Competition and consumer law update: keep watching as it’s under review!

Many aspects of the Competition and Consumer Act 2010 (Cth) (Act) are currently under review. This article will provide an update regarding the Harper Review into competition policy, the Commonwealth Treasury’s review of provisions regarding unfair contract terms in the Australian Consumer Law (ACL), and two important appeals before the Full Federal Court which are relevant to the cartel conduct provisions of the Act and the use of agents.

Harper Review

Competition policy in Australia is currently being reviewed by a panel chaired by Professor Ian Harper. The review is commonly referred to as the “Harper Review”. It is a comprehensive review of not only competition laws but competition policy and is the first review of its kind since the review chaired by Professor Frederick Hilmer in 1993. Among other things, the Harper Review is considering the competition provisions of the Act.

On 22 September 2014, the Harper Review delivered its draft report. ^[1]  It will accept further submissions until 17 November 2014 and then provide a final report in March 2015.

Several aspects of the Act are addressed in the draft report. Two of particular note are proposed amendments to s 46, which addresses misuse of market power, and Div 1A of Pt IV, which deals with price signalling. In brief and broad terms, subs 46(1) presently prohibits a corporation with a substantial degree of power in any market from taking advantage of that power for the purpose of (a) eliminating or substantially damaging a competitor, (b) preventing a person from entering a market or (c) deterring or preventing a person from engaging in competitive conduct. The Harper Review received several submissions suggesting that s 46 be amended so that the requirement of taking advantage of a substantial degree of power be removed and the section apply to conduct that not only has a proscribed purpose but a proscribed effect. Some submissions also suggested that the proscribed purposes in (a)–(c) above be replaced or supplemented so that s 46(1) prohibits any conduct by a corporation, which has a substantial degree of market power, that has the purpose, effect or likely effect or substantially lessening competition.

The Harper Review has made a draft recommendation that s 46 be amended so that it prohibits any conduct by a corporation that has a substantial degree of power in a market that has the purpose, effect or likely effect of substantially lessening competition. It also made the draft recommendation that s 46 include a defence protecting conduct that (a) would reflect a rational business decision or strategy for a corporation that does not have a substantial degree of power and (b) has the effect or likely effect of benefiting consumers in the long-term.

In brief and broad terms, the price signalling provisions in Div 1A of Pt IV of the Act presently prohibit a corporation from making a private disclosure of information relating to price to a competitor if that disclosure is not in the ordinary course of business.^[2] Further, a corporation is prohibited from making a disclosure, whether public or private, of information relating to price, capacity to supply or acquire, or any aspect of its commercial strategy, if that disclosure is made for the purpose of substantially lessening competition. ^[3]  It is important to note that Div 1A presently only applies to the taking of deposits or advancing of money by authorised deposit-taking institutions. ^[4] The Harper Review has made a draft recommendation that price signalling provisions be repealed, but s 45, which currently prohibits contracts, arrangements and understandings that have the purpose, effect or likely effect of substantially lessening competition, be extended to “concerted practices” which have such a purpose or effect. A “concerted practice” would be any “regular and deliberate activity undertaken by two or more firms”.

The draft report addresses many issues other than s 46 and price signalling. For example, the Harper Review makes draft recommendations that “third-line forcing” cease to be a per se prohibition, resale price maintenance be subject to a notification regime, “exclusionary provisions” cease to be prohibited and the joint venture defence to cartel conduct be reformed. Given the breadth of matters covered, at the very least, a quick review of the Findings and Draft Recommendations section of the draft report is advisable.

Treasury consultation regarding unfair contract terms

As part of its 2013 election campaign, the Commonwealth Government pledged to extend the unfair contract terms (UCT) provisions found in sections 23–8 of the ACL to transactions involving small businesses. ^[5] Currently, these provisions only apply to a “consumer contract” which is defined as a contract for the supply of goods/services or the sale or grant of land to an individual where the acquisition by the individual is “wholly or predominantly for personal, domestic or household use or consumption”. ^[6] In brief and broad terms, the UCT provisions apply to an “unfair” term of a “consumer contract” where the contract is a “standard form contract”. ^[7] Sections 24 and 25 deal with what is “unfair” while s 27 deals with what is a “standard form contract”.

