Angus Mitchell Oration - 2010/2011

It was with a great deal of pleasure that the Club invited Graeme Samuel AC to deliver the thirty-ninth Angus Mitchell Oration on 23rd February 2011.

The text of the oration is reproduced below.

Competition and Consumer Law: Not just buyer beware, the seller must be fair.

Thank you very much indeed for asking me to speak here today.

When I had the call from Leigh Masel to come and speak I recalled that about 36 years ago, at the request of my then senior partner and my mentor and dear friend, Leigh Masel, I fronted up at the Masonic Hall in East Melbourne and gave my first ever talk on trade-practices law. That was 1975 and the Trade Practices Act had been introduced in 1974.

Now I¡¦m not sure whether your President or any others in the room knew this when they kindly invited me to talk with you today but that first presentation was to the Rotary Club of Melbourne.

I can still remember it. I can¡¦t remember things that happened an hour or so ago but certainly remember 36 years ago. That must have been around the time of the club¡¦s 55th anniversary. Sincerest congratulations to the club on celebrating its 90^th year this year in 2011.

And thank you for the opportunity and I say a real privilege  to mark the anniversary of Rotary¡¦s birth, over a century ago, and to honour Sir Angus Mitchell, with thoughts on some topics that are both timeless and always timely ¡V and about which we are all, I believe, passionate:

good conduct in business

and

the welfare of the community in general.

I understand your club¡¦s members find the time above and beyond their commercial careers to chip in on everything from finding a roof for Melbourne¡¦s homeless to teaching Timorese how to roof homes.

Like your members, I have been lucky enough over my career to have been able to mix the experience of building and directing businesses with the chance to serve the community in a few different roles.

And importantly since the mid 1990s I¡¦ve been working full time with the tools of competition and, more recently, consumer law ¡V with the support of some great colleagues at the National Competition Council and now at the Australian Competition and Consumer Commission, where we have some 830 people who are in each and every way totally dedicated and committed to the welfare of Australians.

I¡¦m going to talk today about some of the ACCC¡¦s work under our laws that govern these areas.

I think when I first began to talk to your club those 36 years ago, never did I think then that I¡¦d be talking to you today about those laws as the chairman of the ACCC, an organisation responsible for furthering the public interest across a vast proportion of the Australian economy. For those of you that are grateful that I¡¦m chair of the ACCC, and for those of you that are less than grateful, can I attribute one of the prime reasons for that to my dear friend Leigh Masel, whose sitting next to me at the table. It was Leigh who back in the early 1970s set me on the course of public service with a public ethic and it¡¦s something that I think has been clearly evident in everything that Leigh¡¦s done since those early days in law and then with the National Companies and Securities Commission, where he was the inaugural chairman, and he set me on that course which of course has led me where I am today, as chair of the ACCC.

You may not be aware but the ACCC has an extraordinarily ubiquitous role. We have a supervisory role across the whole economy, from water, gas, electricity, rail networks, airlines, airline car parks as well, groceries, petrol, small and big business ¡V indeed from the time you arise in the morning to when you go to sleep at night, and then through your sleeping hours, the ACCC has a responsibility to be ensuring that business deals with you fairly as an Australian consumer.

You could say there is an apparent split in our role, on the one hand we¡¦re there to deal with competition and on the other hand we¡¦re there to deal with consumer protection, but they really are one and the same, and they are as I constantly describe it, the watermark across every page of our legislation, which says the object of this legislation is to enhance the welfare of Australians through the promotion of competition and fair trading and provision for consumer protection.

Essentially, we fight rip offs. We¡¦re focusing on the welfare of Australians when we seek to stop consumers getting ripped off because of misleading advertising. And we¡¦re working for consumers when we¡¦re using our powers to prosecute price fixing, bid rigging, market sharing, cartels, collusions and misuse of market power. Ultimately, the extra costs charged in what are nothing else but criminal activities are going to be borne in the end by everyone in this room and all other consumers.

