In this month’s Competition and Market Regulation Update we explore the following:
Recent developments in the alleged ‘air cargo cartel’
Potential for increased protection for consumers and small business
Federal Court provides clarification on meaning of ‘in trade or commerce’ for professional associations
Government introduces Bill for national FuelWatch scheme
United Kingdom’s groceries market investigation – final report released
In brief
Recent developments in the alleged ‘air cargo cartel’
Over the past month, there have been a number of intriguing developments in the international investigations into the alleged air cargo cartel. Regulators across the globe have been investigating a number of international airlines for allegedly agreeing to fix the prices for, or the methodology for arriving at, various surcharges and general rates between 2000 and 2006.
Former Qantas freight chief to face jail in the United States of America
Bruce McCaffery, Qantas’ former head of freight in the United States of America, has become the first person to be charged under the United States of America Department of Justice’s wide-ranging investigation into the alleged air cargo cartel. For his involvement in the cartel, McCaffery has pleaded guilty to one charge of conspiracy to restrain trade. As part of a plea deal, McCaffery has agreed to serve an eight-month jail sentence in addition to paying a US$20,000 fine. However Justice Bates, who will determine McCaffery’s sentence in a Washington DC court on 28 July 2008, warned McCaffery that he could face a more severe sentence than that recommended in the plea deal. Currently the maximum punishment in the USA is a jail term of 10 years and a US$1 million fine.
McCaffery was one of six current and former Qantas employees left out of a plea deal signed between the airline and the United States of America Department of Justice in November last year. Under the deal, Qantas admitted its guilt and agreed to pay a US$61 million criminal fine to the department. Four of these six employees reside in Australia. As it is not currently a criminal offence to engage in illegal price-fixing in Australia, they cannot be extradited to the United States of America if they are charged with any offence (although they may voluntarily agree to the United States of America sanction).
This development has refocused attention on proposed Australian legislation to criminalise serious cartel conduct. In January, the government released an exposure draft of the Trade Practices Amendment (Cartel Conduct and Other Measures) Bill for public comment (full details of the content of this Bill are available in the February edition). The government has announced that the final legislation will be introduced into parliament in the winter sittings which are due to end in late September.
Challenges to section 155 notices: Korean Air Lines v ACCC (No 3)
The Federal Court of Australia dismissed an application by Korean Air Lines Co Ltd (KAL) challenging a statutory demand for information and documents issued by the ACCC under section 155 of the Trade Practices Act 1974 (Cth) (Act). In November 2007, as part of its ongoing investigation into price-fixing in the air cargo industry, the ACCC issued a section 155 notice requiring KAL to provide information relating to fuel and other surcharges on air cargo in and out of Australia.
Section 155(1) allows the ACCC, where it has reason to believe that a person has information pertaining to a contravention of the Act, to issue a notice requiring that person to provide that information. In the Federal Court, KAL challenged the validity of the notice on the grounds that it was issued by the ACCC after it had decided to commence proceedings against KAL (in which case information could only be obtained through discovery). KAL asserted that the ACCC was misusing its powers under section 155, by seeking information to assist in determining the possible penalty it could seek against KAL, rather than ascertaining whether there was actually a contravention of the Act in the first place.
Justice Jacobson found that the ACCC must issue a section 155 order only ‘for the administrative function of determining whether proceedings should be instituted’. Justice Jacobson explained that this ‘is not limited to the gather(ing) of evidence on the question of liability. (Rather) it extends to the pursuit and assessment of information which informs the exercise of the discretion, properly exercisable by the ACCC, as to whether to institute proceedings.’ Moreover Justice Jacobson found that the use of section 155 for the purpose of ‘obtaining evidence to be tendered in penalty proceedings on the question of the quantum of any penalty is a legitimate use of power’.
This result will likely boost the ACCC’s confidence in defending future challenges to section 155 notices issued to Emirates and Singapore Airlines. In Emirates’ application before the Federal Court, the airline contends that international air cargo carriers compete for customers at the point of origin of the cargo, regardless of the location of the customer. Accordingly in-bound freight would be outside the ACCC’s ambit of power as such freight would not constitute a ‘market in Australia’. If this argument was accepted, it would significantly undermine the ACCC’s investigation. These proceedings will come before Justice Middleton in the Federal Court on 8 July 2008.
The findings of a number of recent reports demonstrate strong interest in enhancing protection for consumers and small business, and leave the distinct impression that the Federal Government is committed to more broadly legislating to prohibit unfair conduct by business.
In a consumer protection context, the Productivity Commission recommended, in its final report 'Review of Australia’s Consumer Policy Framework' (report) (discussed in a recent special edition of this newsletter), the inclusion of a provision prohibiting unfair contract terms in its proposed ‘national generic consumer law’. The report concluded that currently the unconscionable conduct provisions in the Commonwealth regime (under the Trade Practices Act 1974 (Cth) (Act)) only prohibit unfairness that crosses a high threshold of severity, while provisions relating to unfair conduct only deal with specific instances of unfair practices, such as misleading or deceptive conduct. As such, there is no broad prohibition on unfair practices by corporations in Australia.
The findings of the Productivity Commission in this regard will be given increased significance following the introduction of The Consumer Protection from Unfair Trading Regulations 2008 (regulations) in the United Kingdom on 26 May 2008. These regulations, which will sit alongside the United Kingdom’s Unfair Terms in Consumer Contracts Regulations 1999, impose criminal liability for businesses that engage in unfair commercial practices towards consumers in the United Kingdom.
