Doing Business in Australia 2015: Competition and Consumer Law

Part 1
The Competition and Consumer Act

The Competition and Consumer Act 2010 (Act) regulates competition by firms in the Australian marketplace. Among other things, it deals with:

  • cartel conduct
  • misuse of market power
  • supply chain tying arrangements
  • resale price maintenance, and
  • mergers and acquisitions.

The Act also contains regulations for specific industries such as telecommunications, airports, gas and electricity. 

The competition provisions apply broadly across the Australian economy, including to the commercial activities of Federal, State and Local governments.
The Act is administered by the Australian Competition and Consumer Commission (ACCC).

Significant civil penalties apply for contravening these provisions of the Act. For corporations, the penalties are up to the greater of $10 million or 3 times the total value of the benefits obtained (or 10% of the annual turnover of the corporation if the court cannot determine the total value of benefits). For individuals the penalties are up to $500,000 for each contravention. There are parallel criminal offences and civil penalty provisions relating to cartel conduct. Enforcement proceedings are brought by the ACCC in the Federal Court or, in the case of criminal proceedings, the Director of Public Prosecutions.

Private litigants also have a right of action for the recovery of damages and other orders when they have suffered loss as a result of a contravention by a corporation of the competition provisions.

Cartel conduct

There are specific prohibitions on making or giving effect to a contract, arrangement or understanding 
that contains a cartel provision. A cartel provision is a provision made between competitors to:

  • fix, control or maintain the prices of goods or services
  • restrict outputs in the production or supply chain
  • allocate customer, suppliers, or geographical areas between the competitors, or
  • rig bids made by the competitors for the supply or acquisition of goods or services.

There is some relief available from these prohibitions in relation to joint ventures and collective acquisition of goods and services.

Cartel conduct is considered to be particularly damaging and is likely to attract the highest level of interest from the ACCC. As noted, criminal sanctions (including imprisonment for up to 10 years) apply.

Anti-competitive arrangements

The Act contains a general prohibition on corporations entering into contracts, arrangements or understandings that have the purpose or effect of substantially lessening competition in a market in Australia, or that contain an exclusionary provision. An exclusionary provision is one which is made between competitors and which has the purpose of making a particular person or class of person the target of a boycott.

Misuse of market power

The Act also regulates the conduct of corporations which have a substantial degree of power in a market. While it is not a contravention of the Act for a corporation to have substantial market power nor to obtain monopoly prices for its goods or services, the corporation must not use its power for the purpose of:

  • eliminating or substantially damaging a competitor
  • preventing the entry of a person into a market, or
  • deterring or preventing a person from engaging in competitive conduct in a market.

There is a specific prohibition on corporations that have substantial market share supplying goods or services for a sustained period below cost where the purpose is one of those listed above (commonly referred to as “predatory pricing”).

Exclusive dealing

The Act regulates various kinds of tying arrangements imposed at different levels of the supply chain. These include supplying on condition that the purchaser does not acquire from a competitor of the supplier or the purchaser accepts some restriction on its right to re-supply.

Exclusive dealing conduct is prohibited only if it has the purpose or effect of substantially lessening competition in a market in Australia, with the exception of “third line forcing” (the tying of a third party’s product to the primary supply) which is strict liability.

Resale price maintenance

The Act prohibits a corporation from engaging in resale price maintenance, being a number of specific types of conduct directed to maintaining a minimum resale price for goods. 

Mergers

The Act prohibits the acquisition of assets or of the shares in a company where the transaction will result in a substantial lessening of competition in a market for goods or services in Australia. Certain matters must be taken into account in determining the effect on competition, including:

  • the actual and potential level of import competition
  • the height of barriers to entry
  • the level of concentration in the market
  • the degree of countervailing power in the market
  • the likelihood that the acquisition would result in the acquirer being able to significantly and substantially increase prices or profit margins,
  • the extent to which substitutes are available in the market or are likely to be available in the market
  • the dynamic characteristics of the market, including growth, innovation and product differentiation
  • the likelihood that the acquisition would result in the removal of a vigorous and effective competitor from the market, and
  • the nature and extent of vertical integration in the market.

