Australia: Overview

The Australian Competition and Consumer Commission (ACCC) has a reputation of being one of the most vigilant competition law enforcement authorities in the world, defending consumer interests vigorously in enforcing both the competition law and consumer protection provisions of the Australian Trade Practices Act 1974 (TPA). Since July 2009, the ACCC has a new powerful weapon in its arsenal: criminal sanctions for cartel conduct, including imprisonment of up to 10 years. Graeme Samuel (ACCC chair) recently pointed out that 'the new legislation brings Australia into line with the toughest approaches in the world. Domestically this means serious cartel conduct will get the harsh treatment it deserves, as being anathema to the public interest, and internationally that Australia will no longer be regarded as a second order priority when it comes to addressing international cartel activity'.

The Trade Practices Act 1974

The objective of the 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.

Competition provisions

The competition provisions of the TPA include several per se offences, as well as prohibitions based on a competition test.

The per se contraventions of the TPA include:

• cartel conduct and other exclusionary arrangements 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.

Conduct that is only prohibited by the TPA if it has the purpose or likely effect of substantially lessening competition in a market in Australia includes:

• acquisitions of shares and assets;

• exclusive dealing arrangements between suppliers and customers; and

• other horizontal and vertical arrangements.

There is also a specific prohibition on anti-competitive unilateral behaviour by a firm with 'substantial market power'. These prohibitions are described in more detail 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 on '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 (eg, electricity transmission lines, gas pipelines, railway tracks, etc) the services provided by such infrastructure. This regime is conceptually similar to the US 'essential facilities' doctrine but very different procedurally and substantively.

Criminalisation of Cartel Conduct

Following over five years of public consultations, Australia introduced legislation criminalising cartel conduct with the passage of the Trade Practices Amendment (Cartel and Other Measures) Act 2009 (Cartel Conduct Act) through parliament. As of 24 July 2009, it has become an offence in Australia for a corporation and its representatives to make or give effect to a contract, arrangement or understanding between competitors containing a 'cartel provision'. A cartel provision is a provision to fix prices, restrict capacity or output in the production or supply chain, to allocate customers, suppliers or territories, or to rig bids.

The Cartel Conduct Act introduced a parallel scheme of criminal and civil prohibitions against cartel conduct. For cartel conduct to be prosecuted as a criminal offence, the company and its representatives must be shown to have had:

• the intention to make a contract, arrangement or understanding or to give effect to a cartel provision in a contract, arrangement or understanding; and

• the knowledge or belief that the contract, arrangement or understanding contained a cartel provision.

The ACCC has issued informal guidelines in July 2009 outlining its approach to cartel investigations. The ACCC's position is that serious cartel conduct should be prosecuted criminally whenever possible. In determining whether particular cartel conduct is serious and therefore should be referred to the Commonwealth Director of Public Prosecutions (CDPP) for prosecution, the ACCC will have regard to the following matters:

• whether the conduct was longstanding and had significant impact on the market;

• whether the conduct caused significant detriment to the public or caused significant loss or damage to customers;

• whether participants have previously been found by a court to have participated in a cartel; and

• whether the value of the affected commerce exceeded A$1 million within one year.

The ACCC cannot, under its Immunity Policy, grant immunity from criminal prosecution; this is the prerogative of the CDPP. However, the criteria for obtaining immunity under the ACCC's Immunity Policy are mirrored in the Prosecution Policy of the CDPP. It remains to be seen whether the CDPP will apply those principles in the same way as the ACCC has done since the introduction of Australia's immunity programme in 2003.

Anticipated amendments to the TPA

Significant proposed amendments to Australia's competition law on the government's reform agenda for 2010 include:

• 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 (small) acquisitions made by the same acquirer may have the cumulative effect of substantially lessening competition in a market in Australia;

• amendments to the term 'understanding' in section 45 of the TPA to broaden and clarify its meaning and better capture certain types of potentially anti-competitive understandings in particular industries (eg, information-sharing in the petrol industry); and

• a broad-ranging renewal of Australia's consumer law, intended to bring the differing state and territory legislation in this area together under the TPA, which then may be renamed the Competition and Consumer Act.

Australia's regulatory bodies

The Australian Competition and Consumer Commission

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 acquisitions, enforcement and compliance, adjudication, and regulatory affairs. 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 that 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 four part-time councillors, supported by a secretariat of approximately 10 staff, all 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;

• decisions of the ACCC to issue notices in respect of notified exclusive dealing 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, and the ACT has the power to affirm, set aside or vary the original decision.

The Federal Court of Australia

The Federal Court is the only body that 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 the statutory authority in the EU system, for example).

