Australia: ACCC significantly increases financial penalties

Last Updated: 9 October 2018
Article by Nick Miller and Andrew Laing

Significant increases to financial penalties under the Australian Consumer Law commence – disregard at your peril!

In December 2014, in the case of Australian Competition and Consumer Commission (ACCC) v Coles Supermarkets Australia Pty Ltd [2014] FCA 1405 (Coles Case), Coles admitted to unconscionable conduct against five separate suppliers, in contravention of section 22 of the Australian Consumer Law (ACL). Coles had demanded rebates from the suppliers, calculated as a percentage of the price payable by Coles and deducted from monies Coles owed the suppliers.

The maximum penalty for each contravention at the time of the judgment was $1.1 million for a body corporate. So, the maximum total penalty for the five contraventions was $5.5 million. The financial penalty imposed on Coles by the Court, after accepting the submissions of Coles and the ACCC regarding various mitigating factors, totalled $3.7 million.

However, given the recent significant increases in the maximum penalties for ACL contraventions, if judgment in the Coles Case was handed down today, would the penalty imposed reflect the proportionate increase in maximum penalties – i.e. would the penalty now be $37 million?

What are the increases?

The maximum penalty for a contravention of the ACL involving unconscionable conduct, false or misleading representations or supplying consumer goods or certain services that do not comply with safety standards or which are banned are:

The increases came into effect on 1 September 2018.

Why the increases?

Consumer Affairs Australia and New Zealand commenced a review of the ACL in June 2017 (CAANZ Review). The ACCC had been advocating for increased penalties for a number of years, with the Chairman commenting in 2016 that there was a 'general concern about penalties under Australian Consumer Law ... not being adequate to give the right amount of deterrence'. This followed similar comments by the judiciary including, for example, the comment of Gordon J in the Coles Case:

It is a matter for the Parliament to review whether the maximum available penalty of $1.1 million for each contravention ... by a body corporate is sufficient when a corporation with annual revenue in excess of $22 billion acts unconscionably. The current maximum penalties are arguably inadequate for a corporation the size of Coles.

A final report from the CAANZ Review was issued in March 2017. It found that the current maximum penalties were insufficient deterrents, with some companies viewing the penalties as a 'cost of doing business'.

Impact of the increases

As a result of the penalty increases, the ACCC can now advocate for higher penalties for breaches of the ACL. If the Coles case was decided today, the maximum total penalty for the five contraventions would be at least $50 million (and could be higher, based on the new maximum penalty regime), rather than the previous maximum of $5.5 million. So it is fair to expect that on the same facts, a significantly greater penalty would be imposed today.

Other contraventions

The penalty increases apply to more than just unconscionable conduct. They also apply to false or misleading representations made, in trade or commerce, in connection with the supply of goods or services (section 29 of the ACL).

In ACCC v Luv-a-Duck Pty Ltd [2013] FCA 1136, the company admitted engaging in misleading conduct by supplying and selling duck meat products that it claimed were from ducks that spent at least a substantial amount of their time outdoors, were grown in a spacious outdoor environment and would be of a different quality than duck meat products processed from barn-raised ducks. These claims were false and a penalty of $360,000 was imposed (the Court having regard to various mitigating factors and the maximum penalty of $1.1 million at the time). If this case was decided today, having regard to the same mitigating factors and the new regime for determining the maximum penalty, the penalty imposed on the company could potentially exceed $3 million.

Summary

The penalty increases align the existing ACL penalties with the maximum penalties under the competition provisions in the Competition and Consumer Act 2010 (Cth) and are intended to curb complacent attitude towards non-compliance with the ACL. ACCC Chair, Rod Sims, recently stated:...

penalties need to be high enough to be noticed by boards and senior managers so that compliance with the law is a higher priority. Increased penalties will help to deter large companies from breaching consumer law. This is a profound change that I believe will improve corporate behaviour significantly, and so improve the Australian economy and how it works for consumers.

These penalties are separate to any claim that the party aggrieved by a contravention might bring for loss or damage caused by the contravention. (In the Coles Case, the full extent of the loss or damage caused by Coles' conduct had not been quantified.) Companies should be mindful that the risks of contravening the ACL are not limited to just the increased penalties under the ACL.

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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