Wednesday, 28 December 2011

Warranties Against Defects: Coming to grips with Regulation 90 of the Competition and Consumer Regulations 2010


This article first appeared in the December 2011 edition of the NSW Law Society Journal, Vol. 49 No. 11, pp. 71-73.

Businesses have a nine-month amnesty to provide the prescribed warranties against defects in their goods, but lawyers need to make their clients aware of the Australian Consumer Law (ACL) requirements or retailers could face enforcement action.

Recently competition and consumer law practitioners have been in up in arms about the implications of Regulation 90 of the Competition and Consumer Regulations 2010 (CCR).

The proposed regulation, which commences on 1 January 2012, will have a profound effect on the voluntary warranties provided by many manufacturers, importers and retailers to their consumers, as well as the way they promote such warranties. In broad terms, reg. 90 will be to introduce prescriptive requirements and obligations in relation to the provision of voluntary warranties against defects to consumers.

Legal practitioners with clients who supply goods with a warranty against defects document will need to understand the requirements of reg. 90 and the risks of providing a non-compliant warranty.

Despite the highly prescriptive nature of the legislation, the ACL Regulators have shown a willingness to take a practical and commonsense approach to enforcing the new laws; for example, the recent announcement of a nine month amnesty for suppliers who make a good faith effort to comply with the reg. 90.

However, businesses should also recognise that if they do not make a good faith effort to comply with reg. 90 from 1 January 2012, the ACL Regulators are highly likely to take enforcement action against businesses which come to their attention.

What it is a warranty against defects?
Whenever a consumer purchases a product, they will often receive a warranty against defects document from the manufacturer, importer or retailer. This is not an express warranty such as a statement printed on a label on a scooter that states: “This scooter is suitable for use by riders who weigh less than 100 kgs”.

Rather, warranties against defects are usually general representations communicated to a consumer that a business will:

  • repair or replace goods (or part of them);
  • resupply or fix a problem with services (or part of them); or
  • provide compensation to the consumer, if the goods or services (or part of them) are defective.
In some cases, the warranty document will have to be returned to the manufacturer for it to be valid. In other cases, all the consumer has to do is retain their proof of purchase to take advantage of the warranty at a later date.

Less expensive consumer goods, such as home appliances and electrical goods, often have 12-month warranties. However, warranties on new motor vehicles will be considerably longer, usually between three and five years.

Currently there are no legislative requirements that voluntary warranties have to meet, other than they cannot be misleading or deceptive about the mandatory statutory consumer guarantees. However, from 1 January 2012, all such warranties will have to meet the prescriptive requirements contained in reg. 90 of the CCR. There will also be civil and criminal penalties for failing to comply with these new laws.

Who needs to comply?
Manufacturers, importers and retailers, will all have to comply with the new laws. Section 102(2) of the Competition and Consumer Act 2010 (CCA) makes it illegal for a person to:
  • give to the consumer a document that evidences a warranty against defects that does not comply with the requirements of reg 90; or
  • represent directly to the consumer that the goods and services are goods or services to which such a warranty against defects relates.
The use of the word “give” in s.102(2)(b) indicates that any person in the supply chain who physically provides a document to a consumer which purports to be a warranty against defects will be caught by the provision.[1] For example:
  • if a manufacturer places a warranty against defects document in a box with a product after 1 January 2012, then sells it directly to a consumer and the document does not comply with reg. 90, the manufacturer will contravene s.102(2)(b) of the CCA; and[2]
  • it would appear that if a salesperson working at a retail outlet hands a consumer a document which purports to be a warranty against defects and it does not comply with reg. 90, that salesperson may have contravened s.102(2)(b) of the CCA.[3]
The use of the word “give” suggests that a manufacturer will not be liable under s.102(2)(a) for supplying a good with a non-compliant warranty to a retailer which is then sold to a consumer. This is because the manufacturer is not physically “giving” the non-compliant warranty to the consumer – perhaps an unintended consequence of the use of the word “give” in s.102(2)(a).

The other prohibition contained in s.102(2) is that it will be illegal for a person to represent directly to a consumer that a good or service has a warranty against defects if the warranty does not comply with reg. 90. In other words, if a consumer asks a salesperson at a retail outlet whether a product comes with a warranty against defects, it is illegal for that person to say “yes” if the warranty against defects does not comply with reg. 90.[4]

The Australian Competition and Consumer Commission (ACCC) and state fair trading regulators (collectively known as the ACL Regulators) could allege that the failure by a manufacturer, importer or retailer to “provide” a consumer with a compliant warranty against defects constitutes false and misleading conduct in breach of ss.18 or 29 of the ACL. This would avoid the problems in relation to the use of the word “give” in s.102(2)(a).

Retail staff in every retail outlet who sell goods which include a warranty against defects are going to have to receive some training as to what to say to consumers about warranties against defects or risk contravening the CCA.

What are the penalties?
A contravention of s.102(2) can be either a criminal offence[5] or a civil contravention.[6] The financial penalties for a contravention under both regimes will be the same - $50,000 for a corporation for each contravention and $10,000 for an individual per contravention.

The maximum financial penalties for a breach of s.29 are $1.1 million for a corporation for each contravention or $220,000 for an individual for each contravention.

What does Regulation 90 require?
Sections 192 and 224 of the ACL require that from 1 January 2012 all warranty against defects documents provided by manufacturers, importers and retailers to consumers will have comply with reg. 90.

Reg. 90 establishes the following requirements in relation to all warranty against defects documents. The document must:
  1. be transparent – that is, it must be expressed in reasonably plain language, legible and presented clearly; 
  2. concisely state what the person who gives the warranty must do so that the warranty will be honoured and what the consumer must do to be entitled to claim the warranty; 
  3. prominently state the name, business address, phone number and email address (if any) or the person providing the warranty; 
  4. provide the period or periods within which a defect in the goods or services to which the warranty relates must appear if the consumer is to claim the warranty; 
  5. provide a procedure for the consumer to claim the warranty including the address to which a claim may be sent; 
  6. state who will bear the expense of claiming the warranty and if the expense is to be borne by the person who gives the warranty, how the consumer can recoup expenses incurred in making the claim;
  7. state that the benefits to the consumer given by the warranty are in addition to other rights and remedies of the consumer under a law in relation to the goods or services to which the warranty relates; and
  8. must include the following text:

Our goods come with guarantees that cannot be excluded under the Australian Consumer Law. You are entitled to a replacement or refund for a major failure and for compensation for any other reasonably foreseeable loss or damage. You are also entitled to have the goods repaired or replaced if the goods fail to be of acceptable quality and the failure does not amount to a major failure.
The above requirements in relation to warranties against defects will provide a number of benefits for consumers.

