Sweeney, Brendan --- "Trade Practice Act 1974 (Cth) and the New Tax System Changes" [2000] JlATax 8; (2000) 3(2) Journal of Australian Taxation 107
TRADE PRACTICES ACT 1974 (Cth) AND THE NEW TAX SYSTEM CHANGES
By Brendan Sweeney
Part VB of the Trade Practices Act 1974 (Cth) proscribes price exploitation in respect of the tax changes associated with the introduction of the goods and services tax. To give the proscription widespread operation a uniform Price Exploitation Code based on the Trade Practices Act provisions has been adopted by all states and territories. It is also proposed to introduce strong penalties for misleading and deceptive conduct in respect of the tax changes. The Australian Competition and Consumer Commission has exclusive administrative responsibility for the new laws. It has also been given extensive powers. The new laws present both constitutional and interpretative problems.
1. INTRODUCTION
Parliament is concerned that the raft of tax changes associated with the introduction of the goods and services tax ("GST") will be used as an occasion for extracting windfall profits. There is also a concern that the tax changes will provide an opportunity for misleading consumers about price changes.
To ensure that the tax changes are not used by suppliers to extract extra profits during the implementation of those changes, a new Pt VB has been added to the Trade Practices Act 1974 (Cth) ("TPA").[1] Part VB forms part of a national New Tax System Price Exploitation Code ("the Code"). The object of the Code is to have in place a uniform law against exploitation of the tax changes and a uniform system of administration.[2]
To ensure that suppliers do not exploit consumers by disseminating incorrect information about the new tax changes, the Commonwealth Parliament has introduced a Bill to amend the TPA, to prohibit false representations and misleading or deceptive conduct in respect of the effect, or likely effect, of the New Tax System changes.[3] Any breach will attract significant penalties. The new provision is in addition to the existing provisions of Pt V of the TPA. Pt V of the TPA already prohibits misleading or deceptive conduct and false representations, including price misrepresentations.[4]
This article will firstly examine the structure of the new price exploitation provisions. It will then examine the nature of price exploitation. Finally, the article will look at the laws relating to price promotions. The basic conclusion drawn by the article is that whilst there are constitutional and interpretative difficulties with the Code it is likely when taken in conjunction with the new misleading or deceptive conduct provisions to achieve its fundamental goal of inhibiting price opportunism.
2. APPLICATION AND ADMINISTRATION OF THE PRICE EXPLOITATION PROVISIONS
2.1 Overview of Pt VB of the TPA
The cornerstone of Pt VB of the TPA is s 75AU. A corporation contravenes s 75AU if it engages in price exploitation in relation to the New Tax System changes. The expression "New Tax System changes" is defined in s 75AT as follows:
(a) the amendment of the Sales Tax (Exemptions and Classifications) Act 1992 made by the A New Tax System (GST Transition) Act 1999;
(b) the ending of sales tax, as provided for in the A New Tax System (End of Sales Tax) Act 1999;
(c) the imposition of GST;
(d) any other changes (including changes to Commonwealth, State or Territory laws) prescribed by the regulations for the purposes of this definition.[5]
Price exploitation is defined in s 75AU(2). Briefly, a supply amounts to price exploitation if the supply price is unreasonably high having regard to the new tax changes and all other relevant matters.[6]
Where the Australian Competition and Consumer Commission ("ACCC") considers that a corporation has contravened s 75AU it may give notice to that effect to the corporation (s 75AW). A notice given under s 75AW is prima facie evidence in any proceedings for a breach of s 75AU(1) that the corporation's conduct satisfies the test for price exploitation contained in s 75AU(2). The ACCC may also give a maximum price notice to a corporation (s 75AX) if it considers that doing so will aid the prevention of price exploitation within the meaning of s 75AU.
Section 75AV requires the ACCC to formulate guidelines as to when supply prices may be regarded as being in contravention of section 75AU ("the guidelines"). The original version of the guidelines was published in July 1999. The guidelines were varied in March 2000.[7] In giving notice pursuant to either s 75AW or s 75AX, the ACCC must have regard to these guidelines.
Finally the ACCC may monitor price changes during the New System transition period (9 July 1999 to 30 June 2002) to assess the general effect of the New Tax System changes on prices charged for supplies and also to assist in determining whether s 75AU has been, is being, or may in the future be, contravened.[8] To assist in its monitoring function the ACCC has the power to require the provision of information relating to price setting.[9]
Part VB operates during the New Tax System transition period.
2.2 New Tax System Price Exploitation Code
To achieve the widest possible application the provisions of Pt VB form part of the Code.[10] Application legislation adopting the Code has been passed by all States and Territories.[11] The Code consists of:
▪ the Schedule version of Pt VB of the TPA;[12]
▪ the remaining provisions of the TPA (other than ss 2A, 5, 6 and 172);
▪ any relevant regulations made under the TPA; and
▪ the ACCC's guidelines.
The object of the Code is not only to achieve uniformity of rule but also of administration. To this end, the various application laws purport to confer exclusive administrative powers upon the ACCC in conformity with its powers under the TPA.[13] This approach to creating national uniform legislation administered by a Commonwealth body is in doubt following the decision of the High Court in The Queen v Hughes ("Hughes").[14]
Any attempt to confer exclusive jurisdiction on the Federal Court has foundered as a result of the High Court decision in Re Wakim; Ex parte McNally.[15]
2.3 Application of the New Tax System Price Exploitation provisions under Pt VB of the TPA
For constitutional reasons the primary application of s 75AU of the TPA is to corporations. In this respect, s 75AU adopts the procedure used predominantly, though not exclusively, throughout the TPA.
A corporation means a foreign corporation, a trading or financial corporation formed within the limits of Australia, a body corporate incorporated in a Territory or a holding company of any of the above.[16] The application of the TPA has been held to be unconstitutional in so far as it purports to apply to holding companies which cannot otherwise be characterised as trading, financial or foreign corporations.[17]
Although there is no single test of characterisation,[18] generally a body corporate will be regarded as a trading corporation if a significant portion of its activities can be categorised as trading activities.[19] This is so even if the dominant or primary undertaking of the corporation could not be characterised as a trading one.[20] Where this test is inadequate the courts may have regard to the purposes or objects of the corporation.[21] By analogy, the dominant test for characterising a company as a financial corporation is whether a significant portion of its activities can be categorised as financial activities.[22]
It seems likely that s 75AU is a valid exercise of constitutional power. A law that prohibits a constitutional corporation from charging an unreasonably high price having regard to a wide variety of circumstances is properly characterised as a law within the meaning of s 51(xx) of the Constitution. This is the case even if one accepts the narrower test applied by Gibbs CJ in the Tasmanian Dams case.[23] A law directed at regulating the price of supply of a good or service supplied by a trading corporation is one directed at the trading activities of the corporation.[24] By analogy the same may be said of a law regulating the supply price of a service supplied by a financial corporation.
Section 6(2) of the TPA uses the trade and commerce power contained in s 51(i) of the Constitution to provide both an alternative basis for, and an extension of, the operation of Pt VB.[25] Thus, for example, s 75AU applies to any price exploitation (as defined by s 75AU) where the price exploitation occurs in the course of or in relation to:
(i) trade or commerce between Australia and places outside Australia;
(ii) trade or commerce among the States;
(iii) trade or commerce within a Territory, between a State and a Territory or between two Territories; or
(iv) the supply of goods or services to the Commonwealth or an authority or instrumentality of the Commonwealth.
The scope of the federal power to make laws with respect to constitutional trade and commerce covers most aspects of such trade and commerce, including activities relating to fixing the supply price of a good or a service.[26] Consequently, a law which regulated the supply price of constitutional trade and commerce would be a valid exercise of power.
Section 6(2) concentrates on the nature of the supply, not the supplier. Therefore, it is not sufficient that the person who engaged in price exploitation within the meaning of s 75AU had some involvement in interstate or overseas trade. The relevant supply itself must have that character or be inseparably connected with interstate or overseas trade.[27]
2.4 Application of the Price Exploitation Code
The various State and Territory application laws endeavour to ensure that the price exploitation provisions contained in the Price Exploitation Code will apply to all regulated supplies. Those application laws apply the price exploitation provisions to:
(a) persons carrying on business within the [relevant State or Territorial] jurisdiction; or
(b) bodies corporate incorporated or registered under the law of the [relevant State or Territorial] jurisdiction; or
(c) persons ordinarily resident in the [relevant State or Territorial] jurisdiction; or
(d) persons otherwise connected with the [relevant State or Territorial] jurisdiction.[28]
2.5 Extraterritorial Application of Pt VB and of the Price Exploitation Codes
Section 75AU of the TPA and the Code provisions are concerned with price exploitation in relation to the New Tax System changes.[29] Price exploitation involves a regulated supply at an unreasonably high price. A regulated supply is any supply where the supplier is registered or is (or, after the GST implementation date, will be) required to be registered under the GST Act, and the supply is (or, after the GST implementation date, will be) a taxable supply for the purposes of the GST Act or would be a taxable supply for the purposes of the GST Act had it not been GST-free or input taxed for the purposes of that Act. A taxable supply for the purposes of the GST Act requires inter alia that the supply be connected with Australia.[30] The definition of "connected with Australia" contemplates a supply that may have a substantial extraterritorial component.[31] Thus, pursuant to s 9-25(1) a supply of goods is connected with Australia if the supply involves the goods being delivered to, or made available, in Australia to the recipient of the supply. Section 9-25(3) provides that a supply of goods is connected with Australia if the supply involves the goods being brought to Australia provided the supplier either (a) imports the goods into Australia, or (b) installs or assembles the goods in Australia. A supply of anything other than goods or real property, for eg services, is connected with Australia if, inter alia, the supplier makes the supply through an enterprise that the supplier carries on in Australia. In each case the contract (ie the vehicle for extracting the exploitative price) may be formed wholly outside Australia. In many cases the physical act of delivery in Australia need not involve the taxpayer.
Part VB of the TPA is given extraterritorial operation by virtue of s 5 of the Act. Section 5 extends the operation of s 75AU to engaging in conduct outside Australia:
▪ by bodies corporate incorporated or carrying on business within Australia, or
▪ by Australian citizens or persons ordinarily resident within Australia.
The State and Territorial application laws also give extraterritorial application to the Code provisions. For example, s 9 of the New Tax System Price Exploitation Code (Vic) Act 1999 provides that "the New Tax System Price Exploitation Code of [Victoria] extends to conduct, and other acts, matters and things, occurring or existing outside or partly outside this jurisdiction (whether within or outside Australia)".
2.6 Application to the Crown
Part VB of the TPA applies to the Crown in right of the Commonwealth[32] and to the Crown in right of the States and the Territories[33] in so far as the Crown carries on a business, either directly or by an authority of the Crown, except that the Crown cannot be made liable for a pecuniary penalty. The application laws of each State and Territory also apply the New Tax System Price Exploitation Code to the Crown in right of that State or Territory in so far as the Crown carries on a business, either directly or by an authority of the State or Territory.[34] Additionally, the Crown in right of each State or Territory is bound by the Price Exploitation Code of each other State or Territory in so far as the Crown in right of that State or Territory carries on a business, either directly or by an authority of that State or Territory.[35]
Certain activities conducted by the States and Territories are not to be regarded as carrying on a business. These include:[36]
(a) imposing or collecting taxes, levies or fees for licences;
(b) granting, refusing to grant, revoking, suspending or varying licences (whether or not they are subject to conditions);
(c) a transaction involving –
(i) only persons who are all acting for the Crown in the same right (and none of whom is an authority of a State); or
(ii) only persons who are all acting for the same authority of a State; or
(iii) only the Crown in right of a State and one or more non-commercial authorities of that State; or
(iv) only non-commercial authorities of the same State;
(a) the acquisition of primary products by a government body under legislation, unless the acquisition occurs because–
(i) the body chooses to acquire the products; or
(ii) the body has not exercised a discretion that it has under the legislation that would allow it not to acquire the products.
