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ECONOMICS LEGISLATION COMMITTEE
02/06/2010
DEPARTMENT OF THE TREASURY
Australian Competition and Consumer Commission

CHAIR —Welcome. Mr Samuel, I understand you have an opening statement you would like to make.

Mr Samuel —I do. I do not want to take up too much time with this—Senators do have questions. We have a fair amount of time allotted to us. I am anxious to put two or three significant matters on the record, but I suggest that if senators are getting a bit concerned about the time being taken up you should signal to me. I will endeavour to cut short. There are some matters that I do want to mention specifically. The topics I want to try to cover tonight if I have time relate to mergers, tougher sanctions for anticompetitive conduct, cartels and criminal penalties, some of our enforcement actions particularly in the area of small business which have proven to be very significant and quite interesting over recent times and work we are doing in product safety which is proving to be a significant move forward. This may help some of the senators with some of the issues that I know they have raised on previous occasions.

The merger process is working very well at the moment. As senators would be aware, we have a refined informal process which was set in place in 2004. It is a flexible process that allows us to be responsive to individual transactions and circumstances and, at the same time, to be sure that we can achieve maximum transparency but not compromise the fundamental principles of our processes: protection of confidential information, timeliness and fairness of review processes and, most importantly, getting the right answer, which is important because if we get the wrong answer in respect of a merger it is almost impossible to undo the position. In the past financial year up to 1 June, we have conducted 274 merger assessments, including 147 reviews. To give you a bit of a sense of the statistics, there are 274 total matters that have been examined, 256 that were not opposed, four that were cleared with undertakings—competition concerns have been dealt with—and 14 that were opposed or had concerns that were expressed confidentially.

I should emphasise the context of matters that were opposed or dealt with confidentially, because what does not often appear publicly is that there are a number of mergers where we will oppose them confidentially. They will never hit the public eye. That leaves aside the fact that there are also a large number of mergers in which we get some information that suggests that they were being contemplated by the parties but they had taken the view that it was not even worth proceeding, because they considered that the ACCC would inevitably oppose the transaction; therefore, they did not even get to the point of being referred to us.

Other mergers are actually never referred to us as I have mentioned—some of those are dealt with confidentially. I think it is probably fair to say that there is a far more significant percentage of mergers that are actually not proceeding because of the operations of section 50 of the Trade Practices Act that might otherwise appear to be the case if you look at the basic statistics.

The time lines for dealing with mergers have been fairly strictly maintained since we put in place the process guidelines in 2004. I am pleased to be able to say that between 87 and 92 per cent of mergers or merger reviews are conducted within about eight weeks, which is probably—I think I can say without fear of contradiction—international best practice. Some of the other major jurisdictions—the EU, UK, US—can take sometimes four or five months and in some cases, particularly the UK, they have up to about 24 weeks for the competition commission to assess mergers. Our team manages to do them in about eight weeks except where they become very, very complex issues and then they may well take longer.

You would be aware of some of the mergers that have been currently either opposed or, in one case, still in play. NAB-AXA of course has been initially opposed by us but it is still in play—I think is the best way to describe it and I will not make any more comments on that. We opposed the Caltex acquisition of the Mobil retail assets. You will be aware that of more recent times it has been announced that the 7-Eleven group, with the exception of South Australia, will acquire those Mobile retail assets, and Peregrine will be acquiring the retail assets of Mobil in South Australia. Those acquisitions are themselves still subject to appropriate merger review, and so at this point in time have not been cleared in accordance with section 50 of the Trade Practices Act. We oppose the Link acquisition of Newreg, which was in the share registry business; Thomson Reuters acquisition of some Ernst & Young software business; Cargill and the Goodman Fielder assets in relation to fats and the like; and GUD-Breville. So there a number of mergers that we have opposed.

There is some suggestion in public commentary that this is a new practice on the part of the ACCC or a more rigorous approach being adopted. I can absolutely assure you it is not. We are operating out of the same section 50 of the act with the same considerations and the same rigorous analysis. It just happens to be that we have had some rather complex and difficult mergers that have come to us in more recent times which have led to some opposition. I think it is also fair to say that our record in opposing mergers certainly over the past six or seven years has been remarkably successful in the sense that only in one case, which was back in 2003—AGL-Loyang—were we overturned in the Federal Court. In every other case where we have opposed a merger, it either has not proceeded or it has gone to court, and in one case it was dealt with with appropriate section 87B undertakings.

I want to move to tougher sanctions. This is a very important area for us now in the context of the amendments to the Trade Practices Act that were introduced and came into force on 1 January 2007. I think it is appropriate to refer the committee’s attention to these amendments, because they are now starting to have an impact in relation to our enforcement activities. The committee will be aware that for roughly 14 years the maximum penalty for anticompetitive conduct, be it misuse of market power or cartel conduct, was $10 million per contravention. Parliament passed and brought into play as from 1 January 2007 new penalties which provided that the penalty regime for any anticompetitive conduct, be it cartels or otherwise, would be the maximum of $10,000; or three times the value of the benefit that one or more persons obtained from the anticompetitive conduct or, where the value cannot be determined, 10 per cent of the annual turnover of the company and its related companies—that is, of the whole corporate group—during the period of 12 months ending at the end of the month in which the conduct occurred. In addition, the civil penalties include the ability for the court to disqualify a person who has been involved in the anticompetitive conduct from managing corporations for such a period as the court thinks fit. There is no limit on that other than life.

I have to say we are now entering a new era. For some time we have been concerned that the penalties available in Australia for anticompetitive conduct have simply made a quite interesting business case for those engaged in that conduct—that is, if I engage in the conduct then I will pay a fine; the fine will be a mere fraction of the profit derived from the engaging in the conduct; therefore, it is a pretty good business deal to do so knowing that the financial penalty will not be anywhere near the benefit that I have obtained from engaging in the anticompetitive conduct.

That will change in respect of all conduct that has taken place after January 2007, and there are now matters on our books that fall within that scope. We will be requiring parties or businesses that have engaged in conduct that might be subject to the new penalty regime to open their books. We will be using our investigative powers and, potentially, engaging forensic accountants to obtain information from firms and establish the benefit gained from the anticompetitive conduct. Then the submissions made to the courts will seek the greater of $10 million and three times the gain as established by that forensic analysis, or 10 per cent of turnover if it is not possible to establish the gain. That really suggests to business that it is not longer a sensible business plan to engage in anticompetitive conduct, be it cartels or whatever, and to believe that you can make a profit out of it, because if we do seek three times the gain that will be a very substantial penalty indeed. That brings us into line with other significant antitrust regimes, particularly the US, the EU, Canada and Japan, by focusing on the impact of the conduct to calculate penalties and to determine the appropriate sanctions.

If that is not enough to deter people, then, in relation to cartels, we now have the criminal provisions that were introduced as from July last year. In the context of cartels, we have had a record year in calendar 2009. We instituted proceedings in 13 cartel matters and obtained penalty orders totalling over $20 million in a number of cases, which I can quickly detail: April International Marketing Services, the Australian Karting Association, Martinair Holland, Cargolux Airlines, and Societe Air France and KLM. As a result of our continuing and continued investigation into alleged fuel surcharge price fixing in the airline industry, to date the Federal Court has ordered a total of $41 million in penalties against respondent airlines. On 11 December 2008, which was the first of them, Qantas and British Airways were required to pay penalties of $20 million and $5 million respectively. On 16 February 2009, Societe Air France, KLM, Martinair Holland and Cargolux were ordered to pay penalties of $3 million, $3 million, $5 million and $5 million respectively. So the penalties are reasonably significant, but, of course, they also have to be seen in the international context. There have been penalties also levied in other jurisdictions where that international fuel surcharge price fixing was operating. We have instituted proceedings in the Federal Court against Singapore Airlines, Cathay Pacific, Emirates, PT Garuda Indonesia, Thai Airways, Korean Air Lines, Malaysia Airlines, Air New Zealand and Japan Airlines. So a range of matters are occurring in relation to that, and that is a very significant cartel matter for us. Other recent cartel outcomes include the marine hose cartel, where four foreign based suppliers of marine hoses were ordered to pay penalties of $8.24 million for cartel conduct. That cartel submitted rigged bids to supply marine hoses to customers in Australia.

Both the marine hose and, as I mentioned before, the air cargo cartel cases demonstrated in a very tangible manner the outcomes that can be achieved through international engagement and the cooperation that we were able to engage in with our counterparts overseas. The marine hose cartel investigation and prosecution would not have been possible without extensive cooperation with authorities in the United Kingdom and the United States, including the provision of evidentiary material that had been gathered in the UK investigation. So the context of international cooperation has been very important indeed.

An important cartel prosecution concluded just recently, in April this year, involving Admiral air conditioning and others. This involved 17 companies and 22 individuals involved in collusive tendering for air-conditioning contracts for schools, hospitals and shopping centres in Western Australia. In total, pecuniary penalties of $9.271 million were imposed on respondents in these proceedings. They were very extensive indeed in terms of the operation of the cartel. We calculated that air-conditioning projects totalling about $129 million were involved in that particular cartel.

I mentioned the civil sanctions that are available for anticompetitive conduct before. That applies to cartels. Importantly we now have the criminal provisions. All cartel conduct, entering into or giving effect to a cartel, post 24 July 2009 is being treated as a potential criminal prosecution and is initially investigated under the criminal investigation process, with a potential penalty of up to 10 years jail for any individuals involved.

There have been a number of matters that have come before us having a post July 2009 element. At a point in time we make a decision as to whether the criminal investigation should be relegated to a civil investigation. We do that in the context of the memorandum of understanding with the Commonwealth Director of Public Prosecutions—which is public; it is on our website—and that is, essentially, if the matter is not considered to be a serious cartel or, after consulting with the CDPP, taking into account the criteria set by him under the Commonwealth’s prosecution policy.

I want to make absolutely clear some issues in relation to the ACCC’s position on plea bargaining. We have an inflexible position that a criminal cartel prosecution is not negotiable. Cartel participants will not be able to buy their way out of a criminal conviction and jail. We will not put ourselves in a position where there might be a perception that we are using the possibility of a referral of a matter for consideration of a criminal prosecution to obtain cooperation or resolution of civil proceedings. We will not engage in discussions with parties under criminal investigation as to the possibility of a civil resolution—that is, of a financial penalty—unless and until we have formed the view, totally independently, that the matter is not appropriate for criminal prosecution because of the operation of the memorandum of understanding I referred to before or the Commonwealth prosecution policy. We will not even discuss the proposition.

If a party comes to us and says: ‘We understand that we are being criminally investigated with a view to a criminal prosecution. Is there a way that we can pay a significant penalty—that is, a financial penalty—to avoid the prospect of a jail sentence?’ our investigators are instructed at that point to walk out of the room. They will not negotiate. If we commence a criminal investigation and continue it because it fits within both the memorandum of understanding and the Commonwealth prosecution policy and the CDPP determines to criminally prosecute, then it is in his hands; we will not negotiate away from that criminal prosecution. A way of summarising it is this. In the case of serious cartel activity, no matter how fat the cheque book or to what lengths a corporation will go to defend the position of its executives, there is no amount of money that will remove the risk of the executives implicated going to jail.

The next subject I want to cover is small business. As we are well aware and has been established by a committee of the Senate in a report delivered in 2004, the fundamental philosophy underpinning the Trade Practices Act is the promotion of competition, not the protection of competitors or any sector of the economy from competition. We are all aware that there are a number of protections available to small business, with differing degrees of success. There are codes of conduct—the Franchising Code, the Horticulture Code. There are the unconscionable conduct prohibitions—that is, small operators dealing with big customers or suppliers. There is section 46 on misuse of market power, including 46(1AA), the so-called Birdsville amendment, which relates to predatory pricing. Also, small business can help itself through collective bargaining. We have adopted a series of highly facilitative practices and processes within the commission to facilitate the collective bargaining process, with appropriate limitations, particularly in relation to collective boycotts.

It is appropriate to mention a couple of matters that have recently been dealt with within the litigation process by the ACCC. On one of them, judgment was handed down just two or three days ago. This is the Seal-A-Fridge matter, where the Federal Court found that a franchisor, Seal-A-Fridge, engaged in unconscionable conduct by unilaterally imposing fee increases on its franchisees for use of the Seal-A-Fridge national phone number. The phone number is used by franchisees to receive customer inquiries and work. Seal-A-Fridge used the tactic of disconnecting franchisees from the phone number to procure agreement to pay the increased fees. The court also found that Seal-A-Fridge breached the Franchising Code of Conduct by failing to provide adequate disclosure to a franchisee prior to them entering into the franchise agreement and by failing to provide current disclosure documents to franchisees after receiving written requests.

This is part of the process that we pursued two or three years ago—and I said publicly that we would do so—to try and test the limits of the unconscionable conduct provisions, which are very important indeed in dealing with some of these franchise issues and issues relating to small business. The Federal Court found that Seal-A-Fridge’s behaviour surrounding attempts by franchisees to transfer their franchises was not unconscionable but that the other matters that I have referred to were unconscionable conduct, and appropriate orders were made. This was important in enabling us to establish a bit more clearly what is the role of the unconscionable conduct provisions under the Trade Practices Act and to deal with the issue of the Franchising Code of Conduct.

