Australia: Competition Review: March 2015/1

RECENT ENFORCEMENT DEVELOPMENTS

Origin Companies ordered to pay penalties of $325,000 for misleading consumers about discounts under energy plans

On 10 February 2015, in proceedings brought by the ACCC, the Federal Court of Australia (Court), ordered by consent that Origin Energy Limited and two of its subsidiaries (Origin Energy Electricity Limited and Origin Energy Retail Limited) (together, Origin) pay penalties totalling $325,000 for making a false or misleading representation in contravention of the Australian Consumer Law (ACL).

In early to mid-2013, representations were made on the Origin website and in confirmation packs sent to consumers that under a DailySaver energy plan (Plan), consumers would receive a discount of up to 16% off Origin's energy usage charges (for electricity) and up to 12% off Origin's energy usage charges (for natural gas) (Discount Representations). The Court held that these Discount Representations were false or misleading because:

• there was no single set of rates for electricity and gas usage charges for residential customers of Origin; and
• the rates used to calculate usage charges under a Plan, to which the discount would then be applied, were higher than the rates in the standard retail contracts.

As a result, consumers effectively received less than the advertised discount rate compared to the standard retail contract.

In arriving at the quantum of penalty payable by each business, the Court considered each of the "French factors". Whilst it had regard to the maximum penalty payable per contravention and the need for deterrence, it considered the penalties to be appropriate as a result of matters including that:

• Origin's size and reputation is such that consumers are likely to have thought that they could rely on the accuracy of its representations;
• the representations were directed to residential customers and the prominence of the discounts in Origin's campaign is likely to have attracted consumers;
• the representations were made on the internet and in confirmation packs, which would have increased their reach and the number of consumers who have been affected or likely to have been affected is not insignificant. However, it is probable that some consumers would have reasonably understood how the discounts would have actually been applied;
• the contraventions were not the most egregious and were not deliberate;
• no senior executives were involved in the conduct;
• Origin has never been involved in contravening conduct of the same nature; and
• Origin cooperated with the ACCC and did not contest liability.

The Court also ordered the publication of a corrective notice in The Advertiser, notification to all affected consumers and payment of a contribution of $25,000 towards the ACCC's costs of the proceedings. In its media release, the ACCC also emphasised that misleading and deceptive conduct about savings and discounts by energy retailers continues to be a priority area for the ACCC.

Simply Energy pays $20,400 penalty for alleged misleading door-to-door sales

On 11 February 2015, IPower Pty Limited (IPower), trading as Simply Energy (in partnership with IPower 2 Pty Limited) paid a penalty of $20,400 following the issuing of two infringement notices by the ACCC for alleged misleading door-to-door sales conduct. The infringement notices were issued because the ACCC had reasonable grounds to believe that IPower made false or misleading representations about the standard or quality of goods in contravention of the ACL.

In separate instances in 2014, sales representatives selling Simply Energy electricity products visited the homes of two consumers in Victoria for the purpose of switching them from their existing electricity supplier to Simply Energy. It is alleged that the sales representatives told the consumers that there was an 'urgent problem' or 'something wrong' with their existing electricity supply, when this was not the case.

The ACCC has previously taken court action and obtained penalties against EnergyAustralia, Neighbourhood Energy, APG, AGL and Origin Energy in respect of door-to-door marketing conduct. Following this spate of ACCC enforcement action, a number of energy retail companies ceased door-to-door marketing activities.

RECENT MERGER DEVELOPMENTS

JBS proposed acquisition of Primo not opposed by the ACCC

On 25 November 2014, the ACCC commenced a review under the Merger Process Guidelines in relation to JBS USA Holdings Inc's (JBS) proposed acquisition of Australian Consolidated Food Investments Pty Ltd, trading as Primo Smallgoods (Primo). JBS is primarily a cattle and beef processor which is listed on the Brazil stock exchange, while Primo produces smallgoods under its key brands Primo and Hans.