2.7 Accessory Liability
Part VI of the TPA deals with enforcement and remedies. Section 76(1) provides that where a court is satisfied that a person:
(a) has contravened any of the following provisions;
(i) ...
(ii) section 75AU;
(b) has attempted to contravene such a provision;
(c) has aided, abetted, counselled or procured a person to contravene such a provision;
(d) has induced, or attempted to induce, a person, whether by threats or promises or otherwise, to contravene such a provision;
(e) has been in any way, directly or indirectly, knowingly concerned in, or party to, the contravention by a person of such a provision; or
(f) has conspired with others to contravene such a provision;
the court may order that person to pay a pecuniary penalty not exceeding, in the case of a body corporate, $10 million and, in the case of a person other than a body corporate, $500,000.
For a person to incur liability for aiding and abetting a contravention of s 75AU it must be established that that person was aware of the facts (the essential elements) that gave rise to the contravention.[37] In the case of s 75AU this would require knowledge that the price of supply charged by the supplier in respect of a regulated supply was higher than that which could reasonably be justified on the basis of the tax changes, the supplier's costs, the supplier's supply and demand conditions and any other relevant factors. Wilful blindness (or reckless indifference to the truth) is probably to be treated as knowledge.[38] In other respects, constructive knowledge is not to apply. A person is not to be taken to be aware of facts just because a reasonable person would have discovered those facts.[39] It is not necessary to establish any intent to engage in or be involved in price exploitation in the sense that the person was aware that the conduct amounted to a breach of the TPA.[40]
Section 76, in so far as it applies to s 75AU, is almost certainly a valid exercise of constitutional power. The aiding and abetting provisions contained in s 79 of the TPA, which are similar in content to s 76 but which carry criminal liability, were upheld in R v Australian Industrial Court; Ex parte CLM Holdings Pty Ltd.[41]
The accessory provisions are relevant to directors, managers and professional advisers, amongst others. In the past the ACCC has shown a willingness to use s 76 against the individuals within a corporation responsible for breaches of
Pt IV of the Act (the competition provisions).[42] However, there has been no example of an action having succeeded against an external adviser in respect of a breach of Pt IV of the Act. There are, however, examples of proceedings against advertising agencies under the accessory provisions of s 79 of the Act,[43] and there are many examples of s 75B(1) having been used to sustain injunctive relief against third parties under s 80 or damages under s 82 for breaches of the consumer provisions of Pt V of the Act.
The extraterritorial application of s 75AU of the TPA may not apply to the accessory provisions.[44] A statutory provision will not have extraterritorial application unless an intention to give such an extended application is manifest in the Act itself.[45] Parliament's intention to give extraterritorial operation to the provisions of Pt VB of the TPA is contained in s 5(1) of the Act. Section 5(1) makes no reference to Pt VI of the Act. Thus, a person may be liable for aiding and abetting a breach of s 75AU but only if the acts which constitute aiding and abetting largely occur within Australia.[46] The extraterritorial provisions of the State and Territorial application laws, on the other hand, are not so restricted. The acts constituting accessory conduct may occur outside the State or Territorial jurisdiction (including outside Australia) provided that the person involved in accessory conduct is a person:
▪ carrying on business in the relevant State or Territory;
▪ is a body corporate incorporated or registered in the relevant State or Territory;
▪ ordinarily resident in the relevant State or Territory; or
▪ otherwise connected with relevant State or Territory.[47]
The effect of the extraterritorial provisions seems to be that a person, not being the supplier but rather an adviser to the supplier, operating wholly from an overseas location will not be caught under either the Commonwealth or State provisions.
2.8 Administration of the Price Exploitation Rules
The New Tax System Price Exploitation Code seeks to implement an administrative structure similar to that operating in respect of the Corporations Law.
Responsibility for the administration of Pt VB of the TPA lies with the ACCC. The TPA provides that the States may confer powers and functions on authorities and officers of the Commonwealth for the purposes of the New Tax System Price Exploitation Code.[48] To ensure, so far as possible, that the New Tax System Price Exploitation Codes are administered on a uniform basis, in the same way as if the Codes constituted a single law of the Commonwealth,[49] the various application laws have conferred exclusive administration of the Codes on the ACCC and such other authorities and officers of the Commonwealth as are referred to in the instruments that make up the Codes.[50] Each application law also gives to the ACCC the power to exercise in the State or Territory the functions and powers conferred on it by the other States or Territories.[51]
To facilitate uniform administration the ACCC "must act as nearly as practicable" in respect of carrying out its functions and powers under the State Codes as it would in performing or exercising its functions and powers under the TPA.[52] To achieve this, the Codes provide that an offence under the Codes is to be treated as if it were an offence against a law of the Commonwealth. Commonwealth laws are to apply in relation to an offence under the Codes as if the Codes were Commonwealth law and not State law. Commonwealth administrative laws (as defined in the Codes) are to apply as State laws to any matter arising under the Codes as if the Codes were laws of the Commonwealth and not of the States.
This structure may present constitutional problems. Amongst other difficulties there is a question as to whether a Commonwealth authority has competence to accept power from a State legislature in respect of a matter about which there is no specific federal constitutional head of power. This could affect the operation of the Price Exploitation Code in so far as it purports to confer power on the ACCC to be involved in the investigation and prosecution for offences under the Code of persons other than constitutional corporations or those who would be caught by virtue of the extended operation of s 6(2) of the TPA. For example, the Code purports to entitle the ACCC to investigate and prosecute a sole trader operating solely within the limits of the State of Victoria. Is this a valid constitutional exercise?[53] The recent High Court decision in The Queen v Hughes[54] has left the matter unclear.
It is within the legislative competence of a State to confer exclusive administrative and prosecutorial functions and powers on a Commonwealth authority.[55] It is within the competence of the Commonwealth Parliament to permit Commonwealth officers to accept appointments and perform functions in addition to their Commonwealth responsibilities.[56] However, at least where the Commonwealth legislation goes beyond being a mere permissive provision and imposes a duty or obligation on the authority as a matter of Commonwealth law, the imposition of that duty or obligation must be supported by a head of constitutional power.[57] In Hughes, the High Court held that the powers and functions conferred on the Commonwealth Director of Public Prosecutions by the Corporations Act 1989 (Cth) imposed a duty on that officer. This conclusion seems to rest in part on the proposition that as the States have abdicated authority in favour of the Commonwealth entity, the Commonwealth entity must come under a duty to exercise the powers and functions invested in it otherwise there would "be an abdication of State authority with no certainty of its effective replacement."[58] This reasoning could be applied equally to the Price Exploitation Code. Thus, on the basis of Hughes, it is likely that the functions and powers conferred by the Code on the ACCC are only valid to the extent that they are referable to an appropriate head of constitutional power.
The issue, then, is what constitutional powers have been employed to support the conferral of functions and powers on the ACCC under the Code. In Hughes, the prosecution of Hughes by the DPP was upheld as a valid exercise of Commonwealth power. The prescribed interest provisions of the Corporations Law under which Hughes was charged could be read down pursuant to s 15A of the Acts Interpretation Act 1901 (Cth) so as to be a valid exercise of the Commonwealth power to make laws with respect to trade and commerce with other countries (s 51(i)) or with respect to "matters territorially outside Australia, but touching and concerning Australia" (the external affairs power, s 51(xxix)).[59] Because of this the majority found it unnecessary to determine the broader question whether the conferral of power on the DPP under the Corporations Act 1989 (Cth) could be justified as a valid exercise of the Commonwealth's power to legislate in aid of an exercise of Commonwealth executive power (s 51(xxxix)).[60] If the conferral of powers and functions on Commonwealth institutions in aid of uniform legislation such as the Corporations Law or the Price Exploitation Code cannot be validated on the basis of s 51(xxxix), then each act in exercise of those powers and functions by the Commonwealth authority must be traced to a particular head of power. In respect of the Code this may leave large gaps through which entities such as sole traders, partnerships and non-constitutional corporations may escape supervision.
In Hughes, the majority expressly stated that the decision should not be seen as an attack on the proposition that co-operation on the part of the Commonwealth and the States is a necessary and permissible undertaking in a federal system.[61] However, the scope of the executive power, and of s 51(xxxix) in aid of it, remains, in the opinion of the majority, open to some debate.[62] It may be that the powers and functions conferred on the ACCC under the Code fall within executive power and that s 150Q of the TPA (enabling the ACCC to accept powers and functions from the States) is a valid exercise of federal legislative power in aid of that executive power (s 51(xxxix)). The matter, however, remains unfortunately clouded.
2.9 Consequences of Engaging in Price Exploitation
2.9.1 Civil Penalties
The penalties for breaching s 75AU of the TPA or the equivalent Code provision are significant.[63] A body corporate may be fined up to $10 million. A person other than a body corporate may be fined up to $500,000. This indicates the seriousness with which the various Australian parliaments view GST price exploitation. GST price exploitation has been put on a par with breaching the restrictive trade practices provisions of the TPA,[64] rather than the much less onerous fines that may be imposed for a breach of the consumer protection provisions of Pt V of the Act.[65]
The penalty imposed for breaching s 75AU is a civil penalty and no criminal proceedings lie for its breach.[66] This means that the standard of proof required is not the criminal standard (of proof beyond reasonable doubt) but rather the civil standard (of proof on the balance of the probabilities). However, in determining liability the court will take into account the gravity of the matters alleged and the seriousness of the consequences.[67] Given the significant penalties that may be imposed under s 76 it is suggested that a high level of proof will be required. In this context the effect of a notice under s 75AW becomes extremely important as a notice issued under s 75AW is prima facie evidence of price exploitation.[68]
In determining the amount of any penalty s 76(1) directs the court to have regard to all relevant matters including the nature and extent of the act or omission and of any loss or damage suffered as a result of the act or omission, the circumstances in which the act or omission took place and whether the person has previously been found by the Court in proceedings under Pt VI to have engaged in any similar conduct.[69] In TPC v CSR Ltd[70] French J listed the factors that would be taken into account as follows:
▪ The nature and extent of the contravening conduct.
▪ The amount of loss or damage caused.
▪ The circumstances in which the conduct took place.
▪ The size of the contravening company.
▪ The degree of power it has, as evidenced by its market share and the ease of entry into the market.
▪ The deliberateness of the contravention and the period over which it extended.
▪ Whether the contravention arose out of the conduct of senior management or at a lower level.
▪ Whether the company has a corporate culture conducive to compliance with the Act, as evidenced by educational programs and disciplinary or other corrective measures in response to an acknowledged contravention.
▪ Whether the company has shown a disposition to co-operate with the authorities responsible for the enforcement of the Act in relation to the contravention.[71]
Most of these factors are probably relevant to a breach of s 75AU. The rationale of Pt IV of the TPA is to treat prices, in part at least, as a function of market power. The more power a firm has in a market the more it is able to extract supra competitive prices and profits. On this basis the firm most likely to be able to exploit the New Tax System changes is the firm with substantial market power.[72] Therefore, considerations of market power ought to play a role in quantifying any penalty. Where there is no single firm with market power but price exploitation results from some collusion over prices that factor should be taken into account in fixing the penalty.[73]
A factor likely to play a part in the amount of any penalty, and indeed in the ACCC's decision to initiate proceedings, is the degree to which steps were taken to avoid price exploitation.[74] One such step is to enter into an appropriate compliance program. This has a threefold benefit. First, it ought to minimise the chances of price exploitation. Secondly, if price exploitation does occur it can influence the ACCC's decision whether to bring proceedings for a breach of s 75AU.[75] Finally if proceedings are brought it is likely to influence the amount of the penalty.