First, warranty documents will be easier for consumers to understand as they will have to be written in reasonably plain language.

Second, consumers must be provided with all the relevant contact details of the person offering the warranty. This should make it much easier for the consumer to claim the warranty.

Third, the new warranties will be more specific about the consumer’s legal rights under the warranty. The consumer will know how to claim the warranty, how long the warranty is valid for, and what their costs will be of claiming the warranty.

Finally, by requiring the mandatory text in each warranty document, consumers will understand that the warranty against defects does not replace or restrict any other mandatory consumer guarantees which they may have under the ACL.[7]

What are the problems with Regulation 90?
There are a number of potential practical problems with the way reg. 90 will operate.

The most significant problem is that it will apply by reference to when the warranty against defects document is physically given to the consumer rather than by reference to when the product was manufactured. The obvious problem with this requirement is that many manufacturers, importers and retailers are likely to be selling goods after 1 January 2012 that were manufactured prior to that date. Such goods are likely to already have warranty documents included with the product, either in a sealed box or tamper proof plastic packaging, which do not comply with reg. 90.

As a consequence, a range of organisations lobbied the ACL Regulators for some transitional arrangements to avoid the cost and disruption of manufacturers, importers and retailers having to replace existing warranty documents with new ones which complied with reg. 90.

As a result of this lobbying, the ACL Regulators recently announced a nine-month amnesty for businesses which do not comply with the requirements of reg. 90:[8]

A number of businesses have advised ACL Regulators that due to the long lead times associated with many consumer products, and the nature of the packaging of those products, there will be some goods in the supply chain that, as at 1 January 2012, do not contain warranty documents that are compliant with the warranty against defects requirements of the ACL.
The ACL Regulators recognise that transitional practical difficulties may arise in the application of the new provisions. Accordingly, until September 2012, when considering the appropriate enforcement response to any contravention of the warranty against defects requirements that apply to stock in the supply chain manufactured and packaged prior to 1 November 2011, the ACL Regulators will have regard to:

  • whether there are serious practical difficulties in updating warranty documents—e.g. the warranty is in a tamper-proof package; and 
  • whether the supplier has taken all reasonable steps to otherwise convey the mandatory text and information required by the ACL to consumers—e.g. by placing a compliant sticker on the outside packaging.
In these circumstances the ACL Regulators are unlikely to take enforcement action.
In other words, until September 2012, ACL Regulators are unlikely to take enforcement action in response to contraventions of the warranty against defects requirements that apply to stock in the supply chain manufactured and packaged prior to 1 November 2011.

However, in order to qualify for this amnesty a business will have to demonstrate that they meet the following three conditions:

  • the relevant goods were manufactured and packaged prior to 1 November 2011, 
  • there were serious practical difficulties in updating warranty documents; and
  • the supplier has taken all reasonable steps to convey the required information to consumers.
Legal practitioners should be explaining the terms of the above amnesty, particularly the three conditions, to their clients with a view to determining whether these clients qualify for the amnesty. Practitioners should also advise their clients that the amnesty will not apply to any goods manufactured after 30 October 2011.

Another problem is that manufacturers will also be liable for any point-of-sale material which they provide to retailers which states that a good has a warranty against defects if the actual warranty against defects document does not comply with reg. 90. The key issue here is whether the manufacturer has made that representation directly to the consumer, for example, by placing a sticker on the product or by placing written point-of-sale material near the product.

It will also be important for legal practitioners to assist their retailer clients in understanding the new laws. As stated above, s.102(2)(a) of the ACL states that the mere act of “giving” a non-compliant warranty against defects to a customer, say in a box or in tamper proof packaging, may expose a retailer to liability. However, it seems that in practice such an outcome is unlikely.

During a Webinar organised by the ACL Regulators in relation to the ACL,[9] a colleague asked a representative of one of the ACL Regulators whether the mere act of a retailer passing onto a consumer a manufacturer’s non-compliant warranty against defect document, given to the retailer by the manufacturer, would make the retailer liable for a breach of s.102(2)(a).[10] The representative of the ACL Regulator responded that this conduct would not result in liability for the retailer.

However, retailers may be liable under s.102(2)(b) if they make a representation about a warranty against defects which is incorrect or misleading. For example, a retailer will breach s.102(2)(b) if they tell a consumer that a product comes with a warranty against defects, when that warranty does not comply with reg. 90.

Accordingly, legal practitioners have three options when providing guidance to their retailer clients about their obligations:
  • advise their client that they must check every warranty against defects document which is being provided to consumers with any of the goods which they are selling to make sure they comply with reg. 90; or 
  • direct their salespeople not to make any representations to customers about the warranties against defects provided with any of the goods which they are selling; or 
  • check the warranty documents in relation to goods where they believe consumers are more likely to ask warranty questions, for example in relation to more expensive or technically complicated goods, and direct staff to only make representations to consumers about the warranties against defects on these particular goods and no other goods. 
Some large retailers have taken the approach of demanding that their suppliers provide them with indemnities in relation to the warranties against defects documents for the goods which the retailer is selling. The idea behind seeking an indemnity appears to be that if the particular retailer is pursued by ACL Regulators for a breach of s.102(2) of the ACL, they can effectively shift liability back onto their supplier. While this is a possible fourth strategy, it is both impractical and likely to be unenforceable.




