Competition Review: November 2014 - Trade Regulation & Practices

RECENT ENFORCEMENT DEVELOPMENTS

Sydney forklift gas cartel ordered to pay penalties of $8.3 million

On 24 October 2014, the Federal Court (by consent) ordered penalties totalling $8.3 million against Renegade Gas Pty Ltd (trading as Supagas NSW) (Supagas), Speed-E-Gas (NSW) Pty Ltd (Speed-E-Gas) and three current and former senior officers for engaging in cartel conduct from at least 2006 to 2011.

The Court found that they effected a no-poaching understanding where they:

would not approach certain customers of the other;
would not offer to supply forklift gas to certain customers of the other or only offer to supply at a price it knew was unlikely to induce the customer to change suppliers; and
communicate with each other for the purposes of implementing this understanding.

Justice Gordon noted that the longstanding conduct had the potential to adversely affect a high proportion of manufacturing and distribution businesses across Sydney, as those businesses were being denied the opportunity of receiving a competitive offer from either Supagas or Speed-E-Gas.

Supagas was ordered to pay a penalty of $4.8 million, while Speed-E-Gas was ordered to pay a penalty of $3.1 million, as they cooperated with the ACCC's investigations from a very early stage. Former Supagas Managing Director Paul Berman is disqualified for three years from managing a corporation and ordered to pay a penalty of $250,000 (one of the largest penalties ordered against an individual for engaging in cartel conduct). Another senior officer of Supagas was ordered to pay a penalty of $100,000 and a former senior officer of Speed-E-Gas was ordered to pay a penalty of $50,000.

Orders were also given for injunctions and compliance training for Supagas and Mr Berman, as well as contributions to the ACCC's costs totalling in excess of $600,000.

Air cargo cartel proceedings dismissed against Air New Zealand and Garuda Indonesia

On 31 October 2014, the Federal Court dismissed proceedings brought by the ACCC against Air New Zealand Ltd and PT Garuda Indonesia Ltd for alleged price fixing arrangements or understandings with other international air cargo carriers to fix fuel, security and insurance surcharges on air cargo services between 2001 and 2006.

Although Justice Perram concluded that a number of collusive arrangements were made out, he found that the conduct did not take place in a "market in Australia", as required by the former Trade Practices Act 1974 (Cth) (now the Competition and Consumer Act 2010 (Cth)). His Honour pointed to evidence that showed that the surcharges were imposed and collected at the origin airports. Therefore, the competition which occurred between the airlines and which the surcharges interfered with was competition in markets in Hong Kong, Singapore and Indonesia, and not competition in any market in Australia. Justice Perram acknowledged that prices may well have been affected in Australia by the conduct, but that does not mean that the market in which the airlines was competing was located in Australia.

Corrs represented Air New Zealand in these proceedings.

Funeral and cemeteries operator InvoCare pays $102,000 penalty for alleged false or misleading representation

InvoCare Limited has paid a penalty of $102,000 after being issued an infringement notice by the ACCC for allegedly making a false or misleading representation.

InvoCare Limited and its subsidiary, InvoCare Australia Pty Limited (together InvoCare) have also provided a court enforceable undertaking to the ACCC. InvoCare is the largest operator of funeral homes, cemeteries and crematoria in Australia, operating 14 cemeteries and crematoria nationally.

In or around January 2011, InvoCare revised its standard consumer contract to require customers at its cemeteries to:

purchase a memorial at the time of using a burial site; and
purchase the memorial exclusively from InvoCare.

Following this, the ACCC received numerous complaints that InvoCare had made false or misleading representations to some consumers who had pre-purchased sites prior to January 2011, by stating that they were also subject to the new term. As a result of the ACCC's concerns, InvoCare agreed to conduct internal investigations and acknowledged that the representations made to consumers were likely to have contravened the Australian Consumer Law.

