The COVID-19 pandemic is seeing no signs of abating and is continuing to sweep the globe and affect individuals and businesses far and wide. Businesses in Australia are facing serious pressures across a vast number of different industries due to this crisis and the increasingly stringent lock-down measures being rolled out by the Federal and State Governments.
Against this backdrop, the ACCC released on 27 March 2020 a much awaited formal response to the COVID-19 crisis and its new enforcement priorities and objectives. The ACCC has made it clear that it will be factoring the current circumstances into its consideration of competition matters “in the short term to assist businesses remain viable in the long term” and that:
“Maintaining competition in the long term will be critical to benefit both consumers and the economy. A competitive economy will be vital to Australia’s future, so as much as is possible, the ACCC wants to ensure any changes to the competitive landscape now are temporary and that the ACCC is ready to play its role in supporting competition as the economy recovers”.
A link to the full ACCC response is available here.
Whilst the current challenges being faced by the business community does not provide immunity from Australia’s competition and consumer laws and the ACCC’s enforcement priorities for 2020 remain (see our previous article ‘ACCC focus areas for 2020: funerals, food and more’), the ACCC has said it will “re-focus … [its] efforts to those priorities of most relevance to competition and consumer issues arising from the impact of COVID-19”. This is expressly said to include enhancing the ACCC’s efforts to address conduct which exploits the crisis to unduly enhance commercial position or harm consumers.
New priority areas for ACCC with COVID-19 crisis
- Consumer guarantees – the ACCC will continue to provide guidance to businesses and consumers on how the statutory regime will apply at this time and the obligations of suppliers/manufacturers of consumer goods/services in certain key industries like travel, events, weddings, gym memberships, food delivery services etc. (available to view here). The ACCC has also set up an internal COVID-19 Taskforce to communicate directly with businesses to educate them about their obligations in relation to cancellations, refunds and business freezes/suspensions as a result of COVID-19.
- COVID-19 scams – the ACCC will continue to raise awareness about these scams and provide useful guidance to consumers impacted by the same.1
- Price gouging for essential products – the ACCC will prioritise its activities in relation to price gouging of essential products by ensuring that businesses aren’t engaging in misleading or unconscionable conduct in this regard; and will continue its focus on affordability issues in the energy, telco and petrol sectors and will “name and shame” sectors/players where essential services are involved.
- ACCC active engagement with government/business and the fast-tracking of potential authorisations – the ACCC will support and enable coordination by competitors via the authorisation process that would generally be prohibited by competition law but which is “necessary and in the public interest at this time” (eg. collaboration of supermarkets allowing a coordinated approach to best ensure continuous and uninterrupted grocery supplied to consumers).
- Enforcement activities – the ACCC will seek to minimise regulatory burden as far as possible with these activities and will carefully consider the impact on businesses already under pressure when making decisions about the scope and timing of s155 investigation notices for production of information and documents.
- Merger clearances, authorisations/notifications will continue to be assessed by the ACCC with some modifications and priority given to urgent interim applications – the ACCC will continue to consider proposed merger clearances including new deals in line with its usual guidance (if necessary on an urgent basis) but recognises that timelines for some reviews/applications may need to be extended and that if the situation worsens, it may need to prioritise matters further. The ACCC has issued specific, more detailed merger control guidance for interested parties dated 27 March 2020, available to view here.
In this additional guidance, the ACCC has clarified that mergers will continue to be assessed on a case-by-case basis, taking into account the current environment as well the longer term impact on competition by a change in the structure of the relevant markets. However, with the ACCC moving to remote working arrangements, delays seem likely as non-essential meetings have been put on hold and the ACCC has flagged that timelines for some reviews (ie. those requiring public inquiries) may need extending where there are difficulties progressing these reviews. The ACCC is not formally asking for merger review applications to be delayed but it is encouraging parties to consider deferring applications where possible and to also update the regulator regularly regarding changes in commercial timing or changes in likelihood that a merger will go ahead.
The ACCC is anticipating an uplift in merger review work as insolvencies are likely to be part of the new norm in the coming weeks and months. It’s worth remembering the difficulties of successfully making out a ‘failing firm’ argument with the ACCC given that it tends to take a longer term view of competition and market structure. This means that merger applications that seek to rely on the target’s financial health to get the green light from the regulator will require careful thought and any submission will need to be carefully structured with persuasive and sound economic evidence in support, with the ACCC’s assessment going beyond the current impact of the crisis on the profits and share value of the merger parties.
- Infrastructure regulation modifications and continued monitoring – the ACCC will consider exemptions if current obligations are not practicable and will continue monitoring important sectors including broadband services, fuel prices and operation of energy markets.
- Consumer Data Right to be progressed
- Product safety a continued priority
In addition to these new COVID-19 target areas for the ACCC, businesses will need to continue to be mindful of complying with the many requirements of competition and consumer law, especially in certain high risk areas.
Competition law – other high risk areas
Collaboration by businesses – cartel or concerted practice?
For businesses that are wanting to collaborate with others to tackle the challenges thrown at them by this crisis, they still run the risk of breaching competition law especially the cartel provisions and newly enacted concerted practice provision. It will continue to be high risk for competitors to:
- coordinate in relation to the supply/acquisition or production of goods or services (eg. pooling of staff, distribution depots and freight services)
- agree or attempt to reach agreement on the pricing of goods or services
- allocate customers or territories even if this is to ease supply chain issues or supply shortages
- share competitively sensitive information in relation to business strategy or measures to tackle the crisis including managing issues in relation to supply and demand, supply chain logistics and customer management (eg. stock level data)
- work with industry associations in relation to strategy on pricing, supply arrangements for members
Businesses wanting to consider these sorts of group strategies will need to rely on certain exemptions to manage their competition law risks – either by way of a careful structured pro-competitive joint venture where there is cartel conduct involved or for other anti-competitive conduct, applying to the ACCC for a formal exemption by way of an authorisation (in relation to future conduct where it can be established that the net public benefit of the arrangement outweighs the detriment).
