Competition law update

In brief

In touch: Competition law update is a regular publication by the Allens Competition group to keep you informed of the latest news and developments in this area. For more information or for legal advice, please contact one of the Partners listed below. We look forward to hearing from you.

Significant news

ACCC cross-appeals penalty decision against Flight Centre – 8 May 2014

Recently, In touch reported on the Federal Court's decision handed down on 28 March 2014 ordering Flight Centre Limited to pay penalties totalling $11 million for attempting to enter into anti-competitive arrangements with three international airlines.

On 17 April 2014, Flight Centre lodged an appeal against both the original judgment (read the Allens Focus: Agents, airlines and ash – The ACCC's 'A'-list brings less than 'A'-grade results) and the penalties imposed. The ACCC has lodged a cross-appeal in relation to the penalty decision, which contends that four of the penalties imposed do not provide adequate deterrence, given the nature of the conduct and the size and financial strength of Flight Centre. The results of this appeal will be significant as the decision, along with the decision in ACCC v ANZ Banking Group Limited [2013] FCA 1206 (also on appeal), could have significant impacts on businesses' agency and distribution dealings. Read the ACCC media release.

ACCC news

Taxsmart to repay franchise fees for misleading conduct – 16 May 2014

The Federal Court has ordered by consent that Taxsmart Group Pty Ltd, Taxsmart Franchising Pty Ltd and Resultsmart Pty Ltd repay $260,400 in franchise fees to five former Taxsmart franchisees following proceedings brought by the ACCC.

The court declared that Taxsmart engaged in misleading or deceptive conduct when it represented that it offered a graduate program and 12 months of employment to accounting graduates that would enable them to satisfy the requirements for registration as a tax agent, because:

• Taxsmart had not made proper enquiries or adequately considered whether the graduate program would enable graduates, with no prior experience in tax accounting, to satisfy the legal requirements for registration as a tax agent; and
• the graduate program was not capable of enabling graduates, without any previous work experience in tax accounting, to satisfy the legal requirements for tax agent registration.

The court also declared that Taxsmart's sole director at the time of the conduct, Mr Scott Andrews, aided and abetted Taxsmart in the conduct.

The court accepted undertakings from Taxsmart and Mr Andrews that they would not, for a period of three years, make the same or similar representations, or make offers of employment contingent on the payment of a fee. The court also ordered that Taxsmart and Mr Andrews pay a $10,000 contribution to the ACCCs costs. Read the ACCC media release.

ACCC authorises best practice standards for contracts for difference – 15 May 2014

The ACCC has authorised the Australian CFD Forum to implement several proposed best practice standards in the provision of contracts for difference (CFDs) for five years.

CFDs are a highly leveraged derivative financial products marketed to, and traded by, retail investors. The Australian CFD Forum comprises CMC Markets Asia Pacific Pty Ltd, GFT Global Markets UK Limited and IG Markets Limited.

Broadly, the proposed standards have been developed by the Australian CFD Forum to raise the level of compliance with existing regulatory guidance and in some cases, to go above the regulatory benchmarks. The proposed standards cover topics such as advertising and promotional material, the protection of client money and credit risk monitoring, minimum capital adequacy requirements and due diligence requirements for dealing with intermediaries. Read the ACCC media release.

ACCC takes action against Origin – 8 May 2014

The ACCC has instituted proceedings in the Federal Court against Origin Energy Limited alleging that Origin made false or misleading representations and engaged in misleading or deceptive conduct.

The allegations relate to representations made by Origin to residential consumers of electricity and/or natural gas in South Australia about the level of discounts to usage charges available under Origins 'DailySaver' energy plans. The ACCC alleges that Origin represented to consumers that they would receive:

• a discount of up to 16 per cent to the electricity usage charges they would otherwise pay Origin, when in fact the rates charged to consumers under a DailySaver plan were approximately 4 per cent higher than under Origin's standard retail contract; and
• a discount of up to 12 per cent to the natural gas usage charges they would otherwise pay Origin, when in fact the rates charged to consumers under a DailySaver plan were approximately 1 per cent higher than under Origin's standard retail contract.

The ACCC is seeking pecuniary penalties, declarations, injunctions, publication orders, a compliance program, redress for affected consumers, and costs. Read the ACCC media release.

No ACCC opposition to Peregrine's acquisition of BP petrol station sites in SA – 8 May 2014

The ACCC will not oppose the acquisition by Peregrine Corporation of BP Australia's company owned and operated retail petrol station sites in South Australia, after accepting a court-enforceable undertaking requiring Peregrine to divest itself of four petrol stations in Adelaide to address the ACCCs competition concerns associated with a concentration of Peregrine sites in particular areas.

The ACCC also announced that it would oppose the acquisition by Peregrine of Caltex Australia's retail petrol station site in the Adelaide suburb of Fullarton, which Peregrine had proposed to acquire from Caltex as part of the arrangements to address the competition concerns with its acquisition of sites from BP. The ACCC opposed this acquisition because Caltex Fullarton appears to compete closely with BP Glenunga (which Peregrine will acquire from BP) and other nearby Peregrine petrol stations. Read the ACCC media release.