ACCC commences an action against Europcar for unfair contract terms and misleading conduct

On 10 November 2014, the ACCC brought proceedings in the Federal Court against CLA Trading Pty Ltd, trading as Europcar Australia (Europcar), alleging that its standard vehicle rental contract (Rental Contract) contained "unfair terms" including:

a term that requires customers to pay Europcar a "Damage Liability Fee" (currently up to $3,650) if the rental vehicle is damaged or stolen, or if there is a third party loss, irrespective of fault; and
terms making the consumer fully liable to Europcar if the rental vehicle is damaged or stolen, or if there is a third party loss, where a consumer breaches the rental contract, no matter how trivial the breach and regardless of whether the breach caused the damage or loss.

This proceeding is important as unfair contract terms are one of the ACCC's enforcement priorities and the rental car industry was one of the industries identified in the ACCC's 2013 Report on Unfair Contract Terms that contained problematic terms in their consumer contracts.

The ACCC is seeking declarations that certain terms in Europcar's Rental Contract are unfair and therefore void, injunctions, pecuniary penalties, orders for the publication of corrective notices and compliance program orders.

RECENT MERGER DEVELOPMENTS

ACCC releases Statement of Issues on proposed joint venture between CSR Limited and Boral Limited

On 16 October 2014, the ACCC released a Statement of Issues (SOI) on the proposed joint venture (JV) between CSR Limited (CSR) and Boral Limited (Boral) for the manufacture, marketing, and supply of clay bricks. CSR and Boral are both suppliers of a range of products to the building and construction industry in Australia. The proposed JV would be 60% owned by CSR and 40% owned by Boral.

The key competition issues identified by the ACCC are as follows:

the proposal would reduce the number of major clay brick suppliers in NSW and Queensland from three to two. Further, the JV and Austral Bricks would account for approximately 99 per cent of the supply and the ACCC raised concerns about the ability and incentive of Austral Bricks to constrain any exercise of unilateral market power by the JV;
the resulting duopoly in eastern Australian would be likely to cause an increase in the price of clay bricks and reduce the product range that is available; and
other external cladding materials are not substitutes for clay bricks.

The ACCC also stated that the proposed JV may substantially lessen competition in relation to clay brick supply in Victoria and South Australia, notwithstanding the relatively small volumes currently supplied by CSR and Boral. However, the proposed JV was unlikely to raise competition concerns in the Tasmanian market because there is no current overlap between CSR and Boral.

The ACCC identified further lines of inquiry, which include:

whether the likely competition effects of the proposed JV should be considered on a wider geographic basis;
in order to understand the potential level of substitution, information about customers' purchasing behaviours in response to historical clay brick price increases by CSR, Boral and Austral Bricks; and
determining the counterfactual, or the impact of the market if the proposed JV did not proceed.

ACCC releases Statement of Issues on proposed acquisition of Dux by Rheem

On 16 October 2014, the ACCC released its Statement of Issues (SOI) with respect to the proposed acquisition by Rheem Australia Pty Ltd (Rheem) of the water heater assets of Dux Manufacturing Ltd (Dux). Rheem is Australia's largest and Dux is Australia's second largest manufacturer and supplier of water heaters.

In its preliminary statement, the ACCC said that it was concerned that the proposed acquisition is likely to substantially lessen competition in the supply of storage water heaters. This was particularly so in light of the fact that Rheem is the only remaining Australian manufacturer of small vitreous enamel storage water heaters, while all other suppliers (including Dux) import small electric vitreous enamel storage heaters.

The ACCC's market inquiries have indicated that:

at present there are few imports for the larger-size storage water heaters commonly used in Australian homes;
gas-powered continuous flow water heaters appeared to have increased in popularity in Australia, however this is not a viable option for many consumers, particularly in areas where reticulated gas is unavailable;
even for those customers that do have access to reticulated gas, there may be potential limitations on customer switching to continuous flow gas heaters; and
when replacing an existing system (which makes up around 70-80% of sales) consumers had a tendency to replace their storage water heater with the same type, because it was often faster and cheaper.