On 6 February 2015, the ACCC announced that it would not oppose JBS's proposed acquisition of Primo, concluding that no significant competition issues arose during its review. However, the ACCC did note that it will continue to monitor the industry as it is mindful that further consolidations of abattoirs may have adverse competition effects.

Although the parties are active in many markets throughout Australia, the ACCC only considered the effects of the proposed acquisition in the regional market for the acquisition of fat cattle in northern NSW and southern Queensland as this was the only market with enough overlap to raise potential competition concerns. Additionally, in determining the geographic spread of the relevant market, the ACCC considered feedback that cattle usually travel up to 600 kilometres from farm to abattoir and despite the fact that cattle are sometimes acquired from further geographic areas (such as northern Queensland), such purchases were comparatively small.

The ACCC found that acquirers of fat cattle in the relevant market included abattoirs and 'service kill' customers (customers such as supermarkets that engage abattoirs to kill and process cattle acquired by the customer for a fee). Within the relevant market, JBS has an abattoir at Dinmore and Primo has one at Scone, both of which process fat cattle. Those abattoirs are 500 kilometres away from each other, with another seven abattoirs in between them, of which five have a larger capacity than Primo.

Against this background, the ACCC determined that the proposed acquisition is not likely to significantly increase market concentration as sellers of fat cattle would have other potential buyers. In addition, for 'service kill' customers, there would be other abattoirs available to meet their needs if JBS reduces the volume of 'service kills' offered at Scone.

Additionally, on 4 March 2015, Treasurer Joe Hockey announced the Foreign Investment Review Board's (FIRB) approval for the acquisition on condition that:

• the Scone abattoir must remain open and retain its capacity for 'service kills';
• JBS reports to the FIRB on its compliance every six months; and
• the transaction be reviewed in three years.

ACCC urgently investigating Primary Health Care's acquisition of pathology assets previously operated by Healthscope

On 13 February 2015, the ACCC announced that it is urgently investigating Primary Health Care Limited's (Primary) completed acquisition of particular pathology assets operated by Healthscope Limited (Healthscope) in Queensland. In Queensland, Primary operates as QML Pathology (QML).

As this is a review of a completed acquisition, there is no timeline for the review. This demonstrates that although there is no mandatory notification regime, it is advisable to consider voluntary notification, as the ACCC is able to open investigations on its own motion – including after a transaction completes.

Primary and Healthscope are both healthcare companies listed on the Australian Securities Exchange. Prior to the acquisition, QML and Healthscope competed in the supply of community pathology services in Queensland, which include pathology services supplied to out-patients and private hospital in-patients that attract a Medicare rebate.

As such, the ACCC's investigation is focussing on competition in the supply of community pathology services in Queensland and called for submissions from interested parties about the impact or likely impact of the completed acquisition:

• on the degree of bulk billing for the supply of community pathology services in Queensland generally, and by QML in particular; and
• on the quality of community pathology services in Queensland, such as the range of tests and trading hours of collection centres in Queensland generally, and by QML in particular.

The ACCC is also assessing the purpose and effect of related agreements entered into by Healthscope and Primary.

RECENT AUTHORISATION DEVELOPMENTS

ACCC issues a draft determination proposing to allow BARA to continue to negotiate and bargain collectively on behalf of its members

On 11 February 2015, the ACCC issued a draft determination proposing to re-authorise the proposed conduct for a further 10 years. The Board of Airline Representatives of Australia (BARA) is currently authorised to collectively negotiate the terms of acquisition of certain aviation services on behalf of its members. BARA is seeking re-authorisation as its current authorisation is due to expire on 5 June 2015.

BARA currently has 29 member airlines and assists in the negotiation of contracts with service providers such as operators of international airports, the Bureau of Metrology; and Unisys Australia.

The ACCC stated that in the absence of the authorisation, BARA members would be required to negotiate individually with service providers and incur additional resource costs such as legal and advisory costs. Additionally, the reduced resource costs from the proposed conduct would promote more efficient infrastructure investment and reduce information asymmetries.

Further, the ACCC noted that membership to the BARA is voluntary for all parties and there is no evidence to suggest that the authorised conduct has caused public detriment.

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