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.
- ACCC commences surveillance of country of origin food labelling
- Some clarity on misleading consumer guarantee representations in ACCC v LG appeal
- Warrnambool Cheese and Butter unfair contract terms
- Air New Zealand fined $15 million for air cargo cartel
- ACCC commences first merger 'gun jumping' case
- ACCC active in electricity sector
On 1 July 2018, country of origin food labelling requirements under the Australian Consumer Law became mandatory. The ACCC has stated that it will conduct market surveillance checks on 10,000 food products to ensure businesses are correctly displaying the new labels. These will initially focus on 'fresh or short shelf products' sold in supermarkets.
The new labelling requirements were introduced in the Country of Origin Food Labelling Information Standard 2016 (the Standard) in July 2016 (see our Food Law Bulletin for an explanation of the new labelling requirements). During the two-year transition period, the ACCC provided businesses with guidance in relation to the application and interpretation of the Standard, and encouraged early voluntary adoption. With the Standard now mandatory, the ACCC is entering the compliance phase.
These requirements operate in addition to existing provisions in the ACL that prohibit misleading representations about the country of origin of goods generally. The safe harbour defences for these provisions were amended in February 2017, making it easier for businesses to establish their goods were made, manufactured or originated in a particular country by abolishing the 50 per cent production cost test. (See our March 2017 In Touch for an explanation of the amended safe harbour defences.)
The Full Federal Court partially upheld the ACCC's appeal against an earlier decision of the Federal Court by finding that LG Electronics Australia made false representations in two instances.
The ACCC alleged that LG made false representations to consumers about their rights under the ACL. The representations related to the redress LG (as manufacturer) would provide to consumers in relation to televisions in circumstances where the manufacturer's warranty had expired.
The two representations that the Full Court found to be false were those made by LG, which the Full Court considered went beyond a mere statement of what LG was willing to offer. In such circumstances, the statements were found to be unequivocal statements about what the consumers had to do and what LG could not do. The statements were false because they were found to convey the representation that 'no rights other than those under LG's manufacturer's warranty existed, operated or had potential effect'. One example of such a statement was: [Customer recounting conversation] 'I asked… if LG would repair or replace the television. Each told me words to the effect that because my television was outside of the manufacturer's warranty, there was nothing they could do in respect of the television.'
In contrast, the representations found not to be false were statements made by LG outlining what it was prepared to offer the customer irrespective of any legal duties in circumstances where the manufacturer’s warranty had expired. One example of such a statement was: [Customer recounting conversation] '…given my television set was so far out of warranty, there was no way that they could accommodate my claim under their manufacturer’s warranty'.
The decision highlights the fine line that exists between statements that may or may not be false or misleading in relation to consumers' ACL rights. (For a more detailed summary of the decision and its implications, see our Focus: Clarity on what constitutes a misleading consumer guarantee representation.)
Following concerns by the ACCC about potentially unfair contract terms, Warrnambool Cheese and Butter Factory Company Holdings Limited (WCB) has agreed to amend a number of terms in its milk supply agreements with farmers and accompanying milk supply handbook.
WCB's amendments address three concerns expressed by the ACCC:
- unilateral variation right: The ACCC was concerned about the imbalance between WCB's ability to unilaterally vary the milk price and other milk supply terms, and the inability of farmers to terminate the milk supply agreement early without incurring a financial penalty. WCB agreed not to impose penalties on farmers who terminated their milk supply agreement before the expiration date.
- restrictions on farmers selling their farms: The ACCC was concerned that WCB's milk supply agreements placed restrictions on farmers who wanted to sell their farms. In response, WCB agreed not to unreasonably withhold consent from a farmer wishing to sell their farm.
- wide indemnities by farmers: The ACCC was concerned that farmers were required to indemnify WCB for loss that could be avoided or mitigated by WCB. WCB agreed to narrow the scope of the indemnity required from farmers.
The ACCC's concerns were consistent with the observations in its Final Report in the Dairy Inquiry, which highlighted the imbalances in bargaining power in the dairy supply chain, and noted that there were terms in a number of supply agreements that it considered had the potential to be unfair.
Air New Zealand has been ordered by the Federal Court to pay $15 million in penalties for making and giving effect to agreements with other airlines to fix the price of fees and surcharges on air cargo services between 2002 and 2007. Of the $15 million penalty, $11.5 million related to fuel surcharges imposed for cargo sent from Hong Kong to Australia, and $3.5 million related to insurance and security surcharges from Singapore to Australia.