There is no compulsory requirement to notify the ACCC of a merger. However, the ACCC encourages notification where the products of the merger parties are either substitutes or complements and the merged firm will have a post-merger market share of greater than 20%. 

The ACCC has published merger guidelines which set out its approach to reviewing mergers. It typically adopts the Herfindahl-Hirschman Index (HHI) of market concentration as a key metric in identifying horizontal merger concerns. 

A well-established informal merger clearance process exists whereby parties to a proposed merger can seek a “no action” letter from the ACCC confirming that it will not oppose the merger. 

The Act contains a formal merger clearance procedure which operates alongside the informal process. The purpose of the formal merger process is to increase certainty for business by requiring the ACCC to make a decision within a set time-frame. In practice however, it is rarely used. 

The ACCC may intervene in a transaction by commencing proceedings in the Federal Court and by obtaining restraining orders to prevent a contravention of the Act. The ACCC may also seek orders for divestiture of shares or assets if a transaction has completed. 

Penalties for contravening the Act in relation to merger and acquisition activity are the same as those in relation to anti-competitive market conduct (up to $10 million for corporations).

Extraterritorial application of the Act

The Act regulates conduct outside Australia by corporations which are incorporated in or carry on business in Australia. Further, the provisions relating to resale price maintenance and exclusive dealing extend to the engaging in conduct outside Australia by any person in relation to supply of goods or services within Australia. The misuse of market power provisions expressly apply to New Zealand companies operating in a trans-Tasman market.

Part 2
Australian Consumer Law

Australia has an extensive national consumer law regime called the Australian Consumer Law (ACL). Parts of the ACL have been in place for many years but a number of significant additions have been recently made and the regime given national application. The ACL is designed to protect consumers when they acquire goods, services and interests in land.

The ACL is contained in the Competition and Consumer Act. A number of its provisions are replicated in the Australian Securities and Investments Act 2001, in respect of the provision of financial products and services to consumers.

Who is a “consumer”?

The ACL can apply to business to business transactions. Generally, the ACL deems a person (including a company) to be a consumer if that person acquires goods or services at a price not exceeding $40,000, or that person acquires goods or services of a kind ordinarily acquired for personal, domestic or household use or consumption.  

General Consumer Protections

Misleading and deceptive conduct

The ACL provides that a person (including a company) must not, in trade or commerce, engage in conduct 
that is misleading or deceptive or is likely to mislead 
or deceive. 

This provision has been interpreted broadly by Australian courts and applies well beyond business-consumer interactions. Intention to mislead or deceive is not required and conduct needs only to have a real chance of being misleading or deceptive.

This requirement of the ACL has given rise to a significant body of litigation and has had a wide impact on business in Australia.

Unconscionable conduct

The ACL prohibits a person, in trade or commerce, in connection with the supply or possible supply of goods or services to another person, or the acquisition or possible acquisition of goods or services from a person, from engaging in conduct that is, in all the circumstances, unconscionable. 

Factors that are commonly taken into account when determining whether conduct is unconscionable include:

  • the relative bargaining power of the parties involved
  • whether, as a result of conduct engaged in by the supplier or acquirer, the person complaining of unconscionable conduct was required to comply with conditions that were not reasonably necessary for the protection of the legitimate interests of the supplier or acquirer
  • whether the person complaining of unconscionable conduct was able to understand any documents relating to the supply, acquisition, or possible supply or acquisition of the goods or services
  • whether any undue influence or pressure was exerted or any unfair tactics were used, and
  • the amount for which, and circumstances under which, identical or equivalent goods or services could have been acquired from or supplied to someone else.

