, including an order:

• directing the respondent to pay the injured person the amount of their loss or damage; or 

• declaring a contract to be void; or 

• varying the terms of a contract; or 

• directing a person to refund money or return property to the non-party consumer.

The most curious provision in relation to non-party redress is s.242 (1) which states: 

An application may be made under section 239(1)(that is for an order for non-party redress) even if an enforcement proceeding in relation to the contravening conduct has not been instituted.

Therefore, it seems that the ACCC can seek an order for non-party redress even if it has not commenced legal proceedings in relation to contravening conduct.

The problems discussed above with the way in which the ACCC could previously pursue compensation for consumers, have been removed with the enactment of section 239. Under this section, the court can now make an order, including an award of damages, against a person who has engaged in contravening conduct, for the benefit of any non-party consumers. In other words, consumers who may have suffered loss or damage do not have to become parties to the ACCC’s legal proceedings in order to benefit from an order, including an order for the award of damages.

ACCC cases

The ACCC has obtained orders for non-party redress in one case – namely, Australian Competition and Consumer Commission v Yellow Page Marketing BV (No 2) [2011] FCA 352.[15] In this case, Gordon J made orders under section 87AAA(1) of the TPA (the precursor to section 239) that:[16] 

• each contract made between YPL and the relevant consumer be declared void ab initio; and

• if a Contract is void ab initio, the respondent must refund all monies paid by the consumer under the contract and that no further amounts will be payable by the consumer under the contract.

This case demonstrates the various orders which the court can now make to assist consumers directly, without those consumers having to become a party to the ACCC’s legal proceedings.

The ACCC has sought non-party redress in two other cases – Edirect Pty and Sensaslim.[17]

Conclusions

The ACL introduces a quite remarkable suite of new enforcement powers and remedies to the ACL. With the power to issue substantiation notices, public warning notices and infringement notices, the ACCC now has unparalleled powers to take aggressive and pre-emptive enforcement action against businesses which it believes have contravened the consumer protection laws. The ACCC has also shown a great propensity to use its powers to issue infringement notices, with 61 notices being issued and paid within the first 18 months.

Since civil pecuniary penalties for consumer protection matters were introduced in April 2010, the ACCC has obtained pecuniary penalties of over $12 million in 14 cases. The level of pecuniary penalties imposed in these cases clearly demonstrates clearly that the court considers breaches of consumer protection laws to be serious matters which are deserving of significant penalties.

Less is known about the ACCC’s and the court’s approach to seeking and ordering disqualification orders and orders for non-party redress, respectively. It is likely that the AMI and Sensaslim cases will provide some much needed guidance about the how the court’s will approach the task of deciding when to disqualify individuals from being directors and managing corporations and also for how long.

Contrary to expectations, the ACCC does not appear to have been as active in seeking non-party redress for consumers in consumer protection litigation. This may be due in part to a belief that the ACCC’s primary role in litigation should be to simply establish the breach of the CCA or ACL and to leave it to plaintiff law firms to pursue compensation for consumers in follow on actions.

Undoubtedly, the most unfortunate aspect of the introduction of these new powers and remedies is the failure by the ACCC to provide any meaningful guidance to business and the legal community about on how it will be using its new powers and when it will pursuing the new remedies. Given that more than 18 months has now elapsed since the new powers and remedies were introduced, one would have expected that the ACCC would have released some substantive guidelines, particularly concerning:

• the ACCC’s use of infringement notices and public warning notices; and 

• the circumstances in which the ACCC will be seeking disqualification orders against directors and managers.

We hope that the ACCC has made it a high priority in 2012 to issue substantive guidelines about the use of its new powers and the circumstances where it will be seeking the new remedies under the ACL, particularly given the profound effects which these new powers and remedies are already having on Australian businesses.

---

[1] An Australian Consumer Law: Fair Markets - Confident Consumers, 17 February 2009, available at www.treasury.gov.au/contentitem.asp?NavId=037&ContentID=1482 (ACL: Fair Markets), at pp. 44-45.
[2] Ibid., p. 45.
[3] From April 2010 until December 2011.
[4] ACCC News Releases - http://www.accc.gov.au/content/index.phtml/itemId/2332
[5] Australian Competition and Consumer Commission v Singtel Optus Pty Ltd (No 4) [2011] FCA 761 - http://www.austlii.edu.au/au/cases/cth/FCA/2011/761.html
[6] Australian Competition and Consumer Commission v Singtel Optus Pty Ltd [2010] FCA 1177 - http://www.austlii.edu.au/au/cases/cth/FCA/2010/1177.html
[7] Optus (No. 4), op. cit., at para. 9.
[8] Ibid., para. 10.
[9] Disqualification orders are already available for contraventions of the restrictive trade practices provisions of the CCA (Part IV).
[10] ACL Report, op. cit., p. 45.
[11] Australian Competition and Consumer Commission v Chaste Corporation Pty Ltd with corrigendum dated 12 Sep) [2005] FCA 1212 - http://www.austlii.edu.au/cgi-bin/sinodisp/au/cases/cth/FCA/2005/1212.html?stem=0&synonyms=0&query=title(\Chaste%20Corporation%20Pty%20Ltd%20)
[12] ACL Report, op. cit., p. 52
[13] [2002] FCAFC 290.
[14] The reference to “declared term” in this section relates to the unfair contract terms provisions contained in Part 2-3 of the ACL.
[15] http://www.austlii.edu.au/cgi bin/sinodisp/au/cases/cth/FCA/2011/352.html?stem=0&synonyms=0&query=title(Yellow%20Page%20Marketing%20BV%20)
[16] Ibid., see para’s. 121-133.
[17] ACCC alleges EDirect sold mobile contracts to consumers in areas without network coverage - http://www.accc.gov.au/content/index.phtml/itemId/981470/fromItemId/966100 and ACCC takes court action against Sensaslim for alleged misleading claims -http://www.accc.gov.au/content/index.phtml?itemId=998494

Stocktake of the ACCC’s new powers and remedies under the Australian Consumer Law – the first 18 months

Part 2: Infringement notices

This article first appeared in the Australian Competition & Consumer Law Tracker, CCH, Issue 12, December 2011.

Introduction

Along with the public warning power, the most controversial new power given to the Australian Competition and Consumer Commission (ACCC) is the power to issue infringement notices. Under this power, the ACCC is able to issue on-the-spot fines to traders for particular conduct without taking a matter to court.

Section 134A of the Competition and Consumer Act 2010 (CCA) defines “infringement notice provision” to include:

• unconscionable conduct

• unfair practices

• unsolicited consumer contracts

• lay-by agreements

• product safety provisions

• warranties against defects

• display notices

• proof of transactions

• itemised bills

• repairer’s obligations

• breaches of the substantiation notice provisions.