In ACCC v SIP Australia Ply Ltd,[76] Goldberg J accepted certain additional factors as appropriate for the court to consider in determining the penalty for a breach of the competition provisions of Pt IV. These include the nature of the subject goods and their importance to the community, whether the accused firm improperly obtained a financial advantage, whether the firm came forward and revealed its own contraventions and whether the firm had offered ongoing assistance to the ACCC in its investigation. The very nature of s 75AU means that any firm found to be in breach has improperly obtained a financial advantage. The other factors mentioned by Goldberg J, however, are relevant to any assessment of a penalty. The importance of the final two factors seems self evident. The first factor (the nature of the subject goods and their importance to the community) is also relevant. The purpose of the price exploitation provisions is to protect consumers in particular and the economy in general against the adverse consequences of opportunistic pricing behaviour. In imposing a penalty it seems reasonable that the court should have regard to the number and type of consumers adversely affected (exploitation of life's necessities ought to be treated as more blameworthy than exploitation of luxury goods or services), and to the effects on the economy as a whole.
It is now reasonably common for the ACCC and the firm against whom proceedings have been brought to reach agreement on the penalty to be paid. This will be accepted by the court provided it is in the range that the court would itself have imposed.[77]
2.9.2 Injunctions
A court has power to order an injunction under s 80 of the TPA. Injunctive relief may also be granted against any person aiding and abetting a breach of the price exploitation provisions, or any person inducing or attempting to induce a breach of the provisions, or any person knowingly involved, either directly or indirectly, in a breach of the provisions, or any person conspiring in a breach. Only the ACCC may seek injunctive relief.[78]
Pursuant to s 80 a court may make orders requiring the respondent to implement a compliance program. Any compliance program, however, must be directed at the breach in respect of which the injunctive relief is granted.[79] Thus, a compliance program that was directed not only at price exploitation but at the provisions of the TPA generally would be too broad.
Section 80B was introduced specifically for price exploitation. Without limiting the generality of s 80, where on the application of the ACCC, the Court is satisfied that a person has engaged in conduct constituting a contravention of section 75AU, the Court may make either or both of the following orders:
(a) an order requiring that person, or a person involved in the contravention, not to make a regulated supply of a kind specified in the order for a price in excess of the price specified in the order while the order remains in force;
(b) an order requiring that person, or a person involved in the contravention, to refund money to a person specified in the order.
Thus, whilst there is no provision for an action for damages for a breach of s 75AU, a court may on the application of the ACCC make an order for a refund of monies. This would include a refund to purchasers who have paid the exploitation price.
2.9.3 Enforceable Undertakings
The ACCC has power to accept an enforceable undertaking from a person (s 87B). The undertaking may not be withdrawn except with the consent of the ACCC. If the ACCC considers that a term of the undertaking has been breached it may apply to a court for any of the following orders:
(a) an order directing the person to comply with that term of the undertaking;
(b) an order directing the person to pay to the Commonwealth an amount up to the amount of any financial benefit that the person has obtained directly or indirectly and that is reasonably attributable to the breach;
(c) any order that the Court considers appropriate directing the person to compensate any other person who has suffered loss or damage as a result of the breach;
(d) any other order that the Court considers appropriate
The ACCC usually requires an admission from the person of the facts that constitute the breach.[80]
2.9.4 No damages or Declarations
There is no provision for an award of damages for losses caused by a breach of s 75AU or of the Code equivalents. Nor may a declaration be sought pursuant to s 163A.
2.10 Public Compliance Commitment
The ACCC has invited Australia's largest companies (turnovers in excess of $100 million) to make a public commitment of compliance with the guidelines.[81] As part of the scheme the ACCC has asked for companies to supply it with relevant information before and after making tax related changes. A Public Compliance Commitment does not protect companies against an action under the price exploitation provisions. A public register has been set up for the purposes of recording these Public Compliance Commitments. At the time of making its first report to the Minister the ACCC commented there were two such commitments on the register, Qantas Airways and Ansett Holdings.[82]
3. WHAT IS PRICE EXPLOITATION IN RELATION TO THE NEW TAX SYSTEM CHANGES?
3.1 The Test for Price Exploitation
The test for price exploitation is contained in s 75AU(2).[83] The Code test is, of course, the same save that it applies to persons rather than corporations.[84]
For the purposes of this section, a corporation engages in price exploitation in relation to the New Tax System changes if:
(a) it makes a regulated supply; and
(b) the price for the supply is unreasonably high, having regard alone to the New Tax System changes (whether the supply took place before or after those changes); and
(c) the price for the supply is unreasonably high even if the following other matters are also taken into account:
(i) the supplier's costs;
(ii) supply and demand conditions;
(iii) any other relevant matter.
There are three steps in establishing price exploitation.
3.2 Is the supply a regulated supply?
"Regulated supply" is defined in s 75AT to mean:
(a) a supply that:
(i) occurs during the New Tax System transition period and before the GST implementation date; and
(ii) is by a person who would be required to be registered under the GST Act had the supply occurred on or after 1 July 2000; and
(iii) had the supply occurred on or after 1 July 2000, it would have been a taxable supply for the purposes of the GST Act or would have been a taxable supply had it not been GST-free or input taxed for the purposes of that Act; or
(b) a supply that:
(i) occurs during the New Tax System transition period and on or after the GST implementation date; and
(ii) is by a person who is registered or required to be registered under the GST Act; and
(iii) is a taxable supply for the purposes of the GST Act, or would have been a taxable supply for the purposes of the GST Act had it not been GST-free or
input taxed for the purposes of that Act.
Section 75AT of the TPA defines "supply" to mean:
(a) a supply of goods, including by way of sale, exchange, lease, hire or hire-purchase; or
(b) any other transaction or dealing that is a supply for the purposes of the GST Act.
The effect is that s 75AU will apply to most supplies of goods or services including supplies of goods or services that are GST-free. This means that any price change in respect of, for example, a GST-free food product could be price exploitation within the meaning of s 75AU. Increasing the price on a product to allow for the GST when no GST is payable in respect of that product could be price exploitation.
3.3 Is the price of supply unreasonably high having regard alone to the New Tax System changes?
This step requires an analysis of the reasonableness of the price having regard alone to the changes in the sales tax legislation (including the removal of sales tax), the imposition of GST and any other changes (including changes to Commonwealth, State or Territory laws) prescribed by regulation.[85] It is interesting that Parliament saw fit to adopt a three step approach to determining the reasonableness of a price. Steps two and three could have been rolled into a composite test. At first glance. the notion of judging the reasonableness of a price by reference to only one element of a variety of matters which collectively determined that price seems a somewhat artificial construct. However, the device serves a purpose. Directing attention initially and exclusively to the relationship between prices and the tax changes indicates that the focus of attention of s 75AU ought to be on price changes rather than price levels.[86] For the purposes of the second stage of the price exploitation test it is irrelevant that a price was unreasonably high before the New Tax System changes came into effect.[87]
However, it is perhaps unfortunate that the second step (the relationship between tax changes and price changes) is not expressed in more definite, or at least clearer, terms. The second step operates as a type of gatekeeper provision; only if the second step is established is there any need to proceed to the third (potentially much more complex) step. As the thrust of government rhetoric is that, all other things being equal, the price of a product should not rise by more, nor fall by less, than the amount of the tax changes affecting that product, the second step could have been expressed to give unequivocal effect to that rhetoric.[88] As previously mentioned this gatekeeper function is useful in that it signals that Pt VB is concerned with tax-related price changes and not price levels generally. However, by expressing the gatekeeper function in terms of the reasonableness of the price that function is made unnecessarily vague.
The tax changes are quantifiable. Despite the use of the epithet "unreasonably" it is suggested that the test under s 75AU(2)(b) is purely quantitative. Whilst the calculation may be difficult, essentially a product's supply price will go up or down by a quantifiable amount as a result of the tax changes. If the cost of supply of a service increases by a dollar as a result of the tax changes (leaving aside any other changes), how high can the supply price go before it becomes unreasonably high? If regard is to be had solely to the tax changes then the reasonableness or unreasonableness of the sale price must be judged mathematically. To increase the price by only the dollar amount of the increase in the tax must be reasonable. To increase the price by more than the dollar amount of the increase in the tax must be unreasonable. Any other conclusion would require the court to make a purely subjective value judgement. Without considering other factors it is not possible, except in a purely arbitrary sense, for a court to say that the price of a service, the tax-related cost of which has increased by one dollar, is unreasonably high if it is $1.10 (or $1.50 or $2.00) higher than its price immediately before the imposition of the tax.
On the other hand, s 75AU(2)(b) may be expressed in terms of reasonableness in recognition of the likely difficulty in many instances of ascertaining with precision the amount by which the cost of supply has gone up or down as a result of the tax changes alone. The test, thus, recognises that a degree of approximation may often be required. If, for example, on the available data, a reasonable approximation of the increase in the costs of supply attributable to the tax changes alone is $1, then a price increase of $1 would not be unreasonable within the meaning of s 75AU(2)(b). This interpretation does not conflict with the notion that s 75AU(2)(b) is not concerned with any subjective evaluation of whether a price change is reasonable or not. It is suggested that there is still no scope for a court to rule that a price increase of $1.20 is reasonable within the meaning of s 75AU(2)(b) if the available evidence suggests that a reasonable approximation of the change in costs attributable to the tax changes is $1.
3.3.1 The ACCC guidelines and the second step in the price exploitation test
In determining whether a price is unreasonably high the courts may have regard to the guidelines prepared by the ACCC.[89] These guidelines, most of which purport to deal with the second step in the test for price exploitation, were prepared pursuant to the statutory obligation imposed on the ACCC by s 75AV(1). Section 75AV(1) requires the ACCC to formulate guidelines for determining when a regulated supply may be regarded as being in contravention of s 75AU. There is no mechanism for Parliament to vet the guidelines prior to their implementation. Section 75AV(5) provides that "as soon as practicable after making or varying the guidelines, the [ACCC] must cause a copy of the guidelines, or of the variation, to be published in the "Gazette". However, failure to do so does not effect the validity of the guidelines or of [any] variation." The task of drawing up guidelines was given to the ACCC because of its unique position as the primary authority responsible for the TPA and for prices oversight.[90]
The guidelines must be used by the ACCC in deciding whether to issue a notice pursuant to s 75AW (notice of possible contravention) or s 75AX (maximum price notice). Where the ACCC issues a notice under s 75AW it is prima facie evidence in any court proceedings for a breach of s 75AU that the supply price was unreasonably high within the meaning of s 75AU(2). The guidelines have the same effect under the Code. The guidelines, therefore, assume considerable significance.
3.3.2 What juridical function do the guidelines have?
In determining whether a price was unreasonably high the courts are not constrained by the ACCC guidelines. This much seems clear from the TPA itself and from the Explanatory Memorandum accompanying the A New Tax System (Trade Practices Amendment) Bill 1998. The Act provides that while the ACCC in issuing the statutory notices must have regard to the guidelines, courts may have regard to the guidelines.[91] According to the Explanatory Memorandum:
The guidelines will not be a disallowable instrument under the Acts Interpretation Act 1901. They will not, in themselves, affect the legal rights of any person, as the Court will ultimately determine whether the prohibition against price exploitation has been contravened. In arriving at that decision the Court may, but is not obliged to, have regard to the guidelines.[92]
3.3.3 Applying the ACCC guidelines to the second step of the price exploitation test
The guidelines make it clear that, in the opinion of the ACCC, prices are unreasonably high having regard alone to the New Tax System changes if they rise by any more, or fall by any less as the case may be, than the dollar value of the tax changes. Any price adjustments made as a result of the tax changes must reflect the change in the supplier's actual costs as they occur. There should be no delay or anticipation if the delay or anticipation adversely affects the price. A price which has not changed may be unreasonably high if the supplier's input costs have reduced as a result of the tax changes. By the same token a price rise may be unreasonably high if it anticipates the tax changes.
