Graeme Samuel AO, the chairman of Australia's competition regulator, the Australian Competition and Consumer Commission (ACCC), has previously stated that the ACCC has a reputation of being one of the most vigilant competition law enforcement authorities in the world. Certainly, the ACCC defends consumer interests vigorously in enforcing both the competition law and consumer protection provisions of the Australian Trade Practices Act 1974.
Since December 2007, the ACCC has a new ally: Chris Bowen MP, Assistant Treasurer and Minister for Competition Policy and Consumer Affairs, of the recently elected federal Labour government. The new government takes both competition policy and consumer protection seriously and created the first-ever competition policy minister in Australia. As promised in its election campaign, the government has moved swiftly to propose new legislation to remove some of the alleged 'weak spots' of Australia's competition and consumer protection laws.
The Trade Practices Act 1974
The objective of the Trade Practices Act 1974 (TPA) is to 'enhance the welfare of Australians through the promotion of competition and fair trading and provision for consumer protection'. Owing to federal constitutional restraints, the TPA generally applies only to corporations and businesses with interstate activities. However, the competition provisions of the TPA have been extended by reciprocal state and territory laws across the country to apply to practically all businesses in Australia (whether domestic or foreign-owned). Further, each state and territory has enacted fair trading legislation that closely resembles the consumer protection provisions of the TPA.
The competition provisions of the TPA include several per se offences, as well as prohibitions based on a competition test (that is, where there is a 'substantial lessening of competition' in an Australian market - akin to the US 'rule of reason' analysis). The per se contraventions of the TPA include:
- price fixing and other collusive agreements between competitors;
- specific tying arrangements, known as 'third-line forcing', where the supply of goods by one person is conditional upon the acquirer also acquiring goods from another person; and
- minimum resale price maintenance.
More broadly, the TPA prohibits conduct that substantially lessens competition in a market in Australia, namely:
- acquisitions of shares and assets (merger control regulation),
- exclusive dealing arrangements between suppliers and customers, and
- other horizontal and vertical arrangements.
There is also a specific prohibition of anti-competitive unilateral behaviour by a firm with 'substantial market power'. These prohibitions are described further below.
Consumer protection provisions
The TPA prohibits misleading or deceptive conduct in Australian trade or commerce. This prohibition generally applies to all business dealings in Australia. There is also a more restricted prohibition of 'unconscionable conduct' in business transactions. These important regulations impose minimum standards across the full spectrum of business conduct in Australia.
Access to essential infrastructure
The TPA also includes a codified regime that enables access seekers to acquire from the owners of natural monopoly infrastructure in Australia (eg, electricity transmission lines, gas pipelines, railways, etc) the services provided by such infrastructure. This regime is conceptually similar to the US 'essential facilities' doctrine.
Anticipated amendments to the TPA
The new government has moved quickly, to advance its ambitious trade practices reform agenda. On 11 January 2008, Chris Bowen released for public comment a draft Exposure Bill to introduce criminal sanctions for serious cartel conduct, such as price fixing, output restrictions and customer allocations. The draft Bill is controversial and the government has received submissions that are critical of the substance and the technical drafting of the Bill. However, while the draft Bill may require further consideration and some redrafting, there appears to be broad support in Australia for the introduction of criminal sanctions for serious cartel conduct. It is therefore widely expected that jail sentences for serious cartel offenders will be introduced in Australia in the foreseeable future. Other significant proposed amendments to Australia's competition law on the government's reform agenda include the strengthening of the misuse of market power prohibition to protect small businesses and the enhancement of the ACCC's powers to intervene in anti-competitive 'creeping acquisitions', ie, a small acquisition that in itself does not give rise to a substantial lessening of competition but, when assessed in conjunction with other previous (smaller) acquisitions made by the same acquirer, may have the cumulative effect of substantially lessening competition in a market in Australia.
Australia's regulatory bodies
The Australian Competition and Consumer Commission (ACCC)
The ACCC is the national statutory authority responsible for enforcing the TPA and ensuring compliance with it. The ACCC comprises a chairperson, a deputy chairperson, and several full-time commissioners and part-time associate commissioners. It has significant resources, with several hundred public servants.
