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01 Jul 2020

Automotive snapshot: ACCC priorities, contactless car sales, Franchising Code, consumer data rights

By the automotive team

ACCC continues to prioritise the automotive sector

The automotive industry continues to find itself in the regulatory crosshairs following the Government's early release of the "new vehicle dealership" provisions of the Franchising Code of Conduct designed to recalibrate the power balance between manufacturers and dealers.

The industry, and in particular the major international automotive brands operating in Australia, have been at the centre of increased regulatory investigations, enforcement actions and legislative change in the period since 2015, with regulatory and legislative scrutiny further increasing significantly off the back of the ACCC's findings in its 2017 new car retailing market study. Those findings included competition law concerns stemming from the perceived power imbalance in the commercial relationships between the large car manufacturers and the two other key players in the market – new car dealers and independent repairers. Alongside increased regulatory investigations and enforcement action by the ACCC (including in relation to Franchising Code compliance), the Government has also actively pursued legislative reform including:

Meanwhile, the ACCC continues to look closely at the industry, most recently stepping in to put pressure on General Motors Holden in relation to its negotiations with 185 Holden dealers to compensate them for GM's withdrawal of the Holden brand in Australia by 2021. The ACCC considered that GM Holden's conduct of the negotiations with dealers raised concerns under the good faith obligations of the Franchising Code and the unconscionable conduct provisions of the Australian Consumer Law, and said that it had been preparing for court action had GM Holden not changed its position.

Regulatory and legislative scrutiny further increasing off the back of the ACCC's findings in its 2017 new car retailing market study

"Contactless" car sales: Are online transactions the way forward?

COVID-19 has, at least for the foreseeable future, changed consumer behaviour dramatically. Consumer spending and those sections of the economy that rely on it, have had to adapt to the new retail environment. In the motor vehicle sector, early adapters have paved the way for online sales as a new form of "contactless" engagement. While this may seemingly appear an easy transition, challenges do arise and lessons have been learned from those who have pioneered this new type of transaction.

From a brand perspective, there is an understandable desire from importers/OEMs to ensure an optimal user experience by seeking to manage both the consumer and dealer ends of an online sales portal. Taking control of this process needs to be balanced with ensuring that consumers understanding that they are transacting directly with dealers rather than the importer/OEM who generally facilitates the transaction. Agreements with dealers will need to be in place to manage the transaction, dealing with issues such as deposits and refunds, liabilities and indemnities, sharing of data and information and customer management (including KPIs addressing customer response times). On the other side, terms and conditions need to be developed that govern the consumer's use of the portal and the transaction, which are likely to be separate to an importers more general website terms and conditions (although not entirely).

Further, like any promotional material, it is also important to ensure that the information being displayed is accurate and does not mislead or deceive consumers. This includes, for example, images that depict the actual vehicle and performance figures that are representative of the vehicle. While appropriate use of disclaimers may assist in creating a user friendly experience on the website, those disclaimers must be sufficiently prominent to avoid misleading representations being made on the website. This is particularly import with respect to price. Incorrect information, including component pricing or an inaccurate description of the vehicle may increase the risk of suppliers contravening the Australian Consumer Law.

Changes to the Franchising Code of Conduct to address car manufacturers' / car dealers' perceived power imbalances

Parties to "new vehicle" dealership agreements need to be aware of changes to the Franchising Code of Conduct which took effect 1 June 2020, earlier than anticipated. The changes to the Franchising Code are part of the Government's legislative reform of the automotive industry and follow increased regulatory investigation and enforcement action by the ACCC into the new car retailing market since 2015.

On 28 May 2020 the Government made the Competition and Consumer (Industry Codes – Franchising) Amendment (New Vehicle Dealership Agreements) Regulation 2020 (Amending Regulation) amending the Franchising Code to address the effects on commercial arrangements arising from the perceived power imbalance between car manufacturers as franchisors and new car dealers as franchisees. The Amending Regulation introduces a separate Division into the Franchising Code to deal with issues specifically affecting "new vehicle" dealership agreements, defined as agreements for dealerships that predominantly deal in new passenger vehicles seating up to nine persons, and/or vehicles constructed primarily for the carriage of goods and with a gross vehicle mass not exceeding 3.5 tonnes (drawing on the equivalent definitions applicable under the Motor Vehicle Standards Act and the Vehicle Standard (Australian Design Rule – Definitions and Vehicle Categories) 2005). Large goods vehicles, motorcycles, motorised farm machinery, motorised construction machinery, aircrafts and motorboats are excluded.