ACCC investigations

While the ACCC has the power to commence an investigation on its own initiative, an ACCC investigation will often be triggered by a complaint from a consumer or a market participant. 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, requiring companies to produce information and documents and to make its representatives available for formal interviews. Importantly, 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 broad-ranging investigative powers. These include search and seizure powers where the ACCC 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, and seize 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. The Cartel Conduct Act has expanded the ACCC's powers in relation to investigations of criminal cartel offences. The ACCC now has the power to obtain telephone interception warrants and surveillance device warrants with the assistance of the Australian Federal Police. The ACCC's ability to use search warrants has also been enhanced, particularly in relation to the seizure of electronic information. The new powers include:

• capacity to seize material relating to obstruction while performing a search;

• allowing temporary exit of premises being searched and resumption of the search; and

• extending the period of time seized material may be retained to 120 days.

In relation to criminal cartel conduct, the ACCC is only responsible for investigating a suspected criminal offence and gathering evidence. The responsibility for prosecuting criminal cartel conduct and seeking associated remedies lies with the CDPP. The ACCC will only refer 'serious' cartel conduct to the CDPP for prosecution, as outlined in its guidelines 'ACCC approach to cartel investigations' of July 2009. Serious cartel conduct includes conduct of the type that can cause large-scale or serious economic harm. The ACCC and the CDPP have signed a memorandum of understanding that sets out the factors the ACCC will consider when deciding whether to refer a matter to the CDPP for prosecution and the process of cooperation between the ACCC and the CDPP, including the operation of the immunity policy in the context of criminal cartel conduct. If cartel conduct does not warrant criminal prosecution, the ACCC may commence civil proceedings seeking the imposition of civil penalties against the cartel participants and the individuals involved.

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. In relation to criminal cartel conduct, it is the CDPP's prerogative to grant immunity to a whistle-blower, but it will have regard to a recommendation by the ACCC.

Consequences of contravening conduct

The maximum penalties for a contravention of the competition law provisions of the TPA are as follows.

Civil contraventions

• for corporations: per contravention, the greater of A$10 million, three times the gain from the contravening conduct, or (where the gain cannot be readily be ascertained) 10 per cent of annual group turnover referable to activities in Australia; and

• for individuals: A$500,000 per contravention.

Criminal cartel conduct

• for corporations: per contravention, the greater of A$10 million, three times the gain from the contravening conduct, or (where the gain cannot be readily be ascertained) 10 per cent of annual group turnover referable to activities in Australia; and

• for individuals: per contravention, 10 years' imprisonment and A$220,000.

These are maximum penalties per contravention. In determining the appropriate penalty, the court will apply the 'French' factors, which include the following key criteria:

• the nature and extent of the contravening conduct and the circumstances in which it took place;

• the size, financial position and degree of market power of the offending firm;

• the nature and extent of the contravening conduct and the circumstances in which it took place;

• the deliberateness and period of contravention;

• whether senior management was involved;

• whether the offending firm's corporate culture is conducive to non-compliance with antitrust law;

• the extent of cooperation with the ACCC;

• whether the offending firm has engaged in similar conduct in the past; and

• the deterrent effect; among others.

The highest fine to date in the case of a domestic cartel was handed out to Visy (A$36 million) and two of its representatives (A$1.5 million and A$500,000, respectively) in the corrugated fibreboard cartel in 2007. In the global context, penalties totalling A$26 million were imposed against three participants in the vitamins cartel in 2001, A$35 million against five participants in the distribution and power transformer cartels in 2003 and, as of February 2010, A$41 million against six participants in the air cargo cartel (with further penalty proceedings against other alleged cartel participants pending).

The maximum penalties for a contravention of the consumer law provisions of the TPA are as follows.

• for corporations: A$1.1 million per contravention; and

• for individuals: A$220,000 per contravention.

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. In addition, 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 the management of a company.

The TPA also 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 loss or damage, following on from an ACCC prosecution.

International cooperation

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 US on mutual antitrust enforcement assistance), the European Commission, 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.

Merger regulation

The TPA prohibits the acquisition of shares in a corporation or any other assets if it is likely to have the effect of substantially lessening competition in a substantial market in Australia. Australian merger control also applies to acquisitions that occur outside Australia by corporations registered in Australia or those registered elsewhere that 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 that is likely to have the effect of substantially lessening competition in any substantial market in Australia. Post-closing, a court may, on application by the ACCC, make a divestiture order and impose a penalty on the merger parties if a completed merger resulted in a substantial lessening of competition in an Australian market.

Informal merger review process

It is common practice in Australia to approach the ACCC in cases that are likely to raise competition concerns, seeking an informal assurance from the ACCC 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'). See chart 1 below.

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 from legal action should clearance be granted. The ACCC has issued Formal Merger Review Process Guidelines, which provide information on how the ACCC will apply the new formal process. The formal merger review process is still untested. As of March 2010, more than three years after its introduction, there has been no application for formal merger clearance. See chart 2 below.

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, one should refer to the ACCC's Merger Guidelines of November 2008. The ACCC encourages merger parties to notify it prior to completing a proposed merger where the following 'notification thresholds' are met:

• the products of the merger parties are either substitutes or complements; and

• the merged firm will have a post-merger market share of greater than 20 per cent in any relevant market.