Treasury (on behalf of Consumer Affairs Australia and New Zealand) is currently consulting regarding the extension of the provisions to transactions involving small businesses. A consultation paper was released in May 2014. ^[8]  Several submissions were made in response to the paper by law societies and business associations, amongst others. ^[9] Treasury has not yet recommended how the UCT provisions should be extended, but attachment A to the consultation paper provides a list of possible options. The main issues are:

a)     what is a “small business”;

b)    should the provisions apply to the supply of goods/services by a “small business” as well to the acquisition;

c)     should the provisions apply to transactions between two “small businesses”; and

d)    should the UCT provisions in ss 12BF–12BM of the Australian Securities and Investments Act 2001 (Cth), which address financial products and the supply of financial services, be amended in the same way as those in the ACL?

Issue (a) is perhaps the most significant issue as it involves the threshold for whether the provisions will apply to a contract. The consultation paper notes that the definition of “small business” could depend on whether the entity is a listed public company, its annual turnover or its number of employees. Alternatively, the consultation paper notes that the test may not be whether a contracting party is a “small business” but whether the transaction is beneath a particular monetary threshold.

Flight Centre and ANZ appeals

In November and December 2013, the Federal Court handed down two decisions regarding price fixing in relation to the use of agents. Both decisions concerned ss 45 and 45A of the Trade Practices Act 1974 (Cth) (s 45A has since been repealed). However, price fixing is still a serious prohibition contained in Div 1 of Pt IV of the Act and hence the two decisions are important. In the first decision, ACCC v Australia and New Zealand Banking Group Ltd ^[10] (ANZ), Dowsett J dismissed the ACCC’s claim that ANZ had fixed prices with its mortgage brokers on the basis that ANZ did not compete with such brokers. ^[11]  In the second decision, ACCC v Flight Centre Limited (No 2) ^[12] (Flight Centre), Logan J accepted the ACCC’s claim that Flight Centre had attempted to fix prices with airlines that sold fares directly to travellers. In reaching this conclusion, his Honour found that Flight Centre was in competition with airlines in relation to the supply of distribution and booking services for international air travel. ^[13]  His Honour reached this conclusion even though the relationship between the respective airlines and Flight Centre was that of principal and agent so far as the sale of air travel was concerned. ^[14]

The reasoning of Logan J in Flight Centre could have a significant effect upon how the cartel conduct provisions in Div 1 of Pt IV of the Act apply to businesses that sell both directly to customers and through selling agents. ^[15] Conduct which a business previously considered quite legitimate may now be of questionable legality. Adding to this concern is the fact that the Flight Centre decision is difficult to reconcile with the ANZ decision. This uncertainty will hopefully be resolved by the Full Federal Court as both decisions are in the process of being appealed. An appeal of the ANZ decision was heard by Allsop CJ and Davies and Wigney JJ in mid-August while an appeal of the Flight Centre decision will be heard by the same bench in late November.

Any business that sells directly to customers and also via selling agents should take note of the Flight Centre decision and monitor the appeals of the Flight Centre and ANZ matters. If there is a particular concern about either of these decisions, the business may consider making a submission to the Harper Review regarding the operation of Div 1 of Pt IV of the Act in relation to agents.

Conclusion

As seen from the above, there is the potential for significant developments in competition and consumer law over the next 12 months. Looking ahead to early 2015, we can expect a final report from the Harper Review in March 2015, a decision of the Full Federal Court in the ANZ and Flight Centre matters and the likely extension of UCT provisions to transactions with small business. The ACCC usually announces its enforcement and compliance priorities for the coming year each February. Without wishing to pre-empt the announcement for 2015, the Chair of the ACCC, Rod Sims, recently said that he wishes to address the fact that the ACCC has been running more consumer protection cases than competition cases in the last few years. Mr Sim indicated that he wished to seek a balance by running more competition cases. ^[16]

This article was first published in Inhouse Counsel, Vol 18 No 8, October 2014.