Australian competition law [3rd edition.] 9780409343823, 040934382X


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Table of contents :
Dedication
Full Title
Copyright
Preface
Acknowledgments
Table of Cases
Table of Statutes
Table of Contents
Chapter 1 The Development of Competition Law
Introduction
The world’s first antitrust trial?
Aristotle’s solution to university funding
The Romans
When competition legislation had real penalties
Monopolies and the downfall of empires
The United States of America
The Australian context
Australian Industries Preservation Act 1906 (Cth)
Trade Practices Act 1965 (Cth)
Trade Practices Act 1974 (Cth)
Competition Policy Reform Act 1995 (Cth)
Dawson Review — 2003–2015
2015 and Beyond: The Harper Review
Competition and Consumer Act 2010 (Cth) and the Australian Consumer Law
Competition law and popular culture
Matt Damon and the lysine price-fixing cartel
May the Act be with you!
Chapter 2 Common Law Restraint of Trade Doctrine
Overview
Introduction
Modern formulation
Legitimate interest to protect
Restraint of trade clause — the questions to ask
Shifting of the onus
Reasonableness
The ‘anterior question’
Competition and Consumer Act 2010 (Cth)
Restraint of Trade Act 1976 (NSW)
A question of application
Further reading
Chapter 3 Market Definition
Overview
Introduction
Why are competitive markets preferred?
Markets are not perfect
The primacy of efficiency
Efficiencies in theory
Efficiencies in practice — competitive tension
The structure, conduct, performance paradigm
Principles of market definition
Purposive exercise
Basic principles of market definition
Dimensions of the market
Substitution
Defining the product dimension of the market
The ‘hypothetical monopolist’ test and the SSNIP test
Where there has been no substitution
Defining the geographic dimension of the market
International limits of geographic market definition?
Where do the substitutable goods or services come from?
The hypothetical monopolist/SSNIP test
The ACCC’s approach to geographic market definition
Defining the functional dimension of the market
Anti-competitive conduct at different functional levels
Constraints at different functional levels
Defining the temporal dimension of the market
Sub-markets, single-brand markets and single-product markets
Further reading
Chapter 4 Market Power and Substantial Lessening of Competition
Overview
Introduction
Market power
Identifying market power
Market power identified by price and non-price strategies
How do these factors indicate the existence of market power?
Market power not established by conduct alone
Market power must be non-transitory
The ACCC’s view of market power
A summary of the principles relating to market power
Competition and substantial lessening of competition
Competition
‘Substantial’ lessening of competition
Evaluating SLC — the ‘future with and future without’ test
Illustration of the ‘future with and future without’ test
The merger factors and the ‘future with and future without’ test
Summary of principles from Baxter Healthcare
A common theme of substitution
Further reading
Chapter 5 Understanding Competition Law Cases
Overview
Introduction
What are the elements of a competition law case?
Relevant questions
How and why these questions are important to understanding competition law cases
What is the factual and commercial relationship between the parties to a case?
What is the actual conduct complained of that is the subject of the case?
What are the commercial implications of the conduct?
How is the conduct legally characterised in terms of the Act?
What are the legal issues to be decided?
Are there economic thresholds involved?
What did each party argue?
How did the court resolve the dispute and what were the orders made?
What is the significance (if any) of the decision?
Working with the questions — a practical example
Questions and case analysis
What is the factual and commercial relationship between the parties?
What is the actual conduct complained of that is the subject of the case?
What are the commercial implications of the conduct?
How is the conduct legally characterised in terms of the Act?
What are the legal issues to be decided?
Are there economic thresholds involved?
What did each party argue?
How did the court resolve the dispute and what were the orders made?
What is the significance (if any) of the decision?
Summary
Chapter 6 Application of the Competition and Consumer Act 2010 (Cth)
Overview
Introduction
Why did these gaps exist?
Application to corporations
What is a ‘trading or financial corporation’?
Application to the Crown
What is ‘the Crown’?
The Crown in right of the Commonwealth
The Crown in right of the states
Local governments
Application to non-corporate entities
Principal liability
Ancillary liability
Further reading
Chapter 7 Cartels and Anti-competitive Arrangements and Concerted Practices
Overview
Introduction
What is a ‘cartel’ for the purposes of the Act?
Price-fixing
Restricting outputs
Bid-rigging
Allocating customers, suppliers or territories
Brief background to the 2017 Amendment Act
Part IV Div 1 — overview
Criminal liability
Civil liability
Part IV Div 1 — in detail
The criminal cartel regime
The civil cartel regime
Fundamental concepts
Cartel provision
What exactly is a ‘provision’?
Putting the cartel regime together
Contract, arrangement or understanding
Definition of ‘contract, arrangement or understanding’
Part IV Div 2 s 45(1)
What is a concerted practice?
What about exclusionary provisions?
Section 45(1) — contracts, arrangements or understandings
Elements required to establish a breach of s 45(1)
Consequences of a breach
Further reading
Chapter 8 Taking Advantage of Market Power
Overview
Introduction
A difficult history
Structure and elements of s 46
Elements of s 46
Protection of competition or of individual competitors?
A substantial degree of market power
Market power versus other forms of power
Specific forms of prohibited conduct
Price strategies
Non-price strategies
Further reading
Chapter 9 Exclusive Dealing
Overview
Introduction
Why is exclusive dealing ‘bad’ for competition?
The structure of s 47
The practice of exclusive dealing
Products, customers and territories
Product restrictions
Customer restrictions
Territorial restrictions
Positive and negative conduct
Product ‘forcing’ and ‘tying’
Forms of exclusivity
Product exclusivity
Customer exclusivity
Territorial exclusivity
Third line forcing conduct
Exclusivity in relation to property leases
Supply ‘on condition’
Definition of ‘on the condition’
‘Supply on condition’ and not ‘imposition of a condition’
Third line forcing issues
Form over substance?
‘Another person’
Exclusive dealing and substantial lessening of competition
A reminder
Examples from the case law
A worked explanation of s 47
Preliminary points to note
Further reading
Chapter 10 Resale Price Maintenance
Overview
Introduction
Approach of the Act
Why is RPM considered ‘bad’ for competition and consumers?
Benefit and detriment
Product image and RPM
Discounting
Practical examples
RPM, market power and consumer detriment
Elements of the prohibition
Structure of Pt VIII
The practice of RPM
‘Positive’ and ‘negative’ conduct
Corporate and non-corporate parties
Goods and services
Common concepts
‘A price specified’
The ‘smoking gun’ evidence of RPM
Making it known
No need for ‘meeting of the minds’
The certainty and language of the threat
Who is the supplier?
Inducing and attempting to induce RPM
Recommended retail prices
Refusing to supply goods
Section 96(3)(d)(i)
Section 96(3)(d)(ii)
Section 96(3)(e)(i)
Section 96(3)(e)(ii)
Deemed withholding
The ‘loss leader’ defence
Successfully navigating s 96(3)
A simple example
A complex example
Further reading
Chapter 11 Anti-Competitive Mergers and Acquisitions
Overview
Introduction
Forms of mergers and acquisitions
The Act
What is an ‘acquisition’?
The threshold test
The relevant market
Section 50(3) — merger factors
Creeping acquisitions
The ACCC and merger regulation
The notification threshold
Informal merger clearance procedures
Confidential merger and acquisition reviews
Non-confidential public merger or acquisition reviews
Application for authorisation
Further reading
Chapter 12 Authorisation and Notification
Overview
Introduction
The structure of Pt VII
What conduct can be authorised, notified or cleared?
What is the result of authorisation and notification?
Tests for authorisation and notification
Conduct involving substantial lessening of competition thresholds
Conduct involving notification applications
Public benefit
Public detriment
The test for evaluating public benefits and public detriments
ACCC authorisation procedure
Variation and revocation of authorisations
Notification of exclusive dealing conduct
Notification of resale price maintenance conduct
Merger authorisations by the ACCC
Review by the Tribunal
Further reading
Chapter 13 Access Regimes
Overview
Introduction
Natural monopolies, essential facilities and access regimes
Part IIIA — overview of the three pathways to access
Access pathway 1 — access through declaration process
The NCC decision-making process
Time limits on the NCC making a recommendation
The Minister’s response
Review of the Minister’s decision to declare a service
In the Tribunal
Services that cannot be declared
Negotiating with the owner of the facility
The ACCC as arbiter of access disputes
Access pathway 2 — certification of existing effective access regimes
Access pathway 3 — access undertakings and industry codes
The relationship between s 46 and Pt IIIA of the CCA
Industry-specific access regimes
Further reading
Chapter 14 Public Enforcement: Policies and Procedures of the Australian Competition and Consumer Commission
Overview
Role of the ACCC in enforcing Australian competition law
Purpose and function of the ACCC
Role of the ACCC
The ACCC’s approach to enforcement
The ACCC’s ‘compliance pyramid’
ACCC cooperation policy
Leniency for individuals
Leniency for corporations
Immunity policy for cartel conduct
Information-gathering powers
The ‘search and seizure’ regime — Pt XID
Entry to premises with consent
Entry to premises without consent
Legal professional privilege
The s 155 regime — Pt XII
Overview of legislation
ACCC’s common law power to question
Role and importance of s 155 of the Act
Administrative, not judicial, power
ACCC’s approach to use of s 155 notices
Factors relevant to the issue of a s 155 notice
Reason to believe
Purpose of issue of a s 155 notice
Principles of construction — s 155
Prima facie obligation to comply with a s 155 notice
Privilege against self-incrimination/exposure to penalty
Legal professional privilege
The ACCC’s burden of proof in Pt IV enforcement
Standard of proof in civil litigation
How does the ACCC satisfy the burden of proof in civil litigation?
Criminal standard of proof
What is the criminal standard of proof?
Standard expected of ACCC as a model litigant
How the ACCC is bound by the model litigant direction
What are the ACCC’s obligations in complying with the model litigant direction?
Boundaries of the model litigant direction
Further reading
Chapter 15 Public Enforcement: Orders and Remedies Available to the Australian Competition and Consumer Commission
Overview
Introduction
The ACCC’s powers and orders it can seek
ACCC regulates in the public interest
Declarations
Pecuniary penalties and criminal fines
Civil pecuniary penalty regime
Criminal fines and terms of imprisonment
Statutory framework for pecuniary penalties
Policy rationale for civil penalties
Standard of proof in penalty proceedings
Principles employed in assessing pecuniary penalties
Other factors
Preference for victims
Indemnifying officers of corporations
Joint submission on penalties
Recent practice on negotiated penalty submissions
Policy rationale for submissions
Issues associated with negotiated settlements on penalties
Injunctions
Nature of injunctive relief
The standing of the ACCC to seek injunctive relief
Circumstances in which the ACCC would seek injunctions
Forms of injunctive relief available to the ACCC
Threshold tests in seeking interim injunctions
Mareva orders
Divestiture orders
Non-punitive orders — s 86C
Orders for competition law/trade practices compliance programs
Punitive orders — s 86D
Disqualification orders
Court-enforceable undertakings — s 87B
Nature of s 87B as an enforcement option for the ACCC
ACCC’s policy on s 87B enforceable undertakings
Use of s 87B undertakings in mergers
‘Other orders’ — s 87
Further reading
Chapter 16 Private Actions and Remedies
Overview
Introduction
Injunctions
Three important differences
Application of the principles in private litigation
Some points to note
Damages
The statutory provision
How are damages under s 82 calculated?
The limitation period
Section 83 — evidentiary mechanism
Value of s 83 to private litigants
A procedural difficulty?
Section 87 — ‘other orders’
Section 87(1) action — ancillary to existing action
ACCC representative proceedings
The orders available under s 87
Section 87 — limitation periods
ACCC intervention policy
Principles that guide intervention by the ACCC
Requests for intervention
Further reading
Index
Recommend Papers

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Australian Competition Law 3rd Edition

This text is dedicated to Professor Michael Coper, former Dean, ANU College of Law

Australian Competition Law 3rd Edition

Alex Bruce LLB (QUT), LLM (Syd), MA (Theology) (ACU), PhD (ANU), DPhil candidate (Oxon) Associate Professor, Australian National University College of Law

LexisNexis Butterworths Australia 2018

AUSTRALIA

ARGENTINA AUSTRIA BRAZIL CANADA CHILE CHINA CZECH REPUBLIC FRANCE GERMANY HONG KONG HUNGARY INDIA ITALY JAPAN KOREA MALAYSIA NEW ZEALAND POLAND SINGAPORE SOUTH AFRICA SWITZERLAND

LexisNexis LexisNexis Butterworths 475–495 Victoria Avenue, Chatswood NSW 2067 On the internet at: www.lexisnexis.com.au LexisNexis Argentina, BUENOS AIRES LexisNexis Verlag ARD Orac GmbH & Co KG, VIENNA LexisNexis Latin America, SAO PAULO LexisNexis Canada, Markham, ONTARIO LexisNexis Chile, SANTIAGO LexisNexis China, BEIJING, SHANGHAI Nakladatelství Orac sro, PRAGUE LexisNexis SA, PARIS LexisNexis Germany, FRANKFURT LexisNexis Hong Kong, HONG KONG HVG-Orac, BUDAPEST LexisNexis, NEW DELHI Dott A Giuffrè Editore SpA, MILAN LexisNexis Japan KK, TOKYO LexisNexis, SEOUL LexisNexis Malaysia Sdn Bhd, PETALING JAYA, SELANGOR LexisNexis, WELLINGTON Wydawnictwo Prawnicze LexisNexis, WARSAW LexisNexis, SINGAPORE LexisNexis Butterworths, DURBAN Staempfli Verlag AG, BERNE

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A catalogue record for this book is available from the National Library of Australia ISBN:

9780409343823 (pbk). 9780409343830 (ebk).

© 2018 Reed International Books Australia Pty Limited trading as LexisNexis. First edition 2010 (published as Restrictive Trade Practices Law in Australia), Second edition 2013. This book is copyright. Except as permitted under the Copyright Act 1968 (Cth), no part of this publication may be reproduced by any process, electronic or otherwise, without the specific written permission of the copyright owner. Neither may information be stored electronically in any form whatsoever without such permission. Inquiries should be addressed to the publishers. Typeset in Myriad Pro and Minion Pro. Printed in Australia. Visit LexisNexis Butterworths at www.lexisnexis.com.au

Preface After several years of review, inquiry and debate, the recommendations of the Harper Review into Competition Law and Policy have been implemented in the form of very significant amendments to the Competition and Consumer Act 2010 (Cth) changing the Australian Competition Law and Regulation landscape. These changes have therefore necessitated a complete review and re-writing of this text and I am delighted to present this third and updated edition of Australian Competition Law. It is difficult to over-estimate the significance of the changes implemented by the Competition and Consumer Amendment (Competition Policy Review) Act 2017 (Cth) and the Competition and Consumer Amendment (Misuse of Market Power) Act 2017 (Cth). Familiar prohibitions have been repealed and new prohibitions added. Gone is the prohibition against creating and giving effect to exclusionary provisions, subsumed into the cartel regime in Part IV Div 1, the enumeration of which has been mercifully simplified. Added to s 45(1) is a new prohibition against ‘concerted practices’ falling short of arrangements or understandings. The former per se prohibition against third-line forcing exclusive dealing is repealed, as is the former moribund s 46 prohibiting misuse of market power in favour of a ‘reincarnated’s 46. Both prohibitions are now evaluated under a substantial lessening of competition threshold, emphasising the growing importance of the familiar ‘future with and the future without’ standard for evaluating SLC. Authorisation and Notification procedures have been streamlined to cast

the Australian Competition and Consumer Commission as the first line agency in evaluating applications relating to conduct subject to an SLC threshold, including the new prohibition in s 46 concerning misuse of market power and resale price maintenance. And it’s not just the legislature that has generated change. Decisions of the High Court in Air New Zealand Ltd v Australian Competition and Consumer Commission (2017) 91 ALJR 648 and Australian Competition and Consumer Commission v Flight Centre Travel Group Ltd (2016) 91 ALJR 143 have much to say about fundamental competition law concepts such as ‘market power’, ‘competition’ and ‘market definition’. Likewise, decisions of the Federal Court in Australian Competition and Consumer Commission v Cement Australia Pty Ltd [2017] FCAFC 159, Australian Competition and Consumer Commission v Pfizer Australia Pty Ltd (2015) 323 ALR 429 and Australian Competition and Consumer Commission v Australian Egg Corporation Ltd (2017) ATPR 42-553 add some interesting dimensions to competition law jurisprudence. Reworking this text to both accommodate and explain these very significant changes has involved the hard work of many people. I would especially like to extend my thanks to Philippa Findlay for expertly transfiguring my hieroglyphic-like ‘track change’ amendments into sensible, readable text. And this text would not have been possible without the kind guidance of Jocelyn Holmes of LexisNexis. Jocelyn has patiently guided all of my legal texts from an initial odd-ball idea to a polished, final product. I greatly value her friendship and look forward to many more years of collaboration. I would like to dedicate this text to Professor Michael Coper of the Australian National University College of Law. I first saw Michael’s seminal text on s 92 of the Constitution when I was still at school, and it was then that I decided that one day I would also write a law text. It was therefore a great privilege, many years later to work with Michael at the Australian National University. The law in this text is current as at 30 January 2018. Any errors or

omissions are my responsibility alone and I ask for your kind indulgence. Alex Bruce Oxford 30 January 2018

Acknowledgments The author and publisher are grateful to the holders of copyright in material from which extracts appear in this work. While every care has been taken to establish and acknowledge copyright, the publisher tenders its apologies for any accidental infringement. The publisher would be pleased to come to a suitable arrangement with the rightful owner in each case.