In some instances, the ACCC may investigate a proposed merger, even where the notification thresholds are not met. This may be the case, in particular, where:

• the ACCC has indicated to a firm or industry that notification of mergers by that firm or in that industry would be advisable, given the history in that industry or the level of acquisitive activity in it;

• there are complaints by industry participants;

• the parties are required to notify the Foreign Investment Review Board under Australia's foreign investment regulation; or

• in global merger cases, where a merger proposal raises competition concerns in other jurisdictions.

Factors that will be taken into account by the ACCC in assessing the likely competition effects of a proposed merger include (among other things) whether:

• the merged firm would operate in at least one market that is concentrated. A concentrated market is defined 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'); and

• the merged firm would have a significantly higher market share than any of its rivals in one or more markets.

Anti-competitive contracts, arrangements and understandings

The competition provisions of the TPA prohibit a similar range of conduct to that prohibited under the US and EU competition laws. A brief summary of the main prohibitions is set out below.

Per se prohibitions

There are four types of per se prohibitions under the TPA.

Cartel conduct

Cartel conduct occurs where actual or potential competitors make or give effect to a contract, arrangement or understanding containing a cartel provision. Broadly speaking, a cartel provision is a provision that has:

• the purpose or likely effect of fixing, controlling or maintaining the prices at which goods or services are supplied, re-supplied or acquired ('price fixing');

• purpose of preventing, restricting or limiting the production of goods, the capacity to supply services or the supply of goods or services ('output and capacity restrictions');

• purpose of allocating customers, suppliers or geographical areas ('market sharing'); or

• purpose of preventing a party from making a tender bid or succeeding in its tender bid, or coordinating tender bids ('bid rigging').

There are some exceptions to the prohibition on cartel conduct, including:

• conduct that has been notified or authorised by the ACCC under established procedures;

• where the parties to the contract, arrangement or understanding are related to bodies corporate (broadly defined as meaning that one company 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);

• where the cartel conduct alleged is a price fix and the cartel provision relates to the price of goods or services collectively acquired (or the joint advertising of goods or services collectively acquired); or

• where the parties to a contract are involved in a joint venture. To satisfy the joint venture exception, the cartel provision must be contained in a contract (or intended contract), the joint venture must be for the production or supply of goods or services, the cartel provision must be for the purpose of the joint venture and must not have the purpose or likely effect of substantially lessening competition.

In recent years, there have been many serious prosecutions in Australia in relation to domestic and global cartel conduct, including in the concrete, paper, air cargo, marine hose and vitamins industries. In November 2007, the Federal Court of Australia ordered the highest penalty imposed to date on a single firm in a cartel case: A$36 million against Visy for a price-fixing cartel with Amcor in relation to the sale of cardboard boxes between 2000 and 2004.

Exclusionary provisions

Provisions in an agreement between competitors that are not caught by the prohibition of cartel conduct may still be prohibited as 'exclusionary provisions'. For example, an agreement between competitors on trading terms may not amount to cartel conduct, but still be prohibited outright as an exclusionary arrangement. There is also a joint venture defence for exclusionary arrangements if a person establishes, on the balance of probabilities, that the exclusionary provision is for the purpose of a joint venture and that it does not have the purpose or likely effect of substantially lessening competition.

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.

Third-line forcing

Unlike competition laws 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 that is related to the first supplier is not prohibited. Third-line forcing has received increased attention from the ACCC in the past year, and this trend appears set to continue. Parties wishing to engage in third-line forcing conduct may avoid liability by lodging a notification with the ACCC (see below).

Prohibitions subject to competition test

Anti-competitive agreements

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.

Exclusive dealing

There are various types of exclusive dealing conduct specifically referred to in the TPA. These are vertical arrangements that 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 (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, including 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.

In late 2007, the 'Birdsville' amendments broadened the application of the misuse of market power prohibition to below cost pricing conduct. 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 amendments to the law in 2008 clarified the meaning of the term 'take advantage' and the role of recoupment in establishing a misuse of market power for predatory pricing. A company may now contravene the misuse of market power prohibition by supplying goods or services for a sustained period at a price that is less than the relevant cost to the corporation of supplying, even if the company cannot (and might not ever be able to) recoup losses incurred.

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 and accurate:

• 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.

Unconscionable conduct

The TPA prohibits unconscionable conduct in both commercial dealings and consumer transactions. Unconscionable conduct occurs where one party has a special disability or disadvantage that is sufficiently apparent, and the stronger party takes unfair or unconscionable advantage of its superior position to obtain a beneficial outcome. This provision has been invoked infrequently in Australia thus far, but is increasingly prevalent in commercial disputes between larger and smaller firms.

Public benefit exemptions

The competition provisions of the TPA may be avoided in particular circumstances where otherwise contravening conduct has an overriding public benefit in Australia. The public benefit 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 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, including third-line forcing, 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 as long as the ACCC does not take a negative view of that conduct. The TPA also contains a collective bargaining notification procedure for small businesses, which operates in parallel to the existing authorisation process. 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, the collective bargaining notice will stand and the parties may engage in the otherwise prohibited conduct.

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 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.