Last updated: 16 April 2020

Pricing and price gouging

If you are in retail and your products are unexpectedly in high demand due to the spread of the coronavirus, you may have considered increasing your pricing s to reflect increased demand. Ordinarily businesses are free to set their prices, and pricing for market conditions is the norm. However there are also risks for suppliers who take advantage when, in a natural disaster or emergency, demand outstrips supply, or where supply is deliberately withheld in order to provide a foundation for increased pricing.

The Australian Competition and Consumer Commission (ACCC) is likely to be interested in significantly increased pricing, colloquially known as "price gouging" where:

  • a single, or small number of suppliers, are in the market. In circumstances where a supplier already has market power by reason of its market position and pricing is increased unilaterally in response to the market circumstances, or production reduced in order to increase price, the ACCC may be concerned about a misuse of market power contrary to section 46 of the CCA;
  • suppliers appear to be withholding products in concert in order to facilitate an increase in demand and therefore an increase in pricing due to scarcity of goods. Should it appear that suppliers are cooperating, whether tacitly or overtly, the ACCC may be concerned about:
    • a concerted practice that has the purpose, or has or is likely to have the effect, of substantially lessening competition; or
    • more significantly, where those suppliers are competitors, a cartel that has the purpose of restricting output, and therefore increasing price;
  • pricing is excessive to the point where it not just unfair but is "against conscience" as judged against the norms of society, recognising that those norms may change in circumstances of emergency; and
  • suppliers mislead consumers about the availability of goods in order to encourage a belief of scarce supply and a willingness to pay higher prices.

These forms of conduct are prohibited under our competition and consumers laws and significant penalties may be sought by the ACCC.

Specific measures have also been enacted by the Commonwealth Government under the Biosecurity Act 2015 (Cth) and the Customs Act 1901 (Cth) in response to the COVID-19 to address "price gouging" in the sale of essential goods. The measures also prohibit the export of personal protective equipment and other medical supplies.

"Essential goods" include protective medical equipment (such as facemasks and disposable gloves) and disinfectant products.

Between 18 March 2020 and 17 June 2020:

  • a person will be found to engage in price gouging if they supply, or offer to supply, essential goods, which they obtained in a retail transaction, for more than 120% of their purchase price (excluding reasonable additional costs such as transport and delivery). Only essential goods acquired on or after 30 January 2020 are subject to this regime; and
  • it is illegal to export essential goods, except where those goods are being exported by their manufacturer, or the exporter does so in the ordinary course of their business.

These term of these measures may be extended. Individuals and businesses face significant fines of up to $63,000 and/or five years of imprisonment for contraventions of these new provisions.

Consumer rights: Government cancellation or postponement of events

On 13 March 2020, the Commonwealth Government announced its recommendation that all organised, non-essential gatherings of more than 500 people across Australia should be cancelled to halt the spread of COVID-19. Since then, these restrictions were extended to prohibit all non-essential gatherings and the State and Territory Governments have imposed restrictions on trading for non-essential services. In such circumstances, are service providers impacted by those restrictions required to provide a refund to consumers?

The ACCC released guidance relating to consumer rights and event cancellations in relation to COVID-19, which will be updated regularly by the ACCC as new guidance is available.

The Australian Consumer Law (ACL) provides consumer guarantees that apply if a person supplies, in trade or commerce, services to a consumer. Service providers or event organisers who supply events to consumers will be bound by these provisions. Relevantly, consumer guarantees include that services will be:

  • rendered with due care and skill;
  • reasonably fit for purpose; and
  • supplied within a reasonable time when there is no agreed end date.

If a person who supplies services to consumers breaches any of these consumer guarantees, that person is required to provide consumers with a remedy under the ACL.

If an event is cancelled by the event organiser, then in most circumstances, a consumer will be entitled to a remedy under the ACL consumer guarantees, including a refund. However, if an event is cancelled as a result of the implementation of these new restrictions on large events, this may affect a consumer's rights under the ACL consumer guarantees, and consumers may not be entitled to a refund in these circumstances.

The ACL contains a provision that prevents a consumer from taking action for failure to comply with a consumer guarantee in respect of services, where that failure occurred because of an act, default or omission of any person other than the supplier (or an agent or employee of the supplier). This provision of the ACL applies to all consumer guarantees, other than the guarantee that services will be provided with due care and skill. In the present situation, the enactment of legislation or the making of an order by the Commonwealth or a State / Territory Government prohibiting large public events would likely fall within the scope of this provision, if it is the effect of this legislation or order, and not the event organiser, that caused the event to be cancelled.

