The Treasury Laws Amendment (More Competition, Better Prices) Act 2022 ("the Act") came into effect on 9 November 2022.
The Act deals with 2 main subject matters:
- penalty provisions under the Australian Consumer Law; and
- Unfair Contract Terms (the changes to the regulation of unfair contract terms are discussed in our article Unfair Contract Terms).
In this article we will consider the current penalty provisions under the Australian Consumer Law ("the ACL") (which came into effect on 9 November 2022), the purpose of penalty provisions, and recent decisions concerning penalty provisions .
Penalty Provisions Under the Australian Consumer Law
The Purpose of Penalty Provisions in the Australian Consumer Law
Penalty Provisions Under the Australian Consumer Law
The penalty provisions set out in section 224(3A) of the ACL apply to conduct including:
- Unconscionable Conduct (Part 2-2);
- Unfair Practices (Part 3-1);
- supplying consumer goods or certain product related services that do not comply with safety standards or which are banned (we do not deal with this conduct in this article).
The section 224(3A) penalty provisions will also apply to breaches of the unfair contract terms regime (Part 2-3) from 9 November 2023.
While the ACL sets out the maximum penalty that can apply for certain contraventions of the ACL, it is up to a court to determine the amount of the penalty to be imposed.
Corporations
For contraventions of Part 2-2, Part 3-1 (and from 9 November 2023, Part 2-3) of the ACL, section 224(3A) of the ACL provides that the maximum penalty for a corporation is :
- $50 million; or
- if the court can determine the value of the benefit that the body corporate, and any body corporate related to the body corporate, have obtained directly or indirectly and that is reasonably attributable to the act or omission - 3 times the value of that benefit; or
- if the court cannot determine the value of the benefit - 30% of the body corporate's adjusted turnover during the breach turnover period'.
"Adjusted turnover" means the sum of the value of all supplies made by the company in connection with Australia.
"Breach turnover period" means the period beginning at the start of the month in which the offence or contravention occurred and ends at the end of the month in which it ceased (subject to a minimum breach turnover period of 12 months).
Individuals
For contraventions of Part 2-2, Part 3-1 (and from 9 November 2023, Part 2-3) of the ACL, section 224(3A) of the ACL provides that the maximum penalty for individuals is $2.5 million.
Recent Decisions
King v Jacobs Group (Australia) Pty Ltd formerly known as Sinclair Knight Merz [2023] HCA 23 (King v Jacobs)
King v Jacobs concerns the penalty provisions under section 70.2(5) of the Criminal Code. Section 70.2(5) of the Criminal Code provides:
An offence against subsection (1) committed by a body corporate is punishable on conviction by a fine not more that the greatest of the following:
(a) 100,000 penalty units;
(b) if the court can determine the value of the benefit that the body corporate, and any body corporate related to the body corporate, have obtained directly or indirectly and that is reasonably attributable to the conduct constituting the offence - 3 times the value of the benefit;
(c) if the court cannot determine that benefit - 10% of the annual turnover of the body corporate during the period (the turnover period) of 12 months ending at the end of the month in which the conduct constituting the offence occurred.
The wording of s70.2(5)(b) is similar to the wording of section 224(3A) of the ACL.
The argument about s70.2(5)(b) concerned whether "the value of the benefit" was a "net benefit", (that is the value received less costs) or a "gross benefit" or "gross amount" (that is, the total value received).
The High Court found that the value of the benefit was the gross benefit or gross amount, stating [at 25]
In the case of money paid or money received, the value of the advantage is the amount of the money provided or the amount of the money received. In the case of money received to perform a contract secured by bribery, no deduction for costs and expenses of any kind, nor for risk, forms part of the value of the relevant "benefit" obtained.
In relation to the respondent's "net benefit" argument, the High Court states [at 45]:
.... in contrast the respondent's proposed construction would not give the statutory provisions a harmonious and coherent operation and is not apt to achieve the statutory purpose of implementing effective, proportionate, and dissuasive penalties for bribery offences.
ACCC v Phoenix Institute of Australia Pty Ltd (Subject to Deed of Company Arrangement) (No 3) [2023] FCA 859 ("Phoenix")
Phoenix concerns the penalties imposed on Phoenix Institute of Australia Pty Ltd and Community Training Initiatives Pty Ltd for engaging in unconscionable conduct.