Four recent authorisation applications2 have been lodged by businesses across various critically impacted industries (grocery, banking, medical supplies and air travel), showing that these businesses are not taking any chances that the ACCC will temporarily relax its enforcement of competition law or turn a blind eye to competition law breaches. The ACCC has been prepared to grant these authorisations on an interim basis in record time showing that it is willing and able to move quickly to provide the relief sought by the businesses in the current circumstances. The ACCC will now proceed to conduct the usual public inquiries in each of these cases before making a final decision.
Unilateral conduct of businesses with substantial market power – a misuse of market power?
Businesses also need to take care with their behaviour where they have a substantial amount of market power as any conduct they engage in which has either an anti-competitive purpose or effect will expose them to competition law risk. Guidelines put out by the ACCC in 2018 highlight the following types of conduct that are particularly high risk, bearing in mind that a legitimate business justification given the current difficulties with supply and demand due to COVID-19 may justify this conduct:
- refusal to supply certain customers (or a constructive refusal to supply on reasonable terms)
- discrimination between customers in terms of price or supplier terms
- price gouging
- tying/bundling of goods and services
ACCC Chair Rod Sims has told the media that the ACCC will be careful monitoring for excessive pricing but that “to some extent, that’s not against the law, but … [the ACCC] … can … call them out”. You can expect the ACCC will follow through with this as unlike other jurisdictions, there is no specific prohibition on price gouging unless it is also a misuse of market power.
The Virgin Australia’s CEO was also in the media recently complaining about a misinformation campaign he claimed was being run by Qantas as to Virgin’s solvency, presumably making reference to the misuse of market power provisions and Qantas’ conduct being potentially anti-competitive and a back-door way of trying to ground Virgin and lessen competition in the aviation sector. We wait to see if the ACCC will take this matter up further.
Controlling resale prices – resale price maintenance?
Suppliers must also continue to be careful when imposing pricing controls on resellers or distributors to ensure this doesn’t amount to unlawful resale price maintenance. Imposing minimum resale prices are a red flag but seeking to enforce maximum resale prices can often be possible.
Consumer law – other high risk areas
Businesses need to continue to be mindful of the requirements of the Australian Consumer Law (ACL) when promoting their products to ensure they are not falling foul of the requirements in relation to unfair practices.
Advertising and marketing claims – misleading or deceptive or false representations?
The over-arching prohibition on misleading or deceptive conduct and those preventing false representations being made about goods or services’ standard, quality or grade, price or approval or performance characteristics continue to apply. This requires businesses to continue to be vigilant about not making over inflated claims about products and also not being truthful about the reasons for price increases. Statements made must create a truthful, overall impression or run the risk of exposing the maker to significant penalties/fines.
Price gouging – misleading or deceptive or unconscionable conduct?
Whilst there are no specific laws in the ACL prohibiting the charging of excessive prices, businesses need to ensure representations made about price increases are truthful and not misleading or deceptive and also that their behaviour doesn’t amount unconscionable conduct.
No doubt lobbyists will push even harder for a general fair dealing provision if businesses behave poorly over this period and try to capitalise on the misfortune of the community at large.
Take home points –
- With the challenges the COVID-19 pandemic is creating for businesses in Australia, the ACCC will be re-focusing its efforts to those competition and consumer law priorities of most relevance to issues arising from the crisis. This includes consumer guarantees, price gouging/affordability issues, fast-tracking authorisation applications to allow industry players to collaborate in a way that would normally be prohibited as cartel conduct or anti-competitive conduct and product safety issues.
- Despite the ACCC’s appreciation of the impact of the current crisis on Australian consumers and business and the ACCC wanting to play a role in supporting competition and ensuring businesses remain viable in the long term, competition and consumer law continues to apply in Australia.
- The ACCC will tackle head-on businesses that seek to exploit the crisis either to unduly enhance their commercial position or harm consumers.
- Collaboration between competitors, even if it’s well intentioned, may infringe competition law so care is required with this to ensure this is done carefully. It may be necessary for a joint venture to be set up or an authorisation to be lodged with the ACCC (before engaging in the conduct) to ensure your business is adequately protected from the competition law risks. The ACCC has said it will progress these authorisations “very quickly” where there is clear public benefit but a written submission must be made and certain formalities attended to in order to provide the ACCC with sufficient evidence in order for the regulator to weigh up the public benefit/detriment.
- Disclosing strategic, forward looking competitively sensitive information without more could expose your business to liability under the untested concerted practices provision. This makes disclosing the following sorts of information particularly high risk – pricing information, your general commercial strategy or that in relation to customers, new product development.
- Advertising and marketing must continue not to be false or misleading or deceptive. Price rises that are said to relate to COVID-19 must be genuinely as a result of this crisis.
- Be aware that the ACL prohibitions on misleading and deceptive conduct and unconscionable conduct may be used to tackle price gouging and other unsubstantiated claims about your products.
- Seek guidance on the specific requirements of your business to ensure you are not unnecessarily taking on competition and consumer law risks either for your business or you personally during this unprecedented time. Careful and strategic structuring may help to by-pass some if not all of these risks.
- Now could be the perfect time to do a sanity check of your competition and consumer law compliance program and provide staff with training on the “do’s and don’ts” of competition and consumer law.
Contact the team at Addisons to help guide you through the competition and consumer requirements and current challenges with this crisis.
1.See https://www.accc.gov.au/consumers/consumer-rights-guarantees/covid-19-coronavirus-information-for-consumers and https://twitter.com/Scamwatch_gov
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