On 1 January 2011, Australia’s antitrust and consumer protection legislation was amended and renamed the Competition and Consumer Act 2010 (CCA).1
The Competition and Consumer Act
The CCA is based on similar principles to North American and European competition laws. It has three key pillars:
- competition provisions, which prohibit anti-competitive behaviour either on a per se basis or a rule of reason basis. In Australia, the rule of reason analysis of the alleged anti-competitive behaviour usually requires an assessment of the substantial purposes of the behaviour and likely effect of the behaviour on competition. The competition provisions include criminal and civil prohibitions against cartel conduct, as well as a merger control regime;
- access provisions, which enable market participants to obtain access to monopoly, or ‘essential’ infrastructure; and
- consumer protection provisions.
Australian Competition and Consumer Commission
The CCA is enforced by a single federal agency, the Australian Competition and Consumer Commission (ACCC). The ACCC includes the Australian Energy Regulator (AER), which regulates Australia’s national energy market. The ACCC currently employs about 740 staff and has budgeted to increase its staff to about 780 in 2011. The current chairperson of the ACCC is Graeme Samuel AC, whose term will end on 30 June 2011. The government has not yet announced the identity of the incoming chairperson. The new chairperson is likely to be appointed for an initial term of three years, commencing on 1 July 2011.
The ACCC has an active enforcement policy, consistent with the CCA’s objective to “enhance the welfare of Australians through the promotion of competition and fair trading and provision for consumer protection”.
The ACCC may accept enforceable undertakings to divest shares or assets in return for merger clearance or to address concerns it may have about potential breaches of the CCA. The ACCC may also apply to the Federal Court of Australia to injunct mergers (and is currently seeking an injunction from the Federal Court of Australia to prevent an acquisition in the Australian grocery sector), and to seek orders for divestiture, orders to void acquisitions ab initio, orders for substantial pecuniary penalties (against companies and individuals), orders for legal costs and other forms of relief. The ACCC may also commence representative actions for classes of persons for awards of civil damages and orders for legal costs in the Federal Court of Australia, and in relation to its consumer protection powers, impose fines and issue substantiation and public warning notices.
In the financial year 2009/10, the ACCC had revenues of A$147.1 million, processed approximately 2,700 complaints and inquiries about the antitrust provisions in the CCA, reviewed about 170 mergers, instituted 10 proceedings in the Federal Court of Australia for cartel conduct and finalised settlements for cartel conduct in relation to the supply of marine hoses, air conditioning equipment, defence training systems and fine paper trading.
In response to globalisation of the world economy and antitrust regulation, the ACCC cooperates with foreign competition regulators, and is an active participant in various international forums of national competition law agencies and advisers which share information and expertise, including OECD committees and the International Competition Network.
Private litigants may apply to the Federal Court of Australia for awards of civil damages and other relief for breaches of the CCA. Class actions and litigation funders are an entrenched part of the Australian system. There is currently a class action in Australia for damages from the air freight cartel. A class action for an award of civil damages for losses suffered as a result of the corrugated cardboard box cartel recently settled for A$95 million.
Proposed prohibition on price signalling
The Australian Government is currently proposing to amend the CCA to prohibit price signalling. If the amendments are enacted as currently proposed, the CCA will contain two new civil prohibitions, each of which will apply to corporations and persons who signal pricing information to their competitors. One of the prohibitions will be per se in nature and will apply even if the price information is not confidential and where it is signalled to a competitor through a third party. The other prohibition, which will apply to information about price, or capacity or strategy, will only apply where the information is signalled for the purpose of substantially lessening competition in a market.
Extra-territorial reach of the CCA
The CCA applies to conduct engaged in outside Australia where the party engaging in the conduct is incorporated in Australia, registered as a foreign company in Australia, or carries on business in Australia (including through their nominees or agents), or is ordinarily a resident of Australia.