The ACCC relayed concerns by market participants that the proposed acquisition could enable Rheem to raise prices or decrease service or quality in the supply of electric and gas storage water heaters.

RECENT ACCC AUTHORISATIONS

ACCC issues first-ever draft determination proposing to authorise resale price maintenance

The ACCC has been able to authorise resale price maintenance (RPM) conduct on public benefit grounds since 1995. However, until this application, no application for authorisation in respect of RPM conduct had ever been made.

On 21 October 2014, the ACCC issued a draft determination proposing to grant conditional authorisation for a period of three years to allow Tooltechnic Systems (Aust) Pty Ltd (Tooltechnic) to revise its retailer agreements to include a contractual obligation on retailers not to resell Festool products below minimum prices nominated by Tooltechnic (Proposed Conduct).

The ACCC accepted that public benefits can address market failures (such as free-riding) and if retail service levels were raised such that some consumers made more informed purchasing decisions, and/or if consumers continued to be offered the choice of purchasing premium products accompanied by a high level of post-sale services. The ACCC also acknowledged that the Proposed Conduct will eliminate intra-brand price competition and some customers will face higher retail prices, but considered that this would be limited due to a wide variety of competing brands.

On balance, the ACCC considered that the public benefits outweighed the detriments and proposes to conditionally authorise the conduct. As part of the conditional authorisation, under the proposed monitoring regime, Tooltechnic must provide information to the ACCC on an annual basis, including minimum retail prices, changes in the type of Festool retailers and the addition or removal of any demonstration or repair facilities for Festool products.

For further details, please see our earlier Corrs in Brief (see here).

RECENT ACCC DEVELOPMENTS

ACCC releases its 2013-2014 annual report

On 30 October 2014, the ACCC released its annual report. The report shows that during 2013-2014, the ACCC was involved in:

53 proceedings relating to consumer protection enforcement, securing over $12 million in penalties and other remedies;
seven cases alleging cartel conduct before the courts: including the ACCC's action against cartel conduct operating in the market for ball bearings used in motor vehicles and industrial applications. The Federal Court ordered NSK Australia Pty Ltd and Koyo Australia Pty Ltd to pay $3 million and $2 million respectively;
267 recalls of consumer goods;
a number of matters to protect and inform small business operators, including securing an order against Taxsmart Group Pty Ltd, Taxsmart Franchising Pty Ltd and Resultsmart Pty Ltd (together Taxsmart) repay $260,400 in franchise fees to five former franchisees for engaging in misleading and deceptive conduct; and
conducting a public review of 48 mergers and a confidential review of seven mergers, a decrease of 25 per cent on public reviews and decrease of 42 per cent on confidential reviews in 2012–13.

ACCC issues third carbon monitoring report

On 29 October 2014, the ACCC announced it had provided the third carbon monitoring report to the Treasurer. The report details the ACCC's monitoring activities in the September 2014 quarter to assess the general impact of the carbon tax scheme, and includes the effect of the carbon tax repeal.

The ACCC reports that it:

has observed businesses acting quickly to remove carbon tax cost components from prices, with widespread adherence to the reporting and information requirements of the new carbon tax price reduction obligation laws; and
is continuing to engage with some businesses to ensure that appropriate steps are taken to remove the carbon tax cost component from their bills and to communicate this to customers.

The publicly available substantiation statements made by retailers make representations of estimated average savings ranging from 5.2% to 12.4% for electricity customers and 3.2% to 8% for natural gas customers, depending on their location and provider.

However, the ACCC is disappointed by the level of detail provided in some responses to the carbon tax removal substantiation notices. The ACCC is continuing to engage with some businesses to obtain information about their direct and indirect carbon cost savings to ascertain that all savings arising from the carbon tax repeal are being passed on.

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