Both Phoenix Institute of Australia Pty Ltd and Community Training Initiatives Pty Ltd entered into administration after the proceedings were commenced.
Perry J in his original judgment found that the business model adopted by Phoenix in relation to its online courses was "pursued ruthlessly" through marketing and enrolment systems which "were the product of calculated design born out of sheer avariciousness ... and callous disregard" for the interests of the thousands of consumers enrolled in Phoenix's online courses.
He further concluded that the conduct of both respondents was "grossly exploitative and at times dishonest, and ... lacking in any respect for the dignity and autonomy of the vulnerable consumers who were targeted".
With respect to the two systems that were held to be unconscionable, being the Phoenix Marketing System and the Phoenix Enrolment System, Perry J found that the systematic unconscionability across these two systems was on an "extraordinary scale".
Phoenix Institute of Australia Pty Ltd was ordered to pay the Commonwealth of Australia penalties totaling $5,000,000.00, while Community Training Initiatives Pty Ltd was ordered to pay the Commonwealth of Australia penalties totaling $37,000,000.00.
The Purpose of Penalty Provisions in the Australian Consumer Law
The primary purpose of civil penalty provisions contained in the ACL is deterrence. Deterrence falls into two categories, specific deterrence (in relation to the contravenor) and general deterrence.
The recent decision of ACCC v Phoenix Institute of Australia Pty Ltd (Subject to Deed of Company Arrangement) (No 3) [2023] FCA 859 considers the authorities in relation to both specific and general deterrence.
In Phoenix [at 39] the full court states that the purpose of civil penalties is "primarily if not wholly in promoting the public interest in compliance" and that "In civil penalty matters, retribution has no part to play".
In relation to specific deterrence, the full court in Phoenix states [at 37] with reference to Australian Building and Construction Commissioner v Pattinson [2022] HCA 13 ("Pattinson")
the High Court in Pattinson held that the penalties imposed by the primary judge were appropriate "because they were not more than might be considered to be reasonably necessary to deter further contraventions of a like kind by [the contravenors] or others".
The decision in Pattinson contemplates whether the statutory maximum penalty can be imposed if necessary to deter the contravening conduct. In Pattison the second respondent (the CFMMEU) was well resourced and had since 2000, breach pecuniary penalty provisions on more that 150 occasions. The court states [at 60]
Indeed, in some cases, the circumstances of the contravenor may be more significant in terms of the extent of the necessity for deterrence than the circumstances of the contravention. In this regard, it is simply undeniable that, all other things being equal, a greater financial incentive will be necessary to persuade a well-resourced contravenor to abide by the law rather than to adhere to its preferred policy than will be necessary to persuade a poorly resourced contravenor that its unlawful policy preference is not sustainable. It is equally obvious that, the more determined a contravenor is to have its way in the workplace and the more deliberate its contravention is, the greater will be the financial incentive necessary to make the contravenor accept that the price of having its way is not sustainable.
In relation to general deterrence the full court in Phoenix cited Australian Building and Construction Commissioner v Construction, Forestry, Mining and Energy Union [2018] HCA 3 at 116 stating:
Other things being equal, it is assumed the greater the sting or burden of the penalty ... the more potent will be the example that the penalty sets for other would-be contravenors and therefore the penalty's general deterrent effect.
In addition to the matters set out above, the full court in Phoenix noted [at 34] that the penalty should not be "regarded relevantly by others as an acceptable cost of doing business".
Takeaways
In conclusion, the Treasury Laws Amendment (More Competition, Better Prices) Act 2022 has introduced penalty provisions under the Australian Consumer Law that aim to deter and punish various forms of misconduct. These penalty provisions apply to unconscionable conduct, unfair practices, and non-compliance with safety standards.
Recent decisions such as King v Jacobs and ACCC v Phoenix Institute of Australia Pty Ltd have shed light on the interpretation and application of these penalty provisions.
The primary purpose of these provisions is deterrence, both for the contravenors and others, and they seek to promote compliance and protect the interests of consumers.
It is important for individuals and corporations to be aware of these penalty provisions and ensure their actions comply with the Australian Consumer Law. For more information on the topic of unfair contract terms and other related matters, please refer to our article on Unfair Contract Terms.
Disclaimer
The information in this article is general in nature and is not intended to address the circumstances of any person or other entity. Although we do our best to provide timely and accurate information, we do not guarantee that the information in this article is accurate or that it will continue to be accurate in the future.
