Known unknowns: ACCC v Uber reflects the risks that can arise when negotiating penalties with regulators

The Federal Court’s decision in ACCC v Uber[1] reiterates that Australian Courts will independently examine agreed penalties negotiated with regulators. Courts will require detailed evidence to enable determination as to whether agreed penalties are consistent with the nature of any contravening conduct and harms to which the conduct may give rise. 

While in this matter the Court ultimately reduced the agreed penalty for one category of contravening conduct by more than 50%, parties to regulatory proceedings must recognise that agreed penalties may be adjusted up or down by the Courts. In practice, this decision is likely to mean that negotiations with regulators will become more complex, and may impose greater obligations on parties to provide more detailed evidence or agreed facts to substantiate agreed penalties. 

Australian law and practice regarding agreed penalties

It is common practice in Australia for parties alleged or found to have engaged in conduct that contravenes Australian laws to agree penalties with the regulators that investigate and enforce those laws. Courts and parties recognise that this practice can be efficient, as it may avoid needless hearings and excessive legal costs. 

In the significant majority of matters, Courts will endorse pecuniary penalties in the amounts agreed by the parties to the dispute.[2] Courts are typically reluctant to reject agreed penalties if they are within a ‘permissible range’ (taking into account all of the facts and circumstances). This reluctance stems from Courts recognising the benefit of predictable penalty outcomes that, in turn, can encourage corporations to acknowledge contraventions and avoid lengthy and complex litigation. This practice balances the principles that typically only Courts (and not regulators) can impose pecuniary penalties under many Australian laws, and that Courts will not simply ‘rubber stamp’ penalties proposed by parties. Courts must be satisfied that penalties are appropriate (and not oppressive) in the circumstances of each case. 

ACCC v Uber highlights the need for parties to provide to the Court agreed facts or evidence that are sufficient to permit the Court to properly determine whether the agreed penalties proposed are within that ‘permissible range’, within which one figure cannot be said to be more appropriate than another. 

The proposed settlement

On 26 April 2022, the ACCC commenced proceedings against Uber B.V. (Uber), in respect of alleged contraventions of the Australian Consumer Law (ACL). The ACCC and Uber filed a statement of agreed facts and admissions, and joint submissions on relief. The proceeding concerned two categories of representations that the ACCC alleged and Uber admitted constituted misleading and deceptive conduct under the ACL:

1. UberTaxi Representation. Between June 2018 and August 2020, Uber represented to consumers in Sydney that the price they would pay for an UberTaxi trip (which represented less than 1% of Uber trips within that period) was likely to be within a displayed fare range. However, 89% of the time, the fare charged was less than the lower end of that estimate.
   
   
2. Cancellation Representation. Between December 2017 and September 2021, when consumers selected an option to cancel their trip within Uber’s five-minute free cancellation period, Uber displayed a message stating that cancellation may result in the charge of a small cancellation fee. While Uber did not charge the cancellation fee for trips cancelled within that period, it admitted that its misrepresentation had the potential to dissuade customers from cancelling trips when they could have done so for free. 

The ACCC alleged that the effect of these representations was to deprive consumers of accurate information to permit them to make an informed purchasing decision. 

For these two categories of contravention, Uber agreed with the ACCC that Uber would pay a pecuniary penalty of $8 million (in respect of the UberTaxi representation) and $18 million (in respect of the Cancellation representation), comprising a total penalty of $26 million.

The Court’s response

Throughout the course of the penalty proceedings, O’Bryan J expressed concerns regarding the “grossly inadequate” state of the evidence before the Court for the purpose of considering the proposed penalties. Prior to a hearing in July 2022, the Court invited the parties to file further evidence in support of the agreed penalties. 

His Honour described the evidence initially filed by the parties as “underwhelming”. He said that it did not include basic information necessary for the Court to determine how the proposed penalties were arrived at. He also questioned the appropriateness of the penalties having regard to mandatory statutory considerations and other considerations potentially relevant to penalty (the so-called ‘French factors’).[3] In particular, the evidence before the Court provided no information regarding the value of commerce affected by the misrepresentations, the value of financial harm suffered by consumers or other persons, or whether Uber made a financial gain from the contravening conduct. 

At a hearing in July 2022, O’Bryan J said that he felt the $26 million total penalty was “outside any range [he] would order”. His Honour suggested that penalties of $1 million and $3-4 million would have been more appropriate for the UberTaxi Representation and Cancellation Representation, respectively (i.e. the agreed penalty was outside of the ‘permissible range’ by around $20 million). 

The Court ultimately determined that a total penalty of $21 million was appropriate in the circumstances. The majority of the total penalty was attributable to the Cancellation Representation (approved at the agreed proposed figure of $18 million), while the proposed penalty of $8 million for the UberTaxi Representation was reduced to $3 million, on the basis that the Court could not be satisfied that consumers had suffered substantive financial harm arising from overstatement of a fare range. 

The Court said that, in achieving both specific and general deterrence, the pecuniary penalties imposed were justified to signal to “suppliers of services using digital technology the importance of compliance with the provisions of the [ACL]”.

Takeaways

Several important considerations for businesses that seek to negotiate agreed penalties with regulators arise from this decision: 

• Acknowledgment of residual risks. The decision reiterates that Australian Courts will independently review penalties proposed to them as a result of agreements with regulators. Here, the Court recognised that this was an “unusual case” in which the ultimate penalty imposed was less than the agreed penalty. In contrast, in ACCC v Volkswagen (2021), Foster J held that a penalty agreed between the ACCC and Volkswagen of $75 million to be imposed on Volkswagen for ACL infringements regarding diesel emissions was "manifestly inadequate" in all the circumstances. It subsequently increased the penalty to $125 million (then the largest penalty imposed under the CCA).[4] Parties to regulatory proceedings therefore must recognise that notwithstanding an agreement on penalty with a regulator, the quantum of an agreed penalty may be adjusted up or down by the Courts.
  
  
• Courts and regulators may require more detailed evidence to form their views. Courts may follow O’Bryan J’s rigorous approach in ACCC v Uber. Notably, in a hearing relating to cartel conduct shortly following ACCC v Uber, Moshinsky J cautioned the parties in that matter to provide “enough factual details to assess whether the penalty is appropriate” and said that if the information provided were “too high level, it could become difficult to assess”.[5] In turn, the decision is likely to mean that negotiations with regulators may become more complex, and lead to requests for more detailed evidence and/or agreed facts to substantiate agreed penalties. This is particularly the case as recent changes have resulted in significant increases to the per-contravention maximum penalties under various Australian laws, and it is inevitable that penalties will increase dramatically.[6] As penalties increase, Courts and regulators will require a proper and comprehensive evidentiary framework to determine appropriate penalties.
  
  
• Identifying consumer harm, particularly pecuniary loss. The Court in ACCC v Uber was critical of the lack of evidence of consumer harm and was therefore unable to determine that the UberTaxi Representations resulted in material financial detriment. Almost certainly for the purpose of any agreed resolution of a matter, regulators will require businesses to provide more evidence of pecuniary and non-financial consumer harm, in addition to material on any advantages arising from the contravening conduct that were derived by the business.
  
  
• Reputational damage and confidentiality. The likely need to provide to the Court more extensive evidence of harm or benefits for the purpose of assessing agreed penalties may result in the need to disclose more commercially sensitive information. Although the Court in ACCC v Uber did make confidentiality orders, the risk of disclosure of commercially sensitive material may well be heightened.