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ACCC bares its legal teeth

THE Australian Competition and Consumer Commission (ACCC) has shown its mettle against unfair business practices over the past year, initiating a wide range of court cases, strong review action on mergers and acquisitions review, and new market studies.

ACCC chairman Rod Sims outlined the commission’s performance to at the recent Law Council of Australia workshop in Sydney, saying with Australia’s first criminal cartel charges now before the court, the ACCC wanted to lay strong foundations for a continuing program of cases. 

“We have 10 to 12 in-depth criminal investigations and we are aiming for a steady stream of one to two criminal cases per year,” Mr Sims said. “Hopefully, this will send a clearer signal on cartel conduct; there is too much of it occurring in Australia today to the considerable detriment of the Australian economy.”

In the broad area of competition and consumer law, Mr Sims said there were also many important cases and appeals before the courts.

He named the Cement Australia penalty appeal, the secondary boycott allegations against the CFMEU, the Nurofen penalty appeal, the pending Flight Centre High Court decision and the unconscionable conduct allegations against Medibank Private Limited as some of the major cases.

In a year featuring many significant and challenging transactions, Mr Sims said the ACCC’s merger review record has been very pleasing.

Key transactions included the Qube/Brookfield acquisition of Asciano, Metcash’s acquisition of the Home Timber and Hardware Group, Iron Mountain’s acquisition of Recall Holdings, the undertakings given by Primary Health Care concerning its completed acquisition of Healthscope and TPG’s acquisition of iiNet.

The ACCC considered 319 mergers and conducted 31 public reviews during 2015/16.

“Significantly, and in accordance with our stated objectives, we cleared 90 percent of mergers without the need for a public review,” Mr Sims said.

“We believe we are getting the right balance in ensuring our focus is on the more complex or contentious end of the merger spectrum while non-contentious mergers are cleared expeditiously.”

Mr Sims said market studies were now part of ‘business as usual’ for the ACCC.

“We have had a very resource intensive market study into the east coast gas market, and we have had studies into petrol prices in Darwin and Launceston, with Armidale and Cairns to follow,” he said.

“We currently have market studies into the beef cattle sector … we also have an important market study underway in relation to motor vehicle retailing,” and he has also announced a major market study into communications.

Mr Sims said market studies were useful when concerns exist but there was no clear breach of the Competition and Consumer Act.

“It is not wise to imply, as some do, that where there is no clear breach, the market must always be working well. We think market studies can, in appropriate cases, be an important safety valve enabling the credible concerns of stakeholders to be examined.”

Mr Sims said market studies can also lead to policy recommendations, enforcement investigations and help identify whether other tools may address market ‘failures’ such as information asymmetry concerns.

www.accc.gov.au

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ACCC chairman Rod Sims’ speech is available at https://www.accc.gov.au/speech/chairmans-address-to-the-law-council-workshop

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Personal liability risk under Qld’s new EPA laws

QUEENSLAND-headquartered law firm Cooper Grace Ward is warning company officers, financiers, shareholders and other related people that they can now be personally liable for company breaches under the Environmental Protection Act 1994 (Qld).

On April 22, the Queensland Government passed the Environmental Protection (Chain of Responsibility) Amendment Act 2016 to drastically broaden the application of the Act. 

According to Cooper Grace Ward co-founder David Grace, the amendments were triggered as a consequence of concerns that taxpayers may end up paying for the costs of environmental rectification works at the Queensland Nickel refinery near Townsville, as a result of the Clive Palmer-owned operator of the refinery being placed in administration.

Mr Grace said before the amendments, the Department of Environment and Heritage Protection could generally only issue an environmental protection order to companies or individuals who caused environmental harm or failed to comply with environmental conditions imposed by the Department under the Act.

Under the recent amendments, the Department can now issue an environmental protection order to related bodies corporate, executive officers, secured parties, mortgagees, financiers, shareholders, and ‘related persons’, such as holding companies and landowners.

“This means that parties that had no involvement in causing the environmental harm or failing to comply with environmental obligations can now be required to comply with environmental protection orders,” Mr Grace said. “The costs in complying with these orders, such as rehabilitating affected land, can be significant.”