The ACCC is divided into divisions that administer different aspects of the TPA, including, for example, mergers and assets sales, adjudication, enforcement, compliance, and the electricity, gas and telecommunications groups. There are ACCC offices in every state and territory, the main offices being in Canberra, Melbourne and Sydney.
The National Competition Council (NCC)
The NCC is primarily a policy advisory body, which oversees the development and implementation of Australia's national competition policy. In addition, the NCC has a regulatory function in the area of access to natural monopoly infrastructure, where it advises the government on whether natural monopoly infrastructure owners should, by law, be required to provide access to their infrastructure to enable third parties to compete in other markets dependent on that access.
The NCC consists of a council president and up to four councillors. It is supported by a secretariat of approximately 20 staff located in Melbourne.
The Australian Competition Tribunal (ACT)
The ACT is an independent tribunal that reviews certain decisions of the ACCC and the NCC. The ACT consists of a president, who must be a judge of the Federal Court of Australia, and members with special knowledge and experience in industry, commerce, economics, law and public administration.
The main decisions that are reviewable by the ACT are:
- applications for merger authorisation on public benefits grounds;
- (non-merger) decisions of the ACCC on whether to grant authorisation of otherwise anti-competitive conduct;
- under the new (voluntary) formal merger control process, if the ACCC refuses to grant clearance or grants clearance subject to conditions, applications for review of the ACCC's decision; and
- certain access decisions of the NCC.
A review by the ACT is a rehearing of the matter.
The Federal Court of Australia
The Federal Court is the only body which may impose penalties and other sanctions on businesses that contravene the TPA. In all such cases, the ACCC must apply to the Federal Court for penalties and other sanctions to be imposed. The ACCC has no power to impose sanctions itself (unlike, for example, the system in the EU).
An ACCC investigation will often commence as a result of a complaint. The ACCC receives many thousands of consumer and business complaints each year.
Where there is a real issue, the ACCC will commonly commence its inquiry with a 'please explain' letter to those involved, seeking details and an explanation of the conduct.
In more serious cases, or where there are unsatisfactory responses to less formal inquiries, the ACCC may issue a section 155 notice, to require companies to produce information and documents, or to make employees available for formal interviews, in relation to an alleged contravention of the TPA.
Recent amendments to the TPA have significantly widened the investigative powers of the ACCC. The ACCC now has search-andseizure powers where it has obtained a warrant from the magistrate. An officer executing the search warrant is allowed to enter and search the premises, make copies of the kind of material specified in the warrant, including seizing equipment, disks, tapes or other storage devices. Material that is not specified in the warrant may be seized where the officer has reasonable grounds to believe that the material is evidence of an indictable offence against the TPA and that seizure is necessary to prevent it from being destroyed or concealed.
These powers are broad-ranging, and pervasive. However, the ACCC cannot require a company to produce material properly protected by legal professional privilege (eg, advice given to it by a lawyer).
The ACCC has issued an immunity policy for cartel conduct, which is aimed at encouraging corporations and their executives to disclose hard-core cartel behaviour. Immunity from prosecution is available for cartel participants who are the first to disclose the existence of a cartel and fully cooperate with the ACCC throughout its investigations.
Consequences of contravening conduct
In the case of contraventions of the competition provisions of the TPA, the maximum pecuniary penalties are the greater of:
- •A$10 million per contravention;
- three times the gain from the contravening conduct; or
- up to 10 per cent of the annual turnover in Australia of the group of companies to which the contravening company belongs (where the gain cannot readily be ascertained).
Importantly, companies are prohibited from indemnifying (directly or indirectly) officers against the imposition of pecuniary penalties and the legal costs incurred in defending proceedings where orders are made against the officers.
Further, the Federal Court has the power to disqualify an individual implicated in a contravention from being a director of a company or otherwise being involved in its management.
The TPA provides for the recovery of civil damages by persons that have suffered loss or damage as a result of a contravention. In some cases, the ACCC may take representative proceedings seeking to recover compensation on behalf of those who have suffered loss or damage. Further, it is increasingly common in Australia that a class action will be launched on behalf of those who have suffered some loss or damage, following on from an ACCC prosecution.