Australia’s merger control regime
The CCA prohibits direct and indirect acquisitions of shares or assets that would be likely to have the effect of substantially lessening competition in a market in Australia, or a state, territory or region of Australia.
The CCA also applies to offshore acquisitions of shares where the acquisition would result in a change of control of an Australian subsidiary and the change of control of the Australian subsidiary would be likely to substantially lessen competition in Australia and would not be offset by public benefits.
The ACCC is responsible for investigating proposed mergers to assess whether or not they would be likely to have the effect of substantially lessening competition.
In the 2009/10 financial year, the ACCC assessed 321 acquisitions. The ACCC conducted market inquiries in 168 of them. It did not oppose 131 (of the 168), opposed 8 and accepted undertakings to divest shares or assets in four.
At the time of writing, the ACCC has applied to the Federal Court of Australia to injunct Metcash from acquiring Franklins (each of which carry on business in the Australian grocery sector). The application is being heard on an expedited basis by a single judge (Emmett J) in the Federal Court of Australia. The case involves three key issues - market definition in grocery markets in Australia, the counterfactual scenario (including whether there is a viable alternative acquirer) and the likely effect on competition of the proposed acquisition.
Australia’s merger control regime is not subject to turnover thresholds.
Rather, the ACCC’s policy is to further investigate proposed acquisitions which would be likely to result in:
- the acquirer having a market share of 20 per cent or more; and
- the products of the merger parties are either economic substitutes or complements.
Australia’s merger control regime does not contain a mandatory notification procedure.
However, where a proposed merger would be likely to substantially lessen competition in Australia and the parties proceed with the merger without first having obtained clearance from the ACCC, they bear the risk that the ACCC will seek an injunction or orders for divestiture or to void the acquisition, civil pecuniary penalties and orders for legal costs.
The practical effect of the ACCC’s enforcement powers is that Australia has a much used voluntary notification procedure for mergers.
In practice, acquirers usually seek clearance from the ACCC in advance of completion if their proposed acquisition would:
- result in the acquirer having a market share of 20 per cent or more;
- remove a vigorous and effective competitor;
- create significant vertical integration issues or conglomerate effects;
- be likely to be referred to the ACCC by other regulators (including, for example, Australia’s Foreign Investment Review Board, the Australian Communications and Media Authority, the Australian Securities and Investments Commission and Australia’s prudential agencies);
- attract public attention or complaints from competitors, suppliers or customers.
An acquirer of shares or assets may notify the ACCC of their proposed acquisition as a matter of courtesy, or seek informal or formal clearance for their proposed acquisition from the ACCC, or (based on public benefits) apply to the Australian Competition Tribunal for authorisation of their proposed acquisition.
Informing the ACCC of a proposed acquisition as a matter of courtesy is an abridged form of the informal clearance process, which is described below. It is usually made where the acquirer is confident that the ACCC will not identify any substantial issues with their proposed acquisition and their transaction documents do not contain a condition precedent to closure of the acquisition which requires clearance from the ACCC.
Informal clearance process
Informal clearance is a popular notification method. It allows the acquirer to approach the ACCC on a confidential basis for a non-binding view prior to the ACCC commencing market inquires.
Approaching the ACCC on a confidential basis is desirable because it gives the acquirer and the ACCC an opportunity to identify and narrow any issues before the ACCC commences its market inquiries to assess the likely effect on competition of the proposed acquisition. During market inquiries, the ACCC actively canvasses information from competitors, suppliers and customers of the parties to the proposed acquisition, as well as other interested persons (including government departments and agencies).
Most mergers receive informal clearance from the ACCC within eight weeks from the date on which the ACCC commences its market inquiries.
More complex mergers can require a two-stage review, which involves the ACCC conducting two rounds of market inquiries, punctuated by the publication by the ACCC of a Statement of Issues. A Statement of Issues sets out the issues identified by the ACCC during its first round of market inquiries and forms the focus of the ACCC’s second round of market inquiries. In cases where the ACCC publishes a Statement of Issues, the clearance process may take up to 12 weeks and, in some cases, longer.
