ACCC’s big week of penalties
The past week has seen the Federal Court of Australia hand down pecuniary penalties in five different matters – bringing a total of $38 million for the ACCC.
These penalties were ordered against a backdrop of the ACCC wanting higher penalties for breaches of the Competition and Consumer Act 2010 (Cth) (CCA), noting the lower level of penalties in Australia compared to some overseas jurisdictions.
The ACCC has also stated that higher penalties are needed for the purposes of achieving deterrence and avoiding the risk of low penalties being simply a “cost of doing business.”
Three of the cases involved contested penalties and two were agreed penalties. In one of the agreed penalty cases, the Court awarded an agreed penalty against a respondent after finding that the other respondents had not contravened the CCA.
These cases confirm the trend for the ACCC to seek significant penalties under both the competition and consumer law provisions of the CCA. They also confirm that the outcome of penalty cases are often hard to predict as they are so dependent on the particular facts and circumstances of each case.
Further details of each of these cases are set out below.
ACCC v Cement Australia & ors
One of Australia’s longest running competition actions, the case concerned a series of agreements entered into by Cement Australia and its subsidiaries for the purchase of flyash (a by-product of burning coal which can be used as a substitute for cement) from power stations in Queensland.
The ACCC alleged contraventions of sections 46 (misuse of market power) and 45 (anticompetitive agreements) of the CCA, but only succeeded in its allegations in relation to section 45 against four respondents. The case involved a contested penalty hearing.
The Federal Court of Australia ordered that the four respondents (including Cement Australia) pay penalties totalling $18.6 million, making it one of the largest suite of civil penalties handed down in an Australian competition case to date.
It is clear that the penalties awarded, though comparatively large by Australian standards, was disappointing for the ACCC. The ABC reported ACCC Chairman Rod Sims as saying that a fine of $90 million would have been more sufficient.
“I’m afraid for companies of this size and the nature of the behaviour and the importance of it to the companies, I’m afraid $18 million could be seen as just the cost of doing business“, the ABC reported Mr Sims as saying.
The parties have 21 days from 29 April 2016 to appeal the judgment. As at the time of writing, the reasons for judgment have been kept confidential and so we need to wait to see what factors played into the Court’s assessment of the appropriate penalty.
ACCC v Reckitt Benckiser (Australia) Pty Ltd & ors
ACCC consumer law proceedings in which the ACCC succeeded in it claims that Reckitt Benckiser made misleading representations about its range of pain relief products. See our alert about the Court’s findings here. The case involved a contested penalty hearing.
The ACCC ordered Reckitt Benckiser to pay penalties of $1.7 million, comprising $1.2 million for representations made on the products’ packaging and $500,000 for representations made on Reckitt Benckiser’s website.
The ACCC had sought penalties of $6 million, but the Court declined to make them that high due to three key factors:
- the conduct was not alleged to be reckless or intentional;
- the contraventions comprised only two courses of conduct (although Edelman J did not consider himself to be constrained by the maximum penalty of $1.1 million for each course of conduct); and
- the products were effective at treating pain – hence, the only loss suffered by consumers was monetary, in the form of any premium they paid in comparison to other products.
The ACCC had put extensive effort into a series of profit calculations to determine the benefits to Reckitt Benckiser from its conduct. However, Edelman J did not have regard to those calculations and instead proceeded on the basis of the products’ recommended retail prices during the relevant period, sales volume, and estimated revenue of $45 million.
Reckitt Benckiser is now staring down the barrel of a class action seeking to compensate consumers who purchased the products.
ACCC v Australian Egg Corporation Limited & ors (agreed penalties for Mr Zelko Lendich)
The ACCC alleged that the Australian Egg Corporation Limited, its Managing Director and others attempted to induce egg producers to form a cartel arrangement to limit the production of eggs. The ACCC’s allegations were dismissed in 2015, finding that the respondents lacked the requisite intent. The ACCC has since appealed the Court’s findings.
Prior to the trial, one of the respondents, Mr Zelko Lendich, Managing Director of Farm Pride Foods Ltd, reached an agreement with the ACCC, made admissions and agreed to a pecuniary penalty of $120,000.
The Court ordered the agreed penalty of $120,000 against Mr Lendich.
After the Court dismissed the ACCC’s allegations against the other respondents, there was a question about whether it would be appropriate to order the penalty sought against Mr Lendich.
The Court noted that Mr Lendich’s case was different to the other respondents (who succeeded) because Mr Lendich’s admissions established the requisite intent for the alleged cartel that was found to be lacking in the other respondents.
ACCC v Colgate-Palmolive Australia Pty Ltd
The ACCC alleged that Colgate-Palmolive made, and gave effect to, three cartel understandings in relation to the transition from standard concentrate laundry powder to ‘ultra concentrates’ in 2009 and the pricing of those ultra concentrates, in addition to an understanding about the unlawful sharing of price sensitive information between competitors.
Colgate agreed with the ACCC to jointly submit that it should be ordered to pay a penalty of $18 million for its limited admissions of two of the four allegations.
As agreed between the ACCC and Colgate-Palmolive, the Court ordered penalties totalling $18 million, comprising $12 million for one of the alleged ‘transition’ contraventions and $6 million for the ‘information sharing’ contravention. The ACCC’s case against the remaining respondents is ongoing and is listed to be heard in June 2016.
The case is significant as the penalties were based on a maximum penalty for contraventions of the competition provisions of the CCA of up to 10% of turnover during the relevant financial year. This is one of a few cases in which penalties have been made under that 10% of the annual turnover regime. Other cases include ACCC v Cabcharge Australia Limited  FCA 1261, ACCC v Mitsubishi Electric Australia Pty Ltd  FCA 1413 and ACCC v Visa Inc  FCA 1020.
ACCC v Multimedia International Services Pty Ltd (the Community Network)
ACCC consumer law proceedings against a supplier of advertising services to small businesses (trading as the Community Network) alleging misleading and deceptive conduct, false or misleading representations, wrongly accepting payment and unconscionable conduct.
The Community Network admitted its contraventions but contested the penalties it should be ordered to pay. The ACCC had sought a penalty of $355,000 and the Community Network had submitted that a penalty of $85,000 would be appropriate.
The Court ordered the Community Network to pay penalties totalling $230,000. This included $110,000 for unconscionable conduct and an additional $120,000 for four breaches of sections 29 and 36 of the Australian Consumer Law.
Even though Edelman J found that the ultimate benefit to the Community Network from its contraventions was ‘very small’, the penalties ordered represented almost 5% of the Community Network’s operating profit from the last financial year.
Picture: Courtesy Flickr / Travis LoDolce