The Allphones case received a fair degree of publicity. It was determined in April 2010. We alleged that Allphones engaged in unconscionable conduct by failing to disclose or pay certain income to franchisees, implementing policies targeting certain classes of franchisees and threatening or engaging in a pattern of harsh conduct against franchisees. We also allege that Allphones failed to comply with the franchising code and engaged in misleading or deceptive conduct towards franchisees. The Federal Court declared that Allphones engaged in misleading and deceptive conduct, contrary to the franchising code, and also engaged in unconscionable conduct. So all three areas were covered.

The court ordered a number of injunctions, but, most importantly in the context of this case, we took action to see if we could recover some damages to provide some assistance to franchisees that had suffered damage at the hand of Allphones. We recovered on their behalf in effect $3 million of damages. That $3 million will be divided amongst the franchisees represented by the ACCC according to the time frame that they were a franchisee and the duration and performance of their business. It reflects an underpayment of rebates and commissions and the implementation of charges by Allphones. I have to say that this was a case of sustained and systemic unconscionable conduct and one of the worst cases in the franchising system that we have ever encountered in the ACCC.

There have been other matters, which I will not go into because time will not permit. An example is Australialink Pty Ltd, where consent orders were obtained for misleading, deceptive and unconscionable conduct in breach of section 52 and 51AC of the Trade Practices Act. Then there was the Dukemaster case, which I think we may have already mentioned, where a landlord in a shopping centre in Melbourne engaged in unconscionable conduct by exerting undue pressure and using unfair tactics against four tenants in connection with their leases in that shopping centre.

Separate from the litigation process, we have announced today that we have sponsored a franchising education program, which is being done in conjunction with Griffith University. It is to establish a one-stop shop for education programs for people buying a franchise. It provides potential franchisees with a better understanding of their rights and obligations under the franchising code and some of the practical issues they could face as a franchisee. A link to that is available on our website.

There are just two more items I want to mention. In the area of enforcement we have had one or two interesting cases, one of which will interest Senator Xenophon, who is here. That is the Heinz Golden Circle matter, where they had, in misleading and deceptive conduct, engaged in labelling their products as being Australian owned when in fact they were not, given that Golden Circle were taken over a year earlier by the American Heinz group. There is $1.8 million worth of canned fruit that is to be removed and distributed to charities, through a company called Foodlink. We are aware that there is still some product on the shelves. In the past couple of days we have communicated with the Golden Circle to seek a speedy removal of that food from the shelves, pursuant to the undertaking that has been given to us. We will come to that, I am sure.

Senator XENOPHON —Chair, could Mr Samuel provide a copy of his opening statement to us? That might be useful.

Mr Samuel —Yes, I will do that. If it is permissible, I will give you the total statement.

CHAIR —Certainly.

Mr Samuel —The final thing I will mention very briefly is that in the area of communications we have undertaken a number of global solutions, if you like, to some issues. I mentioned last time the global solution we adopted in respect of advertising, which has not, by the way, stopped some of the enforcement activities that we are undertaking in relation to advertising practices where we do not believe the appropriate standards are being met under the Trade Practices Act. But in addition, we have secured from Vodafone Hutchison a section 87B undertaking—that was in January this year—in relation to the rights of consumers who purchase a phone in conjunction with a service contract which may last, say, for two years, but the phone ceases to operate, becomes faulty, in the course of that service contract. We are currently talking to Telstra and Optus about the same issue, fundamentally saying that if they sell a phone, at the same time belting it up with a service contract for two years, consumers ought to be able to expect that the phone will operate for two years and that they will repair it if it does not. So we have dealt with that. I will call a halt at that, but I will table some of these comments, if that is appropriate, Chair.

CHAIR —Yes, you can table them.

Senator IAN MACDONALD —I thank my colleagues for allowing me to interpose very briefly. That is very useful information for the committee in the future, but it would certainly help if the committee got that a day before and it were incorporated, because time is precious here and we really do begrudge giving of our time to question you with those long statements. Perhaps in the future that very useful information can be made available—

Mr Samuel —I will take that—

Senator IAN MACDONALD —and incorporated into Hansard as well. In the February estimates I did raise with you the issue of Mercedes-Benz Australia/Pacific—and I had written to you about it. I am conscious that Minister Emerson on 3 March indicated that he was having the most sweeping reform of the Franchising Code of Conduct since its inception 12 years ago. In asking my question, I just draw your attention to this case that I have been following where a dealer drew to the attention of Mercedes-Benz to their possible breach of competition policy in Australia. Not long after that the dealer lost the dealership and there were a lot of allegations made which have proved to be incorrect. My question is: are you aware that Mercedes-Benz in the United States has recently settled at US$184 million and has entered into a Department of Justice agreement on a deferred prosecution in relation to similar activities—this is by Daimler, who, I understand, own Mercedes-Benz Australia. Daimler’s violations in the United States were relating to similar things that appear to be a course of conduct here in Australia and, as part of that settlement in the United States, they agreed to implement compliance and ethics programs.

By the same token, I just mention that today I have been advised that two large New South Wales dealers are being non-renewed—by a different maker, not by Daimler Mercedes, but using the precedent of Mercedes-Benz in what they have been doing over recent months to the dealers. My question to you really is: where have you got with your investigation into what Mercedes-Benz has been doing in the case I have related to you—and I do not want particularly to mention names here? Has the investigation gone any further? Are you perhaps in a position to relook at your investigation into Mercedes-Benz following these United States’ cases?

Mr Samuel —Senator, as you will be aware, it is not our practice to comment publicly on matters that we may or may not be investigating so I am constrained that we cannot actually give you some information on that particular matter. Mr Ridgeway, do you want to add anything to that given that we cannot comment?

Mr Ridgway —There is not much I think I can add.

Mr Samuel —I think the answer is no.

Senator IAN MACDONALD —Don’t comment on the specifics, but you are currently investigating those types of matters—though not necessarily this matter and those people—in that sort of area of your interest.

Mr Samuel —I think it is fair to say that there are a number of franchising issues that we are investigating. I do not want to identify the sectors or the like but want to say that franchising is very much on our radar. I think I have illustrated my very, very rapid coverage of that area, and there are some more materials in the statement. There are a number of cases that we have taken. As I have indicated, there are three heads involved in pursuing franchising matters. The first is breaches of the Franchising Code of Conduct. The second is the issue of misleading and deceptive conduct. The third is unconscionable conduct.

The unconscionable conduct area is somewhat more difficult to investigate because it involves parties who may have been subjected to intimidatory tactics and the like having to give evidence to us that can then be put before a court, which in its own sense is not a comfortable environment for those who have been subjected to harsh and oppressive or intimidatory tactics. It is not a friendly environment for them to be involved in. It is not an easy area, but I have to say to you that we have taken a decision that we want to try and pursue the issue of unconscionable conduct a little more vigorously than perhaps might have been the case in the past, not least because now it is possible for us to obtain financial penalties for breaches of those provisions.

Senator IAN MACDONALD —Do you follow things that happen in other countries with perhaps a view to watching what international companies do in Australia as well?

Mr Samuel —We follow closely what is occurring in other countries. We have a strong cooperative liaison, particularly with the United States, the United Kingdom and Europe. I think it is fair to say that often matters will arise there that will spark an interest at the Australian end which will cause us then to check and investigate whether in fact there may be similar policies being followed by related companies at the Australian end. Yes, that has been of great value to us.

Senator IAN MACDONALD —Thank you very much for that, Mr Samuel, and again thanks to my colleagues for allowing me to interpose.

Senator JOYCE —I am a betting man, so I am going to lay a bet that you can guess what the first question I am going to ask is about.

Mr Samuel —Yes, Senator. Do you know what? Because Mr Cassidy and I have answered this question so often in the past and clearly have not been able to satisfy you with our answers, we have decided to delegate the answering of this question to Mr Bezzi, who is going to answer it. Do you want to provide the answer before the question is asked?

Senator JOYCE —What would I ask? What would I open up questions with? I am a betting man. I know we are not going to meet a billion-dollar surplus. I will put a thousand bucks on the table if they can tell me the first question I am going to ask about. Mr Bezzi, what am I going to ask a question about?

Mr Bezzi —How many Birdsville related complaints—

Senator JOYCE —There you go!

Mr Samuel —Do we get the thousand dollars, Chair, or not?

Senator JOYCE —My first question is: how many complaints have been received regarding possible breaches of the Birdsville amendment? Fire away, Mr Bezzi.

Mr Bezzi —At our appearance on 10 February we outlined that between 18 September 2007 and 31 December 2009 the ACCC had received 378 contacts relating to predatory pricing, comprising 349 alleging predatory pricing and 29 seeking information about the provision. As of 30 April 2010 the ACCC had received 426 contacts relating to predatory pricing, comprising 392 alleging predatory pricing and 34 seeking information about the provision. That is an increase of 48 contacts in total, comprising 43 alleging predatory pricing and five seeking information about the provision.

Senator JOYCE —Well, it seems to be working. The public seem to be aware of it, which is good. Can the commission indicate how many Birdsville amendment related cases have been subject to a full investigation since the last estimates?

Mr Bezzi —A total of 77 matters of alleged predatory pricing have progressed to the initial investigation stage, representing just over 18 per cent of the contacts. This is, I should say, significantly higher than the average for part IV complaints progressed to initial investigation, which is about 11 per cent. Of the complaints received since our last appearance, three have progressed to an in-depth investigation stage, and we currently have three active predatory-pricing investigations. As I think we have advised in the past, we have also instituted proceedings against Cabcharge, alleging predatory pricing, amongst other things, although the allegations relate to the period before the introduction of section 46(1AA).

Senator JOYCE —The Birdsville amendment.

Mr Bezzi —Yes.

Senator JOYCE —You have commenced legal proceedings on Birdsville amendment cases or you have not?

Mr Bezzi —No, not yet. We have three matters which may end up going that way. We are not able to say yet. The investigations are continuing.

Senator JOYCE —Obviously we are very interested, and have been for a number of years now, to see the jurisprudence associated with Birdsville amendment cases come to light. I think the only way it will ever happen is if a case is taken into the courts.

Mr Samuel —As I think we said at the February estimates, you would be well aware that under the Legal Services Direction we cannot commence proceedings in relation to a matter unless we can receive legal advice that we have a reasonable basis, reasonable grounds, for instituting proceedings. I think that, in answer to questions that were put to us by Senator Brandis at the last Senate estimates, I made it absolutely clear that there has been no matter where we have received legal advice to say that proceedings could be instituted where we have taken a decision not to institute proceedings. So there has not been any arbitrary decision not to institute proceedings, but if the legal advice does not get us over the hurdle of reasonable grounds it is not appropriate under the Legal Services Direction for us to commence proceedings. I would not want to concede this to you too quickly, but it just may well be that the very existence of Birdsville and some of the uncertainty as to what it actually does mean may be deterring parties from engaging in conduct that might otherwise breach section 46(1AA), so you might have achieved your objective.

Senator JOYCE —I will take that as a win.

Mr Samuel —I did say that I would not want to concede that to you too quickly, Senator, but that is all right.

Senator JOYCE —I think as I leave here they will talk about a whole range of things. Someone asked me, ‘What is your biggest achievement?’ and they were expecting me to say the ETS. I said, ‘The Birdsville amendment,’ and they said, ‘What the hell’s that?’ Isn’t it a case of us chasing our tails? Unless we get a case to court, we are not going to dispel all this conjecture about the interpretation of the Birdsville amendment.

Mr Samuel —You say that, Senator, but it just may be that the existence of Birdsville and the uncertainty associated with it are leading businesses to being far more cautious against what some might interpret as being predatory pricing. That is to concede to you that it might be having the sort of effect that you and others who promoted the Birdsville amendment sought to achieve. We will not go into some of the discussion about what else section 46 might otherwise have achieved in any event because it does not matter; it is now part of the law. Suffice it to say this: as I have said on previous occasions, Birdsville type cases are being investigated. Where there is any prospect of the matter being referred to court then it is subjected to legal analysis, but we are yet have a case before us where the legal analysis has indicated that we have reasonable grounds for instituting proceedings—keeping in mind, by the way, that that legal analysis will, of necessity, say that there are some questions still to be answered about what ‘selling below relevant cost’ is, what ‘a substantial share of the market’ is and what ‘a sustained period’ is. Given that there are question marks about the meaning of those, if it is in doubt, at least the legal analysis would entitle us, with the appropriate legal advice, to assume that there might be reasonable grounds for instituting proceedings, if only to test the interpretation of those provisions. So I think you can be satisfied that, where investigations have taken place and have been referred to legal counsel, legal counsel has said that on any analysis, on any interpretation, of those tests and, as well, the purpose test—that is, the fourth limb of section 46(1AA)—there are not reasonable grounds for instituting proceedings. The Legal Services Direction says that we, like any other agency, cannot in those circumstances institute proceedings.

Senator JOYCE —I am confident. And, obviously, it gives us all—because it is not just me; it is Senator Xenophon, and a whole range of other people who are engaged with the Birdsville amendment—the sense that if it is having an effect and mollifying the actions that in the past have been obnoxious then that is a good thing. So the commission has not commenced any legal proceedings in any Birdsville amendment related case since the last estimates—you have basically confirmed that, haven’t you?

Mr Samuel —That is correct.

Senator JOYCE —So is the ACCC any closer to issuing any guidelines on the interpretation of the Birdsville amendment?

