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Competition and Consumer Amendment (Industry Code Penalties) Bill 2014



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ISSN 1328-8091

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BILLS DIGEST NO. 20, 2014-15 29 AUGUST 2014

Competition and Consumer Amendment (Industry Code Penalties) Bill 2014 Paula Pyburne Law and Bills Digest Section

Contents

Purpose of the Bill ............................................................... 3

Background ......................................................................... 3

Franchising reviews ............................................................. 3

Opportunity not opportunism report ...................................... 3

Expert panel ............................................................................. 4

Wein Review ............................................................................ 4

Future of franchising statement ........................................... 5

Committee consideration .................................................... 5

Standing Committee for the Selection of Bills ......................... 5

Senate Standing Committee for the Scrutiny of Bills .............. 5

Parliamentary Joint Committee on Human Rights .................. 5

Statement of Compatibility with Human Rights .................... 6

Policy position of non-government parties ........................... 6

Position of major interest groups ......................................... 6

Financial implications .......................................................... 6

Key issues and provisions..................................................... 6

Current regulatory framework ................................................ 6

Civil pecuniary penalties .......................................................... 7

Argument for civil pecuniary penalties ................................. 7

Argument against civil pecuniary penalties .......................... 7

Relevant provisions ............................................................... 7

Scrutiny of Bills Committee ................................................... 8

Comment ............................................................................... 8

Infringement notices ............................................................... 8

Argument for infringement notices ...................................... 9

Date introduced: 17 July 2014

House: House of Representatives

Portfolio: Treasury

Commencement: 1 January 2015

Links: The links to the Bill, its Explanatory Memorandum and second reading speech can be found on the Bill’s home page, or through http://www.aph.gov.au/Parliamentary_Business/Bills_ Legislation

When Bills have been passed and have received Royal Assent, they become Acts, which can be found at the ComLaw website at http://www.comlaw.gov.au/.

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Argument against infringement notices ................................ 9

Relevant provisions ............................................................... 9

Concluding comments ....................................................... 10

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Purpose of the Bill The purpose of the Competition and Consumer Amendment (Industry Code Penalties) Bill 2014 is to amend the Competition and Consumer Act 20101 to insert provisions to:

• allow for regulations to be made prescribing a pecuniary penalty for the breach of a civil penalty provision of an industry code and

• empower the Australian Competition and Consumer Commission (ACCC) to issue an infringement notice where it has reasonable grounds to believe that a person has contravened a civil penalty provision of an industry code.

Background The object of the Competition and Consumer Act is to promote competition and fair trading and to provide for consumer protection.2 The Franchising Code of Conduct (the Code) is made under Part IVB of the Competition and Consumer Act, which provides the framework for industry codes.3 The Code aims to strike a balance between mandating best practice in relation to disclosure and not unduly constraining the operation of the market.

The franchising relationship is commonly not evenly balanced. The franchisor generally has greater power because it is better resourced, owns or controls the intellectual property (including trade marks) relating to the franchise business, prepares the franchise agreement which may be offered to a potential franchisee on a ‘take it or leave it’ basis, has broad and detailed knowledge of the business and its prospects and may control the supply of materials and other inputs to the franchisee.

Despite the popularity of franchising in Australia, there have been significant and often very public complaints made about the operation of the franchising sector. In particular, there has been widespread criticism about the lack of enforceability of the Code.4

It is this on-going level of complaint within an apparently popular business model that has given rise to a number of high level reviews.5

Franchising reviews Opportunity not opportunism report The most significant of the inquiries to be held at the Commonwealth level was carried out by the Parliamentary Joint Committee on Corporations and Financial Services (Corporations and Financial Services Committee).6 The report, entitled Opportunity not opportunism: improving conduct in Australian franchising, made 11 recommendations.7 Many of those recommendations addressed the common themes which had emerged in earlier Commonwealth and state inquiries and which were repeated in evidence to the Corporations and Financial Services Committee. One of those recurring themes was whether the enforcement provisions of the Competition and Consumer Act were sufficient to deal with a breach of the Code.