The ACCC's guidelines summarise the second stage of the test for exploitation in six propositions, namely:
▪ Businesses should reduce prices to pass on the full effect of any net tax reductions;
▪ Any increase in price based on the GST should include a full offset for indirect tax reductions and other New Tax System related benefits (such as the diesel fuel rebates and grants);
▪ No markup should be applied to the GST component of price;
▪ Prices should reflect only actual, not anticipated, tax increases;
▪ Businesses should not take the opportunity to increase the difference between cost and prices in dollar terms (the dollar margin rule); and
▪ In any event, no price should increase by more than 10 per cent as a result of the New Tax System changes (the price rule).[93]
These six propositions are in turn summarised by the ACCC as follows:
A simplified version of these guidelines is: if the New Tax System changes cause taxes and costs to fall by $1, then prices should fall by $1. If, after taking into account tax and cost reductions resulting from the New Tax System, the costs of a business rise by $1, then prices may rise by no more than that amount. In any event, no price may rise by more than 10 per cent because of the New Tax System changes.[94]
3.3.4 The price rule and the issue of compliance costs
Whilst the matter is not entirely clear the ACCC appears to include the costs of compliance with the New Tax System changes in this second stage of the test.[95] Whilst it is clearly reasonable that the costs of compliance be taken into account at some stage in determining the reasonableness of a price change, there must be some doubt that it is part of the second stage of the test. The second stage directs attention to an analysis of the reasonableness of the supply price having regard alone to the New Tax System changes. Compliance costs are caused by the New Tax System changes but are not part of those changes. It is suggested that compliance costs fall into the third stage of the test. Only by excluding compliance costs from the second stage of the price exploitation test can the ACCC justifiably impose a rule that no price shall increase by more than 10 per cent as a result of the New Tax System changes. Most services will be taxed for the first time. Therefore, absent any input cost reductions, the price of a service will increase by 10 per cent plus compliance costs. Whilst there may be some input savings it is not possible to state categorically that these will exceed the compliance costs.
3.3.5 The proper basis for comparison
If the second stage of the price exploitation test
is about price changes then it requires a comparison to be made.[96] A price can only be said to be unreasonably high having regard alone to the New Tax System changes if the price is compared with some base. That base must be a price charged sometime before the New Tax System changes take effect. The ACCC guidelines suggest that the base period will be the period immediately preceding the tax changes.[97] The guidelines however recognise that a longer and earlier time frame may have to be considered for a number of reasons. According to the guidelines;
... factors that may affect adjustment of the base period and the subsequent period used for comparison could include:
• significant margin movements before and after tax changes as a result of demand changes in anticipation of the price effects of the tax changes; or
• significant discounting immediately before tax changes came into effect.[98]
These factors indicate the essential artificiality of the three step approach to determining price exploitation. If the guidelines are suggesting, as they seem to be doing, that for the purposes of the second stage of the price exploitation test the base period is alterable depending on movements in supply and demand, it is suggested that the guidelines are wrong. The purpose of the second stage of the test is purely to compare price changes with the changes in certain taxes. Price changes that may have to be explained in terms of a movement in demand (whatever the source of that movement may have been) or a shift in supply are properly the subject of the third stage of the test.
3.3.6 The problem of a supply of a basket of products
Section 75AU is concerned with the price of a regulated supply. Broadly speaking, a regulated supply is a taxable supply for the purposes of the GST Act or would have been a taxable supply for the purposes of the GST Act had it not been GST-free or input taxed for the purposes of that Act. In the case of goods the tax is imposed on the supply of an individual good not on a basket of goods. This could be important in the case of a supply of items by a supermarket. Some of the items will be taxable and some not. A supermarket which attempts to spread the burden of the tax across the full basket of goods is probably supplying the non-taxable goods at an unreasonably high price having regard alone to the New Tax System changes, even though across the full basket of goods the supplier is not making any greater profits. The ACCC adopts this interpretation in its guidelines and it seems correct.[99] Section 75AU(2)(b) is concerned with the price of each supply not with the pricing practices of the supplier taken generally.
The ACCC guidelines do accept that sometimes averaging may be appropriate in respect of closely related goods or services.[100] However, the circumstances in which this will be justified are heavily circumscribed. In any event, the dollar margin rule must be adhered to in respect of the goods or services as a whole, and the price rule must be applied to each individual item.
3.3.7 No markup should be applied to the GST component of price
There are two aspects to this guideline. Firstly, the supplier's percentage mark-up should be calculated on the cost price of the product before GST is applied. If the cost of a product before GST is $100 and the supplier's mark-up is 10% the supplier's profit should be $10 (i.e. 110% of $100) and the price of the item $121 (i.e. cost of $100 plus profit of $10 plus GST of $11). The supplier should not apply the 10% mark-up to the GST component of $11. This of course makes sense as any other method of calculation would leave a shortfall in the GST charged. Secondly, any input tax credit must be removed before the supplier's mark-up is calculated. For example, the mark-up on a product which cost $110 but which carried a tax credit of $10 should be calculated on $100 not $110. This also seems perfectly correct.
A related issue, and one of considerable importance in respect to the supply of services, concerns supply prices derived by reference to the price of another product. For example, a real estate agent's commission may be based on the sale price of the property. The commission must be calculated according to the sale price before any GST component is added. To do otherwise would, it is suggested, be to charge an unreasonably high price having regard alone to the New Tax System changes.[101]
3.4 Is the price of supply unreasonably high even after taking into account the supplier's costs, supply and demand conditions, and any other relevant matter?
This article has suggested that a price is unreasonably high pursuant to paragraph 75AU(2)(b) (that is, having regard alone to the New Tax System changes) if it is higher in dollar terms than it would have been if the price prevailing before the tax changes had been implemented had been adjusted only to make allowance for the dollar change in costs caused by the implementation of those tax changes. This may be a difficult calculation but it involves no element of value judgement. On the other hand, s 75AU(2)(c) does ultimately require a qualitative judgement to be made. The Court must determine whether the price of a product is to be regarded as unreasonably high even after regard is had to the supplier's costs, supply and demand conditions, and any other relevant matter. Again the Court may have regard to the guidelines drawn up by the ACCC. Again those guidelines are neither exhaustive nor binding.
The proper construction to be applied to s 75AU(2)(c) is not entirely clear. Does s 75AU(2)(c) require an analysis of the reasonableness of the price change having regard to the listed matters? Or, does it require an analysis of the reasonableness of the price having regard to those matters? If the former construction is correct, then, as with s 75AU(2)(b), the reasonableness of the base price is irrelevant. If the latter is correct s 75AU(2)(c) calls for a much broader examination.
The ACCC guidelines take the view that the basic purpose of the statutory provision is to prevent unreasonably large price changes in the wake of the new tax changes, not unreasonably high prices per se. The guidelines state:
1.31 The price exploitation provisions relate to the introduction of the New Tax System changes, and pricing responses of business to these changes. Accordingly the ACCC's focus is on prices set by individual businesses and is primarily on changes in prices resulting from the New Tax System changes, not on the level of prices.[102]
...
1.33 The focus on price changes rather than levels emphasises the point that the New Tax System changes are not to be seen as an opportunity for businesses to raise profits, even where profitability may be low.
The Explanatory Memorandum seems to bear this out although its language is more equivocal.[103] The Explanatory Memorandum uses the language found in s 75AW. Section 75AW empowers the ACCC to give a notice to a corporation if it considers the corporation has made a supply in contravention of s 75AU. The notice must state that, in the ACCC's view, the price was unreasonably high as mentioned in s 75AU(2)(b) and "that unreasonably high price was not attributable to matters referred to in s 75AU(2)(c)" (emphasis added).[104] It is unfortunate that s 75AU and s 75AW do not use the same language. Nevertheless, it is probably open to the courts to read s 75AU(2)(c) in the manner contemplated by s 75AW and preferred by the ACCC. If this view is correct then the issue under s 75AU(2)(c) is whether the level of the price change made in the wake of the new tax changes can be explained by movements in the supplier's costs, the supply and demand conditions and any other relevant matters.
However, this interpretation of s 75AU(2)(c) requires some manipulation of the plain words of the section. To give meaning to s 75AU(2)(b) it was necessary to restrict its operation to any price changes made in the wake of the new tax changes.[105] Section 75AU(2)(c), however, does not seem to require any such restriction to give it meaning. On its face, s 75AU(2)(c) requires the court (having determined that the supply price is unreasonably high having regard alone to the new tax changes) to decide whether the price is unreasonably high even if the listed matters are taken into account. Thus, it could be said that the third step in the process calls for the court to decide whether the supply price is reasonable, not whether the change in the supply price is reasonable.
The difference between these two interpretations can be explained by looking at an example. Assume that a good has a pre-tax change price of $1000. The effect of the tax changes is to reduce the net tax payable on the good by $100. To satisfy s 75AU(2)(b) the post-tax changes price must reflect that $100. In other words, the post-tax changes price should be $900. Assume, however, that the post-tax changes price is $950. In terms of s 75AU(2)(b) that price is unreasonably high and it would be necessary to apply s 75AU(2)(c). According to the ACCC's interpretation of the statutory test the only question to ask is whether the extra $50 can be explained by looking at changes in the supplier's costs, changes in the supplier's supply and demand conditions and changes in any other relevant matters. According to the broader interpretation s 75AU(2)(c) requires the Court to ask whether the price of $950 is unreasonably high when one considers the supplier's costs, the supplier's supply and demand conditions and any other relevant matters.
If the broader interpretation is correct its effects could be quite significant. The ACCC view is to be preferred as a matter of policy. Unfortunately s 75AU(2) could be drafted in a more felicitous manner.
3.4.1 The supplier's costs - s 75AU(2)(c)(i)
The supplier's costs have not been defined. This was deliberate.[106] Without limiting the factors that may be taken into account the ACCC guidelines set out a number of examples of the supplier's costs. These include:
▪ Costs relating to inputs in a production process, such as raw materials, capital equipment, wages and service inputs; and
▪ Expenses of maintaining a place where goods are produced or services rendered, such as rent, electricity and telephone charges.[107]
It is suggested that GST compliance costs, which the ACCC guidelines list under the second step of the price exploitation test, ought to be included under the third step. Calculating and apportioning compliance costs will present sufficient difficulties (for eg, between capital and non-capital costs[108]) without the need to make an artificial distinction between the second and third stages of the price exploitation test. The artificiality of such a distinction is indicated by the suggestion in the ACCC guidelines that where a compliance cost includes the cost of introducing a new and improved accounting, operational or management system the costs associated with the new system should be treated as general business costs rather than New Tax System compliance costs.[109] This seems an unnecessarily fine distinction.
3.4.2 Supply and demand conditions - s 75AU(2)(c)(ii)
This matter presumably reflects the economic notion that prices are ultimately a function of supply and demand. Section 75AU does not define what is meant by "supply and demand conditions." Whose supply and demand conditions? According to the Explanatory Memorandum "supply and demand conditions" refers not only to the conditions affecting the market for the particular good or service being supplied ("the supply market") but also conditions in related markets, such as markets for factor inputs.[110] Presumably, however, conditions in related markets would find expression in the supply and demand conditions affecting the supply market. Changes in the supply and demand conditions in related markets might explain movements in those conditions in the supply market but it is difficult to see how that is relevant to the test in s 75AU(2)(c). Either there has been a movement in the supply conditions or the demand conditions of the supply market sufficient to explain the price change in the good or service being supplied or there hasn't.