Mr Grace said as the Department could consider matters arising prior to April 20, 2016, in determining “whether a person constitutes a related person, people who may be at risk should consider whether they have sufficient contractual protection under existing insurances, leases, sale contracts and joint ventures if environmental harm is caused”.

He said ‘at risk’ parties could minimise their exposure through appropriately drafted obligations in leases and other contractual arrangements.

www.cgw.com.au

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Directors not responsible for org. culture? That’s barbaric …

RECENT media statements by senior company directors distancing themselves from ‘toxic’ corporate cultures within the organisations they govern – examples include the 7Eleven staff underpayment inquiry and Commonwealth Bank’s insurance revelations – have come under heavy attack from Australia’s The Ethics Centre.

The Ethics Centre executive director, Simon Longstaff, said the “disgraceful” views of a number of senior company directors, who are excusing themselves and instead attacking the Australian Securities and Investments Commission (ASIC)  for  “suggesting that company directors might, in some circumstances, be held liable if a pernicious corporate culture is directly linked to wrong-doing”. 

“That they should adopt this aggressive stance against responsibility, especially in the wake of a growing number of corporate scandals, is quite remarkable,” Dr Longstaff said.

“After all, shareholders enjoy the privilege of limited liability only because they have delegated, to boards, the power to direct the affairs of companies. If company directors are not ultimately responsible for the most important factor in shaping the conduct of a corporation – culture – then who is?

“Do these few, influential directors want the liability to fall back on shareholders? Or do they think that nobody should be held to account?”

Dr Longstaff pointed out that the character of a corporation’s culture has been a feature of Australia’s criminal law since 1996.

“That is, the concept of corporate culture has been a defined legal term for twenty years. Not once, in all of that time, has a company director expressed public concern,” Dr Longstaff said.

“Indeed, the alarm was only raised after ASIC proposed, in quite general terms, that the ‘culture provisions’ of the Commonwealth Criminal Code Act should be extended to encompass the Corporations Law. Only then did company directors start to pay attention to legal concepts that they had happily ignored (or lived with in blissful ignorance) for two decades.

“ASIC has been accused of trying to specify a blue print for corporate culture. That accusation has no foundation.

“Like APRA has already done, in its risk culture standard CPS220, ASIC was merely flagging its intention that company director should be clear and explicit about the character of the corporate culture that they intend to see established – and that they should monitor and remediate any gaps between the ideal culture (as specified by the board – not ASIC) and the actual culture as ‘lived’ and experienced.”

Dr Longstaff posed the question: Why does this matter so much?

“The ‘culture provisions’ of the 1996 law were enacted for a very good reason,” he said. “Up until then, Australian companies had been able to hide behind formal systems of compliance in which all of the boxes had been ‘ticked’. Meanwhile, the culture would either be indifferent to – or encouraging of – illegal conduct.

“That is when bad things happen – and no amount of regulation and surveillance can prevent the harm that follows.

“The worst of this is that ASIC has not been given the chance to develop its proposals. For example, it is likely that directors would only be held liable if recklessly indifferent to the culture of a corporation or if actively encouraging a culture of non-compliance – as they should be,” Dr Longstaff said.

““This is especially worrying as all of the tools needed for the accurate measurement and assessment of corporate culture are well-developed and in use.

“Fortunately, the Australian Institute of Company Directors (AICD) has recognised the central role that directors must play in setting the foundations for and in monitoring the corporate culture developed by management. Thank heavens for that!”

www.ethics.org.au

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QRC laments Qld Govt legislation to allow 'global' objections to mines

QUEENSLAND'S mine objection laws "open the floodgates for anti-resources activists, from Broome to Berlin, to disrupt and delay projects" according to the Queensland Resources Council (QRC).

QRC chief executive Michael Roche said, "The Palaszczuk Government’s Mineral and Other Legislation Amendment Bill (MOLA) passed today, overturns aspects of Newman government legislation that was set to streamline the objection process for mining projects in Queensland." 