To that end the Corporations and Financial Services Committee recommended the introduction of pecuniary penalties on the grounds that ‘the lack of pecuniary penalties for breaches of the Code means there is insufficient deterrence for conduct that contravenes the Code’.8

1. Competition and Consumer Act 2010, accessed 28 August 2014. 2. Competition and Consumer Act 2010, section 2. 3. Trade Practices (Industry Codes—Franchising) Regulations 1998, accessed 24 October 2013. 4. For example, R Borradale, Submission to the Parliamentary Joint Committee on Corporations and Financial Services, Inquiry into the Franchising

Code of Conduct, 18 August 2008, accessed 24 October 2013. 5. Information about the relevant inquiries in the period up to the end of 2008 are set out in P Pyburne, Current legal issues in franchising, Background note, Parliamentary Library, Canberra, November 2008, accessed 22 July 2014. 6. Details of the terms of reference, submissions to the Committee, transcripts of oral evidence and the final report are available on the Inquiry

website, accessed 22 July 2014. 7. Parliamentary Joint Committee on Corporations and Financial Services, Opportunity not opportunism: improving conduct in Australian franchising, Canberra, 2008, accessed 22 July 2014. 8. Ibid., recommendation 10, p. 125.

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Outlining its plans for other changes to the enforcement provisions in the Competition and Consumer Act (formerly the Trade Practices Act 1974), the Government determined not to implement the recommendation stating:

At this stage, the Government does not propose to introduce civil pecuniary penalties for breaches of industry codes. However, the Government will keep this matter under review and allow time for the extensive improvements which will be made to the Franchising Code to take effect. 9

Expert panel The former Labor Government responded to the report of the Corporations and Financial Services Committee by appointing an expert panel to inquire into and report on the need to introduce measures into the Code to prevent specific behaviours that are inappropriate in a franchising arrangement.

The expert panel report, entitled Strengthening statutory unconscionable conduct and the Franchising Code of Conduct (expert panel report) was submitted to the Government in February 2010.10 The Labor Government responded by further amending the Code (2010 amendments).11

Senator Sherry, then Minister for Small Business, addressing the Franchise Council of Australia on 11 October 2011, stated:

Our amendments to the Franchising Code of Conduct came into force in July last year, giving the sector greater protection, transparency and certainty.

We stand firmly behind a national approach to franchising and we do not intend to review the Code of Conduct before 2013. This will allow sufficient time for the 2010 amendments to provide an informed evaluation. 12

Importantly, the 2010 amendments to the Code were implemented at a time when major changes were also being made to the Competition and Consumer Act including the creation of the Australian Consumer Law (ACL). In particular, the ACL introduced a codified prohibition on unconscionable conduct which was expected to address some of the concerns of the franchising sector.13

Wein Review Consistent with the statement by Senator Sherry, on 4 January 2013 the former Labor Government appointed Alan Wein to review the Code.14 He was tasked to inquire into a number of significant areas of the Code. Relevant to this Bills Digest, this included the operation of the provisions of the Competition and Consumer Act as they relate to enforcement of the Code.15

During the course of the review 76 submissions were received.16

The Wein report,17 released on 17 May 2013, made 18 recommendations.18 In particular, it recommended that the Competition and Consumer Act be amended to:

9. Commonwealth Government Response to the report of the Parliamentary Joint Committee on Corporations and Financial Services—Opportunity not opportunism: improving conduct in Australian franchising, 16 November 2009, p. 11, accessed 22 July 2014. 10. B Horrigan, D Lieberman and R Steinwall, Strengthening statutory unconscionable conduct and the Franchising Code of Conduct, Canberra, 2010, accessed 22 July 2014. 11. Trade Practices (Industry Codes—Franchising) Amendment Regulations 2010 (No. 1) as well as the enactment of the Australian Consumer Law

which is located in Schedule 2 to the Competition and Consumer Act 2010, accessed 30 July 2014. 12. N Sherry, Address to the 2011 National Franchising Convention, speech, Melbourne, 10 October 2011, accessed 22 July 2014. 13. P Pyburne, Trade Practices Amendment (Australian Consumer Law) Bill (No. 2) 2010, Bills digest 187, 2009-10, Parliamentary Library, Canberra,