The ACCC cannot issue infringement notices for the following provisions of the Australian Consumer Law (ACL):

• misleading or deceptive conduct (s 18)

• some of the prohibitions on offering rebates, gifts and prizes without intending to supply (s 32(1)) 

• some forms of bait advertising (s 35(1) [1]

• most prohibitions on wrongly accepting payment (s 36(1), (2), (3)); and

• · unsolicited directory entries, goods or services (s 40, 43).

The operation of the infringement notice provisions is complicated because s 134A states that certain parts of sections will be infringement notice provisions, while other parts of the same sections will not be infringement notice provisions.

For example, s 32(1), which relates to offering a rebate, gift, prize or other free item without the intention of actually providing it, is not an infringement notice provision. However, s 32(2), which places an obligation on a person to supply a rebate, gift, prize or other free item either within the stipulated time or within a reasonable time, is an infringement notice provision.

Other examples relate to bait advertising and wrongly accepting payment. Section 35(1) prohibits a person from advertising a good or service if there are reasonable grounds for believing that they will not be able to supply the goods or services at all or in reasonable quantities. This section is not an infringement notice provision. However, s 35(2), which requires a person to supply goods or services which are advertised at a specified price at that specified price for a reasonable period, is an infringement notice provision.

Finally, s 36(1), (2) and (3), which prohibit wrongly accepting payment for goods or services, are not infringement notice provisions. However, s 36(4) which imposes an obligation on a person to supply a good or service within any stipulated time or within a reasonable time once they have accepted consideration or payment for that good or service, is an infringement notice provision.

There does not appear to be any hard and fast rule why certain of the provisions in s 32, 35 and 36 are infringement notice provisions and others are not infringement notice provisions.

The onus the ACCC needs to satisfy in order to issue an infringement notice is set out in s134A(1) of the CCA which states:

If the Commission has reasonable grounds to believe that a person has contravened an infringement notice provision, the Commission may issue an infringement notice to the person.

Infringement notices are not effective if issued in relation to conduct which is more than 12 months old.

Only one infringement notice may be issued in relation to an alleged contravention. The infringement notice penalty must be paid within 28 days of the notice being issued. The maximum penalties which can be obtained through the use of an infringement notice are $66,000 for a listed corporation, $6,600 for an unlisted corporation and $1,320 for an individual.

Once the infringement notice has been paid, no civil or criminal proceedings may be started or continued against the person by or on behalf of the Commonwealth[2] in relation to the conduct the subject of the infringement notice. The way that the Parliament intended the ACCC to use the new infringement notice powers was outlined in the relevant Explanatory Memorandum as follows:

The limitation on the size of the financial penalty specified in the infringement notice and restrictions preventing the ACCC or ASIC from taking other action in relation to conduct dealt with using this mechanism are intended to ensure that it is not used for more serious contraventions as an alternative to existing Court processes. However, if a person fails to comply with an infringement notice and a Court subsequently determines that a contravention has occurred, the Court can impose a significantly higher pecuniary penalty.[3]

Between the time that the ACCC obtained the power to issue infringement notices on 15 April 2010 and August 2011, it issued 63 infringement notices, of which 59 had been paid.[4]

The total penalties obtained through these 59 infringement notices were in excess of $300,000. By the end of October 2011, the ACCC had received payments for 61 infringement notices.[5]

ACCC’s use of its infringement notice powers

The first infringement notices were issued to eight small restaurant and café owners who had failed to have separate menus showing the total prices charged on weekends and public holidays. This conduct was considered to have breached the former s 53C of the Trade Practices Act 1974 (TPA).[6]

Interestingly, only four of these businesses paid the infringement notices by the due date. As a result, the ACCC commenced legal proceedings against four of the businesses for the underlying breach of s 53C.[7] Two of the cafes subsequently agreed to settle the ACCC’s proceedings by consent. They were each penalised $13,200, which was twice the amount initially sought in the infringement notice.[8]

In separate proceedings, the ACCC was able to secure a penalty of $15,000 against Signature Brasserie and $20,000 against the former owner of Babar Café and Bar for the underlying breach.[9]

This series of café cases provides a number of insights into how the ACCC has been using its infringement notice powers. First, the ACCC will not hesitate to take legal action against a business which fails to pay an infringement notice by the due date. Second, if the ACCC does take action against a company for the underlying breach it is likely to secure a significantly higher penalty than the amount initially sought under the infringement notice. In the three litigated café cases, the ACCC secured penalties which were 2 to 3 times higher than the amount which the ACCC had initially been seeking under the infringement notice.

The next significant case was the ACCC’s decision to issue infringement notices in relation to the conduct of the David Lawrence, Marcs and Jigsaw retail stores, which were all owned by M Webster Holdings Pty Ltd.[10]

In this case, the ACCC was concerned that the three retail stores were making misleading representations on their receipts and in-store signs about consumer guarantees. The ACCC alleged that these stores were advising their consumers that they did not have to offer exchanges, refunds or credits for sale items which were not of acceptable quality. Significantly, the ACCC decided to issue three infringement notices contributing to a total penalty of $19,800 rather than simply one infringement notice to the corporate entity, M Webster Holdings Pty Ltd. The ACCC appears to have formed the view that it was justified in issuing three infringement notices because there were three separate contraventions of the TPA — ie each of the retail stores had promoted a misleading refund policy.

Shortly after this matter, the ACCC issued four infringement notices to Dodo Australia Pty Ltd (Dodo).[11] In this matter, the ACCC was concerned that Dodo had made false or misleading representations about the price of its Unlimited ADSL2+ broadband plan. However, rather than issuing one infringement notice to Dodo, the ACCC issued four notices on the basis that Dodo had made the alleged misrepresentations in four different types of media — namely, in TV advertisements, on its website, on billboards and on radio. Accordingly, Dodo had to pay a total penalty of $26,400.

In June 2011, the ACCC announced that six separate Harvey Norman franchisees had paid infringement notices in relation to alleged bait advertising.[12] This decision immediately caused some confusion as most practitioners had understood that the infringement notice power did not apply to bait advertising. However, a careful reading of s 134A of the CCA shows that only s 35(1) of the ACL is excluded from the scope of the infringement notice power and not s 35(2). Therefore, the ACCC may issue infringement notices in relation to some forms of bait advertising.

By far the most controversial use of the ACCC’s new infringement notice powers was the ACCC’s decision to issue 27 infringement notices to Optus in relation to its “Max Cap” plans.[13] Optus was required to pay a total penalty of $178,200 for allegedly making false or misleading representations about the price, nature and characteristics of its services. In its media release, the ACCC sought to explain its decision to issue 27 infringement notices to Optus:

The ACCC decided it was appropriate to issue 27 infringement notices ($6,600 for each notice) to Optus based on the number of advertisements published and the various representations made within those advertisements.

