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In touch
 

Competition news

April 2018

 
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.

Dairy Inquiry: ACCC calls for mandatory code to assist dairy farmers

On 30 August 2018, the ACCC released its Final Report in the Dairy Inquiry. The 18-month inquiry was initiated by the Treasurer following retrospective reductions in milk prices imposed by two dairy processors in April 2016.

Consistent with the interim report, the ACCC's key concern was that there were imbalances in bargaining power in the dairy supply chain. While the ACCC acknowledged that relationships between supermarkets and processors are already governed by the Food and Grocery Code of Conduct, the ACCC felt there was a lack of regulation in respect of relationships between farmers and processors. The ACCC was concerned that the asymmetry in farmer-processor relationships could contribute to farmers accepting less than favourable pricing and terms. This in turn could result in inappropriate levels of risk being imposed on farmers. In addition, if contractual terms restricted farmers from switching between processors, this could lead to a softening of competition between processors.

The ACCC's central recommendation is the introduction of a mandatory code of conduct to better regulate contracting processes between farmers and processors. The proposed code is aimed at increasing the information provided to farmers, reallocating risk and removing restrictions on farmers' ability to switch processors. Other recommendations include various changes to contracting practices, such as the simplification of contracts, greater communication about pricing, and the creation of an independent body to mediate contractual disputes between farmers and processors.

During the Inquiry, the ACCC also analysed the impact of $1 per litre private label milk on the dairy industry. The ACCC ultimately found no evidence that supermarket milk pricing had a direct impact on farmgate prices. This is because contracts for the supply of private label milk allow processors to pass through movements in farmgate prices to supermarkets. The ACCC also found that an increase in the retail price of milk would not necessarily result in farmers being better off. Rather, the ACCC found that the strongest and most direct influence on farmgate prices was the geographic location of dairy producing regions and their relative exposure to global and domestic dairy markets.

ACCC to increase transparency of gas pricing

On 27 April 2018, the ACCC published its third interim report as part of its ongoing inquiry into the supply of and demand for wholesale gas in the East Coast Gas Market.

The report confirms that gas commodity price offers for 2018 and 2019 are well below the peak price offers of 2017. After reaching a peak of over $20/GJ in early 2017, prices fell to around $8-$12/GJ between July and November 2017. The ACCC reported that prices remained higher in the southern states than in Queensland.

The ACCC reaffirms its position articulated in the East Coast Gas Inquiry that there is a need for increased transparency in gas pricing. The ACCC has decided to publish a LNG netback price series on its website as a trial measure throughout the inquiry. The publication will commence in the coming months and will include LNG netback prices, based on measures of recent and historic Asian LNG spot prices and a forward LNG netback price indicator. The ACCC will also publish the formula used to derive LNG netback prices.

The ACCC's report also examines the pricing information recently published by non-scheme pipeline operators under the new information disclosure obligations in Part 23 of the National Gas Rules. The ACCC has found that, for some pipelines, published standing prices for firm forward haul services are higher than the range of firm forward haul prices paid under existing gas transportation agreements, suggesting that shippers may be able to negotiate a better deal bilaterally. In addition, the ACCC has raised concerns about some published pricing methodologies lacking sufficient detail for users to understand how standing prices have been derived. The ACCC will continue to assess the information published under Part 23 to assess whether the disclosure requirements are adequately addressing the ACCC's concerns about market power and information asymmetry that were highlighted in its 2015 Inquiry Report.

The ACCC is expected to provide two further interim reports in July and December 2018, three interim reports in April, July and December of 2019 and a final report in April 2020.

Thermomix fined for false representations about safety of TM31 kitchen appliances

The Federal Court has ordered Thermomix Australia Pty Limited to pay $4.6 million in penalties for making false representations about the safety of its TM31 kitchen appliances and the consumer guarantees and failing to report customer injuries under mandatory reporting obligations. Thermomix admitted to the contraventions and the court accepted the parties' submissions that a total penalty of $4.6 million was appropriate in all the circumstances.

The court found that from at least 7 July 2014 to 23 September 2014, Thermomix knew that the mixing bowl lid in some TM31 Thermomix appliances might move and lift during use, causing hot food or liquid to escape from the mixing bowl and injure users. In particular, Thermomix knew of at least five serious burn injuries in 2013 and 2014 and there were a range of internal service reports that recorded problems with the lid or seal of the appliance. Finally, Thermomix had corresponded with the European manufacturer expressing concerns about the lid or seal.

Thermomix admitted to four categories of contraventions:

  • By continuing to sell the TM31 appliance and failing to disclose the safety issue, Thermomix misled customers that it was not aware of any safety issues that could cause injury.
  • By publishing a media statement that represented there had been no product recall and that the TM31 appliance was absolutely safe if used in accordance with manufacturer's instructions, Thermomix misled customers as to the safety of the appliance and the need for consumer action. This is because Thermomix had previously taken recall action in relation to the TM31 model and was aware of at least 35 serious injuries caused by the TM31 model when this statement was released.
  • By informing customers that they were not entitled to refunds, or not entitled to refunds unless they signed non-disclosure agreements, Thermomix misled customers as to their rights under the consumer guarantees.
  • Thermomix admitted that on 14 occasions between June 2012 and July 2016 it had failed to notify the Minister of serious customer injuries arising from the use or foreseeable misuse of the TM31 model as required under the ACL.

