Bills Digest No. 3  2000-01 Trade Practices Amendment Bill (No.1) 2000


Numerical Index | Alphabetical Index

WARNING:
This Digest was prepared for debate. It reflects the legislation as introduced and does not canvass subsequent amendments. This Digest does not have any official legal status. Other sources should be consulted to determine the subsequent official status of the Bill.

CONTENTS

Passage History
Purpose
Background
Main Provisions
Concluding Comments
Endnotes
Contact Officer & Copyright Details

Passage History

Trade Practices Amendment Bill (No.1) 2000

Date Introduced: 29 June 2000

House: House of Representatives

Portfolio: Treasury

Commencement: Schedule 1 commences 28 days after Royal Assent. Items 4 and 5 of Schedule 2 which will allow the Court to make a non-punitive order against a corporation that misrepresents the effect of the new tax system will also commence 28 days after Royal Assent. The remaining provisions of Schedule 2 relate the application of the Criminal Code and will commence on 15 December 2001.

Purpose

The Bill amends the enforcement and remedies provisions of the Trade Practices Act 1974 (TPA). The principal amendments will:

  • increase the maximum penalty levels under the TPA to $1.1 million for offences against the consumer protection provisions
  • allow the Australian Competition and Consumer Commission (ACCC) to intervene in private proceedings and institute representative actions for contravention of the restrictive trade practices provisions
  • provide the Court with ability to impose non-monetary penalties such as community service orders, probation orders and adverse publicity orders for contravention of the TPA
  • extend the limitation periods of the TPA to six years, and
  • ensure the Courts give preference to compensation over fines and pecuniary penalties.

Background

As this Bill has no central theme the background to the various measures is included in the discussion of the main provisions.

Main Provisions

Schedule1

Market Definition

Section 50 of the TPA prohibits a corporation from acquiring shares in a body corporate or the assets of a person if the acquisition would have the effect, or be likely to have the effect, of substantially lessening competition in a market.

The definition of the market is crucial in the application of this test. The broader the concept of market the less likely it is that a particular acquisition will be found to breach section 50.

Item 1 amends the definition of market in subsection 50(6) of the Act. Currently this provision defines a market as a substantial market for goods or services in Australia, in a State or Territory. Item 1 adds regional markets to this definition. Item 40 makes an identical amendment to subsection 50(6) of the schedule version of Part IV which forms part of the Competition Code adopted by the States and Territories.

The Joint Select Committee on the Retailing Sector (the Baird Committee) recommended this amendment.(1) While the ACCC's mergers guidelines already state that the relevant substantial market can be a regional market,(2) the Government has endorsed this provision as a means of ensuring that the ACCC considers the impact of a proposed merger on heavily concentrated regional markets.(3) The amended section 50 will prohibit acquisitions that would substantially lessen competition in a substantial market in a region of Australia. It will not matter that the market is not substantial in relation to a State, Territory or Australia as a whole.

Unconscionable Conduct: Threshold

Item 2 also implements a recommendation of the Baird Committee. In general terms section 51AC provides that a corporation must not engage in unconscionable conduct in relation to business transactions involving the supply, or acquisition of goods or services of under $1 million or such higher amount as is prescribed. This provision was inserted into the TPA in 1998 and was intended to be a new substantive legal remedy for small business against unconscionable conduct.(4)

The Baird Committee found that the $1 million transactional ceiling hindered access by small business to the remedies in the TPA.(5) Item 2 implements the Committee's recommendation to raise the threshold to $3 million.

It should be noted that this provision is, strictly speaking, unnecessary. In June 2000, the Government amended the Trade Practices Regulations 1974 to prescribe a $3 million threshold for section 51AC.(6) This regulation took effect on 1 July 2000. The Explanatory Memorandum states that it is nevertheless appropriate to incorporate the change into the legislation because of the magnitude of the increase in the transactional limit.(7)

Concurrent Operation of State and Territory Laws.

Items 3 and 4 are designed to ensure that the TPA provisions on unconscionable conduct and industry codes do not override State or Territory laws which are not directly inconsistent with the TPA.

Section 109 of the Constitution provides that 'when a law of a State is inconsistent with a law of the Commonwealth the later shall prevail and, the former shall to the extent of inconsistency, be invalid.' A State law may be held to be directly inconsistent with a Commonwealth law if the legislation in question makes a contradictory provision in relation to the same topic. This amendment however is designed to ensure that there is no indirect inconsistency. Where there is no textual conflict between a State law and a Commonwealth law there will nevertheless be an inconsistency if the State law purports to regulate an activity which the Commonwealth law purports to regulate exclusively and exhaustively.(8) The amendments proposed by items 3(9) and 4 make clear that the Commonwealth does not intend to cover the field in relation to unconscionable conduct or industry codes.