Consumer guarantees do not apply where a consumer has had a change of mind. According to the ACCC's guidance, if a consumer decides not to attend an event due to concerns about COVID-19, this may be treated as a "change of mind". An event organiser would not be required to provide a remedy under the ACL consumer guarantees to consumers who decide not to attend an event. However, the ACCC is encouraging businesses to treat consumers fairly, including by offering refunds as a goodwill gesture where appropriate. 

The ACL consumer guarantee provisions are just one relevant consideration, and there are other factors (such as terms and conditions and representations that may have been made about the provision of refunds) that should be taken into account in assessing whether a service provider is required to (or should) provide a refund to consumers for events cancelled or postponed in response to the Government restrictions.

Specific guidance has also been provided for telecommunication services, food delivery services and gym memberships.

Authorisation applications

With the impacts of COVID-19 being felt widely across the Australian economy, many businesses are (or may be) considering co-ordinating their activities or responses to the crisis, or sharing information, with competitors, in order to keep businesses afloat and maintain employment, and optimise supply chains or distribution channels to customers.

In normal conditions, industry co-ordination or collaboration may be unlawful under Australian competition law, because Australian competition laws, generally prohibit:

  • collaborative, concerted arrangements and coordination between competitors relating to their supply chains, or consensus on how to best serve customers;
  • a concerted practice (such as collusion or information sharing in place of ordinary competitive behaviour) with an anti-competitive purpose or effect.

Engaging in this conduct without authorisation remains a contravention of Australian competition law (even if there are justifiable public benefits from doing so).

The Australian competition regulator, the ACCC,  has recognised the challenges posed by COVID-19 and is prepared to consider granting exemptions in appropriate cases to allow businesses to work together to respond to the crisis. In these extraordinary circumstances, the ACCC has formed a COVID-19 task force to prioritise its consideration of urgent interim authorisation applications to allow businesses to coordinate some conduct that would otherwise breach Australian competition laws. For instance, the ACCC has quickly granted interim authorisation to allow:

  • banks to co-ordinate and implement a small business relief package (including a six-month deferral of principal and interest repayments for all term loans and retail loans) for eligible small business customers;
  • supermarkets co-ordinate their activities for the purpose of ensuring fair and equitable distribution of retail products to consumers during the COVID-19 pandemic;
  • private health insurers to co-ordinate the expansion of health insurance coverage to include COVID-19 treatment and modes of treatment which replace face-to-face consultations;
  • medical equipment suppliers to develop a co-ordinated strategy for the supply of medical equipment; and
  • regional airlines to coordinate flight schedules to reduce capacity on certain regional routes, and to share revenues earned on those routes.

Given the considerable number of applications that the ACCC is receiving, the ACCC is now advising an indicative turnaround time of 5 business days for interim authorisation applications (although it is open to considering submissions from parties as to why a more urgent decision is required). While the ACCC has not, to our knowledge, declined a COVID-19 related application for interim authorisation in recent times, we are increasingly seeing the ACCC imposing reporting conditions, which generally require applicants to regularly report to the ACCC on the nature and extent of proposed conduct for which authorisation has been sought. In some cases, ACCC officials are entitled to observe meetings between competitors. For example, the interim authorisation granted to nbn allows a representative of the ACCC to attend meetings of the telecommunications Special Working Group in an observational capacity.

The following outlines the types of conduct in response to COVID-19 that has been authorised on an interim basis by the ACCC:

Date lodged: 19 March 2020

Authorisation outcome: Granted 20 March 2020: Decision

Description: Co-ordinate and implement banks' small business relief package, including a six-month deferral of principal and interest repayments for all term loans and retail loans for eligible small business customers

Date lodged: 20 March 2020

Authorisation outcome: Granted 23 March 2020: Decision

Description: Co-ordinate supermarkets' activities to ensure fair distribution of retail products to consumers

Date lodged: 24 March 2020

Authorisation outcome: Granted 25 March 2020: Decision

Description: Co-ordinate manufacture and supply of medical equipment and exchange information regarding stock and supply sources (subject to reporting condition)

