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In touch
 

Competition news

October 2017

 
Jacqueline Downes

Jacqueline Downes
Partner, Practice Leader, Competition
+61 2 9230 4850
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In Touch looks at what's been happening in Competition this month, and what it means for your business.

We hope you find this issue interesting and helpful. Please let us know if you would like us to investigate any competition news in the next month and, as always, get in touch.

Court orders Tribunal to reconsider Tatts/Tabcorp merger

The proposed merger of Australia's two largest wagering and gambling businesses, Tabcorp and Tatts Group, is set to be reassessed by the Australian Competition Tribunal following a recent decision by the Full Federal Court.

Tabcorp initially sought informal merger clearance from the ACCC for its proposed acquisition of Tatts, but abandoned that process after the ACCC released a Statement of Issues listing a number of preliminary competition concerns with the proposed merger. Tabcorp instead successfully sought authorisation from the Tribunal on the basis that the public benefits associated with the proposed merger outweighed any detriment. The ACCC opposed Tabcorp's authorisation application.

The Tribunal originally granted Tabcorp authorisation to acquire Tatts, subject to Tabcorp undertaking to divest a part of its business. The ACCC swiftly sought judicial review of the Tribunal's decision. The Full Federal Court has allowed the regulator's application in part and has set aside the Tribunal's original decision, referring the matter back to the Tribunal for redetermination.

The ACCC argued, and the Full Federal Court agreed, that the Tribunal had fallen into legal error in making its decision because it failed to take into account one of the public detriment arguments advanced by the ACCC; namely, that the proposed acquisition would result in the merged entity being unconstrained in consumer wagering services markets to increase its takeout rate to the legal maximum. The Full Federal Court set aside the Tribunal's decision on that basis.

The court rejected the two other grounds on which the ACCC challenged the Tribunal's decision, including the ACCC's argument was that the Tribunal gave too much weight to benefits accruing to shareholders and other private interests, and too little weight to the effect of the merger on consumers. The ACCC argued the Tribunal was required to assess the extent to which any cost savings or benefits resulting from the merger were likely to be passed through to consumers and to assign less weight to benefits which flowed through to a limited number of members of the community. The court rejected this argument, finding that the public benefits test did not require the Tribunal to ascribe weight to benefits and detriments in the manner suggested by the ACCC.

The Tribunal will now rehear the matter, with hearings scheduled to take place on 24 and 25 October 2017. You can read our more detailed account of the Tatts/Tabcorp merger here.

ACCC loses appeal on egg cartel

The Full Federal Court has dismissed the ACCC's appeal in its case against the Australian Egg Corporation Limited (AECL) – an industry association representing Australian egg producers. The ACCC had sought to overturn the Federal Court's finding that the AECL and two egg producing companies did not attempt to induce a cartel arrangement. The ACCC was also seeking court guidance on what conduct would constitute an attempt to induce cartel conduct, particularly in the context of industry association meetings.

In May 2014, the ACCC instituted proceedings against the AECL, two egg producing companies and three individuals. The ACCC's allegations were that the AECL and the other respondents had attempted to induce AECL egg producers to enter into an arrangement to cull hens or otherwise dispose of eggs, in order to avoid a perceived oversupply of eggs in Australia.

In February 2016, the Federal Court dismissed the ACCC's case. The first instance judge found that while the AECL and the other respondents had intended for egg producers to take action to correct an oversupply of eggs, this was not sufficient to establish an attempted cartel arrangement. The judge found that the ACCC needed, but failed, to establish that the respondents had intended for egg producers to agree between them to take action, on the expectation of reciprocal conduct by others.

The ACCC appealed this finding on a number of grounds, including that it was not necessary for the ACCC to establish that the proposed arrangement or understanding contained mutual or reciprocal obligations, and that the primary judge erred in failing to draw the inference that the respondents had the necessary intention to make out an attempt.

On 25 September 2017, the Full Federal Court dismissed the ACCC's appeal. The Full Court agreed with the decision of the first instance judge and recognised the role of industry associations in encouraging 'members to examine their profitability and to make production and pricing decisions'. According to the Full Federal Court, such conduct will not amount to cartel conduct or an attempt to induce cartel conduct, unless there is a suggestion of cooperative action.