These amendments are of immediate practical significance. In December 1998, the New South Wales Parliament passed the Retail Leases Amendment Act. A provision of that Act prohibits unconscionable conduct in retail shop leases transactions. The provision has not yet been proclaimed due to the need to enact savings provisions in the TPA to ensure that there is no indirect inconsistency between Commonwealth and State law.

Extending the Definition of 'Goods'

Sections 65F and 65R of the TPA respectively deal with compulsory and voluntary recalls of 'goods'. The meaning of this term was recently the subject of Federal Court scrutiny in the case of Theo Holdings Pty Ltd v Hockey.(10) The case concerned the validity of a compulsory product recall notice issued by the Minister for Financial Services and Regulation in relation to fire doors that were fitted to various buildings.

The term 'goods' is defined only in an inclusive sense in section 4 of the TPA and the Court held that the common law distinction between goods and fixtures was preserved. This distinction has been expressed by one commentator in the following terms: 'goods which are affixed to land (or to other goods which are themselves fixed to land) become fixtures, thus losing their character as goods and becoming part of the land itself.'(11) As a consequence, the Court held that fire doors when fitted to a property became fixtures and consequently could not be the subject of a recall order.

Items 6 and 7 amend sections 65F and 65 R to explicitly state that 'goods' includes things that were goods at the time they were supplied(12) but became fixtures after the supply. The new definition of goods will only apply in relation to goods supplied after the commencement of the amendment (item 8).

Amendments to the Penalty and Enforcement Provisions

Increased Fines for Contravention of Consumer Protection Provisions

Section 79 provides for fines for persons convicted of breaching the consumer protection provisions in Part V.(13) The maximum level of fines is set at $40,000 in the case of a person and $200,000 for a body corporate. In 1994 the Australian Law Reform Commission (ALRC) recommended that these penalties be increased in order to reflect the community's disapproval of such conduct.(14) Item 9 deletes the separate monetary amounts in section 79 and inserts a provision that the fine must not exceed 2000 penalty units.

The amount of a penalty unit is stated in section 4AA of the Crimes Act 1914 and is currently $110.

Subsection 4B(3) of the Crimes Act provides that where a body corporate is convicted of an offence against a law of the Commonwealth, the Court may impose a pecuniary penalty not exceeding an amount equal to 5 times the amount of the maximum pecuniary penalty that could be imposed by the Court on a natural person convicted of the same offence.

Therefore the effect of the amendment in item 9 is that the maximum fine for an individual breaching Part V of the Act is $220,000 for a natural person and $1.1 million for a corporation. The new penalty regime will only apply to offences committed after the commencement of the amendments (item 10).

Preference for Compensation Payments

New Section 79B is also the result of a recommendation by the ALRC.(15) The Commission expressed a concern that the existing range of remedies does not always ensure that a successful complainant receives compensation. Proposed section 79B will allow the Court to give priority to compensating the plaintiff.

If the Court considers that the defendant should pay a fine or pecuniary penalty(16) as well as compensation but also believes that the defendant has insufficient financial resources to meet both liabilities, the Court must give preference to making an order for compensation.

The Explanatory Memorandum makes clear that it is not intended that this new section should enable a Court to reduce or waive the fine or penalty because of the defendant's financial circumstances.(17) Enforcement proceedings may be brought against a defendant who fails to pay under section 77 in the case of pecuniary penalties or section 79A in the case of fines.

Damages for Unconscionable Conduct

Item 18 amends section 82 of the Act to provide that a person who suffers loss or damage through conduct of another person which is unconscionable under Part IVA is entitled to institute an action for damages.

Some submissions to the ALRC questioned whether damages were an appropriate remedy for contravention of Part IVA. One Federal Court Judge stated that:

'Unconscionable conduct' involves some fairly subjective content and perhaps sometimes an application of retrospective morality. It may be sufficient to have power to set aside transactions etc without imposing liability for damages on respondents.(18)

The ALRC was not convinced alleged uncertainties about the application of Part IVA meant that damages should not be available. The ALRC noted that damages are in any event available for a contravention of Part IVA under section 87. (19)

Limitation Period for Damages Claims and Ancillary Orders

Subsection 82(2) provides that an action for damages must be commenced within 3 years after the date on which the cause of action accrued. Subsection 87(1CA) states that an application for an ancillary order must be made within 2 years of a contravention of the unconscionable conduct provisions or within 3 years of a breach of any other provision. The ALRC noted several disadvantages associated with these strict limitation periods including that:

