Monday, 20 June 2011

ACCC Investigatory Insights - Part 3

Section 155 Notices

Introduction
Receiving a section 155 notice from the Australian Competition and Consumer Commission (ACCC) can be an alarming and intimidating event. The entire process can become even more disquieting if you do not understand the correct way to respond to the section 155 notice.

Is the notice expected or unexpected?
The first issue to work out is what type of section 155 notice is it. By this I do not mean whether the notice is for the production of information or documents or the provision of oral evidence but whether the section 155 notice was expected or unexpected.

If your company has been the subject of an ACCC investigation for some time, then it is likely to have already provided considerable amounts of information and documents to the ACCC on a voluntary basis. If your company receives a section 155 notice after a lengthy investigation it probably means that either:

  • the ACCC is contemplating litigation and it needs to obtain specific evidence in admissible form for use in court proceedings; or 
  • the ACCC's investigation has reached an impasse and that it is hoping to overcome this impasse by issuing a section 155 notice to obtain some crucial investigatory leads. 
If the section 155 notice is drafted quite narrowly in terms of seeking specific information and documents, it is likely that the ACCC is preparing a case for litigation.

If on the other hand, the notice is drawn broadly and seeks general information such as details of customer complaints and the names of former employees, the chances are the ACCC is trying to break through in their investigation.

Regardless of where the ACCC is coming from, it is important to contact the ACCC officer immediately once you receive the section 155 notice to organise a meeting to discuss the ACCC’s investigation. Often when companies receive a section 155 notice, they decide to avoid all contact with the ACCC. This is a mistake, as the company may miss an opportunity to bring the entire matter to head at an early stage, and thus avoid considerable expense.

The more serious situation is where the receipt of a section 155 notice is the first step in the ACCC investigation. It is very rare for the ACCC to commence the overt stage of an investigation by issuing a section 155 notice, particularly in consumer protection matters.

If your company receives a section 155 notice in these circumstances you can assume that the ACCC has some detailed information about your company’s alleged illegal conduct, most probably from a former employee. It may also be the case that the ACCC has been informed by one of your former employees of the existence of a number of allegedly “smoking gun” type documents.

Another reason why the ACCC may decide to commence the overt phase of their investigation by issuing a section 155 notice on your company is because they have been told by some person that your company is unlikely to be cooperative or truthful if asked to provide information and documents on a voluntary basis.

If your company receives a section 155 notice unexpectedly it should immediately do two things. First, it should immediately commence an internal investigation into the subject matter of the notice, with a particular focus on any former employees who may have had some reason for approaching the ACCC. Second, it should contact the ACCC to organise a meeting to discuss the allegations contained in the section 155 notice. It is very unlikely that the ACCC officers will refuse to meet with you. Furthermore, in any meeting with the ACCC you are likely to gain some insights about the basis for the ACCC’s interest in your company.

What type of notice?
The next issue to consider is what type of notice or notices have been issued to your company. The ACCC can use three types of section 155 notice.

Section 155(1)(a) notices are used to obtain information, section 155(1)(b) notices are used to obtain documents and section 155(1)(c) notices are used to obtain oral evidence at an examination.

It is common to get both section 155(1)(a) and (b) notices at the same time. The ACCC will usually ask specific questions about the alleged conduct with a section 155(1)(a) notice and then demand the documents which evidence those answers, through a section 155(1)(b) notice.

Section 155(1)(a) is also often used to obtain admissions from a company. These admissions can then be admitted as evidence in court proceedings. Admissions by the company can only be used against the company and not against individuals. However, admissions by an individual can be used against the company if the requirements of section 86 of the CCA are met.

It is very rare for a company to be issued with a section 155(1)(c) notice at the same time as section 155(1)(a) and (b) notices. This is because the ACCC will usually want to put relevant documents to examinees in an examination. Therefore, it will use section 155(1)(b) to get documents and then issue a section 155(1)(c) notice to a person in order to ask them about the documents which it has obtained.

Analysing the notice
On receiving a notice you should analyse the document to determine what it means. This might sounds obvious but many companies fail to examine the notice critically to understand precisely what it means.

The section 155 Notice will contain a section entitled “Matters which Constitute or May Constitute a Contravention of the CCA”. This is effectively the allegation against your company.

The questions you should ask yourself after reading this section are:

  • What does the ACCC believe our company has done? 
  • What sections of the CCA does the ACCC think our company has breached? 
  • Over what time period does the ACCC believe our company has engaged in this alleged conduct? 
  • Who are the most likely sources of the information on which the ACCC has relied to issue the notice/s? 
  • Are there any parts of the “Matters which Constitute or May Constitute a Contravention of the CCA” which seem a bit vague? 
A close reading of this part of the section 155 notice can disclose a great deal about the ACCC’s investigation and its likely sources of information.

It is also possible that this section has not been drafted correctly. For example, the description of the conduct may not fit squarely within the relevant provisions of the CCA. If this is the case the Notice may be invalid on its face.

Some legal advisers will recommend to their client to challenge section 155 notices which are not drafted correctly. However, this is often not a sensible idea as it usually quite easy for the ACCC to redraft the notice to make it valid. Having said this, it is still appropriate to point out any potential problems with the Notice to the ACCC.

