On 26 March 2018, the OECD reported that average and maximum penalties in Australia for anti-competitive conduct were substantially lower than those in comparable international jurisdictions such as the United Kingdom, United States and the European Union. Since that time, concerns have also been raised as to the sufficiency of our penalty regime for consumer protection violations of the Australian Consumer Law (ACL) and its provisions regulating unfair contract terms (UCTs).
The new Federal Government is promising more competition and better prices, with a more mundanely named exposure draft bill now rebadged and passed on 27 October 2022 to become the Treasury Laws Amendment (More Competition, Better Prices) Act 2022 addressing those matters. It will come into effect on receiving Royal Assent (likely within the next week).
Truly Punitive Penalties
From Royal Assent, maximum penalties for a range of anti-competitive and other conduct prohibited under the Competition and Consumer Act 2010 (CCA) and the ACL, increase substantially in relation to all conduct after that date.
For companies, maximum penalties increase to the greater of:
- $50 million (previously $10 million);
- if the court can determine the value of the benefit obtained, three times the value of the benefit (as previously); or
- if the court cannot determine the value of the benefit, 30% of the adjusted turnover over the period the breach occurred (previously 10% of annual turnover in the 12 months prior to the breach).
For individuals, the maximum penalty increases to $2.5 million (previously $500,000).
The new maximum penalties apply to:
- most criminal offences and civil penalty provisions under the CCA, including cartel offences, misuse of market power and exclusive dealing, and prohibited conduct relating to the news media & digital platforms mandatory bargaining code, international liner cargo shipping, and energy market; and
- a range of offences and civil penalty provisions under the ACL including unconscionable conduct, false or misleading representations, harassment and coercion, and supplying products that do not comply with safety or information standards or that are covered by a safety ban.
Maximum penalties in Australia for anticompetitive conduct are now higher than:
- the UK, where Competition & Markets Authority penalties are capped at 10 per cent of the worldwide turnover of the undertaking;
- the EU, where fines are subject to an overall cap of 10% of world-wide turnover during the preceding year); and
- Canada, which maintains a penalty regime similar to our superceded regime.
In relation to consumer law violations, Australia already had the highest penalty regime in the world following amendments in 2018 increasing maximum penalties generally from $1.1m to $10m per contravention, so the further increases are dramatic, particularly bearing in mind rapidly escalating court ordered penalties in consumer law matters in recent years under the prior regime. For example, in 2021:
- The Full Court of the Federal Court upheld a penalty of $125 million imposed in December 2019, under the previous $1.1m penalty regime in Volkswagen Aktiengesellschaft v Australian Competition and Consumer Commission [2021] FCAFC 49; and
- AIPE was ordered to pay a record $153 million under the previous $1.1m in ACCC v Australian Institute of Professional Education Pty Ltd (in liq) (No 5) [2021] FCA 1516.
The increases are perhaps targeted at large multinational and local companies based on the proposition that prior penalties were not an effective deterrent as they could treat them as a “cost of doing business”. Such dramatic maximum penalty increases will affect all businesses, and arguably small business disproportionately so given the fivefold increase from $10m to $50m.
UCT regime expanded
The ACCC has had significant success in recent years modifying unfair contracting practices with the existing regime permitting declaratory relief and voiding UCTs. However, it has long advocated additional specific contraventions attracting penal and compensatory relief. From 12 months after Royal Assent, section 23 (2A) & (2C) of the ACL (and equivalent provisions in the Australian Securities and Investments Commission Act 2001) will prohibit a person:
- making a contract with; and/or
- applying, relying or purporting to apply or rely on,
a UCT in a standard form contract.
In relation to making a contract, liability attaches to persons who propose a UCT. In relation to applying/relying on a contract, liability attaches to anyone who purports to apply or rely on a UCT.
Each UCT is a separate prohibition subject to penalty (section 23(2B)), and the new regime applies in relation to all new contracts entered into, and existing contracts renewed or varied) from 12 months after Royal Assent (section 305 of the ACL).
Remedies are expanded, with persons affected by the UCT and the regulator entitled to bring proceedings for compensatory and other relief under sections 243A and 243B of the ACL. The only limitation on that is The Castle exception – the amendments do not apply to the extent that they would result in an acquisition of property from a person otherwise than on just terms within the meaning of paragraph 51(xxxi) of the Constitution (section 305(6) of the ACL).
The regime continues to apply to standard form contracts, but their scope has been expanded in section 27(3) of the ACL. A contract can be “standard form” despite an opportunity:
- to negotiate changes that are minor or insubstantial in effect;
- to select a term from a range of options (this gives effect to recent case law); or
- for a party to another contract to negotiate terms of the other contract.
The Regime continues to apply to consumer contracts and small business contracts, but is expanded in relation to small business contracts, where the provisions will apply under section 23(4) of the ACL if one party to the contract:
- is a business that employs fewer than 100 persons (previously 20 persons), or
- has a turnover for the last income year of less than $10 million irrespective of the value of the contract in issue (previously determined by reference to contract value rather than turnover).
All consumer-facing businesses need to ensure that their contracting houses are in order within the next 12 months, by reviewing all their standard contract terms, standard form agreements, and processes for negotiating and enforcing those terms and agreements.
The content of this article is intended to provide a general guide to the subject matter. Specific advice should be sought about your specific circumstances.