[1] Unfortunately, the ACCC has used the word “provide” rather than “give” in its advice on how the new provisions will operate - http://www.accc.gov.au/content/index.phtml/itemId/996742.  I agree with other commentators that the word “give’ in s.102(2)(a) requires the physical act of providing the warranty document to the consumer - see Geoff Taperell, “Warranties Against Defects – A New Regulation will Apply from 1 January 2011”, http://www.dlapiper.com/Global/publications/detail.aspx?pub=f1a532d6-f6ac-4f8f-808d-1327a3cd6e1f, dated 16 May 2011
[2] Subject to “amnesty” discussed below.
[3] Subject to Webinar advice discussed below.
[4] Unfortunately, s.102(2)(b) has been very poorly drafted.  The use of the word “or” between ss.102(2)(a) and 102(2)(b) suggests that these sections should be read disjunctively. However, reading the provision in this way makes no sense. For the provision to make any sense, it has to be read conjunctively.
[5] s.192 ACL
[6] s.224 ACL
[7] Under the ACL there are a range of mandatory consumer guarantees which are implied into every consumer contract and which cannot be excluded by manufacturers, importers or retailers.
[8] Warranties Against Defects, ACCC website – see http://www.accc.gov.au/content/index.phtml/itemId/996742
[9] “The Australian Consumer Law – Be Prepared”, ACCC Webinar, held on 29 October 2010, http://webcast.viostream.com/?viocast=3041&auth=cd52b9dd-0a50-4444-a188-53acf89cd811. Unfortunately, a recording of this Webinar is not currently available on the ACCC website.
[10] David Johnson, Managing Director, Watchdog Compliance - http://www.watchdogcompliance.com.au.


Wednesday, 21 December 2011

The Untold Story: The ACCC’s role in the Waterfront Dispute


Part 12:  It begins – ACCC v MUA

ACCC commences legal proceedings
The ACCC was at the end of its tether when it decided to commence legal proceedings against the MUA on 22 May 1998. Not only was the ACCC continually being baited by the MUA, but the MUA was continuing to engage in illegal boycott conduct. For example, when Patrick decided to subcontract some stevedoring work to P&O in Adelaide and Newcastle, the MUA immediately organised illegal picket lines.

When the accc commenced legal proceedings it is fair to say that we threw the book at the MUA. The following is the full text of the media release which the ACCC issued at the time:
ACCC institutes against Maritime Union of Australia[1]
The Australian Competition and Consumer Commission today instituted proceedings against the Maritime Union of Australia alleging breaches of the boycott provisions of the Trade Practices Act. 
The ACCC has instituted proceedings now because it believes there have been serious and continuing breaches of the Act by the MUA, which the union has made no effort to address.
The ACCC has alleged that the MUA has: taken steps to get the International Transport Workers Federation and its affiliates to organise and implement an international ban of ships, and shipping lines, loaded or unloaded with non-MUA labour in Australia; threatened ships, and shipping lines, that they would be the subject of such bans if they used Patrick, PCS or other stevedores using non-MUA labour; organised a campaign of domestic boycotts of Patrick operations because it used non-MUA labour, including: withdrawal of labour for tugs and lines to impede ships berthing at Patrick; and blockading Patrick to stop transport companies delivering and picking up cargo from Patrick.

The ACCC alleges that this conduct was done for the purpose and with the effect of stopping Patrick and other stevedores using non-union labour, from engaging in international trade or commerce, in breach of the primary boycott provisions of the Act. [The ACCC does allege other breaches of the Act]. The MUA has not taken any steps to respond substantively to the ACCC's previously expressed concerns in relation to either the domestic blockade activity or the ITF threat.
The proceedings will seek: urgent injunctions in relation to the alleged involvement of the MUA in international boycott activities in conjunction with the ITF; declaration that the domestic blockades, refusal to work tugs and lines and the ITF international boycott actions breach the Trade Practices Act; findings of fact (which would enable business suffering loss or damage from the MUA conduct to seek damages); and permanent injunctions restraining the MUA from engaging in relevant primary and secondary boycott action.

The proceedings also name MUA national secretary, Mr John Coombs, and Mr Trevor Charles, an MUA official and the Australian International Transport Workers Federation representative, as respondents. The ACCC concerns include: the impact on competition on the waterfront where boycotts hinder both new and established businesses from operating; that a large number of businesses have sustained significant losses due to their inability to gain access to cargo which was stranded in containers on docks around the country. In some cases cargo has been irreparably damaged; and damage to Australian exports, and Australian export businesses.

Boycott conduct by the MUA appears to be continuing. Since the High Court decision there has been further alleged boycott conduct by the MUA in Newcastle and Adelaide, where vessels have been held up by picket lines unless or until the shipper or shipowner agrees to using labour chosen by the MUA, eg in some ports work is not done unless done by firms using former Patrick's labour.

It is also relevant that a number of vessels which were loaded by non-union labour during the dispute have been subject to boycotts and harassment by affiliated unions overseas. The ACCC has been particularly concerned by the Columbus Canada boycott in the United States.
Furthermore there are real prospects that domestic picket activity and ITF bans may increase to the detriment to Australian importers and exporters.
The ACCC conveyed its concerns to the MUA over both the domestic boycott activity and ITF threats at an early stage in the dispute. Despite repeated requests, the MUA: has failed to provide any explanation as to why its conduct does not breach the Act; has failed to guarantee that it will not engage in such conduct again; and appears to be engaging in new conduct which may breach the Act.

Publicly, the MUA's initial response was to accuse the ACCC of harassment and to state that if the ACCC believed it had a case it should take proceedings. Privately, the MUA requested the ACCC not to institute proceedings and asked for more time to prepare a substantive response. The ACCC agreed to this request.
No substantive response has been provided. The MUA has not provided any assurance that its Federal Court undertakings "not to take industrial action" cover the boycott conduct of concern to the ACCC. At all times the ACCC has been willing to meet with the MUA to discuss its concerns and also to provide the MUA with extensive material outlining its concerns. The ACCC always reserved its position to take legal proceedings.
The failure of the MUA to address the ACCC's concerns has led the ACCC to institute proceedings at this time. At all times the ACCC was conscious of not taking precipitous action, particularly when issues were before the Federal Court and High Court of Australia. The ACCC considers that the current action raises a significant trade practices issue between the ACCC and the MUA; it does not bear on the dispute which exists between Patrick and the MUA.
The ACCC is taking this action as the Trade Practices Act applies equally to the MUA as it does to any other organisation in Australia. The ability of the ACCC to achieve pro-consumer results in many areas would be crippled if it started making special exceptions in defiance of clear Parliamentary intent.

Other investigations
The ACCC continues to investigate a number of competition issues on the product market side of the waterfront.

