Managing your Business
Category : Management Samples
Managing Your Business
The Trade Practices Act
“The Trade Practices Act introduced a strict liability test for unacceptable business behavior”
The Trade Practices Act is an act of the Parliament of Australia. The act provides wide-ranging protection to consumers from undesirable business acts and practices, making relief readily available through both new and traditional enforcement mechanisms. It also prevents some restrictive trade practices of companies. It is the key antitrust law in Australia. It is administered by the Australian Competition and Consumer Commission and also gives some rights for private action. Parts of the Act are mirrored in Fair Trading Acts in each Australian State and territory to extent regulations to individuals.
The restrictive trade practices provisions in the TPA are aimed at the deterring practices by firms which are anti-competitive in which they restrict free competition. The ACCC can litigate in the Federal Court of Australia and seek pecuniary penalties of up to $10 million from corporations and $500,000 from individuals.
Most of the proscriptions in the TPA are directed at corporations. For the same reasons, 'corporation' is defined in section 4 of the Act to include only those that can be characterized as being 'foreign', 'trading', 'financial', 'incorporated in a Territory', or as a holding company of such a corporation. Of these possibilities, in practice, the most important is ‘trading corporation' and in a number of early TPA cases, a central issue was whether the respondent was a corporation of this nature. This is determined having regard to the current activities of the company, not by reference to its principal activity, or the reason it was established.
These provisions prohibit:
1. Most Price Agreements (Cartel and Price-fixing).
It is an offence, punishable by the imposition of a 'pecuniary penalty' of up to $10m, for competitors to engage in price fixing. Price fixing is defined as contractual agreement and arrangement or understanding which extends beyond the price of goods or services to also include discounts, allowances, rebates and credit. It also includes controlling or maintaining prices as well as actually fixing it.
For example, ACCC v Real Estate Institute of Western Australia Inc (1999) in which a license agreement between a university and a private college authorizing the college to use the university’s current teaching materials and setting the price that the college is to charge its students for the course, or subjects, in which they are used.
There are two types of boycotts. These are the primary boycott that is, an agreement of two parties to exclude another and secondary boycott whose purpose is to cause substantial lessen competition.
The TPA prohibits two or more competitors from agreeing not to deal with a third party (Hughes v Western Australian Cricket Association Inc., 1986). This prohibition is also expressed in very broad terms and is capable of extending to boycotts designed to advance popular public policy objectives, such as ending apartheid(TPA, s 45(2)), as well as to traditional boycotts involving commercial bullying.
For example, it would be unlawful for universities to agree not to purchase library books from a publisher that they considered guilty of price exploitation, or not to enroll fee-paying students guilty of civil rights abuses or of academic offences such as plagiarism.
3. Misuse of market power
Misuse of market power is defined as taking advantage to eliminate or damage an actual or potential competitor, preventing entry into a market, or lessening competition. This is also a kind of agreement between two organizations
The TPA, however, also prohibits unilateral anti-competitive conduct. In particular, s 46 proscribes firms with substantial market power from using that power for the purpose of damaging other firms, or competition generally.
- Exclusive dealing
Exclusive dealing is an attempt to interfere with freedom of buyers to buy from other suppliers, such as agreeing to supply a product only if a retailer does not stock a competitor’s product
Firms often seek to deal with customers or suppliers on terms that restrict the ability of the latter to deal with whom, or where ever, they wish. Arrangements such as these are prohibited by s 47 of the TPA. However, because it is recognized that they can be pro-competitive as well as anti-competitive, they are unlawful only if they substantially lessen competition.
5. Third-line forcing
Under the rubric of exclusive dealing, s 47 (10) of the TPA prohibits a firm from making it a condition of supplying a customer that the latter acquires goods or services from a third party. 'Third line forcing', as this practice is known, is an offence regardless of whether it has an adverse effect on competition.
6. Resale price maintenance
Resale price maintenance is fixing a price below which resellers cannot sell or advertise.
Section 48 of the TPA, prohibits firms from engaging in re-sale price maintenance (RPM). It applies to conduct stretching across the moral spectrum, from conduct designed merely to enhance the appeal of the firm’s products to that designed to eliminate price competition.