Furthermore, there appears to be potential for a broadening in scope of the current unconscionable conduct provisions in the Act. In April this year, the Federal Government proposed a reform to remove the $10 million monetary threshold which currently applies to the operation of section 51AC. The reform also proposes a requirement that at least one deputy chair of the ACCC has small business experience.
The current form of the unconscionable conduct provisions in the Act, has come under heavy public scrutiny, with the Productivity Commission describing the provisions as ‘slow, uncertain and costly’. In a separate inquiry the South Australian Economic and Finance Committee report into franchises concluded that ‘section 51AC of the [Act] … is not being utilised because of a combination of drafting imprecision and judicial caution’. As such, the report recommended the introduction of a statutory definition for unconscionability in the Act.
On a further note, Justice Mansfield, a member of the Federal Court, has recently stated in a paper presented to the Law Society of South Australia’s Trade Practices Conference that in his view the law in relation to the unconscionable conduct provisions of the Act is ripe for further judicial development.
Given these developments, this appears to be an area of law to watch for future legislative and judicial activity.
The Federal Court of Australia has ruled that the Australian College of Dermatologists (college) has breached section 52 of the Trade Practices Act 1974 (Cth) (Act) and is liable to pay approximately $15,000 in damages to a practitioner who unsuccessfully applied to the college for a position as a trainee registrar.
The court ruled that the practitioner, Dr Shahid, had suffered loss as a result of misleading representations made in the college’s handbook. These representations related to the quality of its record keeping in relation to the selection process for trainee registrar positions and the adequacy of its appeals process for unsuccessful applicants.
A key question for the court in reaching its decision was whether the relevant activities of the college were ‘in trade or commerce’. If it were not, the college would not be in breach of the Act even if the court was satisfied that false representations were made. The court’s decision on this question however, extends beyond section 52 as ‘in trade or commerce’ is a phrase used throughout the Act.
Having accepted that the college was a trading corporation, the court noted that not all activities of a trading corporation will be ‘in trade or commerce’. Activities conducted ‘in trade or commerce’ will only be those that bear a trading or commercial character.
The court found that the college had a commercial relationship with practitioners such as Dr Shahid who participated in its training program and applied to it for trainee registrar positions. The college derived considerable revenue from its training program (an element of which required the completion of a period of supervised practice as a trainee registrar).
As the college’s handbook sets out details of the training program (including the selection and appeal process for trainee registrar positions) it was an important element of the commercial relationship between the college and potential applicants, the court was satisfied (by a 2–1 majority) that its publication was ‘in trade or commerce’. As a result, any misleading or deceptive representations made in the handbook may be found to be in breach of the Act.
The relatively small amount of damages involved in this case means it is unlikely that this decision will be appealed to the High Court despite the important implications of this decision for other professional associations.
The Federal Government has introduced a Bill into parliament to enact a national FuelWatch scheme. This scheme was one of the means (identified in the ACCC’s report ‘Petrol prices and Australian consumers: report of the ACCC inquiry into the price of unleaded petrol’, which was released in December 2007) of addressing the issues of price fluctuations and information imbalances between consumers and retailers in the retail petrol industry.
The Bill, if passed, will obligate petrol retailers to provide certain information to the ACCC upon establishment of the scheme and to thereafter notify the ACCC any time they intend to change the price they charge for fuel. Notification must be made by 2.00pm on the day before the change is implemented. Retailers must not charge a price other than the price that was notified to the ACCC and they will be obliged to maintain that price for at least 24 hours. The information provided by petrol retailers will be used by the ACCC to inform consumers of current petrol prices in their area via a dedicated website.
The ACCC will have responsibility for ensuring retailers comply with their obligations. The Bill provides a range of enforcement responses for retailers if they breach those obligations. Under the legislation, the ACCC will have the power to issue infringement notices imposing penalties of up to $550 for individuals and $2,750 for corporations. Alternately, on application by the ACCC and upon finding that a retailer has breached their statutory obligations, the court may impose a civil penalty up to $22,000 for individuals or $110,000 for corporations.
With so much attention being given to the Australian inquiry into the grocery industry, it is useful to consider developments in this area in the United Kingdom. The Competition Commission (CC) has conducted its own inquiry into grocery retailing in the United Kingdom after this responsibility was referred to it by the Office of Fair Trading (OFT) in 2006.
The CC has now published its final report which concludes that while United Kingdom grocery retailers are providing a good deal for consumers, action is needed to improve competition in local markets and to address relationships between retailers and their suppliers.
The CC expressed concern that larger grocery stores face limited competition in specific local markets, and thus recommended introducing a competition test as part of the planning regime to prevent such local markets from developing in the future. In regard to the retailer/supplier relationship, the CC recommended creating a new strengthened and extended Grocery Supply Code of Practice and establishing an independent ombudsman to oversee and enforce the code.
The results of this inquiry may be of relevance in Australia given that on 31 July this year, the ACCC is due to report on its own inquiry into the Australian grocery industry. On that front, hearings scheduled by the ACCC have now been completed and the ACCC has sought comment from interested parties on a series of possible amendments to the Horticulture Code of Conduct.
Microsoft to appeal fine in European court
Microsoft has lodged an appeal with the European Court of First Instance against the European Commission’s decision in February to fine Microsoft €899 million.
The fine was imposed after the European Commission found that Microsoft had not complied with a 2004 commission decision, that was later upheld by the European court. That decision required Microsoft to disclose interface documentation allowing non-Microsoft work group servers to achieve full interoperability with Windows PCs and servers at a reasonable price.
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