Competition & Regulatory Law Newsletter

October 2010

Contacts

ACCC’s new arsenal in action

by Andrew Riordan

The Australian Competition and Consumer Commission (the ACCC) has begun using its new power to issue infringement, substantiation and public warning notices in carrying out its compliance and enforcement activities pursuant to the recent amendments to the Trade Practices Act 1974 (the Act).

On 20 August 2010, the ACCC issued its first public warning notice to alert consumers to a suspected breach of certain provisions of the Act and posted the notice on its new Public Warning Notice Register accessible on the ACCC’s website.

It is therefore timely to briefly review the most penetrating features of the ACCC’s new enforcement powers.

Substantiation Notices

The recent amendments to the Act enable the ACCC to issue a substantiation notice requiring a person to give information and/or produce documents that could be capable of substantiating or supporting a claim or representation made by the person.

Unlike the ACCC’s power to require the provision of information and/or the production of documents by a notice issued pursuant to section 155 of the Act, the ACCC is not required to have a “reason to believe” that a contravention of the Act has occurred in order to issue a substantiation notice.

If a person is issued with a substantiation notice they must respond within 21 days (unless an extension is granted). A response must provide information, or produce documents, that are capable of substantiating or supporting the claims or representations made.

It is important to bear in mind that while you must respond to a substantiation notice (failure to respond to a substantiation notice may result in fines of up to $16,500 for corporations and up to $3,300 for individuals) you are not required to prove the relevant claim or representation, but just to provide information capable of supporting or substantiating the claim or representation. In essence, a substantiation notice is a preliminary investigative tool that helps the ACCC determine whether further investigation is warranted.

The Explanatory Memorandum to the relevant amending legislation states that these provisions are framed in such a way that a bona fide attempt to provide information which may support a claim will be sufficient, even if the material provided is not capable of fully substantiating the claim.

The ACCC has said that a substantiation notice is likely to be used to respond to concerns about:

  • two-part advertising claims—such as ‘was/now’ pricing and strikethrough advertising
  • business opportunities—such as projected earnings
  • food claims—such as place of origin claims, composition claims or health claims
  • environmental claims—such as biodegradability claims or claims about carbon emission impacts, and
  • product safety claims—such as meeting a prescribed standard that requires testing.

Infringement Notices

The recent amendments to the Act also enable the ACCC to issue an infringement notice where it has reasonable grounds to believe that a person has contravened certain consumer protection laws.

Infringement notices may be issued for alleged contraventions of various provisions of the Act, including:

  • unconscionable conduct
  • certain unfair practices
  • pyramid selling
  • certain product safety and product information provisions
  • failure to respond to a substantiation notice, and
  • provision of false or misleading information in response to a substantiation notice.

The penalty amount in an infringement notice will vary, depending on the alleged contravention, but in most cases is fixed at $6,600 for a corporation and $1,320 for an individual for each alleged contravention.

The compliance period for payment of an infringement notice penalty is 28 days, but this may be extended for a further 28 days in certain circumstances.

The ACCC will post infringement notices on its Infringement Notice Register accessible on the ACCC’s website.

A person may choose not to pay an infringement notice penalty. However, if a person does not pay the penalty within the prescribed period, the ACCC may commence court-based action in respect of the conduct alleged to have contravened the Act.

Once an infringement notice penalty is paid, the ACCC may not commence court proceedings in relation to the alleged contravention.

Public Warning Notices

The recent amendments to the Act also enable the ACCC to issue a public warning notice to alert consumers to a suspected breach of certain provisions of the Act.

The ACCC may issue such a notice where:

  • it has reasonable grounds to suspect that the conduct may constitute a contravention of a provision of the Act
  • it is satisfied that one or more other persons has suffered, or is or are likely to suffer, detriment as a result of the conduct, and
  • it is satisfied that it is in the public interest to do so.

As mentioned above, the ACCC recently issued its first Public Warning Notice.

What to do

Given the tight timeframe for responding to an infringement or substantiation notice and the impact a public warning notice may have on the reputation of a business, it is important that you contact a competition and consumer law expert immediately in the event that one is issued by the ACCC in respect of you or your business.

Breaking new ground: cross-sector competition regulation for the first time in Hong Kong

by Marc Waha and Jessica Rowe

After several years of preparation, the Hong Kong government published the Competition Bill (Bill) on 2 July 2010. The Bill aims to introduce a cross-sector competition law regime in Hong Kong for the first time.

Importantly, and in line with international practice, the Bill proposes competition law with extraterritorial application. Even where anticompetitive conduct is carried out outside of Hong Kong, an undertaking would still be caught if the conduct has the object or effect of preventing, restricting or distorting competition in Hong Kong.

Businesses should take steps now to assess the possible impact of the Bill on their activities, and to map out the changes that they will need to make to their practices if the Bill is enacted.

Summary of the Bill

In line with global competition laws, the Bill proposes to prohibit abuses of substantial market power and the making of anti-competitive agreements. Whilst the Bill does not include a general merger control regime, it does establish a new Competition Commission (Commission), which will have substantial powers to enforce the laws that have “made the cut”. Similar to other competition regulators such as the Australian Competition and Consumer Commission, the Commission will have search and seizure powers and the ability to instigate investigations.