The ACCC guidelines state that as the "Commission's focus will be primarily on changes in prices resulting from the New Tax System changes, not the level of prices, it will be changes in supply and demand conditions that will be most relevant to its assessment of prices."[111] With respect this seems correct only if one accepts the ACCC's interpretation of the scope of the inquiry envisaged by s 75AU(2)(c). If s 75AU(2)(c) is to be given a broader application then the focus cannot be restricted merely to changes in supply and demand.
There are difficulties in using "supply and demand conditions" as a criterion for analysing the reasonableness of prices. First, it is difficult to measure those conditions. If the measurement is difficult, any conclusion about the expected effect on prices must be an approximation. Secondly, there is likely to be a lag effect between changes in supply or demand conditions and changes in prices. The lag effect is not accurately predictable. Thirdly, the relationship between supply and demand conditions and prices is not consistent across markets. Fourthly, the principles underpinning market price analysis are not necessarily consistent with those applicable to an assessment of the reasonableness of a price. This makes it uncertain how "supply and demand conditions" are meant to inform the search for a reasonable price. It also creates a possible tension between Pt IV of the TPA (the competition rules) and Pt VB.[112]
The whole purpose of Pt IV of the TPA is to allow prices to be determined by competitive forces operating in the relevant market. Exogenous regulation should only occur to correct market failure. Complex tax changes create information asymmetries (a recognised cause of market failure). In other words, consumers may not have sufficient information to make efficient demand decisions. However, it is unlikely that consumers have ever been in possession of much information regarding wholesale sale taxes. Moreover, if anything the GST is designed to simplify the tax regime (by a broader application and by the use of a single rate). Consequently, any market distortions caused by information asymmetries are not likely to be of any lasting significance. They should be worked out within the mechanism of the market by a combination of the high profile nature of the tax changes, the government's education policy and competitive forces. Thus, where a market is competitive, s 75AU appears to be akin to taking a sledgehammer to crack a walnut. The ACCC itself has commented that there are unlikely to be instances of price exploitation in competitive markets.[113] The danger is that the efficient operation of markets will be inhibited by a fear of the regulation.
Where a market is characterised by a price setter there may be a need for greater external regulation. Section 75AU, however, is not restricted in its application to suppliers that have a substantial degree of market power. The upshot is that s 75AU imposes a regime of reasonable price changes on all firms whereas Pt IV of the TPA imposes market price changes.
3.4.3 Other relevant matters - s 75AU(2)(c)(iii)
The ACCC guidelines state that the "ACCC will have regard to any exceptional circumstances that may affect the level of the tax changes passed through."[114] The guidelines then give three examples of such circumstances.[115] With respect, the guidelines appear to have misconceived the purpose of s 75AU(2)(c)(iii). There is no reason why s 75AU(2)(c)(iii) ought to be restricted to exceptional circumstances. The focus of s 75AU(2)(c)(iii) is upon determining whether a price is unreasonably high having regard to any other relevant matter. The proper question to ask under s 75AU(2)(c)(iii) is not whether there are "any exceptional circumstances that may affect the level of the tax changes passed through" but simply what other matters are objectively relevant to the fixing of a reasonable supply price.
3.5 The notion of an unreasonably high price
Section 75AU prohibits charging an unreasonably high price for a regulated supply. This implies at the very least that it is possible to determine a reasonable price. The dominant principle in contract law is that the parties are free to strike their own bargain.[116] This general rule is tempered by certain equitable standards. However, there is no principle of equity that the price must be reasonable.[117] Nevertheless, the fact that there is no general rule that prices must be reasonable does not mean that the courts are unfamiliar with the concept of a reasonable price. The Sale of Goods legislation stipulates that where there is a contract for the supply of a good and the price has not been determined the buyer must pay a reasonable price.[118] A person who has requested and accepted a service about which no price has been agreed is under an obligation to pay a reasonable price for that service.[119] In the case of a sale of goods, what is a reasonable price is a question of fact dependent on the circumstances of each particular case.[120] A reasonable price is not necessarily the current market price of the goods, although prima facie the market price will be regarded as a reasonable price.[121] Similar principles apply to the assessment of reasonable price or remuneration for services.
Although, generally the courts will not impose a reasonable price upon the parties to a sale of real property where the price has not been fixed,[122] an option to transfer a property "at a fair and reasonable price to be fixed by a valuer" has been held to be enforceable.[123] In the opinion of Lord Diplock "fair and reasonable price" meant what the property was worth using objective standards.[124] Ultimately a reasonable price must be a price which a reasonable person would be prepared to pay for the item in question.
There is probably no single reasonable price. Rather, the notion encompasses a range of prices. An unreasonably high price must be a price that exceeds the upper limit of that range. In other words, a price that no reasonable person would pay. Where there is a competitive market for goods or services, determining that range will amount as a matter of practicality in the vast majority of instances to establishing a range of market prices. Where the market is characterised by a dominant price setter the matter is more problematic. Whilst under Pt IV of the TPA a monopolist is entitled to charge a price that reflects that monopoly power, the same may not be the case where the issue is ascertaining a reasonable price. Where there is no real competition in the market, or where there is no established market for a product, such as uniquely tailored services or real property, selection of the relevant criteria upon which the objective assessment is to be made becomes critical.[125]
3.6 The onus of proof - role of a notice given under s 75AW
In any proceeding for price exploitation it will be the responsibility of the ACCC to establish that the price is unreasonably high having regard to the matters set out in paragraphs 75AU(2)(b) and (c). If the ACCC considers that a corporation has made a supply in contravention of s 75AU, the ACCC may give the corporation a notice in writing under s 75AW(1). The notice must take the form provided by s 75AW(2). Section 75AW(3) provides that any notice of contravention of s 75AU given by the ACCC pursuant to s 75AW(1) is prima facie evidence that the price was unreasonably high as mentioned in paragraph 75AU(2)(b) and that unreasonably high price was not attributable to matters referred to in paragraph 75AU(2)(c). The effect of this provision is to throw the onus on to the supplier to prove that the price was not unreasonably high. For this reason it is likely that the ACCC will follow this procedure when initiating proceedings under s 76 or s 80 for a breach of s 75AU.
In determining whether to issue a notice under s 75AW the ACCC must have regard to its own guidelines.[126] A notice issued under s 75AW must:
(a) be expressed to be given under this section [s 75AW]; and
(b) identify:
(i) the corporation that made the supply; and
(ii) the kind of supply made; and
(iii) the circumstances in which the supply was made; and
(c) state that, in the Commission's opinion:
(i) the price for the supply was unreasonably high as mentioned in paragraph 75AU (2)(b); and
(ii) that unreasonably high price was not attributable to matters referred to in paragraph 75AU(2)(c).[127]
The use of the word attributable in s 75AW is slightly confusing. "Attributable" normally denotes causation. Yet the test for a breach of s 75AU does not require the court to make any finding of causation or attribution. It requires the court to be satisfied that the relevant price is unreasonably high even if the supplier's costs, supply and demand conditions and any other relevant matter are taken into account. "Attributable" is probably to be interpreted as meaning "explained". In other words, a notice issued pursuant to s 75AW is prima facie evidence that the unreasonably high price cannot be explained in terms of the matters referred to in paragraph 75AU(2)(c).
The procedure adopted in Pt VB gives considerable power to the ACCC. It is given the mandate to draw up guidelines as to when a regulated supply may be regarded as being in contravention of s 75AU. These guidelines are required to be published in the Gazette, but failure to do so does not affect their validity.[128] The ACCC may issue a notice (based on those guidelines) that in its opinion a corporation's supply price was unreasonably high. This notice then becomes prima facie evidence in any action for a breach of s 75AU that the supply price was unreasonably high. Despite the extent of the powers delegated to the ACCC it is probably a valid exercise of federal legislative power.[129]
4. MISLEADING OR DECEPTIVE CONDUCT
4.1 Part V of the TPA
Part V of the TPA contains a number of provisions of relevance to any pricing material generated by the introduction of the New Tax System changes (to use the expression employed in respect of price exploitation). Section 52 prohibits misleading or deceptive conduct in trade or commerce by constitutional corporations,[130] by those involved in constitutional trade or commerce,[131] and by those whose misleading or deceptive conduct involved the use of postal, telegraphic or telephonic services or took place in a radio or television broadcast.[132] Section 53(e) prohibits false or misleading representations, in trade or commerce, with respect to the price of a good or service. Whilst Pt V of the Act is titled "Consumer Protection" it is not necessary to establish that any misleading or deceptive conduct or false representation was directed to a consumer.[133] A misrepresentation respecting the effect of the tax changes on a corporation's supply price will attract Pt V even where the supply is made to a reseller, such as a wholesaler. Nevertheless, it is expected that the ACCC's greatest concern will be with pricing information disseminated by retailers.
A breach of the provisions of Pt V, other than s 52, attracts criminal liability under s 79. A corporation may be fined up to $200,000. In the case of a person the maximum fine is $40,000. Section 79 provides for accessory liability in a manner similar to s 76.[134] In the case of a criminal prosecution the party charged may avail itself of the special defences set out in s 85(1) of the TPA.[135] Where the relevant conduct falls outside the operation of the TPA it is likely to be subject to the State Fair Trading Acts.[136] These Acts are in similar terms to Pt V of the TPA.
4.2 Proposed s 75AYA of the TPA
4.2.1 The conduct to be proscribed by s75AYA
To supplement Pt V a Bill has been introduced into Parliament which will proscribe certain conduct made in respect of the effects or likely effects of the new tax changes.[137] The new s 75AYA will read:
A corporation must not, in trade or commerce, in connection with:
(a) the supply or possible supply of goods or services; or
(b) the promotion by any means of the supply or use of goods or services;
engage in conduct, at any time during the period starting when this section commences and ending at the end of the New Tax System transition period, that:
(c) falsely represents (whether expressly or impliedly) the effect, or likely effect, of all or any of the New Tax System changes; or
(d) misleads or deceives, or is likely to mislead or deceive, a person about the effect, or likely effect, of all or any of the New Tax System changes.
Section 75AYA will also form part of the Price Exploitation Code.[138]
There is likely to be some overlap between s 75AYA and s 52 and 53 of Pt V of the TPA. Whereas s 52 prohibits all misleading or deceptive conduct in trade or commerce, s 75AYA only prohibits one specific kind of misleading or deceptive conduct, viz. conduct that misleads or deceives as to the effects or likely effects of the New Tax System changes. Whilst the matter is not entirely free of doubt, it is suggested that there is no satisfactory reason why a misrepresentation as to the law or the effect of the law should not be capable of being a breach of s 52.[139] Section 53 prohibits, inter alia, misrepresentations as to price. A misrepresentation of the effects or likely effects of the New Tax System changes in breach of s 75AYA could also amount to a misrepresentation as to price.
There is no reason why the extensive jurisprudence developed in relation to ss 52 and 53 won't be applied to s 75AYA. If this is correct, there will be no need to establish intent to mislead or deceive or even negligence.[140] Nor will it be necessary to establish that anyone was actually misled or deceived.[141] Whether any conduct is misleading or deceptive or amounts to a misrepresentation must be judged in the light of ordinary members of the relevant target audience (those persons likely to be influenced by the conduct).[142]
The real difference between s 75AYA and Pt V lies in the consequences of a breach. No criminal prosecution lies for a breach of s 75AYA . Rather, as with a breach of s 75AU (price exploitation) an action lies under s 76 for a pecuniary penalty order. The maximum penalty in the case of a corporation is $10 million, and in the case of a person $500,000. The advantage for the ACCC is that it is not necessary to prove its case beyond reasonable doubt. However, in determining liability the court will take into account the gravity of the matters alleged and the seriousness of the consequences.[143] Accessory liability applies to a breach of s 75AYA in the same manner as it applies to a breach of s 75AU.[144]
4.2.2 The relationship between s 75AYA and Pt V of the TPA
Conduct that breaches s 75AYA may also breach Pt V. A new s 76B provides that a pecuniary penalty order cannot be made if a person has already been convicted for an offence constituted by conduct that is substantially the same as the conduct constituting the breach of s 75AYA. Where criminal proceedings are commenced, the action under s 76 is stayed and may only be resumed if the person is not convicted.[145]
4.2.3 Defences to a breach of s 75AYA
There are special defences available to a breach of s 75AYA.[146] These defences are the same as the defences available in a criminal prosecution under s 85(1) for a breach of Pt V.