However, conduct that does not meet the threshold of cartel conduct may be caught by the new concerted practices provision that is part of a package of competition law reforms currently before the Federal Parliament. The reforms are expected to pass Parliament and come into effect in 2018. For further information about these reforms, including the new concerted practices provisions, you can read our summary here.

ACCC appeals LG consumer warranties case

The ACCC has appealed the Federal Court's decision to dismiss the regulator's case against LG. The ACCC had alleged LG misled consumers about their rights under the Australian Consumer Law (ACL) by failing to mention the ACL when consumers contacted LG about their faulty televisions.

The Federal Court had dismissed all allegations, finding that the ACL did not require LG to proactively inform consumers of their ACL rights in circumstances where a consumer made an enquiry about the LG warranty or requested a specific remedy for a faulty product. The Federal Court also found that where LG did decide to offer a remedy for a fault that occurred after the warranty expired, LG could make offers that were below the amount a consumer would have been entitled had they relied on their ACL rights. You can read our take on the Federal Court's decision here.

The ACCC's grounds of appeal include that the court:

  • should not have assumed that enquiries made to LG by consumers (and retailers or repairers on consumers' behalf) were claims made under the contractual warranty between the consumer and LG. According to the ACCC, these enquiries should have been characterised as the relevant consumers seeking a solution – on any available basis – for the fault with the product, and accordingly LG was required to advise consumers of their ACL rights;
  • should not have placed any weight on the extent to which the consumers (or retailers or repairers) were aware of their rights under the ACL. Further, the ACCC argues it was irrelevant whether or not LG assumed the relevant consumers, retailers or repairers were aware of these rights;
  • should not have characterised the interactions between consumers and LG as a commercial negotiation in which LG could ignore the potential operation of the ACL. The ACCC argues the proper characterisation of those interactions was that LG was addressing enquiries from consumers, retailers and repairers to which the ACL was applicable; and
  • failed to properly consider LG's knowledge that remedies were, or may have been, available to the relevant consumers under the ACL.

The Full Federal Court's decision will provide an important clarification to the law in relation to the obligations on suppliers and manufacturers to inform consumers of their ACL rights.

ACCC challenges Federal Court's Medibank decision

The ACCC has also appealed the Federal Court's decision to dismiss the ACCC's proceedings against Medibank. The action related to changes Medibank made to its health insurance policies in September 2014, which had the effect of reducing coverage for members who had previously been completely covered for costs in relation to certain in-hospital pathology and radiology services.

The ACCC alleged that Medibank had acted unconscionably and engaged in misleading and deceptive conduct in contravention of the Australian Consumer Law. The ACCC alleged Medibank had made representations that members would not incur any out-of-pocket expenses in relation to in-hospital diagnostic services and that Medibank would notify policy holders in writing of any 'detrimental changes' to the benefits it offered. The ACCC argued that Medibank failed to provide to members notice of its policy changes in circumstances where members were vulnerable and unlikely to become aware of the changes.

At first instance, the court found that Medibank had not engaged in misleading and deceptive conduct, as its pre- and post-policy materials were not misleading, and it had not given any assurances, nor was it under an independent legal duty, to notify policy holders of the changes to the level of coverage for in-hospital diagnostic services. In the absence of Medibank engaging in misleading or deceptive conduct, the court found that the allegations of unconscionable conduct could not be made out. You can read our analysis of the Federal Court's decision here.

The ACCC has appealed the decision on a number of grounds, including that the primary judge:

  • failed to consider the different characteristics (such as education, age, knowledge of English and familiarity with health insurance) of Medibank's target audience and therefore adopted a meaning of certain words that would not have been adopted by many ordinary and reasonable members of the target audience; and
  • erred in finding that Medibank did not engage in unconscionable conduct in circumstances where (among other things) it did not notify members of the changes to its policy despite knowing that many members held the incorrect belief that they would not incur out-of-pocket expenses during a hospital admission, and that these expenses would be a distressing burden to meet for many members.

Commenting on the decision to appeal, Rod Sims said 'It is important that the ACCC seeks clarity from the Full Federal Court … In particular, the extent to which it was acceptable for Medibank not to fully inform vulnerable consumers about changes to their private health insurance'.

