30 Aug 2018

Tougher Australian Consumer Law penalties due to commence shortly

By Elizabeth Richmond, Matthew Battersby and Damiano Fritz

Significantly higher financial penalties for breaches of the Australian Consumer Law are on the way with new legislation passed by Parliament expected to take effect shortly. 

Companies who contravene certain provisions in the Australian Consumer Law (ACL) will now face maximum penalties of up to $10 million per contravention (increased from $1.1 million) or up to three times the value of the benefit obtained from the breach.  Where the value of the benefit cannot be determined, the Court can order a penalty of up to 10% of a company's annual turnover. 

Conduct attracting higher penalties under the ACL includes false or misleading representations about goods or services; unconscionable conduct; other unfair practices, such as bait advertising and pyramid schemes; and breaches of the ACL provisions governing product safety and information standards.

The new ACL penalties are expected to take effect shortly when the amending legislation receives Royal Assent.  The legislation will not have retrospective effect.

The call for higher penalties

On 23 August 2018, Parliament passed amendments to the Competition and Consumer Act 2010 (Cth) (CCA) which align the penalty regime for ACL breaches with the significantly higher penalties that apply for breaches of the competition provisions in Part IV of the CCA.  To date, the highest penalty imposed for competition law breaches is $46 million (in the ACCC's cartel proceedings against Yazaki) while the highest penalty imposed for ACL breaches is $10 million (in the ACCC's unconscionable conduct cases against Coles and Ford Australia).

The amendments give effect to the recommendations of a report by Consumer Affairs Australia New Zealand released in April 2017, which concluded that "the maximum financial penalties available for a breach or attempted breach of the ACL…are insufficient to deter highly profitable non-compliant conduct and can be seen by some entities as ‘a cost of doing business".  

For some time, the Australian Competition and Consumer Commission (ACCC) has been advocating for these amendments so as to enable courts to impose more substantial pecuniary penalties for ACL breaches, particularly in cases involving large companies and widespread conduct.

The penalty regime under the ACL has also been the subject of some judicial commentary.  For example, Justice Gordon of the Federal Court (as she then was) observed in ACCC v Coles Supermarkets Australia Pty Ltd [2014] FCA 1405 that:

"It is a matter for the Parliament to review whether the maximum available penalty of $1.1 million for each contravention … is sufficient when a corporation with annual revenue in excess of $22 billion acts unconscionably. The current maximum penalties are arguably inadequate for a corporation of [that] size."

How will a court determine the appropriate penalty?

While the maximum penalty has increased, the ACL and previous cases set out a range of factors to which the Court will have regard in determining the appropriate penalty for an ACL contravention in the circumstances of a particular case.  These factors include:

  • the nature and extent of the conduct and of any loss or damage suffered as a result of the conduct;
  • the circumstances in which the conduct took place;
  • whether the person has previously engaged in similar conduct;
  • the size of the contravening company;
  • the deliberateness of the contravention and the period over which it extended;
  • whether the contravention arose out of the conduct of senior management of the contravener or at some lower level;
  • whether the contravener has a corporate culture conducive to compliance;
  • whether the contravener has shown disposition to cooperate;
  • whether the contravener has engaged in similar conduct in the past;
  • the financial position of the contravener;
  • whether the contravening conduct was systematic, deliberate or covert.
  • whether the contravener made a profit from the contraventions;
  • the extent of the profit made by the contravener; and
  • whether the contravener engaged in the conduct with the intention to profit from it.

These factors are not new – they are routinely applied in the courts when the ACCC seeks a civil penalty for breach of the CCA.

Now that the ACL penalty regime has been extended to allow the court to order a penalty of up to 10% of the annual turnover of a company, it is likely that the principles arising from the Full Federal Court's recent decision to increase a competition law penalty by 485% on appeal will now apply within the consumer law context.  In that decision, the Full Court held that, where 10% of a multinational contravener's turnover is used to calculate the penalty, the relevant turnover to be assessed is not that of the specific business unit in Australia which engaged in the conduct, but rather, the total Australian turnover of the corporate group.

What are the implications?

The new statutory maximum penalty for breaches of the ACL will embolden the ACCC to seek substantially higher pecuniary penalties, including in any settlement discussions.  Again, that stance is not new – the ACCC has been actively seeking higher penalties in civil penalty matters for some time.  Commissioner Rod Sims has described recent $10 million consumer law penalties as a "new framework" and has warned that the ACCC will "have very different discussions…when it comes to agreed penalties". 

The significant increase in ACL penalties reinforces the need to ensure comprehensive and up-to-date consumer law compliance programs are in place, and that all consumer-facing staff are well aware of the obligations imposed by the ACL – and comply with them.  

RELATED KNOWLEDGE

Related Knowledge

Get in Touch

Get in touch information is loading

Disclaimer

Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.