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November 20, 2013

Case note: no price fixing in mortgage broking

In Australian Competition and Consumer Commission v Australia and New Zealand Banking Group Limited [2013] FCA 1206 the Federal Court of Australia dismissed an action by the ACCC alleging that Australian and New Zealand Banking Group Limited (ANZ) had breached the price fixing provisions of the Trade Practices Act 1974 (the Act), now the Competition and Consumer Act 2010 (CCA).

UPDATE 17 December 2013: ACCC to appeal

The ACCC alleged that in 2004 the ANZ Bank sought to limit the amount of a refund a mortgage broker, Mortgage Refunds Pty Ltd, could provide to its customers in respect of arranging ANZ home loans. Mortgage Refunds was an Approved Originator with Australian Financial Group Ltd (“AFG”) with which ANZ had an originator agreement.

At the time ANZ complained that Mortgage Refunds' business model of refunding upfront commissions to borrowers (of up to $1200) breached the originator agreement which required that an Approved Originator must not “induce or cause to induce any party to apply for loan products by offering gifts or prizes or other inducements of whatever kind, without the prior written approval of the bank”. They agreed to limit refunds to $600 (the same as ANZ's loan establishment fee which ANZ branches could waive).

Justice Dowsett rejected the ACCC’s submission that the ANZ's conduct was motivated by a desire to prevent competition between its in-house and tied channels and the brokers.

After considering extensive evidence from broking industry experts and economists, the Court had to decide whether ANZ and Mortgage Refunds were competing in the same market: was supply of the loan product distinct from the supply of loan arrangement services? In other words were the 2 channels, brokers which advised borrowers on a range of loan products from various lenders, and branches, which sold only ANZ loans, in competition?

Justice Dowsett concluded "that ANZ branches and franchisees did not participate in any market in which the brokers provided loan arrangement services to potential borrowers. That finding leads to the conclusion that ANZ was not, in any relevant sense, in competition with Mortgage Refunds."

He observed that:

"ANZ’s action left Mortgage Refunds with the capacity to offer a refund up to the amount of the loan approval fee charged by ANZ. The only difficulty which Mortgage Refunds seems to have had with the limit was the problem with its advertising. The different level of refund for ANZ products, as compared to that for the products of other lenders, led borrowers who chose ANZ products to press Mortgage Refunds for higher refunds. As far as the evidence goes, ANZ in-house and tied channels did not generally waive the loan approval fee, whilst Mortgage Refunds always allowed its refund. Thus, in most cases, it would still have been offering a distinct benefit which the in-house and tied channels were not offering. It may be that from the point of view of ANZ Mortgage Group, the advantage of its proposed solution lay in ANZ’s capacity to say to the in-house and tied channels that they could waive the loan approval fee at their expense, as it had suggested on at least one occasion, even if it suspected that they would not want to do so....

I should make one other point. ACCC’s submission assumes that channel neutrality is inevitably motivated by an anti-competitive purpose. Yet there is logic in the proposition that an up-stream supplier may simply wish to avoid damaging and pointless conflict between distribution channels. In taking action in response to Mortgage Refunds’ conduct, ANZ initially sought to enforce, as against AFG, the terms of the originator agreement. The subsequent “re-instatements” were, in fact, on more favourable terms than those contained in that agreement. ANZ approved the offering of a not-insubstantial refund which, as far as the evidence goes, the branches would not generally match. In order to demonstrate the existence of a competitive relationship by reference to conduct, one must show that a desire to hinder competition is a likely reason for such conduct. For what it is worth, I am simply unconvinced that ANZ’s conduct was so motivated. Having regard to the apparently isolated nature of the conduct and the limited nature of the restraint imposed, I am inclined to the view that ANZ was trying to keep the branches happy rather than seeking to restrain perceived competition. That view is, of course, based on all of the evidence in the case. "

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Posted 20th November 2013 by David Jacobson in Consumer Law, Financial Services, Trade Practices

October 14, 2013

Case note: Do Not Knock Sticker means “go away”

In Australian Competition and Consumer Commission v AGL Sales Pty Ltd [2013] FCA 1030 the Federal Court of Australia decided that a Do Not Knock Sticker (see here) conveyed a request for a door to door salesperson for AGL to leave premises for the purposes of section 75(1) of the Australian Consumer Law.

Section 75 of the Australian Consumer Law requires that a dealer who calls on a person at any premises for the purposing of negotiating an unsolicited consumer agreement must leave the premises immediately on the request of:
(a) the occupier of the premises, or any person acting with the actual or apparent authority of the occupier; or
(b) the person (the prospective consumer) with whom the negotiations are being conducted.