The obvious implication of this approach is that if a business makes a large number of misrepresentations for an extended period of time in a wide variety of different media, the size of the penalty could rise exponentially.

Concerns

There are quite a number of valid concerns about the ACCC’s power to issue infringement notices.

Separation of powers issues

The ACCC’s new power to issue infringement notices was considered as quite controversial when it was introduced due to a concern that it raised separation of powers issues — namely, the blurring of executive and judicial functions. The power to impose a pecuniary penalty on a business for a breach of legislation may be characterised as the exercise of a judicial function, which should properly reside in the courts, rather than with a federal government agency, such as the ACCC. There are still many practitioners who believe that giving enforcement agencies the power to issue on-the-stop fines in this way is likely to be unconstitutional.

Challenging the infringement notice

Section 134G of the CCA provides that a person who has been issued with an infringement notice may make representations to the ACCC seeking the withdrawal of the infringement notice. There is no more guidance in the CCA or from the ACCC about how this provision is to apply in practice. Obviously, the business will have to provide some quite compelling reasons to the ACCC to justify the ACCC withdrawing the infringement notice.

The ACCC has received a number of requests to have an infringement notice withdrawn and has also withdrawn an infringement notice in at least one case.

In the Goody case[14] and the Le Sands case[15], the solicitors for the respondents asked the ACCC to withdraw the infringement notice on the basis that they had rectified their menus to show the full price. In both cases, the ACCC notified the respondents that they would not be withdrawing the infringement notices.

Despite being advised by the ACCC that the infringement notices would not be withdrawn, the businesses did not pay the infringement notices by the due date. As a result, the ACCC commenced legal proceedings against the businesses.

Unfortunately, these cases do not provide any details as to why the ACCC did not agree to withdraw the infringement notices.

It appears that the ACCC will not agree to withdraw an infringement notice if the request is made outside the infringement notice compliance period. Section 134G(6) of the CCA states:

To be effective, the withdrawal notice must be given to the person within the infringement notice compliance period for the infringement notice.

Therefore, it stands to reason that if a withdrawal notice will only be effective if it is given to the person within the infringement notice compliance period, then the ACCC cannot withdraw a notice after the infringement notice compliance period has expired.

I also note the helpful commentary on this issue in the Australian Competition and Consumer Law Reporter:

The ACCC may refuse to withdraw an infringement notice, even if a contravention is rectified … If withdrawal is sought, the 28-day infringement notice compliance period must be kept in mind. It might be prudent to request an extension of the compliance period under s 134F(2) when seeking withdrawal of the infringement notice …[16]

The ACCC can extend the time to comply with an infringement notice by a maximum of 28 days (s 134F(3)) where it believes it is appropriate to do so.

One obvious justification for requesting the withdrawal of an infringement notice would be if there was an error in the notice itself. This occurred in the Le Sands case where there was an error in one of the Schedules to the infringement notice. As a result, the ACCC withdrew the infringement notice and issued a new infringement notice in relation to the same conduct.

Another situation where it would be appropriate for the ACCC to consider withdrawing an infringement notice is where the business can show that the issuing of the notice is unfair in some way. Some examples of unfairness would include where the contravention arose from an honest mistake or where the business can show that the issuing of the infringement notice is going to have a disproportionately negative impact on the business.

It is also theoretically possible for a business to challenge the ACCC’s decision to issue an infringement notice on administrative law grounds. This would involve arguing that the ACCC did not have reasonable grounds to believe that a person had contravened an infringement notice provision. However, the costs of challenging the ACCC’s decision to issue an infringement notice on administrative law grounds is likely to be significantly greater than just paying the infringement notice.

Another option for a business which does not believe that it has contravened the ACL and believes that it should not have to pay the infringement notice, is to decide not to pay the infringement notice and fight the substantive case in court. Again, the cost of pursuing this option will be much greater than the financial penalty being sought under the infringement notice in the first place.

ACCC’s use of infringement notices

There is also a valid argument that the way in which the ACCC has used its infringement notice powers in a number of cases has been inconsistent with the way Parliament intended that the power should be used. As stated above, the Explanatory Memorandum, cited above, made it quite clear “that (the infringement notice power) is not [to be] used for more serious contraventions as an alternative to existing Court processes”.

Arguably, the Dodo and Optus cases as well as the Harvey Norman bait advertising cases should all have been treated as more serious contraventions of the ACL and not been the subject of infringement notices.[17]

Admissions

The ACCC has also developed a practice in relation to infringement notices which has caused considerable consternation amongst legal practitioners, particularly the Law Council of Australia. The ACCC has adopted a practice in most matters where it has issued an infringement notice to also seek an s 87B undertaking from the business concerned.[18]

It makes a great deal of sense for the ACCC to seek a s 87B undertaking from a business when also issuing it with an infringement notice as there is little point in the ACCC simply fining a business for illegal conduct without also requiring that the business implement some measures to prevent further breaches of the CCA and ACL. The best way to achieve such preventative steps is to require the business to establish a compliance program consisting of the:

• appointment of an in-house compliance officer;

• introduction of specific annual compliance training; and

• implementation of a complaints handling system.

However, the difficulty which arises in relation to the ACCC’s approach is that it is also the ACCC’s usual practice to seek admissions of a contravention of the CCA or ACL in all s 87B undertakings. As stated in the ACCC’s s 87B policy document a typical element of an s 87B undertaking will be:

… an acknowledgment or admission from the company or business that the conduct of concern constitutes or was likely to constitute a breach of the Act.[19]

The concern expressed by the Law Council was that the ACCC’s actions in requiring an admission from a business in an s 87B undertaking was inconsistent with the terms of s 134D of the CCA which states that the payment of an infringement notice does not constitute an admission by the business of the underlying breach.[20]

While the Law Council’s observations about this issue are valid, the simple solution in these circumstances is for legal practitioners to advise their clients not to agree to make any admissions in an s 87B undertaking when the undertaking is being provided to the ACCC in the context of an infringement notice. I think it is highly unlikely that the ACCC will simply abandon both the infringement notice and the s 87B undertaking, and commence legal proceedings against the business for the sole purpose of obtaining admissions, particularly as the conduct is, by definition, a “less serious” contravention.

Guidelines

Another valid point made by the Law Council in its submission to the ACCC relates to the failure by the ACCC to issue any substantive guidelines on how and when it will be exercising its infringement notice powers.[21]

Even though one can discern some broad principles about the ACCC’s use of its powers from reviewing the various matters discussed above, this is no substitute for formal guidance from the ACCC. Furthermore, while my brief review of ACCC cases has identified a number of broad principles about “how” the ACCC will use their infringement notice power, this review provides little guidance on “when” the ACCC will use these powers.

