Australia - Overview
For Australian competition law, 2018 is likely to be a significant year. It will be the first full year where the amendments to the Competition and Consumer Act 2010 (CCA) that came into effect on 6 November 2017 will be considered. Key amendments include the introduction of a new prohibition on concerted practices and a lessening of competition test for the prohibition on misuse of market power.
In addition, the Australian Competition and Consumer Commission’s (ACCC) emphasis on criminal cartel prosecution is beginning to bear fruit. The first criminal prosecution of cartel conduct occurred in 2016. The ACCC has signalled that it will bring more criminal cartel proceedings before the courts in 2018, including a likely prosecution against individuals. Indeed, on 15 February 2018, the ACCC announced that in addition to criminal charges being laid against a company (Country Care), criminal charges have also been laid against its managing director and a former employee.
Areas of focus in 2018
ACCC enforcement priorities
The ACCC continues to prioritise the investigation of cartel conduct, anticompetitive agreements and misuses of market power. On 20 February 2018, the ACCC announced that competition and consumer law issues in the provision of energy, the financial services sector, agriculture, commercial construction, and the use of digital platforms, algorithms and consumer data, will be a focus for the ACCC in 2018. The ACCC has also stated that it intends to prioritise enforcing conduct that may contravene the new misuse of market power and concerted practice provisions.
Impact of amendments to the CCA
Significant amendments to the misuse of market power prohibition and the introduction of a new concerted practices prohibition has created significant uncertainty for businesses. The approach that the ACCC takes to enforcing these amended provisions is likely to play out in 2018 and beyond.
We expect it will be likely that there will be an increase in the number of investigations (and subsequent enforcement actions) by the ACCC in relation to unilateral conduct by dominant market participants and instances of information sharing between competitors.
The ACCC has signalled its intention to increase its enforcement of non-cartel anticompetitive conduct, including through the creation of a dedicated ‘Substantial Lessening of Competition’ unit.
The amendments to the CCA did not change the civil or criminal penalty regime in Australia. However, the ACCC has, in recent years, pushed for larger penalties for contraventions of Australia’s competition and consumer laws, both before the courts and as a matter of public advocacy. We expect that the ACCC will continue to seek larger penalties for competition law contraventions, especially where large or multinational companies are involved.
The recent amendments to the CCA have not changed the relevant prohibition against anticompetitive mergers or introduced a mandatory clearance regime. However, they have resulted in significant changes to the clearance options available to parties, by combining the previously separate formal merger clearance and merger authorisation processes.
The legal prohibition
The CCA prohibits mergers and acquisitions that have the effect or likely effect of substantially lessening competition in any market in Australia.
The prohibition applies to both direct and indirect acquisitions of shares or assets. Accordingly, the acquisition of a controlling interest, or of a minority shareholding that does not confer control, may be sufficient to attract competition law review. The ACCC Merger Guidelines encourage merger parties to notify the ACCC well in advance of completing a merger where:
- the products of the merger parties are either substitutes or complements; and
- the merged firm would have a post-merger market share of greater than 20 per cent in the relevant markets.
The ACCC does not have direct power to prevent a merger and instead must take enforcement action in the Federal Court. Where the ACCC considers that an acquisition contravenes the CCA, it can apply to the Federal Court for an injunction, divestiture orders and penalties. Third parties can also apply for declarations and divestiture orders (including setting aside the acquisition in certain cases).
As noted above, there is no mandatory requirement to notify the ACCC about a proposed merger or acquisition. However, because of the risk that the ACCC may take enforcement action, merging parties generally seek ACCC clearance where there is a potential that the merger raises competition law concerns. Even if the ACCC is not notified, it can investigate any merger that it considers may raise competition issues.
Following recent changes to the CCA there are now two potential routes for obtaining regulatory certainty or comfort in relation to a proposed merger.
Informal clearance from the ACCC
This is a form of regulatory comfort letter in which the ACCC states that it does not propose to take any action in relation to the proposed merger. Informal clearance is not legally binding on the ACCC or third parties. However, it is overwhelmingly the most popular form of clearance for merger parties.
Merger authorisation from the ACCC
Alternatively, a statute-based clearance process is available, which is binding on the ACCC and third parties, on the basis that either:
- the merger will not (or is not likely to) substantially lessen competition; or
- the public benefits of the merger outweigh the public detriments.
