[* On 1 January 2011, the Trade Practices Act 1974 (Cth) (TPA) was renamed the Competition and Consumer Act 2010 (Cth) (CCA). The CCA incorporates and applies the new Australian Consumer Law (ACL), which is found in Schedule 2 to the CCA. Various provisions from the TPA, including those referred to in this article, are now found in the CCA or the ACL. For simplicity, the provisions referred to in this article are identified by reference to the TPA, given that the cases discussed in this article considered those provisions when the TPA was in force. The footnotes to the article identify the corresponding provisions of the new CCA and ACL.]
Two decisions of the Federal Court of Australia provide recent examples of business conduct that may contravene provisions of the Trade Practices Act ("TPA") and highlight for businesses certain activities which should be avoided.
In Australian Competition and Consumer Commission v Black & White Cabs Pty Ltd  FCA 1399, the respondent ("B&W Cabs") conceded that it had engaged in the practice of "third line forcing" in contravention of the TPA and consented to orders by the Court restraining further similar conduct for 5 years, requiring an internal Trade Practices compliance and education program and imposing a monetary penalty of $110,000.
In Luxottica Retail Australia Pty Ltd v Specsavers Pty Ltd  FCA 423, the respondent ("Specsavers") was found to have engaged in conduct that was misleading or deceptive in contravention of the TPA in a television commercial that compared the price of its spectacles to those of the applicant ("OPSM"). OPSM claimed damages, which are yet to be assessed.
The B&W Cabs case
Section 47(1) of the TPA1 prohibits a corporation
from engaging in certain conduct known as exclusive
dealing2. Subsection 47(6) of the TPA3
provides, relevantly, that a corporation engages in the
practice of exclusive dealing if it supplies, or offers to supply,
goods or services on the condition that the person to whom the
corporation supplies or offers or proposes to supply the goods or
services will acquire goods or services of a particular kind
or description directly or indirectly from another person not being a body corporate relatedto the corporation. This conduct is commonly referred to as "third line forcing".
B&W Cabs provided network services (booking, dispatch and other services) to various operators of approximately 1,000 taxis and managed approximately 250 taxi licences that it provided for use by certain taxi operators. B&W Cabs had an agreement with Cabcharge Australia Ltd ("Cabcharge") in relation to the use of Cabcharge's payment system, which is a system provided by Cabcharge to taxis that allows drivers to process Cabcharge vouchers, credit and debit cards for the payment of customers' fares. Under the agreement, Cabcharge provided a merchant facility to B&W Cabs so that its operators and drivers could use the Cabcharge payment system in their taxis, and Cabcharge would pay B&W Cabs 2.5% of the taxi fares processed using the system. B&W Cabs and Cabcharge were unrelated companies.
For about 3 months from April 2009, B&W Cabs used a standard form contract to sign up taxi operators, part of which provided that "The Operator must use the approved electronic payment system (Cabcharge's payment system) exclusively during the term of this Agreement." The effect was that operators were obliged to acquire services from Cabcharge as a condition of entering into the contract with and receiving services from B&W Cabs.
This conduct was "third line forcing" under the TPA and accordingly, prohibited conduct. B&W Cabs contravened the TPA by, in effect, forcing operators which agreed to acquire services from B&W Cabs, to acquire Cabcharge's services also.
The facts of the case were not in dispute. B&W Cabs conceded that it contravened the TPA as described above. Further, the ACCC4 and B&W Cabs agreed on proposed declarations and orders to be made by the Court in light of the contravening conduct. The Court agreed that the proposed declarations and orders were appropriate, which included the following:
- A declaration that B&W Cabs engaged in exclusive dealing in contravention of the TPA;
- An order restraining B&W Cabs for a period of 5 years from engaging in similar conduct in relation to Cabcharge or any other unrelated third party;
- An order requiring B&W Cabs to implement and maintain for 3 years, at its own expense, a Trade Practices Compliance and Education/Training Program for its directors, officers and senior managers;
- A penalty of $110,000 for the contravening conduct5 and a payment of $10,000 towards the ACCC's costs of the proceedings.
The significant monetary penalty and other orders were imposed despite the Court noting mitigating factors in favour of B&W Cabs. The conduct occurred over a limited period; it only affected 14 of B&W Cabs' 400 operators and 24 of its 1,000 taxis; there was evidence that B&W Cabs did not intend to engage in third line forcing or did not actively enforce the "Cabcharge clause" because one operator was permitted by B&W Cabs on request to use a different EFTPOS terminal; and as soon as the ACCC informed B&W Cabs of complaints about its conduct, B&W Cabs revised its standard contract and informed the operators that the "Cabcharge clause" would not be enforced and would be removed from their contracts.