2010, p. 10, accessed 23 July 2014. 14. B O’Connor (Minister for Small Business), Expert to review Franchising Code of Conduct, media release, 4 January 2013, accessed 22 July 2014; Details of the inquiry, including the written submissions, final report and the government response to the report are available on the inquiry

website. 15. A Wein, Review of the Franchising Code of Conduct, Commonwealth of Australia, 2013, p. v, accessed 22 July 2014. 16. The written submissions are available on the inquiry website. 17. A discussion of the Wein report and the recommendations made is contained in P Pyburne, Franchising in Australia: striking a balance or

tipping the balance?, Research paper series, 2013-14, Parliamentary Library, Canberra, 2013, accessed 22 July 2014. 18. G Gray (Minister for Small Business) and B Ripoll (Parliamentary Secretary for Small Business), Independent review of the $130 billion franchising sector released, joint media release, 17 May 2013, accessed 22 July 2014.

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• allow civil pecuniary penalties to a maximum of $50,000 to be available as a remedy for a breach of the Code and

• allow the ACCC to issue an infringement notice for a breach of the Code.19

The former Labor Government responded to the Wein Review with a range of mooted legislative amendments.20 However, the 43rd Parliament was prorogued before any such action could be taken.21

Future of franchising statement On 2 April 2014, the Minister for Small Business, Bruce Billson, released a statement on the Future of Franchising which outlined the Government’s plans to build on the recommendations of Wein report.22 This includes:

• ensuring franchisees and franchisors act in good faith in their dealings with each other

• introducing penalties for a breach of certain provisions of the Franchising Code along with enhanced audit powers for the Australian Competition and Consumer Commission

• improving the transparency of marketing funds and

• improving disclosure including short form, easy to understand information for prospective franchisees.23

In addition, draft regulations and a draft Bill, containing the entirety of the Government’s proposed changed to the Code and the Competition and Consumer Act, were released for public consultation.24

The Bill contains the relevant amendments to the Competition and Consumer Act. An enhanced version of the Code will be tabled in both Houses of the Parliament prior to 1 January 2015.

Committee consideration Standing Committee for the Selection of Bills At its meeting of 28 August 2014, the Standing Committee for the Selection of Bills resolved not to refer the Bill to Committee for inquiry and report.25

Senate Standing Committee for the Scrutiny of Bills The Senate Standing Committee for the Scrutiny of Bills identified two matters in the Bill about which it expressed concern.26 Those matters are discussed under the heading ‘Key issues and provisions’ below.

Parliamentary Joint Committee on Human Rights In its report of 26 August 2014, the Parliamentary Joint Committee on Human Rights (Human Rights Committee) noted that, proposed section 51ACF and subsection 51AE(2) would allow for regulations to apply civil penalties to breaches of the Franchising Code. Citing its Interim Practice Note No. 2, the Human Rights Committee remarked that the Statement of Compatibility for the Bill does not provide an assessment of whether any applied civil penalty provisions may be regarded as 'criminal' for the purposes of human rights law and, if so, whether they would be compatible with the guarantees of criminal process rights under Article 14 of the International Covenant on Civil and Political Rights (ICCPR).

However, having regard to the regulatory context to which the Bill applies, the Human Rights Committee considered that the Bill is compatible with human rights.27

19. Review of the Franchising Code of Conduct, op. cit., recommendation 15, p. 151. 20. Forward looking franchise regulation: Commonwealth government response to the review of the Franchising Code of Conduct, July 2013, accessed 22 July 2014. 21. G Gray (Minister for Small Business), Government welcomes bi-partisan support for franchising reform, media release, 25 July 2013, accessed

23 July 2014. 22. B Billson (Minster for Small Business), Government seeks to strengthen franchising sector, media release, 2 April 2014, accessed 23 July 2014. 23. Ibid. 24. The Treasury, ‘Amendments to the Franchising Code and the Competition and Consumer Act’, Treasury website, accessed 23 July 2014;

‘Feedback sought on changes’, The Adelaide Advertiser, 15 April 2014, p. 54, accessed 23 July 2014. 25. Selection of Bills Committee, Report No. 10 of 2014, The Senate, Canberra, 28 August 2014, accessed 29 August 2014. 26. Standing Committee for the Scrutiny of Bills, Alert Digest No. 10 of 2014, The Senate, Canberra, 27 August 2014, pp. 6-7, accessed 29 August

2014.

