E. facts relevant to relief
TRAINING
Initial training provided to Sales Representatives
51. Sales Representatives engaged by AGC to sell electricity on behalf of Neighbourhood Energy were provided with training prior to commencing work for two days at AGC's head office and one day training in the field. During the training, they were provided with information about Neighbourhood Energy, the electricity industry, regulatory compliance (described in further detail below) and sales techniques.
52. Following this training, Sales Representatives were required to complete questionnaires pertaining to the energy industry, Neighbourhood Energy's specific products and certain regulatory compliance obligations. Sales Representatives were also required to acknowledge their understanding of general door-to-door sales practices by signing a document outlining certain door-to-door selling rules.
53. As part of the regulatory compliance training referred to in paragraph 51, Neighbourhood Energy and AGC required Sales Representatives to undertake training as to the ACL. The powerpoint slides provided by Neighbourhood Energy to AGC for this training (Training Presentation) were updated in January 2011 to take into account the introduction of the ACL, and relevantly included reference to the following:
53.1. that Sales Representatives should not door knock a property that has a "Do Not Knock" sign or a "No Canvassing" sign;
53.2. that Sales Representatives must leave a property immediately at the request of the customer or occupant at the property and not visit the customer or occupant for thirty days;
53.3. that Sales Representatives should provide identification before entering into any discussions with the customer or occupant at a property;
53.4. that the identification badges worn by Sales Representatives must include the full name and identification number of the representative and the name and address of Neighbourhood Energy;
53.5. that, before entering into negotiations with the customer or occupant at a property, Sales Representatives must inform the customer or occupant that:
53.5.1. the representative must leave immediately if asked to do so;
53.5.2. the purpose of the representative's visit is to enter the customer into an agreement for the supply of electricity; and
53.6. that Sales Representatives should not falsely misrepresent Neighbourhood Energy or its offers, or the intent of the visit to the customer or occupant at a property.
54. At all material times, AGC gave initial training to its Sales Representatives in accordance with the Training Presentation, or substantially similar versions of it.
55. In addition, on the first day of the training referred to in paragraph 51, a document titled "Pitch Structure" was provided to Sales Representatives. This provided a dot-point structure for the discussion with the occupier (with three segments - introduction, body, close), a sample script to use in the discussion with the occupier for making sales and a sample script to use for handling objections by customers. During training, Sales Representatives were taken through the pitch and then practised making sales using the pitch. The document did not include any reference to the requirement for Sales Representatives to, as soon as possible and in any event before starting to negotiate:
55.1. clearly advise the person on whom they were calling that the Sales Representative's purpose was to seek the person's agreement to a supply of retail electricity;
55.2. clearly advise the person that the Sales Representative was obliged to leave the premises immediately on request; and
55.3. provide to the person AGC's name and address, and Neighbourhood Energy's address.
56. Instead, through the Pitch Structure document, Sales Representatives were provided with a sample introduction in the following terms:
HELLO, HOW ARE YOU? (WAIT FOR CUSTOMER TO RESPOND)
MY NAME IS …… FROM NEIGHBOURHOOD ENERGY (SHOW I'D BADGE), IT'S NOTHING AT ALL SERIOUS.
HOWEVER THERE HAVE BEEN SOME INCREASES TO YOUR POWER IN THE AREA (POINT TO THE LINES) AND I JUST NEED TO KNOW IF YOU ARE RUNNING ON A GD OR GR TARIFF.
DO YOU KNOW? (SHOW INQUISITIVE LOOK) (CUSTOMER RESPONDS "I DON'T KNOW")
THAT'S FINE JUST GRAB ME A POWER BILL, THERE IS A NUMBER ON THE BACK THAT WILL LET ME KNOW. (POINT OVER CUSTOMERS SHOULDER WITH EYE CONTACT)
NOW TURN YOUR BACK TO THE CUSTOMER AND LOOK BUSY
57. During the training, Sales Representatives were instructed not to knock on doors with 'do not knock' signs.
ACL Briefing Document
58. In addition to the Training Presentation, at about the time the ACL was introduced in January 2011, Neighbourhood Energy also prepared and provided to AGC a briefing document highlighting important differences between the ACL and the regime that had previously applied under the Fair Trading Act 1999 (Vic) (ACL Briefing Document).