Mr Samuel —I think I will refer this to Mr Bezzi as well, because neither Mr Cassidy nor I can give a satisfactory answer on this one.

Mr Cassidy —Our answer has not changed since the last time you asked the question, Senator. We will not be putting out guidelines until we know a bit more about what the actual section means. Similarly, we do not have guidelines out on the whole of section 46, for the same reason. So we are no closer to issuing guidelines than we were the last time you asked.

Senator JOYCE —But, Mr Cassidy, when will you be close to issuing guidelines? What are you waiting for?

Mr Samuel —The difficulty is that we have three tests there that are going to have to be subject to Federal Court determination to give us some guidelines in the first instance. It is no use putting out a guideline that says, ‘We believe relevant cost is as follows,’ when in fact I could probably provide you with three or four economic opinions that would give you entirely different views. It is no use saying, ‘We believe that “a sustained period” means as follows,’ when in fact a federal court may well determine in the circumstances that ‘a sustained period’ means something entirely the opposite. It is no use talking about what might be a substantial market share. We have indicated, for example—I have indicated in a number of public speeches—what might be a substantial market share, but I can tell you that there are as many different views about that within the organisation and within the legal profession as you might be able to count on your two hands and your two feet. These are matters that will ultimately be required to be determined by the court. If we were to put out a guideline that said—

Senator JOYCE —That’s very good.

Mr Samuel —Sorry, Senator—let me just finish. If we were to put out a guideline that said, ‘We believe that those three tests amount to the following,’ and then a matter were to come before us and we decided, ‘Based on a legal opinion it is appropriate to take it to court,’ and if then the court were to say, ‘ACCC, you were wrong; our view in the court is that a substantial market share selling below relevant costs for a sustained period means the following new guideline is wrong; you have given the wrong advice and we are going to hold the company concerned, the respondent concerned, liable and they face potentially a very significant penalty,’ that would not be a very comfortable position to be in. So I just do not think we can put out those guidelines, in all fairness.

Senator JOYCE —I am not going to engage with you on that because I concur with your view. That is surprising! But what I do say is: to remove ourselves from this conjecture, why don’t we take the case to court and sort it out?

Mr Samuel —Because before we can take a case to court we have to produce the evidence, submit it to legal counsel, and have legal counsel say to us, ‘Based on the evidence that you have provided, I consider that you have got reasonable grounds for instituting proceedings.’ That is a legal services direction that was issued certainly by the previous government and is maintained by the current government. And it is to stop vexatious or frivolous litigation by agencies which can be costly, both to the Commonwealth in terms of legal costs and to parties that might be the subject of our proceedings. So I think it is fair to say that we have not received legal advice of having reasonable grounds to institute proceedings in respect of any matter that has been the subject of investigation under Birdsville. I think that is correct—isn’t it, Mr Bezzi?

Mr Bezzi —I just wanted to add that, as the public servant in charge of the division that has to investigate these things, I am very keen to see the first case come up. We are progressing these matters at a higher than usual rate when you compare them to other part IV matters. I think I said 18 per cent of predatory pricing contacts are being progressed. But we cannot make these cases—they do not just come out of thin air. We have to find them, investigate them, and go through the proper processes and get advice that supports bringing the case.

Senator JOYCE —I understand that. In my paucity of experience in accountancy—and having solicitors in my office—if I ever got to a point of conjecture where I was trying to work something out, I would have to go through the trials and tribulations of paying for a legal opinion, from people who were more provident in their knowledge that I was, as to what the likely outcome would be. Have you tried to obtain that from external sources so that you can premise how you think the court would interpret the Birdsville amendment?

Mr Samuel —We do not just seek legal opinion from our solicitors; they will, in appropriate cases, seek legal opinion from senior counsel. But it would be a brave—in fact probably an improper—agency that would turn around and say, to legal counsel—senior legal counsel: SCs; QCs—‘We do not agree with you and we think we have got reasonable grounds for instituting proceedings and we intend to do so.’ In fact I am not even sure we can do it, can we?

Mr Cassidy —No.

Mr Samuel —We cannot do it.

Senator XENOPHON —Chair, can I ask a supplementary question directly on that.

CHAIR —Sure.

Senator XENOPHON —On how many occasions has the advice of senior counsel been sought in Birdsville type cases?

Mr Cassidy —I suspect we have probably got them in twice. I was going to say that we might have to take that on notice.

Senator XENOPHON —You believe it is twice?

Mr Bezzi —It has been at least once but it might be twice.

Senator XENOPHON —Okay—but it is in that order?

Mr Bezzi —Yes.

Senator XENOPHON —Thank you. Sorry, Senator Joyce.

Senator JOYCE —At least once and possibly twice—that is a lot.

Mr Samuel —You can take various statistics, and I think one of the compelling statistics is that the percentage of Birdsville type matters that are moved towards a more intensive investigation is, I think—correct me if I am wrong—about double the rate that occurs in relation to normal—

Mr Bezzi —Yes; 18 per cent instead of 11 per cent.

Mr Samuel —So it is getting close to double the rate that we would do. Some might even say, ‘Why are you increasing the percentage of matters referred to more intensive investigation under Birdsville, relative to what you do in respect of other anticompetitive conduct?’ You might smile and say, ‘Well, it is because Senator Barnaby Joyce is asking us to do it!’

Senator JOYCE —And other people. Nothing came to me via an epiphany. It was really by pressure from external parties—from Senator Xenophon and from small business groups, basically; that is how it came about.

Mr Samuel —But we are required, we are mandated, to pursue these matters with appropriate rigour, and the rigour means investigating thoroughly but, at the same time, seeking and obtaining the advice of senior counsel. And if senior counsel says, ‘You do not have reasonable grounds for instituting proceedings; you have not got a basis on whatever interpretation can be applied to those three tests—plus I have to emphasise the purpose test that is contained in section 46(1AA)’ then we are simply not permitted to commence proceedings. That is the simple fact of the matter. But if you take that statistic—18 per cent versus 11 per cent of initial investigations that are moved to intensive investigations in respect of Birdsville matters—then I think it is fair to say that it is getting well and truly the focus that it deserves.

Senator JOYCE —I tell you what: I am a betting person, and I can give you another bet. As long as I am here, I am going to pursue it.

Mr Samuel —That is one bet, Senator, that I won’t take with you!

Mr Cassidy —It’d be like betting on a one-horse race!

Senator JOYCE —In the recent dairy inquiry report by this committee, there were calls for Australia to have specific laws against anticompetitive price discrimination. Does the commission consider that anticompetitive price discrimination is outlawed by section 46 of the TPA?

—I think it is inappropriate for us to comment upon the dairy report. We made some submissions to that committee, but really it is a matter of policy for government. There is—if I might say so, with the greatest respect—a degree of confusion in some of the recommendations of that report relating to issues of price discrimination and the like and what it actually means. You will be aware that the Australian parliament decided to remove the section 49 provisions relating to price discrimination back in the mid-1990s, following on from the Hilmer report on national competition policy, and I do not think there has been any suggestion since then that section 49 ought to be reintroduced. A long debate has occurred about that in many jurisdictions throughout the world. But I think it is fair to say that the general view on anti price discrimination provisions is that they tend to raise prices and operate in an anticompetitive manner rather than to lower prices and operate in a competitive fashion.

Senator JOYCE —But you would acknowledge that the evidence to the inquiry showed that the dairy farmers were being touched?

Mr Samuel —That is a separate issue. But you raise the issue of price discrimination: if we wanted to get into a debate about that, it would be interesting just to hear what your definition of ‘price discrimination’ is, and I suspect it may be of a different context or a different concept to that that some others might have. So I think we could get into a long debate about that. But that was the subject of a separate inquiry.

Senator JOYCE —Just going back to Birdsville: what educational activities have taken place to inform the people about Birdsville?

Mr Samuel —I and other members of the commission have given several speeches on that. Mr Bezzi, Commissioner Court and others have given speeches on the subject. We have endeavoured to bring a bit of rationality into the debate. It was initially subject to some irrational debate, not only I might say by some who were advocating the Birdsville amendment but also by some of those in big business who were opposing it. Some big businesses were suggesting that it had an excess of application. I think they have realised it is not true. There were others in small business who suggested it had a greater application than we thought on any reasonable analysis it could have had. Leaving aside our own analysis, there are several legal texts out there and legal opinions that have been expressed in various articles, journals and the like giving some views about what Birdsville means. I think you will find there is only one consistent view expressed in all of those journal articles and elsewhere—that is, no-one is very certain as to what it means at this stage.

Senator JOYCE —I concur with that. I am not going to argue with you on that point. ‘Some time’ is how long?

Mr Samuel —It is until such stage as: firstly, we can have a matter before us that falls within Birdsville—that is, the four heads that I have described, including particularly the purpose head that is often forgotten—secondly, the investigation is completed; and, thirdly, the matter is referred to legal counsel and we obtain advice that we have reasonable grounds to institute proceedings. We have gone through those processes, as Mr Bezzi has said, in respect of 18 per cent of matters that are the subject of initial investigation. But at this point in time we have not been able to produce a case where legal counsel has said, ‘You have reasonable grounds for instituting proceedings.’ I am sorry; I am repeating myself, which I am trying not to do.

Senator JOYCE —No, no. I and Australia can have confidence that you are taking it seriously, can’t we?

Mr Samuel —I would be amazed if you thought otherwise, Senator, after your repeated questioning on this subject in various Senate estimates hearings. If I might refer you back to the questions that Senator Brandis put to us at the last Senate estimates, which I thought made absolutely clear what our position was relating to the submission of matters to legal counsel. If I recall correctly, Senator Brandis asked the very direct question—and I asked him to clarify it—‘Have you received any advice in respect of any matter where counsel has said that you have reasonable grounds for instituting proceedings where the enforcement committee or the commission has determined not to institute proceedings?’ My clear answer to that was, ‘No, we have not.’

Senator JOYCE —That was a very precise question, wasn’t it?

Mr Samuel —It was a very precise question, and it was a very precise answer.

Senator JOYCE —It was exceptionally precise, if I might say so.

Mr Samuel —The question came from Senator Brandis, and the answer from me was very short and precise: no.

Senator JOYCE —Does section 46 cover anticompetitive behaviour?

Mr Samuel —Yes. It falls within part IV of the Trade Practices Act, which relates to anticompetitive behaviour. It covers a whole range of anticompetitive behaviour. In fact, in my opening statement I referred to the increased penalties that have been in place since 1 January 2007 and specifically referred to the misuse of market power provisions of section 46. It is an area where, as you would be well aware—because you have been sitting around this committee for some years now, as have I—we have had some degree of difficulty in tackling section 46 matters because of some interpretations of that provision by both the federal and the high courts but, as a result of amendments that were introduced by the former government and then further amendments introduced by the current government, we believe we now have a greater scope for instituting proceedings or for taking up matters under section 46 in respect of misuse of market power. It is a serious provision. It is probably second only to cartels—and I may be contradicted on this by my colleagues—in terms of its egregious form of anticompetitive conduct.

Senator JOYCE —Has the commission undertaken any investigation into allegations of anticompetitive price discrimination?

Mr Samuel —Again, I would perhaps be interested to get your interpretation of what—

Senator JOYCE —anticompetitive price discrimination is?

Mr Cassidy —That comes under section 46, Senator. I do not know whether my colleagues have it, but I do not know whether I have the information to say what period. It was an open-ended question.

Senator JOYCE —Let us take—

Mr Cassidy —Section 46 has been there since 1974.

Senator JOYCE —Thank you very much. I will not go back that far. I won’t even do that to you, Mr Cassidy! Let us take the last 12 months.

Mr Cassidy —I will have to take that on notice.

Senator JOYCE —What about the last three months?

Mr Cassidy —We would still have to take that on notice to see if we had the information.

Senator JOYCE —Do you have any one before you at the moment? Do you have any case before you at the moment?

Mr Cassidy —At the moment we have 15 detailed investigations relating to section 46. Off the top of my head, I am not quite sure whether or not any of those 15 involve price discrimination. Let us take it on notice and we will give you an answer.

Senator JOYCE —Do you accept that the US and the United Kingdom have laws against anticompetitive price discrimination?

Mr Cassidy —Sorry? I can’t—

Senator JOYCE —Do you accept that the UK, the United Kingdom, and the United States of America have laws against anticompetitive price discrimination?

Mr Cassidy —On specific laws, I must say that for the UK I am not sure. The US has the Robinson-Patman Act. I must say with the Robinson-Patman Act there have been a number of reviews over the years, including the recent congressional review of US antitrust law, which have all recommended that that act be repealed. Nonetheless, it is still on the statute books. So, yes, they do. As I say, for the UK I am not sure. But conceding that one for the moment I think we have toured a few countries that do have specific laws.

Senator JOYCE —Why haven’t they repealed it?

Mr Cassidy —Sorry?

Senator JOYCE —Why haven’t they repealed it? For all the jurisprudence—

Mr Cassidy —Again, in the US I think the reason why it has not been repealed has a lot to do with the processes in congress and the checks and balances that operate—

Senator JOYCE —What? Is public opinion against it?

Mr Cassidy —Sorry?

Senator JOYCE —Is public opinion against it?

Mr Cassidy —I would not say that. In fact, even the US Supreme Court has recently indicated—

Senator JOYCE —I was talking about public opinion.

