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What do you need to do?Contact us and make your submission on the Federal Government's consultation paper by 17 March 2009.
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Sydney
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In a previous alert, we outlined the main points of the Government’s new Australian Consumer Law. We now take a look at the practical effects of these proposed laws.
Overview
On Tuesday 17 February 2009 the Consumer Affairs Minister, Chris Bowen MP, announced that the Federal Government is fast tracking a new Australian Consumer Law. Key proposals, including unfair contract terms, new civil penalties and new regulator enforcement powers, will be introduced into the Federal Parliament within five months. The Minister also launched an information and consultation paper on the new law. Comments in response to the paper are sought by 17 March 2009.
The new single national consumer law will introduce a number of significant reforms to existing consumer protection laws. Businesses need to anticipate three key areas of reform:
- a blanket prohibition on unfair contract terms
- the introduction of new civil penalties, and
- the introduction of new regulator enforcement powers.
The proposed law is likely to affect any business which provides goods or services (including financial services) directly to ‘consumers’. While the definition of ‘consumer’ may be altered by the new law, the current law defines a consumer by examining the value and purpose of the goods/services they are acquiring.
The unfair terms law will apply to non-negotiated standard form contracts, even if those contracts are business-to-business. You should carefully assess whether the new laws will apply to your standard form contracts.
Overview - what does this mean for your business?
The new law will introduce nationally consistent consumer protection laws, giving consumer protection regulators greater enforcement powers and improved access to remedies. The law will be administered by the Australian Competition and Consumer Commission, as well as the various State and Territory regulators.
Of most significance to many businesses will be the law’s treatment of standard form contracts. If you business uses standard form contracts to deal with customers or other businesses, you will need to ensure that those contracts do not contain terms that are ‘unfair’.
The law will allow a transition period, allowing businesses to modify existing contractual arrangements in order to comply with the changes. All standard form contracts should be reviewed to ensure that they are brought in line with the new consumer laws. We can help with this.
Key components of the law are to be implemented in 2009 and the new law is expected to be fully implemented by 1 January 2011.
A closer look- the prohibition on unfair contract terms
A term will be deemed unfair if it causes a significant imbalance in the parties’ rights and obligations arising under the contract and it is not reasonably necessary to protect the legitimate interests of the supplier. Terms that were identified in the consultation paper as being potentially unfair include those that:
- allow a supplier to unilaterally vary a contract
- prevent the customer from cancelling
- require payment of fees when the service is not provided
- exclude liability on the part of the supplier, or
- require the customer to pay early termination fees that do not reflect the supplier’s reasonable costs.
The new law may also involve the outright banning of certain categories of clauses in standard form contracts. The categories being considered for prohibition are:
- retention of title or repossession clauses, which allow a business to take possession of a customer’s property in the event of a default
- “entire agreement” clauses, which require a customer to agree that any non-contractual representations made by a business are not part of the contract
- customer acknowledgement clauses, which require a customer to undertake that they have read and understood the contract
- clauses limiting liability to a customer in the case of negligence on the part of the business
- set off clauses, which allow a party to withhold money owed to another party in consideration of a separate debt, and
- early termination fee clauses, if the fees do not reflect the actual loss incurred through the early termination of the agreement.
Even if such terms are not banned outright, regulators are likely to carefully examine contracts which make use of the terms.
Any standard form agreements should be reviewed carefully to ensure that they do not contain terms that could be considered unfair relative to the legitimate interests of your business. Any expressly prohibited or ‘banned’ terms will need to be completely removed. If your business uses standard form contracts that incorporate any of the terms listed above, or might otherwise be potentially unfair, you should seek legal advice as soon as possible. |
Enforcement and remedies
The new law will introduce a new range of remedies for regulators to use in response to a breach of the law. While major or repeated breaches are likely to continue to result in court action (with greater consequences than would currently be the case), the range of remedies makes it more likely that minor breaches will result in enforcement action.