Cases References are to paragraph numbers

A ACCC see Australian Competition and Consumer Commission ACI Operations Pty Ltd, Re (1991) ATPR (Com) 50-108 …. 12.15 AGL Cooper Basin Natural Gas Supply Arrangements, Re (1997) ATPR 41593 …. 3.61 Air New Zealand Ltd v Australian Competition and Consumer Commission (2017) 91 ALJR 648 …. 3.22, 3.25, 3.31, 3.49, 7.14 Amalgamated Society of Engineers v Adelaide Steamship Co Ltd (Engineers’ case) (1920) 28 CLR 129 …. 1.17, 6.3 Amoco Australia Pty Ltd v Rocca Bros Motor Engineering Co Pty Ltd (1974) 133 CLR 288 …. 2.6 Apco Service Stations Pty Ltd v ACCC (2005) 159 FCR 452; (2005) ATPR 42078; [2005] FCAFC 161 …. 7.32, 7.42 Arcadi v Colonial Mutual Life Assurance Society Ltd (1984) ATPR 40-473 …. 16.26, 16.40 Arnotts Ltd v TPC (1990) 24 FCR 313; (1990) ATPR 41-061 …. 11.10 ASX Operations Pty Ltd v Pont Data Australia Pty Ltd (No 1) (1991) ATPR 41-069 …. 4.32 Aussie Home Loans Ltd v X Inc Services Pty Ltd (2005) ATPR 42-060; [2005] NSWSC 285 …. 2.11 Australian Automotive Repairers’ Association (Political Action Committee) Inc (in liq) v Insurance Australia Ltd (2006) ATPR 42-111; [2006] FCAFC 33 …. 9.20, 9.49

Australian Beauty Trade Suppliers Ltd v Conference & Exhibition Organisers Pty Ltd (1991) 29 FCR 68; (1991) ATPR 41-107 …. 6.7 Australian Broadcasting Corporation v Lenah Game Meats Pty Ltd (2001) 208 CLR 199; [2001] HCA 62 …. 15.65 — v O’Neill (2006) 227 CLR 57; [2006] HCA 46 …. 15.61, 15.65-15.67, 16.5 Australian Capital Territory v Munday (2000) ATPR 41-771; [2000] FCA 653 …. 2.16, 2.18 Australian Cargo Terminal Operations Pty Ltd, Re (1997) ATPR (NCC) 70000 …. 13.28 Australian Competition and Consumer Commission v ABB Power Transmission Pty Ltd (2004) ATPR 42-011; [2004] FCA 819 …. 16.23 — v — (2001) ATPR 41-815; [2001] FCA 383 …. 15.15, 15.20, 15.45, 15.46 — v — (No 2) (2002) ATPR 41-872; [2002] HCA 559 …. 16.49 — v Air New Zealand Limited (2014) ATPR 42-490 …. 7.31, 7.38, 7.45, 7.47 — v Allphones Retail Pty Ltd (No 2) (2009) ATPR 42-274 …. 15.65, 15.68 — v Amcor Printing Papers Group Ltd (2000) ATPR 41-749; [2000] FCA 17 …. 14.45, 14.46, 15.24, 15.26 — v Auspine Ltd (2007) ATPR 42-131; [2006] FCA 1215 …. 15.76, 15.78 — v Australia and New Zealand Banking Group Ltd (2008) ATPR 42-263; [2008] FCA 1623 …. 7.52 — v Australian Abalone Pty Ltd (2007) ATPR 42-199; [2007] FCA 1834 …. 6.49 — v Australian Egg Corporation Ltd (2017) ATPR 42-553 …. 6.12, 6.31, 7.32, 7.40 — v Australian Safeway Stores Pty Ltd (1997) 75 FCR 238; (1997) ATPR 41562 …. 15.29, 15.33, 15.36 — v — (2003) 129 FCR 329; (2003) ATPR 41-935; 198 ALR 657; [2003] FCAFC 149 …. 3.58, 8.40 — v — (No 2) (2001) 119 FCR 1; (2002) ATPR (Digest) 46-215; [2001] FCA 1861 …. 7.25, 10.42 — v Aveling Homes Pty Ltd (2017) ATPR 42-564 …. 15.22 — v Baxter Healthcare Pty Ltd (2007) 232 CLR 1; (2007) ATPR 42-172;

[2007] HCA 38 …. 6.33 — v — (No 2) (2008) 170 FCR 16; (2008) ATPR 42-247; [2008] FCAFC 141 …. 4.9, 4.56, 8.43, 9.29, 9.60 — v Boral Ltd (2001) 106 FCR 328; (2001) ATPR 41-803; [2001] FCA 30 …. 4.16 — v Cabcharge Australia Ltd (2010) ATPR 42-331 …. 8.27, 8.35 — v CC (New South Wales) Pty Ltd (No 8) (1999) 92 FCR 375; (1999) ATPR 41-732; [1999] FCA 954 …. 7.12, 7.25, 7.41, 7.42 — v Cement Australia Pty Ltd (2017) ATPR 42-557 …. 15.22 — v — [2017] FCAFC 159 …. 8.9 — v CG Berbatis Holdings Pty Ltd (2001) ATPR 41-802; [2000] FCA 1893 …. 15.58 — v Clarion Marketing Australia Pty Ltd [2009] FCA 666 …. 15.67 — v Coles Supermarkets Australia Pty Ltd [2014] FCA 1405 …. 15.7 — v Colgate-Palmolive Pty Ltd (2002) ATPR 41-880; [2002] FCA 619 …. 10.3 — v Construction, Forestry, Mining and Energy Union (2007) ATPR 42-140; [2006] FCA 1730 …. 15.8 — v Dally M Publishing and Research Pty Ltd (2007) ATPR 42-176; [2007] FCA 1220 …. 6.49 — v Danoz Direct Pty Ltd (2003) ATPR (Digest) 46-241; [2003] FCA 881 …. 15.77 — v Dataline.Net.Au Pty Ltd (2007) 161 FCR 513; (2007) ATPR 42-181; [2007] FCAFC 146 …. 15.56 — v Dermalogica Pty Ltd (2005) ATPR 42-046; [2005] FCA 152 …. 10.17, 10.47, 10.55, 10.57 — v Digital Products (2007) ATPR 42-144; [2006] FCA 1732 …. 15.80 — v Edirect Pty Ltd (in liq) (2012) ATPR 42-415 …. 15.10 — v Energy Australia Pty Ltd (2014) 234 FCR 343; [2014] FCA 336 …. 15.47 — v Eurong Beach Resort Ltd (2006) ATPR 42-098; [2005] FCA 1900 …. 8.29, 9.24, 9.59 — v European City Guides SL (2011) ATPR 42-365 …. 14.57 — v FILA Sport Oceania Pty Ltd (2004) ATPR 41-983; [2004] FCA 376 ….

9.25, 9.62 — v Flight Centre Limited (No 3) (2014) 234 FCR 325; [2014] FCA 292 …. 15.47 — v Flight Centre Travel Group Ltd (2016) 91 ALJR 143 …. 3.22, 3.24, 3.31, 3.41, 3.45, 4.1, 5.14, 7.14 — v Francis (2004) ATPR (Digest) 46-250; [2004] FCA 487 …. 15.6 — v Giraffe World Australia Pty Ltd (1998) 84 FCR 512; (1998) ATPR 41648; [1998] FCA 819 …. 15.63, 15.71 — v — (1999) 95 FCR 302; [1999] FCA 1161 …. 6.56 — v Golden Sphere International Inc (1998) 83 FCR 424; (1998) ATPR 41638 …. 14.47, 15.63 — v Goldy Motors Pty Ltd (2001) ATPR 41-801 …. 16.63 — v Grove and Edgar Pty Ltd (2008) ATPR 42-269 …. 15.76 — v High Adventure Pty Ltd (2005) ATPR 42-073; [2005] FCA 762 …. 10.16, 10.22 — v — (2006) ATPR 42-091; [2005] FCAFC 247 …. 10.6, 10.9, 10.16 — v Hobie Cat Australasia Pty Ltd (2008) ATPR 42-225; [2008] FCA 402 …. 10.51, 15.27, 15.47, 15.75 — v Humax Pty Ltd (2005) ATPR 42-072; [2005] FCA 706 …. 15.80 — v Hymix Industries Pty Ltd (1996) ATPR 41-465 …. 16.23 — v IMB Group Pty Ltd (1999) ATPR 41-688; [1999] FCA 313 …. 15.4, 15.62, 16.7 — v — (2002) ATPR (Digest) 46-221; [2002] FCA 402 …. 9.49 — v JJ Richards & Sons Pty Ltd (2017) ATPR 42-558 …. 15.7, 15.10 — v J McPhee & Son (Australia) Pty Ltd (No 5) (1998) ATPR 41-628 …. 15.17, 15.18, 15.20, 15.35-15.37 — v Jurlique International Pty Ltd (2007) ATPR 42-146; [2007] FCA 79 …. 10.11, 10.50 — v Knight (2007) ATPR 42-165; [2007] FCA 1011 …. 15.76 — v Leahy Petroleum Pty Ltd (2007) 160 FCR 321; (2007) ATPR 42-162; [2007] FCA 794 …. 7.25, 7.32, 7.33, 7.37, 7.38, 7.39, 7.40, 7.45 — v Leelee Pty Ltd (2000) ATPR 41-742; [1999] FCA 1121 …. 14.56, 16.63

— v Link Solutions Pty Ltd (No 3) (2012) ATPR 42-390; [2012] FCA 348 …. 9.34 — v Liquorland (Australia) Pty Ltd (2006) ATPR 42-123; [2006] FCA 826 …. 3.24, 3.25, 3.41, 3.52, 4.1, 4.27 — v Lux Pty Ltd [2001] FCA 600 …. 14.56 — v Mandurvit Pty Ltd [2014] FCA 464 …. 15.47 — v McMahon Services Pty Ltd (2004) ATPR 42-031; [2004] FCA 1425 …. 15.22 — v Mayo International Pty Ltd (1998) 85 FCR 327; (1998) ATPR 41-653 …. 10.61, 10.63, 10.66 — v — (No 3) (1998) ATPR 41-655 …. 15.29, 15.32, 15.42 — v Metcash Trading Ltd (2011) ATPR 42-380 …. 3.25, 3.34, 3.54, 3.59, 4.394.41, 5.13, 11.5, 11.18, 11.50 — v Mitsubishi Electric Australia Pty Ltd (2012) ATPR 42-456 …. 10.52 — v Monza Imports Pty Ltd (2001) ATPR 41-843; [2001] FCA 1455 …. 16.46, 16.49 — v MSY Technology Pty Ltd (2012) ATPR 42-391 …. 15.10 — v — (No 2) (2011) ATPR 42-353 …. 15.10 — v Navman Australia Pty Ltd (2007) ATPR 42-208; [2007] FCA 2061 …. 10.65 — v Netti Atom Pty Ltd (2007) ATPR 42-204; [2007] FCA 1945 …. 10.14, 10.19, 10.46, 10.59, 10.82 — v NW Frozen Foods Pty Ltd (1996) ATPR 41-515 …. 15.40 — v Pfizer Australia Pty Ltd (ACN 008 422 348) (2015) 323 ALR 429 …. 9.30 — v Pioneer Concrete (Qld) Pty Ltd (1996) ATPR 41-457 …. 16.23 — v Prysmian Cavi E Sistemi Energia SRL (No 12) (2016) ATPR 42-525 …. 6.12 — v Qantas Airways Ltd (2008) ATPR 42-266 …. 15.22, 15.47 — v Real Estate Institute of Western Australia Inc (1999) ATPR 41-673; [1999] FCA 18 …. 15.48 — v — (1999) 95 FCR 114; (1999) ATPR 41-719; [1999] FCA 1387 …. 15.77 — v Roche Vitamins Australia Pty Ltd (2001) ATPR 41-809; [2001] FCA 150

…. 15.20, 16.23 — v Rural Press Ltd (2001) ATPR 41-804; [2001] FCA 116 …. 6.57 — v Simsmetal Ltd (2000) ATPR 41-764; [2000] FCA 818 …. 15.28, 15.29, 15.32, 15.34, 15.38, 15.39, 15.41, 15.54 — v Simply No Knead Pty Ltd (2000) ATPR 41-790 …. 16.63 — v SIP Australia Pty Ltd (1999) ATPR 41-702; [1999] FCA 858 …. 15.52 — v Sundaze Australia Pty Ltd (2000) ATPR 41-736; [1999] FCA 1642 …. 10.59, 10.69 — v Tasmanian Salmonid Growers Association Ltd (2003) ATPR 41-954; [2003] FCA 788 …. 7.10 — v TEAC Australia Pty Ltd (2007) ATPR 42-201; [2007] FCA 1859 …. 10.18, 10.43, 10.59, 10.63, 15.76, 15.80 — v Telwater Pty Ltd (2009) ATPR 42-276; [2009] FCA 263 …. 10.55, 10.63, 15.6, 15.47, 15.81 — v TF Woollam & Son Pty Ltd (2011) ATPR 42-367 …. 7.12 — v — (No 2) (2011) ATPR 42-376 …. 10.3 — v Ticketek Pty Ltd (2010) ATPR 42-385 …. 8.35, 8.36 — v Trevor Davis Investments Pty Ltd (2001) ATPR 41-828; [2001] FCA 952 …. 6.47 — v Universal Music Australia Pty Ltd (2001) 115 FCR 442; (2002) ATPR 41855; [2001] FCA 1800 …. 3.68, 4.18 — v Visy Industries Holdings Pty Ltd (No 3) (2007) ATPR 42-185; [2007] FCA 1617 …. 1.7, 7.9, 7.30, 16.23 — v Westminster Retail Pty Ltd (2005) ATPR 42-084; [2005] FCA 1299 …. 10.48, 10.49 — v World Netsafe Pty Ltd [2000] FCA 33 …. 15.63 Australian Gas Light Co v ACCC (No 3) (2003) 137 FCR 317; (2003) ATPR 41-966; [2003] FCA 1525 …. 4.12, 4.22, 4.40, 11.2 Australian Iron & Steel Ltd v Hoogland (1962) 108 CLR 471 …. 16.41 Australian Regional Wholesalers v Stafford (2007) ATPR 42-168; [2007] NSWSC 572 …. 2.23 Australian Rugby Union Ltd v Hospitality Group Pty Ltd (2000) ATPR 41-

768; [2000] FCA 823 …. 3.44 B Ballard v Sperry Rand Australia Ltd (1975) ATPR 40-006 …. 14.50 Barbaro v The Queen (2014) 305 ALR 323 …. 15.47 BB Australia Pty Ltd v Kariori Pty Ltd (2010) 278 ALR 105; [2010] NSWCA 347 …. 2.7, 2.8, 2.9 Beecham Group Ltd v Bristol Laboratories Pty Ltd (1968) 118 CLR 618 …. 15.65, 15.66, 15.68, 16.5 BHP Billiton Iron Ore Pty Ltd v National Competition Council (2007) ATPR 42-141; [2006] FCA 1764 …. 13.9 Blacker v National Australia Bank Ltd [2001] FCA 254 …. 16.55 BMW Australia Ltd v ACCC (2004) ATPR 42-012; [2004] FCAFC 167 …. 15.78 Boral Besser Masonry Ltd (now Boral Masonry Ltd) v ACCC (1999) ATPR 41-715; [1999] FCA 1318 …. 8.31 — v — (2001) ATPR 41-803 …. 4.18 — v — (2003) 215 CLR 374; (2003) ATPR 41-915; [2003] HCA 5 …. 1.21, 3.25, 3.29, 3.40, 3.43, 3.44, 4.9, 4.13-4.15, 4.17, 8.10, 8.11, 8.29, 8.31 Bradken Consolidated Ltd v Broken Hill Proprietary Co Ltd (1979) 145 CLR 107 …. 6.20, 6.23, 6.24, 6.33 Briginshaw v Briginshaw (1938) 60 CLR 336 …. 14.40, 14.42, 15.26 Bropho v Western Australia (1990) 171 CLR 1; 93 ALR 207 …. 6.21, 6.24 Buckley v Tutty (1971) 125 CLR 353 …. 2.6, 2.13 C Cadbury Schweppes Pty Ltd v Amcor Ltd (2008) ATPR 42-218 …. 16.37 Capital Aircraft Services Pty Ltd v Brolin (2007) Aust Contract R 90-257; [2007] ACTCA 8 …. 2.7 Cardile v LED Builders Pty Ltd (1999) 198 CLR 380; [1999] HCA 18 …. 15.57, 15.71, 16.5 Castlemaine Tooheys Ltd v South Australia (1986) 161 CLR 148 …. 15.65,

15.66, 16.5 — v Williams and Hodgson Transport Pty Ltd 1986) ATPR 40-751; 68 ALR 376; [1986] HCA 72 …. 9.46 Chan Cuong Su t/as Ausviet Travel v Direct Flights International Pty Ltd (1999) ATPR 41-667 …. 6.56 Clough v Leahy (1904) 2 CLR 139 …. 14.24 Commonwealth v Mewett (1995) 59 FCR 391 …. 16.43 — v Tasmania (1983) 158 CLR 1 …. 6.8 Commonwealth Director of Public Prosecutions (DPP) v Nippon Yusen Kabushiki Kaisha (2017) ATPR 42-551; [2017] FCA 876 …. 1.7, 1.21, 7.14 Commonwealth of Australia v Director, Fair Work Building Industry Inspectorate (2015) 326 ALR 476 …. 15.47, 15.48 Consolo Ltd v Bennett (2012) 207 FCR 127 …. 6.12 Cool & Sons Pty Ltd v O’Brien Glass Industries Ltd (1981) ATPR 40-220 …. 4.29, 16.32, 16.34 Council for the City of the Gold Coast v Pioneer Concrete (Qld) Pty Ltd (1997) ATPR 41-585 …. 16.37 Council of the City of Sydney v Goldspar Pty Ltd (2004) ATPR (Digest) 46253; [2004] FCA 568 …. 6.57 CSR Ltd v Chuwar Transport Pty Ltd (unreported, FCA, Drummond J, 29 August 1996) …. 6.46 D Daniels Corporation International Pty Ltd v ACCC (2002) 213 CLR 543; 192 ALR 561; [2002] HCA 49 …. 14.21, 14.38 Darcy v Allin; the Case of Monopolies (1602) 11 Co Rep 84b …. 2.3 Darwalla Milling Co Pty Ltd v F Hoffman La-Roche Ltd (2006) 236 ALR 322; [2006] FCA 1388 …. 16.23 — v — (No 2) (2007) ATPR 42-134; [2006] FCA 1388 …. 16.37, 16.56, 16.58 De Brett Seafood Pty Ltd v Qantas Airways Ltd (No 7) [2015] FCA 979 …. 16.23 Dimension Data Australia Pty Ltd v Kepper [1999] FCA 1446 …. 6.56

— v — [2000] FCA 218 …. 6.57 Doney v Palmview Sawmill Pty Ltd (2005) ATPR 42-064; [2005] QSC 062 …. 6.57 Dowling v Dalgety Australia Ltd (1992) 34 FCR 109 …. 4.8 Dyer’s Case (1414) YB 2 Hen V, Vol 5 …. 2.2 E E v Australian Red Cross Society (1991) 27 FCR 310; (1991) ATPR 41-085 …. 6.7, 6.8 Eastern Express Pty Ltd v General Newspapers Pty Ltd (1991) 30 FCR 385; (1991) ATPR 41-128; 103 ALR 41 …. 8.28 Energex Ltd v Alstom Australia Ltd (2005) ATPR 42-086; [2005] FCAFC 215 …. 16.37, 16.45, 16.57 Esso Petroleum Co Ltd v Harper’s Garage (Stourport) Ltd [1968] AC 269; [1967] 1 All ER 699 …. 2.18 F Fencott v Muller (1983) 152 CLR 570 …. 6.7 Fenech v Stirling (1983) ATPR 40-413 …. 16.47 Fernandez v Glev Pty Ltd [2000] FCA 1859 …. 6.56 First Netcom Pty Ltd v Telstra Corp Ltd (2000) 101 FCR 77; [2000] FCA 1269 …. 15.70 Fisher v GRC Services Pty Ltd (1998) ATPR (Digest) 46-180 …. 2.10 Fortescue Metals Group Ltd, Re (2010) 271 ALR 256 …. 13.4, 13.7, 13.10 Foxtel Management Pty Ltd v ACCC (2000) 173 ALR 362 …. 13.32 G Gates v City Mutual Life Assurance Society Ltd (1986) 160 CLR 1 …. 16.31 Geraghty v Minter (1979) 142 CLR 177 …. 2.7 Great Southern E-Vents Pty Ltd v Peskops (2007) ATPR 42-152; [2007] NSWSC 382 …. 15.69 Green v Ford (1985) ATPR 40-603 …. 6.40