Prior to the recent amendments, parties could opt to pursue formal merger clearance with the ACCC or make an application to the Australian Competition Tribunal (Tribunal) for merger authorisation on public benefit grounds. While there have been a number of applications to the Tribunal, the formal merger process was never used as parties have relied on the informal merger process.
The merger parties themselves may also seek a declaration from the Federal Court that their merger does not contravene the CCA. This approach is rarely used.
Are decisions of the ACCC appealable?
There is no right of appeal in relation to the ACCC’s decision in an informal merger clearance process. If the ACCC chooses to oppose a proposed merger, the merger parties could offer an undertaking to attempt to address the ACCC’s concerns, defend any court proceedings initiated by the ACCC or institute court proceedings themselves, seeking a declaration that the proposed acquisition does not contravene the CCA. There are very few examples of court proceedings following a decision by the ACCC not to grant informal merger clearance.
Following the amendments to the CCA, the Tribunal acts as a merits review body of ACCC authorisation decisions. Both the ACCC and Tribunal will be subject to strict time limits for making authorisation decisions.
Timing of processes
According to the ACCC’s Informal Merger Review Process Guidelines, a Phase I review typically takes approximately 6–12 weeks after an initial pre-assessment stage during which the ACCC confidentially considers whether, based on the information provided, a public review is required. The pre-assessment process itself typically takes around two to four weeks.
If a Statement of Issues is released at the end of Phase I, the timeline will be extended to allow a Phase II review (typically for a further 6–12 weeks).
Timelines are indicative and can be suspended or extended at any stage. The parties may request that the time frame be suspended for commercial reasons, or the ACCC may suspend the time frame if it is awaiting additional information from the parties.
Under the new merger authorisation regime, the ACCC is required to make a decision within 90 days unless the applicant agrees to an extension. If appealed, the Tribunal is required to issue its determination on an authorisation application within 90–120 days of receiving a valid application.
Merger parties can provide the ACCC with a court-enforceable undertaking to implement structural, behavioural or other measures that address the competition concerns identified by the ACCC. The Merger Guidelines indicate a preference for undertakings that include structural rather than behavioural remedies.
The ACCC will ordinarily consult the market on a proposed draft undertaking. The ACCC will not accept undertakings if it is not satisfied that they address its competition concerns.
As part of the recent amendments to the CCA, the cartel conduct provisions have been simplified, but not substantively amended.
The CCA strictly prohibits any contract, arrangement or understanding (CAU) between competitors (or potential competitors), which has:
- the purpose or effect of fixing or influencing prices; or
- the purpose of:
- restricting output;
- colluding in tenders or rigging bids; or
- sharing markets by allocating customers, suppliers, territories, product lines or areas of business.
The criminal offence requires proof that there was knowledge or belief that the CAU contained a cartel provision. Under the CCA, the offence applies to companies, but individuals can be held liable, including criminally (eg, a person who attempts to contravene, or who aids, abets, counsels or procures, induces, or is in any way ‘knowingly concerned’ in, a contravention).
Parallel criminal and civil sanctions exist for making or giving effect to a ‘cartel provision’.
Criminal cartel proceedings
The ACCC is responsible for investigating cartel conduct and will refer serious cartel conduct to the Commonwealth Director of Public Prosecutions (CDPP), who is responsible for prosecuting offences under Commonwealth law.
The ACCC has entered into a Memorandum of Understanding (MOU) with the CDPP. Among other things, the MOU outlines factors which are indicative of serious cartel conduct. The ACCC and CDPP also work together in assessing applications for immunity from criminal proceedings.
In July 2016, the ACCC secured a guilty plea from Nippon Yusen Kabushiki Kaisha. This was the first criminal prosecution of cartel conduct since the criminal prohibition was introduced in 2009. No individuals have been prosecuted for criminal conduct to date.
Rod Sims, the ACCC chairman, has stated that there are likely to be 3–4 domestic criminal cartel actions in 2018.
Joint venture exception
The CCA contains a joint venture exception to cartel conduct. Where the exception applies, a cartel provision will only contravene the CCA if it has the purpose, effect or likely effect of substantially lessening competition.