76A(2) in proceedings against a person (the respondent) under section 76 in relation to an alleged contravention of section 75AYA, it is a defense if the respondent establishes:
(a)that the contravention in respect of which the proceedings were instituted was due to reasonable mistake; or
76A(3) In paragraphs (2)(b) and (c), another person does not include a person who was:
(b) that the contravention in respect of which the proceedings were instituted was due to reasonable reliance on information supplied by another person; or
(c) that:
(i) the contravention in respect of which the proceedings were instituted was due to the act or default of another person, to an accident or to some other cause beyond the respondents control; and
(ii) the respondent took reason-able precautions and exercised due diligence to avoid the contravention.
(a) a servant or agent of the respondent; or
at the time when the alleged contravention occurred.
(b) if the respondent is a body corporate a director, servant or agent of the respondent;
For the purposes of s 76A(2)(a), a reasonable mistake means an error made without negligence or carelessness. An "honest" mistake is not necessarily a reasonable mistake.[147] It has been held that a mistake as to the law is not a mistake for the purposes of s 85(1)(a).[148] It is suggested that the same is likely to apply to s 76A(2)(a).
Under s 76A(2)(b) it would be a defence for a supplier to rely on advice given by a professional, including legal advice,[149] provided the reliance was reasonable in the circumstances. Certainly, s 76A(2)(b) contemplates relying on advice provided by an accountant. External entities, such as advertising agents, who prepare advertising for a supplier must be careful. It is not necessarily reasonable for an advertising agent to rely on information supplied by a client if the information is in the public domain and readily available.[150]
The defence under s 76A(2)(c) has two parts to it. The contravention must be due to the act of another person or an accident or some other such cause beyond the respondent's control and the respondent must have taken reasonable precautions and exercised due diligence to avoid the contravention. Both parts of the defence must be established. Taking reasonable precautions and exercising due diligence probably means:
• setting up a system for detecting possible breaches of s 75AYA of the TPA,
• putting in place reasonable procedures for avoiding those breaches, and
• monitoring the procedures.
The defence under s 76A(2)(c) is only available if the precautions are directed to avoiding the actual contravention that occurred.[151] To reduce the possibility of liability consideration should be given to implementing a proper compliance program directed to avoiding breaches of s 75AYA. The Australian Standards Council has a compliance standard (AS 3806) which is strongly supported by the ACCC.[152]
4.3 ACCC guidelines and determining whether a representation is false, misleading or deceptive
The ACCC guidelines devote three pages to discussing "Price Claims and Price Display".[153] In March, 2000 the ACCC released further guidelines covering price displays for business.[154] Once A New Tax System (Trade Practices Amendment) Bill 2000 becomes law it is likely that the ACCC will issue amended guidelines. Ultimately, however, whether a price display or promotion is misleading or deceptive (whether under Pt V or under s 75AYA) depends on whether ordinary persons would be misled by the price display or promotion into believing a state of affairs that was not correct.[155] The ACCC guidelines have no effect in determining how a court might view, for example, dual price ticketing that fell outside the ACCC's guidelines. Unlike s 75AU (price exploitation) there is, in relation to the misleading or deceptive conduct provisions (whether a fine is sought under s 79 or a pecuniary penalty under s 76) no presumption of breach. The ACCC must establish its case beyond a reasonable doubt or on the balance of the probabilities, as the case may be.
4.4 Section 75AYA and the Code
A New Tax System (Trade Practices Amendment) Bill 2000 provides that s 75AYA will be added to the Schedule version of Pt VB of the TPA. The Schedule forms the basis of the price exploitation Code. The application law of each State picks up the Schedule version of Pt VB as the basis of the New Tax System Price Exploitation Code text, which in turn applies as a law of each State.[156] Although the matter is not entirely free of doubt it seems that the application laws are meant to be ambulatory in their effect, subject to certain provisos.[157] Thus, any modification to the Schedule version of Pt VB will not apply as a modification of State law until at least the end of the period of two months after the date of modification unless the Governor in Council appoints an earlier date.[158] The modification will not apply at all if the Governor in Council by notice in the Government Gazette so declares.[159] Thus, the Schedule version of s 75AYA is likely to become a law of each of the States.
As previously discussed there are doubts about the constitutional validity of the procedure adopted by the application laws.[160] The arguments made in relation to the administration of the Code apply to the new misrepresentation provisions.
5. CONCLUSIONS
Part VB of the TPA and the Price Exploitation Codes purport to confer considerable power on the ACCC. There are constitutional considerations that may affect the extent of that power. In particular, the Code provisions extending power to the ACCC to administer the State price exploitation laws may have to be read down.
The test for whether a supplier has engaged in price exploitation within the meaning of Pt VB is based on a two step approach to determining whether the supply price is unreasonably high. The first step operates as a gatekeeper function. Any price change that does not reflect only the effects of the tax changes (as defined) will result in an unreasonably high price having regard alone to the New Tax System changes. In such cases it is necessary to proceed to the next step. This requires an analysis of whether the supply price is unreasonably high having regard to all relevant considerations including the supplier's costs and the supply and demand conditions. It is not clear whether this step opens the door to an analysis of the total supply price or just the changes in the supply price. Whichever is correct, this kind of judicial analysis is not unknown. It is probably to be enlivened by the same considerations that determine a "reasonable price".
Given the seriousness of the consequences that may flow from a breach it is likely that the courts will require a high level of proof before making a finding of price exploitation, even though a breach does not amount to a criminal offence. No doubt for this reason the ACCC has been handed potentially its most powerful weapon. Pursuant to s 75AW the ACCC may issue a notice that in its opinion the recipient of the notice has made a regulated supply at an unreasonably high price. Such notice is prima facie evidence that the recipient of the notice has contravened s 75AU.
Although there are substantial constitutional and interpretative problems raised by the drafting of the price exploitation provisions, the structure of those provisions (particularly the reversal of the onus of proof provided by s 75AW), the likely short term nature of the opportunities presented by the transition to the GST, the experience of the ACCC in negotiating resolutions without resort to judicial proceedings and the likely bad publicity to be had by being involved in an action for price exploitation makes it unlikely that s 75AU and its Code equivalents will take up much court time.
It is more likely that suppliers will fall foul of the misleading and deceptive provisions contained in Pt V of the TPA (or its State and Territory equivalents) or the proposed s 75AYA of the TPA. Unlike Pt VB the jurisprudence of Pt V is fairly well established. That jurisprudence can be applied to s 75AYA.
An indication of the seriousness with which Parliament views any opportunism in respect of the new tax changes is the level of the penalties that may be imposed. It could be said that far from markets being distorted in favour of suppliers the draconian penalties are more likely to distort markets in favour of consumers.
Brendan Sweeney is a Lecturer in the Faculty of Business and Economics at Monash University. He teaches at both undergraduate and postgraduate levels in the area of commercial law, particularly trade practices law. Brendan is co-author of Marketing and the Law.
[1] A New Tax System (Trade Practices Amendment) Act 1999 (Cth).
[2] See New Tax System Price Exploitation Code (Victoria) Act 1999, ss 18 and 24.
[3] A New Tax System (Trade Practices Amendment) Bill 2000 (Cth). Even before the introduction of the new provisions the Australian Competition and Consumer Commission ("ACCC") had indicated that it would closely monitor price promotions and advertising in respect of the new tax changes. See ACCC, Price Exploitation and the New Tax System: General Principles, Information and Guidelines on When Prices Contravene Section 75AU of the Trade Practices Act (March 2000) Part 3. The publication is available at the ACCC's website (http://gst.accc.gov.au).
[4] See TPA, ss 52 (misleading or deceptive conduct) and 53(e) (misrepresentations as to price).
[5] The following taxation changes have been prescribed (Trade Practices Amendment Regulations 1999 (No. 1)) or are proposed:
▪ changes to excise on tobacco products - as provided for in Excise Tariff Proposal No. 2 (1999);
▪ change in the tobacco excise duty, as provided for in Excise Tariff Proposal No. 2 (1999);
▪ the change in the tobacco customs duty, as provided for in Customs Tariff Proposal No. 6 (1999);
▪ the change in the retail tax on luxury cars, as provided for in the A New Tax System (Luxury Car Tax Imposition – Customs) Act 1999;
▪ the change in the retail tax on luxury cars, as provided for in the A New Tax System (Luxury Car Tax Imposition – Excise) Act 1999;
▪ changes to excise on petrol and diesel, the Diesel Fuel Rebate Scheme and the Diesel and Alternative Fuel Grants Scheme (1 July 2000);
▪ changes to excise on alcoholic beverages, and the introduction of the Wine Equalisation Tax (1 July 2000);
▪ abolition of bed taxes (1 July 2000);
▪ abolition of stamp duty on quoted marketable securities (1 July 2001); and
▪ abolition of financial institutions duty (1 July 2001).
[6] The test for price exploitation is discussed at length later in the text.
[7] Power to amend the guidelines is given by the TPA, s 75AV(2).
[8] TPA, s 75AY(1)
[9] TPA, s 75AY(2). These powers are in addition to the Commission's powers under s 155 of the TPA. Under s 155 the ACCC has extremely wide investigative powers, including the power to require the giving of information under oath and the power to compel the production of documents.
[10] TPA, Part XIAA.
[11] New Tax System Price Exploitation Code (NSW) Act 1999; New Tax System Price Exploitation Code (NT) Act 1999; New Tax System Price Exploitation Code (Qld) Act 1999; New Tax System Price Exploitation Code (SA) Act 1999; New Tax System Price Exploitation Code (Vic) Act 1999; New Tax System Price Exploitation Code (WA) Act 1999.
[12] Briefly, the Schedule version of Pt VB picks up Pt VB with application to "persons" rather than just "corporations".
[13] See New Tax System Price Exploitation Code (Vic) 1999, ss 19-20.
[14] [2000] HCA 22. The possible implications of this decision are discussed at Part 2.8.
[15] [1999] VSC 227; (1999) 73 ALJR 839. The provisions in the New Tax System Price Exploitation Code (Vic) 1999 purporting to confer exclusive jurisdiction on the Federal Court have been repealed as a result of the decision in Re Wakim: see Federal Courts (State Jurisdiction) Act 1999 (Vic). In so far as the New Tax System Price Exploitation Code (SA) 1999 purports to confer non-exclusive jurisdiction on the Federal Court it is likely to be ineffective. The Federal Courts (State Jurisdiction) Act 1999 (SA) makes no reference to the provisions of the New Tax System Price Exploitation Code (SA) 1999.
[16] TPA, s 4(1). Foreign corporation, financial corporation and trading corporation are also defined in s 4(1). A foreign corporation means a foreign corporation within the meaning of paragraph 51(xx) of the Constitution and includes a body corporate that is incorporated in an external Territory. A financial corporation means a financial corporation within the meaning of paragraph 51(xx) of the Constitution and includes a body corporate that carries on as its sole or principal business the business of banking (other than State banking not extending beyond the limits of the State concerned) or insurance (other than State insurance not extending beyond the limits of the State concerned). A trading corporation means a trading corporation within the meaning of paragraph 51(xx) of the Constitution. The meaning of a holding company is set out in s 4A.
