Massive increase in financial penalties for breaches of competition and consumer laws

On November 10 2022, the maximum financial penalties for breaching Australia’s competition and consumer laws increased significantly - in some cases by five times the previous levels.

This change (and the ACCC’s continued vigorous enforcement of the law) is a strong reminder that you should regularly update your compliance program and processes and ensure they are working effectively. The costs of getting it wrong now completely dwarf the costs (and benefits) of implementing a comprehensive and tailored program that minimises your risk.

What is the proposed change?

Previously, the maximum penalty for companies that breached competition or consumer laws was the greater of:

• $10 million;
• 3 x the value of the benefit obtained from the illegal conduct, if that could be determined; or
• if that could not be determined, 10% of annual turnover in the 12 months prior to the breach.

From today, these maximum amounts have increased as follows:

• $50 million; or
• 3 x the value of the benefit obtained from the illegal conduct, if that can be determined; or
• if that cannot be determined, 30% of the company’s adjusted turnover during the breach turnover period.

The previous maximum penalty for individuals of $500,000 has also been increased to $2.5 million.

Be prepared for very significant financial penalties if you get it wrong

The legislative increase in penalties addresses concerns voiced by the ACCC for many years that penalty orders have not acted as an effective deterrent for businesses that have largely considered such penalties to be “the cost of doing business”.

The increase in the maximum amounts accordingly gives the ACCC the ability to push for very significant fines especially for larger and well-known companies, conduct that is deliberate and conduct that results in significant consumer harm (including in relation to vulnerable consumers).

Courts have also generally recognised that penalty amounts to date have not been sufficient to deter and punish breaches of competition and consumer law.  This means that judges are likely to be more receptive to significant fines submitted or proposed by the ACCC which may result in you needing to consider your litigation strategy from an earlier stage (i.e. agreed penalties or contested hearing).

Going ahead, we anticipate fines in the hundreds of millions of dollars for breaches of competition and consumer laws (noting that the current highest penalty is $153 million for breaches of consumer law).

What should you do now?

You should ensure that your company’s competition and consumer compliance program is reviewed and updated annually.

If you are concerned about the comprehensiveness of your current program, you should undertake a full competition and consumer compliance audit to identify what areas of your business require competition and consumer compliance processes and then implement any changes to address gaps.

For example, if any of the following issues apply to your business, you should ensure that you have strong compliance processes in place to minimise risk:

• Any arrangement or conduct involving a competitor;
• Involvement in industry reform or with industry associations;
• M&A processes, joint ventures and joint bids;
• Dual distribution arrangements;
• Exclusive arrangements;
• Resale pricing policies;
• Standard form contracts with small businesses or consumers;
• All marketing and advertising activities; and
• Refund, replacement or extended warranty policies.

Having a strong compliance program is often seen as a mitigating factor if you do get it wrong.

Finally, you should undertake regular training for relevant staff and ensure you have a system in place to train new starters and maintain training records with HR.