Gregg v Tasmanian Trustees Ltd (1997) 73 FCR 91; (1997) ATPR 41-567 …. 16.56 H Haydon v Jackson (1988) ATPR 40-845 …. 6.40 Heating Centre Pty Ltd v Trade Practices Commission (1986) 9 FCR 153; (1986) ATPR 40-674; 65 ALR 429 …. 10.39, 10.45, 10.63, 10.68, 14.41, 14.44, 15.14, 15.23 Helicruise Air Services Pty Ltd v Rotorway Australia Pty Ltd (1996) ATPR 41510 …. 8.17, 8.18 Herbert Morris Ltd v Saxelby [1916] 1 AC 688 …. 2.6, 2.11, 2.14 Heydon v NRMA Ltd (2001) 51 NSWLR 1; (2001) Aust Torts Reports 81-588; [2000] NSWCA 374 …. 6.56 Hope v Bathurst City Council (1980) 144 CLR 1; 29 ALR 557 …. 6.31 Hore v Albury Radio Taxis Co-Operative Society Ltd (2002) 54 NSWLR 210; (2003) ATPR 41-917; [2002] NSWSC 1130 …. 6.49 Hubbards Pty Ltd v Simpson Ltd (1982) ATPR 40-295 …. 16.33, 16.34, 16.47 Huddart Parker & Co Pty Ltd & Appleton v Moorehead (1909) 8 CLR 330 …. 1.17, 6.2, 14.24 Hughes v Western Australian Cricket Association (Inc) (1986) ATPR 40-748 …. 6.7 I I & L Securities Pty Ltd v HTW Valuers (Brisbane) Pty Ltd (2002) 210 CLR 109; [2002] HCA 41 …. 16.24 Imperial Chemical Industries Ltd v Commission (Dyestuffs) [1972] ECR 619 …. 7.45 Inland Revenue Commissioners v Muller & Co’s Margarine Ltd [1901] AC 217 …. 2.8 Ipswich Tailor’s Case (1614) 77 ER 1218 …. 2.2, 2.4 J

Jacobsen v Rogers (1995) 182 CLR 572; 127 ALR 159 …. 6.22 Jarra Creek Packing Shed Pty Ltd v Amcor Ltd (2011) ATPR 42-361 …. 16.38 — v — [2011] FCA 671 …. 16.23 Jellyn Pty Ltd v State Bank of South Australia [1996] 1 Qd R 271; (1995) ATPR 41-404 …. 6.22 J McPhee & Son (Australia) Pty Ltd v ACCC (2000) ATPR 41-758; [2000] FCA 365 …. 15.26, 15.28, 15.29 Johnson Tiles Pty Ltd v Esso Australia Pty Ltd (2000) 104 FCR 564; [2000] FCA 1572 …. 16.45 Just Group Limited v Peck (2016) 344 ALR 162; [2016] VSCA 334 …. 2.6 K KA & C Smith Pty Ltd v Ward (1998) 45 NSWLR 702; (1999) ATPR 41-717 …. 2.9, 2.23, 2.24 KAM Nominees Pty Ltd v Australian Guarantee Corporation Ltd (1994) 51 FCR 338; (1994) ATPR 41-325 …. 9.20, 9.34, 9.52, 9.53 King v GIO Australia Holdings Ltd (2001) 184 ALR 98; [2001] FCA 308 …. 6.56 Kinross v GIO Australia Holdings Ltd (1994) 55 FCR 210; (1995) ATPR 41402 …. 6.30 Kolback Securities Ltd v Epoch Mining NL (1987) 8 NSWLR 533 …. 15.68, 15.69 Kosciuszko Thredbo Pty Ltd v ThredboNet Marketing Pty Ltd (2014) 311 ALR 656; [2014] FCAFC 87 …. 2.19 Kotan Holdings v Trade Practices Commission (1991) 30 FCR 511; (1991) ATPR 41-134 …. 14.26, 14.34 Krakowski v Eurlynx Properties Ltd (1995) 183 CLR 563; 130 ALR 1 …. 6.12 Ku-ring-gai Co-operative Building Society (No 12) Ltd, Re (1978) ATPR 40094; 22 ALR 621 …. 9.41, 9.50 L Leegin Creative Leather Products Inc v PSKS Inc (2007) 127 S Ct 2705; 551

US 877 …. 10.8 Lindner v Murdock’s Garage (1950) 83 CLR 628 …. 2.23 Luxton v Vines (1952) 85 CLR 352 …. 14.45 M McCarthy v Australian Rough Riders Association Inc (1988) ATPR 40-836 …. 7.49 Maggbury Pty Ltd v Hafele Australia Pty Ltd (2002) 210 CLR 181; (2002) ATPR 41-854; [2001] HCA 70 …. 2.17 Mark Lyons Pty Ltd v Bursill Sportsgear Pty Ltd (1987) 75 ALR 581; (1987) ATPR 40-809 …. 4.34, 8.42, 9.32, 9.61 Marks v GIO Australia Holdings Ltd (1998) 196 CLR 494 …. 16.31 Mayne Nickless Ltd v Multigroup Distribution Services Pty Ltd (2001) 114 FCR 108; (2002) ATPR 41-850; [2001] FCA 1620 …. 16.37, 16.51, 16.55 Media Council of Australia, Re (1996) ATPR 41-497 …. 3.24 —, Re (No 2) (1987) ATPR 40-774 …. 12.17 Medical Benefits Fund of Australia Ltd v Cassidy (2003) 135 FCR 1; (2003) ATPR 41-971; [2003] FCAFC 28 …. 6.57 Melbourne Home of Ford Pty Ltd v Trade Practices Commission (1979) ATPR 40-107 …. 14.26, 14.32, 14.36, 14.37 — v — (No 3) (1980) ATPR 40-174 …. 14.27 Melbourne Steamship Co Ltd v Moorehead (1912) 15 CLR 333 …. 14.52 Melway Publishing Pty Ltd v Robert Hicks Pty Ltd (2001) 205 CLR 1; (2001) ATPR 41-805; [2001] HCA 13 …. 1.21, 8.41, 9.5 Mid Density Developments Pty Ltd v Rockdale Municipal Council (1992) 39 FCR 579; (1993) ATPR (Digest) 46-100 …. 6.35 Minister for Industry, Tourism & Resources v Mobil Oil Australia Pty Ltd (2004) ATPR 41-993; [2004] FCAFC 72 …. 15.47 Mitanis v Pioneer Concrete (Vic) Pty Ltd (1997) ATPR 41-591 …. 16.27 Mitchel v Reynolds (1711) 24 ER 347 …. 2.4 Monroe Topple & Associates Pty Ltd v Institute of Chartered Accountants in Australia (2002) 122 FCR 110; (2002) ATPR 41-879; [2002] FCAFC 197

…. 5.16, 5.24, 5.26, 5.32, 9.28, 9.29, 9.30, 9.44 Multigroup Distribution Services Pty Ltd v TNT Australia Pty Ltd (1996) ATPR 41-522 …. 16.27, 16.56 — v — (2001) 109 FCR 528; (2001) ATPR 41-813; [2001] FCA 226 …. 16.37 N Natwest Australia Bank Ltd v Boral Gerrard Strapping Systems Pty Ltd (1992) ATPR 41-196; 111 ALR 631 …. 8.17 Nella v Kingia Pty Ltd (1989) ATPR 40-952 …. 6.52 New South Wales v Commonwealth (2006) 229 CLR 1; [2006] HCA 52 …. 6.8 New South Wales Minerals Council Ltd, Re (1997) ATPR (NCC) 70-005 …. 13.15 News Ltd v Australian Rugby Football League Ltd (1996) 64 FCR 410; (1996) ATPR 41-521 …. 3.43, 7.49 Nordenfelt v Maxim Nordenfelt Guns & Ammunition Co Ltd [1894] AC 535 …. 2.5 NT Power Generation Pty Ltd v Power and Water Authority (2002) 122 FCR 399; (2003) ATPR 41-909; [2002] FCAFC 302 …. 6.30 — v — (2004) 219 CLR 90; (2004) ATPR 42-021; [2004] HCA 48 …. 1.21, 3.56, 6.27, 8.19, 8.39, 13.1, 13.5, 13.31, 13.33 NW Frozen Foods Pty Ltd v ACCC (1996) 71 FCR 285; (1997) ATPR 41-546 …. 15.17, 15.18, 15.33, 15.47, 15.48, 15.52 O O’Brien Glass Industries Ltd v Cool & Sons Pty Ltd (1983) ATPR 40-376; 48 ALR 625 …. 9.26, 16.32 O’Keeffe Nominees Pty Ltd v BP Australia Ltd (1990) ATPR 41-057 …. 16.9, 16.11, 16.12 Orion Pet Products Pty Ltd v RSPCA (Vic) (2002) 120 FCR 191; (2002) ATPR (Digest) 46-223; [2002] FCA 860 …. 6.8 Outboard Marine Australia Pty Ltd v Hecar Investments (No 6) Pty Ltd

(1982) ATPR 40-327 …. 4.31, 4.35, 4.38, 9.63 P Paciocco v Australia and New Zealand Banking Group Ltd (2015) 321 ALR 584; [2015] FCAFC 50 …. 2.1 Parry’s Department Store (WA) Pty Ltd v Simpson Ltd (1983) ATPR 40-393 …. 16.33, 16.34 Patrick Stevedores Operations No 2 Pty Ltd v Maritime Union of Australia (No 3) (1998) 195 CLR 1; [1998] HCA 30 …. 15.68 Paul Dainty Corporation Pty Ltd v National Tennis Centre Trust (1989) ATPR 40-951 …. 9.36, 9.46, 9.48 Peters (WA) v Petersville Ltd (1999) ATPR 41-714; [1999] FCA 1245 …. 2.15 — v — (2001) 205 CLR 126; (2001) ATPR 41-830; [2001] HCA 45 …. 2.16, 2.17 Petersville Ltd v Peters (WA) Ltd (1999) ATPR 41-674 …. 2.14 Petrofina (Great Britain) Ltd v Martin [1966] Ch 146; [1966] 1 All ER 126 …. 2.1 Pilbara Infrastructure Pty Ltd v Australian Competition Tribunal (2012) 246 CLR 379; [2012] HCA 36 …. 13.5, 13.16, 13.17 Pioneer Concrete (Vic) Pty Ltd v Trade Practices Commission (1982) 152 CLR 460 …. 14.26 Plume v Federal Airports Corporation (1997) ATPR 41-589 …. 8.15 Pont Data Australia Pty Ltd v ASX Operations Pty Ltd (1990) 21 FCR 385; 93 ALR 523; (1990) ATPR 41-038 …. 8.26 Port of Newcastle Operations Pty Ltd v Australian Competition Tribunal (2017) ATPR 42-547 …. 13.18 Province of Bombay v Municipal Corporation of Bombay [1947] AC 58 …. 6.20 Pye Industries Sales Pty Ltd v Trade Practices Commission (1979) ATPR 40124 …. 15.32, 15.34 Pyneboard Pty Ltd v Trade Practices Commission (1983) 152 CLR 328; (1983) ATPR 40-341 …. 14.37

Q Qantas Airways Ltd, Re [2004] ACompT 9 …. 12.14 Queensland Co-operative Milling Association Ltd, Re (1976) ATPR 40-012 …. 3.6, 3.22, 3.25, 3.27, 3.31, 3.50, 3.60, 4.5, 4.28, 12.12, 12.18, 12.26 Queensland Wire Industries Pty Ltd v Broken Hill Proprietary Co Ltd (1987) 17 FCR 211; (1988) ATPR 40-841 …. 3.47 — v — (1989) 167 CLR 177; 83 ALR 577; (1989) ATPR 40-925; [1989] HCA 6 …. 1.21, 3.4, 3.17, 3.24, 3.28, 3.29, 3.38, 3.43, 3.45, 3.47, 4.1, 4.6, 4.8, 4.9, 4.11, 4.15, 4.19, 8.3, 8.10, 8.38, 11.48, 16.60 Quickenden v O’Connor (2001) 109 FCR 243 …. 6.8 R R v Judges of the Federal Court of Australia and Adamson; Ex parte WA National Football League (Inc) (1979) 143 CLR 190 …. 6.7, 6.35 — v Trade Practices Tribunal; Ex parte St George County Council (1974) 130 CLR 533 …. 6.7, 6.35 Rafferty v Madgwicks (2012) 287 ALR 437; [2012] FCAFC 37 …. 6.57 Regents Pty Ltd v Subaru (Australia) Pty Ltd (1996) ATPR 41-463 …. 16.8, 16.15 Reifek v McElroy (1965) 112 CLR 517 …. 14.44 Riley McKay Pty Ltd v Bannerman (1977) ATPR 40-036 …. 14.35 RP Data Ltd (ACN 087 759 171) v State of Queensland (2007) ATPR 42-197; [2007] FCA 1639 …. 4.8 RPR Maintenance Pty Ltd v Marmax Investments Pty Ltd [2012] FCA 681 …. 16.5 Rural Press Ltd v ACCC (2002) 118 FCR 236; (2002) ATPR 41-883; [2002] FCAFC 213 …. 7.41 — v — (2003) 216 CLR 53; (2003) ATPR 41-965; [2003] HCA 7 …. 1.21, 6.54, 6.57, 15.6, 15.78 Rural Traders Co-operative (WA) Ltd, Re (1979) ATPR 40-110 …. 12.12 S

SA Brewing Holdings Ltd v Baxt (1989) 23 FCR 357; (1989) ATPR 40-967 …. 14.35 Sammy Russo Supplies Pty Ltd v Australian Safeway Stores Pty Ltd (1998) ATPR 41-641 …. 7.51 Samsung Electronics Co Ltd v Apple Inc (2011) 286 ALR 257 …. 16.5 7-Eleven Stores Pty Ltd, Re (1994) ATPR 41-357 …. 12.13, 12.16 Seven Network Ltd v News Ltd (2007) ATPR (Digest) 42-274; [2007] FCA 1062 …. 3.30, 3.35, 3.36 Singapore Airlines Ltd v Taprobane Tours WA Pty Ltd (1991) 33 FCR 158; (1992) ATPR 41-159 …. 3.68, 16.34 Sirway Asia Pacific Pty Ltd v Commonwealth of Australia (2002) ATPR (Digest) 46-226; [2002] FCA 1152 …. 7.11 Specialised Container Transport, Re (1997) ATPR (NCC) 70-004 …. 13.17 Specialist Diagnostic Services Pty Ltd (formerly Symbion Pathology Pty Ltd) v Healthscope Pty Ltd (2012) 41 VR 1; [2012] VSCA 175 …. 2.19 SST Consulting Services Pty Ltd v Rieson (2006) 225 CLR 516; (2006) ATPR 42-118; [2006] HCA 31 …. 9.20 State Government Insurance Corporation v Government Insurance Office of NSW (1991) ATPR 41-110; 101 ALR 259 …. 6.21 State of New South Wales v McCloy Hutcherson Pty Ltd (1993) 43 FCR 489; (1993) ATPR 41-261 …. 16.36 State of Queensland v Pioneer Concrete (Qld) Pty Ltd (1999) ATPR 41-691; [1999] FCA 499 …. 16.37 State of Western Australia v Wardley Australia (1991) 30 FCR 245; (1991) ATPR 41-131 …. 16.42, 16.59 State Superannuation Board (Vic) v Trade Practices Commission (1982) 150 CLR 282 …. 6.6, 6.7 Stationers Supply Pty Ltd v Victorian Authorised Newsagents Association Ltd (1993) 44 FCR 35; (1993) ATPR 41-255 …. 9.42 Stirling Harbour Services Pty Ltd v Bunbury Port Authority (2000) ATPR 41752; [2000] FCA 38 …. 4.38, 4.42, 7.11, 8.16 — v —(2000) ATPR 41-783; [2000] FCA 1381 …. 4.38, 4.42

Strickland v Rocla Concrete Pipes Ltd (1971) 124 CLR 468 …. 1.18, 6.2, 6.5 Superannuation Fund Investment Trust v Commissioner of Stamps (SA) (1979) 145 CLR 330; 26 ALR 99 …. 6.23, 6.29 SWB Family Credit Union Pty Ltd v Parramatta Tourist Services Pty Ltd (1980) ATPR 40-180; 32 ALR 365 …. 9.43, 9.44 Sydney Airports Corp Ltd, Re (2000) 156 FLR 10 …. 13.16 T Taprobane Tours WA Pty Ltd v Singapore Airlines Ltd (1990) ATPR 41-054 …. 16.34 Thomson Publications (Aust) Pty Ltd v Trade Practices Commission (1979) ATPR 40-133; 27 ALR 551 …. 6.16 Tillmanns Butcheries Pty Ltd v Australasian Meat Industry Employees’ Union (1979) ATPR 40-138 …. 4.29 TNT Australia Pty Ltd v Fels (1992) ATPR 41-190 …. 14.33 Top Performance Motors Pty Ltd v Ira Berk (Queensland) Pty Ltd (1975) ATPR 40-004 …. 3.42, 3.67 Trade Practices Commission v Allied Mills Industries Pty Ltd (1981) ATPR 40-241 …. 14.27, 15.50 — v Ansett Transport Industries (Operations) Pty Ltd (1978) ATPR 40-071 …. 14.40, 14.44 — v Australia Meat Holdings Pty Ltd (1988) ATPR 40-876 …. 3.48, 15.72 — v Axive Pty Lt (1994) ATPR 41-368 …. 15.54 — v Bata Shoe Co of Australia Pty Ltd (1980) ATPR 40-161 …. 10.40 — v Carlton United Breweries Ltd (1990) 24 FCR 532; (1990) ATPR 41-037 …. 15.32, 15.42 — v CSR Ltd (1991) ATPR 41-076 …. 15.17, 15.18, 15.25, 15.27 — v Cue Design Pty Ltd (1996) ATPR 41-475 …. 14.56 — v Email Ltd (1980) ATPR 40-172 …. 7.42 — v Leslievale Pty Ltd (1986) ATPR 40-679; [1986] FCA 119 …. 7.31 — v Manfal Pty Ltd (1991) 33 FCR 382; (1992) ATPR 41-160 …. 16.52, 16.53 — v Mobil Oil Australia Ltd (1984) 3 FCR 168; (1984) ATPR 40-482 ….