As mentioned above, the government is intending to introduce legislation that will make serious cartel conduct subject to criminal sanctions, including jail terms for cartel offenders.
The ACCC has entered into a number of bilateral and tripartite cooperation agreements on enforcement assistance in competition and consumer protection matters. These include agreements with the US Federal Trade Commission (together with a general agreement between Australia and the USA on mutual antitrust enforcement assistance), the EU DG Competition, the UK Office of Fair Trading, the New Zealand Commerce Commission, and antitrust authorities in Korea, Fiji, Taiwan, Taipei and Papua New Guinea.
These arrangements establish, to varying degrees, a framework for notification, coordination and cooperation on competition and consumer protection enforcement activities, exchange of intelligence and treatment of confidential information.
The TPA prohibits an acquisition of shares in a corporation, or any other assets, that would have the likely effect of substantially lessening competition in a substantial market in Australia.
Australian merger control also applies to acquisitions that occur outside of Australia by corporations registered in Australia or those registered elsewhere which are carrying on business in Australia.
There is no mandatory pre-merger notification requirement in Australia. Instead, the ACCC has the power to seek a court order (injunction) to stop a merger or acquisition which is likely to have the effect of substantially lessening competition in any (substantial) market in Australia.
Informal merger review process
Over time, there has developed a common practice of approaching the ACCC in cases which are likely to be of concern to it, to seek from the ACCC an assurance that it will not take action in relation to a particular transaction.
In July 2006, the ACCC issued its (revised) Merger Review Process Guidelines, which provide for greater transparency and accountability to the ACCC's process of informal merger clearance, consistent with international best practices such as the 'Guiding Principles' of the International Competition Network.
The central features of the guidelines are the more definitive review timelines and the release of key documents in relation to ongoing merger reviews (such as 'Statements of Issues' and 'Public Competition Assessments').
Formal merger review process
In January 2007, a (voluntary) formal merger review process was introduced, which runs alongside the existing informal process for merger clearance. The formal merger review process provides the certainty of legislated review time frames, requires the disclosure of reasons, allows the applicant to appeal the ACCC's decision to the ACT and, importantly, provides immunity form legal action should clearance be granted. The ACCC has issued Formal Merger Review Process Guidelines which provide guidance as to how the ACCC will apply the new formal process. The formal merger review process is still untested; as of March 2008, there has been no application for formal merger clearance.
Where a formal application for clearance is made, the ACCC is required to make a decision within 40 business days. This initial period can be extended with the applicant's consent, or if the ACCC decides that it cannot make a determination within the initial period because of the complexity of the application, or because of other special circumstances, by a further 20 business days. If the ACCC does not make a decision within this time, it is taken to have made a determination refusing clearance.
Under the formal merger review process, if the ACCC refuses to grant clearance or grants clearance subject to conditions, the applicant may apply to the ACT for review of the decision. This is not a review 'de novo', but will be conducted 'on the papers'. The ACT must make its decision on the review within 30 business days. The ACT can extend this period by a further 60 business days in complex cases or in case of any other special circumstance. If the ACT does not make a decision within this time, it is taken to have made a determination affirming the ACCC's decision.
If formal clearance is obtained, it provides the parties with immunity from legal action in respect of the merger, including action by third parties. Third parties do not have a right of review from an ACCC formal clearance decision.
Substantive merger control
In considering whether a proposed merger may raise competition concerns in Australia and hence whether clearance from the ACCC should be sought in relation to that merger proposal, one should refer to the ACCC's Merger Guidelines.
Under the existing Merger Guidelines of 1999 , mergers resulting in merged-entity market shares of less than 15 per cent in concentrated industries, or less than 40 per cent in unconcentrated industries (ie, where the leading four firms have a combined market share of less than 75 per cent, post merger), will ordinarily fall within a 'safe harbour' and should not raise ACCC concern.
