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Australia’s antitrust and consumer protection legislation is contained in 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 administered by a single, independent 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 800 full-time staff and has budgeted to increase its staff to about 812 in 2011. The current chairperson of the ACCC is Rod Sims, who succeeded Graeme Samuel on 1 August 2011. Rod Sims has stated that his priorities for his term as chairperson include closer scrutiny of acquisitions of non-controlling stakes in businesses and to pursue strategic litigation where the outcome may be less predictable (as evidenced by the ACCC’s appeal against the Metcash decision, discussed below).
The ACCC actively investigates possible breaches of the CCA and is a regular litigator.
The ACCC may accept enforceable undertakings 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 conduct, to seek orders for divestiture, to seek orders to void acquisitions
ab initio, to seek orders for substantial civil pecuniary penalties (against companies and individuals)and to seek 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, issue infringement notices, issue substantiation notices and issue public warning notices.
In the financial year 2010-11, the ACCC had revenues of A$142.5 million, processed approximately 2,630 complaints and enquiries about the antitrust provisions in the CCA, reviewed about 377 mergers, was involved in 11 proceedings before the Federal Court of Australia for civil cartel conduct, and finalised settlements relating to the air freight cartel and the fine paper trading cartel.
The ACCC has yet to refer participants in a cartel to Australia’s Federal Director of Public Prosecutions for criminal prosecution.
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 that 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.
New prohibition on price signalling
The Australian government has recently amended the CCA to prohibit price signalling in the Australian banking sector. The government intends to enact regulations to define the particular types of banking services that will be subject to the new prohibitions. For example, it is not certain whether wholesale banking services will be subject to the new prohibitions. The presence of exemptions in the legislation for corporate workouts and multi-lender financing facilities suggests that the government intends the legislation to apply broadly across all of Australia’s banking sector and not only to retail banking services. The regulations will also contain a procedure that must be followed before the new prohibitions may be extended to other sectors of the Australian economy.
The amendments comprise two new civil prohibitions. One of the prohibitions will be per se in nature and will apply even if the price information that is signalled from one competitor to another is not confidential and where it is signalled through a third party. The per se prohibition will not be contravened if the disclosure is made in the ordinary course of business. The second prohibition will apply to information about price, or capacity or strategy, but 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 2010-11 financial year, the ACCC assessed 377 acquisitions. Of these, 236 were assessed without requiring a public review, while 141 underwent a public or confidential review. Of the 141 reviewed, the ACCC did not oppose 110, publicly opposed three and accepted undertakings to divest shares or assets in seven.
In December 2010 the ACCC applied, on an expedited basis, to the Federal Court of Australia to injunct Metcash from acquiring Franklins (each of which carry on business in the Australian grocery sector). The Federal Court declined, after more than eight months, to injunct the merger. The ACCC appealed the decision to the Full Court of the Federal Court on an expedited basis. The ACCC also sought an interim injunction to prevent Metcash from completing its acquisition. The Court declined to grant this, which allowed Metcash to complete its acquisition of Franklins before the appeal was decided. The appeal involved three key issues - whether the trial judge correctly defined the grocery market; the standard of proof required to show that there was a viable, alternative bidder to Metcash for Franklins (the counterfactual); and the likely effects on competition of Metcash’s acquisition of Franklins. The Full Federal Court dismissed the appeal on all three grounds on 30 November 2011 and the ACCC decided not to seek leave to appeal to the High Court. The case provides clarity around how grocery markets should be defined, and confirms that markets may be defined based on multiple functional levels, where one functional level constrains another functional level. The case also confirms that the standard of proof for assessment of the counterfactual is the ordinary civil standard of the balance of probabilities. The case may also lend support for calls for the Commission to give acquirers greater transparency about the evidence the Commission intends to rely on to oppose their acquisitions, before any litigation, consistent with the practice in other jurisdictions.
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 being either economic substitutes or complements.
Australia’s merger control regime does not contain a mandatory notification procedure.
However, where an 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 (FIRB), the Australian Communications and Media Authority, the Australian Securities and Investments Commission and Australia’s prudential agencies); or
- 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 (including on a confidential basis), 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. 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 that requires clearance from the ACCC but the acquirer wishes to avoid delay as a result of FIRB seeking the ACCC’s views or to avoid a ‘please explain’ letter from the ACCC after the acquisition is announced.
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 before the acquisition is announced, or on a non-confidential basis once the acquisition is announced, or both.
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).
The ACCC does not publish applications for clearance, but may make non-confidential information contained in applications available to market participants when it seeks their views.
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 may 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 concerns 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 misled 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, the formal clearance process may 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 currently 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.
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 that 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. One reason for this may be that the ACCC must refer criminal cartel matters to the Federal Director of Public Prosecutions (DPP) for criminal prosecution and may only be likely to do so in exceptional cases where, for example, there is recidivism.
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 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-plus regime 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 cartelists 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 that can take up to six months. The ACCC does not have power to authorise cartel conduct that 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 of A$8.2 million from suppliers involved in a fine paper cartel, civil penalties of A$36 million from Visy for its involvement in the corrugated cardboard box cartel and civil penalties of more than A$52 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. See 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 prioritises its 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 available individuals for cross-examination under oath and without privilege against self-incrimination. 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 scope of the notice to ensure that it obtains the most relevant material in the shortest possible time frames, including in tranches.
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 sit along side the Commonwealth regime. 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 (namely, 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.
Australia’s consumer protection provisions are 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 lookalike 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.