10.44, 10.63 — v Nicholas Enterprises Pty Ltd (No 2) (1978) ATPR 40-126 …. 14.4414.46, 15.24 — v — (1979) ATPR 40-126 …. 14.40 — v Orlane Australia Pty Ltd (1984) 1 FCR 157; (1984) ATPR 40-437; 51 ALR 767 …. 10.79 — v Penfolds Wines Pty Ltd (1992) ATPR 41-163; 104 ALR 601 …. 10.41 — v Pye Industries Pty Ltd (1978) ATPR 40-088 …. 10.43 — v Simpson Pope Ltd (1980) ATPR 40-169 …. 10.63, 16.33 — v Simsmetal Ltd (1996) ATPR 41-449 …. 15.38, 15.54 — v Stihl Chain Saws (Aust) Pty Ltd (1978) ATPR 40-091 …. 10.3, 10.75, 15.16 — v Tepeda Pty Ltd (1994) ATPR 41-319 …. 9.34, 9.50, 9.52 — v TNT Australia Pty Ltd (1995) ATPR 41-375 …. 7.13, 15.25, 15.32, 15.3515.37, 15.39, 15.53, 16.23 Truth About Motorways Pty Ltd v Macquarie Infrastructure Investment Management Ltd (2000) 200 CLR 591; (2000) ATPR 41-757; [2000] HCA 11 …. 15.58 Tytel Pty Ltd v Australian Telecommunications Commission (1986) 67 ALR 433 …. 6.20 U United States v Terminal Railroad Association of St Louis 224 US 383 (1912) …. 13.8 Universal Music Australia Pty Ltd v ACCC (2003) 131 FCR 529; (2003) ATPR 41-947; [2003] FCAFC 193 …. 4.18, 4.21, 4.35, 4.42 V VFF Chicken Meat Growers’ Boycott Authorisation, Re (2006) ATPR 42-120 …. 4.39 Victorian Egg Marketing Board v Parkwood Eggs Pty Ltd (1987) ATPR 40081 …. 8.29

Virgin Blue Airlines, Re (2005) 195 FLR 242 …. 13.14 Visy Paper v ACCC (2003) 216 CLR 1; (2003) ATPR 41-952; [2003] HCA 59 …. 9.39 W WA Pines Pty Ltd v Bannerman (1980) ATPR 40-144 …. 14.28 — v — (1980) ATPR 40-163 …. 14.33 Wakim, Re; Ex p McNally [1999] HCA 27; (1999) 198 CLR 511; 163 ALR 270 …. 6.39, 6.47, 6.49, 10.30 Wallace v Brodribb (1985) ATPR 40-541; 58 ALR 737 …. 10.77 Walplan Pty Ltd v Wallace (1985) 63 ALR 453; (1986) ATPR 40-650 …. 6.12 Western Australia v Wardley Australia Ltd (1991) 30 FCR 245; (1991) ATPR 41-131 …. 16.42, 16.59 Wheeler Grace and Pierucci Pty Ltd v Wright (1989) ATPR 40-940 …. 6.56 Williams v FAI Home Security Pty Ltd (No 2) [2000] FCA 726 …. 6.56 Woodlands v Permanent Trustee Company Ltd (1996) 68 FCR 213; (1996) ATPR 41-509 …. 6.22, 6.33 World Series Cricket Pty Ltd v Parish (1977) ATPR 40-040 …. 15.4, 16.2 Wright Rubber Pty Ltd v Bayer AG (No 3) [2011] FCA 1172 …. 16.23 Y Yorke v Lucas (1985) 158 CLR 661; 61 ALR 307 …. 6.53, 6.54

Statutes References are to paragraph numbers Commonwealth Acts Interpretation Act 1901 s 22(1)(a) …. 11.8 Australian Consumer Law …. 14.1, 14.6 Australian Industries Preservation Act 1906 …. 1.16, 6.2 Civil Aviation Legislation Amendment Act 2003 …. 13.32 Commonwealth of Australia Constitution Act 1900 Ch III …. 6.47 s 51(i) …. 1.16, 6.3 s 51(xx) …. 1.16, 1.18, 6.3, 6.8 s 51(xxxix) …. 6.3 s 122 …. 6.3 Competition and Consumer Act 2010 …. 1.1, 1.7, 1.18, 1.19, 1.21-1.23, 2.1, 2.20–2.22, 3.17, 3.24, 5.3, 6.1, 6.31, 6.42, 12.3, 15.47 Pt II …. 14.2, 14.3 Pt IIIA …. 13.5, 13.6, 13.9, 13.10, 13.16, 13.18, 13.23, 13.26, 13.31, 13.32, 14.56 Pt IIIA, Div 2 …. 13.11 Pt IIIA, Div 2A …. 13.26 Pt IIIA, Div 2AA …. 13.23 Pt IIIA, Div 2AA, subdiv B …. 11.23 Pt IIIA, Div 2AA, subdiv C …. 11.23 Pt IIIA, Div 2AA, subdiv E …. 11.23 Pt IIIA, Div 3 …. 13.11 Pt IIIA, Div 3, subdiv B …. 13.24

Pt IIIA, Div 6 …. 13.29 Pt IIIAA …. 14.1 Pt IV …. 2.21, 2.22, 2.24, 3.1, 3.2, 3.4, 3.21, 3.22, 4.1, 4.2, 4.58, 6.1, 6.5, 6.14, 6.39, 6.40, 6.41-6.43, 6.46, 6.50, 6.52, 6.58, 7.50, 8.7, 8.8, 8.10, 10.2, 10.10, 12.4, 12.5, 12.8, 14.9, 14.39, 14.40, 14.43, 14.44, 14.56, 15.1, 15.3-15.5, 15.9, 15.11, 15.12, 15.14, 15.17, 15.23, 15.27, 15.33, 15.44, 15.45, 15.48, 15.52, 15.55, 15.58, 15.70, 15.73, 15.75, 15.80, 15.82, 15.91, 16.1, 16.3, 16.10, 16.11, 16.20-16.22, 16.24, 16.31, 16.32, 16.36, 16.37, 16.39, 16.43, 16.45, 16.46, 16.49, 16.50, 16.51, 16.52, 16.59 Pt IV, Div 1 …. 4.25, 6.9, 6.10, 7.6, 7.8, 7.10, 7.16, 7.17, 7.20, 7.21, 7.24, 7.31, 7.53, 8.1, 14.9, 14.13, 14.39, 14.45, 14.48, 14.50, 14.51, 15.2, 15.11-15.14, 15.43, 15.82 Pt IV, Div 1, Subdiv A …. 7.20 Pt IV, Div 1, Subdiv B …. 7.20 Pt IV, Div 1, Subdiv C …. 7.20 Pt IV, Div 1, Subdiv D …. 7.20 Pt IV, Div 1A …. 7.4, 7.5, 7.16, 7.30, 15.43 Pt IV, Div 2 …. 3.22, 4.25, 4.26, 7.10, 7.16, 7.20, 7.24, 7.31, 7.44, 7.45, 7.50, 7.53, 8.1, 14.45, 14.51, 15.12, 15.43 Pt IVB …. 6.52, 14.8, 15.73, 16.24, 16.46, 16.51, 16.52, 16.59 Pt IVB, Div 2 …. 15.91, 16.50 Pt V …. 6.40, 16.3, 16.24, 16.45 Pt VC …. 14.39, 15.79 Pt VI …. 6.39, 6.51, 6.52, 16.51 Pt VII …. 3.2, 8.5, 12.2-12.4 Pt VIII …. 10.24, 10.25 Pt IX …. 12.25 Pt XIA …. 6.46 Pt XIC …. 13.32, 14.56 Pt XID …. 14.14, 14.15, 14.17, 14.21, 14.50 Pt XII …. 14.14, 14.22

s 2 …. 3.5 s 4 …. 6.6, 10.24, 10.35, 10.84 s 4(1) …. 6.5, 9.10 s 4(1)(a) …. 11.9 s 4(2) …. 12.5 s 4(2)(a) …. 12.5 s 4(4)(a) …. 11.9, 11.10 s 4(4)(b) …. 11.9, 11.11 s 4D …. 7.48 s 4E …. 3.28, 3.29, 3.30, 3.49, 3.50, 3.67, 4.1, 4.58, 11.43, 13.1 s 4M …. 2.1, 2.20, 2.22, 2.24 s 5 …. 6.40 s 6 …. 6.39, 6.40 s 6(3) …. 6.40 s 6A(2) …. 14.2 s 21 …. 15.6 s 44AA …. 13.10 s 44AD …. 7.8 s 44AF(3) …. 7.18 s 44AG(3) …. 7.18 s 44B …. 13.12, 13.14, 13.23, 13.32 s 44CA …. 13.12, 13.13, 13.20 s 44CA(1)(a) …. 13.15 s 44F …. 13.19 s 44F(1) …. 13.11 s 44F(2) …. 13.11 s 44G …. 13.12 s 44GA …. 13.19 s 44GA(1) …. 13.19 s 44GA(2) …. 13.19 s 44GB …. 13.19 s 44GB(5) …. 13.19

s 44H(1) …. 13.20 s 44H(4) …. 13.20 s 44HA …. 13.20 s 44I …. 13.20 s 44K …. 13.21 s 44K(2) …. 13.11 s 44K(3) …. 13.21 s 44KA(2) …. 13.22 s 44LG …. 13.11 s 44M(4) …. 13.27 s 44N …. 13.11 s 44N(1) …. 13.27 s 44NB …. 13.11 s 44NG …. 13.27 s 44O …. 13.27 s 44O(6) …. 13.27 s 44PA(3) …. 13.11 s 44S …. 13.25 s 44V …. 13.25 s 44V(2) …. 13.25 s 44W …. 13.25 s 44X(1) …. 13.25 s 44XA …. 13.25 s 44Y …. 13.25 s 44YA …. 13.25 s 44ZO …. 13.25 s 44ZP …. 13.25 s 44ZR …. 13.25 s 44ZW …. 13.24 s 44ZY …. 13.24 s 44ZZA …. 13.29 s 44ZZA(3) …. 13.29

s 44ZZBA(1) …. 13.30 s 44ZZBC …. 13.30 s 44ZZBE …. 13.30 s 44ZZBF …. 13.30 s 44ZZBF(6) …. 13.30 s 44ZZBF(7) …. 13.30 s 44ZZCB …. 13.25 s 44ZZNA …. 13.31 s 44ZZRD …. 7.29 s 45 …. 3.43, 3.52, 3.58, 4.38, 4.57, 5.16, 5.21-5.23, 5.26, 5.27, 5.29, 5.32, 7.16, 7.20, 7.47, 7.48, 8.1, 8,9, 9.24, 9.59, 10.53, 10.54, 14.46, 15.29, 16.11 s 45(1) …. 4.2, 7.10, 7.24, 7.33, 7.43-7.45, 7.50, 7.51, 7.53, 8.8, 12.5, 12.6, 14.13, 14.51, 15.12 s 45(1)(a) …. 7.34 s 45(1)(b) …. 7.44 s 45(1)(c) …. 7.44 s 45(2) …. 3.49, 4.40, 5.27, 5.28, 7.16, 7.33, 7.34, 7.43, 7.44, 7.48, 7.51, 7.52, 15.55 s 45(2)(a) …. 7.34, 7.42, 7.52 s 45(2)(a)(i) …. 3.43, 7.48 s 45(2)(a)(ii) …. 3.49, 7.52 s 45(2)(b)(i) …. 3.43, 7.48 s 45(2)(b)(ii) …. 3.49, 7.52 s 45(3) …. 3.49 s 45(5) …. 8.13 s 45A …. 7.44 s 45(9) …. 12.6 ss 45AA–45AU …. 7.20 s 45AA …. 7.8, 7.20 s 45AB …. 7.20 s 45AD …. 7.20, 7.29, 7.30, 7.48

s 45AD(1) …. 7.24, 7.49 s 45AD(1)(a) …. 7.30 s 45AD(1)(b) …. 7.30 s 45AD(2) …. 7.24, 7.26, 7.28, 7.30, 7.49 s 45AD(2)(c) …. 7.30 s 45AD(3) …. 7.24, 7.27, 7.28, 7.30, 7.49 s 45AD(3)(a)(iii) …. 7.48, 7.49 s 45AD(3)(a)(iv) …. 7.49 s 45AD(3)(b) …. 7.30 s 45AD(3)(b)(i) …. 7.30 s 45AD(4) …. 7.24, 7.28, 7.30, 7.49 s 45AD(4)(c) …. 7.30 s 45AD(4)(h) …. 7.49 s 45AD(4)(i) …. 7.49 s 45AF …. 7.20, 7.21, 12.6, 14.39, 14.50, 15.13, 15.79, 15.82, 15.91 s 45AF(3) …. 15.13 s 45AG …. 7.20, 7.21, 14.39, 14.50, 15.13, 15.79, 15.82, 15.91 s 45AG(3) …. 15.13 s 45AJ …. 7.20, 7.22, 7.30, 7.49, 12.6, 14.13, 15.12 s 45AK …. 7.20, 7.22, 7.30, 7.49, 14.13, 15.12 s 45AM …. 12.6 s 45RF …. 15.14 s 45RG …. 15.14 s 46 …. 1.22, 3.40, 3.42, 3.43, 3.56, 3.58, 4.3, 4.4, 4.6, 4.17, 4.18, 4.23, 4.26, 4.57, 5.15, 5.16, 5.21-5.23, 5.26-5.28, 5.32, 8.4-8.12, 8.15, 8.17, 8.20, 8.21, 8.23, 8.24, 8.26, 8.33, 8.36, 8.38, 8.41, 9.24, 9.30, 9.32, 9.59, 10.2, 12.5, 13.5, 13.31, 16.11, 16.12, 16.15, 16.18, 16.34 s 46(1) …. 8.6, 8.22, 8.25, 8.31, 8.38 s 46(2) …. 8.6 s 46(3)–(7) …. 8.12 s 46(3) …. 8.6, 8.12 s 46(4) …. 8.12, 8.13

s 46(4)(c) …. 8.20 s 46(5) …. 8.13 s 46(8) …. 4.4 s 46(8)(a) …. 8.14 s 47 …. 4.2, 4.18, 4.26, 4.38, 4.57, 5.16, 5.21, 5.22, 5.26-5.28, 5.30, 7.29, 8.8, 9.9, 9.10, 9.12, 9.14, 9.15, 9.20, 9.22, 9.24, 9.27, 9.30, 9.32, 9.34, 9.37, 9.39, 9.40, 9.46, 9.53, 9.59, 9.64-9.66, 12.5, 12.11 s 47(1) …. 4.44, 9.10, 9.11, 9.26, 9.30, 9.54, 9.56, 9.61, 9.63 s 47(2)–(9) …. 9.13, 9.22 s 47(2) …. 3.37, 5.9, 5.10, 5.22, 9.10, 9.13, 9.19, 9.28, 9.65, 9.68, 9.70, 9.71 s 47(2)(a) …. 9.67-9.69 s 47(2)(b) …. 9.67-9.69 s 47(2)(c) …. 9.24, 9.67-9.69 s 47(2)(d) …. 9.13, 9.16, 9.24, 9.25, 9.62, 9.67, 9.68, 9.70 s 47(2)(e) …. 9.13, 9.17, 9.30, 9.68, 9.70, 9.71 s 47(2)(f) …. 9.13, 9.69, 9.70 s 47(2)(f)(i) …. 9.17, 9.69 s 47(2)(f)(ii) …. 9.18, 9.32, 9.69 s 47(3) …. 9.10, 9.13, 9.19, 9.38, 9.63, 9.68, 9.70, 9.71 s 47(3)(a) …. 9.70-9.72 s 47(3)(b) …. 9.70-9.72 s 47(3)(c) …. 9.70-9.72 s 47(3)(d) …. 9.13, 9.16, 9.70 s 47(3)(e) …. 9.13, 9.17, 9.71 s 47(3)(f) …. 9.13, 9.72 s 47(3)(f)(i) …. 9.17, 9.72 s 47(3)(f)(ii) …. 9.18, 9.32, 9.61, 9.72 s 47(4) …. 9.10, 9.13, 9.19, 9.66, 9.73, 9.74 s 47(4)(a) …. 9.73 s 47(4)(b) …. 9.16, 9.73 s 47(4)(c) …. 9.73 s 47(4)(d) …. 9.18, 9.73

s 47(5) …. 9.10, 9.13, 9.19, 9.74 s 47(5)(b) …. 9.16 s 47(5)(c) …. 9.17 s 47(5)(d) …. 9.18 s 47(6) …. 9.10, 9.11, 9.13, 9.16, 9.19, 9.20, 9.33, 9.34, 9.47, 9.51-9.53, 9.75, 9.76 s 47(6)(a) …. 9.75 s 47(6)(b) …. 9.75 s 47(6)(c) …. 9.75 s 47(7) …. 8.13, 9.10, 9.11, 9.13, 9.16, 9.19, 9.33, 9.76 s 47(8) …. 9.10, 9.13, 9.19, 9.35, 9.77, 9.78 s 47(8)(a)(i) …. 9.77 s 47(8)(a)(ii) …. 9.77 s 47(8)(b)(i) …. 9.77 s 47(8)(b)(ii) …. 9.77 s 47(8)(c) …. 9.36, 9.77 s 47(9) …. 9.10, 9.13, 9.19, 9.35, 9.78 s 47(9)(a) …. 9.78 s 47(9)(b) …. 9.78 s 47(9)(c)(i) …. 9.78 s 47(9)(c)(ii) …. 9.78 s 47(9)(d) …. 9.36, 9.78 s 47(10) …. 4.29, 4.40, 9.10, 9.54, 9.61, 10.24 s 47(13)(a) …. 9.39 s 48 …. 7.29, 8.2, 10.1, 10.2, 10.24, 10.29, 10.34, 12.23 s 48(1) …. 10.84 s 49 …. 9.32, 16.32 s 50 …. 3.17, 3.22, 3.48, 4.2, 4.40, 4.57, 6.59, 8.2, 8.3, 11.2, 11.4, 11.5, 11.8, 11.12, 11.18, 11.50, 11.53-11.55, 11.59, 11.60, 11.64, 12.3, 12.5, 12.24, 15.72 s 50(1) …. 4.40, 4.45, 11.7, 11.9, 11.53 s 50(1)(b) …. 11.8, 11.9

s 50(2) …. 4.45, 11.7, 11.53 s 50(3) …. 4.45, 4.46, 11.16, 11.19, 11.35, 11.50, 11.54, 11.72 s 50(3)(a) …. 11.20 s 50(3)(b) …. 11.22 s 50(3)(c) …. 11.29 s 50(3)(d) …. 11.37 s 50(3)(e) …. 11.39 s 50(3)(f) …. 11.41 s 50(3)(g) …. 11.44 s 50(3)(h) …. 11.45 s 50(3)(i) …. 11.47 s 50(6) …. 11.14, 11.53 s 50A …. 6.59 s 51(1) …. 6.58, 6.59 s 51(1)(a) …. 6.58 s 51(1)(b)–(e) …. 6.58 s 51(1C) …. 6.59 s 51(2) …. 2.21, 2.22, 2.24, 6.60 s 51(2)(a) …. 6.60 s 51(2)(b) …. 2.21, 6.60 s 51(2)(c) …. 6.60 s 51(2)(d) …. 2.21, 6.60 s 51(2)(e) …. 2.21, 6.60 s 51(2)(g) …. 6.60 s 52 …. 16.3, 16.31 s 55B …. 6.52, 15.14 s 57 …. 5.23 s 60C …. 6.52, 15.14 s 60K …. 6.52, 15.14 s 75B …. 6.52, 6.54, 6.55 s 75B(1) …. 6.52 s 76 …. 14.39, 15.11, 15.14, 15.17, 15.22, 15.28, 15.43, 15.44

s 76(1) …. 15.28 s 76(1A) …. 15.14 s 76(1A)(aa) …. 7.19, 15.12 s 76(1B) …. 15.12, 15.14 s 76(3) …. 15.55 s 77 …. 7.14, 14.39, 15.11, 15.14 s 77(2) …. 15.14 s 77A(1) …. 15.44 s 77A(3) …. 15.44 s 78 …. 14.39, 15.14 s 79 …. 14.39 s 79(1)(e) …. 15.13 s 79(1)(e)(ii) …. 7.18 s 79B …. 15.43 s 80 …. 15.4, 15.56, 15.58, 15.64, 15.71, 15.78, 16.4-16.6, 16.46, 16.54, 16.56, s 80(1) …. 15.58, 15.64, 15.71 s 80(1AA) …. 15.64 s 80(2) …. 15.64, 15.71 s 80(6) …. 15.71, 16.5 s 81 …. 15.72 s 82 …. 6.39, 6.50, 15.43, 16.2, 16.3, 16.23, 16.24, 16.26-16.28, 16.31, 16.33, 16.35, 16.40, 16.45, 16.46, 16.53-16.55, 16.59 s 82(1) …. 16.24 s 82(2) …. 16.25, 16.36, 16.37, 16.40, 16.41-16.43, 16.45, 16.55-16.57 s 83 …. 16.46-16.49 s 83(2) …. 16.47 s 84 …. 6.9, 6.10 s 84(1) …. 6.10 s 84(2) …. 6.10, 6.11, 6.12, 6.31 s 85(1) …. 14.35 s 86(2) …. 15.73