In February 2008, the ACCC has released draft new Merger Guidelines which will replace the existing safe harbour thresholds with new 'notification' thresholds. The new Merger Guidelines are expected to come into effect mid 2008 following a public consultation process. Under the new Merger Guidelines, merger parties are encouraged to notify the ACCC prior to completing a proposed merger where any of the following criteria is met:
- the merged firm would operate in at least one market that is concentrated. The ACCC defines a concentrated market as one with a Herfindahl-Hirschman Index (HHI) of more than 2000;
- a substantial number of customers consider the products of the merger parties to be particularly close substitutes so that the merger parties represent their first and second choices;
- the target firm has shown a recent rapid increase in market share, has driven innovation or has tended to charge lower prices than its competitors in one or more markets in which the merged entity would operate ('maverick');
- the merged firm would have a significantly higher market share than any of its rivals in one or more markets; or
- the ACCC has indicated to a firm or industry that notification of proposed mergers in that industry would be advisable, given the history in that industry or the level of acquisitive activity in it.
The ACCC may wish to investigate a proposed merger even where none of these criteria are met.
The competition provisions of the TPA prohibit a similar range of conduct to that prohibited under the US and EU competition regulation. A brief summary of the main prohibitions is set out below.
There are four types of per se, or automatically illegal, contraventions under the TPA.
Arrangements between competitors which have the purpose or likely effect of fixing or controlling the price for, or a discount, allowance, credit or rebate in relation to, goods or services supplied or acquired by the parties to the arrangement are prohibited regardless of the effect the arrangement has on competition.
In recent years there have been many serious cartel prosecutions in Australia in relation to (domestic and global) price fixing conduct - including in the concrete, freight forwarding and vitamins industries.
There are some exceptions to the per se price fixing prohibition rule, the main one being the 'joint venture' defence. It is a defence to price fixing (and other exclusionary arrangements) if a person establishes, on the balance of probabilities, that the price-fixing provision is for the purpose of a joint venture and that it does not have the purpose or likely effect of substantially lessening competition.
Price fixing and other exclusionary arrangements between related corporations do not contravene the TPA. A corporation is 'related' to another corporation if, essentially, the other corporation controls the composition of the board of directors of the former corporation, is in a position to cast more than 50 per cent of the maximum number of votes at a general meeting, or holds more than 50 per cent of the share capital of the first corporation.
Market sharing and bid rigging
Arrangements between competitors that divide up markets or customers, or allocate contracts or bids between competing firms, are highly likely to automatically contravene the TPA. This is because such arrangements are likely to fall within the per se prohibition on arrangements known as 'exclusionary provisions' under the TPA.
In relation to joint venture arrangements, the Australian High Court recently held that an exclusionary arrangement between joint venture participants may not be illegal where that arrangement is clearly ancillary to a wider pro-competitive joint venture agreement.
Further, the joint venture defence provides protection against the per se prohibition of exclusionary provisions (see above).
Minimum resale price maintenance
The TPA automatically prohibits a supplier of goods or services from specifying a minimum price below which goods or services may not be resold or advertised for resale. However, genuine recommended resale prices are permissible - provided, of course, that there is no obligation on the reseller to comply with the recommendation.
Unlike competition law in other jurisdictions, one particular type of tying or bundling conduct, known as 'third-line forcing' is automatically, or per se, illegal in Australia. Third-line forcing occurs where the supply of goods or services is made conditional upon the acquirer acquiring other goods or services from a particular third party or class of third parties. Requiring goods or services to be purchased from a company related to the first supplier is not prohibited.
Other anti-competitive arrangements
The TPA contains a general prohibition on contracts, arrangements and understandings that have the purpose or likely effect of substantially lessening competition in an Australian market. This prohibition applies to horizontal and vertical agreements alike.
There are various types of exclusive dealing conduct specifically referred to in the TPA. These are vertical arrangements which restrict either the supplier's or the acquirer's freedom to deal with others. Exclusive dealing conduct is prohibited in Australia if it has the purpose or likely effect of substantially lessening competition in an Australian market. Parties proposing to enter into an exclusive dealing arrangement may avoid liability by lodging a notification with the ACCC (as to which, see below).
Misuse of market power
The TPA prohibits corporations with a substantial degree of market power from taking advantage of that power for particular anti-competitive purposes. Proscribed purposes include eliminating competitors, preventing new entry or deterring persons from engaging in competitive conduct.