These include the contractual arrangements between Patrick and PCS, particularly any side agreements associated with the lease of facilities; possible anticompetitive agreements between Patrick and the former Port of Melbourne Authority which came to light during the OOCL litigation; alleged 'no poaching' agreements between stevedores; a protocol that existed allegedly between the Australian Wheat Board and the ITF; and transfer of contracts from Patrick to other stevedores.
There are also other investigations in progress on the labour side, including boycotts in relation to hold cleaning. 
The matter has been set down for first hearing at 10.15am on Wednesday 27 May in the Federal Court, Sydney.
As you will appreciate, it was not the typical ACCC media release – rather the ACCC went to great pains to explain precisely why it had commenced legal proceedings against the MUA at that time.

Scale of the ACCC’s case
As is apparent from the ACCC media release, the ACCC decided to commence legal proceedings against the MUA for all of its alleged illegal conduct - namely:

·       taking steps to get the International Transport Workers Federation and its affiliates to organise and implement an international ban of ships, and shipping lines, loaded or unloaded with non-MUA labour in Australia;

·       threatening ships, and shipping lines, that they would be the subject of such bans if they used Patrick, PCS or other stevedores using non-MUA labour; and

·       organising a campaign of domestic boycotts of Patrick operations because it used non-MUA labour, including: withdrawal of labour for tugs and lines to impede ships berthing at Patrick; and blockading Patrick to stop transport companies delivering and picking up cargo from Patrick. 

The ACCC had decided that there was no point holding back at this stage. Rather, we made the decision to commence proceedings in relation to virtually every act which the MUA had engaged in or been implicated in since the dispute first started.  It now appeared that one of the main benefits of delaying our action was that we were now able to run a much larger and more sophisticated case than would have been possible had we commenced at the end of April 1998.

We also decided to take legal proceedings against only two individuals, namely, John Coombs, the National Secretary of the MUA and Trevor Charles, the local representative of the ITF. The reality was that the ACCC could have sued almost every senior MUA official for having some role in the illegal conduct. However, we chose these two individuals because we saw them as the guiding minds of the domestic and global boycotts respectively.

Explaining our conduct
The ACCC believed that it was important to explain fully why it had decided to take legal proceedings against the MUA at this time.  We made it clear that the MUA’s conduct was causing a great deal of damage to innocent parties – particularly Australian businesses whose export foodstuffs were going off or rotting on the wharves. 

The ACCC’s desire to protect Australian businesses from the effects of the MUA boycotts was to become a major theme of the ACCC’s action.

The ACCC also wanted to make it clear that it had been more than reasonable in its dealings with the MUA. The ACCC took the fairly unconventional step of stating in the media release that the MUA had privately requested that the ACCC not commence legal proceedings so that the MUA could have more time to prepare a response. However, the next thing that would happen was Coombs would appear on TV or on the radio abusing and ridiculing the ACCC.

Orders sought
The ACCC sought the following orders in its case:

·       urgent injunctions in relation to the alleged involvement of the MUA in international boycott activities in conjunction with the ITF;
·       declaration that the domestic blockades, refusal to work tugs and lines and the ITF international boycott actions breach the Trade Practices Act;
·       findings of fact (which would enable business suffering loss or damage from the MUA conduct to seek damages); and
·       permanent injunctions restraining the MUA from engaging in relevant primary and secondary boycott action. 

The most notable remedy that the ACCC did not seek in its litigation was pecuniary penalties against the MUA. At the time, the maximum pecuniary penalties for a breach of section 45DB and 45D were $660,000 per contravention.  There were no pecuniary penalties available against individuals for breaches of these provisions.

The decision by the ACCC not to seek pecuniary penalties against the MUA was a significant concession to the MUA.  I think it is highly likely that had a business been engaging in such blatant and sustained breaches of the TPA that the ACCC would have sought substantial penalties.  However, by not seeking penalties against the MUA, the ACCC could not be accused of trying to destroy the MUA financially.

The most significant remedies which the ACCC sought in its action were the urgent injunctions. The ACCC sought injunctions to prevent the MUA from calling on the ITF and overseas affiliates to boycott the 25 ships which had been stevedored by non-MUA labour during the dispute. 

We believed it was important to stop the likely detriment which would result from these 25 vessels being boycotted at various ports around the world.  Such boycotts would have caused the exporters with goods on the vessels  considerable financial damage, particularly if the foodstuffs on these vessels went off or rotted before they could be unloaded.  These boycotts would also have the more general negative effect of damaging Australian reputation as a reliable exporter.

We also thought it would be relatively easy to win our urgent injunctions given that the MUA were both publicly and privately claiming that they were not actually inciting overseas unions to engage in illegal boycotts. In other words, if the MUA were not asking the ITF or any other overseas affiliates to engage in the global boycotts, they could hardly refuse to consent to the injunctions.

In this regard, we were relying heaving on sections 87(1AA), (4) and (5), which stated:

(1AA) Where an application for an injunction under subsection (1) has been made, whether before or after the commencement of this subsection, the Court may, if the Court determines it to be appropriate, grant an injunction by consent of all the parties to the proceedings, whether or not the Court is satisfied that a person has engaged, or is proposing to engage, in conduct of a kind mentioned in subsection (1).

(4)   The power of the Court to grant an injunction restraining a person from engaging in conduct may be exercised:

(a)  whether or not it appears to the Court that the person intends to engage again, or to continue to engage, in conduct of that kind;
(b)  whether or not the person has previously engaged in conduct of that kinds; and
(c)  whether or not there is an imminent danger of substantial damage to any person if the first-mentioned person engages in conduct of that kind.

(5)   The power of the Court to grant an injunction restraining a person to do an act or thing may be exercised:

(a)  whether or not it appears to the Court that the person intends to refuse or fail again, or to continue to refuse or fail, to do that act or thing;
(b)  whether or not the person has previously refused or failed to do that act or thing; and 
(c)  whether or not there is an imminent danger of substantial damage to any person if the first-mentioned person refuses or fails to do that act or thing.

Therefore, the ACCC believed that it could get an injunction whether or not it could prove that the MUA had engaged in particular conduct in the past and regardless of whether it could prove that the MUA was proposing to engage in particular conduct in the future.