Failure to comply with requirements can lead to maximum penalties of $50,000 for a body corporate and $10,000 for an individual.

The question was whether the sticker was a "request".

Even though the ‘Do Not Knock Sign’ did not contain an express request to leave the premises Justice Middleton decided that "it was an on-going or continuing request directed to all salespersons who came to the door.... the words “DO NOT KNOCK” were clearly visible on (the) door. A pictorial depiction of a fist knocking with a line through it was also clearly visible. There is no ambiguity to the message conveyed to a salesperson (to whom they were directed) by these words and images – the message was an unambiguous request to leave the premises, without knocking on (the) door"

Justice Middleton concluded that:

" By directing the salesperson not to knock and stating that the salesperson was not welcome on the premises, it conveyed a clear direction that the salesperson was not authorised to carry out the purpose for which he had entered the premises and therefore that he should immediately leave the premises. If the occupier of the premises had made similar oral statements to the salesperson, it would have constituted a “request” for the salesperson to leave. No different result should follow by reason of the fact that the statements were contained in a sign displayed on the front door of the premises. "

The case has been adjourned for further hearing in relation to penalty.

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Posted 14th October 2013 by David Jacobson in Consumer Law, Marketing, Trade Practices

August 21, 2013

ACCC v Lux Distributors: what is unconscionable conduct?

In Australian Competition and Consumer Commission v Lux Distributors Pty Ltd [2013] FCAFC 90 the Federal Court Full Court declared that in selling its vacuum cleaners Lux engaged in conduct that was unconscionable in contravention of section 21 of the Australian Consumer Law.

Lux's sales telephone script called for its representatives to arrange to attend at elderly women's homes for the purpose of making “a free maintenance check” on the householder’s existing vacuum cleaner. When a representative arrived he would not tell the homeowner that he was there to sell a vacuum cleaner. The sales presentation lasted more than 1 1/2 hours with the goal of pressuring customers to buy expensive products.

The Australian Consumer Law has no definition of unconscionable conduct.

In the context of "unsolicited consumer agreements" (door to door sales) the court decided that "The word “unconscionability” means something not done in good conscience" and the purpose of the section is "consumer protection directed at the requirements of honest and fair conduct free of deception. Notions of justice and fairness are central, as are vulnerability, advantage and honesty."

It concluded:
"The task of the Court is the evaluation of the facts by reference to a normative standard of conscience. That normative standard is permeated with accepted and acceptable community values. .... Here, however, they can be seen to be honesty and fairness in the dealing with consumers. ...These laws of the States and the operative provisions of the ACL reinforce the recognised societal values and expectations that consumers will be dealt with honestly, fairly and without deception or unfair pressure. These considerations are central to the evaluation of the facts by reference to the operative norm of required conscionable conduct."

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Posted 21st August 2013 by David Jacobson in Consumer Law, Trade Practices

July 29, 2013

Franchising Code of Conduct changes

The Commonwealth Government has issued its Response to the Review of the Franchising Code of Conduct (Background).

Amendments agreed to by the Government include:

  • The Government will amend the Code to ensure that when franchisees are provided with notice of the franchisor's intention to renew or extend a franchise agreement, they are reminded of their entitlement to request a disclosure document under the provisions of the Code.
  • there will be an alternative short-form disclosure document.
  • The Government will amend the Code to require additional disclosure of the respective rights of the franchisor and franchisee to conduct and benefit from online sales, including any ability or intention of the franchisor to conduct online sales.
  • The Code be amended to require franchisors to provide prospective franchisees with a short summary of the key risks and matters they should be aware of when going into franchising
  • Subject to certain conditions being met, restraint of trade clauses in the franchise agreement which prevent the franchisee from carrying on a similar business in competition with the franchisor, will not be enforceable by the franchisor against the franchisee.
  • There will be a refinement of disclosure of the risks of potential unforeseen capital expenses
  • The Code will be amended to make the administration of marketing funds more transparent and ensure that marketing and advertising funds are spent on legitimate expenses related to the marketing and advertising of the franchise system.
  • with respect to yearly audit, the Government accepts that, if 75 per cent of franchisees agree an audit is not required for a particular year, then it may be an unjustified compliance cost to require a franchisor to arrange an audit. The Government will provide an exemption in these circumstances
  • The Code will be amended to include an express obligation by the parties to act in good faith. The ACCC will provide education about the meaning of this obligation.
  • the Government will legislate to ensure that the ACCC has the power to seek pecuniary penalties for Code breaches. The Government will undertake further detailed consideration of the appropriate maximum pecuniary penalty, and will consider whether different maximum penalties should be prescribed for different breaches of the Code to reflect that more serious breaches should attract higher penalties.
  • The Competition and Consumer Act will be amended to allow the ACCC to use its powers under section 51ADD of the CCA (its random audit powers) to assess a franchisor’s compliance with all aspects of the Code, not just to require the production of documents created under the Code.