Mr Cassidy —Sorry—I do not know. Could we answer a question? Thank you, Senator. The US Supreme Court has indicated that it will take a very narrow interpretation of Robinson-Patman and only in a sense find under it where it is quite clear that it has anticompetitive impacts.

Senator JOYCE —Does section 46 outlaw price discrimination?

Mr Cassidy —Yes, it does. It is covered by section 46.

Senator JOYCE —It does?

Mr Cassidy —It does.

Senator JOYCE —Has the ACCC received any complaints alleging anticompetitive price discrimination?

Mr Cassidy —I dare say we have. I cannot tell you the number. Again, I will take that on notice and give you a number if you like.

Senator JOYCE —Can the commission indicate the circumstances under which it considers that price discrimination can be anticompetitive?

Mr Cassidy —Where it results in a substantial lessening of competition.

Senator JOYCE —What does that mean?

Mr Cassidy —That is the test under the act.

Senator JOYCE —Tell me about it.

Mr Cassidy —Under the act, anticompetitive conduct is unlawful either per se, so called, which means it is outright unlawful—for example, price fixing—or if it results in, in the wording of the act, ‘a substantial lessening of competition’.

Senator JOYCE —Explain to me the term ‘substantial lessening of competition’. What does that mean?

Mr Cassidy —The way section 46 works is this. Section 46 is structured in terms of a ‘substantial lessening of competition resulting from predatory behaviour which has the effect of either eliminating a competitor, preventing a competitor from entering the market or preventing a competitor from competing.’ In terms of section 46, which includes, as I say, price discrimination, that is what ‘substantial lessening of competition’ means. It is one of those three things.

Senator JOYCE —Okay. Let us go through this ritual pas de deux. What is the threshold test?

Mr Cassidy —The threshold test is the one I just gave you. It is predatory and results in one of those three outcomes.

Senator JOYCE —What do I have to prove? I am Mrs Smith and I sell carrots at the store. What do I have to prove?

Mr Cassidy —Sorry?

Senator JOYCE —I am Mrs Smith. I work in the mall, the shopping mall—or whatever you want to call it. I know I am being shafted. What do I have to prove? What is my threshold test?

Mr Cassidy —What needs to be established is that the firm allegedly undertaking the price discrimination has significant market power and that the price discrimination was undertaken for the purpose of either eliminating a competitor, preventing a competitor from entering the market or damaging a competitor.

Senator JOYCE —Mr Cassidy, you are a smart man.

Mr Cassidy —Thank you, Senator.

Senator Sherry —How come I never get that?

Senator JOYCE —You just told me section 46 was a substantial lessening of competition test under section 46. That is correct, isn’t it?

Mr Cassidy —No. What I—

Senator JOYCE —Hang on.

Mr Cassidy —Sorry, Senator. What I said was that the general test in the act—

Senator JOYCE —The general test in the act—

Mr Cassidy —is a substantial lessening of competition.

Senator JOYCE —The general test in the act?

Mr Cassidy —I started at the broad. I said you had two types of things. You had conduct, which is per se just straight out unlawful, and you had conduct which is unlawful if it results in a substantial lessening of competition.

Senator JOYCE —Tell me—

Mr Cassidy —Sorry, Senator. In relation to section 46, the way in which that substantial lessening test is embodied, if you like, is in those three predatory elements that I mentioned. You have to have one of those three to be in breach of section 46.

Senator JOYCE —So you are saying the substantial lessening of competition test is in section 46?

Mr Cassidy —No.

Senator JOYCE —It is not?

Mr Cassidy —No, it is not.

Senator JOYCE —It was there three minutes ago and it is gone already.

CHAIR —Senator Joyce, perhaps if you listen, it might help.

Mr Cassidy —I think this is the fourth time I will say this, but I suppose I will say it for the fourth time. The way in which that general test—

Senator Sherry —That is not a record that you are going to set.

Mr Cassidy —No. It will probably be asked a couple more times yet. The way in which that test is embodied in section 46 is in one of those three elements that I mentioned. Either you substantially damage a competitor, you prevent a competitor from entering the market or you prevent a competitor from competing.

Senator JOYCE —I am going to help you out here because there is no mention of a substantial lessening of competition in section 46 of the Trade Practices Act 1974, is there?

Mr Cassidy —No. There are those three elements I just mentioned.

Senator JOYCE —No, there is not. There is no mention of them. In fact, I will quote it to you. Do you want me to do that?

Mr Cassidy —Well, you can read out those three elements and maybe you will stop asking me about them. They are in section 46.

Senator JOYCE —So the misuse of market power is:

(1)   A corporation that has a substantial degree of power in a market shall not take advantage of that power in that or any other market for the purpose of:

(a)   eliminating or substantially damaging a competitor of the corporation or of a body corporate that is related to the corporation in that or any other market;

(b)   preventing the entry of a person into that or any other market; or

(c)   deterring or preventing a person from engaging in competitive conduct in that or any other market.

There is no mention of the substantial lessening of competition test in section 46. Isn’t that right, Mr Cassidy?

Mr Cassidy —Yes. I did not say there was, Senator.

Senator JOYCE —Yes, you did.

Mr Cassidy —No, I did not. I said—

CHAIR —Senator Joyce. Say it again, Mr Cassidy.

Mr Cassidy —Again, okay. What I said was the general test in terms of the act is a substantial lessening of competition type test.

Senator JOYCE —Type test.

Mr Cassidy —The way in which that is embodied in section 46 is through the three elements of either damaging a competitor, preventing a competitor from entering the market or preventing a competitor from competing. They are the three elements you have just read out to me.

Senator JOYCE —I am not going to pursue it. You are wrong. I am bigger than that. Can the commission indicate how many small business collective bargaining applications under the Trade Practices Act it has received since the last estimates?

Mr Cassidy —I note that the total of collective bargaining notifications has been 22 since the amendment was introduced. I am just not quite sure what it is since the last estimates.

Mr Chadwick —I probably do not have them with me here since the last estimates only.

Senator JOYCE —What does that mean? Just translate that. What does that mean?

Mr Chadwick —I think it means I do not have the figures here—we can take it on notice—of how many collective bargaining notifications there have been.

Senator JOYCE —You can take it on notice and get back to me.

Mr Cassidy —There have been 22 since the amendment was introduced. I do not think we know immediately how many it was since the last estimates.

Senator JOYCE —Can the commission indicate how many complaints it has received in relation to the Horticulture Code of Conduct since the last estimates, so we do not go back to 1974?

CHAIR —November?

Senator JOYCE —Since the last estimates.

CHAIR —February.

Senator JOYCE —I do not care—whichever one makes it convenient. Just give me a number.

Mr Samuel —Well, it had better be an accurate number.

Senator JOYCE —We are going all right so far. We just had a substantial lessening of competition test in section 46, so that was a big advancement. I will put that in the act tomorrow.

Mr Cassidy —Again, I do not think we have a figure since the last estimates. So we had better take that on notice.

Senator JOYCE —You had better take that on notice as well.

Mr Cassidy —In future, we will come along with a whole lot of figures about things that have happened since last estimates.

Senator JOYCE —While you are at it, how about the franchising code? How many of them since the last estimates?

Mr Gregson —We do have some figures of complaint data in relation to the franchising code.

Senator JOYCE —How many?

Mr Ridgway —From 1 January to 30 April 2010, we received 340 franchising complaints and inquiries, from which 10 initial in-depth investigations were commenced.

Senator JOYCE —There were 10 out of 340. I have found something now.

Senator XENOPHON —Mr Samuel, I have so many questions and so little time. I will start off with Golden Circle. Thank you for alluding to that. As I understand it, the company Golden Circle misled consumers because its cans said ‘proudly Australian owned’ when in fact it was taken over by Heinz back in 2008.

Mr Samuel —Correct.

Senator XENOPHON —As part of the penalty agreement with the ACCC, as I understand it, it was agreed that the company would donate about $1.8 million worth of fruit and vegetables to charities.

Mr Cassidy —That is correct.

Senator XENOPHON —That is a fair summary. That $1.8 million worth of produce that was given to charities probably would have been good PR for Golden Circle in itself. Did those cans have a label either crossing out or saying ‘no longer Australian owned’ so that consumers were not under misapprehension about that produce? The minister is smiling. It is an innocent question.

Senator Sherry —You are tough, I have to say.

Mr Cassidy —Are you suggesting, Senator, that the charities would have given it back had it been not owned here?

Senator XENOPHON —No, I am not suggesting that at all. All I am saying is that the whole idea of penalising—

Mr Samuel —No. We did not require that. This is an issue that was raised with me by a couple of sections of the media at the time we announced this. They said, ‘Well, you’ve given them a chance to get some good publicity.’ I have to say to you that I doubt that Golden Circle actually relished the publicity they got over this matter. It was widely publicised that they had been engaged in misleading and deceptive conduct. As I read it—forgive me, but one can only read the take that you get from the media—I think people generally took the view that this was a pretty good outcome. We got the $1.8 million worth of cans given to charity and Golden Circle got some pretty bad publicity out of their misleading and deceptive conduct.

Senator XENOPHON —Just on this—and I have a couple more questions along this line—it is misleading because when the consumer goes into a supermarket they see a can that says ‘Golden Circle, proudly Australian owned’ when it was not the case. Consumers or those who have sought the help of a charity got a can as part of the penalty, and it is a Golden Circle can without a little sticker that would have said it is part of a penalty because it is not Australian owned any more. It could have been stuck on these cans. The whole idea of it was to penalise Golden Circle for misleading consumers. But then by distributing their cans as part of the penalty without any corrective labelling, was that unhelpful, do you think, in the context of consumers being continually misled as a result of that? There is a bit of irony.

Mr Samuel —No. I understand what you are saying.

Senator XENOPHON —There is some irony. It is somewhat ironical, though, is it not?

Mr Samuel —I understand what you are saying. But keep in mind this: had the matter gone to litigation, it would not, I think, on any reasonable basis have been possible to obtain an order that the $1.8 million worth of cans of produce be distributed to charity or the like.

Senator XENOPHON —Please let me make it clear that I am not criticising the ACCC for the quantum in terms of the value of those cans. Was any consideration given by the ACCC to have some corrective labelling on the cans, which would have cost something but presumably nowhere near $1.8 million?

Mr Bezzi —There was a requirement that corrective advertisements be put in newspapers. That was considered, I think, the most appropriate way of informing anyone who might get these cans that Heinz had engaged in misleading and deceptive conduct.

Senator XENOPHON —No consideration was given to putting a label on the cans?

Mr Bezzi —No. I do not think we thought of that. We were very keen to make sure that the impression was corrected. That is why we insisted on corrective advertising.

Senator XENOPHON —I am all labelled out. I just want to keep going on the issue of Leslie White’s report that was in the Weekly Times of 27 May to the effect that the incorrectly labelled Golden Circle products are still for sale. You alluded to in your opening—

Mr Samuel —Yes. I mentioned that we are aware of that. We have communicated with Heinz and indicated that they need to complete the program of removal from the shelves. This is a bit of a stock rotation exercise, I think. Mr Gregson, did you want to comment on that?

Mr Gregson —We have been keeping an eye on the marketplace with a series of surveys across various stores. We have seen a decrease in the prevalence of the use of the representation. That is obviously a stock rotation issue. We are keeping a very close eye on that. As recently as earlier this week we have written to Heinz indicating that we are still finding small numbers of product on the shelves. Certainly we make no apology for their inability to get those off the shelf as yet. Obviously we will keep an eye on that closely. We put them on notice of our increasing concern.

Senator XENOPHON —So are they in breach of the undertakings or the agreement?

Mr Gregson —No. The undertakings require that they cease producing and providing or supplying these products into the supply chain. What we are talking about here is products that have been in the supply chain with retailers. There is a rotational issue.

Mr Cassidy —Stocking shelves is in the control of the retailers.

Senator XENOPHON —I understand that.

Mr Cassidy —But we have placed an obligation on them.

Senator XENOPHON —Given what Mr Bezzi said, is it unreasonable to require some further corrective advertising by the ACCC so that that is—

Mr Gregson —Indeed, the undertaking required a second set of advertising where there were still representations being made. Not only has there been a second set of advertising; we required a third advertising series as well, which went out not that long ago.

Mr Bezzi —And, I think, in-store corrective signage.

Mr Gregson —Certainly, if we identify an ongoing issue over the next few months, we will have to look at how we deal with that and what action we may or may not take.

Senator XENOPHON —Thank you. I want to go to the issue of whether the ACCC has received any complaints about misleading conduct in relation to online or other gambling services. I have had complaints from constituents over the years about services that look like a stock market service but in fact are about how to bet on the horses and indicate that it is a sure thing when in fact it is not. People do their dough. Is that in the statement?

Mr Samuel —You will find in my opening statement—a full copy of which has been given to you and will be put into Hansard—that we make reference there. For example, there is an action we took against a company or a website called ‘Powerballwin.com.au’, which was a scam. This was a website that claimed to predict numbers to help win all the divisions of Powerball in Tasmania. Within three days we actually obtained interlocutory injunctions to close that down. It was a website and servers. They were located in the UK and the USA to promote and run the scam. Justice Tracey of the Federal Court labelled the scheme as bogus, saying:

All too often, unscrupulous individuals seek to enrich themselves by devising schemes under which unsuspecting victims are induced to part with their money and other property.

So we are conscious of those and have taken action. What we tend to do in those is to do so in conjunction with our international counterparts, because very often they are run from outside Australia.