Informal clearance results in the ACCC providing a letter of comfort to the acquirer, stating that it does not intend to oppose the acquisition based on the information considered. It does not confer statutory immunity and is not subject to merits review. It is rare for the ACCC to provide a letter of comfort to the acquirer and subsequently decide to oppose an acquisition. We are only aware of two instances where this has occurred since 1974. In one of those instances, we understand the ACCC considered that the acquirer deliberately mislead it. In the other instance, the ACCC considered that a material change in circumstances occurred after it issued the letter of comfort.
During the informal clearance process, the ACCC will protect the identity of complainants.
Formal clearance process
Formal clearance results in statutory immunity from prosecution for the acquirer to undertake the proposed acquisition or, if the ACCC declines to grant formal clearance, a right to apply to the Australian Competition Tribunal for limited merits review of the ACCC’s decision (but only based on the information before the ACCC).
Applications for formal clearance are subject to transparent statutory procedures, including requirements to submit an application form prescribed by the regulations (which is similar to the European Union’s Form CO). If the formal clearance procedure is used, the ACCC must make its decision within 40 business days of receiving a valid application, subject to any extensions of the 40 business day period. In all but one instance, extensions to the 40 business day period require the consent of the acquirer.
There have been no applications for formal clearance in Australia to date. However, we predict that the formal clearance process will be used in Australia in the future, especially where the acquirer is expecting complaints and desires greater transparency around the identity of the complainants and nature of the complaints than is allowed under the informal clearance procedure.
Authorisation based on public benefits
An acquirer may apply to the Australian Competition Tribunal for authorisation of a proposed acquisition on public benefit grounds.
Applications for authorisation are subject to transparent statutory procedures, including requirements to submit an application form prescribed by the regulations. The Tribunal must make its decision within three months or, if the acquisition raises complex issues, within six months, from the date on which it receives an application for authorisation of a merger, subject to any extensions agreed by the applicant.
If the Tribunal grants authorisation, the parties obtain statutory immunity from prosecution for the acquisition. Decisions by the Tribunal are subject to review in the Federal Court of Australia, including on the merits.
Applications for authorisation of mergers are not common. There have not been any since 2002.
Cartel conduct is currently a high enforcement priority for the ACCC.
Parallel civil and criminal regimes
In Australia, cartel conduct is subject to parallel regimes of civil prohibitions and criminal offences. Except for the standard of proof and the requirement to demonstrate intentional participation for the criminal offence, the civil prohibitions and criminal offences have identical elements.
Definitions of cartel conduct
The CCA defines cartel conduct to comprise provisions in contracts, arrangements and understandings between actual or potential competitors which have:
- the purpose or likely effect of fixing, controlling or maintaining prices (or components of prices) for goods or services; or
- the purpose of restricting output, allocating customers or suppliers, or rigging bids.
As at the time of writing, there have been no criminal prosecutions for cartel conduct in Australia since the criminal regime was introduced in Australia in the second half of 2009. However, the ACCC is on the public record as stating that a criminal prosecution is likely in the foreseeable future.
Immunity and leniency policies
The ACCC has immunity and leniency policies which encourage participants in cartels to voluntarily notify the existence of cartel conduct in return for full or partial immunity from civil prosecution by the ACCC and from criminal prosecution by the Federal Director of Public Prosecutions (DPP).
The ACCC has power to grant immunity to corporations and their officers and employees from civil prosecution for cartel conduct.
However, only the DPP has power to grant immunity to corporations and their officers and employees from criminal prosecution for cartel conduct. In making decisions to grant immunity from criminal prosecution for cartel conduct, the DPP takes into account recommendations made by the ACCC and applies the same criteria as the ACCC when it assesses whether to grant immunity.
The ACCC’s immunity policy provides that only one participant in a cartel will be eligible for immunity and they need to be first through the door to the ACCC and to fully cooperate with the ACCC’s (or the DPP’s) investigation and prosecution of the cartel.
