Competition and consumer law issues with COVID-19

Ray Steinwall | Adjunct Associate Professor | Law Faculty, University of New South Wales

Across the country, businesses and consumers are scrambling to find answers to the unprecedented disruptions caused by the COVID-19 pandemic.

During this period, the competition and consumer law remains an important vehicle to regulate business behaviour and for consumers looking for relief.

Businesses needs to remain vigilant to competition law breaches

Although governments have relaxed regulations in many areas to cater for the rapid onset of COVID-19, there has been no change to or suspension of the Competition and Consumer Act 2010 (Cth) (CCA). For businesses, this means that they must remain vigilant to conduct that may infringe the CCA, which carries substantial penalties.

Supplies of some staple products have recently been in short supply. Businesses should not use the scarcity to agree supply arrangements with competitors, often designed to increase the price of the commodity. Nor should they agree price directly with their competitors. Arrangements like these between competitors may infringe the cartel and other provisions of the CCA.

There have been reports that some retail businesses have used the scarcity substantially to increase the prices of the goods and services they supply in times like these of increased demand, often referred to as ‘price gouging’.

Businesses are free to set prices as they choose, provided it is not done in concert with a competitor. The CCA has no prohibition against price gouging as such, and the Australian Competition and Consumer Commission (ACCC) has no specific power in the CCA to regulate the practice. However, there are circumstances where price gouging may infringe the CCA. For instance, a business with substantial market power that substantially increases prices of a scarce commodity where there are few other suppliers may be found to have misused its market power.

In some circumstances price gouging may constitute unconscionable conduct under the common law and the Australian Consumer Law (ACL), which is generally less constrained by equitable principles and has remedies that are more expansive than the common law.

Care should be taken before entering into any form of collaboration with a competitor, like joint manufacturing, supply or distribution as it may constitute a cartel or a practice that substantially lessens competition.

Companies should seek advice including considering whether to apply to the ACCC for an authorisation for specified conduct based on the public benefit of the conduct.

For example:

  • The ACCC recently granted interim authorisation to the Medical Technology Association of Australia to allow its members and other groups, such as suppliers or distributors of medical equipment, to share information between each other, co-ordinate orders and supply requests, prioritise requests, and jointly tender to supply COVID-19 medical equipment.1
  • The ACCC also granted interim authorisation to Regional Express (Rex) allowing it to coordinate flight schedules with Virgin Australia and Qantas Airways on ten important regional flight routes during the COVID-19 pandemic. The interim authorisation will also enable Rex, QantasLink and Virgin to share revenue from providing services on the routes.2

The ACCC has streamlined its processes to enable it to respond quickly to requests for authorisation resulting from COVID-19.3

In New Zealand, the Commerce Commission recently issued a release indicating that it does not intend to take enforcement action under the Commerce Act 1986 (NZ) against businesses who are cooperating to ensure New Zealanders continue to be supplied with essential goods and services during COVID-19. However, the Commission also said it would not tolerate unscrupulous businesses using COVID-19 as an excuse for non-essential collusion or anti-competitive behaviour.4

Finally, businesses should ensure that they do not make statements or representations that mislead consumers about pricing, supply, the impacts of COVID-19 or consumer rights under the ACL.

Consumer rights

Most consumers are likely to be impacted by cancellations, including flights, tours and accommodation or through the inability of suppliers to deliver other goods and services due to the emergency measures and social distancing orders.

The ACL provides guarantees that apply to goods and services supplied to a consumer. These include guarantees that services will be rendered with due care and skill, will be reasonably fit for purpose and supplied within a reasonable time when there is no agreed supply date.

There are remedies available to consumers under the ACL if goods or services are supplied in breach of these warranties. Some consumer contracts also contain express warranties that mirror those in the ACL.

The ACCC released guidelines on its website relating specifically to consumer rights in relation to COVID-19.

In most cases where an event is cancelled, the ACCC expects that a consumer will receive a refund or other remedy, such as a credit note or voucher. However, if an event is cancelled due to government restrictions, this affects a consumer’s rights under the consumer guarantees. However, it is possible that a consumer will still be entitled to a refund under the terms and conditions of their contract, for example the conditions of their ticket. They may also be eligible for compensation under the terms of a policy of insurance they hold.

Where there is uncertainty, consumers should contact the business directly to request a refund or other remedy such as a credit note or voucher. In these exceptional circumstances, the ACCC encourages all businesses to treat consumers fairly.

The ACL is not the only avenue available to consumers. A consumer may have express rights under a contract. Alternatively, a business may have made representations to a consumer, a departure from which may constitute misleading and deceptive conduct for which remedies are available.

In practice, it will take businesses, especially small businesses, time to adjust and to deal with many queries from consumers. It is important to remain patient and be in contact with the business to understand what steps they are taking to address consumer concerns.

A final word about business contracts

With most parts of the economy progressively shut down, events cancelled and the supply of goods and services interrupted, many businesses have reached for their contracts, sometimes not having looked at them until now.

A separate article looks at managing contractual obligations during the pandemic. It’s important to examine carefully whether an agreement contains explicit termination rights, whether the pandemic constitutes a force majeure event which typically suspends contractual performance or whether the performance of the agreement is frustrated at common law and under legislation in some states.

However, it is important to remember that these are unprecedented times. In practice, most agreements will not have been drafted with these events in mind. Even if they contain clauses that apply to the current pandemic, they are unlikely to have the degree of precision necessary to unequivocally determine the specific rights and obligations of each party. Alternatively, it may not be clear for how long the suspension of obligations continue and what happens after that. That is the reality of many commercial contracts, often drafted to document a commercial deal, not with a pandemic in mind.

Except in some specific cases, a credible approach is for both parties to accept that there needs to be some give and take. Resorting to strict legal rights in all but limited cases will likely result in a dispute that will be costly and won’t resolve the immediate positon the parties find themselves in. It is also not worth jeopardising long-term relationships – once this is all over, businesses will need to work with each other again.

Businesses should obtain advice before they take action under a contract. In many cases, a mutual re-negotiation of the contract may be the best outcome for both parties.

  • Ray Steinwall is Adjunct Associate Professor, Law Faculty, University of New South Wales
  • Author of Competition & Consumer Act Annotated, LexisNexis Sydney 2020 and Practice and Procedure of the High Court and Federal Court of Australia: Competition and Consumer Act, LexisNexis Sydney 2020
  • General Editor of the Competition and Consumer Law Journal