27. Parliamentary Joint Committee on Human Rights, Tenth report of the 44th Parliament, 26 August 2014, p. 8, accessed 29 August 2014.

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Statement of Compatibility with Human Rights As required under Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011 (Cth), the Government has assessed the Bill’s compatibility with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of that Act.28 The Government considers that the Bill is compatible.

Policy position of non-government parties It is likely that the amendments in the Bill will be supported by Labor, consistent with its response to the relevant part of recommendation 15 in the Wein report.29

Position of major interest groups At the time of writing this Bills Digest the submissions received by Treasury in relation to the most recent consultation have not been released.30 That being the case, views of stakeholders in relation to the measures in the Bill will be canvassed under the heading ‘Key issues and provisions’ below.

Financial implications The financial impact of the Bill is nil. According to the Explanatory Memorandum ‘any costs associated with enforcing the penalty and infringement notice provisions of the Franchising Code (as outlined in the Bill) will fall within the existing industry code functions of the ACCC’.31

Key issues and provisions Current regulatory framework Section 51AD of the Competition and Consumer Act provides that ‘a corporation must not, in trade or commerce, contravene an applicable industry code’. If a franchisor fails, for example, to provide disclosure documents as required by the Code, it will be in breach of the Code and, correspondingly, in breach of the Competition and Consumer Act. Following several contradictory decisions,32 the High Court has made it clear that a failure to comply with the Code does not necessarily render a franchise agreement void for illegality and therefore unenforceable.33 This means that where the franchisor has not complied with the Code, the onus is on the franchisee to seek one of the remedies currently set out in the Competition and Consumer Act. The question for many franchisees is what, exactly, is the penalty to be applied to a franchisor whose conduct is a breach of the Code.

A breach of the Code is a breach of section 51AD (in Part IVB) of the Competition and Consumer Act. The remedies available for a breach of the Code include injunctions,34 damages35 and other remedial orders,36 including third party redress.37 The ACCC, which enforces compliance with the Code, can issue a public warning notice for likely breaches of the Code38 or use its random audit power to inspect documents or records required to be kept pursuant to a prescribed industry code.39

However, pecuniary penalties are not currently available for breaches of the Code.40 Nor is the ACCC currently empowered to issue infringement notices for likely breach of the Code.

28. The Statement of Compatibility with Human Rights can be found at page 12 of the Explanatory Memorandum to the Bill. 29. Forward looking franchise regulation, op. cit., pp. 16-17. 30. The Treasury, ‘Consultations and submissions’, Treasury website, accessed 24 July 2014. 31. Explanatory Memorandum, Competition and Consumer Amendment (Industry Code Penalties) Bill 2014, p. 3. 32. Ketchell v Master Education Services [2005] NSWSC 399, (29 April 2005), accessed 22 July 2014 and Hoy Mobile Pty Ltd v Allphones Pty Ltd (No.

2) [2008] FCA 810, accessed 22 July 2014. 33. Master Education Services Pty Limited v Ketchell [2008] HCA 38, (27 August 2008), accessed 22 July 2014. 34. Competition and Consumer Act 2010, section 80. 35. Competition and Consumer Act 2010, section 82. 36. Competition and Consumer Act 2010, section 86C. 37. Competition and Consumer Act 2010, section 51ADB. 38. Competition and Consumer Act 2010, section 51ADA. 39. Competition and Consumer Act 2010, section 51ADD. 40. For example, under section 224 of the Australian Consumer Law (which is located in Schedule 2 to the CCA) penalties of $1.1 million for a

corporation and $220,000 for a person that is not a body corporate, apply in respect of unconscionable conduct.