The penalties are the result of a long-running legal action relating to the air cargo cartel, commenced by the ACCC against 15 airlines between 2008 and 2010. The Federal Court initially dismissed the case against Air NZ, holding that the conduct in question did not take place in a 'market in Australia' (previously a requirement under the Trade Practices Act 1974 (Cth), now the Competition and Consumer Act 2010 (Cth)).1 However, the Full Federal Court took a wider approach and upheld an appeal by the ACCC in March 2016. In particular, the Full Court confirmed that the existence of importers, marketing activities and barriers to entry in Australia, as well as the performance of certain important service components in Australia, meant that the market was 'in Australia'. The High Court unanimously dismissed an appeal by Air NZ in June 2017.
Air NZ is the 14th airline to have pecuniary penalties imposed in relation to the air cargo cartel, bringing the total penalties to $113.5 million. The penalty hearing against the final airline involved, PT Garuda Indonesia Ltd, has been heard and judgment has been reserved.
The ACCC has commenced cartel proceedings against blood and tissue banking business Cryosite Limited in relation to the proposed sale of its business to Cell Care Australia Pty Ltd in 2017. This is the first case brought by the ACCC associated with 'gun jumping' in a merger.
The ACCC alleges that the asset sale agreement entered into between Cryosite and Cell Care, which required Cryosite to refer all customer enquiries to Cell Care after the agreement was signed but before the acquisition was completed, amounted to cartel conduct by restricting or limiting the supply of blood and tissue banking services, and allocating customers between the parties. The ACCC also alleges that Cryosite and Cell Care engaged in cartel conduct by agreeing that Cell Care would not:
- market to Cryosite's existing customers pre-completion; and
- seek or accept an approach from any Cryosite customers who had cord blood or tissue stored with Cryosite in the five years preceding completion of the proposed sale, with a view to convincing that person to obtain storage from Cell Care.
Although the sale was abandoned in January 2018, Cryosite has still not re-entered the market, and has retained the compensation it received from Cell Care to acquire the assets.
For a more detailed update, and practical tips for transaction parties to manage contact in M&A transactions, see our Client Update: ACCC cartel action against Cryosite is a strong reminder of rules prohibiting 'gun jumping' .
The ACCC released its final report on the Retail Electricity Pricing Inquiry (the Report), which calls for an overhaul of Australia's national energy market amid findings that electricity prices have reached an 'unacceptable and unsustainable' level. According to the Report, residential consumers have faced an increase of 35 per cent in their bills, and a price increase of about 56 per cent in real terms in the last 10 years. The Report provides 56 recommendations to boost competition and reduce prices of electricity for Australian consumers. For a summary of the key conclusions and recommendations made by the ACCC, see our Client Update: ACCC makes 56 recommendations for sweeping energy sector reform.
Days before releasing the Report, the ACCC commenced proceedings in the Federal Court against Amaysim Energy Pty Ltd (trading as Click Energy) for making false or misleading claims regarding discounts to consumers in Victoria and Queensland. This is consistent with one of the key criticisms in the Report, that retailers' discount practices create 'significant confusion for consumers'.
The ACCC alleges that Click Energy falsely represented that under its market energy offers, customers could receive discounts of between 7 per cent and 29 per cent off their charges if they paid their bills on time. In practice, the market offer rates were higher than Click Energy's standing offers, and the discounts received by customers were much lower than those advertised. Some customers received no discount at all. The ACCC also alleges that representations that consumers would save by switching to Click Energy from their existing providers were misleading.
The ACCC is seeking pecuniary penalties, declarations, injunctions, publication orders, costs and an order allowing affected customers to exit their plans without penalty.
- Although the concept of 'market in Australia' may no longer be relevant to the cartel provisions contained in the Competition and Consumer Act, the concept remains a central component of various other prohibitions.
- Jacqueline DownesPartner, Practice Group Leader, Competition, Consumer & Regulatory,
Ph: +61 2 9230 4850
- Fiona CrosbieChairman,
Ph: +61 2 9230 4383
- Carolyn OddiePartner,
Ph: +61 2 9230 4203
- Ted HillPartner,
Ph: +61 3 9613 8588
- John HedgePartner,
Ph: +61 7 3334 3171
- Rosannah HealyPartner,
Ph: +61 3 9613 8421
- Robert WalkerPartner,
Ph: +61 3 9613 8879
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