Australia: Competition review: February 2015/1

RECENT ENFORCEMENT DEVELOPMENTS

Fisher & Paykel and Domestic & General to each pay $200,000 for false or misleading extended warranty representations

On 27 January 2015, in the first ever case taken by the ACCC alleging false or misleading representations regarding consumer guarantees in the context of businesses offering extended warranties, the Federal Court declared by consent that both Fisher & Paykel Customer Services Pty Ltd (Fisher & Paykel) and Domestic & General Services Pty Ltd (Domestic & General) made a false or misleading representation in contravention of sections 12DA and 12DB of the Australian Securities and Investments Commission Act 2001 (Cth) (ASIC Act) and imposed a pecuniary penalty of $200,000 on each business. The proceedings were brought under the ASIC Act as the extended warranty in this case was a financial product under the ASIC Act.

The Court held that letters to consumers who had purchased a Fisher & Paykel appliance contained a false or misleading representation that stated they would not be protected against repair costs for their appliance beyond the manufacturer's warranty (of two years from the date of purchase), unless they purchased the extended warranty. In fact, under the Australian Consumer Law (ACL) consumers may be protected beyond the manufacturer's warranty period without the purchase of an extended warranty.

Although both Fisher & Paykel and Domestic & General have been found to have engaged in two contraventions, Justice Wigney held that in substance and reality, there was only a single course of conduct and Fisher & Paykel and Domestic & General should not be doubly punished for what was in effect one contravention. Therefore the maximum penalty that could apply for each business was $1.1 million.

In arriving at the quantum of penalty payable by each business, the Court considered each of the "French factors". Whilst it had regard to the maximum penalty payable per contravention and the need for deterrence, it considered the relatively low penalties to be appropriate as a result of matters including that:

  • there was no evidence to suggest that either Fisher & Paykel or Domestic & General's conduct sought to deliberately mislead or deceive or that any customer suffered any loss;
  • there was no evidence that specific consumers were in fact misled by the representations;
  • consumers were offered refunds soon after the contravening conduct was identified by the ACCC. Justice Wigney stated that if there was in fact any loss or damage, consumers were able to obtain compensation for that loss;
  • neither Fisher & Paykel or Domestic & General have ever been involved in contravening conduct of the same nature before; and
  • both Fisher & Paykel and Domestic & General cooperated with the ACCC's inquiry and did not contest liability.

The Court also granted injunctions against Fisher & Paykel and Domestic & General, ordered each business to update their compliance programs and payment of a contribution towards the ACCC's costs of the proceedings.

Federal Court orders Coles to pay $10 million for unconscionable conduct

On 22 December 2014, Justice Gordon of the Federal Court, by consent of the parties, made declarations in respect of two proceedings instituted by the ACCC against Coles Supermarkets Australia Pty Ltd and Grocery Holdings Pty Ltd (collectively, Coles). The Court declared that Coles had engaged in unconscionable conduct in breach of the ACL and ordered Coles to pay combined pecuniary penalties of $10 million and costs. ACCC Chairman Rod Sims commented that as one of the first findings of unconscionable conduct in a business-to-business context, that this was a "very significant outcome for the supermarket sector".

In the first proceeding, the ACCC alleged that Coles engaged in unconscionable conduct by the way it sought rebates from approximately 200 suppliers under its "Active Retail Collaboration" (ARC) program for "supply chain improvements" (ARC Proceeding). In the second proceeding, the ACCC alleged that Coles engaged in unconscionable conduct against certain suppliers in relation to claims for various payments suppliers were required to pay for purported profit gaps, waste and markdowns, and late and short deliveries (Claims Proceeding).

In the ARC Proceeding, the Court found the conduct unconscionable because Coles:

  • pressed for speedy answers to its demands, often pointing to adverse commercial consequences it could and would impose;
  • was in a substantially stronger bargaining position relative to the suppliers;
  • did not disclose sufficient information to enable suppliers to understand how it calculated the ARC rebate figure;
  • exerted undue pressure on suppliers and employed unfair tactics; and
  • failed to conduct any informed negotiations with suppliers.

In the Claims Proceeding, the Court found the conduct unconscionable because Coles:

  • was in a substantially stronger bargaining position relative to the suppliers;
  • knew or ought to have known it had no reasonable basis to seek the payments;
  • failed to disclose sufficient details to enable suppliers to understand the basis for the demands for payment and how the purported profit gaps were calculated, despite requests for such information;
  • exerted undue pressure on suppliers by pressing them for urgent responses to the demands for payment; and
  • was not willing to negotiate the payments, including the amount sought or when Coles would withhold the money.