A final advantage of pursuing urgent interlocutory orders related to our problems in obtaining evidence in a timely manner. As stated earlier, the ACCC was finding it difficult to get detailed affidavits from witnesses for use in the legal proceedings in the short time frames available.  However, we believed that this problem could be overcome, at least in the short term, because the ACCC would be permitted to file a hearsay affidavit prepared by an ACCC officer in support of its application for an urgent interlocutory injunction.

This meant that an ACCC officer could interview a market participant over the telephone or at a face to face meeting and then immediately prepare their own hearsay affidavit outlining the evidence obtained. In this way, the ACCC was able obtain evidence from market participants quickly and then provide this evidence to the court in a timely manner.

Accordingly, I spent much of the next couple of months interviewing market participants over the telephone during the day and then preparing hearsay affidavits at night. In this way, the ACCC was able to get a great deal of compelling evidence before the court very quickly.

Sunday, 18 December 2011

The Untold Story: The ACCC’s role in the Waterfront Dispute


Part 11 – ACCC - MUA face off

MUA Meeting
On 6 May 1998, I travelled down to Melbourne with my colleagues from the Waterfront team for our first face to face meeting with the MUA.  The MUA had called for the meeting so that they could explain their position in relation to the boycotts, in particular the global boycotts which had been threatened by ITF affiliates.

I remember sitting on the plane and asking one of my colleagues what he thought the MUA would want to discuss at the meeting.  He said it was simple, just read page 4 of The Australian. He then handed me a copy.[1]

The waterfront union will today use its partial victory in the High Court to pressure the Australian Competition and Consumer Commission to abandon plans to prosecute two senior MUA officials.

MUA and ACCC lawyers were due to meet at 11am in Melbourne to discuss the watchdog's claims that John Coombs and Trevor Charles had breached the Trade Practices Act by aiding the International Transport Workers Federation’s planned boycott campaign during the height of the waterfront dispute.

The MUA has denied any illegal involvement with the ITF and its legal team of Val Gosternik and Kevin Bell will today argue the ACCC should no longer have concerns given this week's High Court ruling in favour of the union and the expected return to work by 2000 wharfies sacked by stevedore Patrick last month.

The ACCC will be represented by lawyers from the Australian Government Solicitors office – including General Counsel Luke Woodward and Senior Counsel Glen Owbridge– and special investigator Michael Terceiro, who has headed up the commission's MUA probe.

An unsworn affidavit by Mr Terceiro, who spent six months examining union publications and websites around the world, is part of the ACCC's documentation.

A spokesman for ACCC chairman Allan Fels declined yesterday to comment on the precise nature of the talks, but said the ACCC was yet to decide if charges would be laid.

I must admit that I liked the title of “special investigator” in the newspaper article. I thought that it made me sound like Kenneth Starr or somebody of similar investigatory stature. However, I wasn’t quite as keen on the next paragraph which stated that I had spent “six months examining union publications and websites”. I thought that this made me sound like a computer geek who just sat in my office all day surfing the web, rather than a hardcore investigator who was willing to get my hands dirty.

From the beginning of the meeting, it became apparent to me that this was not going to be a normal ACCC settlement meeting. Usually when the ACCC has a meeting with a business about a suspected breach of the TPA, it believes that it is the party which enjoys the moral high ground. However, I remember at this meeting it was the MUA which was continually trying to assert the moral high ground, while at the same time being completely dismissive of the ACCC's concerns.  The MUA’s confidence had been greatly enhanced by its recent win in the High Court.

A major issue we discussed at the meeting was whether the MUA would abide by undertakings which they had given to the Federal Court not to engage in any boycott conduct towards Patrick.  We also asked whether these undertakings would extend to any ships loaded at Webb Dock by the PCS.  Unfortunately, we received vague answers to these specific questions. It became apparent to us that the MUA and its legal advisers had come to the meeting with the intention of playing games, rather than to make any genuine effort to resolve our concerns.

The most annoying part of the meeting was when the representatives of the MUA looked us right in the eye and said that the MUA had nothing to do with the ITF’s threatened global boycotts. We knew at the time that this was simply false. 

Regardless of the MUA’s games, it was apparent to me that the MUA were very concerned about the ACCC taking legal action against them. Indeed, the MUA appeared to be quite desperate to stop that happening. 

The MUA’s main concern appeared to be that if the ACCC took legal action against them, that this may turn public opinion against their cause.  At that time, the ACCC had a good reputation as an independent and fearless regulator, which no doubt gave added weight to its concerns about the MUA's conduct.  I also think that the fact that the ACCC had not commenced legal proceedings immediately after the sacking convinced many people that the ACCC was not operating at the direction of the Howard Government, but rather was operating independently.

After the meeting, the Waterfront team was scheduled to return to Sydney. However, before returning I wanted to go to have a look at Webb Dock.  At this time, there was still a large picket line at Webb Dock and the mood of the picket line was very aggressive. 

I turned to my AGS colleague and told him of my plan.  He looked very nervous about the idea of going to Webb Dock. He had been my unfortunate companion on the earlier visit to the MUA head office, so it was fair to say that he didn’t trust me very much.  I assured him that we were only going to have a look and that I doubted we would be able to get very close to Webb Dock because of the picket lines.

I flagged down a taxi and told the taxi driver we wanted to go to Webb Dock. He looked at me in terror and said, “You want to go to Webb Dock?”  I confirmed that that was where we wanted to go.  Despite the fact that he clearly did not want to accept the fare, he headed off to our destination with little enthusiasm.

We headed off to Webb Dock. I was sitting in the front seat of the taxi and the AGS lawyer was in the back.  After driving for some time, we arrived at the port precinct. I was very surprised to see that the whole area looked abandoned – there were no people anywhere.

We arrived at what appeared to be the Webb Dock gate and then proceeded to drive through it. We then drove down to the actual dock area where there were a few containers and a large number of motor vehicles.  It dawned on me that we had somehow driven behind the picket lines.  But, where was the picket line?

The taxi driver then turned the taxi around and started driving back to the gate.  As we were driving back, the then CEO of the ACCC called me on my mobile phone to find out how our meeting with the MUA had gone.  Just as he started talking to me, a few hundred picketers appeared at gate between where we were and where we wanted to go. It seemed that the picket line had left the gate for a short time which, coincidentally, had also been the precise moment that we had driven through the gate.