A more in-depth analysis of the particular matters where the ACCC has used its infringement notice powers may provide some guidance on “when” the ACCC is likely to use this power. The following table records the types of conduct which have been the subject of infringement notices from April 2010 until October 2011:

Table: Infringement notices paid between 15 April 2010 to 28 November 2011[22]

Based on the above table, it seems safe to conclude that the ACCC has tended to use its new infringement notice powers most extensively in relation to misrepresentations about price. One can also safely assume that the ACCC’s use of its infringement notice powers in relation to price misrepresentations is likely to increase quite significantly with the introduction of the carbon price.

The other major area where the ACCC has used its infringement notice powers is in relation to misrepresentations concerning sponsorship and approval. This encompasses both misrepresentations that a company has particular sponsorship or affiliations as well as misrepresentations that goods have sponsorship, approval, performance characteristics, accessories, uses or benefits they do not have.

Conclusions

The ACCC has shown a great propensity to use its new infringement notice powers since their introduction in April 2010. Although the ACCC did not issue and receive payment of its first infringement notice until July 2010, since then it has issued and received payment of a further 60 infringement notices. This is a rate of just under four infringement notices a month.

The failure of the ACCC to issue any guidelines on how and when it will use its infringement notice powers has created a great deal of uncertainty. This uncertainty has been compounded by the way in which the ACCC used its infringement notice powers in relation to the Optus “Max Cap” matter.

The good news is that in September 2011 the ACCC advised the Law Council that it would be releasing draft guidelines on the use of its infringement notice powers in late 2011. (NB: Unfortunately this has not yet occurred). It is hoped that these guidelines will be able to provide both legal practitioners and businesses with some meaningful parameters on how and when the ACCC will be using its infringement notice powers in the future.

---

[1] See the discussion of the Harvey Norman matters below.
[2] The expression “by or on behalf of the Commonwealth” is a reference to the ACCC and the various state and territory fair trading regulators. These organisations are referred to collectively as the ACL regulators. This article will only focus on the activities of the ACCC.
[3] Explanatory Memorandum to the Trade Practices Amendment (Australian Consumer Law) Bill 2009 (the No 1 Amendment Bill), para 8.38.
[4] The ACCC’s initial experience with Australian Consumer Law remedies and powers, Speech by Peter Kell, Deputy Chair of the ACCC to the 36th Competition and Consumer Workshop, 26–28 August 2011, 1, available at -http://www.cch.com.au/AttachmentLibrary/MarketingPromo/Peter_Kell_The_ACCC%E2%80%99s_initial_experience_with_Australian_Consumer_Law_remedies_and_powers.pdf (Speech by Peter Kell).
[5] ACCC Infringement Notices Register, www.accc.gov.au/content/index.phtml/itemId/939961/
[6] ACCC News Release, Misleading menus invite Infringement notices, NR 129/10, 1 July 2010.
[7] ACCC News Release, ACCC institutes against cafés for alleged menu breaches, NR 186/10, 9 September 2010.
[8] ACCC v Gourmet Goody’s Family Restaurant Pty Ltd [2010] FCA 1216; ACCC News Release, Restaurant menus misled consumers, NR 243/10, 4 November 2010
[9] Australian Competition and Consumer Commission v Le Sands Restaurant and Le Sands Café Pty Ltd t/as Signature Brasserie (2011) ATPR ¶42-342; [2011] FCA 105; Australian Competition and Consumer Commission v AI Constructions (ACT) Pty Ltd [2010] FCA 1377; ACCC News Release, Former café operator ordered to pay $20,000 penalty, NR 265/10, 8 December 2010.
[10] ACCC News Release, David Lawrence, Jigsaw and Marcs pay infringement notices, offers undertaking over refund policy, NR 274/10, 16 December 2010.
[11] ACCC News Release, Dodo pay infringement notices, NR 004/11, 6 January 2011.
[12] ACCC News Release, Six Harvey Norman franchisees pay for not stocking cameras, NR 090/11, 7 June 2011.
[13] ACCC News Release, Optus pays for ‘max cap’ advertising, NR 084/11, 18 May 2011.
[14] ACCC v Gourmet Goody’s Family Restaurant Pty Ltd [2010] FCA 1216.
[15] Australian Competition and Consumer Commission v Le Sands Restaurant and Le Sands Café Pty Ltd t/as Signature Brasserie (2011) ATPR ¶42-342; [2011] FCA 105.
[16] CCH, Australian Competition and Consumer Law Reporter at ¶35-110.
[17] The Harvey Norman group were the subject of a successful ACCC legal action in 2004 for bait advertising — ACCC News Release, Federal Court orders declarations, ACCC accepts undertakings from Harvey Norman over misrepresentation and bait advertising action, MR 151/04, 10 August 2004.
[18] An s 87B undertaking is a court enforceable agreement between the ACCC and a business whereby the business agrees to carry out a number of remedial steps.
[19] Section 87B of the Trade Practices Act: Guidelines on the use of enforceable undertakings by the Australian Competition and Consumer Commission, September 2009, p5.
[20] Law Council of Australia, Use of Infringement Notices by the ACCC, Submission to ACCC, 19 August 2011, 6–7, available at www.lawcouncil.asn.au/shadomx/apps/fms/fmsdownload.cfm?file_uuid=12FF2DD3-B378-8D68-32EE-E49B208FCDEF&siteName=lca.
[21] The ACCC did issue a Business Snapshot in 2011 entitled ACCC powers to issue infringement, substantiation and public warning notices, available at www.accc.gov.au/content/index.phtml/itemId/935285. However, this document could not be considered a guideline on how and when the ACCC will use its infringement notice powers.
[22] ACCC Infringement Notices Register, www.accc.gov.au/content/index.phtml/itemId/939961.

The Untold Story: The ACCC’s role in the Waterfront Dispute - Part 15 - The Litigation Continues

Part 15: The Litigation Continues

Introduction

We were very happy with ourselves for having obtained the interim injunctions against the MUA in relation to the international boycotts and also to have commenced our second set of legal proceedings against the MUA.

However, we were quite perplexed as to how Justice North had been allocated to be the judge in relation to these second proceedings. Given that we had commenced the legal proceedings in Sydney, against a Sydney based organisation in relation to alleged illegal conduct which was occurring in Newcastle and Adelaide, it seemed strange to us that we had been allocated a Melbourne based judge.

Continuing the injunctions
Our first aim after securing our temporary injunctions was to try to obtain further evidence to justify the continuation of the injunctions against the MUA. As stated in the last post, we had obtained injunctions up until 4 June 1998. Therefore, if we wanted to extend those injunctions, we had to obtain further evidence which showed a continuing threat from ITF affiliated unions to vessels loaded in Australia by non-union labour.

The process we undertook to obtain this evidence was to call up the owners of the 23 targeted vessels to find out whether there was any risk that their vessels may not be unloaded on arrival at an overseas port. The evidence we were looking for was a communication from an overseas ITF affiliated union to the ship owner advising them that their vessel would not be permitted to either berth or unload when it arrived at a particular overseas port.