The proposed remedies include:
- civil pecuniary penalties of up to 10,000 penalty units (currently $1.1 million) for corporations and 2,000 penalty units (currently $220,000) for individuals, for breaches of consumer protection provisions. In contrast to criminal penalties, civil penalties are imposed by courts according to a lower civil standard of proof
- disqualification orders, allowing courts to ban people from engaging in certain conduct, such as managing a corporation or undertaking certain business practices
- infringement notices, allowing regulators to require certain action from businesses without commencing court action. The Government is still determining the form of these notices, however they may involve financial penalties
- public warning notices, effectively “naming and shaming” parties who have breached the law, as a way to simultaneously warn the public against illegal conduct, and deter businesses from engaging in such conduct, and
- non-party consumer redress, allowing courts to order that businesses provide redress (by compensation, enforceable undertaking, or other means) to any consumers affected by unlawful conduct, even when those consumers are not involved in the relevant court action.
Regulators will also be given the power to serve ‘substantiation notices’, requiring a supplier to set out the basis upon which it has made representations about goods or services. These notices may be used by regulators as an investigation tool to verify the legitimacy of advertising and other representations.
What might this mean for your business? Regulators are likely to become more active in their investigation of alleged breaches of the law. Regulators investigating a claim about goods or services may serve a substantiation notice, placing a significant burden on the targeted business to provide documentary evidence substantiating the claim. The scope of the proposed power to the issue infringement notices are yet to be determined, however regulators are likely to have greater flexibility in seeking or imposing penalties for breaches of the law. There is significant scope for heavy financial loss due to the possibility of redress orders. For example, a business which is found to have misled customers through advertising could be ordered to compensate every individual who relied on the advertisement and incurred loss. Given that national advertising can reach millions of consumers, businesses should e particularly cautious when considering advertising strategy. |
Businesses and individuals have been invited to contribute their views on the Consultation Paper by Tuesday 17 March 2009. We can help with submissions in response to the Consultation Paper.
Author
Jeremy Davey, Solicitor
Amidst the discussion and controversy surrounding the introduction of criminal cartel legislation, two recent calls by government inquiries to extend the ACCC’s investigatory powers are at risk of going unnoticed. While there is not yet any concrete proposal for law reform, these recommendations may well gather momentum during 2009 with potentially far reaching consequences.
In November 2008 the House of Representatives Economic Committee published a report on competition in the banking and non-banking sectors. The report recommended among other things that “the government review the current adequacy of the Trade Practices Act 1974 to provide the Australian Competition and Consumer Commission the powers to investigate and address issues of concern in markets and regulated sectors.”
The Senate Select Committee on Agriculture and Related Industries expressed similar dissatisfaction with the ACCC’s powers in December 2008 in its interim report on pricing and supply arrangements in the Australian and global fertiliser market. According to the report “the powers of the ACCC need to be strengthened so that the Commission can more effectively fulfil its role in promoting competition and fair trading and in providing for effective consumer protection.”
The ACCC’s current powers
The ACCC’s powers of general investigation (as opposed to investigation for a specific breach of the Trade Practices Act) are currently limited to the power to hold price inquiries under the price surveillance provisions in Part VIIA of the Trade Practices Act. Under Part VIIA the Minister may ask the ACCC to hold a price inquiry into specified goods or services. The Minister or the ACCC (with the Minister’s approval) may ‘declare’ a supplier and ‘notify’ certain goods or services, preventing the supplier from selling the goods or services at a higher price than was in place over the previous year. The Minister may also direct the ACCC to monitor the prices, costs or profits of supplying goods or services in a specified industry or by a specified person.
The ACCC has held a number of high profile inquiries under Part VIIA including the 2008 inquiry into the retail prices for standard groceries and the 2007 inquiry into the price of unleaded petrol. Such inquiries rarely progress to price control although the ACCC has been directed to formally monitor petrol prices and report to the Minister annually for three years.