Senator XENOPHON —On a related issue, recently in the Australian Professor Kevin Harrigan from the University of Waterloo in Canada gave a number of lectures about the design of poker machines and features of near misses and losses disguised as wins, where you play 10 lines in a poker machine, you lose on nine but you win on one and it comes up as a win in terms of reinforcing that. Is this something that the ACCC has looked at? What liaison is there between the ACCC and various gambling regulators about issues of machine design? You may wish to take this on notice. It is a genuine question based on Professor Harrigan’s recent evidence in Australia about features and machines that could be inherently misleading to consumers.

Mr Cassidy —Yes. We will have to take that on notice.

Senator XENOPHON —Perhaps I will correspond with you further in relation to that. That would be useful. In answer to question No. 1 placed on notice in February, the ACCC stated that at the time it had spent $313,924 of the $1 million allocated to administer the unit pricing code of conduct in the 2009-10 financial year. Can you tell me how much more of that has been spent in this financial year? Can you give a breakdown of that money? Perhaps that latter part of the question could be taken on notice.

Mr Ridgway —We might have to take the question, which is back to the amounts expended, on notice.

Mr Cassidy —What we will have to do here is actually add up the different things we have done and what we have spent on the picture in total. It is not something that just falls out of our system.

Senator XENOPHON —Sure.

Mr Cassidy —Let us take it on notice.

Senator XENOPHON —Does the ACCC intend to hold a review of the code or undertake any monitoring to determine how useful the code is for consumers in the future?

Mr Ridgway —The ACCC has undertaken to do some survey work of compliance levels in the supermarkets that are subject to the unit pricing code.

Senator XENOPHON —I think that, in the answer to the questions on notice I submitted, the ACCC said it was undertaking a national survey of unit pricing. Has the survey been completed or is it close to being completed?

Mr Ridgway —The survey has commenced. It should be completed in the not-too-distant future.

Senator XENOPHON —Thank you. I want to move to the issue of petrol pricing. I understand that the ACCC provided—if I am wrong, I am sure you will correct me—a confidential report on anticompetitive behaviour in the petrol pricing market to the Minister for Competition Policy and Consumer Affairs in December 2009. Are there any plans to release this report publicly?

Mr Samuel —That is a matter for government.

Mr Cassidy —I would have to say that, if it were to be released, it would have to be somewhat redacted because it contains information that we had obtained under our section 155 powers. There is a specific legal prohibition in that section against making that information available other than to—

Senator XENOPHON —Perhaps I should direct it to the minister.

Mr Cassidy —But it is an issue for government.

Senator XENOPHON —In relation to the confidential report on anticompetitive behaviour in the petrol pricing market that was provided to the Minister for Competition Policy and Consumer Affairs in December 2009, is the government proposing to release that report, even in a redacted form, given that Mr Cassidy has said some aspects of it cannot be released?

Senator Sherry —I will have to take that on notice. I will personally discuss it with Minister Emerson and see how we can facilitate it.

Senator XENOPHON —Sure. I think many would say it is in the public interest for that report or even a redacted version to be released. I want to go back to the issue of unit pricing. How many complaints has the commission received in relation to possible breaches of the unit pricing code of conduct since the last estimates hearings—in other words, in the last four months?

Mr Ridgway —We have figures for the number of complaints we have received since 1 December through to May this year. We have a total of 33 complaints.

Senator XENOPHON —In that period. The commission would be aware of media reports on the weekend regarding errors by a major supermarket chain in the unit pricing of its online groceries. Is the commission investigating any possible breaches of the code arising from those weekend reports?

Mr Cassidy —Getting back to what the chairman said earlier, we would prefer not to comment on specific investigations. Let me give you a more general answer saying that we are actively monitoring unit pricing and its implementation. We have now just completed our third survey across all retailers looking at their unit pricing practices. The results of that are now being analysed, plus the results for the second survey, which we thought were pretty good in terms of the compliance levels. So, without commenting on the possibility of a specific investigation, let me say that we are actively monitoring compliance with unit pricing. The way we do this with a new law is that we start with a heavy focus on education and compliance. But then, of course, as the law is established and settles in, we move increasingly from education and compliance to enforcement activities. Without wanting to, in a sense, prejudge what might happen in the not-too-distant future, let me say that I think we are starting to enter that transition period, given that the law has now been out there for a while.

Senator XENOPHON —I want to go to the issue of petrol. Can the commission indicate how much it has spent on the issue of petrol price monitoring and the monitoring of issues of competitive behaviour in the market, including the wholesale market, in the last 12 months.

Mr Cassidy —Again, can we take that on notice?

Senator XENOPHON —Sure.

Mr Cassidy —I just do not know that we have that level of detail with us.

Senator XENOPHON —In relation to the issue of price monitoring generally, has there been any analysis undertaken as to the efficacy of that? The ACCC undertakes price monitoring. Has the ACCC undertaken any study or surveys as to how effective price monitoring is? In other words, in terms of the behaviour of participants or the mere fact that you monitor prices, how effective is that in modifying or mollifying behaviour in the marketplace?

Mr Samuel —It depends on the area, Senator. I think that the general view would be that while price monitoring is regarded by some bodies and economic advisers as being relatively light-handed regulation, it can in many respects be a somewhat heavy-handed regulation because the obligations imposed on those that are the subject to the monitoring can be quite extensive and yet the impact of the regulation can, in fact, be quite minimal. You would be aware, of course, that we have conducted in the past various areas of price monitoring related, for example, to the insurance industry—to medical indemnity insurance and the like—although a lot of that has since ceased. The major areas of price monitoring we are engaged in at the present time relate to the stevedores, where we issue an annual price monitoring report. There are airports, where we do both price and quality-of-service monitoring, as well as airport car parks. In those areas, I will leave it for others to judge how effective they are. Each year we issue a report that indicates the sort of return on assets employed and the like, but I am not sure that the actual impact of the price monitoring report itself could be regarded as very significant, indeed, other than to expose the prices and pricing behaviour.

Senator XENOPHON —So that is its greatest value, in a sense?

Mr Samuel —Well, that is it; it is exposure. But whether the parties take any notice of it or not is another issue. There is one area where I think we have and can be effective, and that is in relation to our formal price surveillance, or price monitoring powers that might occur, for example, in relation to Australia Post. I think the activity that we have been engaged in there for the past six months has resulted in a significant level of improvement in the information that has been provided to the commission over issues of cost reductions, revenue declines flowing from the reserve services or the decline in the use of reserve services and potentially even some revised management processes within Australia Post to deal with some cost restructuring.

Senator XENOPHON —Thank you. I have two or three more topics in the remaining time. You mentioned earlier the issue of mobile phone contracts. I think a bugbear of consumers is that they buy a phone, they sign to up a two-year service agreement, the phone goes kaput within 12 months and they are left high and dry. You may have seen the article by Sam McKeith in the Financial Review on Monday, 31 May, headed ‘Mobile safeguards will drop out’. It is asserted that consumers are set to lose protection against faulty mobile phones in terms of what is being proposed. Can you comment on that? Is it your understanding that what is being proposed will mean fewer safeguards, because many would be surprised at that?

Mr Samuel —Well, we were surprised as well when we read the article. The first thing I did was to say to colleagues in the office, ‘What have I not been informed about?’ because it was very surprising.

Senator XENOPHON —That is what I thought too.

Mr Samuel —I think it is fair to say that the article was, in our view, wrong. The conclusions drawn were wrong. It must be remembered, Senator, that what the article was saying was in a hypothetical set of circumstances: were the minister to exempt telcos from certain regulations under the Trade Practices Act, then under the new Australia consumer law there would be some gaps, if you like, in the enforcement. But I do not think it has ever been suggested that that might occur.

Senator XENOPHON —Thank you for that. If the minister did exempt telcos from certain requirements under the regulations, that could occur?

Mr Cassidy —The whole idea of exemption is that, say, a telco retailer cannot be held responsible for something which is not his fault. In other words, if a service is not provided because the carrier does not produce the carriage service, the retailer cannot be held responsible for that. That is what the minister has power to exempt. But it has nothing to do with faulty mobile phones, nothing to do with misleading ‘free and unlimited’ and so forth advertising. It is purely that sort of issue, where the retailer cannot be held responsible for something which is not his fault.

Mr Bezzi —The retailer of the service, not the actual physical phone.

Senator XENOPHON —Because of time constraints, if there is anything further the ACCC want to put, do. You were surprised and I was concerned when I read that. I am not saying that the journalist was inaccurate. I am just saying that it put a set of circumstances that—

Mr Samuel —I do not think it was the journalist so much as representations that had been put to the journalist by various groups, which we believe were wrong.

Senator XENOPHON —I think Mr McKeith fairly represented what was put to him—

Mr Samuel —Correct. We think that they were wrong.

Senator XENOPHON —to be fair to him. I want to go to the issue of geographic price discrimination. You are aware of the bill I have had with Senator Joyce in terms of the Blacktown amendment. Is the commission aware of media reports also on the weekend regarding geographic price discrimination by liquor outlets owned by the same major supermarket chain? If so, is the commission concerned that consumers are paying a higher price for the same product in different locations?

Mr Samuel —I am aware of the article, Senator. I am aware that consumers do pay different prices in different locations for products and services. But, as I have said on a few occasions before and met the ire of some senators in so saying, there is no law that requires the same price to be charged across all geographic locations in Australia for the same product or the same service.

Senator XENOPHON —Has the ACCC welcomed the move by, I think, Coles and Woolworths to have uniform pricing over a number of their products throughout their stores?

Mr Samuel —In fact, we had this discussion, I think I recall, two Senate estimates committees ago, Senator. What I said—

Senator XENOPHON —It is an oldie but a goodie, though.

Mr Samuel —Yes. It is an old but good one. I think I indicated at the time that the general reaction from consumers seemed to be to welcome that. Insofar as consumers are better able to assess the competitive offerings of different suppliers and that is facilitated by having similar prices across geographic regions, so be it. But there is no process for the ACCC to approve or disapprove of geographic price differentials that are charged by suppliers. That is just not part of the act.

Senator XENOPHON —I understand that. But whilst you do not have a role in respect of that because there are no laws at the moment for uniform pricing, does the commission monitor claims by major supermarket chains insofar as they make claims that they have uniform pricing?

Mr Samuel —There is no question that if a claim is made that in marketing a product they have uniform pricing—

Senator XENOPHON —Which has been the case.

Mr Samuel —which is not the case—

Senator XENOPHON —But they have, have they not?

Mr Samuel —That is correct, yes. But if in fact it was demonstrated that that was not the case in practice, that may well form a basis for an investigation as to misleading and deceptive conduct.

Senator XENOPHON —That is right. My question is: given that it has been a marketing tool by a couple of the chains that they have the same prices across the metropolitan region across the state, has there been any monitoring by the ACCC of the veracity of those claims?

Mr Samuel —I think it is fair to say that since the claims were made so widely and so publicly, the matter has been under constant review by the commission.

Senator XENOPHON —Does ‘review’ mean—

Mr Samuel —A review means monitoring, watching and checking.

Mr Cassidy —We have checked, yes.

Senator XENOPHON —Perhaps on notice you could indicate the extent of checking in respect of that.

Mr Samuel —Yes, without going over the line of not commenting upon matters we may or may not be investigating.

Senator XENOPHON —Sure. I understand the constraints. I think the Chair might be generous in giving me one more minute. Can the commission indicate the number of complaints it has received on country-of-origin claims since the last estimates, in terms of food labelling?

Mr Samuel —We will have to take that one on notice, I think.

Senator XENOPHON —Dr Neal Blewett for COAG is looking at the issue of food labelling. Has the ACCC had any role in that, in terms of any proposed changes to laws and giving advice as to any new framework?

Mr Cassidy —On the second part, Senator, we have not made a formal submission to the Blewett inquiry, but we are scheduled to meet with the inquiry shortly to go through a number of issues that they want to raise with us.

Senator XENOPHON —I think my time is up. I have put a number of questions on notice. Thank you.

Senator PRATT —Thank you very much, Chair. I want to ask the ACCC how many people it is aware of who are currently falling victim to phishing, mishing and vishing scams. How are you going in managing that problem? Is there a particular profile of who is likely to fall victim and how they can be best assisted?

Mr Gregson —Senator, I might be able to assist you with that. In March this year, the ACCC put out a report in relation to its scam activity. That will have the full stats in relation to the number of consumers who complain to the ACCC together with the amount of losses reported by those consumers. The second part of your question was?

Senator PRATT —I am interested to know if there is a particular profile of consumers that are more likely to be vulnerable to that.

Mr Gregson —We make it a practice of advising that scams hit the wide cross-section of the community, from those who might be particularly well-informed or educated to those who may not, across all demographics. Of course, there are certain vulnerabilities that certain scams may prey on, but we are particularly keen to stress that everyone can be the victim of a scam. That is apparent in all our publications.

Senator PRATT —Yes. I have certainly seen that. Clearly education and trying to get a general awareness out there is part of that. What is the approach to this issue?

Mr Gregson —We take a number of approaches to any issue of compliance with the law. In relation to scams, we combine both our publications, presentations and various outreach activities, including our SCAMwatch work. We also participate in liaison activities with other regulators through the Australasian Consumer Fraud Taskforce and other networks. We also take matters through disruptive activities, be that bringing down websites or, alternatively, dealing with either mail or other means of communication. Finally, we do take the pointy end of enforcement action.