There will be further consultation about standard contract terms for automotive dealerships.

The Government does not agree to amend the Code to state that marketing or other cooperative funds are to be treated as trust funds or held in a trust account.

The Coalition has indicated its support for the changes. To implement this Government response, amendments will be needed to both the Competition and Consumer Act 2010 (Cth) and the Trade Practices (Industry Codes – Franchising) Regulations 1998 (the Code).

It is expected that the changes foreshadowed in this Government response will only apply to franchise agreements entered into after the passage of legislation through Parliament. This excludes changes to the enforcement regime; pecuniary penalties and infringement notices will be able to be sought by the ACCC for all breaches of the Franchising Code from a particular commencement date.

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Posted 29th July 2013 by David Jacobson in Business Planning, Consumer Law, Trade Practices

July 12, 2013

HP misleading advertising penalty

Australian Competition and Consumer Commission v Hewlett-Packard Australia Pty Ltd [2013] FCA 653 confirms the approach of the Federal Court in Apple and Optus in assessing and imposing consumer law penalties proposed by consent of the parties.

The Federal Court declared that Hewlett-Packard Australia Pty Ltd made false, misleading or deceptive representations in breach of the Australian Consumer Law to consumers and retail suppliers of its products.

The ACCC and HPA agreed on a $3million penalty and $200,000 costs order against HPA which the court approved.

The parties also reached agreement on the terms of an injunction and corrective advertising (including on HP's website).

HPA admitted to six contraventions of sections 18 (Misleading or deceptive conduct) and 29(1)(m) (False or misleading representations about goods or services) of the ACL.

HPA admitted that when consumers contacted helpdesks operated by HPA (HPA Helpdesks) in relation to HPA Computer Products not of merchantable or acceptable quality, staff employed at the HPA Helpdesks made representations, in accordance with the internal policies, guidelines and scripts developed and implemented by HPA (HPA Guidelines), to the effect that:

  • the remedies available to consumers for those HPA Computer Products were limited to remedies available from HPA at its discretion (Remedy Limitation Representation);
  • consumers must have HPA Computer Products not of merchantable or acceptable quality repaired by HPA multiples times before consumers were entitled to receive a replacement HPA Computer Product (Repair Condition Representation);
  • the warranty period for those HPA Computer Products was limited to a specified express warranty period (Limited Warranty Period Representation); and
  • after the expiry of a specified express warranty period, HPA would repair HPA Computer Products not of merchantable or acceptable quality on condition that consumers paid for such repairs (Payment Condition Representation).

HPA also admitted that when retail suppliers contacted HPA, from time to time staff employed at HPA made representations to the effect that HPA was not liable to indemnify the retail suppliers if, without HPA’s prior authorisation, retail suppliers provided consumers with a refund or replacement (Retail Supplier Representation).

Further, HPA represented on a webpage of the HPA Online Store that consumers could not return or exchange HPA Computer Products purchased through the HPA Online Store not of acceptable quality unless otherwise agreed by HPA, at its sole discretion (Online Remedy Discretion Representation).

Justice Buchanan stated:

"It is accepted by the respondent not only that the contraventions identified by the statement of agreed facts and by the outline of joint submissions were serious ones but that declarations, injunctions and other coercive orders should be made as a result....

I see no reason to doubt that the pecuniary penalty agreed by the parties is an appropriate one. The maximum penalty available for the totality of the six contraventions admitted by the respondent is $6.6 million. The parties have agreed that the admitted contraventions should be the subject of a pecuniary penalty of $3 million. A penalty of that order of magnitude is the equivalent of $500,000 for each admitted contravention, if the matter was to be assessed in that fashion. In my view, that reflects an acknowledgement of the seriousness of the respondent’s conduct, both with respect to the individual contraventions and with respect to the total penalty to be imposed, which penalty I am satisfied does not contravene the totality principle. I am also satisfied that the penalty is sufficient to mark the Court’s disapproval of the respondent’s conduct and to satisfy the requirements of general and specific deterrence....

The parties have agreed that the respondent should pay the applicant’s costs in the amount of $200,000. There is no reason to think that an order for costs in this amount is inappropriate."

