INSIGHT

Jump Swim in deep water over alleged misleading conduct; new guidelines offer tips for avoiding gun jumping; and ACCC bleats at goat cheese RPM notification.

By Jacqueline Downes
Competition law Consumer law Food & Beverage Mergers & Acquisitions

In brief

Liberty steals ahead with Steelforce acquisition

On 13 June 2019, the ACCC announced it will not oppose the proposed acquisition of Steelforce Holdings Pty Ltd (Steelforce) by GFG Alliance Australia/Liberty House Group (Liberty).

Liberty and Steelforce both manufacture and distribute long steel products in Australia, in particular, hollows, structurals and merchant bars, products used for construction and industrial purposes. In its review of the proposed acquisition, the ACCC focused on the potential effects on competition in:

  • a national market for the wholesale supply of hollows; and
  • the state markets for the distribution of long steel products in certain regions/territories.

The ACCC ultimately concluded that the proposed acquisition would be unlikely to result in a substantial lessening of competition in any relevant market. In relation to the wholesale supply of hollows, the ACCC considered that Liberty would continue to be constrained by the wholesale supply of hollows from other sources, particularly from imported hollows and Bluescope, which would remain a competing domestic manufacturer and wholesale supplier of hollows. As regards the distribution of long steel products, although the proposed acquisition will make Liberty the largest distributor of long steel products in Australia (with substantial market share in a number of states), the ACCC found that Liberty would continue to face competition from other distributors in each state. It considered these distributors would still have the ability to expand their operations and for customers to switch between them, meaning Liberty would not have the ability to unilaterally increase prices or decrease service levels.

ACCC bleats at goat cheese RPM notification

The ACCC has issued a final notice revoking a resale price maintenance notification lodged by Meredith Dairy, confirming its draft decision that Meredith Dairy cannot engage in the notified resale price maintenance conduct.

Meredith Dairy sought legal protection for a proposed contractual term that would have prevented all its retailers selling its goat cheese products below a price set by Meredith Dairy. The proposed conduct was driven by Meredith Dairy's concerns that smaller retailers promoting its products at low prices to compete with major supermarket chains had led to demands from other retailers for lower wholesale prices. Meredith Dairy considered that a resale price maintenance clause was a more viable option than choosing to withhold the supply of goods to retailers that had engaged in loss-leader selling, ie selling below cost to attract customers (even though such conduct is not unlawful) because it would be too difficult to establish that loss-leader selling was occurring.

Following review of the notification, the ACCC concluded that the proposed resale price maintenance conduct would have led to consumers paying higher prices for Meredith Dairy's goat cheeses and would have limited the ability of delicatessens and other small retailers to compete with big chains, which would have resulted in less competitive pressure on major supermarket chains to offer low prices. It therefore decided the reduction in retail competition resulting from the proposal would not be outweighed by any public benefit. This decision contrasts with the ACCC's approval of a resale price maintenance authorisation and related notification by Tooltechnic Systems (Aust) Pty Ltd in 2014 and 2018 respectively, where the ACCC found the public benefits of the resale price maintenance proposal outweighed the public detriments likely to result from the conduct. This was due to the better pre- and post-sales retail service levels resulting from dealers having the certainty (from the guaranteed minimum price) to invest in facilities and staff, which in turn allows consumers to make more informed decisions about the purchase of the relevant products.

Jump Swim in deep water over alleged misleading conduct

The ACCC has launched proceedings in the Federal Court against 'Jump Swim School' franchisor Jump Loops Pty Ltd and its parent company Swim Loops Holdings Pty Ltd (collectively Jump Swim), for allegedly making false, misleading or deceptive statements about Jump Swim School franchises, in violation of the Australian Consumer Law. It is also taking action against Jump Swim’s director, Mr Ian Michael Campbell, for his role in the conduct.

The ACCC alleges that Jump Swim's promotional material contained false or misleading representations that prospective Jump Swim School franchisees would have an operational swim school within 12 months of signing a franchise agreement, which were not based on any reasonable grounds, and that Jump Swim accepted payment from franchisees without providing operational franchises within the time specified.

In practice, many franchisees were not provided with an operational swim school within the specified period and, in some cases, it was not provided at all. The ACCC alleges this conduct caused substantial harm to franchisees who relied on the information provided by Jump Swim and who paid significant sums but did not receive an operational swim school within the advertised timeframe.