  • it can cause injustice in 'long gestation cases' where a person does not become aware that they have suffered a loss until many years after a transaction which contravened the TPA. For example, where a person is induced into purchasing a superannuation or insurance product by misleading and deceptive or unconscionable conduct the financial consequences of such a decision may not become apparent for sometime
  • aggrieved persons are discouraged from using alternative dispute resolution mechanisms because they must decide quickly whether to initiate Court action, and
  • the ability of disadvantaged person to initiate action which relies on a prior finding of fact by the Court in matters brought by the ACCC is limited.(20)

In order to address such problems item 19 extends the limitation period for commencing actions for damages under section 82 from 3 to 6 years. The limitation periods for bringing an application under section 87 are also extended by item 31 to 6 years after the day on which the cause of action that relates to the conduct accrued.

This approach differs from that advocated by the ALRC. The Commission took the view that the potential for injustice should be addressed by amending section 82 to allow the Court to extend the period in which a claim for damages can be made if the Court considers it to be appropriate. It also recommended that the Court's discretion in deciding what factors to take in account in making this decision should be unfettered. The Government has rejected this recommendation on the basis that it would 'substantially increase levels of business uncertainty.(21)'

Increasing the Range of Non-Monetary Penalties

The principal sanction for contravening the TPA is the imposition of fines or pecuniary penalties. In its report the ALRC argued that there were significant limitations associated with imposing monetary penalties on corporations. These included that:

  • large monetary penalties do not necessarily result in corporate offenders taking internal disciplinary action against responsible officers and that as a consequence internal controls are often not revised to prevent further contraventions
  • the burden of a large monetary penalties may be borne by shareholders, workers or consumers rather than the responsible officers of the offending corporation
  • monetary penalties may convey the impression that offences are purchasable commodities or a cost of doing business
  • a large monetary penalty may force a corporation into liquidation. The Court will be faced with the choice between putting the company into liquidation or imposing a penalty that does not reflect the gravity of the offence, and
  • monetary penalties are prone to evasion through the use of incorporated subsidiaries and other avoidance techniques such as asset stripping.(22)

Proposed section 86C provides that where a person has contravened provisions relating to restrictive trade practices, unconscionable conduct, industry codes, consumer protection or price exploitation or has been involved in those contraventions the Court may, on the application of the ACCC, make:

  • a community service order
  • a probation order for no longer than 3 years
  • an order to disclose specified information in a specified way, and
  • an order that the person publish specified advertising at the person's expense.

The term 'community service order' (CSO) is defined in proposed subsection 86C(4) as an order directing the person to perform a service that is specified in the order and relates to conduct for the benefit of the community or a section thereof. Corporations are often required to operate programs of this type as a result of section 87B undertakings they have given to the ACCC. It is common for companies to undertake to carry out a community awareness program about compliance issues.(23) New section 86C will enable such programs to be imposed on companies that are not prepared to give a voluntary undertaking.

A 'probation order' includes an order directing a person:

  • to establish a compliance, education or training program for their employees or other persons involved in their business, and
  • to revise the internal operations which led to the person breaching the TPA.

As with CSOs, the content of a probation order is similar to the enforceable undertakings given to the ACCC pursuant to section 87B. Such undertakings often include a commitment to implement a trade practices compliance program and complaints handling system.

A system of corporate probation has operated in the United States for some time. The United States Sentencing Commission issues guidelines which are binding on Federal Courts. The guidelines provide that probation must be imposed on corporate felons in a number of circumstances, including where:

  • it is necessary to secure the payment of restitution or a fine
  • the organisation does not have a compliance and detection program and has more than 50 employees
  • the organisation has engaged in similar misconduct within the previous five years, or
  • it is necessary to ensure that the organisation will make changes to reduce the likelihood of future criminal conduct.(24)

In contrast to the US approach, proposed section 86C does not guide the Court in any way as to when it will be appropriate to exercise its discretion to impose a probationary order.

The increased flexibility in sentencing provided by section 86C will come at a cost. For community service orders and probation programs to be effective compliance must be closely monitored and enforced.

Adverse Publicity Orders

Proposed section 86D provides that where a person is guilty of an offence under section 79 for breaches of the consumer protection provisions or been ordered to pay a pecuniary penalty under section 76 for engaging in restrictive trade practices or price exploitation, the Court may on the application of the ACCC make an adverse publicity order.

