Higher penalties for competition and consumer law breaches

Articles Written by Sar Katdare (Partner), Jaime Campbell (Senior Associate), Rajiv Chandrasena

On 1 July 2017, the value of a penalty unit for the commission of an offence by a corporation or individual increased from $180 to $210. This means higher penalties now apply for the following breaches (or alleged breaches) of the Competition and Consumer Act 2010 (CCA) and the Australian Consumer Law (Schedule 2 of the CCA) (ACL):

Cartel conduct

Maximum fine for criminal cartel conduct by individuals: was $360k, now $420k

ACL – Infringement notices

Unconscionable conduct, unfair practices, safety information standards/recalls:

  • Public company: was $108k, now $126k  
  • Private company: was $10,800, now $12,600
  • Other: was $2,160, now $2,520

Failure to comply with substantiation notice:

  • Companies: was $5,400, now $6,300
  • Other: was $1,080, now $1,260

False or misleading information in response to substantiation notice

  • Companies: was $9k, now $10,500
  • Other: was $1,800, now $2,100

Multiple Pricing

  • Companies: was $1,800, now $2,100
  • Other: was $360, now $420

Payment surcharges

Failure to comply with surcharge information notice: was $5,400, now $6,300 Infringement notice for alleged breach (public company): was $108k, now $126k Infringement notice for alleged breach (private company): was $10,800, now $12,600 Infringement notice for alleged breach (other): was $2,160, now $2,520 Maximum pecuniary penalty for breach (companies): was $1,164,780, now $1,358,910 Maximum pecuniary penalty for breach (other): was $233,100, now $271,950 •

Industry codes

  • Infringement notice for alleged breach (companies): was $9k, now $10,500
  • Infringement notice for alleged breach (other): was $1,800, now $2,100
  • Maximum penalty permitted under industry code for breach: was $54k, now $63k

Penalties have also increased for CCA contraventions relating to the carbon tax, indemnification for liabilities, prices surveillance and procedural matters. Infringement notice penalties have also increased for alleged breaches of other ACL provisions including those relating to unsolicited consumer agreements, lay-by agreements and warranties against defects. The value of a penalty unit will automatically increase by a CPI formula every 3 years (the first increase being on 1 July 2020).

The increase in penalties is consistent with the current trend

ACCC position

The increase in the value of the penalty unit comes at a time when the ACCC has been active in seeking bigger fines in proceedings it has commenced and has been vocal in criticising smaller penalties ordered by courts:

  • In August 2017, Get Qualified Australia was ordered to pay a penalty of $8 million for multiple breaches of the ACL. The company’s sole director was also ordered to pay a penalty of $500,000 and was disqualified from managing companies for seven years. This penalty was one of the highest ever for breaches of the ACL; 
  • In August 2017, Nippon Yusen Kabushiki Kaisha (NYK) was ordered to pay a fine of $25 million after receiving a 50% discount for cooperation. The ACCC noted that the court could have potentially fined NYK $100 million being 10% of its annual turnover in the 12 months prior to the offence; 
  • In April 2016, Cement Australia was ordered to pay $18.6 million for entering into and giving effect to anti-competitive agreements. The ACCC however had initially sought a penalty of $90 million and is currently appealing that penalty decision; and 
  • In December 2016, the ACCC were successful in their appeal against the decision ordering Reckitt Benckiser to pay $1.7 million for making misleading representations about its Nurofen Specific Pain products. The Full Federal Court ordered Reckitt Benckiser pay a penalty of $6 million, a figure almost 4 times the original penalty.

Following the initial Nurofen decision in April 2016, and prior to commencing an appeal, ACCC Chairman Rod Sims said:

Penalties under the Australian Consumer Law generally should be at a higher level anyway. The maximum penalty under the Australian Consumer Law is $1.1 million per breach. The maximum penalty under Competition Law is generally $10 million per breach, and it's a bit hard to understand why there's that significant difference. So we do have general concern about penalties under the Australian Consumer Law as not being adequate to give the right amount of deterrence.