[17] Actors and Announcers Equity Association of Australia v Fontana Films Pty Ltd (1982) 150 CLR 169. A holding company does not fall within the ambit of either s 51(xx) or s 122 of the Constitution.
[18] Fencott v Muller (1983) 152 CLR 570.
[19] R v Federal Court of Australia; Ex parte Western Australian National Football League Inc (1979) 143 CLR 190 per Mason J at 233. Hughes v WA Cricket Association (1986) ATPR 40-736.
[20] Commonwealth v Tasmania [1983] HCA 21; (1983) 158 CLR 1 ("Tasmanian Dams"); State Superannuation Board v Trade Practices Commission [1982] HCA 72; (1982) 150 CLR 282.
[21] Fencott v Muller (1983) 152 CLR 570.
[22] State Superannuation Board v Trade Practices Commission [1982] HCA 72; (1982) 150 CLR 282.
[23] [1983] HCA 21; (1983) 158 CLR 1, 117-8 (per Gibbs CJ) (s 51(xx) law only applies to those activities of a trading corporation properly to be regarded as trading activities). See also Wilson J at 202 (the substance of the law must bear a sufficient relation to those characteristics of such corporations which distinguish them from corporations which cannot be so described.)
[24] This is the case even if the particular supply in question is only incidental to the corporation's primary activities. In Re Dingjan; Ex parte Wagner [1995] HCA 16; (1995) 183 CLR 323, Mason CJ, Deane and Gaudron JJ preferred to give an expansive operation to s 51(xx). In the opinion of Mason CJ, s 51(xx) is meant to confer a plenary power on the Commonwealth in respect of constitutional corporations. The more restrictive view of McHugh J is also satisfied because the supply of incidental goods or services by a constitutional corporation clearly has "some significance for the activities, functions, relationships or business of the corporation": at 369 per McHugh J. Adopting the test of Toohey J (at 353) there is a sufficient connection between the law and the head of power because the connection is substantial, not merely tenuous. See generally the discussion in P Hanks, Constitutional Law in Australia, (2nd ed, 1996) 351-366.
[25] See Explanatory Memorandum to A New Tax System (Trade Practices Amendment) Bill 1999.
[26] Bank of NSW v The Commonwealth [1948] HCA 7; (1948) 76 CLR 1.
[27] Attorney General (Western Australia); Ex rel Ansett Transport Industries (Operations) Pty Ltd v Australian National Airlines Commission [1976] HCA 66; (1976) 138 CLR 492.
[28] See New Tax System Price Exploitation Code (Vic) 1999, s 8.
[29] Section 75AU is reproduced at Part 3.1.
[30] A New Tax System (Goods and Services Tax) Act 1999, s 9-5.
[31] A New Tax System (Goods and Services Tax) Act 1999, s 9-25.
[32] TPA, s 2A.
[33] TPA, s2B.
[34] See the New Tax System Price Exploitation Code (Victoria) Act 1999, s 13 and 16.
[35] See the New Tax System Price Exploitation Code (Victoria) Act 1999, s 14. This overrides the Crown prerogative (s 17).
[36] See TPA, s 2C. The same provision is included in the application laws. See, for example, New Tax System Price Exploitation Code (Victoria) Act 1999, s 15.
[37] Yorke v Lucas [1983] FCA 230; (1983) ATPR 40-401 affirmed by the High Court in Yorke v Lucas (1985) 158 CLR 661. This was concerned with s 75B which is in almost identical terms to s 76. There is no reason to suppose that the ancillary liability provisions of s 75B (or of s 79) would be treated in any manner different to s 76.
[38] Yorke v Lucas (1985) 158 CLR 661; Gokora Pty Limited v Montgomery Jordan and Stevenson Pty Limited And Wendy Kay Worboys (1986) ATPR 40-722.
[39] Westbay Seafoods (Aust) Ply Ltd v Transpacific Standardbred Agency Pty Ltd (1996) ATPR (Digest) 46-162. This matter is not entirely free of doubt. See the discussion in Trade Practices Reporter (CCH Loose Leaf Service) 18-135. See also R V Miller, Annotated Trade Practices Act (2000) 523.
[40] Yorke v Lucas [1983] FCA 230; (1983) ATPR 40-401 affirmed by the High Court in Yorke v Lucas (1985) 158 CLR 661.
[41] (1977) 136 CLR 235 particularly at 243 (per Mason J). See also Fencott v Muller (1983) 152 CLR 570 in which the High Court upheld the validity of s 82 of the TPA in so far as it enabled any person who had suffered loss because of a corporation's breach of s 52 of the Act to recover that loss from any person involved in the contravention.
[42] See Trade Practices Commission v TNT Australia Pty Ltd & Ors (1995) ATPR 40-375.
[43] Guthrie v Doyle Dane & Bernbach Pty Ltd (1977) ATPR 40-037; ACCC v Nissan Motor Co (Aust) Pty Ltd (1998) ATPR 41-660.
[44] Trade Practices Commission v Australian Meat Holdings Pty Ltd [1988] FCA 338; (1988) ATPR 40-876 at 49,510. See also Trade Practices Reporter (CCH Loose Leaf Service) 14-710.
[45] There is a presumption that a law does not have extraterritorial application: R v Jamieson [1896] UKLawRpKQB 146; [1896] 2 QB 425.
[46] In Trade Practices Commission v Australian Meat Holdings Pty Ltd [1988] FCA 338; (1988) ATPR 40-876 at 49-511 Wilcox J recognised that some activities may occur outside Australia and still satisfy the test for ancillary liability under ss 81(1A) and s 75B. Referring to liability for being knowingly involved in a contravention of s 50, his Honour said, "Evidence of events outside Australia may, for example, establish or negative the necessary knowledge. There is nothing unusual about that course. Australian courts commonly receive evidence of overseas events which bear upon conduct affected by Australian law."
[47] See the New Tax System Price Exploitation Code (Victoria) Act 1999, ss 8 and 9.
[48] TPA, s 150Q.
[49] The object of uniformity is expressly stated in these words. See New Tax System Price Exploitation Code (Victoria) Act 1999, s 18.
[50] State officers and authorities are excluded from exercising jurisdiction under the Codes. See, for example, New Tax System Price Exploitation Code (Victoria) Act 1999, s 28.
[51] See New Tax System Price Exploitation Code (Victoria) Act 1999, s 20.
[52] See New Tax System Price Exploitation Code (Victoria) Act 1999, s 27.
[53] Certainly, if the ACCC were relying on its powers under the TPA, it would not have the necessary authority.
[55] Byrnes v The Queen [1999] HCA 38; (1999) 73 ALJR 1292, 1294; 164 ALR 520, 524; Hughes [2000] HCA 22, 26.
[56] Hughes [2000] HCA 22, 31.
[57] In Hughes [2000] HCA 22, 46 the majority said, "[t]he present case emphasises that for the Commonwealth to impose on an officer or instrumentality of the Commonwealth powers coupled with duties adversely to affect the rights of individuals, where no such power is directly conferred on that officer or instrumentality by the Constitution itself, requires a law of the Commonwealth supported by an appropriate head of power."
[58] Hughes [2000] HCA 22, 33.
[59] Ibid 42.
[60] The Constitution, s 51(xxxix) states, "The Parliament shall, subject to this Constitution, have power to make laws for the peace, order, and good government of the Commonwealth with respect to:- Matters incidental to the execution of any power vested by this Constitution in the Parliament or in either House thereof, or in the Government of the Commonwealth, or in the Federal Judicature, or in any department or officer of the Commonwealth".
[61] [2000] HCA 22, 46.
[62] Ibid 39.
[63] The application laws adopt Pt VI of the TPA in so far as it is relevant to price exploitation. This means that the penalty provisions (s 76), the onus of proof provision (s 78), the injunctive provisions (s 80) and the enforceable undertakings provisions of the TPA apply to the State and Territorial Acts.
[64] The restrictive trade practices or competition provisions are contained primarily in Pt IV of the Act. The competition provisions prohibit such commercial activities as price fixing by competitors, exclusionary conduct whether by competitors or by a powerful firm, resale price maintenance and anti-competitive mergers.
[65] See para 4.1. A body corporate may be fined up to $200,000 for breaching the provisions of Pt V of the Act. A person may be fined up to $40,000.
[66] TPA, s 78.
[67] Briginshaw v Briginshaw [1938] HCA 34; (1938) 60 CLR 336; TPC v Nicholas Enterprises Pty Ltd (1979) ATPR 40-126.
[68] See discussion at Part 3.6.
[69] No penalty will lie if the person has already been penalised for that particular breach under the Code provisions.
[70] TPC v CSR Ltd (1991) ATPR 40-076.
[71] Ibid 52-152-3.
[72] It should be noted that market power is not the same as corporate size. A small firm may have substantial power in a small market and thus be in a position to extract supra-competitive prices. On the other hand, a firm large in terms of turnover may not be in a position to charge other than a competitive price.
[73] Price fixing by competitors is prohibited under s 45 of the TPA. Any breach attracts the civil penalty provisions of s 76 of the Act.
[74] The ACCC has often referred to the importance of firm's instituting corporate compliance programs.
[75] See ACCC, Price Exploitation and the New Tax System: Public Compliance Commitments (January 2000).
[76] [1999] FCA 858; (1999) ATPR 41-702.
[77] See, for example, NW Frozen Foods Pty Ltd v ACCC [1996] FCA 1134; (1997) ATPR 41-546.
[78] TPA, s 80(1A).
[79] ACCC v Z-Tek Computer Pty Ltd [1997] FCA 871; (1997) 148 ALR 339.
[80] For a discussion on the ACCC's approach to enforceable undertakings see Trade Practices Commission, Section 87B of the Trade Practices Act (August 1995).
[81] See ACCC Guidelines, para 4.5. See also ACCC website (http://gst.acc.gov.au).
[82] See ACCC, Report to the Minister under section 75AZ of the TPA 1974: July 1999 to December 1999, available on the ACCC website (http://gst.accc.gov.au)
[83] TPA,s 75AU(2) was amended by A New Tax System (Indirect and Consequential Amendments) Act, 1999.
[84] See TPA, Schedule Version of Pt VB.
[85] See the discussion at above n 5. The taxation changes include changes to petrol and diesel excises, the excise on alcoholic beverages and the excise on cigarettes. They also include the introduction of a luxury car tax, the abolition of bed taxes and the abolition of state taxes on bank transactions and stamp duties on business related transactions.
[86] The ACCC Guidelines make this point at paras 1.31-1.33.
[87] An alternative construction of s 75AU(2)(b) would place the emphasis on price levels. Assume that the base price was $110 (calculated on a 10% mark-up on a cost base of $100), the net effective tax increase 10% and the new post-tax price $120. Assuming that the base price was reasonable then the post-tax price must also be reasonable as it has not risen by any more than the net effective tax increase. If, however, the base price was unreasonable (e.g. the cost was $50 and the mark-up over 100%), under the alternative construction of s 75AU(2)(b) a post-tax price would be unreasonably high at $115 even though once again the price has only risen by the net effective tax increase. In the writer's opinion this construction is warranted neither by the language nor the purpose of the section.
[88] The ACCC takes the view that s 75AU(2)(b) "reflects a concern that prices should not increase by more than the amount of a tax rise and should fall by at least the amount of any tax fall in any market". See ACCC Guidelines para 28. Although the ACCC was primarily making the point that s 75AU applies to all markets, whether competitive or not, it is clear that it regards s 75AU as a reflection of government rhetoric. With respect the section does not self evidently bear out that interpretation.
[89] TPA, s 75AV(4).