The ACCC is seeking injunctions, declarations, pecuniary penalties, redress for franchisees, disqualification orders, an order as to findings of fact and costs.

ACCC Guide switches energy retailers on to new Electricity Retail Code

On 18 June the ACCC published a guide to help electricity retailers understand their responsibilities under the new Electricity Retail Code (the Competition and Consumer (Industry Code—Electricity Retail) Regulations 2019) (the Code) coming into force on 1 July 2019. Electricity retailers in South East Queensland, New South Wales and South Australia will have to comply with certain obligations, including a cap on standing offer prices and rules on how prices and discounts must be advertised published or offered. The ACCC will enforce the Code and monitor compliance.

The Code was introduced under the Competition and Consumer Act 2010 (Cth) (the CCA) following the ACCC's inquiry into retail electricity pricing last year, which made a number of recommendations to increase the transparency and consumer trust in advertising of electricity deals

The main provisions of the Code include:

  • introducing a cap on ‘standing offer’ prices that are charged to residential and small business consumers, which are often excessively high. This is designed to automatically bring down the cost of electricity to customers on these offers, many of whom cannot or do not access alternative market offers. The cap will be set annually by the Australian Energy Regulator;
  • mandating that any prices and discounts must be calculated and advertised against an independently set benchmark known as the ‘reference price’ to allow consumers to more easily compare market offers; and
  • prohibiting conditional headline discounting such that conditional discounts must not be the most conspicuous price advertised, and requiring all conditions to be clearly stated.

New ACCC guidance

Gun jumping

The ACCC has published some guidance on the risks of gun jumping for merging parties prior to completion of a transaction. Gun jumping refers to merging parties coordinating their activities or behaving as a single entity instead of competing independently during the period before the acquisition has been cleared by the ACCC or completed. Such gun jumping conduct may violate the competition rules prohibiting cartel and other anticompetitive conduct, particularly if the conduct involves market sharing, price fixing or the exchange of competitively sensitive information. Other risk areas include placing unreasonable restrictions on the target's business activities prior to completion, such that its ability to compete is restricted, or where the parties take steps to integrate the businesses to coordinate pricing or dealings with customers. The ACCC may take enforcement action against pre-merger gun jumping regardless of whether the transaction has been notified to the ACCC or whether the transaction has subsequently completed. Parties engaging in gun jumping could face significant civil and criminal penalties, and may face delays in the ACCC’s review of the proposed merger if it has to suspend its assessment in order to investigate the gun jumping conduct.

The ACCC's guidance was prompted by the case of ACCC v Cryosite Limited in February 2019 in which the Federal Court imposed a penalty of $1.05 million on Cryosite for ceasing to compete with Cell Care before completion of the acquisition by engaging in market sharing – a prohibited cartel conduct. See our article Penalties ordered in ACCC cartel action against Cryosite are a strong reminder of rules prohibiting 'gun jumping' on this case for a more detailed overview.

Guide on section 155 notices

The ACCC has updated its guide to section 155 notices to incorporate changes made to s155 in the Competition and Consumer Amendment (Competition Policy Review) Act 2017 (Cth). The guide aims to help individuals and small businesses understand the ACCC's information gathering powers under s155 of the CCA, including the process and how to respond to a s155 notice (which is mandatory). In particular, the guide sets out the 'reasonable search defence', which is available to a s155 notice addressee who can prove that, after a reasonable search, they were not aware of the documents, so long as they provide a written response to the notice to the ACCC that contains a description of the scope and limitations of the searches made. The ACCC also notes its preference for a signed written declaration to be submitted with the response to verify that all appropriate steps have been taken in the document search and it sets out its preferred approach to electronic document production.

Repeal of subsection 51(3) CCA

The ACCC has released draft guidelines on the repeal of subsection 51(3) of the Competition and Consumer Act 2010 (Cth) for consultation. This provision currently confers a limited exemption for some intellectual property-related conduct from some of the Part IV anti-competitive conduct prohibitions. The repeal takes effect on 13 September 2019. Submissions on the ACCC's draft guidelines are due on 19 July 2019.

The draft guidelines set out the general principles and approach the ACCC will take to compliance and enforcement of conduct involving intellectual property rights when sub-s51(3) ceases to apply. They also include examples of the types of intellectual property-related conduct the ACCC will consider problematic and those it is unlikely to have concerns with.