Senator PRATT —Clearly there are a number of different technologies that are platforms for this activity today and there is a diversity to those platforms, be it mobile phones or laptops. There is a bunch of new devices coming into the market, be they iPhones or whatever. In a sense, the sellers of that technology have, in most instances, some control over some of the products and platforms that are available within their device. They can apply their own ethical standards to what is available there. Is the ACCC looking at working with the providers of this technology so that they are educating their own users as more and more of these different devices come online?

Mr Gregson —Enforcers around the world are more and more becoming aware that working with enablers or facilitators in the marketplace is a key issue for enforcement and compliance. We are looking at a range of bodies that we can be working with. I am not specifically aware whether we have approached manufacturers of devices or not. I should say we also attended the House of Representatives inquiry that dealt with some of these issues and provided information to that committee as well.

Senator PRATT —That is good to know. I do note that the ACCC is getting quite active now in different forms of social media, which is good to see, and that there are a number of other institutions and consumer agencies around the country doing the same thing. I am interested to know the ACCC’s approach to being a body there to protect consumers. How does the ACCC see these social media platforms actually being able to draw more information from consumers and get them to more actively work with each other and inform each other, be it on things like sharing prices or any number of different things?

Mr Ridgway —The ACCC has recently made a conscious entry into what is characterised as the social media platforms, such as Twitter, for example, and some of the forums. We have started that with our product safety function because we feel it is increasingly an area where the consumers that we are trying to reach are informing and talking and sharing with each other. We track some of that communication. Recently, our launch of the review of our recalls function generated a very large volume of interest on Twitter and on social websites more generally. We will be looking at other opportunities to use that format. Interestingly, my observation is that some of the mainstream media coverage actually reinforced and encouraged the online forms to generate, so there is an interaction between the two.

Senator PRATT —Great. Thank you.

Senator COLBECK —I am anticipating that I might end up with a similar answer to the one that Senator Macdonald got earlier, but that is okay. Can I deduce from the answers you gave to Senator Xenophon and Senator Pratt that it is not necessarily a specific complaint that brings scrutiny from the ACCC into a particular matter? How do you actually engage with a particular circumstance that might be occurring? What would be the circumstances that would bring your attention to a particular matter?

Mr Samuel —There would be a range of what are called initiation processes that could apply. More often than not, it will come from the many, many tens of thousands of calls that we receive into our info centre, which then go through a process of consolidation and then reference, as may be appropriate, to our investigators for either an initial or a more comprehensive investigation, as the matter proves up. But we also receive advice or complaints from competitors. We will receive advice, indeed, from members of parliament, who are receiving it from their constituents. We will receive advice from overseas counterparts—that is, our counterparts overseas. Members of the organisation, of which there now total in excess of 800, are constantly keeping their eyes open on a daily basis through their daily activities, whether it is walking through supermarkets, reading the newspapers, listening or watching radio or television advertisements for issues that flag concerns. Very often they will arise in that fashion.

Senator COLBECK —So there are a number of flags that actually raise particular issues to you. You have mentioned some that are of interest. Specifically with fairness of contracts and contract conditions, are there any parameters within which you would look at those particular matters? You have had some discussion about, say, franchising codes and things of that matter. But in other arrangements, do you actually look at fairness of conditions of contract as part of arrangements between parties, particularly a larger organisation that might impose conditions of contract on subordinates?

Mr Samuel —We will certainly be looking at those a lot more carefully as from 1 July this year, when the unfair contract legislation comes into place. But at the present time I think it is fair to say that with the exception of Victoria—

Mr Bezzi —Well, unless you are talking about unconscionability.

Senator COLBECK —So within those test parameters that you were discussing earlier?

Mr Cassidy —The unconscionability provisions are really about conduct—I am sorry to put it this way—which is beyond conscience, which is so harsh or oppressive that you could not say that it is in any way part of normal commercial dealings. There are provisions relating both to business transactions and unconscionable conduct in consumer transactions.

Senator COLBECK —So in a business transaction, what would be the sort of test that you would apply for that?

Mr Cassidy —Well, the act actually gives a number of issues to be considered in thinking about whether behaviour is unconscionable or not. I suppose the issue which makes it challenging is that the unconscionable conduct can be very specific to the individual facts of the case. So it is difficult to say in an across-the-board sort of way—

Senator COLBECK —So it is a particular judgment issue depending on the circumstances that you are provided with on a case?

Mr Cassidy —Yes. So it is difficult to say, ‘Look, this sort of conduct would always be unconscionable’ because it really depends on the facts of the particular case.

Senator COLBECK —Yes. I understand.

Mr Cassidy —But that is a relevant provision. We do not actually get into what you might call fairness issues because really they are more contractual sort of issues. It is really only if it goes beyond fairness, as it were, to something which is really grossly unfair, if I can draw that distinction.

Senator COLBECK —And that becomes a bit subjective and in a lot of circumstances a matter of judgment. People do not see it as being unfair, but within the scope of the act it is not necessarily deemed to be unfair.

Mr Cassidy —That is right. In fact, if you like, one of the issues we consider in relation to unconscionable conduct is not looking at the conduct in absolute terms. But is it, if you like, unfair or grossly unfair in the context of the industry in which it has occurred? Quite often, as you would appreciate, behaviours can vary from one industry to another depending on how competitive the industry is and a whole range of factors, really.

Senator COLBECK —So a practice that had occurred a number of times before but had not been challenged may actually get by because it is something that has happened before in the industry?

Mr Cassidy —Not necessarily. The fact that it has happened previously does not necessarily make it right. I will try to give an example. My colleagues are looking blank-faced at me, so I suspect they cannot really think of one.

Mr Samuel —Perhaps, to give you an example, in the fridge case—

Senator COLBECK —I have my copy of your notes open to that particular case.

Mr Samuel —I do use the words in the opening statement there, which I did not read out. But it is the overall factual matrix, which probably does not help you at all other than to say that it is looking at the totality.

Senator COLBECK —I understand. I get a sense of what you are saying from that perspective. What I am looking at is a circumstance—and I do not know whether they would be called a franchise or how they would be termed. I suppose that is one of the issues that will define how the case is particularly looked at. But the major company controls whether you have a business, the size of your business, what you sell your product for and, if you want to sell your business, who you can sell your business to and whether you have a business at the end of the day, even after a long period of time. A layperson like myself might make a judgment as to what is fair. I obviously do not think this circumstance is fair. I do not know whether it is actually a franchise arrangement and whether that makes a difference or not.

Mr Cassidy —I was going to say that it does in the sense that there is a franchising code of conduct.

Senator COLBECK —Yes. That is why I was asking that question.

Mr Cassidy —In a sense, the franchising code of conduct would not necessarily say that those things are prohibited. What it would say is that, look, the franchisee has to be told about these things before they enter into the franchise. They have to know what the deal is.

Senator COLBECK —Including, say, taking out a large chunk of the business with a period of notice, even though that notice might have been in the contract. Again, that comes back to the fairness of the contract issue that I asked about before. So a large chunk of their contract has been taken away, which effectively devalues the business to a certain level. Then they are told they may not have a business at the end of that current round. They have got to sell it to someone else, but it is at a reduced value.

Mr Samuel —Look, it might be appropriate, rather than trying to discuss the matter in very hypothetical terms, if you refer the matter to us. We could give you some advice on it.

Senator COLBECK —I assume I would get a similar answer to Senator Macdonald if I asked you whether you were dealing with National Foods and their vendor network around the country.

Mr Samuel —Yes. That is correct. You would get a similar answer to what we gave Senator Macdonald.

Senator COLBECK —Perhaps there is some notice given. If you are not, it is a rich minefield, in my view.

Senator BUSHBY —I thank the ACCC for assisting us today. I have one question from your opening statement. I notice you mentioned some successful cartel prosecutions that you have undertaken recently. One of them was Admiral airconditioning and others. You noted a major cartel prosecution against 17 companies and 22 individuals involved in collusive tendering for airconditioning contracts for schools, hospitals and shopping centres in Western Australia. That just sparked a thought in my mind. I was just wondering whether you had any cause, from public statements, publicly revealed facts or complaints that have been actually put to you, to look into or investigate anticompetitive behaviour in relation to the Building the Education Revolution buildings and the tendering processes that that involved, whether through managing contractors or subcontractors or others.

Mr Samuel —I think it is fair to say that the extensive publicity that has been associated with that has not gone unnoticed. We constantly have a vigilant lookout for any potential collusive operations that may occur there, but I do not think it is appropriate to make any more comment than just that.

Senator BUSHBY —But you are alert to the potential? Certainly the newspaper article suggests that there is activity going on which may—

Mr Cassidy —Is that the article in the Weekend Australian on 10 April?

Senator BUSHBY —I am not talking about any particular article. I think there is a number of articles that you can probably point to.

Mr Cassidy —There was a specific article which we did investigate. I must say we found that what was said in the article just did not have substance. We have had other complaints, and we have seen other press reports. We either have or we are investigating them.

Senator BUSHBY —On the face of it, what is being said publicly, I would think that a prima facie suggestion at least of potentially anticompetitive behaviour has been raised. It is certainly something I would have thought would be of interest to the ACCC.

Mr Samuel —Certainly the matter has not gone unnoticed.

Senator BUSHBY —Thank you. In your opening statement you also talked about the penalties that you have available to you. I wonder how much you raise from penalties and what happens to that. Does it go into consolidated revenue or do you keep it to use for enforcement purposes?

Mr Samuel —No. We do not operate like an investment bank on the basis of a success fee. Everything that we earn by way of penalties goes into consolidated revenue.

Senator BUSHBY —Which is what I would imagine would be the case. How much do you raise?

Mr Cassidy —It has been on the increase. I am sort of glad you asked this question, really. If you look at our funding, over the last six years to last financial year, our gross funding has increased by $58 million, but as a result of our steadily increasing penalties, which go straight to consolidated revenue, the net increase over that period has only been $21 million. Last financial year, we had something in the order of $45 million in penalties. The year before that it was $62 million. But with the new higher penalty regime that the chairman referred to kicking in, we would expect that it would be—

Senator BUSHBY —When does that kick in, or has it?

Mr Cassidy —Well, it is in now.

Senator BUSHBY —Have you had any successful prosecutions that have enabled you to take advantage of that yet?

Mr Cassidy —No. We have three cases in court at the moment which would all be subject to the new penalty regime, but none of those cases has yet reached judgment. I say kick in because as time goes on, more and more conduct will be subject to that higher penalty regime. We would expect that our penalties that we are returning to consolidated revenue will steadily increase.

Mr Samuel —Have you got an EBIT margin calculation there, Mr Cassidy?

Mr Cassidy —No. But I am sure I could come up with one.

Senator BUSHBY —I am sure the government appreciates the contribution. I understand the ACCC maintains a record of its use of its coercive powers. Is that correct?

Mr Cassidy —That is correct.

Senator BUSHBY —Which I think is a very good thing for transparency. When you have coercive powers at your disposal, I think it increases the degree of confidence of the public that they are being used properly if they can actually see where they are being used and when. I was just thinking also in the interests of transparency, you mentioned in your opening statement again that there was a lot of merger consideration that goes on that is not publicly reported for various reasons. Do you actually report that in any shape or form, even if you do not actually disclose the details?

Mr Cassidy —We, of course, have an annual report, but also we do—

Senator BUSHBY —In that annual report, do you actually quote the numbers of matters that you dealt with?

Mr Cassidy —Yes, and indicate time periods. I am not quite sure how widely it is appreciated, but we also do like a quarterly annual report.

Senator BUSHBY —The reason I ask that is that Mr Samuel made the point that a lot of these things happen that do not get reported. When you say they are not publicly noted, you are saying they are reported and it is not publicly noted?

Mr Samuel —No. I think what I said was that there are a lot of things that are reported that are not taken notice of in calculating some of the statistics.

Senator BUSHBY —That is fine. That explains it.

Mr Cassidy —I hate to be a nuisance, but have we got a quorum at the moment?

Senator ABETZ —Yes. We have a government senator present, and there is always a quorum until one is called.

Senator BUSHBY —I seek an update on the investigation into the practice of making new release DVDs available to consumers at sub-wholesale prices. This has been raised previously at estimates. Can the commission update the committee on the commission’s investigation regarding supermarket chains offering DVDs at greatly reduced prices?

Mr Cassidy —We have now concluded that investigation. Basically three sorts of allegations were made. One was of predatory pricing, and it was made against Coles and Woolworths. One was of bait advertising. That was made against Coles and Big W. The third allegation was of misleading and deceptive conduct, and that was made against Coles and Woolworths. Briefly, in relation to predatory pricing—this relates a bit to the discussion we were having with Senator Joyce earlier—we were not able to establish the elements of predatory pricing in terms of, if you like, the Birdsville amendment for a sustained period. The special offer of $5 CDs, if one can call it that, was made for only seven days. We did not think that would be a sustained period.

On pricing below relevant cost, our investigation revealed that it was not pricing below relevant cost. There was an issue of rebates. When you take the rebates into account, we were satisfied that they were not pricing below relevant cost. In terms of predatory behaviour, the offer was on the basis that you had to buy either $80 worth of groceries from Coles or $100 from Woolworths; it could be the other way around. It was open for only seven days and it was only on certain CDs. When you put those things together, we thought it was going to be fairly hard to make an issue that that was predatory behaviour, because that is not the way someone would behave if they were actually seeking to damage a competitor. So we satisfied ourselves that there was not evidence of predatory pricing.