s 86C …. 15.3, 15.73, 15.76, 15.77, 15.78 s 86C(4) …. 15.74 s 86D …. 15.3, 15.79, 15.80 s 86E …. 15.82 s 86E(1) …. 15.82 s 86E(1A) …. 15.82 s 86F …. 15.82 s 87 …. 15.91, 15.92, 16.43, 16.50, 16.53, 16.54, 16.55, 16.59 s 87(1) …. 16.50, 16.51, 16.54, 16.55 s 87(1A) …. 16.46, 16.50, 16.56, 16.59 s 87(1A)(b) …. 16.52, 16.59 s 87(1B) …. 15.63, 15.91, 16.50, 16.52 s 87(1CA) …. 16.56, 16.59 s 87(2) …. 15.91, 16.43, 16.51 s 87(2)(a) …. 15.92, 16.53 s 87(2)(b) …. 15.92, 16.53 s 87(2)(ba) …. 15.92, 16.53 s 87(2)(c) …. 15.92, 16.53 s 87(2)(d) …. 15.92, 16.43, 16.53-16.58 s 87(2)(e) …. 15.92, 16.53 s 87(2)(f) …. 15.92, 16.53 s 87(2)(g) …. 15.92, 16.53 s 87B …. 11.70, 14.56, 15.84 s 87CA …. 16.61 ss 87ZP–95AB …. 12.2 s 88(1) …. 12.4, 12.5 s 88(2) …. 12.8 ss 89–91A …. 12.20 s 90(7) …. 11.55, 11.73, 12.7, 12.9, 12.10, 12.24 s 91A …. 12.21 s 91B …. 12.21 s 91B(3) …. 12.21

s 91C …. 12.21 s 92 …. 6.52, 15.14 s 93 …. 12.22 s 93(1) …. 12.6, 12.23 s 93(3) …. 12.7, 12.9, 12.11 s 93(3A) …. 12.7, 12.9, 12.11, 12.23 s 93(7) …. 12.8 ss 96–100 …. 10.24 s 96 …. 10.25, 10.31, 10.74 s 96(1) …. 10.25, 10.29, 10.84 s 96(2) …. 10.25, 10.29 s 96(3) …. 10.25, 10.26, 10.29, 10.31, 10.32, 10.36, 10.60, 10.80-10.82, 10.84 s 96(3)(a) …. 10.26, 10.27, 10.33, 10.53, 10.54, 10.57, 10.82 s 96(3)(b) …. 10.26, 10.27, 10.33, 10.62, 10.63 s 96(3)(c) …. 10.26, 10.27, 10.33 s 96(3)(d) …. 10.26, 10.27, 10.33, 10.70, 10.75, 10.78 s 96(3)(d)(i) …. 10.71, 10.72 s 96(3)(d)(ii) …. 10.72 s 96(3)(e) …. 10.26, 10.27, 10.33, 10.70, 10.75 s 96(3)(e)(i) …. 10.73 s 96(3)(e)(ii) …. 10.74, 10.84 s 96(3)(f) …. 10.26, 10.27, 10.33 s 96(4) …. 10.37 s 96A …. 10.31 s 97 …. 10.45, 10.65 s 97(b) …. 10.67 s 98 …. 10.75 s 98(2) …. 10.78, 10.79, 10.84 s 98(2)(a) …. 10.78 s 98(2)(b) …. 10.78 s 98(3) …. 10.79

s 98(3)(d) …. 10.79, 10.84 s 98(3)(e) …. 10.79, 10.84 s 101(1AA) …. 12.25 s 101A …. 12.25 s 102 …. 12.25 s 150B …. 6.46 s 150D …. 6.47, 6.48 s 154D(1) …. 14.18 s 154D(3) …. 14.18 s 154X …. 14.14, 14.17, 14.20 s 154X(2) …. 14.20 s 154Y …. 14.20 s 155 …. 14.14, 14.21-14.23, 14.25-14.38 s 155(1) …. 14.23, 14.27, 14.31, 14.32 s 155(1)(a) …. 14.23 s 155(1)(b) …. 14.23, 15.71 s 155(1)(c) …. 14.23 s 155(2) …. 14.31 s 155(5) …. 14.23 s 155(7) …. 14.23, 14.37 s 155(7B) …. 14.23, 14.38 Competition and Consumer Amendment Act (No 1) 2011 …. 7.4 Competition and Consumer Amendment (Competition Policy Review) Act 2017 …. 1.22, 4.26, 7.5, 7.6, 7.14, 7.16, 7.45, 7.48, 8.5, 9.4, 9.54, 10.2, 11.3, 11.4, 11.55, 12.3, 12.23, 12.24, 13.5, 13.11, 13.18, 14.13, 14.48, 16.46 Competition and Consumer Amendment (Misuse of Market Power) Act 2017 …. 1.22, 4.4, 4.26, 5.16, 8.5, 8.6, 8.23 Competition and Consumer Legislation Amendment Act 2011 …. 11.53 Competition and Consumer Regulations 2010 reg 20(1) …. 12.25 Competition Policy Reform Act 1995 …. 1.20, 6.1, 6.4, 6.13, 6.42, 10.31,

13.5, 14.1 Copyright Act 1968 …. 4.18 Corporations Act 2001 …. 6.31 Corporations (Commonwealth Powers) Act 2001 …. 6.49 Corporations Law …. 6.49 Crimes Act 1914 …. 14.49 Director of Public Prosecutions Act 1983 …. 14.49 s 7 …. 14.49 s 8 …. 14.49 Egg Industry Services Protection Act 2002 …. 6.31 Federal Airports Corporation Act 1986 …. 8.15 Federal Court of Australia Act 1976 Pt IVA …. 15.63, 15.70 s 21 …. 15.5, 15.6 s 23 …. 15.71, 15.77, 15.78 s 24(1A) …. 16.45 Foreign Acquisitions and Takeovers Act 1975 …. 11.63 Judiciary Act 1903 s 55ZF …. 14.53 s 55ZG …. 14.56 s 55ZG(3) …. 14.57 Jurisdiction of Courts Legislation Amendment Act 2000 …. 6.48 Sch 1, s 78 …. 6.48 Petroleum Retail Marketing Sites Act 1980 …. 15.47 Trade Practices Act 1965 …. 1.18 Trade Practices Act 1971 …. 6.35 Trade Practices Act 1974 …. 1.1, 1.18, 1.19, 1.21, 1.23, 3.9, 6.1, 6.7, 6.13, 7.14, 9.32, 11.2, 13.5 Pt IV …. 1.21, 6.18, 6.25, 6.26, 6.34, 6.36, 6.42, 6.43 Pt V …. 6.18 s 2 …. 6.25 s 2A …. 6.16, 6.18, 6.20, 6.21, 6.23, 6.33

s 2B …. 6.26, 6.31, 6.32, 6.34 s 2B(2) …. 6.34 s 2B(3) …. 6.34 s 2BA …. 6.36, 6.37 s 2C …. 6.26 s 2C(1)(c) …. 6.32 s 2C(1)(c)(i) …. 6.32 s 2C(1)(c)(ii) …. 6.32 s 2C(1)(c)(iii) …. 6.32 s 2C(1)(c)(iv) …. 6.32 s 2C(1)(c)(v) …. 6.32 s 2C(1)(c)(vi) …. 6.32 s 2C(1)(c)(vii) …. 6.32 s 2D …. 6.26 s 4 …. 6.27, 6.31 s 4E …. 3.42, 3.47 s 45 …. 7.31, 14.45, 15.41 s 45(2) …. 3.45, 7.10, 7.15, 7.16, 7.43, 7.50, 7.51 s 45(2)(a) …. 7.36, 7.37, 7.54 s 45(2)(a)(i) …. 7.15, 7.49 s 45(2)(a)(ii) …. 3.45, 7.15 s 45(2)(b)(i) …. 7.15 s 45(2)(b)(ii) …. 7.15 s 45A …. 3.45, 3.49, 7.15, 7.16 s 46 …. 15.27 s 48 …. 15.29, 16.33 s 52 …. 6.57 s 75B …. 6.56, 6.57 s 75B(1) …. 6.57 s 80 …. 15.77, 15.78 s 80(1) …. 15.71 s 80(2) …. 15.71

s 80(6) …. 15.71 s 82 …. 16.27 s 87B …. 15.84, 15.87-15.90 s 87B(4) …. 15.88 s 150D …. 6.48 s 155(2) …. 14.16 Trade Practices Amendment Act 1992 …. 11.22, 11.42 Trade Practices Amendment Act (No 1) 2001 …. 11.14, 15.4, 15.73, 15.79 Trade Practices Amendment Act (No 1) 2006 …. 6.36, 12.3 Trade Practices Amendment (Australian Consumer Law) Act (No 2) 2010 (ACL Act) …. 1.23 Trade Practices Amendment (Australian Energy Market) Act 2004 …. 14.1 Trade Practices Amendment (Cartel Conduct and Other Measures) Act 2009 …. 1.21, 7.4, 7.14, 7.15, 14.48, 15.2 Trade Practices Amendment (Infrastructure Access) Act 2010 …. 13.5, 13.23 Trade Practices Amendment (National Access Regime) Act 2006 …. 13.5, 13.10 Trade Practices Legislation Amendment Act 2008 …. 1.21 Trade Practices Legislation Amendment Act (No 1) 2006 …. 11.2, 14.15 Trade Practices Legislation Amendment Act (No 1) 2007 …. 1.21 New South Wales Competition Policy Reform (NSW) Act 1995 …. 6.43 s 4 …. 6.43 s 5 …. 6.43 s 8 …. 6.43 s 19 …. 6.45 s 21 …. 6.48 s 22 …. 6.48 s 25 …. 6.44, 6.45

s 25(2) …. 6.44 s 27 …. 6.45 Liquor Act 1982 …. 3.52 Local Government Act 1919 …. 6.35 Restraint of Trade Act 1976 …. 2.23, 2.24 Northern Territory Power and Water Authority Act 1987 …. 3.56, 6.27, 8.20 South Australia Gas Pipelines Access (South Australia) Act 2008 …. 13.32 Victoria Competition Policy Reform (Victoria) Act 1995 …. 6.47 Pt 5, Div 3 …. 6.48, 6.49 s 19 …. 6.49 s 20 …. 6.49 s 21 …. 6.48 s 22 …. 6.48 Federal Courts (Consequential Amendments) Act 2000 …. 6.48 s 7 …. 6.48 Western Australia Port Authorities Act 1999 …. 4.43, 8.16 United Kingdom Magna Carta …. 1.10, 2.1, 2.4 Statute of Monopolies 1623 …. 1.10 United States of America

Antitrust law …. 1.13 Sherman Act 1890 …. 1.14, 1.15

Contents Detailed Contents Preface Acknowledgments Cases Statutes Chapter 1

The Development of Competition Law

Chapter 2

Common Law Restraint of Trade Doctrine

Chapter 3

Market Definition

Chapter 4

Market Power and Substantial Lessening of Competition

Chapter 5

Understanding Competition Law Cases

Chapter 6

Application of the Competition and Consumer Act 2010 (Cth)

Chapter 7

Cartels and Anti-competitive Arrangements and Concerted Practices

Chapter 8

Taking Advantage of Market Power

Chapter 9

Exclusive Dealing

Chapter 10

Resale Price Maintenance

Chapter 11

Anti-Competitive Mergers and Acquisitions

Chapter 12

Authorisation and Notification

Chapter 13

Access Regimes

Chapter 14

Public Enforcement: Policies and Procedures of the Australian Competition and Consumer Commission

Chapter 15

Public Enforcement: Orders and Remedies Available to the Australian Competition and Consumer Commission

Chapter 16

Private Actions and Remedies

Index

Detailed Contents Preface Acknowledgments Cases Statutes

Chapter 1

The Development of Competition Law Introduction The world’s first antitrust trial? Aristotle’s solution to university funding The Romans When competition legislation had real penalties Monopolies and the downfall of empires The United States of America The Australian context Australian Industries Preservation Act 1906 (Cth) Trade Practices Act 1965 (Cth) Trade Practices Act 1974 (Cth) Competition Policy Reform Act 1995 (Cth) Dawson Review — 2003–2015 2015 and Beyond: The Harper Review Competition and Consumer Act 2010 (Cth) and the Australian Consumer Law Competition law and popular culture

Matt Damon and the lysine price-fixing cartel May the Act be with you! Chapter 2

Common Law Restraint of Trade Doctrine Overview Introduction Modern formulation Legitimate interest to protect Restraint of trade clause — the questions to ask Shifting of the onus Reasonableness The ‘anterior question’ Competition and Consumer Act 2010 (Cth) Restraint of Trade Act 1976 (NSW) A question of application Further reading

Chapter 3

Market Definition Overview Introduction Why are competitive markets preferred? Markets are not perfect The primacy of efficiency Efficiencies in theory Efficiencies in practice — competitive tension The structure, conduct, performance paradigm Principles of market definition Purposive exercise Basic principles of market definition Dimensions of the market

Substitution Defining the product dimension of the market The ‘hypothetical monopolist’ test and the SSNIP test Where there has been no substitution Defining the geographic dimension of the market International limits of geographic market definition? Where do the substitutable goods or services come from? The hypothetical monopolist/SSNIP test The ACCC’s approach to geographic market definition Defining the functional dimension of the market Anti-competitive conduct at different functional levels Constraints at different functional levels Defining the temporal dimension of the market Sub-markets, single-brand markets and singleproduct markets Further reading Chapter 4

Market Power and Substantial Lessening of Competition Overview Introduction Market power Identifying market power Market power identified by price and non-price strategies

How do these factors indicate the existence of market power? Market power not established by conduct alone Market power must be non-transitory The ACCC’s view of market power A summary of the principles relating to market power Competition and substantial lessening of competition Competition ‘Substantial’ lessening of competition Evaluating SLC — the ‘future with and future without’ test Illustration of the ‘future with and future without’ test The merger factors and the ‘future with and future without’ test Summary of principles from Baxter Healthcare A common theme of substitution Further reading Chapter 5

Understanding Competition Law Cases Overview Introduction What are the elements of a competition law case? Relevant questions How and why these questions are important to understanding competition law cases What is the factual and commercial relationship between the parties to a case? What is the actual conduct complained of that is the subject of the case?

What are the commercial implications of the conduct? How is the conduct legally characterised in terms of the Act? What are the legal issues to be decided? Are there economic thresholds involved? What did each party argue? How did the court resolve the dispute and what were the orders made? What is the significance (if any) of the decision? Working with the questions — a practical example Questions and case analysis What is the factual and commercial relationship between the parties? What is the actual conduct complained of that is the subject of the case? What are the commercial implications of the conduct? How is the conduct legally characterised in terms of the Act? What are the legal issues to be decided? Are there economic thresholds involved? What did each party argue? How did the court resolve the dispute and what were the orders made? What is the significance (if any) of the decision? Summary Chapter 6

Application of the Competition and Consumer Act 2010 (Cth)

Overview Introduction Why did these gaps exist? Application to corporations What is a ‘trading or financial corporation’? Application to the Crown What is ‘the Crown’? The Crown in right of the Commonwealth The Crown in right of the states Local governments Application to non-corporate entities Principal liability Ancillary liability Further reading Chapter 7

Cartels and Anti-competitive Arrangements and Concerted Practices Overview Introduction What is a ‘cartel’ for the purposes of the Act? Price-fixing Restricting outputs Bid-rigging Allocating customers, suppliers or territories Brief background to the 2017 Amendment Act Part IV Div 1 — overview Criminal liability Civil liability Part IV Div 1 — in detail The criminal cartel regime

The civil cartel regime Fundamental concepts Cartel provision What exactly is a ‘provision’? Putting the cartel regime together Contract, arrangement or understanding Definition of ‘contract, arrangement or understanding’ Part IV Div 2 s 45(1) What is a concerted practice? What about exclusionary provisions? Section 45(1) — contracts, arrangements or understandings Elements required to establish a breach of s 45(1) Consequences of a breach Further reading Chapter 8

Taking Advantage of Market Power Overview Introduction A difficult history Structure and elements of s 46 Elements of s 46 Protection of competition or of individual competitors? A substantial degree of market power Market power versus other forms of power Specific forms of prohibited conduct Price strategies Non-price strategies

Further reading Chapter 9

Exclusive Dealing Overview Introduction Why is exclusive dealing ‘bad’ for competition? The structure of s 47 The practice of exclusive dealing Products, customers and territories Product restrictions Customer restrictions Territorial restrictions Positive and negative conduct Product ‘forcing’ and ‘tying’ Forms of exclusivity Product exclusivity Customer exclusivity Territorial exclusivity Third line forcing conduct Exclusivity in relation to property leases Supply ‘on condition’ Definition of ‘on the condition’ ‘Supply on condition’ and not ‘imposition of a condition’ Third line forcing issues Form over substance? ‘Another person’ Exclusive dealing and substantial lessening of competition A reminder

Examples from the case law A worked explanation of s 47 Preliminary points to note Further reading Chapter 10 Resale Price Maintenance Overview Introduction Approach of the Act Why is RPM considered ‘bad’ for competition and consumers? Benefit and detriment Product image and RPM Discounting Practical examples RPM, market power and consumer detriment Elements of the prohibition Structure of Pt VIII The practice of RPM ‘Positive’ and ‘negative’ conduct Corporate and non-corporate parties Goods and services Common concepts ‘A price specified’ The ‘smoking gun’ evidence of RPM Making it known No need for ‘meeting of the minds’ The certainty and language of the threat Who is the supplier? Inducing and attempting to induce RPM

Recommended retail prices Refusing to supply goods Section 96(3)(d)(i) Section 96(3)(d)(ii) Section 96(3)(e)(i) Section 96(3)(e)(ii) Deemed withholding The ‘loss leader’ defence Successfully navigating s 96(3) A simple example A complex example Further reading Chapter 11 Anti-Competitive Mergers and Acquisitions Overview Introduction Forms of mergers and acquisitions The Act What is an ‘acquisition’? The threshold test The relevant market Section 50(3) — merger factors Creeping acquisitions The ACCC and merger regulation The notification threshold Informal merger clearance procedures Confidential merger and acquisition reviews Non-confidential public merger or acquisition reviews Application for authorisation

Further reading Chapter 12 Authorisation and Notification Overview Introduction The structure of Pt VII What conduct can be authorised, notified or cleared? What is the result of authorisation and notification? Tests for authorisation and notification Conduct involving substantial lessening of competition thresholds Conduct involving notification applications Public benefit Public detriment The test for evaluating public benefits and public detriments ACCC authorisation procedure Variation and revocation of authorisations Notification of exclusive dealing conduct Notification of resale price maintenance conduct Merger authorisations by the ACCC Review by the Tribunal Further reading Chapter 13 Access Regimes Overview Introduction Natural monopolies, essential facilities and access regimes Part IIIA — overview of the three pathways to access

Access pathway 1 — access through declaration process The NCC decision-making process Time limits on the NCC making a recommendation The Minister’s response Review of the Minister’s decision to declare a service In the Tribunal Services that cannot be declared Negotiating with the owner of the facility The ACCC as arbiter of access disputes Access pathway 2 — certification of existing effective access regimes Access pathway 3 — access undertakings and industry codes The relationship between s 46 and Pt IIIA of the CCA Industry-specific access regimes Further reading Chapter 14 Public Enforcement: Policies and Procedures of the Australian Competition and Consumer Commission Overview Role of the ACCC in enforcing Australian competition law Purpose and function of the ACCC Role of the ACCC The ACCC’s approach to enforcement The ACCC’s ‘compliance pyramid’ ACCC cooperation policy