Mr Roche claimed the new law was "yet another to add to the stack that made it harder to get on with business in the state, despite the resources sector being one of the heavy lifters in the economy, generating one in every six jobs and injecting $2.1 billion in royalties over the past financial year alone". 

"The QRC understands that MOLA delivers the Palaszczuk Government’s election promise to wind back amendments made by the Newman government to streamline the objection process for mining projects in Queensland," Mr Roche said.

"We agree the community should have an avenue for their concerns to be heard about mining projects, however this should not equate to multiple years in the Land Court spent frustrating and delaying what is supposed to be an administrative process only, not a Hollywood-style courtroom hearing."

Mr Roche said there were currently multiple pathways available to object about a project and the QRC supported the previous government’s efforts to provide clarity to objectors as to the appropriate pathway where there were concerns about a mining project.

"QRC maintains that an objection right under the mining legislation is an unnecessary double-up of the environmental objection under environmental legislation in Queensland," Mr Roche said.

"The government must act to protect future investment in the resources sector for all Queenslanders as we are at a crossroad where every new project could be held up in court for several years. 

"At a cost of about $1 million a day spent in court, this is an unacceptable message to send out to investors and potential investors in Australia and overseas.

"To make matters worse, under this law you don’t even have to be a resident of Queensland to object to the grant of a mining lease in Queensland. You could be living in another state or in a foreign country and be able to lodge an objection.

"The QRC once again calls on the Palaszczuk Government to urgently overhaul the Land Court system so that resource projects are not subject to onerous delays that are holding up job-creating projects for Queensland."

www.qrc.org.au

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Beware 10% property withholding tax

FROM July 1 this year, a new 10 percent withholding tax will apply to acquisitions of Taxable Australian Real Property (TARP) or Indirect Australian Real Property (IARP) interests.

The withholding is based on 10 percent of the purchaser’s capital gains tax (CGT) cost base for TARP or IARP and must be paid to the Australian Taxation Office (ATO) on or before the settlement date.

“The ramifications for a purchaser in failing to withhold are severe so they will need to be thorough in their due diligence, be clear about their withholding obligations, negotiate withholding and settlement terms with the vendor and seek adequate protections in contractual agreements,” RSM Australia partner Simon Aitken said.

“The measures could have flow-on effects for related GST and stamp duty liabilities if there are tax gross-up clauses in the purchase agreement. A prudent course for a purchaser of TARP or IARP is to assume a withholding applies unless the vendor can prove otherwise.”  

Mr Aitken said Taxable Australian Real Property is defined as real property, including a lease, within Australia. The definition does not carve out residential property or a mining, quarrying or prospecting right within Australia.

“The new measures will impose a non-final withholding tax, meaning the vendor will still have an obligation to lodge a tax return in relation to the CGT event but they’ll be entitled to a tax credit and perhaps even a tax refund (where relevant) for the withholding,” he said.

“RSM Australia expects that the ATO will be vigilant in chasing delinquent vendors who do not lodge tax returns disclosing CGT events for their disposal of TARP or IARP.”

RSM Australia is an industry expert member of Victorian Leaders, the organisation helping to foster the next generation of leading businesses based in Victoria.

www.rsm.global/australia

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Banks brought to account

EXTRA >> THE ANGER of small business directed at the behaviour of their lenders – particularly Australia’s biggest banks – is coming home to roost in a series of successful litigations by the Australian Securities and Investment Commission (ASIC) and the Australian Competition and Consumer Commission (ACCC).

Yet for the businesses that have hit the wall since 2007 as a result of what has been called ‘predatory’ banking behaviour, and the families that have lost property, assets and life savings, it is a ‘too-late’ result that has taken a lamentable amount of time through existing channels. 

There is a cry gaining momentum – with some calling for a Royal Commission – from small business for fundamental change in banking behaviour and culture. Underpinning that call is the mood that even though the Australian public effectively secured the major banks through the Global Financial Crisis (GFC) with government guarantees, the big banks have taken advantage by buying out struggling financial organisations, integrating financial advice and insurance sales, and driving successive years of record profit at the expense of customer value.