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Civil pecuniary penalties

Argument for civil pecuniary penalties The Law Council of Australia (LCA) summarised the various arguments in favour of imposing civil pecuniary penalties for a breach of the Code as follows:

• penalties would operate as an effective deterrent to breaching the Code 41

• due to the cost of justice, franchisees do not possess the resources to pursue franchisors—that is, the sector is characterised by an imbalance of power and therefore the state should intervene

• it is inconsistent that penalties do not exist for a breach of the Code given that penalties exist for other breaches of the Competition and Consumer Act, including the Australian Consumer Law and

• the introduction of penalties would increase the confidence of investors and parties to a franchise agreement.42

Argument against civil pecuniary penalties Having set out the reasons for imposition of pecuniary penalties, the LCA rebutted each of them and suggested that there are other, more efficient ways of addressing franchisee concerns, such as having the ACCC conduct a larger number of audits or the establishment of a Franchising Ombudsman.43 In particular, the LCA proposed that more empirical research could be undertaken ‘into the nature of the complaints against franchisors by franchisees so as to determine whether introducing civil penalties would significantly change the existence of those complaints’.44

Other submitters to the Wein Review rejected the proposition outright. For instance, the Australian National Retailers Association said that the imposition of pecuniary penalties ‘would not be consistent with how other industry codes are enforced and their purpose, which is to enforce minimum standards rather than act as another form of regulation’.45 Minter Ellison Lawyers opined that ‘conferring additional powers on the ACCC to issue penalties for Code breaches is, in the circumstances, unnecessary and arguably inappropriate’.46

The Franchise Council of Australia agreed, stating:

The current penalty regime contained in the Competition and Consumer Act is not suited to franchising, as the financial penalties are excessive. It should also be noted that pecuniary penalties do not apply to misleading or deceptive conduct, so it would be unreasonable to impose such penalties for any breach of the Code, which almost by definition is significantly less heinous. Penalties for breach of the Code should be tailor-made, carefully targeted at only the flagrant and fundamental breaches, and be commensurate. We would support a penalty of say $50,000 for failure to have a disclosure document, and perhaps $5,000 for failure to update a disclosure document. However penalties should only apply to fundamental breaches of these provisions, not technical breaches. Further, we would oppose the application of pecuniary penalties to the vast majority of obligations under the Code.

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Relevant provisions Existing paragraph 51AE(a) of the Competition and Consumer Act provides that regulations may prescribe an industry code, or specified provisions of an industry code, for the purposes of Part IVB of that Act. Item 5 of the Bill inserts proposed subsection 51AE(2) into the Competition and Consumer Act so that, where regulations have prescribed an industry code—as is the case with the Franchising Code of Conduct—then the code may prescribe pecuniary penalties not exceeding 300 penalty units for civil penalty provisions of that industry code.

41. M Terceiro, legal practitioner agrees with this point stating that that if the ACCC had access to civil pecuniary penalties for Franchising Code breaches, its ability and willingness to enforce the Franchising Code would be significantly enhanced. M Terceiro, Submission to the review of the Franchising Code of Conduct, 22 February 2013, p. 4, accessed 22 July 2014.

42. Law Council of Australia, Submission to the review of the Franchising Code of Conduct, 22 February 2013, p. 16, accessed 22 July 2014. 43. Ibid., p. 22. 44. Ibid. 45. Australian National Retailers Association, Submission to the review of the Franchising Code of Conduct, February 2013, p. 14, accessed 22 July

2014.

46. Minter Ellison Lawyers, Submission to the review of the Franchising Code of Conduct, February 2013, pp. 7-8, accessed 22 July 2014. 47. Franchise Council of Australia, Submission to the review of the Franchising Code of Conduct, February 2013, p. 5, accessed 24 July 2014.

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The effect of this amendment is to allow the Code to identify civil penalty provisions and to impose civil penalties of up to 300 civil penalty units, being equivalent to $51,000.48 This is consistent with the exposure draft of the Franchising Code of Conduct which has been the subject of public consultation by the Government.49

Part VI of the Competition and Consumer Act relates to enforcement and remedies. Within Part VI, section 76 sets out the rules in relation to pecuniary penalties. Items 6-8 of the Bill amend section 76 so that the Court may order a person who has contravened a civil penalty provision of an industry code to pay the Commonwealth a pecuniary penalty. Proposed paragraphs 76(1A)(ca) and 76(1B)(aaa) set out the amount payable by a body corporate and an individual respectively for each act or omission that relates to a civil penalty provision.