Where a company applies for immunity, it is possible for the company to gain derivative immunity for its officers and employees.
The ACCC’s immunity policy includes an amnesty regime plus for cartelists who are not eligible for immunity in a cartel already being investigated by the ACCC but who provide the ACCC with evidence of a second cartel, of which the ACCC was not previously aware. If they satisfy the ACCC’s amnesty plus policy, they gain immunity from prosecution for both cartels.
No double jeopardy
The CCA avoids double jeopardy for cartels by allowing civil proceedings to be postponed until criminal proceedings are completed. If the defendant is convicted in criminal proceedings, the civil proceedings will be permanently stayed.
Complete defences and exceptions
There are a range of complete defences and exceptions available for cartel conduct, including for limited types of joint ventures.
Authorisation on public benefit grounds
Proposed cartel conduct may be authorised by the ACCC if the parties can demonstrate that the public benefits of the cartel conduct would likely outweigh the anti-competitive detriment from the cartel conduct. Seeking authorisation involves a transparent process that is subject to statutory time frames and which can take up to six months. The ACCC does not have power to authorise cartel conduct which has already occurred. Rather, it may only grant authorisation on a prospective basis.
Other forms of anti-competitive conduct
The CCA also prohibits misuse of substantial market power for an anti-competitive purpose, resale price maintenance, provisions in contracts, arrangements and understandings that have the purpose or likely effect of substantially lessening competition, and certain types of vertical conduct (either on a per se basis or where the conduct has the purpose or likely effect of substantially lessening competition).
In each of those cases, the prohibitions are civil in nature.
The ACCC regularly seeks relief in the Federal Court of Australia for breaches of these prohibitions. For example, the ACCC recently obtained civil penalties of A$4.9 million from Baxter Healthcare for breaches of the prohibitions on misuse of market power and vertical conduct and civil penalties of A$14 million against Cabcharge for breaches of the prohibition on misuse of market power. In cartels, the ACCC has obtained civil penalties from Visy of A$36 million for its involvement in the corrugated cardboard box cartel and civil penalties of A$40 million from a number of airlines involved in the air freight cartel.
Penalties for contraventions of the CCA
The Federal Court of Australia may impose substantial penalties for breaches of the competition provisions in the CCA.
(Refer to table 1)
ACCC’s investigatory powers
The ACCC has a broad remit to investigate suspected breaches of the CCA. While the ACCC can and does instigate investigations on its own account, it also receives thousands of complaints each year from businesses and consumers. The ACCC therefore prioritises investigations and enforcement actions by focusing on the most important potential breaches of the CCA.
Power to compel the production of information and documents and to cross examine individuals under oath without privilege against self incrimination
In addition to its ability to request information on a voluntary basis, the ACCC’s most effective investigatory tool is the section 155 notice. This is a statutory notice requiring recipients to produce information and documents, and to make individuals available for cross examination. Information which is subject to legal professional privilege can be withheld from the ACCC.
Section 155 notices often impose a considerable burden on their recipients by requiring the analysis, collation and production of a large number of documents and, in some cases, a significant amount of information within a limited time frame. However, section 155 notices are used relatively sparingly and the ACCC is usually willing to negotiate over the scope of the notice to ensure that it obtains the most relevant material in the shortest possible time frames, including in tranches.
As well as the power to compel the production of information and documents, the ACCC may also compel individuals to appear for cross examination under oath without privilege against self-incrimination.
Search and seizure powers
The ACCC may apply to Federal Magistrates to obtain warrants to conduct ‘dawn raids’ or to enter and search premises, make copies of the material specified in the warrant, and to seize equipment, CDs, files and other storage devices.
When the ACCC conducts a search pursuant to a warrant in relation to a criminal matter, it has the ability to seize material not specified in the warrant if:
- there are reasonable grounds to believe that the material is evidence of an indictable offence against the CCA; and
- seizure of the material is necessary to prevent it from being destroyed or concealed.