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Posted 12th July 2013 by David Jacobson in Consumer Law, Marketing, Trade Practices, Web/Tech

April 26, 2013

Case note: unconscionable conduct by mobile phone provider

In Australian Competition and Consumer Commission v Excite Mobile Pty Ltd [2013] FCA 350 the Federal Court decided that Excite Mobile Pty Ltd engaged in false and misleading and unconscionable conduct in its provision of mobile phone services to customers across Australia. The Court also found Excite Mobile acted unconscionably and used undue coercion when attempting to obtain payment for mobile phone services.

A large number of consumers across all parts of Australia were affected by Excite Mobile’s conduct, including consumers living in indigenous communities on the Cape York Peninsula, remote areas in Queensland and Western Australia, and throughout the Northern Territory.

Excite Mobile promoted its services through telephone marketing (telemarketing) calls by representatives of Lime India and other call centres in India, Pakistan and the Philippines. Lime India also attended to the customer service issues of Excite Mobile’s customers, attempted to collect unpaid accounts purportedly owed to Excite Mobile by customers, and entered information in relation to dealings with Excite Mobile’s customers into an electronic database, for and on behalf of Excite Mobile.

Excite Mobile provided Lime India with the scripts to be used in the telemarketing calls and directed the telemarketers to follow the scripts.

Potential customers were contacted by telemarketers who offered the customer an enticement to contract, namely the “gift” of a phone and holiday vouchers. The contracts offered were on a 24 month plan. The plans consisted of a minimum monthly fee, for which customers would receive a set daily allowance for calls and text messages, depending upon the size of their contract. The most commonly selected contract was the $33 per month plan, for which customers received a daily allowance for calls and text messages capped at $2.20. Any costs incurred outside of the cap would be added to the monthly bill.

The scripted explanation of the cap set out above was not included in any of the 10 recorded examples heard by the court. Instead the telemarketers simply said words to the effect of “[f]or only $33 you get $66 worth of calls.”

The terms that Justice Mansfield found to be unconscionable, in addition to the “day cap” clause included a $75 cool off fee that customers were required to pay, as well as a $195 charge imposed for returning a damaged phone, even if it was only the box that was damaged. (more...)

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Posted 26th April 2013 by David Jacobson in Consumer Law, Marketing, Trade Practices

April 3, 2013

Case note on bid-rigging: Norcast v Bradken

In Norcast S.ár.L v Bradken Limited (No 2) [2013] FCA 235 Judge Gordon of the Federal Court of Australia decided that a bid rigging arrangement occurred between Bradken and Castle Harlan, whereby Castle Harlan agreed to bid for Norcast's subsidary Norcast Wear Solutions, Inc (NWS), a Canadian mining consumables company and Bradken agreed not to bid for NWS in contravention of sections 44ZZRJ and 44ZZRK of the Competition and Consumer Act 2010 (Cth) (the cartel provisions). The cartel provisions were applied even though the bid was made in USA for a Canadian company.

In a lengthy and complex judgment Judge Gordon concluded that had Bradken and Castle Harlan not entered into the Bid Rigging Arrangement, Bradken would have made a bid for NWS in excess of the approximately US$190 million which it ultimately paid for NWS. She assessed damages at US$22.4 million (being the difference between the US$212.4 million including costs and expenses which Bradken did in fact pay to acquire NWS and the US$190 million Norcast received from Castle Harlan).

An interesting aspect was the attempted avoidance of the effect of a Non-Disclosure Agreement by Castle Harlan by appointing Bradken as its consultant.

An appeal is expected.

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Posted 3rd April 2013 by David Jacobson in Compliance, Trade Practices

March 19, 2013

Unfair contract terms report

The ACCC has published a report on the outcome of its industry review of unfair contract terms.

The ACCC reviewed standard form consumer contracts in the airline, telecommunications, fitness and vehicle rental industries, as well as some contracts commonly used by online traders. A select number of standard form contracts used by prominent travel agents were also examined.

The review identified:

  • Contract terms that allow the business to change the contract without consent from the consumer.
  • Terms that cause confusion about the agency arrangements that apply and that seek to unfairly absolve the agent from liability.
  • Terms that unfairly restrict the consumer’s right to terminate the contract.
  • Terms that suspend or terminate the services being provided to the consumer under the contract.
  • Terms that make the consumer liable for things that would ordinarily be outside of their control.
  • Terms that prevent the consumer from relying on representations made by the business or its agents.
  • Terms seeking to limit consumer guarantee rights.
  • Terms that remove a consumer’s credit card chargeback rights when buying the service through an agent.