Scrutiny of Bills Committee The Scrutiny of Bills Committee expressed two concerns about proposed subsection 51AE(2):

• first, that the content of a civil penalty provision will be determined in an instrument (the industry code) that will be given legal effect by the regulation. The concern is that the provisions raise the prospect of changes being made to the law in the absence of Parliamentary scrutiny and

• second, that the level of penalty that may be prescribed in the regulations (up to 300 penalty units) is not consistent with the Guide to Framing Commonwealth Offences, Infringement Notices and Enforcement Powers (the Guide).50 The Guide recommends that where an Act authorises the creation of offences in subordinate instruments it should generally specify that the offences may carry a maximum fine of 50 penalty units for an individual and 250 for a body corporate. The underlying principle is that serious penalties should be contained in Acts of Parliament so as to enable appropriate parliamentary scrutiny.51

Comment Given the push by some states—particularly South Australia—to impose their own laws and penalties for perceived improper franchising conduct, it seems that the imposition of civil pecuniary penalties for breach of the Code was a predictable outcome of the desire of the Commonwealth to maintain the regulation of the franchising sector in a single jurisdiction.52 Despite the recommendation and its acceptance by the Government there has been some scepticism about its usefulness:

The reality is that the ACCC rarely brings civil proceedings against franchisees or franchisors that have breached the Code alone and that with the higher standard of proof required in a proceeding seeking civil pecuniary penalties, it is unlikely that the ACCC would issue such proceedings, given its other enforcement powers. 53

Infringement notices At present the ACCC may issue an infringement notice under sections 134-134A of the Competition and Consumer Act where it has reasonable grounds to believe that a person has contravened certain consumer protection laws. The Explanatory Memorandum describes the infringement notice regime as follows:

An infringement notice is a notice served on a person by the ACCC, alleging a contravention of a pecuniary penalty provision of an industry code. The notice gives the recipient the option of paying the penalty amount specified in the notice to avoid further action by the ACCC in relation to that particular alleged contravention. Infringement notices are designed to provide a timely, cost-effective enforcement alternative to commencing court proceedings in relation to a contravention of an industry code.

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48. Under section 4AA of the Crimes Act 1914 a penalty unit is equivalent to $170. 49. The Treasury, ‘Amendments to the Franchising Code and the Competition and Consumer Act’, Treasury website, accessed 22 July 2014. 50. Department of the Attorney-General, A Guide to Framing Commonwealth Offences, Infringement Notices and Enforcement Powers, September 2011, accessed 29 August 2014.

51. Standing Committee for the Scrutiny of Bills, Alert Digest No. 10 of 2014, op. cit. 52. Small Business Commissioner Act 2011 (SA) amended the Fair Trading Act 1987 (SA) to establish a Small Business Commissioner empowered to deal with contraventions of industry codes (section 28F) and for the imposition of civil pecuniary penalties of up to $50,000 for a corporation and $10,000 for a natural person who contravenes an industry code (section 86B).

53. P Colman (Mason Sier Turnbull Lawyers), Submission to the review of the Franchising Code of Conduct, February 2013, p. 12, accessed 22 July 2014. 54. Explanatory Memorandum, p. 8.

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Argument for infringement notices According to the Wein report, ‘the ACCC, as the industry regulator, has argued that it should be able to issue infringement notices, in addition to being able to seek pecuniary penalties for a breach of the Code’.55 This would be an appropriate penalty in circumstances where a franchisee has received an inaccurate or incomplete disclosure document from a franchisor. In particular, the payment of an infringement notice in such circumstances would make the matter public and would act as a deterrent to other franchisors.

The Franchisee’s Association of Australia urged the Parliament to pass laws which result in both civil and criminal sanctions for a breach of the Code—that is a penalty in the nature of a fine (or in extreme or recurrent circumstances, imprisonment) for a breach of a statutory obligation.56

Argument against infringement notices The Franchise Council of Australia opines that:

It is important to ensure the intent of industry codes is not thwarted by a draconian penalty regime. There are genuine interpretational difficulties with quite a number of provisions of the Code. If broader penalties such as Infringement Notices were to be introduced the Code would need to be revised to clarify interpretational uncertainties, perhaps with the ACCC also empowered to give interpretational rulings. The ACCC would also need to publish clear enforcement guidelines so that the sector knew the potential consequences of its actions, and there was some rigour around enforcement activities that could be open to abuse.