The consumer protection part of the act, contained in Part V and Part VC, is based on the proposition that low consumer power or lack of information is a market failure which needs to be addressed by interference in the market.
These parts deal with:
· Unfair Practices (including unconscionable conduct and misleading and deceptive conduct) —Part V, Division 1 and Part VC, Division 2
· Product safety and information —Part V, Division 1A and Part VC, Division 3
· Conditions and Warranties in Consumer Transactions — Part V, Division 2
· Actions Against Manufacturers/Importers of Goods — Part V, Division 2A
· Product Liability — Part VA
Misleading or Deceptive Conduct
Misleading and deceptive conduct (s52) is one of the most important consumer parts of the act. It allows both individuals and the ACCC to take action against corporations who engage in conduct that is misleading or deceptive, or likely to mislead and deceive.
The inclusion of unconscionable conduct in the Trade Practices Act is a codification and extension of the equitable principle of unconscionability which was clarified as a cause-of-action in the case of Commercial Bank of Australia v Amadio (1983) 151 CLR 447. The High Court of Australia held that an act was unconscionable if a party to a transaction is under a special disability, the other party is or ought be aware of that disability, and that other party acts in a way that makes it unfair or unconscionable to accept the offer of the weaker party.
Section 51AA codifies the common law by referring to the ‘unwritten law’ that is the common law. However, s51AA allows access to TPA remedies.
Section 51AB bans unconscionability in consumer transactions, and gives factors that indicate unconscionability. This clarifies the application of unconscionability and circumstances where a consumer is at a “special disability”.
The inclusion of s51AC, added in 1998, extends unconscionability by, in effect, classing ‘small business’ as a ‘special disability’.
Other Unfair Practices
The Trade Practices Act also prohibits a range of other unfair practices including bait advertising, pyramid schemes, and certain misrepresentations.
Liability is strict in the sense that fault is not required on the part of the respondent for liability to arise. Consequently, for example, it is no defense to an action based upon a false statement for the speaker to show that all reasonable care had been taken to ensure that it was correct. Likewise, it is no defense that the speaker had innocently relayed false information provided by a third person, unless at the time of doing so it was made clear that the speaker was not adopting that information but was merely passing it on to the recipient.
The action can be taken against a party guilty of misleading conduct by its rivals and the Australian Competition and Consumer Commission (ACCC), as well as by those actually misled by that conduct. Furthermore, action can be maintained by a rival, or the ACCC, regardless of whether it has suffered loss as a result of the conduct complained of. Importantly for universities, this means that promotional claims, for example, are actionable at the suit of other universities even though they have not been misled by them. In the case of a rival university, if it can establish that it suffered loss attributable to the respondent’s conduct, damages will be recoverable under s 82; this could include, for example, the income, or profit, that the rival would have earned from fee-paying students who enrolled with the respondent, rather than with it, because of the former’s conduct. If loss cannot be established, the rival university may still be able to obtain a remedy in the form of an injunction under s 80, restraining the respondent from persisting with the conduct in question.
Finally, the remedy and penalty provisions of the TPA extend liability beyond the business that is regarded as having engaged in misleading conduct, to all those individuals who were accessories to that conduct. In this context, s 82 is particularly relevant because it enables damages to be recovered from 'any person involved in the contravention'. The potential of this provision is shown by ACCC v Black on White Pty Ltd. In this case a 'part-time accreditation officer' was held liable because he had been actively involved in making what he knew to be misleading statements about the accreditation of courses offered by his employer. Indeed, a notable aspect of Mathews, Fennell and Dudinski (all noted above) is that in each case, a personal action was brought against the university employees involved in the subject matter of the complaint, as well as against the university itself.