We also tried to obtain evidence from these ship owners about the loss or damage which may result if their vessel was not permitted to berth or unload. This loss or damage would usually arise from either the shipping company incurring addition costs due to delays, such as demurrage and time charter costs, or the costs associated with food cargoes going off.

We had mixed success in obtaining this evidence. Some shipowners were only willing to provide the ACCC with the most rudimentary information. Others did not want to assist the ACCC at all.

Despite the uneven support received from various shipowners, the ACCC was able to obtain a respectable amount of evidence to support its argument that the injunctions should be continued.

On 5 June 1998, Justice Bryan Beaumont of the Federal Court accepted the ACCC’s arguments and agreed to continue the interim orders until 11 June 1998. He also ordered that on 11 June 1998, there would be a full interlocutory hearing before Justice North.[1]

We had decided not to pursue further orders against the MUA requiring them to withdraw any calls for assistance to boycott the Canada Columbus or Direct Kea following assurances from the MUA that they had complied with the previous order.

I must admit I never understood why the full interlocutory hearing was to be heard by Justice North. The orders which the ACCC were seeking related to the ACCC’s initial legal proceedings which was on Justice Beaumont’s docket. Justice North was the judge who was allocated to hear the second set of legal proceedings, which related to the alleged illegal boycott conduct by the MUA in Newcastle and Adelaide.

At the time, it was widely reported that the MUA’s lawyers were keen to have the ACCC’s first case transferred to Justice North’s docket. The MUA argued that this transfer should occur because the issues raised in the ACCC’s first set of legal proceedings were very similar to the matters which Justice North was already presiding over in the MUA litigation. However, this submission did not make any sense given that the case which Justice North was presiding over was the MUA’s conspiracy action against Patrick and the Howard Government.

In our view, there was absolutely no similarly between the two cases, in terms of either the relevant legislation or the parties. Even the fact that the MUA was involved in both cases was not really a similarity given that they were the plaintiff in one case and the respondent in the other.

Before Justice North

We appeared before Justice North on 11 and 12 June 1998 to argue that the interim orders should be continued. Unfortunately, it became apparent to us almost immediately that it was going to be an uphill battle to extend our interim orders. It was abundantly clear that Justice North was very unsympathetic to our position.

The MUA lawyers argued before Justice North that the MUA had never called on its overseas affiliates to engage in any boycott conduct and that they were not intending to take such action in the future. Despite the fact that this submission was against the weight of the evidence, Justice North appeared to accept it at face value. Indeed, he did not waste any time telling the ACCC precisely what he thought of our case:

If there is no present danger of the (MUA) doing what the regulator fears, then it’s an inevitable conclusion that the ACCC is pursuing an application that has no real practical purpose. And that could be described as a waste of public money. [2]

Indeed, Justice North made the comment that the ACCC’s case was a waste of public money on a number of occasions.

As you can imagine, the media headlines the next day focused heavily on Justice North’s comments that the ACCC’s case was a waste of public money. The following is a sample of some of the newspaper headlines which appeared after Justice North’s comments:

• ACCC wasting public money: judge [3]

• MUA boycott battle a waste of money: judge [4]

• Judge queries ‘waste of cash’ [5]

• Judge slams action on MUA [6]

During the hearing, the MUA lawyers had also made a number of serious allegations that the ACCC had withheld evidence from the court. We did not quite understand how the MUA lawyers could be making this submission given that it was not an ex parte hearing and that we were under no legal obligation to advise the court of any evidence, of which we were aware, which may have conceivably assisted the respondent.

Despite our view that this particular submission was without merit and should not have been made, it also appeared to us that Justice North was leaning towards accepting this submission.

Fortunately, for the ACCC, we had an ace up our sleeve which we were able use to change the course of the hearing decisively in our favour.

A few weeks before this interlocutory hearing the ACCC had sought information from various telecommunications companies under the Telecommunications (Interception and Access) Act 1979. Under this legislation enforcement agencies, such as the ACCC, were able to obtain telecommunications data, ie telephone bills, which recorded all the calls made to and from a particular telephone number.

What we had decided to do was to obtain copies of all the MUA’s telephone bills, both for its branch offices and for individual MUA officials in an effort to establish whether the MUA had been in regular contact with the ITF or any of its overseas affiliates.

I remember spending many hours trying to identify the owners of the various phone numbers which the MUA officials had called over the preceding few months. I did this by accessing publicly available reverse telephone number search programs in the US, Europe or the UK. When such search programs were not available, I did Google searches of the telephone numbers in the hope of getting lucky and being able to identify the owner of the telephone number.

Through these searches, I was able to establish a pattern of regular communication between a number of the senior MUA officials and their various overseas counterparts, particularly senior officials of the ITF and ILWU. In most cases, the MUA official had used their own personal mobile phone to call their counterpart overseas on their own personal mobile phone.

It became apparent to the ACCC that this circumstantial evidence would be quite compelling in debunking the MUA’s arguments that they had not been in regular contact with their overseas affiliates in order to encourage them to boycott particular vessels.

I had prepared a lengthy affidavit which spelled out in excruciating detail the various communications between various senior MUA officials and their overseas counterparts, including when the calls had been made and the duration of each call. While the ACCC could not prove what was actually said during these conversations, the obvious inference from this evidence was that MUA officials had been inciting their overseas counterparts to boycott the vessels which had been loaded or unloaded using non-union labour.

Returning now to the interlocutory hearing before Justice North, one has to understand the position which the ACCC was facing just before lunchtime on 12 June 1998.

Justice North had just spent the first day of the interlocutory hearing (ie Thursday 11 June 1998) telling the ACCC that its case was a waste of public money.

He had then indirectly suggested to the ACCC that it should abandon its case against the MUA because the broader dispute between the MUA, Patrick and the Howard Government was close to being resolved – as stated by Justice North:

Can it be right that the court entirely shuts its eyes to the very possibility that the dispute which excited the regulator’s interest might be resolved?[7]

Add to this the fact that Justice North appeared to be on the verge of accepting the MUA’s serious (and completely unfounded) allegations that the ACCC had withheld evidence from the court, and one can appreciate that the ACCC was in a very unenviable position.

It was in that context that we decided, just before the lunch break, to serve on the MUA a copy of my affidavit recording all the telephone communications which had occurred between MUA officials and their overseas counterparts.

When we all returned from lunch on 12 June 1998, the MUA’s whole demeanour had undergone a radical transformation. Gone was the MUA's pre-lunch swagger - indeed, their whole demeanour had become downright sheepish.

Furthermore, the MUA had now done a complete back flip on its earlier position that it would never agree to the ACCC’s demands.

I remember Justice North looking very surprised when the MUA advised him after lunch that they were now willing to agree to the ACCC’s demands.