Bait advertising is basically advertising something and then you do not have sufficient stocks. When someone walks in to buy it, they are told, ‘Oh, well, we don’t have that, but we have this other one which is the same’—which happens to be at a higher price.

Senator BUSHBY —To get you into the store.

Mr Cassidy —Yes. The offers were made with various caveats about ‘while stocks last’ and a ‘limited number per customer’. Our investigation revealed to our satisfaction that there were reasonable stocks on hand of the CDs, although, of course, they did tend to go fairly quickly. So we were satisfied on that. In relation to misleading and deceptive conduct, that related to a claim made by both Coles and Woolworths of ‘lowest price guaranteed’ on the particular DVDs. I would probably prefer not to say too much about that because it is actually a case before the courts. Aldi has taken its own proceedings against Coles in relation to that particular allegation. So I think in the interests of that case it would probably be better if I did not say too much about that other than the fact that we have concluded our investigation in relation to that particular allegation.

Senator BUSHBY —So I take it from what you said there that one of the key aspects was the fact that it was a short promotional type of thing rather than—

Mr Cassidy —Yes, it was short. It was still a high entry to get to it in terms of the groceries you had to buy.

Senator BUSHBY —If they started doing that regularly, would that warrant a further look?

Mr Cassidy —I think the short answer is yes. One of the issues—again, particularly with the Birdsville amendment and sustained period—is that part of the thinking we have had is that a sustained period may not just be a continuous period of time. If you had a series of periods occurring one after the other, that could start to take you into that sort of sustained period territory.

Senator BUSHBY —Can the commission indicate if the supermarket chains lodged a notification under the Trade Practices Act in relation to exclusive dealing involving the DVDs?

Mr Samuel —We are not aware that they have, Senator.

Senator BUSHBY —But you can check it and take it on notice, just to make sure? Thank you. Can you indicate the length of time it took to investigate the matter?

Mr Cassidy —Sorry?

Senator BUSHBY —The length of time it took to investigate.

Mr Bezzi —We received the matter on 9 December and we closed it on 24 March.

Senator BUSHBY —I have some questions about so-called telecommunications scams. Can you indicate how many complaints the commission has received from small businesses in relation to telco finance scams, where cheap calls are offered and so-called free plasma TVs or similar equipment are offered as part of the deal?

Mr Gregson —The ACCC has a matter before the courts involving allegations similar to that which you have raised. We have received a large number of complaints not only in relation to those matters before the court but also in relation to perhaps similar conduct.

Senator BUSHBY —Can you indicate the scale? What does ‘a large number’ mean?

Mr Gregson —I might have to take that on notice, Senator.

Senator BUSHBY —Are we talking tens, hundreds, thousands?

Mr Gregson —I think we will take it on notice, Senator—but certainly more than tens.

Senator BUSHBY —Obviously you have investigated those to some extent because you have a matter before the court. I presume that there are other cases or other allegations that have been raised that you are currently looking into as well?

Mr Gregson —Certainly; we look at a number of those complaints. We also look at other ways of ensuring compliance outcomes not only by education but also by working with others in the industry to try to address some of our concerns.

Senator BUSHBY —Is there anything that you can do or are doing to practically help those small businesses that have been subjected to these arrangements?

Mr Gregson —There are. In addition to our own proceedings, you may be familiar that private parties have considered proceedings and have approached the ACCC in relation to assistance we might be able to give in those proceedings. We have been talking to those small businesses. We have also provided extensive information about our concerns and the type of issues they should be looking at together with the compliance and educative work that we are doing around this issue. I should note, Senator, there has been a significant interest from a number of parliamentarians. We have been providing that information as requested.

Mr Samuel —I think it is perhaps also appropriate to indicate that we have had high-level communications with several of the finance companies that are involved or banks that are involved in these sorts of bundle processes. They indicate that they consider it seriously whether they pursue the completion or the fulfilment of finance contracts where there has been a failure on the part of the telco concerned to provide the relevant services. I think it is fair to say that those discussions could currently be described as being constructive but ongoing.

Senator BUSHBY —Progressing, yes. That is good news, I think, for the small businesses involved. I hope that works through well. Can you update the committee on progress with the ACCC’s investigation into whether the North West Shelf joint marketing arrangement for gas into the WA domestic market should continue?

Mr Gregson —Mr Chadwick might add to this. The North West Shelf has applied for authorisation in relation to its arrangements, which very much, I guess, deals with the issues that we would have been looking at under any investigation.

Mr Chadwick —The North West Shelf did lodge an authorisation application on 31 March. We are currently undertaking our public consultation process in relation to that application. We currently expect to issue a draft decision in June or July.

Senator BUSHBY —You are answering my questions so well that you are answering my subsequent questions as well.

Mr Samuel —We have not yet learnt to anticipate your questions.

Senator BUSHBY —You do well with Senator Joyce. Is the ACCC considering the Senate’s December 2008 report into the joint marketing arrangements on the North West Shelf project as part of its deliberations?

Mr Chadwick —Sorry, Senator; I did not quite catch that.

Senator BUSHBY —Is the ACCC considering the Senate’s December 2008 report into the joint marketing arrangements on the North West Shelf project as part of its deliberations?

Mr Chadwick —We will have regard to the full range of views.

Senator BUSHBY —You were aware of that already?

Mr Chadwick —Yes.

Senator BUSHBY —I refer to media reports, such as the 31 May Australian Financial Review article titled ‘Pricing heat on North West Shelf gas partners’, where the argument seemed to centre around not renewing the approval for joint marketing arrangements to provide competition to drive better prices for consumers versus the added cost and risk of separate marketing pushing up prices to consumers. How is the commission weighing up these competing arguments—the claims of much higher prices in the west compared to the east coast and price hikes in the last 18 months?

Mr Chadwick —I guess it is a bit hard to comment on those sorts of issues because they are precisely the types of issues the commission is considering. When the commission makes its decision, it will put out a draft decision and then give interested parties an opportunity to comment on the commission’s preliminary views before formulating our final views. So people will have an opportunity to comment on the commission’s preliminary views when that draft goes out.

Senator BUSHBY —When you do make a decision, will you publish that and publish the reasons for the decision?

Mr Chadwick —That is exactly right, and, indeed, put out a media release so it is well known.

Mr Cassidy —It has turned out to be a transparent sort of process under the legislation, so submissions we receive, unless we deem they are generally confidential, will go up on our website. We have to put out a draft determination. We have to give interested parties the chance to be heard on that draft determination. Then we put out a final determination. So, if you like, it is there for everyone to see in terms of the process and in terms of the submissions. Actually in our draft determination we give a fairly full outline of the way we have considered the competing considerations.

Senator BUSHBY —Good, thank you. I will change the subject: what is the status of activity to remove restrictive covenants at shopping centres that have been identified as a barrier to competition to major supermarket chains?

Mr Samuel —Well, across-the-board agreement has been reached and undertakings have been given for the removal of the restrictive covenants in accordance with, I think, what I indicated at the last Senate estimates, which covers all the major supermarket chains. That is not just the very large ones but also some of the smaller supermarket chains throughout the country. You are aware of the 20 per cent—I think we talked about this last time—that are going through the gradual expiry process over the transition period; that is, the more recent covenants entered into. But it is fair to say that I think, with one exception, restrictive covenants across the board in respect of grocery outlets have been removed.

Senator BUSHBY —I understand that the ACCC is currently looking into the family that owns about six supermarkets in Canberra and Sydney. It is about the supermarket premises they took over from one of the big chains in the Canberra Centre that is next door to Aldi in the same complex and in close proximity to a number of major competitors. Is it the case that the ACCC is forcefully pursuing an undertaking from the independent supermarket owners about the restrictive covenant they inherited when they took over the vacated site?

Mr Samuel —I think the only comment I can make is that the only supermarket chain that has not provided a voluntary undertaking in respect of this matter at this point of time is the Supabarn group in Canberra.

Senator BUSHBY —Has the ACCC agreed to extend time available to the family to respond to the commission’s demands for an undertaking?

Mr Samuel —I do not think I can make any further comment at this point of time, given that it is not our practice to comment upon matters that we may or may not be investigating.

Senator BUSHBY —Okay, I will leave the rest of those questions. In relation to small business related investigations, does the commission have any benchmarks in place for indicative timeframes for completing investigations?

Mr Gregson —The ACCC, and indeed in our enforcement areas, does endeavour to complete investigations in a timely manner. Of course, investigations dealing with different issues will take different times, so it is hard to be precise. But we certainly endeavour to complete those investigations in a timely manner. But that would be influenced by a number of factors.

Senator BUSHBY —Which can be as long as a piece of string. I am not suggesting that you deliberately do that.

Mr Samuel —No. I just want to add to that because it is important to understand the processes that have been put in place over the past four or five years. But we have, as you are aware, offices right throughout the country in every capital city as well as in Townsville. The investigations encompass a group of, I think, something close to 300 staff.

Mr Bezzi —Around about that.

Mr Samuel —Around about 300 staff in the country. What we have put in place over the past four or five years is a fairly effective process of central data control and management. If we consider that at any point of time there may well be 600 or 700 matters that could be the subject of investigation, then of the order of 150 to 200 matters could be under intensive investigation. I have likened it in past discussions before Senate estimates to a large legal firm that has a large number of files which does require some central control and management. That is done under the supervision of Mr Bezzi and Mr Gregson in particular and the enforcement committee. I think we have a very good handle on the time processes that are occurring and the time lines that are occurring with respect to investigations. The efficiency associated with that has improved very dramatically over the past four or five years since that central data control and management process has been put into place.

Senator BUSHBY —So that is an administrative control?

Mr Samuel —That is correct, yes.

Senator BUSHBY —Do you have resource constraints that actually limit your ability to move things through as quickly as you would like? Is it a matter of balancing priorities in terms of that or is it really just a matter of other extraneous factors that are in place and beyond your control that put time constraints on how quickly you can deal with these things?

Mr Samuel —Look, I am always hesitant, particularly on the public record, to say that we do have sufficient resources. You always like to convince the finance minister that we have insufficient resources. But I think it is fair to say that the investigations in many cases can be very complex. They can be hampered by resistance on the part of parties against whom allegations of misconduct might be being made and/or the difficulty of either locating witnesses or getting witnesses to agree to come forward. I think, as I indicated before, that particularly in the areas of unconscionable conduct and in a range of other areas parties that have been subjected to the sort of conduct that we might be investigating are often somewhat concerned about having to spend time and become involved in an investigative process that may well find them in court having to give evidence in circumstances they do not find comfortable. So there are a whole range of extraneous factors that can influence the process. But I do think it is fair to say that the mechanisms, the processes and the controls that have been put in place are designed for and have, I think, achieved quite well the outcome of timeliness that we have considered to be very important.

Senator BUSHBY —That is in a general administrative sense. Do you actually look at particular cases that may, because of the circumstances surrounding the allegations, need to be addressed urgently and actually give them a priority in terms of dealing with that?

Mr Samuel —I think it is fair to say that every single matter that is under investigation receives at least on a monthly or bimonthly basis the specific attention of our most senior managers, the enforcement jurisdiction, to undertake the timeliness of the investigative process. But at the same time, where there is a matter that requires urgent attention—that is, in a matter of days—we are now facilitated in taking interlocutory proceedings by some amendments that were made to section 155 of the Trade Practices Act. They enable us to commence interlocutory proceedings and obtain interlocutory injunctions, for example, to stop conduct that might be egregious and that the court considers ought to be restrained. We can take that course of action without substantially inhibiting our further investigation that might lead to the substantive court action. There are some limitations that are associated with those amendments, but it is fair to say that they have given us an opportunity to pursue those courses of action. I think I mentioned one or two of those in the opening statement.

Senator BUSHBY —I am conscious of time and that Senator Abetz and Senator Milne still have questions, so I will quickly run through mine. I could ask some more about that: can the commission indicate if it has identified any trends in relation to particular types of small business related complaints?

Mr Gregson —The nature of complaints that come from small businesses obviously raises issues on the day. There are certainly issues that come up at any particular time that are current. I am not sure we have picked up any other particular trends, but we certainly learn lessons from both the matters that come before us and the way we investigate them.

Senator BUSHBY —Can the commission indicate whether it advises small business complainants to pursue mediation as a precondition to the commission investigating a small business complaint?

Mr Samuel —Certainly not as a precondition, no. But in appropriate cases, it may well be that we would try to direct parties or advise parties to go into a mediation, particularly where there would not appear on the surface to be a direct breach of the Trade Practices Act involved or the various codes of conduct. In some cases, we may even assist in bringing about that mediation process. But it is certainly not a precondition to investigation.

Mr Cassidy —Particularly in relation to the codes—the franchising code, the horticultural code and the petroleum industry code—because there are mediation processes provided for each of those codes.

Senator BUSHBY —Is it a precondition in those codes?

Mr Cassidy —No, it is not a precondition either. But, depending on the nature of the complaint, quite often they can be resolved more quickly and cheaply through that mediation process than, say, if the matter were to proceed to litigation.