Now the picket line was back and looking very angry at the two guys in suits who had somehow gotten behind the picket line. I suspect they were actually angry with themselves for having somehow let us through the picket line without their knowledge.

As we drove towards the picket line, the picketers formed a human barrier in front of us.  The CEO, who was still on the phone to me, realised something was up by the fact I had gone silent mid-sentence. He asked me what was wrong. I told him that we had inadvertently driven behind the picket line and that we now had a few hundred picketers in front of us who were looking at us with extreme malice. I said to the CEO that I thought we were going to be beaten up.

At that moment, the poor unfortunate tax driver asked me what he should do.  I gave him the following instructions without even thinking – slow down, keep driving, and whatever you do, don’t stop. I thought that if we slowed down to about 5 kms an hour and continued on our path, that the picket line may part and let us through. I added one further important instruction to the taxi driver - “Make sure you don’t hit anyone”.

As we came close to the picket line, I remember seeing all the picketers looking at me and then looking at each other. I knew that it would only take one person to do something and the rest would follow suit. For example, if someone had decided to stand in front to the taxi and not move, I am sure that other picketers would have done the same. Alternatively, if someone had tried to drag us out of the taxi, I knew that the entire mob would have joined in.  Fortunately, in that very long 1 minute as we drove towards the picket line, nobody on the picket line could decide what to do. 

When we got to the front of the picket line, it started to part slowly. We started driving through.  The picket line continued to part.  I knew that at any second everything could change. It would take just one member of the picket line to do something and the rest would follow – luckily for us, that didn’t happen.  The picket line continued to part until we had made it to the other side. Once we made it through the picket line, we drove away, with considerable relief. 

I remember looking back over my shoulder at the picket line. The members of the picket line were all staring at us with a look of disbelief on their faces.  I think that they were quickly coming to the realisation that they should have done something rather than just let us breach their picket line twice.

When we had driven for a short time, the AGS lawyer asked me whether I had had a Plan B just in case my Plan A had not worked.  I replied, “Of course I had a Plan B. If the picket line had stopped us, I was going to push you out of the taxi and tell them to play with you for a while”.  While the AGS lawyer laughed, it seemed to me that he was, like me, still quite shaken by the whole experience.

When we arrived back at the CBD, I asked the taxi driver what the fare was. He looked down at his meter and said in a sheepish way that he had forgotten to turn on his meter. The taxi driver had been so scared at the prospect of going to Webb Dock that he had forgotten to turn on his meter! That event alone probably demonstrates quite well just how dangerous the atmosphere at the waterfront was at the time. 

I asked the taxi driver how much he thought the fare would be had he remembered to put his meter on.  He told me an amount.  I gave him the fare plus a very healthy tip, which I thought might make up in some small way for the terror I had just put him through.

Provocation
In the first couple of weeks of May 1998, there was a distinct possibility that the ACCC may not in fact end up taking legal action against the MUA. Given the High Court’s decision that Patrick could only hire its former MUA workers, there seemed to be no sensible reason for the MUA and the ITF to maintain their threatened boycotts. Indeed, on 5 May 1998, the first MUA workers returned to work, admittedly on an unpaid basis, to clear the backlog of containers.[2]  If the boycotts had stopped at that time, the ACCC could have just walked away.

Given these events, one has to ask why the ACCC ended up taking legal action against the MUA?

The simple explanation was extreme provocation. Despite winning their case in the High Court, the MUA continued to incite global boycotts of Australian shipping. The MUA did this in reprisal against the parties who had dared to use non-MUA labour during the dispute.  The MUA continued engaging in such conduct in the face of many clear warnings from the ACCC that they must desist.

While the MUA’s earlier illegal boycott conduct could be excused to some extent because of Patrick’s extremely provocative actions, this current boycott activity could not be defended in the same way. To continue inciting boycotts of ships which had been stevedored with non-union labour in the then current circumstances was industrial thuggery, pure and simple.

At the ACCC, we saw the news reports that the global boycotts would remain in force until there was a “definitive end” to the waterfront dispute.[3] What this meant was that the MUA and its overseas affiliates would continue their illegal boycotts until all the MUA workers were given their jobs back.  As stated earlier, the MUA decided on this course of action despite the High Court’s decision that the administrator of the Patrick labour hire companies was the one who had the legal right to decide how many workers went back.

In mid-May 1998, the International Longshore and Warehouse Union (ILWU) picketed the Columbus Canada at Longbeach, California because it had been loaded in Australia using non-MUA labour.

David Cockcroft, the then head of the International Transport Workers Federations (ITF) was quoted as saying:

I imagine the bans on the Columbus Canada won’t end at Longbeach. This ship is likely to get a similar reception when it goes to San Francisco, Seattle and Vancouver.[4]

When the media asked John Coombs about this incident, he quite innocently said that he was unaware of what had happened.

The ITF also started playing games with the ACCC.  The ITF was aware that the ACCC had asked the MUA to withdraw any requests which it had made to the ITF and ITF affiliates to boycott ships which had been loaded or unloaded by non-MUA labour.

The ITF subsequently put messages on its website addressed to all of its affiliates in which they told these affiliates to ignore any requests from the MUA to cease boycott action.[5] We found it somewhat strange that the ITF would have published such a message on its website if the MUA had not in fact asked the ITF and other unions to engage in the illegal boycott conduct in the first place.

The MUA’s apparently bloody-minded attitude to getting all its workers re-employed was just a ruse. What it really wanted to achieve were generous redundancy payments, entirely funded by the Howard Government, for any excess Patrick MUA workers who the administrator did not re-employ. The MUA believed that it would have greater leverage in achieving this outcome if the boycott activity against international shipping was continuing. 

The MUA’s irresponsible and reckless approach to the global boycotts put it on an inevitable collision course with the ACCC.



[1] “MUA bid to tame watchdog”, The Australian, 6 May 2011, p. 4.
[2] “Wharfies back on the job for free”, Australian, 6 May 1998, p. 1.
[3] Ibid.
[4] ‘Another for ships face US dock ban”, Australian, 12 may 1998, p. 6.
[5] “ACCC may sue on port delays”, Lloyds List, 18 May 1998, p. 132.