Justice North made the relevant orders by consent and then congratulated the parties on reaching such a practical solution. The result of the hearing is best explained in the ACCC’s new release which stated:[8]

The Maritime Union of Australia has today advised the Federal Court that it will write to the International Transport Workers Federation withdrawing any call for the ITF and its affiliates to engage in boycott conduct of ships loaded with non-MUA labour in Australia between 7 April and 10 May 1998. The Australian Competition and Consumer Commission has advised the Court that this withdrawal addresses some of the concerns of the ACCC.

The ACCC's counsel, Mr John Trew, QC, has advised the Court that it has had concerns at the apparent ongoing communication between the MUA, the ITF and its affiliates which in the context of the international boycott of ships suggests the ongoing involvement of the MUA in the alleged boycotts of non-MUA loaded ships. The ACCC has advised the Court that it is prepared for the matter to be adjourned and to see whether the MUA's withdrawal is effective.

The ACCC sought interim orders from the Court to remove the alleged MUA request for and involvement in international boycotts of those Australian ships because of its concern for the effect on Australian business of such boycotts.

The ACCC will be actively monitoring the MUA's activities in this area and the matter will now proceed to a final hearing of the ACCC's claim for substantive relief. Justice North congratulated the parties on reaching a practical resolution of difficult issues at this time.

As is apparent from the second paragraph above, we could not help alluding, fairly pointedly, to the evidence which we had obtained concerning the regular telephone communications between the MUA and its overseas affiliates.

I recall that after the hearing had finished the MUA lawyers immediately approached us in the foyer of the court to ask us how we had been able to obtain the evidence contained in my affidavit concerning the MUA official's communications with their overseas counterparts. Our lawyer, quite nonchalantly, responded to their question with the words:

Haven't you ever heard of the Telecommunications (Interception and Access) Act 1979?

I suspect that from that day on every MUA official made certain to never again call any of their colleagues from the ITF or overseas affiliates using their own personal mobile phones.

Boomerang Ship [9]

One of the most appalling events during the Waterfront dispute was the fate of the Columbus Canada which was dubbed the Boomerang Ship in the Australian media.

The Columbus Canada has been loaded in Australia using non-MUA labour before setting sail for the US. Unfortunately, this vessel became the target of a concerted campaign of boycotts by US dockworkers which prevented it from unloading its cargo. As a result of these boycotts, the vessel was ultimately forced to return to New Zealand to be unloaded by union labour.

The Columbus Canada left Australia on 21 April 1998, loaded primarily with food, such as frozen and chilled meat, wine and cheese. There was 700 tonnes of meat on the vessel, valued at around $3 million, and 2300 tonnes of other food products. It was also one of the first vessels which had been loaded by non-MUA labour to leave Australian shores. Its first port of call, after picking up further cargo in New Zealand, was Los Angeles in the US.[10]

On arrival at Los Angeles, the vessel was prevented from unloading its cargo due to picket lines organised by the ILWU. The picketers allowed the New Zealand cargo to be unloaded but refused to allow any of the Australian cargo off the vessel.

After numerous attempts to unload the Australian cargo in Los Angeles over a period of 18 days, the owners of the vessel, the Columbus Line, met with picketers at the Matson Terminal and agreed that no Australian cargo would be unloaded in Los Angeles. Rather they agreed to send the vessel back to New Zealand where the Australian cargo was transferred to another Columbus line vessel and shipped back to the US.

The boycott of the Columbus Canada caused an outcry amongst the meat industry, business groups, farmers and the Howard Government. Criticism of the union’s actions became more intense following reports that some of the chilled meat on the vessel had started to rot.

The Australian meat industry was very critical of the actions of the unions due to the damage which this boycott caused to both the particular exporters whose products had been held up, as well as to Australia’s reputation as a reliable exporter of meat.

While the ACCC had made the fate of the Columbus Canada the focus of its case for interim orders against the MUA in Australia, unfortunately, our orders were unable to prevent the union’s actions towards this vessel.

---

[1] Interim injunction, continued, ACCC news release, dated 5 June 1998 - http://www.accc.gov.au/content/index.phtml/itemId/87298/fromItemId/378006

[2] MUA boycott battle a waste of money: Judge, The Daily Telegraph, 12 June 1998, p. 23

[3] The Canberra Times, 12 June 1998, p.4

[4] Daily Telegraph, op. cit., p. 23.

[5] Financial Review, 12 June 1998, p. 3.

[6] Herald Sun, 12 June 1998, p. 6.

[7] Daily Telegraph, op. cit., p. 23.

[8] Maritime Union of Australia, ACCC news release, 12 June 1998 - http://www.accc.gov.au/content/index.phtml/itemId/87294/fromItemId/378006

[9] The boomerang ship, Herald Sun, 28 May 1998, p. 11

[10] Ibid.

Stocktake of the ACCC’s new powers and remedies under the Australian Consumer Law – the first 18 months

Part 1: substantiation notices and public warning notices

This article first appeared in the Australian Competition & Consumer Law Tracker, CCH, Issue 11, November 2011.


Introduction

Australian consumer laws have undergone a great deal of change in the last two years. While much of the recent commentary on these changes has related to the new legislation which commenced in January 2011,[1] in many ways the more profound changes occurred 18 months ago.[2] In April 2010, the Australian Competition and Consumer Commission (ACCC) received a wide range of new powers and access to a number of new remedies for combating suspected breaches of consumer protection and unconscionable conduct laws.

In this three-part article, I will be discussing the new powers and remedies which have been given to the ACCC to assist it in its fight against breaches of the Australian Consumer Law (ACL). I will also be conducting a stocktake of how the ACCC has used these powers and remedies in practice over the first 18 months since their introduction.

My stocktake of how the ACCC has used its new powers and remedies confirms the concern held by many legal practitioners at the time of their introduction that these new powers and remedies were likely to tilt the balance too heavily in favour of the ACCC. The ACCC now has a comprehensive and quite unparalleled armoury of powers which it can use to combat suspected breaches of consumer protection and unconscionable conduct laws. Furthermore, the ACCC has also shown that it is very willing to use these new powers and remedies regularly and aggressively to obtain its desired outcomes.

Background

The new powers and remedies were introduced into the Trade Practices Act 1974 (TPA) in April 2010. In January 2011, the TPA was renamed and replaced by the Competition and Consumer Act 2010 (CCA). Therefore, the ACCC had access to these new powers and remedies for nine months prior to the renaming of the TPA. The main change brought about by the enactment of the CCA in January 2011, was the amalgamation of all consumer protection laws into Schedule 2 of the CCA, which is also known as the ACL. The ACL has replaced all of the various state and territory fair trading laws to create, for the first time, a truly national system of consumer protection laws.[3] As part of this reform process, the ACCC gained a wide range of intrusive investigatory powers as well as access to a range of new remedies to combat alleged breaches of the ACL.

