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Trade Practices Compliance Programs: Pre-emptive strings to the ACCC's bow

Published: 8 Sep 2008

By Joe Lederman
FoodLegal Lawyers and Consultants
© Lawmedia Pty Ltd, September 2008

The Australian Competition and Consumer Commission (‘the ACCC’) has the power to obtain court-enforceable Undertakings from companies that it alleges to have breached the Trade Practices Act 1974 (Cth). This article explores the patterns and framework for recent Undertakings sought and obtained by the ACCC from food companies.

Court-enforceable undertakings have become a feature amongst the outcomes sought by the ACCC taking action against businesses for breach of the Trade Practices Act, in particular any breach of Sections 52, 53 and/or 55, involving misleading or deceptive conduct.

Under Section 87B of the Trade Practices Act, the ACCC is empowered to enter into agreements that, if breached, enable the ACCC to initiate legal proceedings to have that agreement, and such undertakings contained within, enforced by court action without having to prove the original alleged breach of the Trade Practices Act.

Over the past year, the ACCC has regularly used the power under Section 87B to require food companies to review their procedures with a view to ensuring future compliance with the Trade Practices Act. However, the ACCC is not content with review alone. The ACCC has gone further in using the undertakings power to exact continuing compliance obligations from food companies. These potential obligations might, in some cases, necessitate a company employing additional staff or engaging external consultants to provide sufficient knowledge and expertise for a food company to create and maintain a sufficient level of Trade Practices Act knowledge. The goal of such programs is for food companies to avoid the risk of running foul of the Trade Practices Act and suffering heftier financial penalties including fines of up $1.1 million for each offence.

Prior to recent changes (and as recently as March 2008), a common example of the earlier Undertakings sought by the ACCC with regards to Trade Practices Act Compliance required food companies:

"to instruct an Australian law firm with trade practices expertise, or suitable professional with trade practice compliance experience and expertise, to undertake a review [of the company’s] procedures […]"

and

"to provide a report to the ACCC in respect of the review…"

While this particular type of Undertaking required that the food company have its procedures reviewed by someone “with trade practices compliance experience and expertise”, there was no mention of courses or follow-ups apart from providing the ACCC with a report of the review and its implementation. Such an Undertaking gave a wide scope to the food company as to how to proceed in terms of its Trade Practices compliance and future conduct.

However, the ACCC in more recent times, has adopted a much more specific and tougher approach. The most recently sought court-enforceable Undertakings have become far more detailed with the ACCC spelling out in more detail what is required from the food company to ensure compliance with the Trade Practices Act in the future. For example, Undertakings entered into in May 2008 directed a food company to:

  • Create a new position within the business administration (a “Compliance Officer”);
  • Train the Compliance Officer in trade practices compliance by someone who is a “suitably qualified compliance professional or legal practitioner with expertise in trade practices law”;
  • Train all other staff involved in promotion of products in trade practices compliance;
  • Install a complaints management process;
  • Review annually (at its own expense) the Trade Practices Compliance Program; and
  • Report to senior management on the maintenance and development of the Trade Practices Compliance Program.

The ACCC Templates

The obligations under recent Undertakings given to the ACCC illustrate the new approach taken by the ACCC in its enforcement of the Trade Practices Act. The ACCC's Undertakings power is being used not only to redress or correct purported breaches of the Trade Practices Act, but to control how a company will conduct its business long after the Undertakings are signed.

There now appear to be 4 “levels” of Undertakings that may be imposed with the ACCC deciding on the level of obligations to be undertaken by infringing companies after considering the nature of the breach, the number of employees who may expose the company to Trade Practices risks, and the company’s size, resources and turnover.

Level 1 Trade Practices Compliance Programs are similar to those mentioned in the earlier, generic Undertakings referenced above. Such undertakings will require that a company director undertake practical trade practices training administered by a suitably qualified, compliance professional or legal practitioner with expertise in trade practices law and that the company will develop a complaints handling process.

A second kind of Undertakings from May 2008, referenced above, provide us with an example of Level 2 Trade Practices Compliance Programs. Such Undertakings require that the company appoint a director or manager as a Compliance Officer, that the Compliance Officer be trained, and that the Compliance Officer in turn train select staff. Furthermore, the company must install a complaints management process and review its Compliance Program. Such reviews are also extensively detailed; they must be performed by a similar professional who trained the Compliance Officer but not the same person. In fact, the reviewer must be completely independent from the company. The Review Report will make recommendations as to the effectiveness of the Compliance Program.

Level 3 Trade Practices Compliance Program is a further enhancement that requires an Undertaking for several extra steps on top of Level 2 Undertakings. It requires the appointment of a "Compliance Advisor", who is already considered to be a specialist compliance professional with expertise in Trade Practices issues. A risk assessment of the business must first be undertaken by a Compliance Officer and his or her Compliance Advisor. The Undertakings also require that the company issue a “Compliance Policy” and that the independent Reviewer of the Compliance Program issue a report to both the senior management of the company and to the ACCC itself.

Finally, there might be an Undertaking for compliance in the form of Level 4 Trade Practices Compliance Programs. These have the most detailed and strict ongoing obligations on infringing businesses. This is a type of Compliance Policy that is expressly required to guarantee protection for whistleblowers, or employees who report potential lapses in trade practices compliance. The complaints handling system must conform to Australian and international standard AS/ISO 10002:2006 (Customer satisfaction – Guidelines for complaints handling in organisations). Training of staff in Trade Practices compliance is to include “all new directors, officers, employees, representatives and agents, whose duties could result in them being concerned with conduct that may contravene” the Trade Practices Act. Finally, the ACCC has reserved the right in Level 4 Undertakings to publish further details on the public register as to the infringing company’s Trade Practices compliance. This loss of corporate privacy could be a severe sanction on top of any other penalties.

Compliance training the best pre-emptive protection

The best mechanism to reduce the likely extensive costs of having an unwanted confrontation with the ACCC (which can impose corrective advertising, product recalls and significant damage to business and product reputation) is to ensure that your business is always Trade Practices compliant.

Our firm FoodLegal specialises in food industry regulation and Trade Practices law and compliance. FoodLegal creates tailor-made Trade Practices Compliance Programs for companies. In addition, FoodLegal is qualified to review existing Trade Practices Compliance Programs and can provide certification of compliance.

If your company is ever contacted by the ACCC in relation to a purported breach of the Trade Practices Act, do not hesitate to seek legal representation and remember to discuss with FoodLegal how you might best meet your compliance obligations.