The Amending Regulation will have significant impacts on how renewal and termination decisions regarding dealership agreements will need to be conveyed to the dealer network and what must be included in new disclosure documents going forward. Whether these new requirements will apply to dealers will depend on the status of existing agreements and how the transitional arrangements under the Amending Regulation may apply to any renewals, variations or extensions of those existing agreements.

The new Code provisions will also give franchisees greater powers in relation to disputes with OEMs moving forward by enabling franchisees with disputes of the same nature to band together and negotiate collectively with the franchisor. More details about the changes can be found here.

There has been a groundswell shifting the conversation on how an individual's personal data is handled.

Consumer Data Rights and wrongs

Vehicle manufacturers are seeking to enhance a customer's driving experience by introducing 'connected vehicles' which allow customers to personalise their vehicle or provide a unique experience. For example, upon identifying a driver, a vehicle may alter the interior settings (eg. seat position or cabin temperature) or enable apps to be customised to the user (eg. navigation apps).

Personalisation of the driving experience however, requires the collection and use of personal data. Currently, the collection and use of personal data is analysed within the framework of the Privacy Act and the Australian Privacy Principles. However, globally, there has been a ground swell that is shifting the conversation as to how an individual's personal data is handled.

Recently, the Australian Federal Government completed its Review into Open Banking in Australia. In response to the review, the ACCC introduced the Consumer Data Right (CDR) to give Australian consumer greater visibility over their data, and develops a secure and transparent framework within which consumer data is transferred. The ACCC sees this as an important reform, improving consumer protection and market competition.

Currently, the CDR only applies to the Big Four banks however, it is intended that the scheme will be expanded, first to the energy and telecommunications sectors and then beyond.

Of interest, the CDR requires a holder of personal data to share that data with an approved third-party if requested by a customer, giving customers control over the access of their data. The scheme also allows competitors visibility over key information, affording them the opportunity to more vigorously compete.

OEMs/importers will need to consider how these changes to the collection and use of personal data affects their current business activities, for example, in how the information is collected and stored, how the information is accessed, what information is collected and what commercial effects may arise by its disclosure and transfer.

Parliamentary Inquiry into Litigation Funding

The Australian class action regimes are thriving. Plaintiff law firms and litigation funders are always looking for the next class action and it is no secret that they keep a watchful eye on the automotive sector, with a number of class actions presently on foot in both the State and Federal jurisdictions.

On 13 May 2020, the House of Representatives referred an inquiry into litigation funding and the regulation of class actions in Australia to the Parliamentary Joint Committee on Corporations and Financial Services. The report is due by 7 December 2020 . Written submissions are available on the APH website. The submission of the Federal Chamber of Automotive Industries (FCAI), the peak representative organization for vehicle importers/distributors in Australia, is available here. The FCAI also appeared before the Inquiry on 24 July.

This follows several other reviews into class actions and litigation funding in Australia, including the Victorian Law Reform Commission’s March 2018 report Access to Justice: Litigation Funding and Group Proceedings and a December 2018 report by the Australian Law Reform Commission Integrity , Fairness and Efficiency An Inquiry into Class Action Proceedings and Third-Party Litigation Funders. To date, and with the exception of the introduction of contingency fees in Victoria in June 2020, recommendations by the VLRC and ALRC in these reports have not been acted upon.

In addition to tighter regulation of litigation funders (which will soon include a requirement to hold an Australian Financial Services Licence) we expect that the Committee will address a number of procedural issues in class actions, including common fund orders, class closure and treatment of "overlapping" class actions (where similar proceedings are commenced by different plaintiffs against the same defendants).

We expect the reform agenda moving into next calendar year will be significant and will have an immediate impact on the Australian class action landscape. In the next edition, we will explore the impact these developments may have on the automotive sector.

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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.