While most of the larger fines and compensation agreements so far – such as the Commonwealth Bank of Australia’s (CBA) $80 million in refund packages to 216,000 of its Wealth Package customers for failures in applying fee waivers and interest concessions – are designed to make amends for poor practices during the GFC, many small business leaders claim the compensations and fines are menial compared with the damage still being done to Australian small-to-medium enterprises (SMEs).

With the big four banks combined declaring profits of more than A$30 billion combined last financial year – and growing – it is a serious argument compared with the results of ASIC and ACCC judgements so far.

CBA’s Wealth Package and Mortgage Advance Package offered concessions and benefits to customers including interest rate discounts and fee waivers for home loans, credit cards and certain loans and insurance. CBA overlooked supplying these benefits, which relied on manual staff inputs, and to the bank’s credit it owned up ahead of a potential ASIC whistleblower investigation. The bank insists the systems are now properly in place and the damage since 2008, about $80 million, has been compensated to affected customers.

That result is a good one – it’s how things should work in the banking sector when anomalies are discovered – compared with others that have come through ASIC and ACCC recently, and potentially others in the works.

Perhaps the worst behaviour so far has been the alleged manipulation of bank bill swap reference rates (BBSW), for which Westpac and ANZ have so far been accused by ASIC and taken to court.

ASIC recently started legal proceedings in the Federal Court in Melbourne against Westpac Banking Corporation for “unconscionable conduct and market manipulation in relation to Westpac's involvement in setting the bank bill swap reference rate in the period from April 6, 2010 and June 6, 2012.

ASIC reported the method by which the BBSW, the primary interest rate benchmark used in Australian financial markets administered by the Australian Financial Markets Association (AFMA), was calculated changed on September 27, 2013. ASIC’s charges against Westpac relate to conduct before that change.

ASIOC alleges Westpac traded in a manner intended to create an artificial price for bank bills on 16 occasions during the period under review.

ASIC alleges that on these days Westpac had a large number of products which were priced or valued off BBSW and that it traded in the bank bill market with the intention of moving the BBSW higher or lower. ASIC alleges Westpac was seeking to maximise its profit or minimise its loss to the detriment of those holding opposite positions to Westpac's.

Further, ASIC has sought from the court pecuniary penalties against Westpac and an order requiring Westpac to implement a compliance program.

Earlier this year, ASIC launched action against ANZ Banking Group for allegedly rigging the BBSW on 44 days.

ASIC alleged in the Federal Court in Melbourne that ANZ also engaged in “unconscionable conduct and market manipulation” in relation to setting the BBSW from March 9, 2010 to May 25, 2012.

It is alleged that ANZ traded in a manner intended to create an artificial price for bank bills on 44 separate days during the period.

Like the Westpac case, ASIC is seeking declarations that ANZ contravened s.12CA, s.12CB and the former s.12CC of the Australian Securities and Investments Commission Act 2001 (Cth), s.1041A of the Corporations Act 2001(Cth) (Corporations Act), and s.912A of the Corporations Act, and wants pecuniary penalties against ANZ and an order requiring ANZ to implement a compliance program.

Prior to the ANZ and Westpac actions, ASIC investigated BBSW misconduct by UBS-AG, BNP Paribas and the Royal Bank of Scotland. ASIC accepted enforceable undertakings from those banks and those institutions also made voluntary contributions totalling $3.6 million to fund independent financial literacy projects in Australia.

ANZ is also being forced by ASIC to refund $5 million to 25,000 basic account holders for incorrect late payment and overlimit fees

ANZ admitted it failed to properly apply some fee reductions and fee waivers for customers who held an ANZ Access Basic account and who also held an ANZ consumer credit card or ANZ Everyday Visa Debit Card since 2007.

Similar to Westpac’s issue, the ANZ  failure arose as a result of breakdowns in the interaction between automated and manual processes, and in particular, the lack of reliability of some manual processes and controls. ANZ said it has since implemented a permanent automated solution with a system-based automated waiver, eliminating the need for manual intervention.

An Access Basic account is available to customers that meet certain criteria which include holding a Seniors Concession card, Pensioner Concession card, Centrelink Health Care card or a Repatriation Health card.