The reports states "ACCC found that in the majority of industries reviewed, most businesses took advantage of the opportunity to align their standard form contracts with the new national unfair contract terms provisions of the ACL. Problematic terms were identified and either amended or deleted in each of the eight categories listed above. Particularly significant changes were achieved in relation to standard form contracts of major airlines, with 79% of problematic terms identified by the ACCC amended or deleted as a result of the review.

Some businesses have not fully cooperated with the ACCC during the review or have chosen not to change their standard form contracts to address problematic terms that were identified by the ACCC. The ACCC is now moving from a compliance to an enforcement response to resolve outstanding issues."

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Posted 19th March 2013 by David Jacobson in Consumer Law, Trade Practices

January 21, 2013

Director liability issues for 2013: taking reasonable steps to comply

From time to time clients ask us for a list of all the things for which directors can be liable.

When creating a list of all those things that can create liability for directors it's important to firstly understand that corporate governance consists of improving the performance of the business in the best interests of shareholders as well as managing risks and monitoring compliance. The board's role is not limited to compliance.

When looking at compliance issues you should distinguish between those things that a director does (or fails to do) personally as well as things that the company does (or fails to do) for which a director is liable.

The first category (liability for personal conduct) includes: don't steal, don't lie or cheat, don't get a personal benefit by misusing confidential information, don't fail to do your best for the company because you have a competing personal interest.

The second category (personal liability for corporate conduct) includes liability for insolvent trading, misleading statements to investors as well as breaches of environmental and hazardous goods legislation, workplace health and safety laws and consumer protection laws.

Some issues will be regular items on your agenda (eg director disclosures), some will be six-monthly or annual items (eg financial reports, executive remuneration, annual licence renewals) and others will be special matters depending on your activities (eg signing off on fundraising).

If you are prosecuted for a corporate breach, the key issue is whether you took "reasonable steps" to ensure that the company complied with the provision.

Under some laws you are presumed to have taken reasonable steps unless the prosecution proves otherwise. Under other laws you have the burden of proving you took reasonable steps. Background

What are reasonable steps?

The Corporations Act does not define reasonable steps. They vary with the circumstances.

In ASIC v Healey (Centro) Judge Middleton discussed the minimum steps a director needed to take before approving financial statements.

Unfortunately the director liability laws for state-based offences still vary between states.

Section 97 of the Miscellaneous Acts Amendment (Directors' Liability) Act 2012 NSW defines "reasonable steps" as follows:

reasonable steps, in relation to the commission of an executive liability offence, includes, but is not limited to, such action (if any) of the following kinds as is reasonable in all the circumstances:
(a) action towards:
(i) assessing the corporation’s compliance with the provision creating the executive liability offence, and
(ii) ensuring that the corporation arranged regular professional assessments of its compliance with the provision,
(b) action towards ensuring that the corporation’s employees, agents and contractors are provided with information, training, instruction and supervision appropriate to them to enable them to comply with the provision creating the executive liability offence so far as the provision is relevant to them,
(c) action towards ensuring that:
(i) the plant, equipment and other resources, and
(ii) the structures, work systems and other processes, relevant to compliance with the provision creating the executive liability offence are appropriate in all the circumstances,
(d) action towards creating and maintaining a corporate culture that does not direct, encourage, tolerate or lead to non-compliance with the provision creating the executive
liability offence.

The proof required to show you took reasonable steps varies with the alleged offence.

The starting point is to carry out a risk assessment appropriate to your business.

But don't forget to spend time growing the business.

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Posted 21st January 2013 by David Jacobson in Compliance, Corporate Governance, Corporations Act, Trade Practices, Workplace

January 7, 2013

ASIC investigations and legal professional privilege

ASIC has released Information Sheet 165 Claims of legal professional privilege (INFO 165) which sets out ASIC’s approach to claims of legal professional privilege over documents that would otherwise be subject to disclosure to ASIC under a statutory notice from ASIC.

If documents are privileged (because they constitute legal advice to you in anticipation of legal action) ASIC is not entitled to see them.

Although ASIC encourages the voluntary disclosure to ASIC of privileged information, providing documents to ASIC could enable a third party to claim that you have waived legal professional privilege. And ASIC may not accept your claim of privilege.

The Information Sheet seeks to prescribe a protocol for the identification of, and the claiming of, legal professional privilege over documents.

Companies (especially ASIC licensees) should have a procedure for responding to ASIC, ACCC and ATO investigations.

That procedure should include having your lawyers help respond to ASIC notices to produce and attend inspections to determine whether documents are privileged.

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Posted 7th January 2013 by David Jacobson in Compliance, Corporations Act, Risk Management, Tax, Trade Practices, Workplace
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