The nature of this order is defined in proposed subsection 86D(2) as an order requiring a person to disclose certain information in a specified way and to publish the information at their own expense. For example, a corporation may be ordered to publicise the fact that it has breached the TPA and details of what it has been ordered to do.(25)

A disadvantage of adverse publicity orders is that it is difficult to gauge the impact of the order. However as the ALRC points out the actual impact of fines may also be difficult to assess in terms of whether they are effective in changing company attitudes towards compliance.(26)

Section 80A already authorises the court to make non-punitive orders requiring a wrongdoer to disclose specified information to the public, in a way set out in an order. Non-punitive orders are designed to undo the effects of a contravention. For example, an order to publish corrective advertising must bear some nexus to the offending conduct. Under section 80A however the court is not able to make punitive orders, that is an order given to punish a wrongdoer.(27) Section 80A is repealed by item 16. The court will be empowered to make non-punitive orders under proposed paragraphs 86C(2)(c) and (d) and punitive orders under proposed section 86D.

Representative Actions by the ACCC

Section 87(1A), amongst other things, allows the ACCC to apply to the Court for an order on behalf of a person or group of people who have, or are likely to suffer loss or damage by conduct which breaches provisions of the Act concerning unconscionable conduct (Part IVA), industry codes (Part IVB) or consumer protection (Part V). However, the ACCC is not able to bring an action on behalf of persons who have suffered loss or damage as a result of conduct which breaches the restrictive trade practices provisions in Part IV of the Act.

The new subsection 87(1A) inserted by item 28 will allow the ACCC to undertake representative actions and to seek damages on behalf of third parties for contraventions of the restrictive trade practices provisions (Part IV).

This amendment was most recently recommended by the Baird Committee in 1999. The ALRC (1994)(28) and the Reid Committee (1997)(29) also recommended the change as means to improve access to justice for consumers and small business.

Currently, subsection 87(1B) requires the Commission to have commenced an action for breach of Part V under section 79 or to be seeking an injunction before a representative action can be brought. Item 28 amends section 87(1B) to abolish this requirement. This amendment was recommended by the ALRC which found it to be 'an unnecessary complication that causes delay to the institution of proceedings and places an administrative burden on the ACCC.'(30)

ACCC Intervention in Private Proceedings

Proposed section 87CA will allow the ACCC to seek the leave of the Court to intervene in private proceedings instituted under the TPA. As the Explanatory Memorandum notes, this provision will allow the Commission to address issues of public interest that have not been addressed by the parties.(31) The Commission will develop guidelines on the circumstances when it will intervene.

Declarations

Section 163A of the TPA allows a person to apply to the Court for a declaration in relation to the operation or effect of any provision of the TPA (except for provisions with respect to implied warranties) and the validity of any act or thing done, proposed to be done or purporting to have been done under the TPA.

The ACCC is presently not entitled to seek such a declaration but may intervene in proceedings that have already commenced. This restriction is removed by item 37 which inserts a new section 163A(3).

The ALRC recommended this amendment to provide the ACCC with an additional means of enforcing compliance with the TPA. It observed that 'declarations are a relatively quick, inexpensive and efficient enforcement tool that can help avoid or minimise protracted litigation by providing binding authoritative statements of law as it applies to the parties.'(32)

ACCC Annual Report

In order to improve the ACCC's accountability item 39 inserts an amendment to section 171 which requires the ACCC to address a range of matters in its annual report. These matters include:

  • the ACCC's use of its powers to obtain information, documents and evidence under section 155 and 155A
  • the number of complaints received by the ACCC in relation to its operations, enforcement activities or any other issue, a general summary of the kinds of complaints received and how the Commission dealt with them
  • a general description of the major matters investigated by the ACCC, and
  • the number of times the ACCC has intervened in proceedings and a general description of the reasons for doing so.

Schedule 2

The Treasury Legislation Amendment (Application of Criminal Code) Bill 2000 inserts a new Part VC into the TPA. On commencement, proposed Part VC will divide the present civil and criminal consumer protection regime between the current Part V and the new Part VC. Part V will retain the contraventions which give rise to civil actions. Proposed Part VC will establish a separate criminal consumer protection regime within the TPA which will replicate provisions currently within Division 1 (Unfair practices) and 1A (Product safety and information) of Part V of the Act but in addition will give effect to the Criminal Code.(33)

Items 1,2, 6 and 7 make amendments consequential on the passage of the Treasury Legislation Amendment Bill and the establishment of a separate regime for criminal offences.

Existing section 75AYA prohibits corporations from misrepresenting the effect of the new tax system changes. Items 4 and 5 amend proposed section 86C to allow to the Court to make non-punitive orders such as a probation order or a community service order against a corporation that has engaged in misrepresentation in relation the effect of the new tax system.