Unfair contract terms

The ACL voids unfair terms of standard form consumer contracts in business to consumer transactions. A term in a consumer contract will be deemed to be unfair under the ACL if:

  • it would cause a significant imbalance in the parties’ rights and obligations under the contract 
  • it is not reasonably necessary to protect the legitimate interests of the party advantaged by the term, and
  • it would cause detriment (financial or otherwise) to a party if it were to be applied or relied on.

Examples of unfair contract terms include terms which permit or have the effect of permitting one party (but not the others) to void or limit performance of the contract, terminate the contract, vary the terms of the contract, renew or not renew the contract, or unilaterally vary the characteristics of the goods or services to be supplied under the contract.

Specific Consumer Protections

Unfair practices

The ACL prohibits a raft of specific “unfair” practices. These include pyramid schemes, bait advertising, referral selling, certain practices in relation to pricing, prizes and  gifts, and the making of certain false and misleading representations in connection with the supply, possible supply or promotion of goods, services and land.  

Consumer guarantees

The ACL contains a number of “consumer guarantees” which apply when a business supplies goods or services to a consumer (equivalent to implied warranties but which do not require the existence of a contract). 

These include, among others:

  • a guarantee that goods will be of an acceptable quality. Goods are of an acceptable quality if they are as fit for all the purposes for which goods of that kind are commonly supplied, acceptable in appearance and finish, are free from defects, safe and durable as a reasonable consumer would regard as acceptable, and
  • a guarantee that goods will be fit for any disclosed purpose. A disclosed purpose is a purpose that the consumer makes known, expressly or by implication.

Guarantees in relation to the supply of services include:

  • a guarantee that the services will be rendered with due care and skill,
  • a guarantee that the services will be supplied within a reasonable time period (if the timeframe for delivery has not been agreed), and
  • a guarantee that the services will be reasonably fit for any disclosed purpose and of such a nature, and quality, state or condition, that they will achieve the result desired by the consumer.

The misleading and deceptive conduct provisions are often applied by Australian courts in relation to misrepresentations made in relation to these consumer guarantees.

Unsolicited selling

The ACL contains a number of provisions restricting unsolicited consumer agreements. 
A consumer agreement is unsolicited if the consumer did not invite the seller to negotiate for the supply of goods or services, and the total cost for the goods or services is either not ascertainable at the time of agreement, or is an amount over $100. These provisions impose requirements concerning the timing of negotiations, disclosures that must be made by the seller and what information must be provided to the consumer.

Safety of consumer goods and product related services

The ACL contains a national product safety regime for consumer goods and product related services. The regime covers the making and publication of safety standards for goods and services, the imposition of bans on goods and services that may cause injury to consumers, the recalling of unsafe goods and the publication of warning notices about goods under investigation and voluntary product recalls.

A national liability scheme enables a consumer to recover damages and compensation from manufacturers of goods that contain safety defects that have caused injury to the consumer. Manufacturers may also be liable to persons who have suffered loss as a result of the defect in the good causing the death or injury of another.

Penalties and ACCC powers

Severe penalties can apply for contravention of the ACL. There are parallel criminal offences and civil penalty provisions relating to certain kinds of conduct (for example, unconscionable conduct, unfair practices Severe penalties can apply for contravention of the ACL. There are parallel criminal offences and civil penalty provisions relating to certain kinds of conduct. For example, the maximum penalty for making a false or misleading representation to a consumer is $1.1 million for a corporation and $220,000 for an individual. 
The ACCC is given broad powers to investigate and act on potential infringements of the ACL. These include the power to:

  • require a business to substantiate a claim or representation made by it,
  • in certain circumstances, issue a public warning regarding the conduct of a business,
  • issue infringement notices in respect of breaches of certain provisions of the ACL,
  • seek orders for redress to consumers not party to the proceedings for loss or damage caused by the contravention, and
  • seek an order to disqualify a person from managing a corporation.

Private litigants also have a right of action in some circumstances, for instance to recover damages for loss caused by a person’s contravention of the ACL.