We deal with a whole range of issues but all our work is directed towards those fundamental principles of fair dealing between businesses and between businesses and consumers.

Our mission is unashamedly to be biased in favour of consumers in all our work.

Consumer protection and competition regulation are inextricably linked and entirely consistent. The whole point of competition regulation is to deliver efficient and effective markets to protect the interests of all of us in this room and of all 22 million Australians.

And consumer regulation is specifically directed at business with the exhortation to, simply, be honest and fair in its dealings with consumers.

It seems to me that the ACCC and Rotary are effectively ¡¥on the same page¡¦.

One of Rotary¡¦s objects is to encourage and foster high ethical standards in business and the professions and, since about the time of Angus Mitchell¡¦s membership of this club, Rotary clubs world-wide have applied the four-way test for members¡¦ conduct:

Is it the truth?

Is it fair to all concerned?

Will it build goodwill and better friendships?

Will it be beneficial to all concerned?

I have to say there is some resonance between this and the tests I have set for our organisation¡¦s staff in my time as chairman. Consistent with and above and beyond the Australian Public Service Values and Code of Conduct, we all apply in the ACCC the principles of:

„h  Fairness

„h  Consistency

„h  Transparency ¡V so that we can be accountable to 22 million Australians

„h  Confidentiality in our dealings where it¡¦s appropriate to do so and above all

„h  Timeliness

And I have also required that all relationships within the ACCC, between staff and managers, and staff and Commissioners, be ¡¥frank and fearless¡¦. I say to our people all the time ¡¥tell us what you think, not what you think we might like to hear¡¦.

I think you will most clearly see the resonance between your four-way test and the laws I¡¦m going to discuss briefly today.

Well what am I going to talk about today? 

„h  Consumer protection and the Australian Consumer Law

„h  Two aspects of competition law:

o   Cartels ¡V about which we are very passionate; and

o   Mergers

„h  Communications and the media; and I¡¦ll touch very briefly on the National Broadband Network

„h  And I thought I might finish if I have time with some comments about our work with small-to-medium-sized businesses.

Well let me talk about consumer protection and the Australian Consumer Law. And you¡¦re probably wondering when I¡¦m going to visit or refer to the speech topic that you read about in your member newsletter: ¡¥Not just buyer beware, the seller must be fair.¡¦

Interestingly, I recall that they were the concluding words to the speech I gave back in 1975, when I said ¡¥we have long known in business the legal maxim caveat emptor let the buyer beware; but the Trade Practices Act of 1974 now says ¡§let the seller be fair¡¨.¡¦

Now they were the concluding words I used in the Masonic Hall back in 1975. The essential element of our law is ¡¥be honest¡¦. Be fair in your dealings between business and consumers. Now 36 years later, that principle prevails and it holds just as true for the new Australian Consumer Law.

I call it a new law for this reason, as at the 1^st of July last year ¡V and there was consequent law changes on the 1^st of January this year - we have after 36 years brought our consumer law up to date and consistent across the whole country rather than having as we did some 11 or 12 different consumer laws protecting consumers in the various states and territories of the Commonwealth.

It¡¦s a very important change. I illustrate it this way: that over the past 36 years, each year I¡¦ve had an occasion to attend, on more recent occasions to address a gathering of trade practices lawyers and economists around this country. We call them Trade Practices Mafia, they¡¦re the experts in the area, and for 36 years we¡¦ve talked about Competition Law.

Except this year and the year before suddenly they put the Australian Consumer Law on the agenda for discussion. The trade practices experts have suddenly said ¡¥we need to be focusing on what the Australian Consumer Law is all about¡¦.

Would you believe that for 35 years if you engaged in dishonest conduct in dealing with consumers as a business person, if you misled or deceived consumers, if you made false representations to consumers about the products or services you are selling, you could not be penalised by the courts of law. The courts simply said ¡¥we declare that you have breached the law¡¦ and that is it. That was the end of it, and how many times I had to speak to the media when they said ¡¥you let so and so off very lightly, they have defrauded consumers but you haven¡¦t penalised them¡¦ the law never allowed it.