The ACCC appears to be acutely aware of the absence of a general market investigation and market remedy power. ACCC Chairman Graeme Samuel also appears to consider the perceived gap in the ACCC’s power as justifying the unpopular proposal to block so-called creeping acquisitions: “in most other jurisdictions you’ve got a break up power…we don’t have that power at all. So if a company becomes dominant, acquires market power, there’s nothing we can do about it”.
In response to the Banking Inquiry, an ACCC spokesperson noted that the inability of the ACCC to undertake extensive market reports limited their ability to make comments on the level of competition in a market.
Next steps?
It is difficult to predict the extent to which the Government will act on recent recommendations and much will depend on the appetite for yet further reform of the TPA. The groundwork for potential reform of the ACCC’s powers in this area have, however, clearly been laid.
Author
Morag Bond, Senior Associate
Potential reform of NZ competition law
Simon Power, New Zealand Minister of Commerce, has hinted at the possibility of reform of the role of the New Zealand Commerce Commission, indicating that he would be “casting a fresh eye over the Commission”.
The Minister's comments come in response to recent criticism by New Zealand competition law commentators, one of whom has gone so far as to call for a disbanding of the Commerce Commission stating that “competition law may be a luxury New Zealand cannot afford”.
Much of the criticism appears to be focussed on the strident approach of the Commerce Commission, and particularly its current Chairperson, Paula Rebstock. This has resulted in several recent public clashes between the Commission and high profile companies (including Telecom and Air New Zealand).
European Commission questions Microsoft’s Windows and Internet Explorer tying arrangement
The European Commission issued a Statement of Objections to Microsoft on 15 January 2009, alleging that the tying of Microsoft’s web browser, Internet Explorer, to the Windows operating system is an abuse of Microsoft’s dominant position in breach of Article 82 of the European Commission Treaty.
According to its press release, the Commission alleges the tying arrangement:
- makes Internet Explorer available on 90 per cent of PCs worldwide
- gives Internet Explorer an “artificial distribution advantage which other web browsers are unable to match”, and
- ultimately “harms competition between web browsers, undermines product innovation, … reduces consumer choice [and] creates artificial incentives for content providers and software developers to design websites or software primarily for Internet Explorer”.
Microsoft’s reply to the Statement of Objections is due in mid March, following which the Commission will issue a final decision. If it concludes that Microsoft has abused its dominant position, the Commission “may impose a fine […], require Microsoft to cease the abuse and impose a remedy that would restore genuine consumer choice and enable competition on the merits”.
The proceedings follow the Commission’s March 2004 Statement of Objections, in which the Commission ultimately concluded (and the European Court of First Instance agreed) that Microsoft abused its dominant position in the PC operating system market by tying Windows Media Player to the Windows operating system.
Coke class action for alleged misleading food claims
The Center for Science in the Public Interest, a US nutrition and public health advocate, filed a class action lawsuit against Coca-Cola Co in January 2009 in the United States District Court (Northern District of California), alleging that the company made misleading health claims about, and did not properly label, its Vitaminwater products.
The Center’s complaint alleges that Coca-Cola’s marketing, advertising and labelling of the products deceives consumers into believing that the products provide health benefits to consumers. The suit alleges that Coca-Cola:
- markets Vitaminwater as a “healthy alternative to soft drinks”, and
- includes on the product labels claims such as (for the ‘Focus’ flavour) “specially formulated to provide vitamin, antioxidants and other nutrients scientific evidence suggests may reduce the risk of age-related eye disease”,
when, in fact, the products are “loaded with sugar” and “may actually harm consumers’ health” by promoting obesity, diabetes and other health problems. The suit seeks, amongst other things, an unspecified amount of damages to be determined at trial.
Coca-Cola responded by describing the suit as “ridiculous” and an “opportunistic PR stunt”, stating that its products were clearly and properly labelled. It is preparing to aggressively defend the suit.