Mr Bezzi —I will just add in relation to franchising that it is usually a continuing relationship, so the last thing that the parties really want is to be in protracted litigation. They really need to try to resolve the thing quickly through a mediator, if possible. So while we do not require it, often people are encouraged to facilitate it.

Senator BUSHBY —On those codes, has the commission received any formal complaints from mediators under any of them—the franchising, oil or horticultural codes—particularly regarding possible breaches?

Mr Cassidy —We refer obviously to a lot of mediators, where we have a complaint that we think is suitable for mediation. Similarly, the mediators, if they have someone come in where the conduct is basically fairly egregious, they will say to them, ‘Look, we think this is a matter that you should be taking up with the ACCC’, and they will cross-refer to us. So we do have those arrangements with each of the mediators.

Senator BUSHBY —What about regarding specifically possible breaches of the dispute resolution processes under those codes?

Mr Samuel —Well, if it is a breach of the code itself, it is more likely to be referred to us for enforcement action, being a breach of the code.

Senator BUSHBY —By whom? The mediator?

Mr Samuel —Generally what happens is that the mediator discerns that the dispute cannot be resolved and/or that there is a breach of the code that is involved. That may be referred to us for appropriate investigation and enforcement action.

Senator BUSHBY —Can the commission indicate how many complaints it has received in relation to possible breaches of the dispute resolution processes under those three codes?

Mr Samuel —I would have to take that on notice.

Senator BUSHBY —Has the commission ever conducted a full investigation into specific alleged breaches of the dispute resolution processes under the codes?

Mr Ridgway —In my experience, the number of concerns that we have had raised with us directly related to conduct in relation to the mediation requirements have been resolved upon contact from the ACCC to the other party to clarify their obligations on the one hand where it has been perhaps unclear to them. Increasingly, the trend has been under the franchising code for franchisors to raise concerns about franchisees not meeting the obligations they feel they should be meeting. Sometimes clarification has assisted. On other occasions, it has become apparent that the concern has not been substantiated so it has not required further investigation.

Senator BUSHBY —Well, that is very useful. So the answer ultimately is that you have not actually conducted a full investigation because they have been resolved in other ways?

Mr Cassidy —Let us take it on notice. I think the tenor of what you are getting is that they are probably fairly few.

Senator BUSHBY —Thank you. Can the commission indicate how many cases it has commenced in relation to unconscionable conduct since last estimates? I know we have touched on this to some extent.

Mr Bezzi —Yes. I think we can do that. That was how many we have instituted, is it?

Senator BUSHBY —Yes.

Mr Bezzi —I do not think we have instituted any, Senator.

Senator BUSHBY —None.

CHAIR —Senator Bushby, I might go to Senator Abetz and Senator Milne now and come back to you.

Senator BUSHBY —They just whispered in my ear that I could go to 10 to and they would have five minutes each.

CHAIR —People always say they have five minutes but often creep over, depending on the length of the answers.

Senator BUSHBY —I will just finish these questions about unconscionable conduct. Does the commission consider unconscionable conduct a priority enforcement area?

Mr Samuel —I think I covered that in my opening statement, Senator, as to our position there.

Senator BUSHBY —Some of these have been asked already. Senator Joyce asked them. Can the commission indicate how many acquisitions it has considered in the grocery sector by reference to local markets since the last estimates?

Mr Cassidy —Again, Senator, it might be easiest if we take that on notice.

Mr Grimwade —Look, I think we will have to take that on notice. It would be a handful, I imagine, if not that.

Senator BUSHBY —I am happy for you to take that on notice because I get to ask another question. Does the commission consider that it lacks the power to review acquisitions in local markets, or do you have the tools you need?

Mr Samuel —This is a matter of some debate. Of course, you would be aware of some amendments that have been submitted to parliament in recent days in relation to that, Senator. We consider we have the power at present, but—I have to add this—there are some senior legal practitioners who have been contending to us that we do not have the power. The amendments that have been proposed I think are designed to remove those doubts.

Senator BUSHBY —That leaves that, so thank you very much.

Senator ABETZ —Thank you very much. I raise the issue of the King Island brand, the reliance on which is vital to King Island’s economy and, therefore, social wellbeing. Does the ACCC have a view on the legality of products not produced on King Island bearing the brand name King Island? Is that deceptive conduct? Is it misleading conduct?

Mr Cassidy —Senator, this is something we have looked at in the context of complaints we have received. There are two issues. One is the actual King Island trademark, if you like, which is an approved trademark and which has certain conditions attaching to it. Basically, in order to use that trademark, those conditions need to be met. Indeed, if a product were to carry that trademark that had not met those conditions, they could potentially be in breach of the Trademarks Act or the Trade Practices Act for misleading and deceptive conduct.

The other related issue is a more generic claim of produced on King Island. This one is a bit trickier and came up particularly in relation to proposals to ship cattle off King Island and have them slaughtered and processed somewhere else. On our looking at that, our view was that if cattle had been basically born and bred and fed on King Island and all that happens is that they are taken off King Island to be slaughtered, we would be hard pressed to argue that someone could not say in relation to those cattle that they had been produced on King Island. Indeed, in the course of looking at that, we found there was a longstanding practice where a certain number of King Island cattle were actually being shipped to Tasmania and were being slaughtered and processed. For many years, it had quite happily been referred to as meat produced on King Island. So our view on that was that all that was happening was that the cattle were being slaughtered somewhere other than King Island, so it was probably legitimate for someone to refer to them as produced on King Island. But, moving away from that, if the cattle hypothetically were born on King Island but then spent most of their life somewhere else and someone was trying to claim it as being produced on King Island, that could well be misleading and deceptive in terms of the Trade Practices Act.

Senator ABETZ —I was at a restaurant up here not that long ago that had on its menu King Island chicken. Those of us that know King Island know that there are no chicken farms on King Island.

Senator BUSHBY —Or rabbits.

Senator ABETZ —Or rabbits, yes. But I will not take that point any further. Has your attention been drawn to the King Island Courier front page article of 19 May 2010 in which the King Island brand management group say they are struggling with ACCC ambiguity? From the article it seems as though you have been engaging with the group and providing information, if I might say, to the King Island Courier as well. You are responding to them. In the question, I want to compliment you for doing that because it would be very easy to try to ignore a relatively small and regional community and paper, so good on you for engaging with them. But that article did refer to ACCC ambiguities. Have you tried to assist the group to understand those ambiguities and get over those ambiguities? Have you confirmed that there are ambiguities in the laws that you have to administer that occasion some difficulty for you?

Mr Cassidy —Senator, I do not know which part of the question to take first. I think the ambiguities are probably the sorts of things I was just referring to about not having bright lines, if you like, around exactly what constitutes ‘produced on King Island’. We have been dealing with local people and entities on King Island in relation to the issue. I must confess that I am not aware of that particular article in the King Island Courier. But what we will do, if you can give us the article, is take the question on notice and perhaps give you a bit more detail about what is said in the article.

Senator ABETZ —Unfortunately, my time is up so I will not be able to ask you any questions about meat pricing on this occasion.

Senator MILNE —I want to raise matters in relation to the dairy industry in particular. You would be aware in the recent crisis that Tasmanian dairy farmers particularly allege that the ACCC has approved mergers in the processing side of the industry to the point where there is less competition and that the producers are being adversely impacted. Can you tell me whether the ACCC has done any review of this matter and whether the ACCC concedes that there is less competition in the dairy processing sector now than there was before the ACCC approved the merger, particularly in relation to National Foods?

Mr Grimwade —There seems to be some misconception—I was a witness at the dairy hearings—where I sought to explain that the commission did not holus-bolus approve the acquisition of Dairy Farmers by National Foods. I make the point that Dairy Farmers did not actually operate in Tasmania. The issues that we looked at were resolved through an 87B. Indeed, we would have opposed that matter but for receiving an 87B enforceable undertaking to divest a number of processors, a number of depots, distribution networks and brands to an essentially new competitor in particular regions, where we identified competition concerns. In particular, there was central New South Wales and South Australia. So we did have regard to competition concerns and act on those concerns in relation to that matter.

I also bring to your attention a more recent matter involving Murray Goulburn and Warrnambool Cheese and Butter Factory. You will be aware that we expressed some preliminary concerns in relation to that matter in a statement of issues we released I think around March. Today Murray Goulburn has advised that it is no longer pursuing that merger, so that matter has now been withdrawn from our purview.

Senator MILNE —Can you tell me if you are satisfied with the level of competition in the dairy processing sector in Tasmania?

Mr Grimwade —Well, in terms of merger review—

Senator MILNE —Or do you have concerns about it? Put it that way.

Mr Grimwade —There has not been a merger in Tasmania that we have reviewed for some time, so I cannot really answer the question as to whether the competitiveness of the sector is adequate, workable or not. In terms of our merger reviews, we look at the matter transaction by transaction. The last merger I think that we reviewed there was in 2006 and it related to National Foods’ acquisition of Lactos. There were a number of reasons that led us to clear that matter, not least of which was because Lactos, as I recall, operated in north-west Tasmania. National Foods was, I think, towards the south-east, where is there was little overlap in the acquisition of milk from dairy farmers. There was also significant demand for milk, particularly by Fonterra, at the time and in the foreseeable future that we identified at the time such that that matter did not breach the act, in our view.

Senator MILNE —In light of time, I want to ask about section 49 of the Trade Practices Act and the impact since its removal in particular on price discrimination. The dairy farmers argue, and the evidence given to the inquiry was, that a litre of fresh milk is the same whether it is in generic packaging or whether it is in a branded package provided we are talking about the same description of fresh milk. There is a whole variety of different milks, but let us assume we are talking about exactly the same fresh milk product. The farmers are arguing since the removal of section 49 you have a situation where there is a lack of competition in the processing sector, a duopoly in the supermarket sector and one contract from the supermarkets for fresh milk. The result is you have exactly the same products side by side in the supermarket. One is generic and one is branded. You have this situation where it is grossly unfair. How do you respond to that?

Mr Cassidy —I think before you arrived we had some discussion with Senator Joyce on price discrimination and the removal of section 49. Basically, what we said to Senator Joyce is that price discrimination is covered by section 46 of the act. But under 46 or, for that matter, the old 49, the fact that an identical product is priced differently is not in and of itself a breach of either section. You have to decide that there are anticompetitive consequences from that, so I think the short answer is removing 49 would not have had any impact, partly because the egregious conduct, if I can put it that way, still falls for consideration under section 46. But certainly it would not have had any impact because the sort of situation that you outline would not have been prohibited under the old section 49 anyway.

Senator MILNE —So what is your solution to the fact that the farmers would say very strongly that it does lead to adverse consequences for them? The supermarkets have the capacity where they offer one contract. Therefore, they can buy in bulk. Therefore, they can seriously discount exactly the same product to the detriment of the branded product to the detriment of the farmer.

Mr Cassidy —Senator, I think that is an issue that we probably cannot adequately deal with tonight. On the one hand, yes, there is, if you like, vigorous bargaining and competition for those Home Brand contracts. But, on the other, as I think we pointed out in the report we did on dairy, which was a number of years ago—in fact, when the National Foods contract was first put into place—that the reductions that were achieved by Woolworths through that contract were in fact, as best we could tell, passed on to consumers. So you have on the one hand a fairly what might be called vigorous tender process for what was a fairly lucrative contract, which drove the price down. On the other, the benefit of that, as best we could tell—we also looked at this in our recent grocery report—has been passed on to consumers.

Senator MILNE —The issue here, though, is that if farmers do not have a choice about who they can supply to, which they do not in southern Tasmania in the fresh milk market, they are stuck in this scenario and there is nothing they can do about it. What do we have to do to get a reference for the ACCC to look again at the level of competition in the dairy processing sector and, in particular, how that impacts on this issue of supermarket contract pricing and then generic pricing?

Mr Cassidy —That would really be a matter for the government, Senator. The grocery report, which we only completed in 2008, was by reference from the government. So it is really a matter for government.

Mr Pearson —I was at the same hearing with Mr Grimwade. We mentioned the fact that some 80 per cent of the milk in Victoria and Tasmania is actually processed. The price of that milk is generally driven by international prices. It is not driven by competition internally. Some of the price discrimination issues that were raised had to do with the fact that, in Victoria and Tasmania, the vast majority of their milk is for processed milk whereas in New South Wales and Queensland you are starting to look at drinking milk. I think drinking milk is about 25 per cent of the entire milk market. So when you start to look at the actual figures and percentages and try to determine what is driving the price of milk, you see that the international factors are huge.

I think in some of the figures we had then we showed that from 2001 to 2009 the Australian farm gate price increased by 30 per cent. Of course, nobody complained about that. Then with the financial crisis and with some of those massive issues that really hit on the international market, that is when all the problems and concerns arose in Tasmania. Some would argue that there is no discounting the fact that some of those farmers really suffered. We were well aware of that. But it was the international price. It was not a factor to do so much with domestic processing as with what happened in the international market. We have already had some press. I think there has been some noise already about the fact that Woolworths is splitting its contracts in Queensland. Already one of the issues that came out of the dairy inquiry was this notion of one contract. Woolworths are now splitting that contract. I think we have already seen some concerns raised by farmers. So it is a lot more complex than just saying, ‘Split them’ or ‘Have more processes’. A lot of that is to do with the pressure from the international markets.

CHAIR —Thank you to the ACCC representatives for coming in this evening. The committee will now adjourn until 9 am tomorrow.

Committee adjourned at 9.00 pm