Well I¡¦m pleased to say that now the law says that if you engage in dishonest conduct as a business person dealing with consumers, the law now says you can face penalties of many millions of dollars for contraventions of the consumer law. And we have a whole range of tools now available to us including the issue of what I call ¡¥on the spot fines¡¦ and the ability to go to a business and say you have represented that your product will do this, substantiate it. Show us that that is the case. If you can¡¦t then there may well be a case for us to take you to court and prosecute for breaches of the dishonest trading provisions of the Trade Practices Act.

We can obtain banning orders to prevent those that are significant recidivists in this area from managing corporations for life.

These are powers that have now been conferred after 35 years in this area of consumer protection. It seems to me entirely reasonable if businesses are going to engage in dishonest dealings with consumers, to mislead and deceive consumers, that at least there ought to be some form of financial penalty.

But in addition, for those who are trading in business, can I say that there are some new provisions there that deal with not only dishonest dealings but unfair dealings with consumers. Provisions that now say if you have standard contracts which contain provisions that are unfair as interpreted by the court, those provisions can be struck out and there can be a breach of the law. And the lawyers are intensely interested in some of these, particularly in the areas of car rental contracts, airlines and the like.

Of particular interest, and this is this area that always raises the interest of some of the talk back radio jockeys and others, has been the issue of consumer guarantees. How many of you receive Christmas gifts and you decided you didn¡¦t want to keep them and you only wish you could return them to the store that supplied them; or purchased a product and then changed your mind afterwards and decided you wanted to return the product but the store said, ¡¥I¡¦m sorry, we¡¦ve got no obligation to take those products back¡¦?

In fact that is the law but the law now, however, says this, that if you receive a product that is fundamentally defective, at long last you can go back to the store and say take this back, give me a refund. I would never have bought it if I had known about the defect that I¡¦ve discovered when I¡¦ve taken this product home, opened it up, plugged it in or whatever the case might be and it fundamentally hasn¡¦t worked or doesn¡¦t work after two or three months. Some very interesting and significant changes have taken place.

That¡¦s the Australian Consumer Law. Let me now get to the area of which I am absolutely passionate and that is Cartels. And I cannot express too strongly the abhorrence that the ACCC has over cartel conduct - and when I mean cartels I¡¦m talking about price fixing arrangements where competing businesses get together and say we¡¦re going to fix our prices and raise them above the normal competitive level. ¡¥We profit, you the consumer get ripped off in the process.¡¦  Or ¡¥we the competing businesses are going to allocate markets between us, which enables us to lift our profits, lift our prices - We profit, you the consumer get ripped off in the process.¡¦

Or we¡¦re going to tender hospitals or to build schools and we¡¦re going to collusively operate so that we¡¦ll ensure that one party gets the tender and the others all tender much higher prices. We profit, you the consumer or you the tax payer get ripped off in the process. They are a cancer on our economy. They are nothing more than theft by thieves carrying brief cases. The effect of a serious cartel is best summarised in the words of Justice Peter Heerey in the Visy cartel case - the most well known one, I guess, in recent history - when he said:

Every day every man, woman and child in Australia would use or consume something that at some stage has been transported in a cardboard box. The cartel in this case therefore had the potential for the widest possible effect.

Price fixing and market sharing are not offences committed by accident, or in a fit of passion.  The law, and the way it is enforced, should convey to those disposed to engage in cartel behaviour that the consequences of discovery are likely to outweigh the benefits, and by a large margin.

Well price fixing, bid rigging and market sharing are a silent extortion that in many instances do far more damage to our economy, to business, and to you as consumers, than many of the worst consumer scams.

The damages can extend far beyond higher prices. By controlling markets and restricting goods and services, cartels can put honest and well run businesses out of business while protecting their own inefficient members and stifling innovation. And so therefore we were fortunate that the current government, the [then] Rudd government, back in 2009 introduced criminal penalties: jail sentences for those engaged in serious cartel conduct. It was no longer a case of writing a large cheque to pay a financial penalty if you engaged in cartel conduct; you can now go to jail for up to 10 years.