57

Relevant provisions Item 3 of the Bill inserts proposed Division 2A—Infringement notices into Part IVB of the Competition and Consumer Act. Whilst the Division provides for the issue of an infringement notice58 to a person who has contravened a civil penalty provision of an industry code there is no requirement that such a notice is issued. Rather:

The ACCC determines the appropriate enforcement tools to address consumer protection concerns on a case by case basis, taking into consideration the alleged contravention, the business involved and the impact of the conduct on consumers and businesses. A benefit of the infringement notice provisions is that they allow for timely and efficient dispute resolution without the need for litigation.

59

Proposed Division 2A will operate as follows:

• where the ACCC has reasonable grounds to believe that a person has contravened a civil penalty provision of an industry code, it may issue an infringement notice to the person: proposed subsection 51ACD(1)

• the infringement notice must contain all of the information specified in proposed section 51ACE, including, amongst other things, details of the alleged contravention and the period within which the penalty is payable (known as the infringement notice compliance period)60

• the infringement notice compliance period is a period of 28 days beginning on the day after the day that the infringement notice was issued—although this may be extended for an additional 28 days if the ACCC is satisfied that it is appropriate to do so: proposed section 51ACI

• the amount of the penalty is 50 penalty units (equivalent to $8,500) for a body corporate and 10 penalty units (equivalent to $1,700) for a person: proposed section 51ACF

55. Review of the Franchising Code of Conduct, op. cit., recommendation 15, p. 137. 56. Franchisee’s Association of Australia, Submission to the review of the Franchising Code of Conduct, 2 February 2013, p. 7, accessed 24 July 2014. 57. Franchise Council of Australia, Submission to the review of the Franchising Code of Conduct, op. cit., p. 5. 58. Item 1 of the Bill inserts the definition of infringement notice into subsection 51ACA(1) of the Competition and Consumer Act. It should be

noted that the reference to subsection 151ACD(1) is incorrect. The reference should be to subsection 51ACD(1). 59. Australian Competition and Consumer Commission (ACCC), ‘Guidelines on the use of infringement notices’, ACCC website, accessed 23 July 2014. 60. Item 1 of the Bill inserts the definition of infringement notice compliance period into subsection 51ACA(1) of the Competition and Consumer

Act. It should be noted that the reference to subsection 151ACI(1) is incorrect. The reference should be to subsection 51ACI(1).

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• where a person who has been issued with an infringement notice pays the amount of the penalty, no proceedings may be started or continued against the person by or on behalf of the Commonwealth in relation to the alleged contravention of the civil penalty provision: proposed section 51ACG and

• where a person who has been issued with an infringement notice fails to pay the amount of the penalty, the person is liable to proceedings under section 76 of the Competition and Consumer Act in relation to the alleged contravention of the civil penalty provision: proposed section 51ACH. According to the guidelines on the use of infringement notices:

… the ACCC will only consider issuing an infringement notice where it is likely to seek a court-based resolution should the recipient of the notice choose not to pay. It is important to note that before issuing an infringement notice the ACCC will have turned its mind to the prospect of non-compliance and be prepared to proceed to court as a likely alternative.

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In addition, a person may make written representations to the ACCC seeking the withdrawal of the infringement notice. Where the ACCC determines that it is appropriate to withdraw the infringement notice, it may issue a written withdrawal notice to the person to that effect and refund the amount of the penalty if the penalty has been paid: proposed section 51ACJ.62

Concluding comments The franchise industry has been the subject of a number of inquiries at the state and Commonwealth level since 2006. This has led to amendments to the Code in order to ameliorate the hardship which has been reported by many franchisees. In addition, there have been, since 2006, significant steps to update the Competition and Consumer Act including the codification of the prohibition against unconscionable conduct. The Wein Review canvassed many of the same issues that were the subject of those earlier inquiries.

The move to impose civil penalties for a breach of the Code has long been resisted. What cannot be forgotten is that all breaches of the Code will be liable for such a penalty. That is, a penalty can be applied equally to a non-compliant franchisee as to a franchisor.

61. Australian Competition and Consumer Commission (ACCC), ‘Guidelines on the use of infringement notices’, op. cit. 62. Proposed subsection 51ACJ(5) outlines the matters which must be contained in the withdrawal notice.

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