Wednesday, 14 December 2011

The Untold Story: The ACCC’s role in the Waterfront Dispute


Part 10 – Rule of law…going, going, gone

ACTU defiant
Towards the end of April 1998, Judge Barry Beach of the Victorian Supreme Court granted Patrick a range of injunctions preventing the continuation of the boycotts at its Melbourne container facilities. 

There was little doubt when these injunctions were made that they were probably too broad to be enforceable. Effectively, Justice Beach ordered that no protestors were to come within 200 metres of East Swanson and Webb Docks.  The injunctions applied to “anybody” protesting at Patrick’s facilities - they were not limited to either MUA members or even to an identifiable group of individuals. Furthermore, the protestors were not allowed to take photos of people behind the picket lines, which obviously caused considerable problems for the media.

There was a strong expectation that Justice Beach’s injunctions would be overturned on appeal. However, that would take time. It also became apparent to us that the MUA could not afford to call off the boycotts because that would have given the non-union workers an opportunity to get on the wharfs to show what they could do. Accordingly, the MUA simply decided to ignore the injunctions. 

In a remarkably irresponsible act, the ACTU and its main spokesperson in relation to the Waterfront dispute, Mr Greg Combet announced publicly that the ACTU would also defy Justice Beach’s orders and continue with the boycotts in Melbourne.  The ACTU encouraged its union membership to do the same and defy Justice Beach’s injunctions.

In a further act of industrial irresponsibility the ACTU publicly gave formal approval to national industrial action in support of the MUA.[1]

The ACTU and Combet did not seem to care that by blatantly ignoring the Court’s orders, and encouraging others to do the same, they were committing a clear and very serious contempt of court.  

The actions of the ACTU and Combet marked a significant deterioration in the dispute.  The ACCC had understood up until that time that the parties to the dispute would obey court orders.  Even though most of the parties appeared to be ignoring almost every law which applied to them, such as the TPA, the Workplace Relations Act and the Corporations Law, we all believed that the parties would draw the line at ignoring court orders.  However, the statements and actions of the MUA, the ACTU and Combet in relation to Justice Beach’s orders signalled to us that even court orders were going to be ignored by the parties if they did not like the consequences of complying with those orders.   

I think it is fair to say that the rule of law had been well and truly abandoned by this stage in the dispute.  Unfortunately, worse was to come!

ICFTU acts legally
One should compare the actions of the ACTU, in publicly stating that it was going to engage in contempt of court, to the actions of its international counterpart, the International Confederation of Free Trade Unions (ICFTU).

By way of background, the ICFTU is an international confederation of trade unions based in Belgium.  At the time it represented 206 different local unions around the world, with approximately 125 million members.

The ICFTU announced in late April 1998 that it had written to the Prime Minister Mr Howard to advise him that it would be organising a range of union actions in support of the MUA.[2] However, in contrast to the actions of the ACTU, the ICFTU was not proposing to engage in, or seek to facilitate, illegal boycotts. Rather the ICFTU announced that it was proposing to engage in a series of entirely lawful actions to place pressure on the Howard Government and Patrick to try to facilitate a resolution of the dispute.

For example, the ICFTU announced that it was proposing to mount a legal challenge against the Australian Government through the International Labour Organisation for alleged breaches of the freedom of association laws. It also said that it would be contacting institutional investors in Patrick and its parent company Lang Corporation to try to get these institutional investors to put pressure on the companies to change their approach to dealing with the MUA.

At the time, I was very impressed at the way the ICFTU had decided to approach the issues. It had decided to focus its efforts on legal means of pressuring Patrick and the Howard Government to fix the dispute rather than to promote illegal conduct, including engaging in conduct which would constitute a contempt of court. It was unfortunate that both the MUA and ACTU did not decide to adopt a similar approach to the ICFTU. Indeed, the approaches which the ICFTU decided to take were clearly available to the ACTU.

Criticisms of ACCC
At this time, the ACCC was being criticised relentlessly by the then Labor opposition. Professor Fels was being criticised by a number of Labour politicians for even threatening to take legal action against the MUA. The main critics of Professor Fels were Kim Beasley, the then leader of the Opposition and Lindsay Tanner, who was at that time the Shadow Minister for Transport.   The general line which the Labor Party took in its criticism of Professor Fels was that he was being partisan in threatening to pursue the MUA and not Patrick and other businesses involved in the Waterfront.

In actual fact, the Labor opposition was trying to pressure the ACCC into not intervening at all.  Ironically, I am fairly confident that the Labor opposition would have been up in arms if they had obtained any evidence that the Howard Government had been trying to pressure the ACCC into intervening in the dispute against the MUA.

In early May 1998, Professor Fels decided to get on the front foot in explaining the ACCC’s approach to the dispute. In a lengthy article in The Age entitled “Watchdog and the Waterfront”, Professor Fels made the following comments:[3]

What is the role of the Australian Competition and Consumer Commission in the waterfront dispute? Is it taking sides? No. It is just doing the job the Federal Government gave it to do…

The Parliament made the commission responsible for upholding the law. It also decreed that the commission must act impartially, independently and without fear or favour.

The employers – Patrick, PCS and P&O – and the Maritime Union of Australia have engaged in conduct which the commission is investigating for possible breaches of the act.

The commission is not taking sides. Its role is simply to ensure that no one breaks the law. If it turned a blind eye to breaches of the law (as some suggest would be appropriate in this case), its hard won credibility and integrity across the board would suffer.

The commission’s job is to ensure there are no breaches of the law by anyone – although, interestingly, it is nearly always portrayed by affected parties as taking sides when it intervenes in the public interest and this case has been no exception.

The commission has tried to be even-handed when applying the law.

It is investigating: the lease arrangements between Patrick and the National Farmers Federation owned by PCS Stevedoring at Webb Dock; possible anti-competitive arrangements which came to light in the OOCL litigation (an investigation that has accelerated now that Supreme Court documents are available); and allegations of (a) “no-poaching of customers” agreement during the dispute between Patrick and P&O.

These investigations have received less publicity than the labour-market investigations partly because the MUA (acting within its rights) has released most of the correspondence about itself, whereas the businesses involved have not.