And so it should be. If we can put people in jail for defrauding the tax department of a few hundred thousand dollars, if we can put people in jail for defrauding the welfare services of this country by a few dollars, surely we can put businesses in jail for defrauding each and every one of 22 million Australians, by engaging in price fixing and cartel conduct. This has not always been recognised. I note a rather pressing comment from Mr Justice Ray Finkelstein in a cartel matter back in 2002 and he said this:

¡§Generally the corporate agent in a cartel is a top executive, who has an unblemished reputation, and in all other respects is a pillar of the community.  These people often do not see antitrust violations as law breaking¡K

¡§¡K there is a great danger of allowing too great an emphasis to be placed on the ¡§respectability¡¨ of the offender and insufficient attention being given to the character of the offence. It is easy to forget that these individuals have a clear option whether or not to engage in unlawful activity, and have made the choice to do so.¡¨

Justice Ray Finkelstein in 2002.

Cartel activity will be deterred. It will be deterred by the ACCC. We find out about it. We find out about it because we have in place an immunity policy that essentially says if you¡¦re involved in a cartel, if you¡¦re not the ringleader and didn¡¦t set it up, come and tell us about it, we¡¦ll give you immunity from prosecution. If you¡¦re the second person in the door, you run the risk of going to jail for 10 years.  It encourages a race to the ACCC¡¦s confessional and it has worked. It has worked. We currently have on our books either in the courts or under serious investigation around 25 cartels. We have had 25 cartels either on our books or in the courts over the past three or four or five years and they are going through the process.

How do we find out? Well I¡¦ve told you through that immunity policy. I¡¦m always amused though to quote a European academic research that says ¡¥only one in every seven cartels are detected¡¦. I really can¡¦t figure out how they know about the other six. Having talked tough about cartels, let me say to you we do operate fairly. In circumstances where we can see that businesses are operating honestly and fairly but have made mistakes, we say to businesses come in and talk to us about it. If you come in and talk to us up front and tell us what has happened, if you can show that there is an overall compliance with the law then it is in our interest and the interest of the community to deal with those matters expeditiously and efficiently; not to be clogging up the courts with court actions simply for the sake of getting some publicity associated with a court action. But it is a constant war against businesses, the minority of businesses that simply do not understand that honest and fair dealings are in the interest of this economy and in the interest of 22 million Australian consumers. 

I said I¡¦d deal quickly with mergers, I don¡¦t want to say too much about mergers other than to simply make this comment. They raise a very high profile in the financial press, some of our merger deliberations. The whole process of merger law is simply to say this, it would be much easier to prevent anti-competitive activity if we can prevent anti-competitive structures developing in industries. So what does the law say? The law says don¡¦t let too many businesses that would normally compete with each other merge and get together in a way that they can start to concentrate industries and then facilitate anti-competitive behaviour. And there¡¦s the primary test that we do apply.

I won¡¦t comment upon banking competition at the moment. It¡¦s a hot political potato. It¡¦s the subject of much discussion amongst our politicians and I will leave them to make much more informed debate on this subject than I can ever provide in any way at all.

Talking about informed debate, I should move to the National Broadband Network. I will not comment upon the merits or otherwise of the network. I¡¦m sure our politicians in Canberra again can have a much more informed and objective debate on the merits of the National Broadband Network than I can ever provide you with. However, let me say this, that I think it is fair to say that both sides of Parliament, of Federal Parliament, are now focused on one particular element and that is at long last, at long last , after all these decades, to make telecommunications in this country a truly competitive environment. That is not to dismember Telstra but it is rather to recognise that some fundamental errors were made - as is recognised by the current Minister Stephen Conroy - errors were made back in 1992 with the creation of Telecom under the Keating Beazley structure and then subsequently in 1997 with the privatisation of Telstra, that put in place an essential monopoly: and when I use the word monopoly you will know that for any competition regulator that flashes a red light of danger.