The case is another example of the ACCC using the consumer protection laws to target unsafe products in the market place. The case demonstrates the importance of taking prompt action once a company becomes aware of any potential safety issues involving their products and ensuring that complaints handling processes comply with the ACL.

Valve runs out of steam (again)

On 19 April 2018, the High Court of Australia dismissed Valve's application for special leave to appeal the judgment of the Full Court of the Federal Court. Late last year, the Full Court dismissed Valve's appeal against a ruling that Valve engaged in misleading or deceptive conduct and made false or misleading representations to Australian consumers about the consumer guarantees under the ACL. The High Court found no reason to doubt the correctness of the Full Court's decision, meaning that the Full Court's decision stands.

The High Court's refusal of special leave ends a long-running legal action brought by the ACCC against Valve, a US-based video game developer and online game retailer. The conduct related to representations made by Valve in the terms and conditions of Steam, its online game distribution platform. The Full Court found that Valve carried on business in Australia, with 2.2 million Australian customers using its Steam platform. The Full Court also found that that the relevant conduct occurred in Australia; the representations were made in Australia as they were contained in agreements accessible to consumers in Australia. The Full Court made these findings despite the fact that Valve predominantly operated and uploaded content to the Steam platform from the US, did not have physical premises or employees in Australia and only accepted payments in US dollars, which were processed outside of Australia.

With the High Court's refusal of special leave, the Full Court's decision will be the final determination on this jurisdictional issue. This development reaffirms to global businesses the importance of complying with the ACL when providing goods or services to Australian consumers, even in circumstances where the business has no physical presence in Australia. This case also demonstrates the need for global businesses to ensure that any carve outs contained in agreements with Australian consumers do not contain misleading or deceptive representations as to the application of the ACL.

Not flushable: Pental pays $700,000 for false representations

On 12 April 2018, the Federal Court ordered Pental Limited and Pental Products Pty Ltd to pay penalties of $700,000 for making false or misleading representations about its White King ‘flushable’ toilet and bathroom cleaning wipes.

The packaging and promotional materials used by Pental included statements such as 'flushable', 'Simply wipe over the hard surface of the toilet…and just flush away', and 'White King Toilet Wipes are made from a specially designed material, which will disintegrate in the sewage system when flushed, just like toilet paper'. Pental advertised these products as ‘flushable’ between February 2011 and July 2016.

Pental admitted that it had represented its White King ‘flushable’ wipes were made from a specially designed material that disintegrated in the sewerage system like toilet paper, had similar characteristics to toilet paper when flushed, and were suitable to be flushed into the sewerage system when that was not the case.

In addition to ordering penalties, the court made declarations, by consent, that these representations were false or misleading in contravention of the ACL, and ordered Pental to implement a ACL compliance training program.

The ACCC has separate ongoing proceedings against Kimberly-Clark Australia Pty Ltd concerning alleged false or misleading representations in relation to four ‘flushable’ personal hygiene wipes products that were marketed and supplied in Australia between May 2013 and May 2016. The ACCC previously closed an investigation against ALDI for its 'flushable' wipes claims after Aldi removed its personal hygiene wipes from sale and agreed to remove 'flushable' from the product packaging of its bathroom cleaning wipes.

Mergers cleared

Clear water for Zodiac / Fluidra pool equipment merger

On 19 April 2018, the ACCC announced that it would not oppose the merger of Zodiac and Fluidra in Australia, global manufacturers of residential swimming pool equipment.

The ACCC concluded that the proposed merger was unlikely to substantially lessen competition in any relevant market. While Zodiac and Fluidra were two of the largest suppliers in the industry, the ACCC accepted that, post-merger, the combined entity would face competition from other global and local suppliers and specialist manufacturers and that its competitors had the ability to expand.

Allens acted for Zodiac on this matter.

Saputo drops Koroit to get the green light

On 4 April 2018, the ACCC announced that it would not oppose Saputo's proposed acquisition of Murray Goulburn after Saputo gave an undertaking to divest Murray Goulburn's processing plant in Koroit, Western Victoria. Murray Goulburn is an Australian milk processer and Saputo is an international dairy processor, which conducts its Australian operations through Warrnambool Cheese and Butter.

Saputo and Murray Goulburn own the two largest processing plants in south-west Victoria and south-east South Australia. Initially, the ACCC had raised concerns that the proposed acquisition would substantially lessen competition in the market for the acquisition of raw milk in south-west Victoria and south-east South Australia, resulting in lower farmgate prices being paid to farmers. The ACCC did not consider that smaller players in the region would provide sufficient competitive constraint due to their limited production capacity. Similarly, the ACCC did not consider that other players outside the region would provide sufficient competitive constraint due to the cost of transporting raw milk long geographical distances. However, the ACCC was satisfied that Saputo's undertaking to divest Murray Goulburn's Koroit plant remedied its concerns.

The proposed acquisition also gained Foreign Investment Review Board approval on 19 April 2018.

K-Line admits to criminal cartel conduct

On 5 April 2018, Kawasaki Kisen Kaisha, known as K-Line, pleaded guilty to criminal cartel conduct in the Federal Court. This is the second guilty plea for criminal cartel conduct in Australia, after another participant of the same cartel, Nippon Yusen Kabushiki Kaisha, pleaded guilty and was sentenced to a $25 million fine in August 2017. The cartel conduct related to the shipping of automobiles to Australia. K-Line is due to be sentenced in November 2018. The ACCC is reportedly investigating other alleged cartel participants.

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