If demand for your products or services has unexpectedly increased, or the supply of your products or services has unexpectedly decreased, due to the growing impact of the novel coronavirus (COVID-19) pandemic, you may be considering a range of measures to help neutralise this impact. This may include raising your prices to reflect market conditions, changing the terms on which your products are available or coordinating with competitors to ensure supply of your increasingly limited products or services remain available to the public.
However, such measures must be carefully managed to avoid contravening Australia's competition and consumer laws.
How competition law issues may arise in responding to COVID-19
Competition law issues may arise, even where companies are responding to seek to ease the crisis or co-ordinating to "smooth out" potential peaks and troughs in demand and supply across an industry.
While the application of Australia's competition laws is not suspended because of the COVID-19 pandemic, companies can consider ways in which competition law and, in particular, the ability to have conduct authorised by the ACCC, can assist in continuing to trade effectively and lawfully in the current context.
Examples of where competition law could be contravened
- Competing suppliers agreeing prices, including minimum and maximum prices or price increases or decreases – whether coordinating through an industry association or otherwise.
- Suppliers imposing minimum resale prices on resellers (although seeking to enforce maximum prices is permissible).
- Competing suppliers allocating customers or geographic regions between them, even if to help manage potential supply shortages.
- Competing suppliers agreeing to limit production or supply in any way.
- Competing suppliers cooperating to develop measures to respond to the COVID-19 crisis, particularly sharing sensitive information and where such cooperation is intended to remove the uncertainty of competition that would otherwise exist between them.
For companies which have substantial market power, the following additional conduct could contravene competition law if the purpose or likely effect of the proposed conduct is to substantially lessen competition:
- Charging excessive prices ("price gouging") or reducing production in order to increase price.
- Discriminating between customers (e.g. charging different prices or applying different terms).
- Refusing to supply certain customers, although an objective justification/commercial rationale in the COVID-19 context might justify this conduct – including difficulties in meeting all the demand a supplier faces, and therefore choosing to supply regular customers, and those with existing contracts rather than new or spot customers.
- Making purchase of the products/services in demand conditional on the purchase of other goods/services.
It is likely that in some industries companies may wish to hold industry-wide discussions or discuss the implications of the COVID-19 crisis at industry association meetings/forums to coordinate measures among market players. Competition law continues to apply to such discussions, and the usual advice around ensuring conversations are kept away from competitively sensitive information such as prices, costs and customers, as well as not commencing to coordinate any conduct without prior legal advice, should be followed.
Seeking ACCC authorisation for potentially problematic conduct
Companies can seek prior authorisation from the ACCC to engage in conduct which might otherwise contravene Australian competition law (eg coordinating activities with other market participants) if the likely public benefit resulting from the conduct outweighs the likely public detriment. Authorisation provides statutory immunity to engage in the authorised conduct without contravening competition law.
There are likely to be very good arguments as to the public benefits of engaging in a range of possible coordinated activities to respond to the challenges raised by COVID-19 during this period. This may also apply to unilateral conduct by companies with substantial market power.
The ACCC may grant interim authorisation while it considers the substantive merits of an authorisation application. The ACCC usually issues an interim authorisation decision within 28 days of any application. However, the ACCC has stated that applications for interim authorisation will be an important priority during the COVID-19 crisis and that the ACCC has preparations in place to act on these applications "extremely expeditiously" as necessary.
Importantly, the ACCC's authorisation process only applies to future conduct so companies should seek legal advice as soon as possible if they propose to engage in conduct which is at risk of contravening competition law to ensure immunity is obtained prior to engaging in the conduct.
Reassurance or directions from Government bodies for businesses to cooperate with each other will not be a defence to any contravention of competition law.
Consumer law considerations arising in the context of COVID-19
The impact of COVID-19 on the supply and/or demand for products and services is rapidly evolving and the effect on consumers and companies across Australia is significant.
During this time, companies should be careful to avoid breaching Australian consumer law, paying particular attention to the following areas:
- Misleading statements (or omissions) about the reasons for price increases to products/services, including any statements regarding the purported scarcity of that product to encourage consumers to pay higher prices.
- Making or enforcing unfair contract terms, such as excessive fees and charges hidden in the small print, seeking unreasonably to limit consumer rights or reserving an ability to unilaterally vary terms, or excessive or disproportionate default or early termination charges.
- Engaging in unconscionable conduct, such as raising prices to such an excessive level or targeting vulnerable consumers, where it is not just simply unfair but against conscience as judged against the norms of society (which may change in the context of a crisis).
- Consumer guarantees, including representing to consumers that they are not entitled to a refund for cancelled events, services or orders for products due to COVID-19, when this is not the case.
Please be in contact with the Ashurst team if we can assist in any way.