ASIC Deputy Chairman Peter Kell said, “ANZ’s Access Basic account is specifically designed for low income consumers who are unable to pay high fees. This matter highlights the importance of appropriately managing manual processes to apply fee waivers and discounts, and designing and maintaining robust systems to support such features.”

ANZ announced it intended to complete the remediation process by the end of April 2016.

Westpac has also agreed to pay out $1 million over four years to support financial counselling and literacy programs after ASIC pinged the bank for poor credit card limit increase practices.

ASIC was concerned Westpac failed to make reasonable inquiries about some consumers' income and employment status before increasing their credit card limit. In particular, ASIC was concerned that Westpac, in relying largely on its automated processes, was not making reasonable inquiries of individual cardholders, which is not consistent with the responsible lending obligations under by the National Consumer Credit Protection Act 2009 (the National Credit Act).

Westpac has committed to a number of steps to address ASIC’s concerns, including changing its credit limit increase processes; a  remediation program involving a review of credit limit increases previously provided; and engaging an independent external expert to provide assurance of the effectiveness of the remediation program. 

The recent ASIC action comes in the wake of moves against other financial institutions.

Bank of Queensland Limited improved its lending practices following ASIC’s concerns about the way it assessed applications for home loans. The Cash Store Pty Ltd and Assistive Finance Australia Pty Ltd failed to comply with their responsible lending obligations and the Federal Court awarded record civil penalties of $18.975 million.

Wide Bay Australia Ltd,  now Auswide Bank Ltd, made changes to its responsible lending policy as a result of ASIC’s intervention. ASIC has also tackled issues around interest-only home loans, releasing a special report to help credit licensees improve their lending practices by increasing their awareness of their obligations.

Compensation to customers of $4.5 million was part of the outcome from an ASIC-ordered independent review of ANZ’s OnePath branded companies.

ASIC said the ANZ Group self-reported the braches in relation to its life, general insurance, superannuation and funds management activities, which are operated through its wholly-owned OnePath group of subsidiary companies.

From early 2013 to mid-2015, around 1.3 million customers were affected by breaches, requiring refunds and compensation of around $4.5 million, rectifications and other remediation of approximately $49 million. Not all breaches required monetary remediation.

For example, 1,422 superannuation fund members had $28.7 million in contributions allocated to the incorrect super account of the member for a period up to 12 months. ANZ has now returned these funds to the correct accounts and provided more than $400,000 compensation for lost earnings and/or incorrect fees.

www.asic.gov.au

 

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What does abolishment of Road Safety Remuneration Tribunal mean?

FOLLOWING the vote in the Senate on April 18, the Road Safety Remuneration Tribunal (RSRT) will be abolished and the Road Safety Remuneration Act 2012 (Cth) repealed.

Legal specialists in the transport industry, Cooper Grace Ward, have reported the Bill abolishing the RSRT and repealing the Act is expected to receive Royal Assent on April 19, which means the RSRT and all orders of the RSRT will cease to take effect from the start of April 21, 2016. 

Cooper Grace Ward have provided the following background brief on this complex issue in  the transport industry:

The Contractor Driver Minimum Payments Road Safety Remuneration Order 2016

On December 18, 2015, the Road Safety Remuneration Tribunal (Tribunal) published its Contractor Driver Minimum Payments Order (2016 RSRO). The 2016 RSRO was to commence on April 4 2016 for a term of four years. It requires the payment of minimum hourly and kilometre payments for contractor drivers involved in the provision of distribution or long distance transport services. The term ‘contractor driver’ includes individual owner drivers and small companies where all vehicles are driven by family members of directors or shareholders. The 2016 RSRO also imposes compliance and audit obligations on parties in the supply chain.

Full details of the 2016 RSRO are discussed in Cooper Grace Ward’s legal alert dated February 4, 2016.

Applications to vary the Order

In March 2016, the Tribunal received 38 applications to vary the 2016 RSRO on various grounds including that:

  • parts of the 2016 RSRO are ambiguous and not adequately defined;
  • businesses would be unable to comply with the 2016 RSRO by April 4, 2016; and
  • a delay in the commencement of the 2016 RSRO and the inclusion of transitional minimum rates would give the transport industry time to interpret, understand and comply with the Order.