59. The ACL Briefing Document relevantly included reference to the following:
59.1. the requirements in section 74 of the ACL that the dealer must:
59.1.1. advise the consumer upfront that the dealer's purpose is to enter the consumer into an agreement;
59.1.2. advise the consumer upfront that the dealer is obliged to leave immediately upon request;
59.1.3. provide the consumer with the prescribed identity information, being the dealer's name and either the dealer's address (if the dealer is the supplier) or the supplier's name and address (if the dealer is not the supplier); and
59.2. the requirement in section 75 of the ACL that the dealer must leave the premises immediately upon request and that the dealer must not contact a consumer who makes such a request for a period of thirty days.
60. The ACL Briefing Document was forwarded by AGC's director to the Senior Sales Manager and Sales Manager of AGC together with a direction that Sales Representatives be trained in, and comply with, its contents.
Daily sales training provided by AGC
61. AGC also provided daily training to Sales Representatives prior to their going out into the field to conduct sales. This training was primarily focussed on sales and pitching techniques and how to respond to objections from prospective consumers.
Basis on which Sales Representatives were paid
62. AGC paid Sales Representatives on either a commission only basis or a wage and commission basis, with commissions being paid for each consumer who agreed to acquire electricity from Neighbourhood Energy and who did not terminate the contract within 4 weeks of the sale.
CORRECTIVE MEASURES
63. Management of AGC and Neighbourhood Energy had no knowledge of the conduct of the Sales Representatives constituting contraventions detailed in Section C above until it was brought to the attention of AGC and Neighbourhood Energy by the ACCC in letters dated 11 August 2011 and 22 November 2011.
64. Since receiving notification of the ACCC's concerns regarding a particular incident involving Mr Howard and Mr Chung in a letter dated 11 August 2011, Neighbourhood Energy:
64.1. on Friday 12 August 2011:
64.1.1. arranged for AGC to immediately cease door-to-door sales on Neighbourhood Energy's behalf until Sales Representatives had attended a compulsory re-training session;
64.1.2. agreed with AGC that the individual(s) against whom the complaint was made be investigated;
64.1.3. provided AGC with a letter requiring them to formally respond to the allegation; and
64.1.4. instructed their external legal adviser to write to the ACCC informing them of the actions taken by Neighbourhood Energy in response to the letter of 11 August 2011;
64.2. on Monday 15 August 2011, conducted a compulsory compliance training refresher course for AGC's Sales Representatives. The presentation used for this training relevantly included reference to the following:
64.2.1. that Sales Representatives should not door knock a property that has a "Do Not Knock" sign or a "No Canvassing" sign;
64.2.2. that Sales Representatives must leave a property immediately at the request of the customer or occupant at the property and not visit the customer or occupant for thirty days;
64.2.3. that Sales Representatives should provide identification before entering into any discussions with the customer or occupant at a property;
64.2.4. that the identification badges worn by Sales Representatives must include the full name and identification number of the representative and the name and address of Neighbourhood Energy;
64.2.5. that, before entering into negotiations with the customer or occupant at a property, Sales Representatives must inform the customer or occupant that:
64.2.5.1. the representative must leave immediately if asked to do so;
64.2.5.2. the purpose of the representative's visit is to enter the customer into an agreement for the supply of electricity; and
64.2.6. that Sales Representatives should not falsely misrepresent Neighbourhood Energy or its offers, or the intent of the visit to the customer or occupant at a property;
64.3. on 24 August 2011, provided (through its external solicitors) a substantive response to the ACCC's letter of 11 August 2011, describing the actions that Neighbourhood Energy had taken in response to the complaint, and the training and compliance procedures used by Neighbourhood Energy in relation to Sales Representatives selling its products;
64.4. initiated a review of training material provided to Sales Representatives;
64.5. on 2 September 2011, permanently ceased using AGC for door-to-door sales activities after being made aware of a further complaint about the alleged conduct of a Sales Representative;
64.6. on 29 November 2011, provided (through its external solicitors) a substantive response to the ACCC's letter of 22 November 2011, which had raised for the first time the complaints regarding the conduct of the Fahnle Sales Representatives and the Alda Sales Representative described in Section C; and
64.7. did not conduct any door-to-door sales (either itself or using any third party agent) between 2 September 2011 and 31 January 2012, by which time significant changes to the operation and management of Neighbourhood Energy had been implemented as described in paragraph 76 and following.
