The Federal Court, Brisbane, today made orders by consent against Wesfarmers Kleenheat Gas Pty Ltd in relation to conduct of Kleenheat Gas varying the pricing for bulk LPG supplied to particular customers, selected as 'Managed Monthly Accounts' or 'Quickhits', which differed from representations it made to those customers as to how their prices would move.
The orders were made by Justice Jeffrey Spender in civil proceedings filed by the Australian Competition and Consumer Commission on 5 February 2008 following an extensive investigation into Kleenheat Gas' pricing practices.
Bulk LPG is supplied in storage vessels usually installed at the premises of commercial and industrial customers including restaurants, cafes, laundromats and sporting clubs. Customers typically enter into three to five year supply contracts.
Justice Spender declared that in 2002 and 2003 Kleenheat Gas engaged in misleading or deceptive conduct in breach of the Trade Practices Act 1974 by:
- representing to particular customers that the price for bulk LPG supplied to them would vary according to movements in Kleenheat Gas' actual costs of supply, by reference to an external measure or benchmark (typically the Saudi Aramco Contract Price*) or according to Kleenheat's 'list price' or 'ruling scale of prices', when in fact this was not, or was no longer, the basis on which the customer's price would be varied, and
- failing to disclose the existence and nature of the 'Managed Monthly Account' and 'Quickhit' price management practices by Kleenheat Gas, which were the actual basis for price variations for some customers.
The court found that as a result of Kleenheat Gas applying the 'Managed Monthly Account' and 'Quickhit' practices, which were intended to increase the return to Kleenheat Gas from the customer's account, the basis on which Kleenheat Gas moved particular bulk LPG customers' prices differed from that represented to them, resulting in some customers paying more than they otherwise would have paid.
In respect of customers selected as 'Managed Monthly Accounts', the court found that Kleenheat Gas did not have a reasonable basis for making the representations as it intended, at the time of making the representation, to increase the customer's pricing to a pre-determined higher price within six months.
Justice Spender granted consent injunctions restraining Kleenheat Gas for three years:
- from representing to bulk LPG customers that their price will be calculated in a particular way unless it intends to supply in accordance with the terms represented, and
- where Kleenheat's terms of supply to bulk LPG customers represent that the price will be calculated in a particular way, from charging to that customer a higher price than would result from such calculations unless by further express agreement with the customer.
The company was also ordered to pay the ACCC's costs in the proceeding in an agreed amount.
"Kleenheat Gas co-operated with the ACCC upon being made aware of the ACCC's concerns," ACCC Chairman, Mr Graeme Samuel, said today.
"This result serves as a reminder to all LPG suppliers that representations about pricing must be accurate and transparent, otherwise they risk breaching the Trade Practices Act 1974 – customers have the right to be accurately informed as to what supply terms they are signing up to."
The consent orders form part of an agreed resolution between the ACCC and Kleenheat Gas, together with Kleenheat Gas offering court-enforceable undertakings to the ACCC which provide for nearly $800,000 in refunds to be paid to an estimated 186 affected customers Australia-wide, the majority of whom are small businesses.**
Kleenheat Gas has also offered undertakings to the ACCC that it will:
- investigate any additional customers accounts that it becomes aware who may have been subject to the 'Managed Monthly Account' or 'Quickhit' practices, and refund them as appropriate
- display a webpage for a period of three months, accessible from Kleenheat Gas' home page, informing customers how bulk LPG is priced
- implement procedures to inform customers of the nature and extent of circumstances in which Kleenheat Gas may vary the price of bulk LPG supplied under contract, and to ensure that customers understand what they are signing before they enter into a contract, and
- review its trade practices law compliance program.
"The successful outcome of this matter will provide a much needed injection of transparency into bulk LPG pricing in Australia," Mr Samuel said.
"Suppliers cannot blame price changes on the Saudi CP if this is not the actual or only basis on which they are varying their LPG price, and the real reason for varying the price does not accord with what customers are being told."
The ACCC encourages all businesses to carefully inspect their bulk LPG contracts and make inquiries of their supplier if there are indications of unfair practices.