Unconscionable conduct and door to door sales
The Lux case involved a sale of a vacuum cleaner. The sale took place in the consumer’s home and no one else was present other than the salesman and the customer. The customer asked the salesman to assist her in filling out the credit application form as she could not spell very well. She also stated that she couldn’t read the form. The salesman knew that the customer and her husband were on disability benefits. The court found that the customer was unable to understand commercial matters in any depth. The salesman admitted he had wondered whether the customer should get independent advice before signing the contract but did not suggest this to her. The customer gave evidence that although the salesman was friendly enough, she felt uncomfortable and scared and wanted him to leave—she did not tell the salesman this and thought that the only way to get him to go away was to sign the contract.
The Keshow case involved the sale of educational material for children and household goods to indigenous people in the Northern Territory. The customers were asked to sign open-ended authorizations for debits from their bank accounts which were not designed to terminate when the goods had been paid for. The products in question were not needed or useful having regard to the age of the children concerned. Frequently the goods were not supplied or not supplied in their entirety. The customers were living in generally impoverished communities and were receiving Centrelink or similar benefits. Many had only limited English and little experience in business dealings. For cultural reasons, the customers were not likely to directly question the salesman about the transactions they were entering into. The court found that the salesman was a mature person who understood the transactions he was entering into and was able to appreciate the things which a customer of normal commercial acumen might inquire about or expect.
In both cases, the court found that the circumstances surrounding the sales were unconscionable.
Not surprisingly the consequences for unconscionable conduct can be severe. Financial and other consequences can include:
- refunds to customers
- damages payments to customers
- payment of the ACCC’s legal costs, and
- the implementation of a new or external review of an existing, trade practices compliance program.
In addition, there is the consequential inconvenience of being party to a court case, your own cost of legal proceedings, as well as the negative publicity and reputational damage which almost inevitably accompany losing a court case.
X & Y were partners in a wholesale meat business called “Macs” supplying meat to the fast food industry.
X has a degree in marketing and food handling. X duties are to supervise the handling of the produce and the marketing operations of the business. As part of X‘s duties they frequently visit customers advising them of new products. They visit a long-standing customer Big M a major fast food hamburger chain that is interested in buying all their meat from Macs. X informs Big M that Macs beef is “100% beef and healthy”.
Bing M buys 1000 kg of meat to be used for hamburgers. K is a customer at the Big M Kingsford branch. He is keen to buy an all beef burger. He reads the menu at Big M which says “Big M Burgers are 100% Australian Pure Beef” K subsequently becomes ill after eating the burger. Big M discovers that almost half the of the meat content is not beef but beef fat and other ingredients including bacteria.
After 25 years in the business X decides to retire and become a part-time entertainer. The partners agree to dissolve the business by mutual agreement, they notify the bank and all those dealing with the business, but there was no notice published in the daily newspaper.
After the business was dissolved X orders goods from Jack Pty Limited using the old letterhead of the business which shows Y as a partner. Jack Pty Limited did not know that Y was a partner before the date of the dissolution. X failed to pay for the goods and Jack Pty Limited now demands their money.
What should the parties do? (X, Y, Big M, K and Jack Pty Ltd)
From the situation above, X has committed misleading and deceptive conduct in which he had advertise to his customer that the beef he is selling is pure beef and healthy. In the Trade Practices Act, section 52 allows both Big M and ACCC to take action against X or the Mac’s. X has a liability to Big M for his misleading and deceptive actions.
In addition to the damages K, a customer of Big M was subsequently become ill because of eating the beef in which Big M has advertise as “100% Australian Beef.” K can also allege Big M with misleading and deceptive conduct. Big m also has a liability to K.
In the Trade Practices act, misleading and deceptive conduct is subject as a criminal action. Misleading and deceptive conduct may lead to loss or injury to the other party. As with the case above, it is clearly that X has mislead and deceive Big M with his advertisement of 100% pure beef and healthy.
However, with the case of Big M, the company may be become deceptive and misleading to their customers but Big M has no ability to know if the beef they are selling is pure beef or not. In this case Big M becomes unconscionable. But either way, the company still needs to pay the damages he had for the K which may include financial medication for K.
In the case of Jack Pty Ltd., they can sue X due to the liability he incurred from the company that he has not paid.
X should pay all the damages he had for Big M and should pay his liabilities to Jack Pty Ltd.