Access to infrastructure
The CCA contains a statutory access regime which allows third parties to acquire services produced by natural monopoly infrastructure (such as rail, port and transmission facilities). Some Australian states and territories have enacted legislation that contains access regimes which complement the one in the CCA. The state and territory access regimes are not administered by the ACCC.
The purpose of the access regimes is to promote the economically efficient operation and use of infrastructure, including by removing bottlenecks in Australia’s supply chains.
The CCA’s access regime is conceptually similar to the United States’ ‘essential facilities’ doctrine, though it differs significantly in procedure and substance. Under the CCA, specific services produced by means of infrastructure are “declared” by the Federal Treasurer, based on a recommendation from the National Competition Council (NCC).
The NCC cannot recommend declaration of a service unless it is satisfied of each of the factors set out in the CCA, including that:
- the access would promote a material increase in competition in at least one market, other than the market for the service (ie, there must be a benefit to competition in an upstream or downstream market different to the relevant infrastructure services market);
- it would be uneconomical for anyone to develop an alternative facility to provide the service; and
- the facility is of national significance, in terms of size, trade or economic value.
Once the service is “declared”, the service is provided on terms and conditions agreed by the provider of the service and its customers or determined in a binding arbitration conducted by the ACCC.
The ACCC may make a range of arbitral determinations, including requiring the access provider to expand the infrastructure. However, the ACCC cannot make a decision that would prevent an existing user (including, where relevant, the infrastructure owner) obtaining sufficient capacity to meet its actual or reasonably anticipated requirements.
The statutory access regime in the CCA also allows owners of infrastructure to seek approval from the ACCC for voluntary access undertakings, which set out the terms and conditions on which they will provide certain services.
Unlike other jurisdictions, access to infrastructure plays an important role in Australia’s economy and occupies a significant portion of the resources of the ACCC and State regulators in Western Australia, Queensland, New South Wales and Victoria.
Maximum civil penalty for corporations for each breach
Maximum civil penalty for individuals for each breach
Mergers, cartels, provisions that have the purpose or likely effect of substantially lessening competition, misuse of market power, resale price maintenance or vertical conduct
Up to the greater of:
Up to A$500,000 (indemnification by the employer is a criminal offence)Disqualification orders
Maximum criminal penalty for corporations for each offence
Maximum criminal penalty for individuals for each offence
Up to A$1.1m
Up to A$220,000 (indemnification by the employer is a criminal offence)Disqualification orders
In January 2011, the scope of Australia’s consumer protection provisions was expanded. The enhanced legislation is backed by substantial penalties for breaches and additional enforcement powers for the ACCC (including powers to issue substantiation notices, infringement notices and public warning notices).
Australia’s consumer protection regime extends to:
- unfair contract terms;
- unconscionable conduct;
- misleading or deceptive conduct, which includes the use of misleading and false advertising, names and market practices (including look-alike products);
- bait advertising, referral selling, inertia selling, multiple pricing and manufacturer and extended warranties;
- door-to-door and outbound telesales;
- consumer guarantees for goods and services; and
- product safety and product recalls. The ACCC enforces consumer protection laws vigorously at the national level. State and territory consumer regulators (such as the New South Wales Office of Fair Trading and Consumer Affairs Victoria) also enforce consumer protection laws at the local level.Importantly, the unfair contract terms regime requires all consumer-facing businesses to ensure that any standard term contracts do not contain any unfair terms. An ‘unfair term’ is void and consumers and regulators have the ability to seek a declaration from a Court that a term is unfair. A term will be ‘unfair’ if:
- it would cause a significant imbalance in the parties’ rights and obligations arising under the contract;
- it is not reasonably necessary in order to protect the legitimate interests of the party who would be advantaged by the term; and
- the term would cause detriment (whether financial or otherwise) to a party if it were applied or relied upon.
- The legislation was formerly known as the Trade Practices Act 1974.