COVID-19: Competition and consumer law regulatory issues
Managing competition and consumer law obligations amidst the pandemic
The COVID-19 crisis may lead to competitors seeking to merge or otherwise collaborate, raising questions about the need for ACCC clearance or authorisation. Events, along with orders for goods and services, may need to be cancelled due to the pandemic, raising important consumer law implications. It is critical that businesses keep in mind their obligations under competition and consumer laws.
You may be able to speak to and collaborate with peers, but it depends on the circumstances and you must bear in mind that the usual rules of competition law still apply. In particular, criminal cartel laws prohibit competitors from agreeing to fix prices, restrict supply or acquisition, allocate customers or markets, and coordinate in relation to bids and tenders. Eg the following cooperation between competitors could raise competition law issues:
- sharing information or collaborating with competitors to manage pandemic-related supply or demand shocks;
- sharing staff with competitors in the event of staff illness or self-isolation;
- where there is increased demand or supply issues, agreeing with your competitors to allocate markets or customers to ensure that all customers can be serviced;
- coordinating with your competitors on bids or tenders, even in response to emergencies; and
- allowing industry organisations (eg a trade association) to make pricing, output or supply decisions on behalf of its members during the pandemic.
There are specific exemptions to the cartel provisions (including for legitimate pro-competitive joint ventures), and the ACCC is able to grant authorisations – including urgent authorisations – for some forms of restrictive practices that result in a net public benefit. Eg Coles (represented by Allens) was successfully granted urgent interim ACCC authorisation within two business days to permit the major supermarket chains to work together to facilitate access to grocery products, given recent increased demand.
If you are planning to engage in any form of collaboration with your competitors in response to COVID-19, we recommend seeking legal advice as soon as possible.
COVID-19 will impact the speed with which the ACCC can review mergers and the issues it will consider in distressed sales.
The ACCC has transitioned the vast majority of its staff to remote working, and meetings are being conducted by phone and video conference. These measures are aimed at ensuring the ACCC can continue to operate; however, it has forewarned that, in certain cases, there may be a need to extend review timetables.
At this stage, the ACCC has not asked parties to delay merger review applications but is requesting parties to consider whether some reviews could be postponed – eg those where the transaction is at a very early stage.
The ACCC has indicated it may need to prioritise matters further if the situation worsens.
The ACCC has acknowledged that the current environment is likely to result in increased consolidation where one or both merger parties is experiencing financial difficulty. The ACCC has stressed that it will take a case-by-case approach when assessing these applications, and take into account:
- how the structure of the market may be affected by the relevant party's current financial difficulty in the longer term – both with and without the merger; and
- evidence of how the financial difficulties go beyond a short-term impact on profits and share value (ie in terms of the relevant party's ongoing viability and competitiveness).
These merger applications often include 'failing firm' arguments (ie that the business in financial difficulty would have exited the market in any event). Such arguments are likely to be closely scrutinised by the ACCC. It generally requires strong supporting evidence that the relevant business is unlikely to recover, and that its brand and assets will exit the market in the absence of the merger. The ACCC will also consider whether there are other likely bidders for that business that raise fewer competition concerns.
If you have to cancel an order for goods, you will have to provide a full refund in most circumstances.
Consumer protection laws continue to apply during the pandemic, and businesses should be aware of their obligations under the consumer guarantees regime. If you accept payment for goods, they must be supplied within the timeframe indicated or within a reasonable time (if no timeframe is indicated).
The ACCC has made it clear in its COVID-19 guidance for small businesses that businesses will have to provide full refunds where they can no longer supply goods ordered by customers, due to supply issues. However, where it is the supplier's fault that the business cannot supply the goods, the business might be entitled to reimbursement under the contract with the supplier.
Promoting goods and services during the pandemic where there are shortages / supply issues poses a number of specific considerations:
- Misleading representations: The general prohibition on misleading and deceptive conduct in trade remains important, as do the specific prohibitions on false or misleading representations in relation to matters such as price, uses, standards and sponsorship of goods or services. Particular care should be taken when identifying the reasons for any stock shortages: eg to ensure all statements are accurate.
- Supply chain disruptions: Disruptions to supply chains may cause certain goods to become unavailable for periods of time. To avoid bait-advertising risks, businesses need to monitor their stock and advertising, and avoid advertising goods that they do not have in stock.
Competition and consumer laws do not specifically prohibit the setting of excessive prices, or 'price gouging', and businesses can generally set their own prices. However, depending on the circumstances, price gouging may be caught by the general prohibitions on misleading or deceptive conduct and unconscionable conduct.
Businesses should ensure that:
- statements about the reasons for any price increases are accurate and not misleading; and
- price increases can be justified and are never an attempt to take advantage of vulnerable customers during the pandemic.
The Federal Government recently used its emergency powers under Australia's biosecurity laws to introduce measures intended to put a stop to price gouging of personal protective gear and disinfectants (such as medical face masks, hand sanitiser and gowns). Among other things, these measures prevent the reselling of such items (when purchased on a retail basis) for more than a 20% mark-up than the original price paid, with non-compliance punishable by a $63,000 fine and/or five years imprisonment.