The ACCC usually spends a considerable amount of time making sure it gets the section 155 correct. The ACCC’s internal lawyers will carefully check the section 155 notices to make sure they are correct.

You should also check the scope of the section 155 notice in terms of the time frame. Sometimes the section 155 notice will allege conduct which spans a particular period, but then the notice will demand information and documents which go beyond that period. If this occurs, you should ask the ACCC to explain why the notice seeks information and documents in relation to conduct which precedes the alleged contraventions.

It is also likely that the time frame for your company to provide information and documents will be inadequate. You must recognise that often the ACCC does not have a good idea just how much information and how many documents their notice is likely to catch. Nor does the ACCC have a good understanding of what your company’s file management system is like.

Accordingly, it is entirely appropriate for you to raise your concerns with the ACCC about the inadequacy of the time frames for compliance. However, you should endeavour to raise these concerns as soon as possible and not a day or two prior to the date for compliance. Often companies leave their complaints about time frames until shortly before the date for compliance. This generates considerable suspicion within the ACCC that you may be trying to delay the investigation.

If you need more time to comply, you should approach the ACCC with a proposal for the staged delivery of information and documents, rather than simply making a blanket request for an additional period of time to provide all the information and documents. What you have to realise is that the ACCC’s primary goal is to ensure that its investigation is not unduly impeded by a delay in a company responding to section 155 notices. The ACCC does not want to put its investigation on hold for 4 -6 weeks while it awaits full production.

You should propose to the ACCC that your company produce the most readily accessible information and documents by the due date and that other material will be provided shortly thereafter. The ACCC will usually agree to staged delivery unless the time frames are too long.

Variations
If you come to an agreement with the ACCC for staged delivery, it is important to insist that the ACCC vary the initial notice to reflect any extensions which have been granted. This is usually done by varying the date for compliance to state the different dates that information and documents are due.

It is important to insist on a variation as you do not want to risk the possibility that the ACCC may later allege that your company failed to comply with the notice by the due date. Failure to comply with a notice by the due date is a criminal offence punishable by a criminal penalty of $2200 or 12 months imprisonment.

Responding to a notice for information and/or documents

Make sure that you are fully involved in the process of complying with the section 155 notice. Do not outsource this task entirely to your legal advisers. The risk is that some legal advisers tend to take an overly restrictive interpretation of the notice and exclude a significant number of arguably relevant documents from production. However, in the event that the ACCC disagrees with this narrow interpretation it will be the company and its officeholders who will be prosecuted for non-compliance with the section 155 notices rather than the company’s legal advisers.

It is important for your company to check all the information and documents provided to the ACCC before it is produced. Often due to the short time frames involved in complying with a notice, companies either do not check the material they are providing or rush the checking process.

While there is no privilege against self-incrimination when complying with a section 155 notice, you are permitted to make a claim of legal professional privilege in relation to documents. Therefore, it is important to take the time to carefully check whether you can make any claims of legal professional privilege in relation to relevant documents.

In addition, you must ensure that you check all documents for any references in the text of those documents to the existence of other documents. It is inevitable that the ACCC will request copies of any of documents which are referred to in a document which has been produced.

Make sure your legal adviser does not make legal submissions in your response to the notice/s. Your response to any section 155 notices should be strictly factual. While legal submissions can be made, they should be made separately in a covering letter.

If your legal adviser decides to remove any documents from the bundle of documents which you have identified as relevant under the section 155 notices, make sure you are aware of which documents have been removed and the reasons why such documents have been removed. Ultimately, it is the company and its office holders who will be liable for any failure to properly comply with the section 155 notices, so do not take any chances by letting your legal adviser remove documents which you believe are relevant.

Oral examinations
Attendance at a section 155 oral examination can be a very stressful experience. The process is very formal with the ACCC often using barristers to conduct the questioning. Having said that, section 155 examinations generally do not elicit a great deal of valuable evidence from examinees.

How to prepare for an examination
The best way to prepare for a section 155 examination is to ensure that you review all relevant documents which have been produced to the ACCC which you have either written or have had access to, for example emails which you have been sent. The ACCC will generally put these documents to you in chronological order and ask you a series of questions about each document.

The ACCC should not ask you about documents which you have not written or had access to. Unfortunately, ACCC examiners will often ask examinees questions about documents about which they have no direct knowledge. If this happens, you should advise the examiner that you have never seen the document before.

Another important way of preparing yourself for an examination is to draft a detailed chronology of relevant events. This should assist you in placing events in their correct order when questioned, which should assist you in not mixing up your dates.

Conflict of interest issues
The ACCC will often raise concerns with examinees about conflict of interest issues. This usually arises when a lawyer or barrister appearing for an individual may also be acting for the company. The ACCC’s main concern is that the legal adviser may have a conflict of interest between the interests of the company and the interests of the individual.

For example, if a lawyer is acting for both a company and an employee, is the lawyer likely to advise the employee to give evidence against the company if it is in the employee’s best interests to give such evidence to avoid prosecution?