The Specsavers case
Section 52(1) of the TPA6 prohibits a corporation from, in trade or commerce, engaging in conduct that is misleading or deceptive or is likely to mislead or deceive.
Specsavers, a competitor of OPSM in the spectacles, contact lenses and sunglasses market, undertook advertising in February/March 2010, which included a television commercial in which comparisons were drawn between the prices of spectacles sold by OPSM and Specsavers. OPSM commenced proceedings against Specsavers alleging that the commercial was misleading and deceptive. The commercial no longer aired when the case was heard, but OPSM sought damages and orders to compel Specsavers to publish corrective advertising.
During the commercial the screen showed the OPSM logo above a pair of spectacles with the words "PAID OVER $480 on average" underneath. There was a disclaimer on the screen in smaller print to the effect that the information was based on certain research and excluded health fund rebates. Alongside the OPSM logo and words, the Specsavers logo appeared above a pair of spectacles with the words "PAID OVER $114 LESS on average" underneath. The corresponding words and numbers appeared in the same font in both phrases. There was also a voiceover which included the words "On average OPSM customers paid over $480 for their prescription glasses" and "at Specsavers our customers paid on average $114 less for their prescription glasses than OPSM customers".
OPSM argued that the commercial was misleading and deceptive in three respects:
- As the majority of OPSM customers had private health insurance, they were entitled to various rebates when they purchased spectacles and accordingly, the $480 figure referred to in the commercial was not the amount that most customers would ever pay.
- It suggested to a casual observer that OPSM customers paid over $480 for spectacles, but Specsavers customers paid over $114 for spectacles – in effect, that the word "LESS"went unnoticed in the Specsavers graphic so that the commercial suggested an average price difference for spectacles between OPSM and Specsavers of $366 rather than $114.
- It suggested that the average price paid for a single pair of OPSM spectacles was $480, when in fact, the research obtained by Specsavers showed that the average amount of money spent by an OPSM customer on their most recent visit to an OPSM store (which may have included spectacles plus other products or services) was $480.
The Court cited with approval existing authority to the effect that the approach to be taken in considering whether a television commercial contravened section 52 of the TPA7 was to consider the manner in which the commercial would be understood by the casual but not overly attentive viewer viewing a free-to-air program with only a marginal interest in the advertisements shown between the segments of the program.
Applying that approach, the Court held that the commercial was not misleading in the first two respects contended by OPSM. As to the first issue, the Court said that a person viewing the commercial would think it dealt with the average price of spectacles, not the customer's out-of-pocket expense of buying spectacles after a health fund rebate. As to the second issue, the Court said that the graphic and voiceover in the commercial together put sufficient emphasis on the word "LESS" such that the commercial conveyed a price difference of $114, rather than a comparison between a payment of $480 and a payment of $114.
The Court held that the commercial clearly was misleading in the third respect contended by OPSM. The commercial suggested to the viewer that the average price paid for a pair of spectacles by an OPSM customer was $480, and that price was $114 more than the average price paid by a Specsavers customer ($366). However, the actual research obtained by Specsavers showed that the average prices paid respectively were $418 for OPSM and $205 for Specsavers. Accordingly, Specsavers contravened section 52 of the TPA.This was despite the research actually indicating that on average Specsavers was $213 cheaper than OPSM for a pair of spectacles, rather than the lower saving of $114 suggested in the commercial – the commercial was misleading to consumers and contravened section 52 of the TPA, even though its misleading character was partly to the detriment of the advertiser.
In a separate and subsequent judgment8, the Court declined to order Specsavers to undertake corrective advertising, essentially on the basis that the effect of the deception in the offending commercial was lost with the passage of time since the commercial had aired. There was about 1.5 months between the date the commercial last aired and the trial date. The case is still before the Court on the issue of the damages clamed by OPSM.
For advice in relation to trade practices issues and compliance with the relevant legislation, contact one of our Trade Practices Team being Laura Hartley, Martin O'Connor, Jamie Nettleton, Kristy Dixon, Hayden Martin or Simone Vrabac.
1 Now section 47(1) of the CCA.
2 The various types of conduct that amount to exclusive dealing are set out in subsections 47(2) - (9) of the TPA (now subsections 47(2) - (9) of the CCA).
3 Now section 47(6) of the CCA.
4 Australian Competition and Consumer Commission, Australia's competition regulator.
5 Under section 76 of the TPA (now section 76 of the CCA), the maximum penalty was the higher of $10 million, three times the total value of the benefit obtained and was reasonably attributable to the conduct and, where the benefit cannot be determined, 10% of the corporation's annual turnover during the 12 month period preceding the conduct.
6 Now section 18(1) of the ACL.
7 Now section 18 of the ACL.
8 Luxottica Retail Australia Pty Ltd v Specsavers Pty Ltd (No 2)  FCA 644.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.