What you need to know about Australia's reformed competition law

06 December 2017

Kathryn Edghill, Cicely Sylow

On 6 November 2017, following the most in-depth review of Australia's competition laws in the last two decades, significant amendments to the Competition and Consumer Act 2010 (the Act) came into force. These changes are wide-ranging and are equally significant to large and small businesses. 

This 'ready reckoner' will take you through the newly formulated laws, including the provisions covering misuse of market power, concerted practices, the joint venture defence, and everything else in between. 

While the changes will be welcomed by most as they bring Australia's laws in-line with other mature competition regimes and aim to reduce compliance costs over the long term, some of the changes will require an immediate review of your business practices.

Cartels

 

What's changed?

What does this mean for you?

JV defence broadened

Broadening of the joint venture defence:

  • parties will no longer need a written agreement to rely on the defence; and
  • it now applies to the supply and acquisition of goods and services (and not just production).

The defence now allows a greater range of pro-competitive collaboration between competitors that would otherwise involve cartel conduct.

You will need to demonstrate that the cartel provision is 'for the purposes of' and is 'reasonably necessary for' undertaking the joint venture.

If relying on this defence you will have to prove the elements 'on the balance of probabilities' (a higher burden than that previously imposed).

Cartels confined to Australia

The cartel provisions will now only apply to cartel conduct affecting competition in Australia or between Australia and other places.

This is expected to reduce compliance burdens as the Act now explicitly states that it does not apply to cartel conduct that has no connection with Australia.

Repeal of the primary boycott provisions

The prohibition on exclusionary provisions has been repealed.

This conduct is now captured by the expanded cartel provisions.

Concerted practices

 

What's changed?

What does this mean for you?

New prohibition on concerted practices

A corporation is now prohibited from engaging in a 'concerted practice' that has the purpose, effect or likely effect, of substantially lessening competition.

This 'replaces' the repealed price-signalling provisions that were introduced in 2012.

If you cooperate with others, and that cooperation is or would likely be a substitute for competitive conduct, you need to review this conduct to confirm you are not in breach of the Act.

This new prohibition is not intended to capture mere innocent parallel conduct. The ACCC is in the process of finalising guidelines on this prohibition.

Misuse of market power

 

What's changed?

What does this mean for you?

New effects test

The new misuse of market power prohibition prohibits a corporation that has a substantial degree of power in a market from engaging in conduct that has or is likely to have the effect of substantially lessening competition in that market or any other market in which the corporation is or is likely to operate.

 

The reformed section 46 has significantly broadened the scope of the prohibition and means that you must now assess the effect of the conduct on competition. If you have a substantial degree of market power, some current practices will need to be reviewed as these could now contravene the new law. The ACCC is in the process of finalising its guidance on this new law and has established a special unit to investigate misuses of market power and concerted practices.

Authorisation available for misuse of market power

Authorisation to engage in what would otherwise be a misuse of market power can now be sought from the ACCC.

To be successful in obtaining authorisation you will need to prove that the public benefit arising from the conduct outweighs any anti-competitive public detriment.

Third line forcing

 

What's changed?

What does this mean for you?

Now treated like all other forms of exclusive dealing

Third line forcing will no longer be a 'per se' contravention (ie absolutely prohibited) and will only be prohibited if it substantially lessens competition.

You no longer need to submit third line forcing notifications to the ACCC prior to engaging in the conduct amounting to a third line force where the conduct will not substantially lessen competition.

 

Resale price maintenance

 

What's changed?

What does this mean for you?

RPM is still absolutely prohibited but can now be notified to the ACCC

With notification, immunity can be conferred 60 days after lodgement of the notification unless the ACCC overturns the notification within the 60 days.

RPM can still be authorised but this process takes at least 6 months.

You can now take advantage of a simpler and faster process to seek immunity.

However, it is unlikely this change will result in widespread RPM in distribution practices, as a corporation will still need to demonstrate that the public benefits of RPM outweigh the anti-competitive public detriments. The ACCC can also impose conditions on RPM notifications.

New exemption for RPM conduct engaged in between related bodies corporate.

You no longer need to consider the issue of RPM involving companies within your group.

Merger clearance

 

What's changed?

What does this mean for you?

The process for merger clearance has been streamlined

Merger parties must now seek informal merger clearance or authorisation from the ACCC (and can no longer go directly to the Tribunal). There are two tests available to the ACCC to authorise the merger: a 'substantial lessening of competition test' or a 'public benefits test'. The formal merger clearance process has been repealed.

In the recent past, parties have been successful in obtaining authorisation from the Australian Competition Tribunal on public benefits grounds where the ACCC has been disinclined to informally clear that same merger on competition grounds. Those mergers included: Tatts/Tabcorp (2017), Sea Swift/Toll Marine (2016), AGL/Macquarie Generation (2014). This avenue has now been closed to merger parties.

The ACCC has 90 days from receiving an authorisation application to determine the matter (as opposed to 6 months, which is the case for other authorisations). This statutory 90 day period may be extended if the applicant agrees, but if the applicant does not agree and the ACCC has not made a decision, the ACCC is taken to have refused the application.

We expect that parties to more complex and contentious mergers will experience a longer and more evidence based procedure. This expectation is also supported by the ACCC's newly extended section 155 powers to compel the provision of information and documents in relation to determining merger authorisations applications.

The Australian Competition Tribunal may now only review the merits of the ACCC's authorisation decision.

The only avenue available for appeal of the Tribunal determination is judicial review in the Federal Court.

Class exemptions

 

What's changed?

What does this mean for you?

ACCC has been granted a new class exemptions power

The ACCC can now grant class exemptions for particular persons, circumstances and types of conduct.