Coles has also given a court enforceable undertaking to the ACCC to establish a formal process, overseen by an independent arbiter that will review the eligibility of:

  • suppliers to obtain refunds of any amounts by which their ARC rebate payments exceeded the benefits which they obtained from the ARC program; and
  • suppliers referred to in the Claims Proceeding to obtain possible payments in respect of allegations where Coles has made admissions.

RECENT MERGER DEVELOPMENTS

Public Competition Assessment – Expedia's proposed acquisition of Wotif.com

On 13 January 2015, the ACCC released a Public Competition Assessment that further explains its decision to not oppose the proposed acquisition of Wotif.com Holdings Ltd (Wotif) by Expedia, Inc (Expedia).

The ACCC's preliminary concerns in the Statement of Issues were that the proposed acquisition may have the potential to substantially lessen competition in the market for the online distribution/booking of Australian accommodation (Market) and may result in:

  • an increase in commission rates charged by OTAs to accommodation providers; and
  • a reduction in the amount of promotional opportunities offered by OTAs to accommodation providers.

However, the ACCC subsequently decided that the proposed acquisition is unlikely to have the effect of substantially lessening competition in the Market. This acquisition involves two of the three largest online travel agencies (OTAs) in Australia, with the other being The Priceline Group (which operates Booking.com and Agoda).

The ACCC's view is that absent the proposed acquisition (the "without" position), Wotif is likely to continue to operate as an independent competitor in the Market. However, industry participants submitted that Wotif would need to remove the $5.50 consumer booking fee it currently charges to remain competitive. The ACCC considers that if this were to occur, it is likely that Wotif would attempt to increase commissions to accommodation providers in order to compensate removing the consumer booking fee.

Further, to the extent that Expedia and Booking.com raise commission rates post-acquisition, the ACCC identified that any such increase would be likely to:

  • cause accommodation providers to reduce their use of OTAs;
  • encourage at least some entry or expansion by other OTAs;
  • be increasingly constrained by metasearch websites, which aggregate the offers of hotels and numerous OTAs (e.g. TripAdvisor and Google Hotels Finder); and
  • accelerate the development of new products and business models.

Proposed merger of Federation Centres and the Novion Property Group

On 4 February 2015, it was announced that Federation Limited and Federation Centres Limited as responsible entity of Federation Centres Trust No. 1 (Federation) and Novion Limited and Novion RE Limited (Novion) propose to merge via schemes of arrangement.

The proposed merger will create one of Australia's largest real estate investment trusts. Federation, previously known as the Centro Properties Group, has exposure to over 65 shopping centres across Australia, including food-based centres and large malls. Last week it unveiled, with its co-owner the Perron Group, a $500 million redevelopment of The Glen shopping centre in Melbourne's south east. Novion, formerly Colonial First State Retail Property Trust Group, owns a number of large mixed-use malls, including Chadstone and the Emporium in Melbourne and Chatswood Chase in Sydney.

The closing date for submissions from interested parties is 25 February 2015 and the provisional date for the ACCC's announcement of its decision is 2 April 2015.

RECENT ACCC DEVELOPMENTS

The ACCC's new petrol price reports

On 15 January 2015, ACCC Chairman Rod Sims provided details on the ACCC's approach and likely areas of study following Bruce Billson's (Minister for Business) recent Ministerial direction to monitor and analyse fuel markets on a more regular and in-depth basis. The ACCC states that it will be producing at least eight reports in 2015.

There will be four quarterly 'macro' reports, with the first macro report to be published in February. These macro reports are expected to include details on:

  • fuel price movements in all capital cities and 180 regional locations;
  • the drivers of petrol prices, price cycles and indications of differences in retail petrol prices across each city;
  • issues such as the time lag experienced for retail petrol prices to reflect changes in the international wholesale price movements; and
  • retail price differences between capital cities and regional areas.

Additionally, there will be at least four 'micro' market study reports, which will aim to provide an in-depth analysis of the drivers of petrol prices in three regional markets. Factors to be considered in these studies include fuel costs in the nearest port, transport and storage costs and wholesale, distribution and retail costs. The ACCC will rely on its compulsory information gathering powers under section 95ZK of the Competition and Consumer Act 2010 (Cth), which were activated with the Ministerial direction to conduct these micro market studies. The identity of the regional locations will only be revealed once the compulsory notices have been issued, with the first regional location to be announced in March.

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.

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