Australian Government consulting on a draft bill to increase penalties to eye-watering levels

What you need to know

• The Australian Federal Government has released Exposure Draft legislation which proposes to significantly increase competition and consumer law penalties.
• Consultation on the Exposure Draft concludes on 25 August 2022.
• The brevity of the consultation period may signal an intention to bring the changes before Parliament sooner rather than later.

What you need to do

• Interested parties may make a submission to Treasury on the Exposure Draft until 25 August 2022.

On 18 August 2022, the Government released for consultation the Treasury Laws Amendment (Competition and Consumer Reforms No. 1) Bill 2022: More competition, better prices.  

The draft bill proposes to significantly increase the maximum penalties applicable for certain contraventions of the Competition and Consumer Act 2010 (CCA).  The Bill is intended to fulfil one of the Government's election promises, to strengthen Australia's competition laws.

New maximum penalties

The draft bill proposes to increase the maximum civil and criminal penalties for corporations to the greatest of:

• $50 million (increased from $10 million);
• if the court can determine the value of the benefit obtained – three times the value of that benefit (no change); and
• if the court cannot determine the value of the benefit obtained – 30% of the body corporate's "adjusted turnover" during the "breach turnover period" for the act or omission (increased from 10% of body corporate's annual turnover in the 12 months prior to the act or omission). 

For individuals, the draft bill proposes to increase the maximum civil penalty from $500,000 to $2.5 million.  The bill does not propose to change the maximum criminal penalties for individuals (which include imprisonment for up to 10 years and a fine of up to 2000 penalty units). It is unclear whether this is intentional or an oversight in the bill. 

The draft Bill also proposes to increase the civil penalties for contravention of the "competition rule" in Part XIB of the CCA, which applies to corporations and individuals the telecommunications industry.  

Widespread application across significant competition and consumer law prohibitions

The bill proposes that the increased maximum civil and criminal penalties would have widespread, but not blanket application.  They would nonetheless apply to arguably the most significant parts of the CCA and Australian Consumer Law.

Key competition provisions to which the new penalties would apply include:

• making and giving effect to a cartel provision (sections 45AJ, 45AK and the related criminal sections 45AF and 45AG);
• contracts, arrangements or understandings and concerted practices that restrict dealings or affect competition (section 45);
• secondary boycotts for the purpose of causing substantial lessening of competition (section 45DA);
• misuse of market power (section 46, and the related section 46A);
• exclusive dealing (section 47);
• resale price maintenance (section 48);
• dual listed company arrangements that affect competition (section 49);
• acquisitions that result in a substantial lessening of competition (section 50); 
• acquisitions that occur outside Australia (section 50A); 
• certain requirements of Part IVBA -News media and digital platforms bargaining code (sections 52ZC, 52ZH, 52ZS and 52ZZE); and
• multiple prohibitions in Part XICA - the Electricity Industry (sections 153E, 153F, 153G and 153H).

Key consumer provisions to which the new penalties would apply include:

• unconscionable conduct (section 20) and unconscionable conduct in connection with goods and services (section 21);
• false or misleading representations about goods or services or land (sections 29 and 30 and the related criminal sections 151 and 152);
• misleading conduct relating to employment (section 31 and the related criminal section 153);
• offering rebates, gifts, prizes or other free items with intention of not providing it (section 32 and the related criminal section 154);
• misleading conduct as to the nature, characteristics, suitability for purpose or quantity of goods or services (sections 33 and 34 and the related criminal sections 155 and 156);
• bait advertising (section 35 and the related criminal section 157);
• wrongly accepting payment (section 36 and the related criminal section 158);
• misleading representations about certain business activities (section 37 and the related criminal section 159);
• unsolicited credit or debit cards (section 39 and the related criminal section 161);
• asserting rights to payment for unsolicited goods or services or unauthorised entries or advertisements (sections 40 and 43 and the related criminal sections 162 and 163);
• pyramid schemes (section 44 and the related criminal section 164);
• single figure price to be specified in certain circumstances (section 48 and the related criminal section 166);
• referral selling (section 49 and the related criminal section 167);
• harassment and coercion (section 50 and the related criminal section 168); 
• supplying goods or services that do not comply with safety standards (sections 106 and 107 and the related criminal sections 194 and 195);
• supplying goods or services covered by a ban (sections 118 and 119 and the related criminal sections 197 and 198);
• compliance with recall notices (section 127 and the related criminal section 199); and
• supplying goods or services that do not comply with information standards (sections 136 and 137 and the related criminal sections 203 and 204).

The proposed increased penalties will not apply to the civil penalty provisions of Industry Codes, along with a number of other carve-outs.  As the general prohibition on misleading or deceptive conduct is not a civil or criminal penalty provision, the proposed new penalties will also not apply to it (although such conduct is often alleged with other Australian Consumer Law prohibitions which attract penalties and to which the proposed increased penalties will apply).

New concept: "adjusted turnover"

The draft bill introduces a new concept known as "adjusted turnover", which replaces annual turnover in the third limb of the maximum penalty calculations.  Under the draft bill, "adjusted turnover" means the sum of the value of all the supplies made by the body corporate or related bodies corporate in connection with Australia's indirect tax zone.  There are exceptions for supplies made between related bodies corporate, supplies not in connection with the body corporate's business, supplies that are input taxed and supplies that are not for consideration.  The exception for supplies that are not connected with Australia has been updated to cover supplies that are not connected with the indirect tax zone.  

New concept: "breach turnover period"

The draft bill also introduces the new concept of the "breach turnover period".  The breach turnover period will generally begin at the start of the month in which the body corporate began committing the offence or the contravention started occurring, and end at the end of the month in which the body corporate ceased committing the offence or contravention (or was charged with the offence or proceedings were commenced).  The minimum breach turnover period is 12 months, and this will be adopted if the actual breach turnover period is shorter, or if the relevant contravention / offence is an "instantaneous" one, such as making a contract, arrangement or understanding without giving effect to it. There is no maximum turnover period.  This proposed amendment allows a potentially significantly longer period to be incorporated into the maximum penalty calculation, if the conduct has continued over more than a year.  

Commencement

If the draft bill is passed without amendment, the increased penalties will commence the day after the bill receives Royal Assent.  However, updated penalties will only apply in relation to acts, omissions or offences that occur on or after commencement of the relevant Schedule of the Act.  

Next steps

The Government is currently completing a short consultation period on the draft bill, concluding on 25 August 2022.  The brevity of the consultation may signal an intention to bring the bill before Parliament sooner rather than later.  The Spring sittings of Parliament commence on 5 September.

The draft bill does not address the second part of the Government's election promise in relation to competition – the proposal to establish a ‘Super Complaint’ function within the Australian Competition and Consumer Commission.  Little detail is yet available about this proposal, but it appears to be intended to give trusted consumer groups and business sector advocates a "hotline" to the ACCC to report serious complaints.  In addition to these reforms, the Government has foreshadowed introducing penalties for unfair contract terms.  The unfair contracts bill is also expected to be introduced in the Spring sittings of Parliament. 

Authors: Melissa Fraser, Partner; and Amanda Tesvic, Senior Expertise Lawyer.