Delay to generic pharmaceutical competition attacked as unfair competition
The United States Federal Trade Commission (FTC) has filed a complaint against Solvay Pharmaceuticals in the US District Court (Central District of California), alleging that the company employed “unfair methods of competition” in breach of the US FTC Act. According to the FTC’s complaint, Solvay paid rival generic drug manufacturers Watson Pharmaceuticals and Par Pharmaceutical Companies to delay the introduction of generic versions of Solvay’s testosterone-replacement drug, Androgel, to market.
The arrangement allegedly arose after Watson and Par brought regulatory proceedings against Solvay seeking the US Food and Drug Administration’s approval to distribute generic versions of Androgel and challenging the validity of the Androgel patent. By early 2006, the FDA granted Watson final approval to market its product. Shortly thereafter, Solvay, Par and Watson settled the FDA proceedings. Allegedly, under the settlement terms, Solvay made payments to Watson and Par in return for which they agreed:
- to withdraw their challenge to the validity of Solvay’s patent, and
- not to bring a generic version of Androgel to market until 2015, five years before Solvay’s patent is due to expire.
The FTC contends that the settlements “deny patients the benefit of competition between branded and generic pharmaceuticals and ultimately cost consumers hundreds of millions of dollars a year”. It is seeking a declaration that the settlements violate the FTC Act and “injunctive relief restoring competitive conditions” and barring the parties from engaging in similar or related conduct in future.
US leniency letters released
The United States Department of Justice (DOJ) has released copies of all “amnesty letters” it offered under its cartel corporate leniency policy between August 1993 and November 2008. The letters are available on the DOJ website.
Like other competition regulators, the DOJ operates a cartel corporate leniency policy providing amnesty for the first company in a cartel to:
- admit participation in a cartel, and
- fully co-operate in subsequent investigations.
According to the DOJ, the confidentiality of amnesty negotiations and letters is “paramount to the success of the leniency policy”. However, the DOJ agreed to release the letters as part of a settlement of Freedom of Information Act proceedings (Stolt-Nielsen Transportation Group Ltd) brought by the Stolt-Nielsen Transportation Group to obtain copies of the letters.
The DOJ had earlier granted to Stolt-Nielsen, and then revoked, conditional immunity under the policy, in response to Stolt-Nielsen’s alleged failure to fully cooperate with the DOJ.
To protect confidentiality, the copies of the letters that are available on the DOJ’s website have information such as names, industries and geographic information redacted, and are posted in non-chronological order.
Guidance on the European Commission’s approach to Article 82
On 3 December 2008 the European Commission published a draft guidance paper outlining the general framework that it will apply in determining whether to take action under Article 82 of the European Commission Treaty, which aims to prevent the abuse of a dominant position within the EU’s common market.
The paper is intended to provide clearer guidance to stakeholders on how the Commission will assess whether to pursue particular conduct. Relevant considerations will include:
- market power - particular attention will be paid to the extent to which an entity is able to behave independently of its competitors, customers and consumers
- foreclosing rivals - where effective access of actual or potential competitors to supplies or markets is hampered or eliminated as a result of the conduct of the dominant entity, where that entity is in a position to profitably increase prices to the detriment of consumers
- price-based exclusionary conduct - the Commission will normally only intervene where conduct that employs below average total cost pricing has been, or is capable of hampering competition from competitors which are considered to be as efficient as the dominant player, and
- justification by dominant entities - the Commission will consider claims by dominant entities that their conduct is either objectively necessary or that it produces substantial efficiencies which outweigh any anti-competitive effects on consumers.
Author
Sam Porter, Solicitor
New national consumer law - submissions due in one month
The Consumer Affairs Minister, Chris Bowen recently announced that the Federal Government is fast tracking a new national consumer protection law. The new legislation is expected to include provisions relating to unfair contract terms, new civil penalties and new regulator enforcement powers. This alert canvasses the key provisions of the proposed legislation and details the steps you can take to respond to the consultation paper.
