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Consumer and Competition Law. Please answer all of the following questions: PART A Background information Over the past decade, the hardware and garden supplies industry has become dominated by a few, very large and dominant stores, which has meant the demise of the small, local hardware store and nursery. During this time the Australian public have become obsessed with hardware and home improvement, to a level comparable to anywhere else in the world. Interestingly, the hardware and home improvement market has yet to feel the pressure of online selling, as many other areas of retail have, such as books and clothing. Below are several scenarios which contain conduct that may potentially be in breach of Part IV and Part VIII of the Competition and Consumer Act 2010 (Cth) (“the Act”). You are required to advise the ACCC of the legal implications of each factual scenario. If you believe any particular conduct is, in fact, prohibited conduct under the Act, you will need to apply the law to the facts, to establish a breach of the Act, as best you can. Case law will also be relevant. For some conduct stated, there may be no potential action under the relevant parts of the Act. If this is so, briefly state the law and explain why such conduct is not prohibited. However, if you do believe some, or all, of the conduct is potentially actionable, then each particular conduct will be so only under one particular section of the Act. This means you should not find conduct that is actionable under both s 45 and s 46; or s 48 and s 47, etc. If you do, only apply one section to the facts. Please read the ‘Additional facts’ section below, which will assist in those decisions. Although, a breach of some sections may involve the application of more than one actual section of the Act. For example, a breach of s 47 may entail the application of s 4; a breach of s 48 may entail the application of s 96. Scenario 1 The two largest wholesalers/retailers of hardware supplies in Australia are the Hardware and Garden Pty Ltd (“HAG”) and Hardware Australia Pty Ltd (“HWA”). Each business controls 30% of the Queensland hardware supplies market. No Weed Australia Pty Ltd (“NWA”) manufacture a number of herbicides and pesticides, to both the retail and wholesale markets. NWA’s most successful product is Die-Weed-Die (“DWD”), a highly effective, all-purpose, all destroying weed killer. DWD makes up approximately 30% of all sales in the Australian weed killer retail market. Another product manufactured by NWA is Die-Grub-Die (“DGD”). This product is a lawn grub pesticide which is on par with most other lawn grub killers re its effectiveness. However, DGD only makes up 10% of all lawn grub retail sales in the Australian lawn grub retail market. In July 2019, the sales department of NWA made a presentation to the Board of Directors that NWA should sell DGD and DWD together, only as a bundled product, to HAG and HWA, who between them were responsible for 80% of all retail sales in the grub and weed killer markets. This idea seemed to have potential until the research department explained to the Board that, even though NWA had a huge market share in the relevant weed killer market, there were other comparable, substitutable products available to HAG and HWA and, if NWA refused to sell DWD on its own, then the big stores may look to alternative weed killers. In December 2019, the American company Mountsanta, lost a class action case that cost the company billions. The plaintiffs in the action claimed Mountsanta’s number one weed killer, Straightup, caused several cancers in those who used the product long term. Straightup, before the class action, accounted for 35% of all sales in the Australian weed killer retail market. While Mountsanta changed the formula of their Straightup to be, “Deadly to weeds, harmless to humans and most small animals,” the bad publicity saw a large decrease in their sales of all their products, especially Straightup, in Australia. The drop was so significant that by mid-2020, DWD had increased its market share from 30% to 65%. With this information in mind, the NWA informed HAG and HWA that they were going to increase the price of DWD by 9%. HAG and HWA were not happy with the idea, but both admitted the price would not affect the quantities of DWD they purchased or sold, because Australians love killing weeds, and with Mountsanta out, there was little else to choose from. With this reassurance of the dominance in the relevant market, the Board of NWA saw a real opportunity to execute the bundling idea put forward by the sales department in 2019. Not only could they increase their lagging sales of DGD, but they were also worried about a new, New Zealand company, called Quick and Deadly Kiwis Pty Ltd (“QDK”), who had decided to take advantage of the dramatic fall in the sale of Mountsanta products in the Australian pest control markets. To this end, QDK had recently launched its own lawn grub killer called “The All Dead.” As a result, NWA sent a letter to HAG and HWA in April 2020 (Letter 1 is a copy of the letter sent to HAG), setting out their new selling conditions regarding DWD and DGD. Scenario 2 Barry Smith, the CEO and owner of Barry Smith Tiles (“BST”) is the brother-in-law of Bob Jones, the CEO of Aussie Paints Australia (“APA”). Bob was having difficulties convincing HWA and HAG to stock all his company’s products. Barry, on the other hand, is the number one stockist of tiles for these two stores as his tiles are considered the best value for money tiles in Australia. With this in mind, Barry told Bob he might just be able to help him get a foot in with HWA and HAG. Barry had his secretary type up a letter to each of them (Letter 2 is a copy of the one sent to HWA and is similar to the letter sent to HAG) setting out his future tile supply strategies. Scenario 3 HWA and HAG have always sold electrical whitegoods and appliances such as ovens, microwaves, dishwashers, etc. While they sell several brands of dishwashers, one of their best