The joint venture exception was amended as part of the recent amendments. It has been simplified and expanded so that it now applies beyond contractual joint ventures and also to include arrangements and understandings, and joint ventures for the production, supply or acquisition of goods or services.
Relevantly, for the joint venture exception to apply:
- the cartel provision is for the purposes of the joint venture;
- the cartel provision is reasonably necessary for undertaking the joint venture; and
- the joint venture is for the production, supply or acquisition of goods or services.
There have not been any judicial decisions regarding the scope of the joint venture exception. Determining whether a provision is ‘reasonably necessary’ for the joint venture, will continue to pose some difficulties prior to any judicial consideration.
Introduction of new concerted practices prohibition
The introduction of a new prohibition against concerted practices that have the purpose, effect or likely effect of substantially lessening competition will be the subject of advice and potential ACCC investigations in 2018. While the concept of concerted practices is familiar internationally, the concept is new to Australian law. Its operation will be uncertain. Also, differences in the specific wording of the prohibition in Australia as compared to the EU, will mean that EU decisions and guidance will not, necessarily, have a direct application in Australia.
‘Concerted practice’ is not defined in the CCA but is intended to capture conduct that falls short of a CAU, which constitutes a form of cooperation between two or more companies or people with the proscribed purpose or likely effect. The Explanatory Memorandum (EM) for this prohibition referred to the European law on concerted practices as an example of what the new law is intended to capture.
The EM provides some guidance as to the type of conduct that could be characterised as a concerted practice.
- It is not necessary that any of the parties act in the same manner or market or at the same time.
- A concerted practice may involve, but does not require:
- the formality or legally-enforceable obligations of a contract;
- the express communication of an arrangement (it may be established in the absence of any direct contact); or
- the commitment of an understanding (it may be established even if none of the parties is obliged to act in a particular way).
- It is not necessary that a concerted practice have an anticompetitive provision, as the focus is on the purpose, effect or likely effect of the practice itself.
- The concept is not intended to capture innocent parallel conduct, such as where two firms determine prices independently but happen to charge similar prices for the same product, or public disclosure of pricing information that facilitates price comparison by consumers.
- A concerted practice may arise from a single instance, rather than a course of conduct, and does not require that the practice is reciprocated or that the actions of other parties are altered in response. This raises questions about whether businesses who are unwitting recipients of information may be caught up in concerted practices.
Significant amendments to misuse of market power prohibition
Prior to November 2017, a misuse of market power (ie, the Australian equivalent of abuse of dominance) required specific evidence of the use of market power and a proscribed anticompetitive purpose.
Under the amended prohibition, corporations with a substantial degree of market power are now prohibited from engaging in conduct that has the purpose, effect or likely effect of substantially lessening competition:
- in a market where it has a substantial degree of power; or
- in any other market in which the corporation or a related corporation supplies, acquires or is likely to supply or acquire goods or services directly or indirectly.
The introduction of an effects test and the removal of the specific requirement showing a use of market power, has created significant uncertainty in relation to unilateral conduct. The ACCC has issued interim guidelines setting out its approach to the amended prohibition. These guidelines are still interim and various parties have made the comment that the guidelines are less precise on the specific analytical approach which the ACCC will take as compared to the comparable EU guidelines. In any event, until there is case law considering the new prohibition, there will continue to be some uncertainty as to its application.
The amendments have also allowed, for the first time, a party to seek authorisation for conduct that would otherwise contravene the misuse of market power prohibition on public benefit grounds.
What is the applicable test for market power?
The applicable test is whether a corporation has a ‘substantial degree of power in a market’. Market power is determined in part by the ability to act free from constraints by competitors or customers/suppliers in a market. Market power can be evidenced by factors such as:
- a corporation’s ability to raise prices without rivals taking away customers;
- whether a corporation is vertically integrated (although this is not on its own determinative);
- a corporation’s ability to set non-price terms and conditions; or
- the barriers to entry into the market by new entrants.
‘Substantial’ is generally understood to mean ‘large or weighty’ or ‘considerable, solid or big’. A corporation may have substantial power in a market even if it does not:
- control the market; or
- have absolute freedom from constraint by the conduct of competitors, customers or suppliers.