Penalties against Cement Australia increased to $20.6 million

The Full Federal Court has allowed the ACCC's appeal against the penalties imposed on the Cement Australia companies. In 2016, the trial judge had ordered penalties totalling $17.1 million. The increased penalty is the third highest total penalty imposed for an ACCC case. However, it still falls well short of the $91 million penalty that the ACCC submitted should be imposed if it succeeded on all of its grounds of appeal.

In 2014, the trial judge found that Cement Australia had engaged in numerous contraventions of section 45 of the Trade Practices Act 1974 (the TPA) (the relevant conduct occurred between 2002 and 2006, before the legislation was renamed the Competition and Consumer Act 2010). The conduct involved agreements between these companies and power stations in south east Queensland to acquire flyash. The agreements were found to have the purpose and effect of preventing a competitor from entering the market by denying the competitor direct access to a source of flyash in the region. The court found that new entry by a competitor would have had a significant impact on competition in the market.

The ACCC had appealed the penalties judgment of $17.1 million because it considered that the penalties were manifestly inadequate and not of appropriate deterrent value, considering the serious nature and extent of the conduct, the benefit derived by Cement Australia and the market harm caused. The ACCC ultimately succeeded on the ground of appeal that a single joint and several penalty cannot be imposed against multiple respondents under the TPA. A party should be ordered to pay a pecuniary penalty for the acts or omissions of that party only. The ACCC also succeeded on the ground of appeal that the making and giving effect to one of the contracts was not a single course of conduct, but rather separate courses of conduct. For these reasons, the Full Court re-exercised the discretion and arrived at a slightly higher overall penalty level.

Although in this case the court increased the penalty only slightly on appeal, it is likely the ACCC will continue to seek larger fines for competition and consumer law breaches.

More terms considered unfair

Advanced Hair Studio Pty Ltd has given an enforceable undertaking to the ACCC to address the regulator's concerns that the company entered into contracts which included an unfair termination clause. This is the latest in a series of enforcement actions taken by the ACCC in relation to the unfair contract terms regime.

Advanced Hair supplies hair loss treatments and procedures including laser therapy as part of three to 12 month programs. Under Advanced Hair's 2015 contract, consumers wishing to terminate their program after commencing laser therapy sessions were required to pay 100 per cent of the cost of the program (even if they had attended only one or two laser sessions). Under Advanced Hair's 2017 contract, consumers wishing to terminate their program after commencing laser therapy sessions were required to pay 20 per cent of the contract plus $150 per laser session that was not attended.

The ACCC considered these cancellation fees were greater than the loss Advanced Hair would suffer because of an early cancellation. The ACCC considered that the termination clauses were likely to be unfair, and therefore void.

Advanced Hair has amended its termination clauses. Under the revised clause, customers can terminate their contract for any reason after laser therapy sessions have commenced, by paying 20 per cent of the total contract price plus $150 for each laser therapy session the customer has attended.

In addition, Advanced Hair has undertaken to compensate those consumers who entered into the 2015 contract and sought to terminate after commencement of laser therapy. Advanced Hair will provide these consumers a cash refund of 80 per cent of the contract price, less $150 for each laser therapy session they attended.

In September 2017, the ACCC announced it commenced its first court action under the new small business unfair contract terms regime. Read our summary of the claim against waste management company JJ Richards here. This was swiftly followed by the regulator commencing proceedings against Servcorp – a supplier of serviced office space and virtual office services. The terms in Servcorp's small business contracts which the ACCC alleges are unfair include terms that:

  • automatically renew a customer’s contract and allow Servcorp to unilaterally increase the contract price after the renewal without prior notice to the customer;
  • permit Servcorp to unilaterally terminate the contract and to impose penalty-type consequences on the customer;
  • unreasonably limit Servcorp’s liability or impose unreasonable liability on the customer;
  • permit Servcorp to unilaterally determine whether the contract has been breached; and
  • permit Servcorp to unilaterally acquire the customer’s property without any notice.

The ACCC is seeking declarations that these clauses are unfair and void, injunctions, publication orders, compliance program orders and costs.

For further information, please contact:

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