The push for increased penalties is also evident from ACCC’s 2017 enforcement priorities.

Comments from the judiciary

Judges have also recently commented that penalties for companies breaching competition and consumer laws are not large enough to deter those businesses and others for engaging in similar conduct.

In ACCC v ANZ, Justice Wigney said the agreed penalty was “at the very bottom range of agreed penalties” and that his Honour would have imposed higher penalties. His Honour also stated:

A very sizeable penalty is plainly required to deter a financial institution of the size of ANZ from engaging in such conduct again. Equally, a very sizeable penalty is required to deter other large financial institutions in positions similar to ANZ who might be tempted to engage in similar contravening conduct.

In the Nurofen decision, the Full Court stated:

In all of the circumstances we are of the view that the penalty of $1.7 million cannot be viewed as substantial … or as achieving the primary deterrence object of a civil pecuniary penalty. To the contrary, we consider that the penalty would reinforce a view that the price to be paid for the contraventions was an acceptable business strategy, and was no more than a cost of doing business...

In all of the circumstances… we are of the view that an appropriate penalty for the contraventions had to be not less than $6 million (and could have been many millions more, the ACCC’s figure of $6 million being at the bottom of the appropriate range in all the circumstances of this case).

In ACCC v Coles, Justice Gordon stated after accepting an agreed penalty of $10 million to be imposed on Coles for unconscionable conduct:

It is a matter for the Parliament to review whether the maximum available penalty of $1.1 million for each contravention of Pt 2-2 of the ACL by a body corporate is sufficient when a corporation with annual revenue in excess of $22 billion acts unconscionably. The current maximum penalties are arguably inadequate for a corporation the size of Coles.

Penalties for breaches of ACL soon likely to match penalties for competition law breaches

In March 2017, the Consumer Affairs Australian and New Zealand (CAANZ) made recommendations to increase the maximum pecuniary penalties for breaches of the ACL ($1.1 million for companies and $220,000 for individuals) to reflect those applying to competition provisions of the CCA, namely:

  • For companies - the greater of:
    • $10 million;
    • three times the value of the benefit the company received from the breach; or
    • 10 per cent of annual turnover in the preceding 12 months if the benefit cannot be determined.
  • For individuals - $500,000.

On 31 August 2017, the Ministers for Consumer Affairs agreed to implement this recommendation.

International comparisons

While the Australian economy is significantly smaller than the EU and US economies, the difference in the highest penalties for breaches of the competition laws in each jurisdiction is staggering.

In Australia, the biggest fine for breach of competition laws continues to be AUD$36m against Visy for the cardboard box cartel. That decision was handed down approximately 10 years ago. Last year, the European Commission handed down its largest ever cartel fine - €2.93 billion in total for five of Europe’s top truck producers. Daimler’s fine alone was €1 billion. In the US, the biggest single fine on a company for breach of competition laws is USD$925m.

The large gap between Australia and the other leading competition law jurisdictions is likely to embolden the regulator, legislators and the judiciary to continue riding the wave of the higher penalties for breaches of competition and consumer laws.

What does this mean for you?

Compliance has never been more critical than it is now given the increase in penalties and the recent trend indicating that the ACCC is likely to seek, and the Courts are likely to order, larger penalties for breaches of the CCA (including the ACL).

Important Disclaimer: The material contained in this article is comment of a general nature only and is not and nor is it intended to be advice on any specific professional matter. In that the effectiveness or accuracy of any professional advice depends upon the particular circumstances of each case, neither the firm nor any individual author accepts any responsibility whatsoever for any acts or omissions resulting from reliance upon the content of any articles. Before acting on the basis of any material contained in this publication, we recommend that you consult your professional adviser. Liability limited by a scheme approved under Professional Standards Legislation (Australia-wide except in Tasmania).

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