On 18 August, the Federal Government released the exposure draft, Treasury Laws Amendment (Competition and Consumer Reforms No. 1) Bill 2022: More competition, better prices (the Exposure Draft) for stakeholder consultation, which seeks to implement an election promise to increase the maximum penalties for contravening Australia’s competition and consumer laws under the Competition and Consumer Act 2010 (Cth) (CCA).
What you need to know
- The changes in the Exposure Draft raise a real prospect of significantly higher competition and consumer law penalties for large companies.
- The new proposed maximum penalties for individuals mean we may see an increase in whistleblowers and immunity applications from individuals involved in anti-competitive conduct.
- If the Exposure Draft becomes law alongside the proposed changes to the Unfair Contract Terms (UCTs) regime, this will further increase the risks for companies in having ‘unfair’ contract terms: from the current UCT regime where unfair terms can only be declared void by the Courts, to potentially attracting huge penalties. It’s worth noting while the proposed amending bill for the UCT regime lapsed at the last sitting period before the 2022 Federal election, Andrew Leigh MP has made clear he intends to re-introduce the bill.
What are the new proposed maximum penalties?
Under the Exposure Draft, the maximum penalties for contravening both competition and consumer laws in the CCA are set to increase for companies to the greater of:
- $50 million;
- 3x the value of the benefit obtained, if that can be determined; or
- if the value of benefit cannot be determined, 30% of the company’s adjusted turnover during the breach turnover period for the offence.
For individuals, the proposed maximum penalty will increase fivefold to $2.5 million.
These changes will be prospective, meaning they will only apply to offending conduct that occurs after the laws have taken effect. The current regime will still apply to conduct that occurs before this.
The table below sets out how the proposed new penalties compare to the existing penalties.
|Proposed new penalties|
The greater of:
|$10 million||$50 million|
|3x the value of the benefit obtained, if that can be determined||3x the value of the benefit obtained, if that can be determined|
|if the value of the benefit cannot be determined, 10% of annual turnover in the 12 months prior to the breach||if the value of the benefit cannot be determined, 30% of adjusted turnover during the breach turnover period (i.e. over the period the breach occurred, with a minimum of 12 months)|
What are the implications of the proposed changes?
- The way penalties are calculated under the third limb of the Exposure Draft’s penalty provisions raises the prospect of significantly higher competition and consumer law penalties for large companies. This is because:
- it would increase the relevant turnover percentage from 10% to 30% of a company’s Australian turnover during the period that the breach occurred;
- it could extend the period over which the penalty would be calculated by years. While 12 months would be the minimum period over which a company’s turnover can be counted towards a penalty under the proposed legislation (even for one-off or instantaneous contraventions that do not occur over a sustained period of time), this period could also be extended as far back as the beginning of the month when the breach first occurred. This is in contrast to the existing regime where the turnover penalty limb is based on the 12 months preceding the contravention; and
- calculating the value of benefits obtained from contravening conduct is not a straight-forward exercise and there have not been many cases where the Courts have had to grapple with the issue of benefits and quantification in a contested context. There have been some cases where parties have put to the Court that while benefits were obtained, they were unable to be determined, meaning the maximum penalty is based on the turnover limb. Interestingly, the sharp increase in the turnover percentage limb may see a renewed impetus on respondents to prove whether any benefit obtained can in fact be calculated, to avoid potentially steeper penalties under the turnover limb.
- However, these increases are to the maximum penalties that the Courts can apply per contravention. The Courts still have discretion over determining the appropriate penalty to impose and there are many other factors that they will consider. While even the most egregious instances of contravening conduct would attract higher penalties, they are usually some way off the maximum applicable penalty per contravention. In a recent case involving Uber, the Court expressed the view that the penalties jointly proposed by the parties (a total of $26m) seemed too high given the “trivial effect” the conduct had on consumers.
- As mentioned above, the Federal Government has made clear it intends to introduce legislation to make UCTs illegal and subject to the penalty provisions in the CCA. If this law and the Exposure Draft are passed, the UCT regime will go from one where unfair terms can only be declared void by the Courts to potentially attracting huge fines.
- We may see an increase in whistleblowers and immunity applications from individuals involved in anti-competitive conduct if the Exposure Draft becomes law. The new fivefold increase in the maximum penalty for individuals to $2.5 million is especially significant when considered alongside sections 77A and 77B of the CCA. These provisions prevent companies from indemnifying individual employees and executives for pecuniary penalties in relation to breaches of the competition provisions in the CCA, and legal fees if found liable for a contravention.
- If the Exposure Draft becomes law, consumer law penalties will increase from a maximum penalty of $1.1 million pre-September 2018, to the current $10 million, to $50 million. This is consistent with the current trend of higher consumer law penalties more generally (e.g. the Australian Institute of Professional Education was ordered to pay a record $153 million in penalties by the Federal Court in December 2021).
How did we get here?
In 2019, while in opposition, the Australian Labor Party (the ALP) proposed that the maximum penalty for competition law breaches should be the greater of $50 million or 30% of the annual sales of affected products / services, multiplied by the number of years the breach of law took place. The ALP also stated that Australian markets were heavily concentrated and Australia was lagging behind comparable jurisdictions in terms of maximum penalties for breaches of competition and consumer laws.
More recently, as part of its Federal election campaign in May 2022, the ALP announced plans to increase the maximum penalty for anti-competitive conduct from $10 million to $50 million in order to help “ease the cost of living” and support businesses who “play fair”.
The Explanatory Memorandum to the Exposure Draft states that there is a risk competition law breaches may be seen as an acceptable cost of doing business (particularly for large businesses) as the base maximum penalty of $10 million has not changed for nearly 30 years. It also refers to the 2018 OECD “Pecuniary Penalties for Competition Law Infringements in Australia” report, which found that the average and maximum competition penalties in Australia are substantially lower than those in comparable international jurisdictions (this report was also referred to by the ALP in 2019).
In a fairly short window for stakeholder feedback (7 days in total), submissions to the Federal Government on the Exposure Draft closed yesterday (25 August 2022). The timing for introducing these changes is unknown, so make sure to watch this space for further updates.
Regardless of whether these proposed changes become law, businesses should ensure their competition and consumer law compliance policies and programs are up to date and staff are adequately trained to minimise the risk of breaching the CCA and incurring large financial penalties.