The ACCC’s new powers and remedies

The new enforcement powers the ACCC gained in April 2010 were the power to issue:

• substantiation notices 

• public warning powers 

• infringement notices. 

The new remedies available to the ACCC in consumer protection and unconscionable conduct matters are the ability to seek:

• civil pecuniary penalties 

• disqualification orders 

• non-party redress orders. 

Substantiation Notices

A substantiation notice is a notice which "requires a supplier to provide a consumer regulator with a basis for representations that it makes regarding its supply of goods and services".[4] 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 corporations) 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 unless extended by the ACCC under s 220.

Failure to comply with a substantiation notice is a criminal offence with a maximum criminal penalty of $16,500 for a corporation or $3,300 for an individual: s 205. Providing false or misleading information in response to a substantiation notice is also a criminal offence with a maximum criminal penalty of $27,500 for a corporation or $5,500 for an individual: s 206.

Previously, the ACCC's practice was to request information from a business either on a voluntary basis or in accordance with a s 155 notice. Under an s 155 notice, a business could be compelled to produce information and/or documents to the ACCC. Prior to issuing a s 155 notice, the Chairperson of the ACCC had to satisfy themself that they had reason to believe that the business had information or documents which related to a matter which constituted, or may have constituted, a contravention of the TPA. While the requirement to form a "reason to believe" did not involve a very high burden for the ACCC, it did impose some evidentiary threshold.

The evidentiary threshold that the ACCC must satisfy now before issuing a substantiation notice is significantly lower. The ACCC only needs evidence of a claim or representation before exercising its powers. The ACCC does not need to have a reasonable belief or reasonable grounds for suspecting a breach of the ACL before issuing a substantiation notice. The availability of substantiation notices gives the ACCC the ability to move much more quickly against traders which have made, in the ACCC's opinion, outlandish claims about the uses and benefits of their goods or services.

A good example of a case where the ACCC most probably used its new substantiation notice powers is the Power Balance matter.[5] In this matter, the ACCC appears to have issued a substantiation notice or notices to Power Balance Australia Pty Ltd (Power Balance) to ascertain whether the company could substantiate its claims that its wristbands and pendants “improve[d] balance, strength and flexibility and worked positively with the body’s natural energy field”.

Power Balance admitted that there was no credible scientific basis for the claims that they were making about their wristbands and pendants. The company also admitted that it had no reasonable grounds for making the representations about the benefits of its products. It seems that these admissions may have been made in response to a substantiation notice or notices from the ACCC. As a consequence of making these admissions, Power Balance agreed to a range of remedies including refraining from making such representations in the future unless they could be supported by an independent testing agency. It also offered consumers full refunds.

The Power Balance case provides a good example of the types of cases where the ACCC will be able to use its new substantiation notice powers to quickly and effectively to stop outlandish representations, particularly about the health benefits of products.

The main concern prior to the introduction of the substantiation notice power was that the ACCC may simply 'churn out' substantiation notices, rather than going to the effort of actually collecting evidence to prove a contravention of the CCA. This has not eventuated. The ACCC has used the substantiation notice very sparingly since its introduction in April 2010. As at the end of August 2011, the ACCC had only issued five substantiation notices.[6]

Having said this, there are some indications that the ACCC will be using its substantiation notice powers much more often in the future. The current Chairman of the ACCC, Mr Rod Sims, has stated in a speech that the ACCC is likely to make greater use of its substantiation notice powers as part of its role in preventing carbon tax price gouging.[7] Indeed, the substantiation notice power will be the ideal tool for the ACCC in investigating the basis for business claims that their prices have increased by a particular amount due to the introduction of the carbon tax.


Public warning powers

The ACL also provides the ACCC with the power to issue a public warning about a trader. In this regard, An Australian Consumer Law: Fair Markets - Confident Consumers, which recommended the introduction of the ACL, stated that: "public warnings [will be] issued to inform the public of potentially harmful conduct taking place in the very short term."[8]

Public warning powers were intended to be directed against:

“'fly by night' operators, itinerant traders and financial, investment and property spruikers and advisors who often move across state and territory borders.”[9]

Therefore, the intended focus of this new power was on bogus traders who simply seek to misappropriate money from consumers and then vanish, making subsequent legal action against them all but impossible.

The ACCC’s power to issue a public warning notice is contained in s 223(1) of the ACL which states that:

“The regulator [that is, the ACCC or local fair trading agency] may issue to the public a written notice containing a warning about the conduct of a person if:

(a) the regulator has reasonable grounds to suspect that the conduct may constitute a contravention of a provision of Chapter 2, 3 or 4 [of the ACL[10]]; and 

(b) the regulator is satisfied that one or more other persons has suffered, or is likely to suffer, detriment as a result of the conduct; and 

(c) the regulator is satisfied that it is in the public interest to issue the notice.”

Therefore the elements of the public warning power are:

• the ACCC must have reasonable grounds to suspect that conduct being engaged in may constitute a breach of the ACL 

• one or more persons are likely to suffer detriment as a result of the conduct 

• the ACCC is satisfied that it is in the public interest to issue the notice. 

The first element of the new public warning power is that the ACCC must have reasonable grounds to suspect that conduct is in breach of the ACL. It seems that the test of whether the ACCC has "reasonable grounds to suspect" a breach of the ACL is an objective test. In practice, it will not be very difficult for the ACCC to satisfy this element because of the use of the word "suspect" in the legislation.

The second element is that one or more persons are likely to suffer detriment because of the conduct. The legislation does not require that the consumer must actually suffer detriment, but rather that it be likely that the consumer will suffer detriment. This approach is appropriate given that the entire rationale for the new power is to empower the ACCC to take action before consumers have suffered any financial detriment.

The third element of the legislation is the most onerous for the ACCC when using its public warning power. This element requires that the ACCC be satisfied that it is in the public interest to issue a public warning. This will require that the ACCC balance up the utility of issuing a public warning notice with other strategies such as commencing rapid court action or seeking ex parte injunctions. In applying the public interest test, it may also be incumbent on the ACCC to consider the negative impact that issuing a public warning notice may have on a business' ability to continue trading.

Finally, the legislation provides that the ACCC can issue a notice where a business has failed to respond to a substantiation notice. In these circumstances, the ACCC must also satisfy itself that it is in the public interest to issue a notice.

At the time of writing this article, the ACCC has only issued one public warning notice since it obtained this new power in April 2010.[11] On 20 August 2010, the ACCC issued a public warning notice in relation to a number of companies which were advertising part time parcel delivery businesses.[12] The ACCC suspected that the following companies had breached the relevant legislation by making misleading claims about the income to be earned from delivering Heartlink-branded household products to independent supermarkets:

• Halkalia Pty Ltd (the sole director being Mr Norman Lander) 

• Heartlink Enterprises Pty Ltd (the sole director being Ms Vicki Lowe)

• National Semi-Retired Group Pty Ltd (the sole director being Mr Laurence Hann).