It¡¦s a red light where you can find that prices start to go up, that services are inefficient and innovation is hampered and impeded. Now that is at long last to be broken. And a great credit to this government, and now I can say to the opposition that they¡¦ve come on board, that they¡¦re now saying let¡¦s stop that anti competitive structure, set up in 1992, locked in in 1997, let¡¦s sort it out for the future so that at long last we can have some truly competitive communications in this country into the future. You will get the benefits. You¡¦re already getting the benefits in the mobile area with the mobile telephones and the sorts of services that are provided there and the sorts of prices. You will now start to get those benefits as we move into broadband and into what I call fixed-line telecommunications.

Where is this going to be intensely interesting? Keep an eye on the media. The media is going through some extraordinary revolutions at this stage. It used to be called an evolution and I remember Rupert Murdoch saying three, four years ago, he predicted that in April 2040 the last newspaper would be printed. I note that just two months ago Rupert Murdoch, News Limited, published the first solely digital newspaper called The Daily in the United States. It seems to me that Murdoch¡¦s predictions may well be too far out, having regard to his own activity.

Think of the sorts of things that are now happening with television, with health, with education, with the ability to transmit over broadband networks, extraordinary audio visual images, information to interrelate to each other, to communicate with each other, video conferencing rather than travelling, IPTV such as Fetch TV, TBox and the like. All these extraordinary innovations. iPads, iPods, Blackberry¡¦s, HTCs. I mean it is something we wouldn¡¦t have contemplated. How often do you go on the tram or train and see young people all with their phones and iPhones, their HTCs and whatever it is, Samsungs, up to their ear or, more importantly, tapping away at messages, looking at the internet, gaining information, gaining education. They¡¦re developing their knowledge and transmitting their knowledge through blogs and tweets and twitters and all these sorts of things. We are going through an extraordinary evolution.

Leigh Masel was giving me before half a dozen books that I want to read in the finance area and I said, ¡¥Leigh can I download them onto my iPad?¡¦ Because that¡¦s where I read all my books these days. He wasn¡¦t sure actually whether I can do it or not. He¡¦s certainly given me the titles so we¡¦ll have a look at those!

So we have to constantly look at these things in an ever changing world to ensure that we do not allow markets to become unduly concentrated.     

Let me just finish by pointing out in the area of small business, an area that is constantly drawn to our attention, that our fundamental objective is to ensure that competition reigns supreme. That is not to say that small business can be driven out of business by big business but nor is it to say that small business should be protected from the disciplines and rigours of competition by competition regulators.

Certainly it¡¦s been well established in Australia and throughout the world that our role is not to protect sectors of the economy from competition. But [for] big business, small business, farmers or whatever it might be, it is rather to ensure that everyone is facing up to the rigours of competition. Because it¡¦s through those rigours that you get better prices, you get better quality of services, you get more innovation, and you get a development that is ultimately for the benefit of Australian consumers.

Well I¡¦ll conclude and leave just a couple of minutes for questions by saying this: the Competition and Consumer Act¡¦s and the ACCC¡¦s focus is on truth in commerce, fair trading and maintaining goodwill between buyers and sellers and ¡V above all ¡V benefit to the community. It¡¦s clear to me that Rotarians are interested in these principles as well.

I can¡¦t say that we at the ACCC are always ¡¥building better friendships¡¦, as applies with Rotary, with every business and individual with whom we deal. When we seek to further the public interest at the expense of, at times, vested interests, there will often be a bit of wailing and gnashing of teeth.

But, on the topic of building friendships, I truly appreciate the opportunity and indeed the privilege today to get reacquainted with Melbourne Rotary after all those 36 years, to talk to you about competition and consumer law, and to talk about and to refresh my memory as to my trade-practices debut at the Masonic Hall in Albert Rd back in 1975.

Cheers to Angus Mitchell, to Rotary on the anniversary of its birth, and to your club on nine decades of service.   

Thank you very much.