Irrigators continue to benefit from lower trade barriers in the Murray-Darling basin – 8 May 2014

The ACCC has released its fourth annual Water Monitoring Report for the Murray-Darling Basin (MDB), detailing the impact of water market and water charge reforms on irrigation infrastructure operators (IIOs) and their customers throughout the MDB. The reforms reduced barriers to water trade and improved irrigators' access to water markets outside of their irrigation area, particularly in NSW and South Australia.

The majority of irrigators who have transformed their irrigation rights into tradeable water access entitlements are maintaining their connections to irrigation networks. These irrigators continue to contribute to the ongoing costs of maintaining this infrastructure and are still able to irrigate by purchasing seasonal water allocations when weather conditions and commodity prices are favourable.

The Federal Government's buyback and infrastructure water recovery programs continued to be a driver for the trade of water from IIO irrigation networks. However, the scale of these programs was smaller in 2012-13 compared to previous years and is likely to reduce further with the recently announced cap on water buybacks. Read the ACCC media release.

Cases

Application of parity principle in assessing penalties

ACCC v NSK Australia Pty Ltd [2014] FCA 453 (Justice Edmonds, 13 May 2013)

Key issues

• Courts will apply the parity principle when assessing appropriate penalty amounts for related or similar conduct

Summary

The ACCC alleged that NSK Australia Pty Ltd (NSK) and at least two of its competitors made and gave effect to two separate cartel arrangements, in which they exchanged information about proposed price increases for ball and roller bearings, for use in motor vehicles and industrial applications, to their aftermarket customers.

In 2013, the Federal Court ordered Koyo Australia Pty Ltd, one of the competitors with which NSK allegedly acted, to pay a pecuniary penalty of $2 million for its part in the arrangements (see ACCC v Koyo Australia Pty Ltd [2013] FCA 1051).

NSK cooperated with the ACCC's investigation and admitted the alleged conduct. The court emphasised the importance of considering parity when determining penalty amounts, listing the following factors to justify imposing a larger penalty on NSK than that which had been imposed on Koyo:

• NSK had a materially larger share of the Australian bearings market than Koyo;
• NSK's proportional involvement in supplying products was materially greater than that of Koyo; and
• Koyo rendered 'materially greater assistance' (at [56]) to the ACCC's investigation into the alleged cartel, and agreed to settle with the ACCC at an earlier time, than did NSK.

However, the court also acknowledged that NSK's cooperation assisted the ACCC to resolve the matter with resulting costs savings to the court and the community. The court made the orders jointly proposed by the parties for a pecuniary penalty of $3 million, along with orders requiring NSK to implement compliance training, a three-year injunction against NSK and costs. Read the ACCC media release.

Source: AustLII

Two Harvey Norman franchisees found to have misled consumers

ACCC v Gordon Superstore Pty Ltd [2014] FCA 452 (Justice Edmonds, 13 May 2014)

Key issues

• The court looks favourably on respondents who cooperate with an ACCC's investigation from an early stage

Summary

This case is one of a series of cases against a number of Harvey Norman franchisees for making false or misleading representations about consumers' entitlements under the ACL. The respondent in this case was a Harvey Norman franchise store in Gordon, and the proceedings related to the sale of a refrigerator and the subsequent statements made to the consumer about their refund and exchange rights.

The ACCC commenced proceedings against the respondent for false and misleading conduct, and at an early stage the respondent proposed a settlement meeting with the ACCC following which settlement was reached.

The respondent admitted to making a number of representations that were false or misleading under the ACL consumer guarantee provisions. The parties made joint submissions suggesting the following remedies:

• a declaration in relation to the respondent's breaches;
• an injunction restraining the respondent from engaging in similar conduct for three years;
• a pecuniary penalty on the respondent of $25,000;
• an order for the respondent to prominently display a summary of consumer rights under the ACL at the store's points of sale for a period of three years;
• an order for the respondent to implement a competition and consumer law compliance program; and
• an order that each party pay its own costs.

The court made the orders agreed by the parties.

Source: AustLII

ACCC v Mandurit Pty Ltd [2014] FCA 464 (Justice McKerracher, 12 May 2014)

Key issues

• The court can consider submissions on the range of agreed penalties and will give the submissions weight to reflect the strong public interest in settling proceedings on agreed terms

Summary

This case is another of a series of cases against a number of Harvey Norman franchisees for making false or misleading representations about consumers' entitlements under the ACL. The respondent in this case was a Harvey Norman franchise store in Mandurah, and the proceedings related to the statements made by one of its sales representatives to the consumer about their repair rights in relation to a camera purchased by the consumer at that store.

Similar to the previous case, the respondent proposed a settlement meeting with the ACCC at an early stage in the proceedings, following which settlement was reached. The parties made joint submissions suggesting the following remedies:

• a declaration in relation to the respondent's breaches;
• an injunction restraining the respondent from engaging in similar conduct for three years;
• a pecuniary penalty on the respondent of $25,000; and
• an order that each party pay its own costs.