On the labour market side, the commission has been investigating: alleged MUA collusion in international boycotts of Australian goods and services; alleged refusal by tugboat employees to cooperate in the berthing of ships at Patrick terminals; alleged MUA boycotts in relation to hold–cleaning practices; and the general picketing activities, insofar as they go beyond being peaceful (although there are already injunctions and other orders imposed by courts under other laws in relation to these). 

The commission has been concerned to play a difficult situation with a straight bat.

It is following standard and proper processes, despite allegations by the MUA of commission harassment. It is customary, when it learns of behaviour that would breach the Trade Practices Act, to warn participants in the hope of stopping the behaviour.

The MUA announced on television, radio and newspapers that efforts would be made to block the loading and unloading of ships at Patrick terminals. The commission sent the MUA a standard warning letter and telephoned the MUA secretary to tell him that the letter had been sent.

It is regrettable that the effect of the MUA comments is simply to discredit an independent agency doing its job properly.

Should the commission exercise its discretion to apply the law leniently because unions are involved? There are no signs the Parliament intended this. If anyone thinks the law is undesirable, they should get it changed by Parliament rather than expect the regulator to nullify it.

In any case when prospective breaches are announced with maximum publicity, the commission has little choice but to act….

In conclusion, difficult and emotional though the dispute may be, the commission is a public institution which can only maintain integrity and respect if it is seen to be fearlessly objective in pursuing its statutory responsibilities.

In that process, it is almost inevitable that parties whom the commission seeks to regulate will be aggrieved and angry. Unfortunately, for the commission, this is a fact of life it must face in fulfilling its functions.

Professor Fels made it quite clear that the ACCC would be doing its job properly and that we would not be influenced into taking action by either side in the dispute. We assessed all the complaints we received in the usual way, always being careful to maintain our independence. We never decided to pursue any complaint at the request of any external parties. Every investigation had to meet the ACCC's usual enforcement priorities before we decided to commence an investigation.

The reference in Professor Fels’ article to "the various parties who wanted the ACCC to turn a blind eye to breaches of the TPA" was a clear reference to both the ACTU and Labor opposition. 

As stated by Professor Fels, the ACCC had decided to commence a number of business-side investigations because it wanted to be balanced in its approach during the Waterfront Dispute. By investigating both the unions and businesses, the ACCC hoped that nobody could accuse it of being partisan.  Unfortunately, this was not what happened. All the ACCC achieved by commencing investigations into players on both sides to the dispute was to give them both the ammunition to argue that the ACCC was being partisan against them.

While I didn’t mind conducting these business-side investigations, it seemed to me to be a bit strange that our small team had to devote its meagre resources to investigating these less obvious alleged breaches of the TPA, at a time when the MUA was engaging in blatant breaches of the TPA and taunting the ACCC about its illegal conduct. I thought there would be plenty of time to go after anybody else in the industry that was breaching the TPA once we had commenced legal proceedings against the MUA.

I was also very frustrated that the ACCC was giving the MUA so many warnings - indeed, more warnings than they deserved. Contrary to what Professor Fels said in his article, it was not standard ACCC operating procedure to give a warning to a party which the ACCC believed was contravening the TPA. Rather, the ACCC would usually seek an explanation from the party about its conduct and ask the party to stop engaging in that conduct.  If the business did not provide an adequate explanation and also did not agree to stop their conduct, the ACCC would generally be seeking to immediately commence legal proceedings against that party.  

High Court victory for MUA
On 4 May 1998, the High Court handed down its decision in relation to Corrigan’s appeal against the order that he reinstate his MUA workers.  The ACCC had decided to await the outcome of the High Court decision before deciding whether to commence legal action against the MUA.

In a 6-1 decision (Justice Callinan dissenting) the High Court upheld the injunction forcing Corrigan to reinstate his MUA workers. It initially appeared to everyone that the MUA had won a comprehensive legal victory and the sacked workers would soon be getting their jobs back.

However, soon after the decision, it became apparent that the High Court had not ruled entirely in the MUA’s favour. While the High Court affirmed Justice North’s orders requiring Patrick to rehire the sacked MUA workers, it also decided to vary Justice North’s orders. The High Court varied the orders to grant the administrators of the Patrick labour hire companies discretion as to whether they would rehire all of the sacked MUA workers, or only some of the workers. In other words, whilst the Patrick labour hire companies could only hire the former MUA workers, the administrators in charge of those businesses could decide whether to rehire only part of the sacked MUA workforce if this would improve the financial viability of these companies.

As stated by the majority:

It is one thing to restrain Patrick operations from giving effect to the termination of the labour supply contracts…It is a very different thing to fetter the discretion of the administrators. There was an appealable error (in Justice North’s initial orders) which can be rectified by the insertion of an appropriate qualification.

Coombs and the MUA were very unhappy with the High Court’s decision.  Coombs was immediately quoted in the media as saying:

I’m not interested in getting one-third or two-thirds or three-quarters of them back. They’ll all be going back or none of them will be going back.[4]

We are not going back on their terms, and if we have to stay out a bit longer to get back on our terms, we will stay out a bit longer.[5]

In other words, the MUA did not care that the High Court had made a decision concerning the legal position of the parties to the dispute. Even though High Court had provided clear guidance on how the dispute may be resolved, the MUA was determined to ignore this direction and to continue engaging in the illegal boycott conduct until they got exactly what they wanted.

The MUA’s pronouncements that it would effectively ignore the High Court’s ruling was probably the lowest point in the dispute in terms of the parties showing a blatant disregard of the rule of law.  If the parties were willing to ignore the highest court in the land then there was little hope of the courts providing a legal resolution.

We were also concerned that if the MUA and the ACTU could be so blasé about the consequences of ignoring the court’s rulings, including the High Court’s ruling, there would be nothing to stop both Patrick’s and the Howard Government from ignoring any court rulings that they did not like.


[1] “Unions Defy Court Ban”, Australian, 21 April 1998, p. 1.
[2] See “Global unionists threaten Australia”, Financial Review, 23 April 1998.
[3] “Watchdog and the waterfront”, The Age, 4 may 1998, p. 132
[4] “Checkmate: Wharfies rejoice but it’s a move too soon”, Daily Telegraph, 5 May 1998, p. 1.
[5] “Any settlement will come on the wharves and not in the courts”, SMH, 5 May 1998, p. 7.