Important categories of conduct that may contravene this prohibition include predatory pricing, refusals to deal and tying and bundling practices. There have been a number of significant Australian High Court and Federal Court decisions in relation to predatory pricing and refusals to deal that have provided greater certainty as to where the line is to be drawn between aggressive and vigorous competition, on the one hand, and prohibited misuse of market power conduct, on the other. However, in late 2007, the 'Birdsville' amendments have broadened the application of the misuse of market power prohibition to below cost pricing conduct, thereby re-introducing a significant degree of uncertainty as to when below cost pricing may be illegal. The new law prohibits a corporation that has a 'substantial share of a market' from supplying goods or services for a 'sustained period' at a price that is less than the 'relevant cost' to the corporation of supplying such goods or services for one of the proscribed purposes. Further, the circumstances in which bundling may constitute a misuse of market power in contravention of the TPA are currently being tested and remain unresolved.
Consumer protection regulation
Misleading and deceptive conduct
The TPA contains a general prohibition of misleading and deceptive conduct in all Australian business practices.
In short, firms carrying on business in Australia must take particular care to ensure that all of the following are true, clear
- advertising and promotional material;
- negotiations in business; and
- public statements and packaging.
The ACCC will be concerned about misleading conduct that has a clear consumer detriment, but competitors and customers may invoke this provision in a wide range of contexts in private litigation.
The TPA prohibits unconscionable conduct in both commercial dealings and consumer transactions. Unconscionable conduct occurs where one party has a special disability or disadvantage, which is sufficiently apparent, and the stronger party takes unfair or unconscionable advantage of its superior position to obtain a beneficial outcome. This provision has infrequently been invoked in Australia thus far, but is increasingly prevalent in commercial disputes between larger and smaller firms.
Public benefit exemptions
Finally, it is important to note that the competition provisions of the TPA may be avoided in particular circumstances where otherwise contravening conduct has an overriding public benefit in Australia. This exemption may be triggered by pursuing one of four administrative processes.
In relation to non-merger anti-competitive conduct (other than exclusive dealing), the exemption may be obtained by filing an authorisation application with the ACCC. To grant an authorisation, the ACCC must undertake a very thorough (and often lengthy) process of public enquiries into the public benefits and anti-competitive detriment of the proposed conduct. If the former exceeds the latter (on both a quantitative and qualitative assessment), the ACCC may authorise the conduct. It is only upon the authorisation being granted that immunity applies. The ACCC has a period of six months to consider an application for authorisation. This period can be extended by up to a further six months if the ACCC has issued a draft determination and the applicant agrees to the extension.
In the case of 'exclusive dealing' conduct, an abbreviated process, based on the same substantive test, is available. In this case, firms may notify the ACCC of proposed exclusive dealing conduct. Upon notification, or a short period thereafter, the firm may engage in the otherwise prohibited conduct for so long as the ACCC does not take a negative view of that conduct.
The TPA contains a collective bargaining notification procedure for small businesses, which operates in parallel to the existing authorisation process. This process is available if each individual corporation (ie, each member of the collective bargaining arrangement) reasonably expects that the total value of the transactions that it will conduct with the 'target' (ie, the large company) in any 12 month period in the goods and services specified will not exceed A$3 million (higher thresholds apply in certain industries, eg: primary production, $5 million; petrol retailing, $15 million; and motor vehicle retailing, $20 million) or another amount prescribed by regulation. Where a notification is lodged, the onus will be on the ACCC to establish that there is no public benefit to the arrangement. If the ACCC does not object within 14 days (or a longer period if prescribed by regulation), the collective bargaining notice will stand and the parties may engage in the otherwise prohibited conduct.
As set out above, in the context of mergers, the ACT has the power to consider applications for authorisation of mergers. The ACT has a three-month period in which to make its decision in relation to an application for merger authorisation. If it does not make a decision within this time period, the application is taken to be refused. The ACT can extend the initial period by up to a further three months if it considers that the application cannot be dealt with properly within the initial period because of its complexity or because of other special circumstances.