Businesses (and individuals) beware.
Penalties for breaches of the Competition and Consumer Act 2010 (Cth) (CCA), including the Australian Consumer Law contained in Schedule 2 (ACL), may be set for a substantial increase, as the Federal Government begins to action its ‘Better Competition’ election promise to strengthen Australia’s competition and consumer laws.
From 18 August 2022 to 25 August 2022, the Federal Government sought stakeholder consultation on proposed changes to the CCA and the ACL set out in an exposure draft of the Treasury Laws Amendment (Competition and Consumer Reforms No. 1) Bill 2022: More competition, better prices (Exposure Draft).
In this article, we summarise the Exposure Draft and its explanatory materials and provide some guidance to businesses on what to expect from these potential reforms.
Why are the changes being proposed?
The rationale for the changes proposed in the Exposure Draft are set out in the explanatory statement which accompanies the document.1
Primarily, the Federal Government aims to ensure that the price of misconduct is high enough to deter anti-competitive and unfair behaviour, so that penalties for a breach of the CCA or ACL are not seen as an ‘acceptable cost of doing business’, particularly in the case of large businesses.2
What would the new maximum penalties be?
For bodies corporate, the changes proposed in the Exposure Draft would see the maximum pecuniary penalty for a contravention of the CCA or ACL increased to the greatest of the following:
- $50 million (a five-fold increase from the previous figure of $10 million);
- if the court can determine the value of the benefit obtained – 3x the total value of that benefit (no change from the previous figure); and
- if the court cannot determine the value of the benefit obtained – 30% of the body corporate’s adjusted turnover during the breach turnover period for the offence, act or omission (an increase from the previous figure of 10%).
For individuals, the changes proposed in the Exposure Draft would see the maximum pecuniary penalty for a contravention of the CCA or ACL increased to $2.5 million per contravention (also a five-fold increase from the previous figure of $500,000).
Which parts of the CCA and ACL will be affected by these changes?
The new penalties will apply to those provisions that currently attract pecuniary penalties under the CCA and the ACL respectively.
Under the ACL, the affected sections include those that are regularly invoked by the ACCC, such as section 20 (which prohibits general unconscionable conduct), section 21 (which prohibits unconscionable conduct in connection with goods and services) and section 29 (which prohibits a person from making false or misleading representations about goods or services). Examples of action taken by the ACCC in reliance on section 29 can be found in our previous articles here, here and here.
Similarly, the proposed changes will impact, among other provisions, most of the anti-competitive sections of Parts IV of the CCA. Part IV includes prohibitions on various types of anti-competitive behaviour, including section 45AJ (making a contract etc containing a cartel provision), section 46 (misuse of market power), section 47 (exclusive dealing) and section 48 (resale price maintenance).
Are there any other key changes?
The Exposure Draft would also introduce similar increases to penalties directed at carriers or carriage service providers in the telecommunications industry. For bodies corporate, the new maximum pecuniary penalty for a contravention of the CCA or ACL would be the greatest of:
- where the contravention continued for more than 21 days – the sum of $71 million (an increase from the previous figure of $31 million) and $3 million for each day in excess of 21 that the contravention continued;
- otherwise – the sum of $50 million (a five-fold increase from the previous figure of $10 million) and $1 million for each day that the contravention continued; or
- 30% of the body corporate’s adjusted turnover during the breach turnover period for the contravention.
For individuals that are carriers or carriage service providers in the telecommunications industry, the new maximum pecuniary penalty for a contravention of the CCA or ACL would be $2.5 million per contravention (also a five-fold increase from the previous figure of $500,000).
What do the terms ‘adjusted turnover’ and ‘breach turnover period’ mean?
These terms are proposed additions to the CCA and ACL to accompany the changes in the Exposure Draft. These terms would be relevant for calculating a body corporate’s turnover as part of determining the maximum penalty that could be applied to a body corporate for a contravention of the CCA or ACL. While these terms would require close consideration and a specific calculation in each instance, they can be summarised as follows:
- Adjusted turnover of a body corporate during a period, means the sum of the values of all supplies that the body corporate, and any body corporate related to the body corporate, have made, or are likely to make, during the period. There are however some exclusions in this definition, including for supplies made from any of those bodies corporate to any of the other bodies corporate, supplies that are input taxed and supplies that are not for consideration.
- Breach turnover period of a body corporate, for an offence, a contravention, or an act or omission, means the longer of the following periods:
- the period of 12 months ending at the time the offence, contravention or act or omission ceased, or the time that charges/proceedings were brought in relation to that offence, contravention or act or omission (whichever is earlier); and
- the period ending at the same time as the first mentioned period, and starting at the beginning of the month in which the offence, contravention or act or omission occurred or began occurring (as the case requires).
These timeframes are designed to capture contravening conduct that is “instantaneous” as well as contravening conduct that is “continuous”.3 In the case of contravening conduct that is of an instantaneous nature, the breach turnover period will be the full 12 month period preceding the offence or contravention. In the case of contravening conduct that is continuous, the breach turnover period will be the entire period of the contravention (even if it is greater than 12 months).
How would the changes impact my business?
The changes proposed by the Exposure Draft would have a significant impact on businesses (and individuals) of all sizes and across all industries – in particular, those businesses that were previously prepared to accept competition and consumer risks as part of their operations based on the maximum pecuniary penalty that might be expected in relation to a contravention. Businesses should be on alert that the proposed increases – particularly those five-fold increases – have the potential to impact heavily on any existing commercial risk strategies that businesses have in place or are currently considering.
Although it is unclear whether the Exposure Draft will lead to law reform, businesses should treat this as a serious step in the Federal Government’s plans to strengthen the competition and consumer regulation position in Australia. Whether or not the Exposure Draft will be reflected in whole or in part in a Bill introduced to Parliament remains to be seen.
How can we help?
We have a dedicated contracting and consumer law team that can assist you with contract preparation and review and can provide you with advice on your rights and obligations under the ACL particularly as the law evolves. Please contact us if you would like more information about the services we provide.
This article was written by Teresa Torcasio, Partner, Zoe Vise, Associate and Katie Lau, Solicitor.
1Exposure Draft Explanatory Materials, Treasury Laws Amendment (Competition and Consumer Reforms No.1) Bill 2022: More competition, better prices
2Ibid, section 1.4
3Ibid, section 1.69