Chinese merger control - new draft measures mean greater risk - 11 February 2009
This alert covers the Chinese Anti-Monopoly Bureau’s draft interim measures of early February. These measures relate to the AMB’s merger control procedures and are in addition to the draft guidelines released in January (see publication below). These new draft measures seek to regulate the investigation and disposal of mergers that are below prescribed notification thresholds but are suspected to have or may have the effect of eliminating or restricting competition. Significantly, under these measures, even if pre-merger notification is not compulsory, parties to a merger run the risk of penalties and possibly divestiture if they complete the merger and it is found to contravene the Anti-Monopoly Law.
These new measures are currently open for public comment until 6 March 2009.
Further developments in Chinese merger control to welcome in the New Year - 9 January 2009
In January the Chinese Ministry of Commerce’s Anti-Monopoly Bureau (AMB) issued a series of guidelines on the merger review framework and process. The guidelines were an examination of market definition and the information required by the AMB about transactions that must be notified to the AMB. The new guidelines issued by the AMB, while broadly similar to the AMB’s current practices, provide greater certainty regarding the filing process. This alert examines the substance of those guidelines and discusses their implication to the merger review process.
Author
Peter Yeldham, Solicitor
What is legal professional privilege?
Legal professional privilege, also known as client legal privilege, is a client’s immunity from being compelled to disclose certain confidential communications between themselves and their lawyer. In some cases this extends to communications between a client and a third party, or a client’s lawyer and a third party.
Legal professional privilege and dawn raids
The issue of privilege will often arise during a dawn raid conducted by the ACCC under a section 155 notice.
Documents which have been identified as subject to legal professional privilege, do not need to be given to ACCC officials during a dawn raid. Ideally these privileged documents should be kept separately from other non-privileged documents, so that they can be quickly and easily identified during a dawn raid. These documents should be placed in a sealed envelope or box and forwarded to your lawyer.
What type of communication will be covered by legal professional privilege?
There are two ‘limbs’ of this privilege. The first is the ‘advice limb’ which describes confidential communications made in the course of a professional relationship between lawyer and client for the dominant purpose of the client seeking legal advice or the lawyer providing legal advice.
Legal professional privilege also covers communications from a third party to the lawyer or the client, where they are made at the client's request for the dominant purpose of being used to assist the lawyer to provide legal advice.
Legal professional privilege also applies to communications from a lawyer, a client or a third party that are made for the dominant purpose of use in or in relation to existing or anticipated legal proceedings. This is the ‘litigation limb’ of privilege.
Legal professional privilege can also apply to other communications/documents that are made in aid of one of the above purposes, such as information collected for instructions to a lawyer and a lawyer's research notes.
How does legal professional privilege apply to in-house legal counsel?
In order for communication to be protected by legal professional privilege it must be provided by an independent legal adviser. In the case of an in-house lawyer, if there are features of their employment relationship that inhibit independence with regards to their ‘lawyer capacity’ (eg. a varied role to provide both commercial and legal advice), no privilege will attach to any advice they give.
In the 2007 Federal Court case of Telstra v Minister for Communications, Justice Graham held that in order to satisfy the requisite level of independence, in-house counsel will need to show that the “personal loyalties, duties and interest of the in-house lawyer do not influence the professional legal advice which he gives”.
Author
Esther Touma, Solicitor
Breaking news - Senate Economics Committee recommends passage of the Cartel Bill without any amendments
On 26 February 2009, the Senate Economics Committee issued its report on the Cartel Bill currently before the Senate. The Committee recommended that the Cartel Bill be passed by the Senate without amendment.