65. Since receiving notification of the ACCC's concerns via Neighbourhood Energy on 12 August 2011 and direct correspondence from the ACCC on 29 September 2011, AGC:
65.1. recalled all of its Sales Representatives from the field and performed internal compliance sessions on 12 and 13 August 2011;
65.2. agreed with Neighbourhood Energy that the individual(s) against whom the complaint was made be investigated;
65.3. required all of its Sales Representatives to attend the compliance training conducted by Neighbourhood Energy on Monday 15 August 2011;
65.4. from 2 September 2011 has not conducted door-to-door sales for Neighbourhood Energy or any other commercial supplier of goods or services;
65.5. on 12 October 2011, provided (through its external solicitors) a substantive response to the ACCC's letter of 29 September 2011, describing the training given by AGC to its Sales Representatives;
65.6. on 2 December 2011, provided (through its external solicitors) a substantive response to the ACCC's letter of 25 November 2011, which had raised for the first time the complaints regarding the conduct of the Fahnle Sales Representatives and the Alda Sales Representative described in Section C;
65.7. reviewed and revised its Unsolicited Consumer Contract Policy;
65.8. engaged Sales Representatives as employees, rather than contractors, under terms in which they:
65.8.1. agree to observe and comply with the provisions set out in any written policy, practice or procedure circulated by AGC from time to time; and
65.8.2. acknowledge and confirm that they have received a copy of AGC's Unsolicited Consumer Contract Policy and read and understood its contents;
65.9. reviewed and revised its Complaints Handling Policy for recording, storing and responding to trade practices complaints;
65.10. reviewed and revised the training material to be provided to its Sales Representatives;
65.11. appointed two Senior Managers as Compliance Officers with responsibility for developing, implementing and maintaining a trade practices compliance program, both of whom report to the Chief Executive Officer of AGC; and
65.12. arranged for the two Compliance Officers to receive practical training focusing on section 18 and Division 2 of Part 3-2 of the ACL from a qualified legal practitioner with expertise in trade practices law, and provided to the Applicant written confirmation from the legal practitioner that the training has occurred.
CHANGES TO OWNERSHIP AND MANAGEMENT OF NEIGHBOURHOOD ENERGY
Summary
66. As set out in further detail below:
66.1. Neighbourhood Energy is currently a member of a group of Alinta Energy companies that was acquired on 29 March 2011 by Alinta Energy Finance Pty Ltd (formerly Amber Group Nominee Pty Ltd), a subsidiary of Alinta Holdings (formerly Amber Holdings), pursuant to a scheme of arrangement.
66.2. During the period 2 May 2011 to 1 September 2011 as relevant to these proceedings, Neighbourhood Energy was effectively operated as a standalone business under its previous management, while negotiations took place for the proposed sale of Neighbourhood Energy by Alinta Energy to a prospective purchaser.
66.3. Following the termination of the proposed sale in mid-November 2011, a decision was made to integrate Neighbourhood Energy into the new Alinta Energy business, and the previous management of Neighbourhood Energy, including those responsible for compliance, was changed as part of this process.
History and change in ownership of Neighbourhood Energy in March 2011
67. On 1 October 2009, Alinta Energy Limited ABN 67 116 665 608 completed the purchase of 100% of the shares in Neighbourhood Energy.
68. On 29 March 2011, Alinta Energy Finance Pty Ltd, a subsidiary of Alinta Holdings, acquired the Alinta Energy group of companies (which included Neighbourhood Energy) pursuant to a scheme of arrangement under which Alinta Energy Limited sold shares in the holding companies of Neighbourhood Energy to Alinta Energy Finance Pty Ltd.
