Treasury has consulted on a five-fold increase in base penalties for competition and consumer law breaches

Treasury has sought views from stakeholders on an exposure draft Bill which would significantly increase the maximum penalties for contraventions of the Competition and Consumer Act 2010 (CCA) including the ACL and the competition rule in Part XIB.

Submissions were due on 25 August 2022.

Why is the Government proposing these changes?

The increase in penalties make good on an election commitment of the new Albanese Government.  These changes were formulated against a policy backdrop of ensuring the price for misconduct is sufficiently high to deter unfair activity.  In combination, the penalty increases are expected to raise $555 million over 4 years.

General penalties

The Government has justified the increases to the general competition and consumer law penalties on the basis that:

• the current base penalty of $10 million has not been changed in nearly 30 years and the Government considers that – as a result - a breach of competition law may be regarded as ‘an acceptable cost of doing business, particularly for large businesses’
• they will make Australia’s penalty regime more comparable with other jurisdictions
• increasing consumer law penalties maintains alignment with the competition law provisions to sufficiently deter breaches where companies stand to gain a significant financial benefit

Competition Rule

The policy rationale given for the penalty increases for contraventions of the telecommunications specific competition rule is to deter anti-competitive conduct more strongly.  The Explanatory Memorandum states that the current penalties may not prove an effective deterrent because large providers may weigh the potential market benefit of breaching the competition rule against the maximum penalty and decide to knowingly breach the competition rule. 

The explanatory materials do not provide any insight on any recent behaviour within the telecommunications industry that would support players have engaged in conduct knowing that it breaches the competition rule.  The ACCC has not issued a competition notice since 2006.

What are the new penalties?

The new maximum penalty for a contravention of the CCA will be:

What else do you need to know?

• The increase in penalties will only apply to future breaches and will not apply retrospectively
• The ‘breach turnover period’ can now be longer than 12 months. This is because the time period over which the penalty can be calculated will increase to cover the time period over which the breach occurred (with 12-month minimum)
• There is a new definition of ‘adjusted turnover’ which means the value of all supplies made by the body corporate or its related bodies corporate (there is an exception for supply which is not in connection with Australia’s indirect tax zone)
• The new turnover calculation limb for breaches of the competition rule is not confined to where the Court cannot determine the value of the benefit obtained (unlike for the other CCA penalties)
• The penalty increases will only apply to contraventions of the competition rule, not other Part XIB breaches such as of the Record Keeping Rules or disclosure directions

Which ACL provisions do the new penalties apply to?

The increased ACL penalties only apply to civil penalty prohibitions.  This includes unconscionable conduct and false or misleading representations, but excludes the general prohibition on misleading and deceptive conduct.

Implications

• The most significant change for many large companies is likely to be the significant increase to the turnover penalties and the period over which this is calculated (30% of adjusted turnover during the breach turnover period - which is at least, but could be much longer than, 12 months as opposed to 10% of annual turnover in the 12 months prior to breach)
• The proposed increase in maximum penalties is likely to significantly increase what Courts consider an appropriate penalty range for competition and consumer law breaches given the Courts must have regard to maximum penalties as a yardstick for the most egregious breaches
• The penalties for competition rule breaches will become greater than those proposed for general competition law breaches because the daily penalty rates of $1 million per day for the first 21 days and $3 million per day for each day beyond that will be retained for competition rule breaches
• Companies should carefully review existing decision-making processes to ensure these continue to comply with competition and consumer law and are adequately robust.
• Companies should also quickly refresh company-wide competition and consumer law training should the Bill become law to reflect the new penalties

Next Steps

We’d love to talk to you about what these proposed penalty increases could mean for your business and how you can best prepare for the changes – please get in touch.