There is no market share threshold above which a corporation will be presumed to have substantial market power. However, a high market share is often a factor that tends to indicate, along with the other factors listed above, that a corporation has substantial power in a market.
It is possible for two or more corporations to simultaneously have a substantial degree of power in the same market.
The main provisions that govern specific vertical arrangements are the prohibitions against:
- exclusive dealing (including third line forcing), where they have the purpose, effect or likely effect of substantially lessening competition; and
- resale price maintenance, which is strictly prohibited.
The prohibition on resale price maintenance does not apply to:
- ‘genuine’ recommended resale prices;
- ‘genuine’ maximum resale prices; and
- a refusal to supply ‘loss leading’ sellers.
The CCA contains notification and authorisation processes that will provide legal immunity for exclusive dealing and resale price maintenance. The introduction of a notification process for resale
price maintenance is new, following the 6 November 2017
amendments to the CCA. As compared to authorisation, notification is a simpler and more timely process. It will be interesting to see whether the availability of a notification results in suppliers asserting that resale price maintenance provides public benefits such as preventing free-riding and contributing to increased pre- and post-sale services.
The ACCC is the principal regulatory body charged with enforcement of Australian competition laws. In respect of any criminal contraventions, the ACCC will work closely with the CDPP and Australian Federal Police (AFP).
A competition investigation typically commences with an information-gathering phase where the ACCC seeks to obtain information relating to suspected contraventions of the CCA.
There is no set timetable governing the period of time in which the ACCC must complete an investigation or decide to bring court proceedings. However, the ACCC must bring any civil action for damages, pecuniary penalties or other remedial orders within six years of the contravention. Criminal prosecution of cartel provisions is not subject to any statutory limitation period.
ACCC investigatory powers
Voluntary and compulsory production powers
In the first instance, the ACCC will usually consider whether it is appropriate to gather relevant information, documents and evidence on a voluntary basis.
However, where the ACCC has ‘reason to believe’ that a person or corporation is capable of furnishing information, producing documents or giving evidence that relates to a possible contravention, it may issue a section 155 notice to the relevant person or corporation, which compels them to provide relevant information or documents. Privileged documents do not need to be provided to the ACCC.
The ACCC can also compel individuals named in a section 155 notice to appear before the ACCC to give oral evidence in relation to a possible contravention.
The ACCC has the power to conduct dawn raids although the use of such power is less common in Australia as compared in some other jurisdictions. The ACCC must apply to a magistrate for a search warrant. A search warrant will only be granted where the ACCC can satisfy the magistrate that the ACCC has reasonable grounds for suspecting that there is evidence on a premises that is relevant to a contravention of the CCA.
A search warrant gives the ACCC wide-ranging powers, including the power to copy or to seize documents or electronic equipment, to operate electronic equipment on a premises and to take photographs or video recordings. The ACCC can also require individuals to answer questions or to produce documents that may provide evidence in relation to a contravention.
Cartel investigation powers
As noted above, the ACCC and the AFP may conduct a joint investigation in relation to suspected criminal cartel conduct.
If the ACCC becomes aware of ongoing cartel conduct that could constitute a criminal offence, it may notify the AFP who may obtain one or more of the following warrants:
- telephone interception warrant;
- stored communication warrant (voicemail and emails);
- surveillance device warrants; and
- telecommunications data collation.
Immunity and cooperation policies
Consistent with other jurisdictions, the ACCC maintains Immunity and Cooperation Policies as a key component of its compliance/enforcement arsenal. The Immunity Policy only applies to cartel conduct, whereas the Cooperation Policy extends to any matter that may involve a contravention of the CCA.
Immunity and Cooperation Policy
The Immunity and Cooperation Policy provides for the granting of immunity from civil cartel proceedings by the ACCC to the first eligible cartel participant to report involvement in a cartel, subject to satisfying the criteria outlined below.
An application for immunity can only be made by a single person/corporation. However, where a corporation is granted immunity, this may be extended to related bodies corporate, and to current and former directors, officers and employees of the corporation in certain circumstances.
Immunity applicants must also satisfy the following criteria to receive immunity:
- they must have been a party to the cartel;
- they must admit that their conduct may contravene the cartel provisions of the CCA;
- they must not have coerced others to participate in the cartel;
- they must have ceased involvement in the cartel;
- any admissions made by a corporation must be a ‘truly corporate act’ (rather than isolated confessions of individual representatives); and
- they must provide full disclosure and cooperation with the ACCC’s investigation and any ensuing court proceedings.