Concluding Comments

This Bill finetunes the TPA by removing anomalies in the ACCC's enforcement capacity such as its inability to institute representative actions for breach of the restrictive trade practices provisions, intervene in private proceedings or seek declarations. It also acknowledges the weakness of the Act's present reliance on monetary penalties and broadens the range of sanctions available to the Court to include community service orders and probationary orders. The ACCC will need to be sufficiently funded to ensure that wrongdoers are performing their obligations under these orders. Given that the overwhelming majority of the measures contained in this Bill where advocated by the ALRC in 1994 it may be argued that the amendments proposed by this Bill are long overdue.

Endnotes

  1. Joint Select Committee on the Retailing Sector, Fair Market or Market Failure? A Review of Australia's Retailing Sector, August 1999, p. xxi.
  2. Australian Competition and Consumer Commission, Merger Guidelines, June 1999, p. 42.
  3. Government Response to the Report of the Joint Select Committee on the Retailing Sector, December 1999, p. 2.
  4. The Hon. Peter Reith, Trade Practices Amendment (Fair Trading) Bill 1997, 30 September 1997, Debates, p. 8800.
  5. Joint Select Committee on the Retailing Sector, Fair Market or Market Failure? A Review of Australia's Retailing Sector, August 1999, p. xxiii.
  6. Trade Practices Amendment Regulations 2000 (No.2).
  7. Explanatory Memorandum p. 9.
  8. Ex parte McLean (1930) 43 CLR 472. See discussion in Halsbury's Laws of Australia, p. 165,222.
  9. Item 3 is identical to a provision in a private member's bill introduced by the Shadow Minister for Small Business on June 5. See, Trade Practices Amendment (Unconscionable Conduct-Saving of State and Territory Laws) Bill 2000.
  10. Unreported [2000] FCA 665 (22 May 2000).
  11. Russell Miller, Miller's Annotated Trade Practices Act, LBC, Sydney 2000, par 1.4.85.
  12. For example, stoves, dishwashers, light-fittings.
  13. Excluding sections 52, 65Q, 65R and 65F(9).
  14. Australian Law Reform Commission, Compliance with the Trade Practices Act 1974, 1994 p. 126. (ALRC 1994)
  15. ALRC 1994, p. 58/59.
  16. Section 76 imposes pecuniary penalties rather than fines so as to avoid the application of the criminal onus of proof in cases involving the contravention of the restrictive trade practices and price exploitation provisions.
  17. Explanatory Memorandum, p. 11.
  18. Justice P Heerey cited in ALRC 1994, p. 70.
  19. ALRC 1994, p. 71.
  20. ALRC 1994, p. 63.
  21. Explanatory Memorandum, p. 13.
  22. ALRC 1994, p. 106.
  23. The types of undertakings accepted by the ACCC can be seen on its register see http://www.accc.gov.au/
  24. United States Sentencing Commission, Sentencing Guidelines s8D1.1(a). http://www.ussc.gov/1998guid/98chap8.htm
  25. Explanatory Memorandum, p. 15.
  26. ALRC 1994, p. 116.
  27. ALRC 1994, p. 115.
  28. ALRC 1994, p. 46.
  29. House of Representatives Standing Committee on Industry, Science and Technology, Finding a balance: towards fair trading in Australia, May 1997, p. 133.
  30. Explanatory Memorandum, p. 16.
  31. ibid., p. 17.
  32. ALRC 1994, 141.
  33. See Bills Digest no.4, 2000-2001, Treasury Legislation Amendment (Application of Criminal Code) Bill 2000.

Contact Officer and Copyright Details

Mark Tapley
31 July 2000
Bills Digest Service
Information and Research Services

This paper has been prepared for general distribution to Senators and Members of the Australian Parliament. While great care is taken to ensure that the paper is accurate and balanced, the paper is written using information publicly available at the time of production. The views expressed are those of the author and should not be attributed to the Information and Research Services (IRS). Advice on legislation or legal policy issues contained in this paper is provided for use in parliamentary debate and for related parliamentary purposes. This paper is not professional legal opinion. Readers are reminded that the paper is not an official parliamentary or Australian government document.

IRS staff are available to discuss the paper's contents with Senators and Members
and their staff but not with members of the public.

ISSN 1328-8091
© Commonwealth of Australia 2000

Except to the extent of the uses permitted under the Copyright Act 1968, no part of this publication may be reproduced or transmitted in any form or by any means, including information storage and retrieval systems, without the prior written consent of the Parliamentary Library, other than by Members of the Australian Parliament in the course of their official duties.

Published by the Department of the Parliamentary Library, 2000.

Back to top


Facebook LinkedIn Twitter Add | Email Print
Back to top