[90] Both the TPA and the Prices Surveillance Act 1983 (Cth) give the ACCC a prices oversight function.
[91] In South Sydney Council v Royal Botanic Gardens [1999] NSWCA 478, Spigelman CJ considered the effect of the words "may have regard to". He said, "[t]he formulation "have regard to" or "may have regard to" often appears in statutes or contracts. The words themselves do not indicate one way or another whether the facts and matters which follow are intended to be exhaustive or merely indicative. That issue can only be decided by considering the total context in which the formulation appears including both the whole of the document and the "objective framework of facts within which the contract came into existence". (Codelfa Construction Pty Ltd v State Rail Authority of NSW (1981-1982) 194 CLR 338 at 352). This process sometimes results in a decision that the list is intended to be exhaustive... On other occasions the opposite conclusion is drawn... In the latter situation the formulation "regard may be had to" is said to constitute "a guide and not a fetter". His Honour was dealing with a contract, but it is clear that he considered his comments to have a wider application. He then continued: "The most important indication from the context is usually provided by the scope, nature and purpose of the task for which the decision maker is required or permitted to take the list of facts and matters into account."
[92] Explanatory Memorandum, para 13.
[93] See ACCC Guidelines, para 2.12. The guidelines were varied in March 2000. The original guidelines did not include the final proposition.
[94] See ACCC Guidelines, para 2.13.
[95] The matter is not entirely clear because in its Report to the Minister under s 75AZ of the Trade Practices Act, July 1999 to December 1999, the ACCC appears to treat compliance costs as part of the third step.
[96] An alternative construction was canvassed above n 85.
[97] See ACCC Guidelines, para 2.38.
[98] Ibid.
[99] See ACCC Guidelines, para 2.32.
[100] See ACCC Guidelines, para 2.33.
[101] See ACCC Guidelines, para 2.26 - 2.27.
[102] The ACCC Guidelines provide an example at para 1.32: "For example, a wholesale business before the 29 July 1999 Wholesale Sales Tax reduction may have set a tax-inclusive price for a television of $800. The rate change should have reduced the tax by around $60. The ACCC would ensure that the $60 cut was fully reflected in the new price. The ACCC would not consider that its role was to assess whether the $800 price was justified to begin with."
[103] Explanatory Memorandum to the A New Tax System (Trade Practices Amendment) Bill 1998.
[104] TPA, s 75AW(2).
[105] See the discussion at 3.2.
[106] Explanatory Memorandum to the A New Tax System (Trade Practices Amendment) Bill 1998, para 11.
[107] Para 74. This is in identical words to that used in para 11 of the Explanatory Memorandum.
[108] See ACCC Guidelines, para „.31 which refers to the need to draw a distinction between compliance costs which are best characterised as of a capital nature (purchase of new equipment) and those of a non-capital nature.
[109] See ACCC Guidelines, para „.30.
[110] Explanatory Memorandum to A New Tax System (Trade Practices Amendment) Bill 1998, para 12.
[111] Para 2.53.
[112] It might also be added that Pt VB does not sit entirely comfortably with the Commonwealth Government's stated preference for market solutions. See Commonwealth Department of Industry, Science and Tourism, Consumer Affairs Division, The Principles of the Codes of Conduct: Police Framework, March, 1998.
[113] In Press Release, ACCC Pricing Guidelines 'Firm and Fair', 9 March 2000 available at (http://www.accc.gov.au), the ACCC commented: "There are a number of reasons why it is unlikely there will be large numbers of instances where consumer exploitation will occur:
▪ in the present low inflation environment it will be difficult for many businesses to raise prices, let alone seek to capture additional profits;
▪ in many markets competition will protect consumers as businesses compete on price to win business and market share;
▪ where an individual business seeks to over charge for GST ethical competitors will in many cases seek to expose them either by advertising their own ethical charging or by informing the ACCC Price Exploitation Hotline;
▪ in many cases businesses will be anxious to demonstrate to consumers that their price adjustments accord with the Guidelines. In some cases they will go further and offer a competitive deal to consumers by absorbing part of the tax rise;
▪ a sense of corporate responsibility;
▪ awareness of high consumer interest, and
▪ where competition and other market factors do not protect consumers, there are powerful laws passed by Parliament to expose and prosecute any business that exploits consumers."
In its Report to the Minister under s 75AZ of the TPA, the ACCC commented that a snapshot of prices taken immediately following the reduction in wholesale sales tax revealed that 99% of those surveyed had reduced their prices within two days of the reduction in the tax. It is unlikely that most of these suppliers were aware of Pt VB of the TPA.
[114] See para 2.55.
[115] 1. Where a business is operating in an industry that is subject to price regulation and is unable to adjust prices fully to reflect the impact of the GST; 2. Where goods or services are supplied under a long term non-reviewable contract and the price for that supply cannot be changed; and 3. Where goods or services are supplied under a long term reviewable contract but the review opportunity does not take place on or before 1 July „000, savings must be passed through from the date of the first review opportunity.
[116] Smith v Hughes (1871) LR 6 QB 597; Taylor vJohnson [1983] HCA 5; (1983) 151 CLR 422; Solle v Butcher (1950) 1 KB 671. Roman law required the price to be fixed. "Roman law insisted on a certum pretium as a necessary ingredient of a sale of anything, land or chattels. It knew nothing of the idea of a reasonable price." Hall v Busst [1960] HCA 84; (1960) 104 CLR 206, 241 (per Windeyer J). In the Middle Ages the law developed the concept of a fair price. See L DiMatteo, Equity's Modification of Contract: An Analysis of the Twentieth Century's Equitable Reformation of Contract Law (1999) 33 New Eng L Rev 265, 288-289.
[117] In general, equity concentrates on the unconscionability of the party's action. An action is not unconscionable merely because the actor derives a good bargain. There must be some unacceptable pressure, influence or surprise. Whilst the categories of equitable unconscionable conduct are not closed neither are they arbitrary. Various kinds of unconscionable conduct are also prohibited by Pt IVA of the TPA. Whilst the meaning of unconscionable conduct under the TPA is not necessarily the same as in equity, it is suggested that the same considerations ultimately underpin both. It is unlikely that conduct will be unconscionable merely because the price charged is high.
[118] Sale of Goods Act 1923 (NSW), s 13; Sale of Goods Act 1896 (Qld), s 11; Sale of Goods Act 1895 (SA), s 8; Goods Act 1958 (Vic), s 13; Sale of Goods Act 1896 (Tas), s 13; Sale of Goods Act 1895 (WA), s 8.
[119] The cause of action may arise in contract or restitution (unjust enrichment). The notion of reasonable remuneration for work done is applicable to both. See K Mason and JW Carter, Restitution Law in Australia, (1995) 284-285.
[120] Sale of Goods Act 1923 (NSW), s 13; Sale of Goods Act 1896 (Qld), s 11; Sale of Goods Act 1895 (SA), s 8; Goods Act 1958 (Vic), s 13; Sale of Goods Act 1896 (Tas), s 13; Sale of Goods Act 1895 (WA), s 8.
[121] Canterbury Dairy Co. Ltd v Self Help Co-op. Ltd [1932] NZGazLawRp 148; [1932] NZLR 1574, 1585.
[122] Hall v Busst (1960) 104 CLR 206 (per Dixon CJ, Fullagar and Menzies JJ; contra Kitto and Windeyer JJ). The reason for this is that if the price has not been agreed upon the contract is unenforceable for uncertainty.
[123] Sudbrook Trading Estate Ltd v Eggleton (1983) 1 AC 444 (House of Lords).
[124] Ibid 478.
[125] For a discussion on the principles to be applied when determining reasonable remuneration in an action for restitution see K Mason and JW Carter, above n 119, 568ff.
[126] See TPA, s 75AV(3).
[127] TPA, s 75AW(2).
[128] TPA, s 75AV(5).
[129] See Victorian Stevedoring and General Contracting Co Pty Ltd y Dignan [1931] HCA 34; (1931) 46 CLR 73.
[130] Constitutional corporations are discussed at Part 2.3.
[131] Constitutional trade or commerce is discussed at Part 2.3.
[133] Hornsby Building Information Centre v Svdne_r Building Information Centre [1978] HCA 11; (1978) 140 CLR 216; Concrete Constructions (NSW) Pty Ltd v Nelson [1990] HCA 17; (1990) 169 CLR 594.
[134] See above n 37.
[135] These defences are discussed at Part 4.2.2.
[136] Fair Trading Act 1992 (ACT); Fair Trading Act 1987 (NSW); ConsumerAffairs & Fair Trading Act 1990 (NT); Fair Trading Act 1989 (QId); Fair Trading Act 1987 (SA); Fair Trading Act 1999 (Vic); Fair Trading Act 1987 (WA); Fair Trading Act 1990 (Tas).
[137] A New Tax System (Trade Practices Amendment) Bill 2000 (Cth).
[138] The Queensland Government has indicated that it will not permit the new provision to operate as part of the Code in Queensland.
[139] The High Court has recognised that the doctrine of mistake covers mistakes of law. See David Securities Ptv Ltd v Commonwealth Bank [1992] HCA 48; (1992) 175 CLR 353.
[140] Hornsby Building Information Centre v Sydney Building Information Centre [1978] HCA 11; (1978) 140 CLR 216; Given v Holland (Holdings) Pty Ltd (1977) ATPR 40-029.
[141] Siddons Ptv Ltd v The Stanley Works Pty Ltd (1991) ATPR 41-111.
[142] Ibid.
[143] Briginshaw v Briginshaw [1938] HCA 34; (1938) 60 CLR 336; TPC v Nicholas Enterprises Pty Ltd (1979) ATPR 40-126.
[144] TPA, s 76A(1).
[145] TPA, s 76B(3).
[146] TPA, s 76A(2).
[147] See Adams v Eta Foods Pty Ltd [1987] FCA 402; (1987) ATPR 40-831, a case decided under TPA, s 85(1).
[148] See Gilmore v Poole-Blunden (1999) ATPR (Digest) 46-197.
[149] Ibid.
[150] The agency may have a duty to independently verify information supplied by a client. For example, in Guthrie v Doyle Dane & Bernbach Pty Ltd (1977) ATPR 40-037, a matter involving a criminal prosecution for a breach of s 53 of the TPA, it was held that an advertising agency could not merely rely on information supplied by its client about when an amendment in the sales tax on certain vehicles was due to commence.
[151] Adams v Eta Foods Pty Ltd [1987] FCA 402; (1987) ATPR 40-831. Sec also Eva v Mazda Motors (1977) ATPR 40-020; Wilkinson v Katies Fashions Pty Ltd, supra; Gardam v George Wills & Co. [1988] FCA 289; (1988) ATPR 40-884.
[152] Considerable information concerning compliance is available from the ACCC website. The courts have also stressed the importance of a proper compliance program as a factor mitigating penalty: see TPC v TNT Australia Ply Ltd (1995) ATPR 41,375.
[153] ACCC, Price Exploitation and the New Tax System, Pt 3. These are available at (http://gst.accc.gov.au).
[154] (http://www.accc.gov.au).
[155] Taco Co. of Australia v Taco Bell Pty Ltd [1982] FCA 136; (1982) ATPR 40-303.
[156] See, for example, ss 4 and 5 of New Tax System Price Exploitation Code (Victoria) Act 1999.
[157] This seems to be the effect of s 5 of New Tax System Price Exploitation Code (Victoria) Act 1999. The provisos are contained in s 6 of New Tax System Price Exploitation Code (Victoria) Act 1999.
[158] New Tax System Price Exploitation Code (Victoria) Act 1999, s 6(1).
[159] New Tax System Price Exploitation Code (Victoria) Act 1999, s 6(2).
[160] See the discussion at Part 2.8.