On March 15 2016, the Tribunal heard the applications to the extent that they sought to vary the commencement date or to include transitional provisions in respect of its minimum payments. Consistent with the Road Safety Remuneration Act 2012 (RSR Act), the Tribunal prepared a draft variation of the 2016 RSRO for consultation. The draft variation included provisions:

  • delaying the commencement date until January 1 2017; and
  • allowing hirers to pay owner drivers ‘transitional amounts’ that periodically increase 12 months, 24 months and 36 months after the commencement date of the 2016 RSRO.

The Tribunal gave interested parties until March 21 2016 to make written submissions on the draft variation of the 2016 RSRO.

Altogether the Tribunal received approximately 800 submissions from owner drivers, hirers and industry associations, the majority of which supported delaying the commencement date of the 2016 RSRO until January 1 2017. The Tribunal scheduled three days of hearings over the Easter long-weekend.

Just days before the hearing, the Tribunal issued orders to more than 30 people requiring them to produce documents and attend the hearing in order to respond to questions arising from their submissions. The Transport Workers’ Union also required various witnesses to be available for cross‑examination.

Over three days of the Easter weekend, various applicants participated in the hearing and those who received summons were cross-examined in relation to those submissions. Cooper Grace Ward represented the National Road Transport Association (NatRoad), which was one of the applicants.

At the conclusion of the hearing, the Tribunal sought final submissions on a compromise position proposed by some of the applicants and reserved its decision in respect of the draft variation to the 2016 RSRO.

The decision

On April 1 2016, the Tribunal handed down its decision not to vary the 2016 RSRO. The 2016 RSRO would commence on April 4, 2016, as originally planned.

The Tribunal asserted that there was "significant support" for the making of the 2016 RSRO and suggested that there are a number of myths surrounding its application and operation. The Tribunal acknowledged that this confusion and uncertainty was in part due to the Fair Work Ombudsman inadequately performing its duties, but suggested that certain bodies and individuals had sought to "create and perpetuate myths" about the 2016 RSRO.

In deciding not to vary the commencement date, the Tribunal emphasised that the road transport industry has already benefitted from the three and a half month period between the making of the 2016 RSRO and its commencement date. This period provided affected parties with an opportunity to obtain sound advice and education about the 2016 RSRO.

The Tribunal also decided against adding transitional provisions to phase in its minimum payments clauses, arguing that this would only increase the compliance burden and complexity, making the 2016 RSRO less simple and easy to understand.

Stay

On Friday evening, April 1, 2016, following an application by NatRoad, the Federal Court in Brisbane handed down an Order in the following terms:

1.         Pursuant to section 39B of the Judiciary Act 1993 (Cth):

  • (a) the order of the Road Safety Remuneration Tribunal of 18 December 2015 entitled ‘Contractor Driver Minimum Road Safety Remuneration Order 2016’; and
  • (b) the order of the Road Safety Remuneration Tribunal of 1 April 2016, being the refusal to vary the order of 18 December 2015,
    be stayed until further order of the Court.

2.         All affected parties have liberty to apply to the Court on two days’ notice in writing.

3.         Costs be reserved.

4.         The matter be reviewed by the Court on a date to be fixed.

Other developments

On April 1, 2016, the Department of Employment released two independent reviews of the Road Safety Remuneration System, as well as its own discussion paper with options for reform.

The first review report, completed by Rex Deighton-Smith of Jaguar Consulting in April 2014, concludes that the Tribunal should "not continue in its current form".

The second review report, prepared by PricewaterhouseCoopers in January 2016, estimated that the two orders made by the Tribunal to date will have a net cost to the economy of $2.3 billion by 2027, even with safety gains factored in. The report concludes that there would be a significant net benefit to the economy and community if the Tribunal were abolished.

Both reviews found there is substantial regulatory overlap with work health and safety laws and other road safety regulation, and that the level of regulation is not justified based on the limited evidence as to the link between remuneration and road safety in the road transport industry.

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