Even though this scenario raises a clear conflict of interest, it is really the individual who is facing a risk that they may get inappropriate legal advice. Accordingly, the most the ACCC can do is insist that the individual clearly understands the conflict of interest issue before the examination is commenced.

The likelihood of a legal adviser acting for both a company and an individual has been significantly reduced with the introduction of provisions to the CCA which make it illegal for a company to indemnify or pay the legal costs of any employees in relation to an ACCC investigation. As a result of these new provisions, the company and its employees usually retain separate lawyers.

The more legitimate ACCC concern relates to the possibility that a lawyer who acts for two potential examinees may divulge confidential information obtained in one examination to the other client prior to the examination. In these circumstances, the ACCC may have grounds for insisting that the legal adviser not act for both individuals.

Tips when being examined
There are a number of important tips to remember when being examined.

First, do not try to score points during the examination. The chances are that the person conducting the examination is either a barrister or an experienced investigator. They will usually have considerable experience in questioning examinees. The examiner may also have access to information and documents which you do not know they have. Accordingly, the examiner may use this information to catch you out in your examination.

Do not provide misleading or incomplete answers during the examination. There are criminal penalties for refusing to answer questions and for providing false or misleading evidence.

Do not try to answer a question which you do not full understand. If you do not understand the question, tell the examiner that you do not understand the question and ask them either to repeat the question or explain the question to you.

Do not claim that you cannot remember a fact or document if this is not true. Unfortunately, this appears to be a very common approach adopted by examinees in section 155 examinations. Examinees who claim not to remember virtually everything which is put to them do not come across as credible or believable witnesses.

The other risk is that examinees who start using this approach tend to use it quite indiscriminately, even in relation to facts which may assist their position. Unfortunately, once you have claimed not to recollect an event, it is very hard to reverse your position without looking dishonest.

Take your time to read any documents put before you before answering any questions about the document.

Do not speculate about facts you do not have direct knowledge about. While your legal adviser should probably object to questions which require you to speculate, it is also appropriate for you to respond to such questions with the phrase “I’d rather not speculate about that issue”.

If you are getting flustered, tired or losing your train of thought ask the Chair for a short adjournment. It is unlikely that the Chair will refuse such a request.

Objecting
The legal adviser has a right to object to questions put to their client in a section 155 examination. However, this right should be exercised sparingly for a few reasons.

First, the Chair of the examination has the right to eject a legal adviser from the examination if they believe that the legal adviser is disrupting the examination. Continual objections could be seen by the Chair as disrupting the examination.

In addition, it is generally not a good idea to object to a poorly constructed question as that may simply result in the examiner asking a better question.

The clearest example of a poorly constructed question would be a question which contains a number of different propositions. For example:

Were you in the office on Wednesday when your manager was talking to his competitor about the price fixing agreement?
If the examinee answers “no” to this question, it will not be clear what part of the question he is actually answering – is the examinee saying that:
  • he was not in the office on Wednesday, or 
  • he was in the office in Wednesday but was not in the room when his manager was talking to his competitor; or 
  • he was in the office in Wednesday and was in the room when his manager was talking to his competitor, but his manager was not talking about the price fixing agreement; 
  • or even, the conversation happened on Thursday rather than Wednesday. 
As you can appreciate, the answer “no” to this question is quite meaningless.

Your legal adviser should not object to double barrel or even triple barrel questions for the simple reason that the answer you give will be meaningless in an evidentiary sense.

However, your legal adviser should object to unfair questions. For example, questions which ask the examinee to comment on events which occurred before or after their period of employment or questions which ask the examinee to comment on documents which they have never seen before.

Your legal adviser should also object to bullying behaviour by either the ACCC’s legal adviser or by the Chair.

After the examination
It is likely that the ACCC will adjourn your examination rather than terminating it. This is to avoid having to issue a new notice to require you to return for further questioning. If your examination is adjourned the ACCC will advise you that you are under an obligation not to discuss your evidence with any other person until relieved of that obligation by the ACCC.

Transcript

Following the section 155 examination, you should ask for a copy of the transcript of the examination. You should check this transcript against your recollection of the examination as soon as possible.

You have an opportunity to check the transcript for any transcription errors. It is also an opportunity to reflect on whether you may have provided any answers during the examination which were either incorrect or incomplete. If you have made any mistakes in your evidence you should correct them as soon as possible.

Conclusions
The process of responding to a section 155 notice is likely to be costly, time consuming and quite stressful. It is important to remember the following simple rules about responding to a section 155 notice:

  1. When you get a section 155 notice, don’t be afraid to contact the ACCC investigator to discuss the notice – you can learn a great deal from speaking to the ACCC investigator about the notice. 
  2. If you are going to ask for more time, ask the ACCC for more time early and make sure you propose the staged production of information and documents. 
  3. Don’t entirely outsource compliance with a section 155 notice to your legal advisers – you are person who will be prosecuted for non-compliance. 
  4. Carefully check all information and documents before producing this material to the ACCC. 
  5. Make sure you ask for a transcript of your section 155 examination as soon as possible after the examination and check it for inaccuracies – immediately correct any incorrect or incomplete evidence you may have given.