Date lodged: 23 March 2020

Authorisation outcome: Granted 26 March 2020: Decision

Description: Co-ordinate airlines' flight schedules to reduce capacity on regional routes and enter into revenue sharing agreements for named routes

Date lodged: 30 March 2020

Authorisation outcome: Granted 30 March 2020: Decision

Description: Co-ordination with the purpose of providing financial relief to customers and supporting government initiatives, subject to notification requirements

Date lodged: 27 March 2020

Authorisation outcome: Granted 31 March 2020: Decision

Description: Co-ordinate and stabilise supply chain for medicines and pharmacy products

Date lodged: 30 March 2020

Authorisation outcome: Granted 31 March 2020: Decision

Description: Co-ordination between NBN and telcos to implement: (i) hardship measures for vulnerable customers; and (ii) strategies to optimise the operation of telecommunications networks (subject to reporting obligations and right for ACCC staff to observe working group meetings)

Date lodged: 1 April 2020

Authorisation outcome: Granted 2 April 2020: Decision

Description: Co-ordination between insurance companies and brokers in relation to relief measures for SME policyholders suffering hardship

Date lodged: 30 March 2020

Authorisation outcome: Granted 3 April 2020: Decision

Description: Co-operation between gas and electricity industry participants on measures to ensure secure and reliable energy supply and integrity of wholesale markets (but not any agreements about prices or share confidential information on pricing or profits)

Date lodged: 2 April 2020

Authorisation outcome: Granted 3 April 2020: Decision

Description: Co-ordination between petroleum industry participants for the purpose of ensuring security of fuel supply and efficient use of refining capacity and fuel storage capacity (subject to reporting requirements)

Date lodged: 2 April 2020

Authorisation outcome: Granted 3 April 2020: Decision

Description: Collaboration between commercial landlords to assist small/medium enterprise tenants suffering hardship (subject to ACCC being notified of any proposed rent relief measures)

Date lodged: 3 and 6 April 2020

Authorisation outcome: Granted 7 April 2020: Queensland Decision and Victorian Decision

Description: Co-ordination between healthcare providers to maximise the capacity and efficiency of healthcare services in response to COVID-19

Date lodged: 1 April 2020

Authorisation outcome: Granted 8 April 2020: Decision

Description: Discuss, exchange information and develop a coordinated industry response to the implementation of the Structure Finance Support Fund

Date lodged: 1 April 2020

Authorisation outcome: Granted 8 April 2020: Decision

Description: Co-ordination between insurers to broaden private health coverage to include COVID-19 treatments, provide financial relief and other measures (subject to reporting requirements and no effect of increasing premiums to consumers)

What is authorisation?

The ACCC is empowered under the Competition and Consumer Act 2010 (Cth) (CCA) to grant exemptions or authorisations to permit businesses to engage in conduct that would otherwise contravene the competition law provisions of the CCA.

For most forms of conduct (other than cartel conduct or minimum resale price maintenance), the ACCC may only grant authorisation if it is satisfied that either:

  • the proposed conduct would not be likely to substantially lessen competition or
  • the likely public benefit from the conduct outweighs the likely public detriment.

What is interim authorisation?

The ACCC has the discretion to grant interim authorisation which permits the applicants for authorisation to engage in the proposed conduct while the ACCC continues to consider the authorisation request. The speed with which the ACCC granted interim authorisation to the ABA and participating banks and to the retailers shows how quickly the ACCC will consider such applications in light of the COVID-19 crisis and the importance of providing relief to businesses who are being heavily impacted by the crisis.

Public benefits test

We anticipate that most urgent authorisation applications during the COVID-19 pandemic will be sought on the basis that the public benefits of the coordinated conduct outweigh any detriments.

The types of public benefits that the ACCC will consider are very broad.

For example, the ACCC may be minded to authorise conduct if parties can establish that the conduct is necessary to:

  • keep their businesses afloat and maintain employment;
  • maintain secure and ongoing supply of products or services (eg. jointly coordinating distribution activities to ensure timely and efficient supply of products to customers); or
  • ensure a co-ordinated industry response to the COVID-crisis (eg. retailers agreeing to limit product supplies to prevent panic buying, or engaging in collective bargaining or acquisitions).

If you are considering, exploring or discussing activities that feel like collaboration between market participants in response to COVID-19 or the current financial and economic environment, please reach out to one of your Clayton Utz contacts.