For criminal cartel conduct, the ACCC will make recommendations to the CDPP about whether immunity from criminal prosecution should be granted. While the CDPP exercises independent discretion, it is unlikely to refuse immunity from criminal prosecution in circumstances where the ACCC has granted immunity from civil prosecution.
When a person or entity is not eligible for ‘first-in’ immunity from cartel proceedings, the ACCC recognises individual and corporate cooperation in both civil and criminal cartel investigations.
The ACCC will identify that cooperation to the court in any proceedings by way of submissions to the court. Cooperation is ordinarily a mitigating factor relevant to determining penalties. While the ACCC may make penalty recommendations on the basis of cooperation, ultimately penalties are a matter for the court.
The ACCC’s Cooperation Policy sets out possible leniency measures that the ACCC may adopt when dealing with entities that cooperate with ACCC investigations.
The ACCC is most likely to consider adopting ‘leniency’ in respect of a corporation or individual that:
- comes forward with valuable and important evidence of a contravention of the CCA, of which the ACCC is otherwise unaware or has insufficient evidence to initiate proceedings;
- provides the ACCC with full and frank disclosure, including all relevant documentary evidence available to it;
- cooperates fully with the ACCC’s investigation and any ensuing litigation; and
- has not compelled or induced any other person/corporation to take part in the contravening conduct and was not a ringleader or originator of that conduct.
Civil pecuniary penalties apply to contraventions of the competition prohibitions of the CCA. The maximum civil penalty per contravention is:
- for companies, the greater of A$10 million, three times the value of the benefit obtained that is reasonably attributable to the contravention, or (where benefits cannot be determined) 10 per cent of the annual turnover connected with Australia of the company and related bodies corporate; and
- for individuals, up to A$500,000.
For companies, the same maximum penalties apply in respect of a criminal cartel contravention.
An individual convicted of a criminal cartel offence can face up to 10 years’ imprisonment and a fine of up to A$420,000.
It is illegal for corporations to indemnify officers, employees or agents in respect of penalties and legal costs.
Other non-pecuniary penalties include declarations, injunctions, community service orders, adverse publicity orders and disqualification of a person from managing corporations.
Penalties in Australia have not generally been anywhere near the statutory maximum. The ACCC has been seeking larger penalties and its approach appears to be resonating with the court. For example, in the recent Nippon Yusen Kabushiki Kaisha criminal cartel decision, the maximum penalty that could have been imposed was A$100 million. The court concluded that the appropriate penalty would have been A$50 million, which would have been the largest penalty ever in Australia, but ordered a A$25 million penalty, which included a 50 per cent discount for the early plea, past and future assistance and cooperation and contrition on the part of Nippon Yusen Kabushiki Kaisha.
Extra-territorial application of CCA
Conduct occurring wholly outside Australia may come within the jurisdiction of the CCA if the contravening entity is:
- an Australian citizen;
- a person ordinarily resident in Australia;
- a body corporate incorporated in Australia; or
- a body corporate carrying on business in Australia.
What will amount to ‘carrying on business’ in Australia has been the subject of extensive judicial interpretation. It is possible that a foreign corporation that operates in Australia through a wholly-owned subsidiary may be considered to ‘carry on business’ in Australia. Similarly, supplying goods or services to distributors in Australia (including from overseas), or supplying or acquiring intellectual property rights in Australia, may also amount to ‘carrying on business’ in Australia.
ACCC cooperation with competition authorities in other jurisdictions
The ACCC has signed cooperation agreements with a number of countries or other bodies, including the United States, Taiwan, Papua New Guinea, New Zealand, Canada, Fiji, the Republic of Korea, the United Kingdom, the OECD, the European Commission, India, China, Japan and the Philippines. The agreements deal with mutual assistance and coordination of enforcement activities.
The ACCC is also a member of the International Competition Network, which focuses on addressing antitrust enforcement and policy issues of common concern to its members worldwide.
In addition, the CCA enables the ACCC to disclose ‘protected cartel information’ (provided by successful immunity applicants) to overseas competition authorities.