sellers is the Dutch made, Vaatwasmachine TL, made by Het Leven Goed Inc (“HLG”). In fact, HWA are the number one seller of the Vaatwasmachine TL throughout Australia. Part of the reason for their success is that HWA sell the Vaatwasmachine TL 10% cheaper than any other retailer. Because HLG do not have any offices in Australia, their goods are imported by various wholesalers, with Aussie White Goods (“AWG”) being the only importer of HLG dishwashers and microwaves. AWG also imports other brands of whitegoods and appliances from all over the world. AWG has become very concerned regarding HWA’s discounting of the Vaatwasmachine TL. They are concerned because the Vaatwasmachine TL is advertised as an elite, high quality good and the discounting makes it look like your typical run of the mill dishwasher. Although AWG has consistently asked HWA to cease discounting the good, HWA have refused. Thus, in January of 2020, AWG ceased all supply of Vaatwasmachine TL dishwashers to HWA. To resolve the situation, HWA entered into a deal with HAG, where HAG would purchase extra Vaatwasmachine TL’s from AWG and then on sell the item to HWA. This scheme worked well until April of 2020, when AWG became aware of the arrangement between HWA and HAG and sent the following email to the CEO of HAG: We know what you are doing with HWA, so we have decided to no longer supply ovens or refrigerators to your company. No more fridges for you! On receiving the email, the CEO of HAG rang the CEO of AWG to find out what was going on, when the CEO of AWG said, “HWA has been loss leading with our Vaatwasmachine TL. We asked them to stop and they did not, so we cut their supply. Then we found out that you are supplying them, so we have cut your supply of fridges and ovens. HLG spend a lot of money building their brand as a supplier of elite goods, and we will not see you dirty retailers discount those products and their (and our) good name.” Scenario 4 The Queensland Government is one of the largest purchasers of hardware in the state. Most of these purchases are made through the Queensland Department of Housing and Public Works. In the October 2020 budget, to boost the lagging economy caused by the global pandemic, the State Government announced a $3 Billion refit of all state schools over the next five years. To accomplish the refurbishment, the government also announced they would be seeking tenders for the supply of all the required hardware. To this end, they would split the state into four different sectors, being Queensland North, Queensland Central Coast, Queensland Rural, and Queensland South East Coast. Two days after the announcement, the CEO’s of HAG and HWA met while at an art exhibition at the Gold Coast. While they both understood the potential revenue to be made from the government intended refurbishment of the schools, they also agreed a fierce tender process would significantly diminish their final profits from the project. Realising that each business held different economies regarding transport and warehouse facilities in different parts of the state, they decided it would be best for their bottom lines if their respective businesses did not compete in the tender process in a sector where the other business had an advantage. The resultant agreement (Agreement A) was drafted there and then. While discussing business, the CEO of HAG made the following comment, “You know, we both sell general purpose cement but hardly make any money on it because there are so many suppliers out there, such as nurseries and landscaping suppliers. But it appears to me that, while we are never going to increase our market share in the general purpose cement supply market, we can increase our price without losing market share, because people who just want cement may go to the landscape supply business, but they come to us to buy all sorts of products, most of which are cheaper than the other stores. So, if we both increase our prices of our cement, we can increase revenue without losing market share. My business wins, your business wins, we all win. It’s a win-win situation!” Pleased with this idea, they decided to add clause 8 to their agreement. A week after the agreement was made, the CEO of HAG sent an email to the CEO of Quick Cement Ltd (“QCL”), explaining the cement deal, to sound them out with the possibility of joining the agreement. QCL was a NSW company who was making their mark in Queensland as a bulk cement supply store. Basically, their model of business was you bring your own bucket and they will give you the specific cement you need, for your job. This model was really starting to take off in NSW. HAG thought QCL could become a major player in the cement market in Queensland, so it seemed a wise idea to try to include them in their agreement with HWA. The CEO of QCL emailed back thanking the HAG CEO for the information and asked if she could be kept up to date with any other agreements HAG and HWA may make, in the future, regarding the cement market. The ACCC are aware of these communications because one of the management staff at QCL saw the email and sent a copy through to the ACCC. The QCL employee told the ACCC she was concerned her employer was involved in prohibited conduct. She had just watched the ACCC’s video called, The Marker, and thought she should make inquiries. Besides the email from HAG to QCL, the ACCC have no other evidence of any relationship between the two parties, including no evidence that QCL have set their prices to be in line with the ‘Agreed Price List’ in Agreement A. Required: You need to advise the ACCC if any of the following parties are in breach of the Act or if they are not, why not. Only deal with the breaches/potential breaches of the parties listed. Scenario 1: NWA Scenario 2: BST Scenario 3: AWG Scenario 4: HWA, HAG and/or QCL Please refer to the Letter 1 and Letter 2 which are attached. Please refer specifically to ALL the relevant sections of the Competition and Consumer Act 2010 (Qld) as well as relevant case law.
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