Leniency for individuals Leniency for corporations Immunity policy for cartel conduct Information-gathering powers The ‘search and seizure’ regime — Pt XID Entry to premises with consent Entry to premises without consent Legal professional privilege The s 155 regime — Pt XII Overview of legislation ACCC’s common law power to question Role and importance of s 155 of the Act Administrative, not judicial, power ACCC’s approach to use of s 155 notices Factors relevant to the issue of a s 155 notice Reason to believe Purpose of issue of a s 155 notice Principles of construction — s 155 Prima facie obligation to comply with a s 155 notice Privilege against self-incrimination/exposure to penalty Legal professional privilege The ACCC’s burden of proof in Pt IV enforcement Standard of proof in civil litigation How does the ACCC satisfy the burden of proof in civil litigation? Criminal standard of proof What is the criminal standard of proof? Standard expected of ACCC as a model litigant How the ACCC is bound by the model litigant direction

What are the ACCC’s obligations in complying with the model litigant direction? Boundaries of the model litigant direction Further reading Chapter 15 Public Enforcement: Orders and Remedies Available to the Australian Competition and Consumer Commission Overview Introduction The ACCC’s powers and orders it can seek ACCC regulates in the public interest Declarations Pecuniary penalties and criminal fines Civil pecuniary penalty regime Criminal fines and terms of imprisonment Statutory framework for pecuniary penalties Policy rationale for civil penalties Standard of proof in penalty proceedings Principles employed in assessing pecuniary penalties Other factors Preference for victims Indemnifying officers of corporations Joint submission on penalties Recent practice on negotiated penalty submissions Policy rationale for submissions Issues associated with negotiated settlements on penalties Injunctions

Nature of injunctive relief The standing of the ACCC to seek injunctive relief Circumstances in which the ACCC would seek injunctions Forms of injunctive relief available to the ACCC Threshold tests in seeking interim injunctions Mareva orders Divestiture orders Non-punitive orders — s 86C Orders for competition law/trade practices compliance programs Punitive orders — s 86D Disqualification orders Court-enforceable undertakings — s 87B Nature of s 87B as an enforcement option for the ACCC ACCC’s policy on s 87B enforceable undertakings Use of s 87B undertakings in mergers ‘Other orders’ — s 87 Further reading Chapter 16 Private Actions and Remedies Overview Introduction Injunctions Three important differences Application of the principles in private litigation Some points to note Damages The statutory provision

How are damages under s 82 calculated? The limitation period Section 83 — evidentiary mechanism Value of s 83 to private litigants A procedural difficulty? Section 87 — ‘other orders’ Section 87(1) action — ancillary to existing action ACCC representative proceedings The orders available under s 87 Section 87 — limitation periods ACCC intervention policy Principles that guide intervention by the ACCC Requests for intervention Further reading Index

[page 1]

Chapter 1 The Development of Competition Law

Introduction 1.1 In January 2011, the Competition and Consumer Act 2010 (Cth) (CCA) (the Act) replaced the former Trade Practices Act 1974 (Cth) (TPA) as the principal legislative mechanism to address anti-competitive trading practices throughout Australia. The Act is the latest measure in a long line of attempts by governments of various societies throughout history to combat certain anti-competitive trading practices by which traders attempt to interfere in markets to the detriment of consumers. In fact, attempts by traders to manipulate markets in order to increase their profits are as old as markets themselves. Egyptian papyri have been found indicating that, in 3000 BC, there was an attempt by traders in grain to fix the prices against those prevailing in the market.1 Price-fixing is just one of the many methods, of equally ancient heritage, in which traders attempt to manipulate markets for their own profit. As one commentator observed: They represent no more than the attempts of intelligent men to interfere to their own advantage, or that of the industry in which they are engaged, with the free working of supply and demand and with the results of competition.2

In this chapter, we will explore a little of the cultural history of

competition law and, most relevantly, identify the far-reaching legislative reforms introduced in 2017 to implement the recommendations of the Harper Review. This chapter is intended to put the Act into a larger historical context; locating it within the wider and more ancient context of monopolies and restrictive trading practices on the one hand, and attempts by various kings, queens, rulers and legislatures at outlawing those practices on the other. It turns out that history is full of monopolies and illegal trading practices. 1.2

Why is that? Adam Smith believed that:

People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends up in a conspiracy against the public or in some contrivance to raise prices

[page 2] … It is not from the benevolence of the butcher, the brewer or the baker that we expect our dinner, but from their regard to their own interest.3

However, he also did not think these meetings could be regulated: It is impossible indeed to prevent such meetings, by any law which either could be executed, or would be consistent with liberty and justice.4

‘Liberty’ and ‘justice’ are interesting concepts in the context of trade practices or antitrust law, where the power of the corporation to manipulate the market appears to triumph over the individual consumer. Even the illfated St Thomas Moore cautioned us not to: … [s]uffer these rich men to buy up all, to ingrosse and forestalle and with their monopoly, to keep the market alone as please them.5

1.3 According to Justice Dyson Heydon, St Thomas Moore was the first person to employ the term ‘monopoly’ in the sense of meaning dominant control over resources. However, this is not strictly correct. According to Dr Barbara Lesco of the Department of Egyptology at Brown University, in 2000 BC, Egyptian royal families enjoyed the economic benefits of their monopolies in minerals that were used in the production of make-up (the

malachite and black shades favoured by the Egyptians seemed to also possess antibiotic qualities and helped to reflect light away from the eyes). These monopolies were important in also controlling the distribution of make-up used in religious events and feasts. Feasts and food were particularly important to peoples of ancient civilisations and were frequently the subject of monopolies. In the 7th century BC, cooks in ancient Greece were granted annual monopolies to exploit their recipes.

The world’s first antitrust trial? 1.4 Unfortunately, that was not all ancient civilisations attempted to exploit. Possibly the world’s first antitrust trial comes down to us from 388 BC in ancient Greece. It concerned a ‘contract, arrangement or understanding’ by grain dealers to buy up grain in order to create a scarcity, thereby allowing them to charge supra-competitive retail prices for the grain at markets.6 In other words, it involved a cartel. Normally, grain shipments were unhindered through the Hellespont Passage which was controlled by the Athenians. However, in 388 BC, the Spartans began to raid the grain ships coming into the Greek harbour of Piraeus. The limited amount of grain available meant that wholesalers were bidding ferociously against each other for whatever grain made it past the Spartan pirates. Because the wholesalers were paying more for the grain from the merchants, they recouped their expenses by raising the retail price of grain and bread products at market. The Greek population feared that inflation would put grain out of their reach. [page 3] One of the Athenian grain commissioners innocently suggested that several grain wholesalers should collusively bid for the grain, thereby

ensuring they would pay less for the grain. The commissioner’s innocent idea was that, since the cost to the wholesalers was less, the cost savings would be passed on to the Greek citizens in the form of lower retail prices for grain.7 It did not work out that way. Predictably, the grain wholesalers bought huge quantities of grain and, instead of making it available to consumers at lower prices, they hoarded the grain in their own warehouses. In order to create panic, these same wholesalers then spread rumours of war, loss of grain ships and blockades of ports. The rumours had the effect of causing ‘panic buying’ of grain. The price shot up to six times the legal limit and the wholesalers made a fortune. When the cartel was discovered, some senators wanted the cartel members handed over for execution without trial. However, once tempers cooled, a trial was arranged and although the cartel members attempted to shift the blame to the grain commissioner (‘we were only following orders!’), the defence was quickly defeated.8 We do not know the outcome of this trial, but it seems reasonable to assume that the cartel members were found guilty. While nothing is known of their fate, it seems clear that the ancient Greeks’ interest in monopolies had not diminished.9

Aristotle’s solution to university funding 1.5 Like most academies of higher learning, Aristotle’s Lyceum was struggling to cover its costs through public funding. Writing in The Politics, Aristotle devised an interesting solution. Eager to prove the commercial usefulness of philosophy and astrology/astronomy (and thereby to attract government funding), Aristotle related the story of Thales, who came from the Asia Minor city of Miletus. Thales had ascertained from the position of the planets and stars that the next season’s crop of olives would be especially bountiful.

Some months ahead of the harvest, Thales bought up all of the olive presses in the surrounding area, thereby ensuring that he was the sole owner of the facilities needed to process olives into olive oil. As predicted, the next season’s olive crop was plentiful. Because he owned all of the olive presses, Thales was able to insulate himself from his competitors; through predatory pricing, he was able to force his rivals out of the market and to reap supra-competitive prices for the hire of the olive presses. Aristotle, therefore, proudly invited government funding for his school because the subjects taught had commercial application! Incidentally, Thales was the first to prove the geometrical theorems that Euclid codified centuries later. Thales also considered that all natural phenomena were composed of certain material substances, water being the most predominant. It is, therefore, ironic that Thales died of dehydrationinduced heat exhaustion while watching wrestling matches. [page 4]

The Romans 1.6 Laws from Roman times indicate a concern to protect the trade in corn and grain against unnatural rises in prices. One of the first of these laws was the Lex Julia de Annona, which was said to date back to the time of Julius Caesar. It imposed fines against individual traders and groups of traders who engaged in profiteering and creating artificial shortages of supply.10 More significant was the Constitution of Zeno issued in 483 AD. It went further than the Lex Julia by rescinding all exclusive licences and private monopolies that had been granted. Penalties included fines and banishment for life. Emperor Zeno issued an edict to the Roman Prefect of Constantinople in the following terms: We command that no one may presume to exercise a monopoly of any kind of clothing, fish, or

of any other thing serving for food or any other use … nor may any persons combine or agree in unlawful meetings, that different kinds of merchandise may not be sold at a price less than they were agreed upon amongst themselves.11

When competition legislation had real penalties 1.7 The Competition and Consumer Act 2010 (Cth) permits the Federal Court to send executives to gaol if they engage in cartel behaviour. The Court can also levy pecuniary penalties and, since 2009, impose criminal fines against both individuals and corporations found to be in breach of prohibitions on restrictive trading practices. In 2007, Richard Pratt’s Visy Board corporation was fined $36 million for price-fixing: Australian Competition and Consumer Commission v Visy Industries Holdings Pty Ltd (No 3) (2007) ATPR 42-185; [2007] FCA 1617. In 2017, the Court imposed a fine of $25 million against shipping company Nippon Yusen Kabushiki Kaisha following the institution of proceedings in Australia’s first criminal cartel prosecution: Commonwealth Director of Public Prosecutions (DPP) v Nippon Yusen Kabushiki Kaisha (2017) ATPR 42-551; [2017] FCA 876. 1.8 Traders didn’t always have it that easy. In the Middle Ages, most trade in domestic goods and services was conducted at markets, held weekly. The owners of the markets or fairs charged the merchants who were selling goods at their market a fee, called a ‘stallage’, for the space. Unscrupulous traders would often attempt to prevent other traders from entering the market. This had the effect of preventing price competition for various goods as well as preventing the market owner from collecting the stallage fee. This practice was known as ‘forestalling’. When it was practiced during times of poor harvests or famine, it enabled some traders to manipulate the market. The absence of outside competition allowed the traders to extract supra-competitive prices for their goods.12 [page 5]

At a time when most people lived in poverty and at the mercy of agricultural inconsistency, the practice of forestalling had disastrous consequences; hundreds of thousands of people died of starvation. One writer described life in 15th-century England, devastated by the Black Death: The undrained neglected soil; the shallow stagnant waters which lay upon the surface of the ground, the narrow unhealthy homes of all classes of the people; the filthy neglected streets of the town, the insufficient and un-wholesome food; the abundance of stale fish which was eaten, the scanty variety of the vegetables which were consumed predisposed the agricultural and town population alike to typhoidal diseases and left them little chance of recovery when stricken down with pestilence.13

In these dismal circumstances, the public resentment of forestallers was strikingly described: … it was ordained that no forestaller should be suffered to dwell in any town; for he is a manifest oppressor of the poor and a decayer of the rich, a public enemy of the country, a canker, a moth and a gnawing worm that daily wasteth the Commonwealth; and the act and name of a forestaller was so odious … that it was moved in parliament to have had it established by law, that a forestaller should be baited out of town where he dwelt by dogs and whipped forth with whips.14

1.9

Accordingly, Henry VIII issued a proclamation in 1529 against those:

… who do combine and confeder together in fairs and markets to set unreasonable process upon the said corn and grain to the great damage of his loving subjects.15

King Henry VIII was concerned that: Prices of such victuals be many times enhanced and raised by the greedy covetousness and appetites of the owners of such victuals, by occasion of ingrossing and regrating the same, more than upon any reasonable or just ground or cause, to the great damage and impoverishing of the King’s subjects.16

Penalties included forfeit of property, time in the ‘stocks’, and even amputation of an ear or hand. In the 16th century, King Edward VI passed an Act prohibiting anticompetitive market practices that provided for penalties of 20 days’ imprisonment on bread and water rations for a first offence, ‘punishment of the pillory’ for a second offence, and pillory plus amputation of an ear for a third offence.

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Monopolies and the downfall of empires 1.10 Despite publicly condemning monopolies, the kings and queens of England were not above granting them when it was convenient to do so. For example, at the beginning of the 13th century, King John had lost territories in Normandy, France. In order to fund a war to retake those lands, King John granted monopolistic trading rights to the ‘Cinque Ports’ (the five English ports nearest to France). In exchange, those ports pledged to provide ships and men for King John’s war of re-conquest. This monopoly was granted despite King John also signing the Magna Carta which was considered to prohibit all monopolies. Likewise, after the rise of the merchant guilds, Queen Elizabeth I granted the Newcastle coal monopoly permission to incorporate as a guild in exchange for a significant share in the profits calculated per unit of coal exported from the Newcastle mines. Even after the famous Statute of Monopolies in 1623, purporting to make monopolies void, the Crown continued to grant them as a means of revenue raising without the need for parliamentary approval. One of the most important monopolies Queen Elizabeth I granted was a ‘Charter’ to the East India Company which gave it a monopoly over trade with India and other eastern countries. One of the most important products acquired and sent back to England by the East India Company was saltpetre. Saltpetre was the main ingredient used at the time in the production of gunpowder and explosives because of its high levels of nitrate and potassium. The East India Company was particularly efficient in developing its monopoly — an inquiry by the House of Lords in 1693 found that the company had spent the astronomical amount of 90,000 pounds for the corruption of public servants in securing its trade. 1.11 Why were the monopolies of the East India companies tolerated? Dutch East India lawyer, Pieter Van Damm, suggested:

The State ought to rejoice at the existence of an association which pays it so much money every year that the country derives three times as much profit from trade and navigation in the Indies as the shareholders.17

Centuries later, the British Empire was to colonise India and exert a monopoly over the production of salt. Only British firms could produce salt and there was an enormous tax on domestic Indian labour that did make salt. In a hot and dehydrating climate, the need for salt was crucial. In March 1930, an Indian ex-lawyer by the name of Mohandas Gandhi set off on a 241mile march to Dandi on the Indian Coast, where he proceeded to make salt in objection to the British monopoly. Some historians regard this major act of non-violent public objection to a manufacturing monopoly to be the beginning of the downfall of Britain’s domination of India.

The United States of America 1.12 Predictably, the early settlers of Jamestown and Virginia faced problems with forestalling as ships’ captains sold their cargo to traders before the goods were unloaded and sold in the town’s markets. Laws were passed preventing such sales, giving the colonists time to journey to the capital at Jamestown to make their purchases. In 1641, the Coppie of the Liberties of the Massachusetts Colonie in New England provided: [page 7] No monopolies shall be granted or allowed amongst us but of such new Inventions that are profitable to the Countrie, and that for a short time.18

As the American colonies were attempting to build an agricultural and mercantile base, they were gradually being squeezed by English trade policy. England imposed various monopolistic and exclusive dealing restraints on the American colonies, effectively designed to deny them access to international markets and to make them rely on imports from England to the

detriment of their own fledgling industries. By the mid-1700s, these policies and the taxation levied to enforce them spawned widespread boycotts of English goods. These boycotts were met with violence and retribution. These events contributed to the American Revolution. 1.13 However, modern United States ‘antitrust law’ stems from the late 19th century. Following the American Civil War (1861–65), changing economic circumstances saw the rise of trade restraints. While state courts employed the common law to strike down restraints of trade and more obvious price-fixing arrangements, more subtle forms of market manipulation arose. These forms of control involved common ownership and control of business entities. At that time, corporations could not purchase shares and stocks in another corporation. To get around this, stock in corporations was placed into trusts for the benefit of stockholders. The trustees controlled the management of multiple corporations, enabling them to engage in coordinated anti-competitive behaviour. The late 1800s saw the rise of the Standard Oil Trust and similar trusts in other vital industries, including the railroads, all of which were directed towards market manipulation and price-fixing. Producers of primary products, including farmers as well as consumers, demanded an end to such practices amidst growing public fear of price exploitation. One contemporary writer observed: Indeed the public mind has begun to assume a state of apprehension, almost amounting to alarm, regarding the evil economic and social tendencies of these organisations. The social atmosphere seems to be surcharged with an indefinite but almost inexpressible fear of trusts.19

1.14 By 1888, both major American political parties advocated antimonopoly platforms. In 1889, Senator Sherman introduced: A bill to declare unlawful, trusts and combinations in restraint of trade and production.20

After much deliberation, the Republican 51st Congress in 1890 enacted the

Sherman Act, prohibiting monopolisation. [page 8]

The Australian context 1.15 It was to the Sherman Act that Australia looked in its first attempt at addressing anti-competitive trading practices shortly after Federation. The history of trade practices regulation in Australia can generally be divided into six periods: 1. 2. 3. 4. 5. 6.

1906–65; 1965–74; 1974–95; 1995–2003; 2003–2015; and post-2015.

Australian Industries Preservation Act 1906 (Cth) 1.16 At the time of Federation, many Australian industries were characterised by market-sharing and price-fixing arrangements. The challenge that faced the young Federal Government was the absence of power in the Constitution to enable parliament to enact laws with respect to restrictive trading practices. Principally relying on the trade and commerce power in s 51(i) and the corporations power in s 51(xx) of the Constitution, the early Federal Parliament enacted the Australian Industries Preservation Act 1906 (Cth) in response to complaints that a giant American combine was selling agricultural harvesters in the Australian market at predatory prices. The Australian Industries Preservation Act 1906 (Cth) prohibited the formation of trade monopolies and combinations in restraint of trade. As its

name suggests, the Australian Industries Preservation Act was intended to protect Australian industries by prohibiting overseas corporations from engaging in anti-competitive conduct in Australia. 1.17 The use of the corporations power and the trade and commerce power as the principal support for the Act was successfully challenged in Huddart Parker & Co Pty Ltd & Appleton v Moorehead (1909) 8 CLR 330. The Court held that the sections of the Act based on the corporations power were invalid because of the ‘reserved powers’ doctrine. The consequence of this doctrine was that the power to make laws regulating corporations formed within the limits of a state was ‘reserved’ to that state, and not to the Commonwealth. Although the doctrine of reserved powers was eventually rejected by the subsequent decision in Amalgamated Society of Engineers v Adelaide Steamship Co Ltd (Engineers’ Case) (1920) 28 CLR 129, the Act remained largely unused until it was repealed in 1965.

Trade Practices Act 1965 (Cth) 1.18 By the early 1950s, monopolies, price-fixing and market-sharing arrangements were flourishing in many Australian industries. In its 1958 and 1959 reports, the Commonwealth Tariff Board found evidence of anticompetitive arrangements in most Australian industries. The first public investigation into restrictive trading practices was conducted in 1958 by the Western Australian Royal Commission which found that most of the 111 trade associations in the state were engaging in price-fixing. Acting on these and other inquiries and reports, the then Attorney-General in the Menzies Liberal Government, Sir Garfield [page 9] Barwick (later Chief Justice of the High Court of Australia), attempted to

negotiate the introduction of the Trade Practices Act 1965 (Cth). Yet another constitutional challenge in Strickland v Rocla Concrete Pipes Ltd (1971) 124 CLR 468 saw the Act invalidated on other grounds. It is significant that the High Court (with Sir Garfield Barwick as a member) held that the corporations power in s 51(xx) of the Constitution validly supported the Act. That decision established the constitutional foundations for the later Trade Practices Act 1974 (Cth) and the current Competition and Consumer Act 2010 (Cth).