The penalty regime set out in the Bill is significant and includes: fines of up to ten percent of a company’s turnover for each year in which the contravention occurred; awards of damages to those who suffered loss as a result of anticompetitive conduct; disqualification orders preventing individuals from holding directorships; and criminal sanctions for obstructing the Commission’s investigations. Individuals who breach the laws, or who have assisted or been involved in the anti-competitive conduct, may also incur pecuniary sanctions.

The evolution of the Bill

The publication of the Bill comes after several years of policy debate, culminating in a recommendation from the Competition Policy Review Committee in 2006 to establish cross-sector competition legislation. Following this, there were two rounds of public consultation. The Bill reflects many of the Government’s earlier proposals, in particular those relating to the enforcement model, the level of fines, and the treatment of public sector bodies.

Timing for implementation

If the Bill is enacted, it is understood that the Government intends to use a phased-in approach in regard to implementation; the institutional provisions would come into force first to allow the authorities to be set up and to commence work on the enforcement Guidelines. The substantive provisions would come into force at a later date and probably not before 2012, by which time Guidelines should have been finalised. The Guidelines will be important, as the Bill is drafted in fairly broad terms and is reliant on the Guidelines to fill in key gaps.

We will let you know of any significant developments.

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ACCC approves continuance of North West Shelf Gas joint venture

by Nick McHugh and Claire Forster

On 8 September 2010, the Australian Competition and Consumer Commission (ACCC) published a decision authorising north west shelf joint venture (NWSV) participants to jointly market domestic gas.

The NWSV has been in operation since the 1970s. It has six participants- Woodside Energy Ltd, BP Developments Australia Pty Ltd, Chevron Australia Pty Ltd, BHP Billiton (North West Shelf) Pty Ltd, Shell Development (Australia) Proprietary Limited and Japan Australia LNG (MIMI) Pty Ltd (which joined the venture in the mid-1980s).

In 1975, the joint venturers sought authorisation under section 88 of the (then recently introduced) Trade Practices Act 1974 (Cth) (TPA). An agreement between competitors that fixes prices, rigs bids, shares markets, restricts output or substantially lessens competition (absent an authorisation) is prohibited by the TPA. The joint venturers sought to be able to discuss and agree common terms and conditions (including price) for the marketing and supply of natural gas to consumers at all levels of the supply chain.

In 1977, the then Trade Practices Commission (TPC) (which later became the ACCC) authorised the joint venture participants to undertake the joint marketing activities. It was determined that there was a public benefit in encouraging and supporting the development of energy resources in the North West Shelf and encouraging investment in and exploration of additional energy sources. A further authorisation was granted in 1998 to cover incremental activities of the NWSV, including the participation of Japan Australia LNG (MIMI) Pty Ltd.

We have previously reported that the ACCC revoked the 1977 authorisation in March 2008 at the request of the joint venture.

On 31 March 2010, the NWSV participants applied to the ACCC afresh seeking authorisation of similar joint marketing and gas supply arrangements in Western Australia. The NSWV participants’ application for authorisation explains that due to increased interest by the ACCC, customers and government in the venture’s operations since the revocation of their authorisation, the NWSV participants saw fit to again seek authorisation.

The ACCC’s reasons for granting the authorisation are not dissimilar from the reasons expounded by the TPC in 1977. It was determined that it would not be commercially feasible for the NWSV participants to individually market and supply gas due to likely additional commercial risk in balancing volumes. The increased risk is seen as threatening the level of supply that will be made available by gas producers in what the ACCC sees as an “illiquid” market due to high levels of demand. As such the supply of higher gas volumes is viewed as an important public benefit.

The ACCC also links illiquidity of gas supply to the immaturity of the Western Australian gas market. The approach adopted by the ACCC somewhat reflects that adopted by the ACCC in its November 2009 conditional authorisation permitting the participants in the Gorgon Gas Project to jointly market their gas entitlements for supply in Western Australia (Gorgon Authorisation). The Western Australian gas market has been characterised traditionally by a high concentration of suppliers, purchasers, limited gas transport options and often long term contracts. As such, the ACCC has sought to encourage the development of new gas projects such as Gorgon by allowing joint marketing to occur to stimulate market change.

Submissions made by interested parties to the ACCC argued that there was no longer a compelling public benefit argument in support of the joint activities as the gas market is substantial and competitive. It was stated that a lack of competition between the joint venturers (who as a group control the majority of domestic gas production in Western Australia) was a reason for higher gas prices in Western Australia in recent times.

The ACCC acknowledged the comments of the interested parties but did not consider those arguments to be sufficiently persuasive to counter the perceived public benefits of authorising the conduct. In acknowledging that there is a risk of anti-competitive detriment arising from the sharing of commercially sensitive information between NWSV participants, the ACCC has authorised the venture subject to the NWSV participants adhering to a ring fencing protocol.

With the Gorgon Gas Project and other potential entry on the horizon, the ACCC anticipates that the Western Australian gas market will develop in the medium term. Accordingly, and consistent with the Gorgon Authorisation, the ACCC authorised the NWSV activities until 31 December 2015 (and will allow the applicants to give effect to contracts entered into during the term of the authorisation for a period not exceeding 15 years from the date of first delivery of gas). At that time, the ACCC can holistically assess both joint ventures in the context of any developments in the gas market and make a consistent decision about the TPA implications of the ventures going forward.

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