Justice Kerracher noted that although a recent High Court decision¹ included principles on sentencing that may have application to areas other than sentencing, he was obliged to follow the Full Federal Court's reasoning² which held that the parties to proceedings under the Trade Practices Act 1974 (Cth) (and its successor legislation) may make submissions as to the quantum of penalties that the parties agree is appropriate, and that the court recognises that there is a strong public interest in ordering that amount even if it may have ordered a different amount. Justice Kerracher made the proposed orders.

Source: AustLII

Failure to negotiate decreases ACCC's costs order

ACCC v BAJV Pty Ltd [2014] FCAFC 52 (Justices Rares, Jessup and Flick, 2 May 2014)

Key issues

• The ACCC's failure to negotiate before commencing proceedings does not necessarily lead to a reduction in the penalty awarded against that party in those proceedings
• However, the ACCC's failure to negotiate can lead to a reduced costs order in its favour.

Summary

The ACCC commenced proceedings against BAJV Pty Ltd, a former Tasmanian Europcar franchisee, and its managing director, Mr Ayers, in relation to conduct involving charging car rental customers for damage repairs at amounts which exceeded the actual cost of the repairs. The conduct included failing to notify customers when a refund was due, and a 'two invoice practice', under which BAJV received two invoices from a body repairer: one with a higher figure than the other, used to charge the customer; and a second invoice reflecting the actual cost paid by BAJV.

The primary judge ordered BAJV to pay a penalty of $200,000 and Mr Ayers to pay a penalty of $40,000, and limited the ACCC's costs to a figure in the range of $25,000 to $50,000.³

The ACCC appealed on the grounds that the Justice Marshall erred in:

• taking into account the ACCC's failure to respond to the respondents' letter offering to meet for discussions before commencing proceedings;
• calculating the time period over which the contraventions occurred;
• proceeding on the basis that BAJV was a small to medium sized family company; and
• determining the appropriate penalties were $200,000 for BAJV and $40,000 for Mr Ayers, in circumstances where the maximum penalties available were significantly higher and the imposed penalties did not reflect the mid-range nature of the contravening conduct.

The respondents cross-appealed against the costs orders, arguing that the ACCC's failure to respond to the respondents' letter demonstrated a reluctance to negotiate and a reduced costs order should result.

The Full Court unanimously allowed the ACCC's first ground of appeal, increasing the penalties to $220,000 for BAJV and $44,000 for Mr Ayers, holding that the ACCC's failure to respond to BAJV's letter was irrelevant to determining penalties. The court rejected the other grounds of appeal.

The court allowed the respondents' cross-appeal, noting that the ACCC's failure to respond to the letter, while not relevant to assessing penalties, should be criticised and warranted a 15 per cent reduction in the costs order made in favour of the ACCC.

Source: AustLII

Federal Court considers nature of publications on Facebook

Madden v Seafolly Pty Ltd [2014] FCAFC 30 (Justices Robertson, Marshall, Rares, 24 March 2014)

Key issues

• The court can consider the impact of a string of postings on the representations that are being made on a Facebook page

Summary

This was an appeal from a decision⁴ in which Seafolly Pty Ltd was awarded $25,000 for damage to its 'business integrity', caused by the appellant, Ms Madden. Ms Madden was found to have engaged in misleading or deceptive conduct and made false or misleading representations by publishing photographs and comments on her personal Facebook page, her business Facebook page and in emails to various media outlets, suggesting that Seafolly had copied her swimwear designs. After becoming aware of Ms Madden's posts, Seafolly released a press release which denied Ms Madden's accusations and claimed she had made these comments maliciously to injure Seafolly. Ms Madden failed in her cross-claim for defamation against Seafolly and for misleading or deceptive conduct under section 52 of the Trade Practices Act.

Ms Madden appealed against the decision. The Full Court held that the primary judge had not erred in treating the publications as a single course of conduct and by treating the readers of the publications as if they were a single class. The court also held that the primary judge correctly characterised the representations as statements of fact, as they included incorrect dates that Ms Madden used for comparisons in the juxtaposed photographs. Finally, the court held that the statements were made in the course of 'trade or commerce' as a substantial number of people who posted comments on Ms Madden's Facebook page were in the fashion industry, and Ms Madden had alternated between posting comments using her own name and her business name.

The court reduced the award of damages to $20,000, noting that the media articles, which had wider readership than the Facebook pages, did not convey the allegation that Seafolly had used underhanded methods to obtain photographs of Ms Madden's swimwear.

Ms Madden failed in her appeal in relation to the defamation claim, but succeeded in her appeal against the primary judge's finding that Seafolly had not engaged in misleading or deceptive conduct. Since the primary judge had found that Ms Madden believed in the truth of what she had published, the representations made by Seafolly in press releases that Ms Madden had knowingly made false claims that Seafolly had copied some of her swimwear designs with the malicious intent of damaging Seafolly, were false. The case was sent back to the primary judge to determine damages in relation to this claim.

Source: AustLII