Although a variety of issues had been raised with the Committee in submissions by a range of parties, the Committee considered only two issues in detail: the difference between civil and criminal cartel conduct, and the proposed joint venture exception. The Committee did not support any attempt to distinguish between civil and criminal cartel conduct in the Cartel Bill, and instead recommended that the ACCC issue guidelines on the factors that are "most likely to lead it to refer an activity to the DPP as a possible criminal cartel offence". As regards joint ventures, the Committee stated that the proposed joint venture defence struck an appropriate balance between protecting legitimate conduct and precluding sham arrangements designed the avoid the new cartel provisions.
ACCC’s air freight cartel litigation kicks into overdrive
The ACCC has continued its fight against airlines involved in the international air freight cartel which began during the mid 1990s.
February 2009 saw the ACCC institute proceedings in the Federal Court against four European airlines for alleged price fixing from 2003 to 2006. Air France, along with Luxembourg-based Cargolux and Dutch carriers KLM and Martinair, admitted to making and giving effect to illegal price fixing understandings with each other and other airlines, such as Lufthansa. Air France and KLM were fined a total of $6 million while Cargolux and Martinair each received a $5 million penalty. ACCC Chairman Graeme Samuel was reported as saying “This matter sends a clear message to those involved in cartel behaviour - the ACCC will not stop its endeavours to identify and bring to an end illegal price-fixing conduct”.
The limits of ‘unlimited’ phone plans
In February 2009, TPG Internet made a court-enforceable undertaking to the ACCC after acknowledging that advertising for its Unlimited Cap Saver mobile phone plan may have contravened the TPA. TPG promoted their unlimited cap saver plan on television, in newspapers and on public transport in the final months of 2008. However, the advertisements did not reveal the exclusions which applied to the plan, nor the additional registration fee.
Companies advertising mobile phone plans should be particularly cautious when using absolute terms such as ‘unlimited’ for plans to which some limits do apply. Graeme Samuel has warned that “to avoid misleading consumers, any qualifications of an offer of ‘unlimited’ calls or text must be prominently stated and not so significant that they negate the headline message”.
Harris Scarfe found guilty of misleading consumers
The Federal Court has found that Harris Scarfe misled consumers by representing in a catalogue that certain advertised items were discounted by a specific amount when in fact they were discounted by less than that amount, or were not discounted at all. Televisions, digital cameras, camcorders and hairdryers were among items the court found to be falsely advertised.
The ACCC commenced proceedings against Harris Scarfe in 2006. Justice Mansfield ruled that Harris Scarfe was found to have breached sections 52 and 53 of the TPA. The company was ordered to restrain from advertising discounts next to images of non-discounted goods for a period of three years.
Shepparton taxis found guilty of anticompetitive conduct
The Federal Court has ordered penalties in excess of $75,000 for an anticompetitive roster system operated by the Shepparton taxi industry. This followed proceedings instituted against White Top Taxis by the ACCC in August 2008.
The Shepparton roster system divided work between all vehicles by allocating each vehicle a rotating and regular shift of hours. The arrangement reduced the ability of individual taxi operators to serve patrons of Shepparton at times when those Taxi Operators would have made themselves available for work
ACCC Chairman Graeme Samuel noted that whilst some in the industry may wish to describe such arrangements as a ‘gentleman’s agreements’, such understandings are illegal under the TPA.
Wholesaler dives into resale price maintenance
Oceanic Diving Australia Pty Ltd, a wholesaler of scuba diving related equipment and accessories, has admitted engaging in resale price maintenance for some of its products.
In August 2008, Oceanic emailed more than 60 dealers advising them that they could not advertise via print media or on the internet certain Oceanic goods below specified prices. After the ACCC raised its concern with Oceanic, the company retracted its pricing policy and advised its dealers that they could advertise Oceanic’s products at whatever price they choose. The ACCC has accepted court-enforceable undertakings from Oceanic.
ACCC Chairman Graeme Samuel noted that “wholesalers must understand that they cannot prevent or try to prevent retailers from advertising or selling their products below particular prices”.
Author
Peter Yeldham, Solicitor