Trade Practices Act 1974 (Cth) 1.19 After 1970, there was a gradual rise in the inflation rate in Australia, as well as a heightened consumer consciousness. Various pressure groups called on the government to bring inflation under control by curbing anticompetitive practices that artificially inflated prices. When the Whitlam Labor Government came to power, the then AttorneyGeneral, Sir Lionel Murphy, introduced the Trade Practices Act 1974 (Cth). This version of the Act was very different from its predecessors and included certain prohibitions on misleading and deceptive conduct. As an aside, we know that Sir Garfield Barwick did not think very highly of this 1974 Act. In his autobiography, A Radical Tory, Sir Garfield stated (rather caustically): The present legislation, built to a large extent upon the American pattern, was produced by an Attorney-General who did not favour free enterprise but espoused socialist planning.21

Nevertheless, on 1 October 1974, the Act came into force and largely represented the statutory foundation for restrictive trade practices law and policy today embodied in the CCA. Since the introduction of the TPA, there have been many reviews of competition law and policy and its effectiveness, including the Swanson Committee in 1976, the Blunt Committee in 1979, the Griffiths Committee in 1989, and the Cooney Committee in 1991.

Competition Policy Reform Act 1995 (Cth)

1.20 During the early part of the 1990s, the federal, state and territory governments of Australia began to implement micro-economic reforms in a number of crucial industries, such as electricity and telecommunications. The plan was to introduce competition into industries that had traditionally been insulated from both domestic and international competition. However, these reforms were being introduced on an ad-hoc basis, without reference to a national and coordinated national competition policy. In October 1992, the Federal Government established an inquiry into national competition policy, chaired by Professor Fred Hilmer. The Hilmer Report,22 released in August 1993, [page 10] made very wide-ranging recommendations for amending the Act to set the foundations for a comprehensive national competition policy. The Federal Government introduced most of the recommendations of the Hilmer Report by enacting the Competition Policy Reform Act 1995 (Cth). These amendments will be considered in more detail in Chapter 5.

Dawson Review — 2003–2015 1.21 Since 1995, the TPA and then the CCA have been under continual review, largely prompted by the perceived need to address decisions of the High Court since its seminal decision in Queensland Wire Industries Pty Ltd v Broken Hill Pty Ltd (1989) 167 CLR 177. It would be fair to say that there has been more judicial and legislative activity in relation to the Act since 2001 than in the entire preceding 25 years. Decisions of the High Court in Melway Publishing Pty Ltd v Robert Hicks Pty Ltd (2001) 205 CLR 1; (2001) ATPR 41-805; [2001] HCA 13, Boral Besser Masonry Ltd (now Boral Masonry Ltd) v ACCC (2003) 215 CLR 374; (2003)

ATPR 41-915; [2003] HCA 5, Rural Press Ltd v ACCC (2003) 216 CLR 53; (2003) ATPR 41-965; [2003] HCA 75 and NT Power Generation Pty Ltd v Power and Water Authority (2004) 219 CLR 90; (2004) ATPR 42-021; [2004] HCA 48 illustrate the ongoing interpretative difficulties associated with the concepts in the Act. Largely as a result of these perceived difficulties, the Federal Government commissioned a review of Pt IV of the TPA (the Dawson Review). The resulting report23 recommended significant amendments. Accordingly, the TPA was amended by the Trade Practices Legislation Amendment Act (No 1) 2007 (Cth) that commenced on 25 September 2007 and included the infamous ‘Birdsville Amendment’ which related to predatory pricing.24 This related proposal specifically dealt with predatory pricing in the form of the now lapsed Trade Practices Amendment (Predatory Pricing) Bill 2007 (Cth), and the more comprehensive Trade Practices Legislation Amendment Act 2008 (Cth) that commenced on 22 November 2008. Following international initiatives to criminalise cartel conduct, the Federal Government introduced the Trade Practices Amendment (Cartel Conduct and Other Measures) Act 2009 (Cth) that came into effect in July 2009. Despite being in effect for several years, the first fines imposed under the criminal cartel provisions did not occur until 2017: Commonwealth Director of Public Prosecutions v Nippon Yusen Kabushiki Kaisha (2017) ATPR 42-551; [2017] FCA 876. We will be returning to this case in Chapter 7.

2015 and beyond: The Harper Review 1.22 In 2014, the Federal Government constituted a committee to undertake a ‘root and branch’ evaluation of Australian Competition Policy. The Harper Committee released its Final Report in March 2015 recommending many far-reaching reforms to the Competition and Consumer Act 2010 (Cth). These reforms were debated for many months

until, in 2017, [page 11] two pieces of legislation were passed. First, the Competition and Consumer Amendment (Misuse of Market Power) Act 2017 (Cth) radically amended s 46 of the Act concerning unilateral ‘misuse of market power’. We will be exploring these amendments to s 46 in Chapter 8. Second, the Competition and Consumer Amendment (Competition Policy Review) Act 2017 (Cth) implemented the balance of the Harper Reforms. We will be exploring the amendments made by this Act throughout this text.

Competition and Consumer Act 2010 (Cth) and the Australian Consumer Law 1.23 In addition, the Trade Practices Amendment (Australian Consumer Law) Act (No 2) 2010 (Cth) (ACL Act) completed a process of reform that had been gaining momentum since the early 2000s, which culminated in the creation of a single, nationwide consumer protection and product liability regime called the ‘Australian Consumer Law’. It was the ACL Act that renamed the TPA as the Competition and Consumer Act 2010 (Cth) with effect from 1 January 2011, and this text is concerned with the anti-competitive provisions of the Act rather than the ACL.

Competition law and popular culture Matt Damon and the lysine price-fixing cartel 1.24 Because cartels and price-fixing arrangements are conducted so secretively and often involve undercover investigation and millions of dollars,

it was only a matter of time before a movie was made about them. So it was that, in 2009, actor Matt Damon starred in The Informant!, the true story of Dr Mark Whitacre, an executive of a United States Fortune 500 agri-business corporation, Archer Daniels Midland (ADM). In 1992, Whitacre confessed to the Federal Bureau of Investigation (FBI) that he and other high-ranking ADM executives had regularly met with their competitors to fix the price of lysine, a food additive. Whitacre agreed to act as an FBI informant and, over a period of three years, secretly recorded hundreds of hours of audio and video tapes of pricefixing meetings that involved ADM and its competitors in countries around the world. At the time, the ADM price-fixing scandal was the largest antitrust case in history. Unfortunately, at the time he was helping the FBI, Whitacre was also defrauding ADM in a scheme that netted him US$9 million. It also turned out that Whitacre was suffering from bipolar disorder with severe delusional spells of grandiosity and self-importance. It was generally considered that the stress of working undercover for the FBI had triggered the illness. Whitacre attempted suicide (unsuccessfully) and, at one time, was seen in his yard using a leaf blower at 3 am during a thunderstorm. As a result of Whitacre’s evidence, ADM settled the price-fixing case for more than US$100 million. ADM also paid hundreds of millions of dollars in class-action settlements to customers that it had stolen from during the pricefixing schemes. In addition, several top executives, including the vicechairman of ADM, served terms of imprisonment. The seriousness of the ADM investigation convinced the United States Government that price-fixing cartels were more widespread than first suspected. The case led to subsequent [page 12]

investigations and prosecutions into cartels in the vitamins, fax paper, and graphite electrodes industries.

May the Act be with you! 1.25 If monopolies and other restrictive trading practices have been with us for millennia, popular culture would have us believe they are to be with us for a long time to come. When George Lucas released Star Wars—The Phantom Menace, we saw that the entire saga of the destruction of the Republic and the rise of the Empire was the result of restrictive trading practices. It seems that the Imperial Senate of the Republic had granted the corrupt Trade Federation a monopoly on the taxation of certain galactic trade routes. This included a monopoly on levying taxes on goods traded to and from the Naboo home world. Under the manipulation of Lord Sidious (actually, Senator Palpatine) the Trade Federation commenced an illegal blockade of the Naboo planet in an attempt to enforce its trade monopoly. The Trade Federation ships were conducting both primary and secondary boycotts in enforcing their monopoly. Did Queen Amidala of Naboo think of using a Galactic Competition Act to break the monopoly? If the Senate had heard the case rather than sending in the Jedi, the catastrophic welfare loss associated with the Clone Wars may have been avoided. Of course, the movie would not have been as interesting!

1. 2. 3. 4.

R Piotrowski, Cartels and Trusts: Their Origin and Historical Development, George Allen & Unwin Ltd, United Kingdom, 1933, p 88. Lord Wilberforce, A Campbell and N Ellis, Restrictive Trade Practices and Monopolies, 2nd ed, Sweet & Maxwell, London, 1966, p 2. A Smith, The Wealth of Nations, Book I, Ch II, 1776. Ibid.

5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21. 22.

23. 24.

St Thomas More, Utopia, Book 1 (1516) in H Craik, English Prose, Vol I, The MacMillan Company, New York, 1916. L Kotsiris, ‘An Antitrust Case in Ancient Greek Law’ (1988) 22(2) Int Lawyer 451. 2 W Dunham, ‘Cold Case Files: The Athenian Grain Merchants, 386 BC’ (2008) 28(3) Cato J 495. R Seager, ‘Lysias against the Corndealers’ (1966) Historia: Zeitschrift fur Alte Geschichte Bd, 15, H 172. See J Hasebroek, Trade and Politics in Ancient Greece, G Bell and Sons Ltd, United Kingdom, 1933. D Cowan, ‘Ancient Origins of Competition Law’ (2007) Advocate 38 (Forum). Lord Wilberforce, A Campbell and N Ellis, Restrictive Trade Practices and Monopolies, 2nd ed, Sweet & Maxwell, London, 1966, p 20. R Lopez and I Raymond, Medieval Trade in the Mediterranean World, W W Norton & Company Inc, United States, 1967. F D Jones, ‘Historical Development of the Law of Business Competition’ (1926) 35 Yale Law J 905 at 911. Ibid at 908–9. Lord Wilberforce, A Campbell and N Ellis, Restrictive Trade Practices and Monopolies, 2nd ed, p 24. Ibid, p 25. F Braudel, Civilization and Capitalism, 15th-18th Century (3 vols), Harper and Row, New York, 1981–84 (original editions in French, 1979), p 445. F D Jones, ‘Historical Development of the Law of Business Competition Part II’ (1926–27) 36 Yale Law J at 46. G W Stocking and M W Watkins, Monopoly and Free Enterprise, Twentieth Century Fund, New York, 1951, p 80. F D Jones, ‘Historical Development of the Law of Business Competition Part III’ (1926–27) 36 Yale Law J at 218. G Barwick, A Radical Tory: Garfield Barwick’s Reflections and Recollections, Federation Press, Leichhardt, 1995, p 151. Independent Committee of Inquiry into Competition Policy in Australia, National Competition Policy: Executive Overview — Report by the Independent Committee of Inquiry (the Hilmer Report), AGPS, Canberra, 1993. Trade Practices Review Committee, Review of the Competition Provisions of the Trade Practices Act, Commonwealth of Australia, January 2003. The amendment was referred to as the ‘Birdsville Amendment’ because it was allegedly thought of and drafted by Senator Barnaby Joyce in a pub in the town of Birdsville.

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Chapter 2 Common Law Restraint of Trade Doctrine

Overview This chapter is intended to: • • • •

introduce you to the common law doctrine of restraint of trade; explain how the doctrine relates to contemporary competition law; consider the reception of the doctrine as part of Australian trade practices law; and explore the relationship between the doctrine and the Competition and Consumer Act 2010 (Cth) (CCA) (the Act) in recent case law.

Introduction 2.1 The common law doctrine of restraint of trade has a curious relationship with the Competition and Consumer Act 2010 (Cth). In Petrofina (Great Britain) Ltd v Martin [1966] Ch 146; [1966] 1 All ER 126, the Court defined a restraint of trade as (All ER at 138): … one in which a party (the covenantor) agrees with any other party (the covenantee) to restrict his liberty in the future to carry on trade with other persons … in such a manner as he chooses.

This form of restraint was considered a species of monopoly and hence anti-competitive. However, restraint of trade clauses are usually found in contracts freely bargained for by two parties. Any anti-competitive effect of the clause does not arise from a unilateral use of market power or the more familiar horizontal cartels amongst competitors. Restraint of trade clauses are not generally prohibited by statute. It might be argued that a restraint of trade clause has the same effect as a cartel because it effectively eliminates competition that might otherwise exist between the parties to the contract after the restrained party leaves the commercial relationship giving rise to the restraint. In addition, while the common law doctrine of restraint of trade is preserved in its operation by s 4M of the Act, it is not expressed in the precise way that the Act prohibits other forms of anti-competitive conduct. As we will see below, restraints of trade are evaluated by relatively subjective measures of ‘reasonableness’, unlike the more economically objective measures of cross-elasticities of supply and demand (market definition) and ‘competition and/or purpose conditions’ (cartels). The Full Court in Paciocco v Australia [page 14] and New Zealand Banking Group Ltd (2015) 321 ALR 584; [2015] FCAFC 50 (at [268]), specifically referring to the doctrine of restraint of trade, recognised that: The common law has many rules and principles expressed in terms of norms and values, rather than specific definitions expressed in terms of a priori logic that are sufficient by linguistic formulae to capture or recognise precise future situations of application. This was so in commerce, as in other fields of activity and life.

Later in this Chapter, we will see how the ‘norm and value’ of reasonableness functions as the normative test for the validity of restraint of trade clauses. For now, it is important to understand how the common law

doctrine developed. Historically, English legislation, from the time of the Magna Carta, regarded all monopolies to be contrary to law because they restrained the freedom of the individual. Of course, this did not stop the kings and queens of England granting monopolies when it was in their interest to do so. In 1331, the Crown granted letters of protection to John of Flanders so that he could teach weaving in England. In 1347, Prince Edward granted a monopoly to a certain Mr Von Limberg in relation to the pewter trade. 2.2 It is generally thought that the first recorded case concerning the legality of restraint of trade clauses is Dyer’s Case (1414) YB 2 Hen V, Vol 5. A tradesman involved in the dyeing of cloth provided an undertaking not to carry on his business in a town for a period of six months. The Court held that the undertaking was void. The decision lacked the relative sophistication of balancing the interests of the parties and the public. Rather, the Court was concerned that the dyer might become a burden on society, a concern quaintly expressed by the Court in Ipswich Tailor’s Case (1614) 77 ER 1218: At the common law, no man could be prohibited from working in any lawful trade, for the law abhors idleness, the mother of all evil … and especially in young men, who ought in their youth (which is their seed time) to learn lawful sciences and trades, which are profitable to the commonwealth and whereof they might reap the fruit in their old age, for idle in youth, poor in age; and therefore the common law abhors all monopolies, which prohibit any from working any lawful trade.

The trouble was that the bubonic plague (the Black Death) swept across Europe, decimating its population and, by extension, whole economies. In order to encourage trade after the Black Death, the English Crown granted industrial monopoly licences to various traders. However, these were abused — in the 1500s, Queen Elizabeth I granted a large number of such licences because of the profits paid into the royal coffers as a result. With these abuses, prices rose and the quality of products declined. 2.3 The legality of these monopolies was finally considered in the case of Darcy v Allin; the Case of Monopolies (1602) 11 Co Rep 84b. Darcy was a

member of the Queen’s household and had been granted a monopoly to make playing cards. The Court held the monopoly to be void because monopolies: • • •

caused increases in prices; resulted in the deterioration of mercantile quality; and tended to reduce those restrained by them to ‘idleness and beggary’. [page 15]

2.4 Referring to the Magna Carta, the Court in Ipswich Tailor’s Case confirmed that no person could be prohibited from working in any lawful trade except by Parliament. This was the attitude of the courts until, finally, in 1623, the Statute of Monopolies was passed by Parliament which made it illegal to grant monopolies. From that time on, courts began to relax their views, holding that partial restraints were valid in some circumstances. In Mitchel v Reynolds (1711) 24 ER 347, the Court held that a partial restraint was acceptable, stating: ‘What does it signify to a tradesman in London what another does in Newcastle?’

Modern formulation 2.5 The modern formulation of the doctrine of restraint of trade is traced to the decision of the House of Lords in Nordenfelt v Maxim Nordenfelt Guns & Ammunition Co Ltd [1894] AC 535. Lord Mcnaghten stated (at 565): The public have an interest in every person’s carrying on his trade freely: so has the individual. All interference with individual liberty of action in trading, and all restraints of trade of themselves, if there is nothing more, are contrary to public policy, and therefore void. That is the general rule. But there are exceptions: restraints of trade and interference with individual liberty of action may be justified by the special circumstances of a particular case. It is sufficient justification, and indeed is the only justification, if the restriction is reasonable — reasonable that is, in reference to the interests of the public, so framed and so guarded as to afford adequate protection to the party in whose favour it is imposed, while at the same time it is in no way injurious to the public.

2.6 This formulation was approved and adopted in Australia by the High Court in Buckley v Tutty (1971) 125 CLR 353, and has been adopted by all decisions since then. The policy behind the ‘modern’ formulation of the restraint of trade doctrine was explained by the Court in Herbert Morris Ltd v Saxelby [1916] 1 AC 688 (at 701): Every man shall be at liberty to work for himself, and shall not be at liberty to deprive himself of the State of his labour, skill or talent, by any contract that he enters into.

The decisions of the High Court in Buckley v Tutty and Amoco Australia Pty Ltd v Rocca Bros Motor Engineering Co Pty Ltd (1974) 133 CLR 288 have distilled Lord Mcnaghten’s formulation into two principles: 1. 2.

There is a prima facie presumption that restraint of trade clauses are void as against public policy. This presumption can be rebutted and the restraint of trade clause enforced where: (a) the restraint is reasonable in the interests of the parties; and (b) the restraint is in the interests of the public.

More recently, the Victorian Court of Appeal in Just Group Limited v Peck (2016) 344 ALR 162; [2016] VSCA 334 at [30]–[37], helpfully provided a concise list of the relevant legal principles to be applied in evaluating restraint of trade clauses: [page 16] Principles relating to the enforceability of restraint clauses A term in a contract, which is a restraint of trade (‘a restraint clause’), is presumed to be void as contrary to public policy. The presumption may be rebutted if there are special circumstances that demonstrate the covenant to be: (a) reasonable as between the parties; and (b) not unreasonable in the public interest.

The test of reasonableness varies depending on ‘the situation the parties occupy and so recognising different considerations which affect employer and employee and independent traders or business men, particularly vendor and purchaser of the goodwill of a business’. A court takes a ‘stricter view’ of restraint clauses in employment contracts; and will more readily uphold a restraint clause in favour of a purchaser of the goodwill of a business than a restraint clause in favour of an employer. In particular, a purchaser of a business is entitled to protect itself from competition by the vendor; but an employer is not entitled to protect itself from competition per se by an employee. A restraint clause in favour of an employer will be reasonable as between the parties, if at the date of a contract: (a) the restraint clause is imposed to protect a legitimate interest of the employer; and (b) the restraint clause does no more than is reasonably necessary to protect that legitimate interest in its: (i) duration; or (ii) extent. It is well established that employers do have a legitimate interest in protecting: (a) confidential information and trade secrets; and (b) the employer’s customer connections. For the legitimate purpose of protecting the employer’s confidential information, a restraint clause does not need to be limited to a covenant against disclosing confidential information. It may restrain the employee from being involved with a competitive business that could use the confidential information. The onus of proving the special circumstances from which the Court may infer ‘reasonableness between the parties’ is on the person seeking to enforce the covenant. However, if an employee or other covenantor alleges that the restraint clause is against the public interest, the burden of proving that proposition is on the employee/covenantor. Once the facts that are contended to constitute the special circumstances have been established, it is a matter of law whether the restraint clause is reasonable as between the parties

We will begin by identifying the nature of the interest that is sought to be protected by the party seeking to enforce the restraint clause.