69. For a significant period prior to the scheme of arrangement, the Alinta Energy Group was burdened with significant levels of debt and had difficulties operating within its capital structure under its prevailing business model. In late 2010, the Alinta Energy Group negotiated a solution with its lenders for repayment of the remaining $3.2 billion of debt owed. This solution was implemented by way of the scheme of arrangement, which involved the transfer of substantially all of Alinta Energy's assets (including Neighbourhood Energy) to Alinta Energy Finance Pty Ltd.
Strategy of new owners to sell Neighbourhood Energy
70. The strategy of Alinta Energy's new owners was at all times between March 2011 and mid-November 2011 to sell Neighbourhood Energy as a standalone unit, rather than integrate it into the Alinta Energy business.
71. In early May 2011, Alinta Energy took various steps towards selling Neighbourhood Energy, including putting in place confidentiality arrangements for interested parties, establishing a data room, and appointing an external law firm to act as legal adviser on the sale.
72. In early June 2011, CBD Energy Pty Ltd (CBD Energy) was identified as a prospective purchaser. Negotiations with CBD Energy took place between June 2011 and October 2011, and a share sale agreement was signed by the parties on 6 October 2011, subject to various conditions.
73. On 18 November 2011, the share sale agreement was terminated as CBD Energy had not satisfied certain conditions, including in relation to funding.
Management of Neighbourhood Energy prior to and during period of contravention
74. During the period from 1 October 2009 until late November 2011, the Neighbourhood Energy business was managed by its own management team using its own systems, and the management and officers of Alinta Energy were not involved in the day to day decisions of the Neighbourhood Energy business.
75. In particular:
75.1. Neighbourhood Energy had its own management team, including persons responsible for compliance. At that time, Neighbourhood Energy's CEO was Tim Hunt-Smith. Neighbourhood Energy also had a separate National Sales and Marketing Manager, Mr Julian Smith, a Regulatory and Compliance Manager, Ms Louizanne Diaz, and a Sales and Marketing Channel Specialist, Mr Daven Bettridge;
75.2. Neighbourhood Energy held all of its contracts in its own name and had separate offices, employees, payroll and IT systems; and
75.3. customer complaints and compliance issues were generally dealt with internally by Neighbourhood Energy, which also used an external law firm, Maddocks, to advise on specific compliance and consumer law issues.
Changes in operation and management of Neighbourhood Energy post contravention
76. Following the termination of the share sale agreement between Neighbourhood Energy and CBD Energy on 18 November 2011, a decision was taken to integrate Neighbourhood Energy into the new Alinta Energy retail business. This process included moving from Neighbourhood Energy's customer platform to the customer platform used by Alinta Energy's retail business, and transferring the strategic management of the business, including compliance, to Alinta Energy.
77. The previous management team of Neighbourhood Energy, including those responsible for compliance, left Neighbourhood Energy as part of this process, and Neighbourhood Energy's offices were closed and subleased. Relevantly, Mr Hunt-Smith, Ms Diaz and Mr Smith left Neighbourhood Energy in the week ended 25 November 2011, and Mr Bettridge left Neighbourhood Energy on 29 February 2012.
COOPERATION BY NEIGHBOURHOOD ENERGY AND AGC
78. Neighbourhood Energy and AGC have cooperated with the Applicant during the course of its initial investigations and following commencement of proceedings, including:
78.1. in negotiating at an early stage, proposed orders to seek by consent to finalise these proceedings; and
78.2. accepting affidavit evidence of Mr Fahnle and Mr Alda served by the ACCC that the conduct in relation to Mr Fahnle and Mr Alda occurred as set out in paragraphs 15 to 17 and 27 to 29 above in circumstances where Neighbourhood Energy and AGC have not been able to independently verify that AGC Sales Representatives attended Mr Fahnle or Mr Alda's premises.
FINANCIAL POSITION
Financial Position of Neighbourhood Energy
79. For the 2010 and 2011 financial years, Neighbourhood Energy made trading losses. Neighbourhood Energy's total revenue, expenses and overall loss were in the order of:
Year 2009/10 2010/11
Revenue $31,623,369 $52,253,871
Expenses $35,844,035 $58,027,439
Profit / (loss) before tax ($4,220,686) ($5,773,568)