This new power will create 'safe harbours' and reduce the compliance and administration costs for businesses that are associated with individual authorisations.

Class exemptions can be granted for up to 10 years at a time.

Collective bargaining

 

What's changed?

What does this mean for you?

Collective bargaining notification process now more flexible

A collective bargaining notification allows a group, where the annual value of the contracts to be agreed is less than $3 million (this threshold is greater for some industries), to notify the ACCC of the arrangement. The conduct is allowed after 14 days unless the ACCC objects. This is a much simpler process than authorisation (which takes six months).

Previously all members to the collective bargaining needed to be known. Now the notification can cover future members. It can now also cover multiple counterparties.

The increased flexibility in the collective bargaining notification could mean this is now more of an attractive tool to help you negotiate better terms in your customer contracts.

However, the ACCC is now also able to extend the time it needs to consider the notification, impose conditions on notifications concerning collective boycotts and has a new power to stop the conduct in exceptional circumstances. So while the process allows more parties to be covered by the collective bargaining notification, the ACCC also needs more flexibility to consider the notification application.

Section 155 notices

 

What's changed?

What does this mean for you?

Additional uses

The ACCC's section 155 powers have been expanded to cover investigations of alleged contraventions of court enforceable undertakings (i.e. a section 87B or 218 undertaking) and merger authorisation decisions.

The extension of the ACCC's power means it can now issue section 155 notices where you have agreed to a court enforceable undertaking and are thought not to be complying with the undertaking. The same applies for compliance with the terms of the ACCC's merger authorisation determination.

A new 'reasonable search' defence

If a person has refused or failed to comply with a notice to produce documents, it is now a defence if, after a reasonable search, the person is not aware of the documents.

The changes acknowledge the digital age we are in and the significant compliance costs associated with responding to section 155 notices. This means you now only have to conduct a reasonable search. If you intend to rely on this defence, you bear a legal burden of proof that a reasonable search has been conducted.

Increased penalties for non-compliance

Penalties for non-compliance with a section 155 notice have increased from 20 to 100 penalty units.

Corporations (whose penalties are five times that of an individual) may be fined $90,000. This is up from $18,000 and brings non-compliance under the Act in-line with similar provisions in the ASIC Act.

Admitted facts

 

What's changed?

What does this mean for you?

Reliance on admissions of fact

Section 83 of the Act now allows a party bringing an action for damages to rely as prima facie evidence on 'an admission of any fact made by the person' or 'a finding of any fact made by the court' in other proceedings whether that person has been found to have contravened the Act.

Previously this was limited to only findings of fact made by the court, and the person bringing the action for damages would need a copy of the findings sealed by the court which made the findings.

In the case of an admission of fact, a person can rely on a document in which the admission was made. This increases the opportunities for persons to utilise section 83.

If you are the defendant and your risk of exposure to follow-on damage claims is high, you may now be more reluctant to admit facts to settle a case if this would increase your exposure to follow-on claims for damages.

 

Access to infrastructure

 

What's changed?

What does this mean for you?

Targeted changes to the declaration criteria

The new criteria are as follows (changes in italics):

  • Criterion (a) (competition test): The decision maker must consider whether access (or increased access) on reasonable terms and conditions, as a result of declaration would promote a material increase in competition.
  • Criterion (b) (efficiency test): The decision maker must consider whether total foreseeable market demand could be met by the facility over the declaration period at least cost when compared to two or more facilities. [This replaced the 'uneconomical for anyone to develop another facility to provide the service' test.]
  • Criterion (c) (facility of national significance test) remains unchanged.
  • Criterion (d) (public interest test): The decision maker must consider whether access (or increased access) on reasonable terms and conditions, as a result of declaration would promote the public interest. [Old test was 'not contrary to'.]

The new competition and public interest criteria (criteria (a) and (d)) may be of some benefit to infrastructure owners as they focus the test on the effect of declaration. However, since the phrase 'reasonable terms and conditions' is not defined, as a practical matter, this will be determined by the ACCC given its power to otherwise step in and arbitrate.

The new efficiency criterion (criterion (b)) is likely to favour access seekers. This refocuses the test from a 'private profitability test' to a 'natural monopoly test'. This change, which overcomes the High Court's narrow interpretation of criterion (b) in Pilbara Infrastructure Pty Ltd and Anor v. Australian Competition Tribunal and Ors [2011] FCAFC 58, reflects the Productivity Commission's recommendations that declaration should be targeted at facilities that give rise to an enduring lack of effective competition.

It will be interesting to see if the amendments lead to more applications for declaration, particularly given the ultimate success of Glencore's application for declaration of shipping channels at the Port of Newcastle (granted under the previous criteria).

Access to infrastructure

 

What's changed?

What does this mean for you?

Since 30 October 2017, the Australian Competition Tribunal can no longer review certain decisions made under the national energy laws, in particular, electricity network revenue determinations and gas access arrangements. The AER's decisions will now only be subject to judicial review for parties wishing to appeal on a point of law.

 

The abolition of limited merits review (LMR) brings the National Electricity Law and National Gas Law into line with the position under the telecommunications access regime in Part XIC of the Act (which abolished merits review in 2010). The rationale to abolish LMR is similar in that it is a response to perceived gaming of the regime by network carriers that has increased retail energy costs (which include a network component).

The removal of LMR is likely to reduce energy costs, at least in the short term, although some have questioned whether this step is consistent with a regime that also meets the other regulatory objectives of quality, safety, reliability and security of supply. If the telecommunications example is considered, those concerns may be overstated.                                                                                                                                                                                                                                                                                                                                                       

Authors

Kathryn Edghill

Partner
Australia

Call me on: +61 2 9226 9888
Cicely Sylow

Cicely Sylow

Associate
Australia

Call me on: +61 2 9226 9888