The ACCC explained in a news release that these companies were advertising a “part time delivery business” in rural, regional and metropolitan newspapers and claiming potential earnings of between $900 and $2,000 per week for between three to four days’ work. The ACCC did not believe that these companies had a reasonable basis to make these income projections.[13] The ACCC explained that it had decided to issue the public warning notice following complaints from individuals who paid between $10,000 and $30,000 for a business. The majority of these individuals had earned no income from the business.

The ACCC then issued the following specific warning to the public:

“The ACCC is warning the public that the advertisements may be misleading and that individuals who pay money for the advertised business opportunity may derive no earnings from the business.”[14]

The ACCC can also issue public warning notices under s 51ADA of the CCA in relation to suspected breaches of an applicable industry code of conduct, such as the Franchising Code of Conduct. The test for issuing such a notice is the same as the test under s 223 of the ACL.

There are three main concerns about the ACCC’s power to issue public warnings.

1. The first concern about the public warning power is that it may be exercised by the ACCC against a company which has not, in fact, engaged in any illegal conduct. Clearly, a public warning issued by the ACCC about any business is likely to have devastating consequences for that business. The public warning notice will have the effect of preventing prospective consumers from dealing with that business. Another likely consequence is that current customers of that business (who may have been quite happy with the business before the public warning was issued), may now want their money back because they believe that the business is disreputable. Despite the devastating effects of a public warning notice on a business, there is no provision in the ACL to permit a business who may have been incorrectly accused of illegal conduct through a public warning notice to seek compensation.

2. The second concern is that there is no obligation on the ACCC to advise the public if its concerns about a business’ conduct have subsequently proved to be without foundation. This is in contrast with the provisions relating to the issuing of safety warning notices under the ACL. Under s 129 of the ACL, the Minister can issue a safety warning notice if he or she believes that a good will cause injury or that a reasonably foreseeable use or misuse of a good will or may cause injury. The Minister is also required under s 130 of the ACL to announce publicly the results of any investigation into the supplier/s if the investigation has not resulted in any formal corrective action. In other words, the Minister must advise the public if the relevant investigation into the product safety issue has not disclosed any safety concerns. Accordingly, it seems strange not to have a similar obligation to s 130 included in the ACL in relation to public warning notices.

3. The final concern about public warning notices is that the ACCC does not have to have the intention, prior to issuing the public warning notice, of taking the relevant business or businesses to court. In other words, there is no obligation on the ACCC to follow through on its public warning by commencing legal action against a business which has been the subject of a public warning. In the matter discussed above, the ACCC did ultimately take follow-up legal action against the three companies and two of the directors after it issued the public warning.[15] However, it is still possible that a business which has been the subject of a public warning notice may never get the opportunity to refute or challenge the ACCC’s allegations in court.

One can appreciate the benefits of using the public warning power in relation to blatant fly by night operators. There is a considerable public interest in warning unsuspecting consumers about such fly by night operators as soon as possible, as often the money obtained by such operators is immediately siphoned overseas to distant jurisdictions and their Australian operations liquidated. However, it is unfortunate that given the obviously devastating consequences that a public warning notice will have on a business, that additional accountability safeguards were not included in the ACL to govern its use.

In the Part 2 to this article, I will be discussing the ACCC’s power to issue infringement notices and the extensive use which the ACCC has made of this power since its introduction in April 2010.

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[1] In January 2011, the Trade Practices Act 1974 was renamed and replaced with the Competition and Consumer Act 2010. This also saw the introduction of the Australian Consumer Law.

[2] The period of 18 months is calculated from 15 April 2010 to 15 October 2010.

[3] An Australian Consumer Law: Fair Markets - Confident Consumers, 17 February 2009, available at www.treasury.gov.au/contentitem.asp?NavId=037&ContentID=1482 (ACL: Fair Markets).

[4] ACL: Fair Markets, op. cit., 46.

[5] It is the ACCC’s policy to not disclose the identities of parties who have been issued with a substantiation notice. This is consistent with its existing policy of not disclosing the identities of parties who have been issued with section 155 Notice or been served with a search warrant. Accordingly, I can only speculate about which particular ACCC investigations the ACCC used its new substantiation notice powers.  I believe that there is a very highly likelihood that the ACCC used its substantiation notice powers in the Power Balance matter. ACCC News Release, Power Balance admits no reasonable basis for wristband claims, consumers offered refunds, NR 284/10, 22 December 2010, available at  http://www.accc.gov.au/content/index.phtml/itemId/964074.

[6] The ACCC’s initial experience with Australian Consumer Law remedies and powers, Speech by Peter Kell, Deputy Chair of the ACCC to the 36^th Competition and Consumer Workshop, 26-28 August 2011, 2, available at http://www.cch.com.au/AttachmentLibrary/MarketingPromo/Peter_Kell_The_ACCC%E2%80%99s_initial_experience_with_Australian_Consumer_Law_remedies_and_powers.pdf (Speech by Peter Kell).

[7] Some compliance and enforcement issues, Speech by Rod Sims, Chairman of the ACCC to the Law Institute of Victoria, 25 October 2011, 7, available at http://www.accc.gov.au/content/item.phtml?itemId=1014098&nodeId=19e390ff37e28f4162412d52635be1a4&fn=Some%20compliance%20and%20enforcement%20issues.pdf.

[8] ACL: Fair Markets, op. cit., 47.

[9] Ibid.

[10] Chapter 2 of the ACL deals with misleading or deceptive conduct, unconscionable conduct and unfair contract terms.  Chapter 3 deals with false or misleading representations, unsolicited supplies, pyramid schemes, pricing issues, consumer guarantees, unsolicited consumer agreements, lay-by agreements, product safety, information standards and defective goods. Chapter 4 deals with the same types of conduct as are contained in Chapter 3. However, contraventions of Ch 4 are criminal offences.

^[11] Public warning notice register (s. 86DA), http://www.accc.gov.au/content/index.phtml/itemId/943316.

[12] Trade Practices Act 1974 Section 86DA Public Warning Notice, 20 August 2010, available athttp://www.accc.gov.au/content/item.phtml?itemId=943358&nodeId=fd4dc116921390237549e0970958b939&fn=%20Notice.pdf (Public Warning Notice).

^[13]ACCC News Release, Distribution scheme 'business opportunity' draws ACCC's first public warning, NR 170/10, 20th August 2010, available at http://www.accc.gov.au/content/index.phtml/itemId/943380/fromItemId/927069.

[14] Public Warning Notice, op. cit..

[15]ACCC v Halkalia Pty Ltd & Ors, VID362/2011 available at https://www.comcourts.gov.au/file/Federal/P/VID362/2011/actions.