Legitimate interest to protect 2.7 The Australian Capital Territory Court of Appeal in Capital Aircraft Services Pty Ltd v Brolin (2007) Aust Contract R 90-257; [2007] ACTCA 8

confirmed that the restraint of [page 17] trade doctrine does not confer an ‘abstract right to be protected against any competition per se in his or her trade or business’: at [9]. There must be some legitimate business interest that is to be protected. These interests include goodwill, trade secrets, client relationships and confidential business information. Accordingly, restraint of trade clauses are commonly found in the following types of contracts: the sale of a business, the dissolution of a partnership and employer–employee contracts. Generally speaking, the courts take a stricter and less favourable view of restraint of trade clauses in employment contracts than similar clauses in contracts for the sale of a business: Geraghty v Minter (1979) 142 CLR 177 at 185. The New South Wales Court of Appeal in BB Australia Pty Ltd v Kariori Pty Ltd (2010) 278 ALR 105; [2010] NSWCA 347 considered that the reasons for this stricter view included (at [60]): … the fact that by agreeing to a restraint on further employment an employee may be wholly or partially giving up his or her ability to work after the present employment ceases. On the other hand, when a business is sold it may not have any value to the purchaser if the vendor is not restrained from competing for at least a limited period.

Contracts for the sale of a business 2.8 The purchase price of a new business normally includes a component that reflects the ‘goodwill’ associated with the business. In Inland Revenue Commissioners v Muller & Co’s Margarine Ltd [1901] AC 217, the Court stated (at 223): What is goodwill? It is a thing very easy to describe, very difficult to define. It is the benefit and advantage of the good name, reputation and connection of a business. It is the attractive force which brings in custom.

The New South Wales Court of Appeal in BB Australia Pty Ltd v Kariori Pty Ltd (2010) 278 ALR 105; [2010] NSWCA 347 described ‘goodwill’ as follows (at [75]): The goodwill of a business … is the intangible asset which reflects the fact that there are features of the business that render it likely that customers will come to, or will continue to, do business with it.

Accordingly, a restraint of trade clause in the contract of sale ensures that the accumulated goodwill inherent in the business is protected. 2.9 In the context of the sale of a franchise, the Court in KA & C Smith Pty Ltd v Ward (1998) 45 NSWLR 702; (1999) ATPR 41-717 at [24] stated: … the franchisor has an interest at stake which is analogous to the purchaser’s goodwill. It has an interest in protecting the patronage built up through the operation of the franchise, which may be lost if the franchisee is permitted to compete without restriction. The franchisor also has an interest in preserving the confidentiality of confidential information provided to the franchisee, which could be used by the franchisee to compete with the franchisor if there were no restraint. However, the franchisee has an interest in protecting the goodwill of its business. The customers are customers of the franchisee’s business, though the franchisor also has an ‘interest’ in the customers since they are attracted to the business as a franchise business.

Franchising agreements require careful consideration because they display characteristics that are common to both employment and sale of a business situations. In franchising cases, [page 18] do the courts take a stricter approach to interpreting restraint of trade clauses (because the clause restricts employment) or do the courts adopt a more neutral approach (because the clause involves the sale of a business)? The Court of Appeal in BB Australia Pty Ltd v Kariori Pty Ltd (2010) 278 ALR 105; [2010] NSWCA 347 considered (at [61]) that ‘it is necessary to look carefully at the features of the particular franchise in question, without presuming in advance that the approach relevant to one rather than the other of the categories is necessarily applicable’.

What does this mean in practice? If the restraint of trade clause under consideration emphasises the protection of goodwill then the principles relating to vendor and purchaser are relevant. However, if the emphasis of the clause is on restraining a former employee then the principles relating to employer–employee are relevant.

Dissolution of partnerships 2.10 An extensive and loyal client base is essential to partnerships. A restraint of trade clause in partnership contracts aims to preserve that client base when one of the partners departs the firm. In Fisher v GRC Services Pty Ltd (1998) ATPR (Digest) 46-180; [1997] QSC 215, a retired partner in a patent and trademark attorneys partnership was held to be restrained from seeking out clients of his former firm. However, the Court also held that the clause did not prevent the partner from approaching former clients who had taken their business away from his former firm.

Employer–employee contracts 2.11 Restraint of trade clauses in employer–employee contracts are designed to protect a firm’s trade secrets and confidential information. In Herbert Morris Ltd v Saxelby, above, the Court explained (at 710): In all such cases as this, one has to ask oneself what are the interests of the employer that are to be protected, and against what is he entitled to have them protected. He is undoubtedly entitled to have his interest in his trade secrets protected, such as secret processes of manufacture which may be of vast value. And that protection may be secured by restraining the employee from divulging these secrets or putting them to his own use. He is also entitled not to have his old customers by solicitation or some other means enticed away from him.

A good example of the way such a clause was considered is found in Aussie Home Loans Ltd v X Inc Services Pty Ltd (2005) ATPR 42-060; [2005] NSWSC 285.

Restraint of trade clause — the questions to ask

2.12 Given this discussion, it is sometimes said that the restraint of trade doctrine requires a consideration of three questions: 1. 2. 3.

What is the nature and extent of the legitimate business interest the restraint of trade clause is designed to protect? Is the restraint of trade clause reasonable between the parties in protecting that interest? Is the restraint of trade clause consistent with the public interest? [page 19]

The onus of answering these questions shifts from one party to the other during the course of a trial.

Shifting of the onus 2.13 The High Court in Buckley v Tutty (1971) 125 CLR 353 explained how the evidentiary onus in restraint of trade cases shifts, which may be summarised as follows: 1.

2.

The person wanting to enforce the restraint of trade clause (the purchaser) bears the onus of establishing that there is a legitimate interest to protect and that the restraint of trade clause is reasonable between the parties in protecting that interest. The person the subject of the clause (the seller who now wants to compete in breach of the restraint of trade clause) then bears the onus of establishing that the clause is not in the interests of the public.

Reasonableness Inter-parties 2.14 The reasonableness of a restraint of trade clause is not judged by the value the parties derive from it, or from whether the parties think it is a good

thing. It is important to recall the general principle that party A does not have an ‘abstract right’ to be protected from competition by party B. For this reason, a restraint of trade clause will be reasonable if it does no more than give adequate protection to the interest the covenantee is entitled to protect: Herbert Morris Ltd v Saxelby [1916] AC 688. Put another way, the issue is ‘whether the restraint exceeded what was reasonably necessary for the protection of the respondent’; this is a question of fact: Petersville Ltd v Peters (WA) Ltd (1999) ATPR 41-674; [1999] FCA 5 (the decision in the first instance).

The public interest 2.15 Whether the restraint of trade clause is reasonable in terms of the public interest is a question to be determined by the court. Courts will start from the view that the public is not to be deprived of competition in the form of a restraint of trade clause. The court then looks at the scope of a clause to determine the extent to which the public will be deprived of competition. The greater the extent to which the restraint of trade clause stops the covenanter from engaging in work, the less likely it is to be reasonable in terms of the public interest: Peters (WA) Pty Ltd v Petersville Ltd (1999) ATPR 41-714; [1999] FCA 1245 (Full Court).

The ‘anterior question’ 2.16 The High Court in Peters (WA) v Petersville Ltd (2001) 205 CLR 126; (2001) ATPR 41-830; [2001] HCA 45 considered that a preliminary issue to be resolved is the very application of the doctrine in the circumstances of a case. The Court raised three issues for consideration: 1.

whether there is a ‘restraint’ within the meaning of the doctrine; [page 20]

2. 3.

whether the restraint is in respect of ‘trade’; and whether the restraint is one to which the doctrine even applies.

As to this last point, the Court in Australian Capital Territory v Munday (2000) ATPR 41-771; [2000] FCA 653 stated (at [27]): … before the reasonableness of a restraint is considered there is the anterior question of whether the doctrine applies at all to a transaction of the kind in question.

2.17 In this context, the courts have considered three tests that act as ‘threshold filters’ in determining whether the restraint of trade doctrine might or might not apply: 1. 2. 3.

the ‘fettering of an existing freedom’ test; the ‘principle of exclusion by sterilisation and not absorption’ test; and the ‘structure of a trading society’ test.

Tests one and two have been rejected by the High Court in Peters (WA) v Petersville Ltd (2001) 205 CLR 126; (2001) ATPR 41-830; [2001] HCA 45. The Court left open the question of whether the ‘structure of a trading society’ test could apply. (This was confirmed by the Court a year later in Maggbury Pty Ltd v Hafele Australia Pty Ltd (2002) 210 CLR 181; (2002) ATPR 41-854; [2001] HCA 70.) 2.18 The ‘structure of a trading society test’ has its origins in the decision of the Court in Esso Petroleum Co Ltd v Harper’s Garage (Stourport) Ltd [1968] AC 269; [1967] 1 All ER 699, where Lord Wilberforce explained that these clauses (All ER at 731): … have become part of the accepted machinery of a type of transaction which is generally found acceptable and necessary, so that instead of being regarded as restrictive they are accepted as part of the structure of a trading society.

Essentially, if the clause under consideration is accepted within the structure of a trading society, the party seeking to enforce the clause will not be required to prove the clause is reasonable. This was the basis of the decision in Australian Capital Territory v Munday. The Australian Capital Territory Government had entered into a contract with a waste-recycling company. Under the terms of the contract,

the recycling company enjoyed exclusive rights to the possession of material discarded at rubbish tips in the Australian Capital Territory. As a condition of entry into the tip, the operators purported to exclude persons from scavenging at the tip; that is, taking away material that had been discarded. Munday and others scavenged at the tip, taking away materials and selling them at various markets. Munday alleged that the condition of entry into the tip was invalidated by the restraint of trade doctrine. Justice Heerey concluded that the restraint of trade doctrine did not apply to the condition. His Honour held that a condition that restricted scavenging, reserving the discarded material for the recycling company, was an accepted part of contemporary trading society. 2.19 The ‘structure of a trading society’ threshold test was considered by the Victorian Court of Appeal in Specialist Diagnostic Services Pty Ltd (formerly Symbion Pathology [page 21] Pty Ltd) v Healthscope Pty Ltd (2012) 41 VR 1; [2012] VSCA 175 (8 August 2012). The restraint under appeal was found in a lease restricting a landlord from (inter alia) leasing or licensing land or part of a building for the purposes of a trade or business in competition with existing tenants. When the landlord apparently breached this covenant, it argued that the restraint of trade doctrine did not apply because of case law establishing that the rules relating to restraint of trade do not ordinarily apply to restraints accepted by purchasers of interests in land; that is, restraints found in covenants for the sale or disposition of interests in land. The Court of Appeal found (at [61]) that simply because a restraint applies to land, it will not be subject to the restraint of trade doctrine. In those circumstances, the Court of Appeal concluded (at [74]–[78]) that the doctrine

applied to restraints in lease contracts and that there was no evidence of an accepted trading practice that would have permitted landlords to grant leases in breach of such a restraint. In other words, there was no evidence that the restraint in question had become part of the accepted practice of leasing. Similar reasoning was adopted by the Full Court in Kosciuszko Thredbo Pty Ltd v ThredboNet Marketing Pty Ltd (2014) 311 ALR 656; [2014] FCAFC 87. The Full Court concluded (at [78]) that a clause purporting to restrain a lessee trader from using the name of a geographical location of the trader’s business (‘Thredbo’) without the lessor’s consent, was not an accepted part of Australian trading society.

Competition and Consumer Act 2010 (Cth) 2.20 Section 4M of the Act expressly preserves the operation of the common law doctrine of restraint of trade in so far as it is consistent with the operation of the Act. It provides: 4M Saving of law relating to restraint of trade and breaches of confidence This Act does not affect the operation of: (a) the law relating to restraint of trade in so far as that law is capable of operating concurrently with this Act; or (b) the law relating to breaches of confidence; …

The requirement that the restraint of trade doctrine operate ‘in so far’ as it operates ‘concurrently’ with the Act means that if conduct to which it is alleged the restraint of trade doctrine applies is also dealt with by the Act, then the Act will prevail in assessing the legality of that conduct. 2.21 In this context, we need to note the exceptions that are listed in s 51(2) of the Act. Section 51(2) provides that, in determining whether there has been a breach of (most of) the provisions of Pt IV of the Act, certain types of conduct should be excluded: • •

provisions of contracts relating to employment (s 51(2)(b)); provisions of contracts relating to partnerships (s 51(2)(d)); and



provisions of a contract for the sale of a business that are solely for the protection of the goodwill of the business: s 51(2)(e). [page 22]

2.22 The operation of ss 4M and 51(2), therefore, creates three possibilities: 1.

2.

3.

conduct is caught by the terms of s 51(2) — if so, that conduct is not assessed under Pt IV of the Act and its legality is determined by the common law restraint of trade doctrine; conduct is not caught by the terms of s 51(2) — if so, that conduct is assessed under Pt IV of the Act. If it is prohibited by Pt IV, the conduct is illegal and there is no need to separately consider the application of the common law restraint of trade doctrine; or conduct is not caught by the terms of s 51(2) — if so, that conduct is assessed under Pt IV of the Act. If it is not prohibited by Pt IV, the conduct is then assessed under the common law restraint of trade doctrine.

Restraint of Trade Act 1976 (NSW) 2.23 In New South Wales, restraint of trade clauses are subject to the operation of the Restraint of Trade Act 1976 (NSW) (ROTA). Two important points to note are: 1.

2.

The ROTA reverses the presumption of invalidity. Restraint of trade clauses will only be illegal to the extent that they offend against ‘public policy’. The ROTA allows a restraint of trade clause to be held valid, even if at common law the clause would be considered too wide.

This second point is important. In considering whether a restraint of trade

clause is against the interests of the parties and public policy, the common law requires an examination of all possible situations of breach, however remote or theoretical. Therefore, in Lindner v Murdock’s Garage (1950) 83 CLR 628, the Court held the restraint of trade clause to be unreasonable because of its theoretical width — but it would have been valid if it was applied to the particular circumstances of the breach in question. The peculiar result is that one restraint of trade clause can be held to be void under the common law doctrine (the CCA) and yet valid under the ROTA. This was the situation in KA & C Smith Pty Ltd v Ward (1998) 45 NSWLR 702; (1999) ATPR 41-717. A good discussion of the application of the ROTA is found in Australian Regional Wholesalers v Stafford (2007) ATPR 42-168; [2007] NSWSC 572. The New South Wales Supreme Court concluded (at 47,648): The effect of the Restraints of Trade Act is that in New South Wales, one approaches this type of case by determining first, whether the alleged breach (independently of public policy considerations) does or will infringe the terms of the restraint properly construed; secondly whether the restraint in its application to that breach is against public policy; and thirdly, if it is not, then in its application to the alleged infringing conduct, the restraint is valid unless the court makes an order under the Restraints of Trade Act.

A question of application 2.24 Which do you apply? Does the ROTA apply to assess a restraint of trade clause, or does the Act apply to the same clause? Do they both apply? Although there is no case in point, the following methodology seems to apply: [page 23] •

Section 4M of the Act does not purport to modify the restraint of trade doctrine; it simply says the doctrine operates in so far as it is able to operate concurrently with the Act.



In addition, s 4M does not purport to reserve the restraint of trade doctrine for itself; that is, it does not exclude the operation of the ROTA. This means that in any situation: if the restraint of trade clause under scrutiny is caught by s 51(2) of the Act, then it would be assessed under the common law restraint of trade doctrine. If the clause existed in a contract to which the ROTA also applied, it could also be assessed under the ROTA. Therefore, you might have a finding that the clause is void under the common law, but valid under the ROTA (K A & C Smith Pty Ltd v Ward); or if the restraint of trade clause is caught by s 51(2) of the Act, and is assessed under both common law doctrine and the ROTA, it could be void under both; or if the clause is not caught by s 51(2) of the Act, then it could theoretically be assessed under both Pt IV of the Act and the ROTA. If the conduct was found to be in breach of Pt IV of the Act, then the conduct the subject of the clause could not be saved by the ROTA. This is because the Act is a federal statute and it will ‘cover the field’ of the conduct to which the state ROTA applies (conduct declared to be unlawful by a federal statute cannot be ‘resurrected’ by a state statute); or if the clause involved conduct which was not caught by s 51(2) of the Act and does not breach Pt IV of the Act, it will be assessed under the ROTA if that statute applies. If the ROTA does not apply (because it deals with a contract in Victoria, for example) then it will be assessed under the common law restraint of trade doctrine.

Further reading J Catanzariti, ‘Industrial Relations: Restraining the Restraint of Trade

Doctrine’ (2002) 40(3) LSJ 44 N Francey, ‘Place Names as Marketing Tools: Legal Issues in the Use of Geographic Names’ (2016) 24 AJCCL 15 (discussing the Thredbo decision) D Heydon, The Restraint of Trade Doctrine, 3rd ed, LexisNexis Butterworths, Sydney, 2008 D Meltz, ‘Happy Birthday Mr Nordenfelt! The Centenary of the Nordenfelt Case’ (1994) 2 TPLJ 149 J D Meltz, The Common Law Doctrine of Restraint of Trade in Australia, Blackstone Press Pty Ltd, New South Wales, 1995 A Terry and M Chetwin, ‘Issues at the End of a Franchising Relationship’ (2015) 43 ABLR 152 W van Caenegem, ‘Restraint of Trade Clauses in Employment Contracts’ (2007) 20(1) AIPLB 2

[page 25]

Chapter 3 Market Definition

Overview This chapter is intended to: • • • • • • • •

explain the importance of market definition in Australian competition law; consider why competitive markets are preferred over non-competitive markets; illustrate the concept of ‘economic efficiency’ and its various dimensions; examine the ‘structure, conduct, performance’ paradigm as an indicator of a market’s competitiveness; explain the relationship between market definition, market power and substantial lessening of competition; introduce you to the basic legal and economic principles of market definition; examine the role of cross-elasticities of demand and supply in product market definition; consider how both the ‘hypothetical monopolist’ and the ‘small but significant non-transitory increase in price’ (SSNIP) tests work in measuring cross-elasticities of demand and supply;

• •

examine the methods of evaluating geographic, functional and temporal market definition; and consider the difficulties associated with sub-markets, single-brand markets and single-product markets.

Introduction 3.1 Part IV of the Competition and Consumer Act 2010 (Cth) (CCA) (the Act) rests on two broad policies. First, conduct that substantially lessens competition in a market or is a misuse of market power should be prohibited. Second, conduct that does substantially lessen competition but which has some overriding public benefit should, nevertheless, be permitted. 3.2 The first of these policies is expressed in the various prohibitions contained in Pt IV of the Act. For example, certain forms of exclusive dealing conduct and of agreements between competitors, as well as some forms of mergers or acquisitions, will be prohibited if the effect of the conduct is to substantially lessen competition in a defined market. The second of these policies is expressed in Pt VII of the Act — this part establishes a regime which permits parties who wish to engage in certain forms of anti-competitive arrangements to apply for ‘authorisation or notification’ where that conduct has demonstrable overriding public benefits. [page 26] However, underlying both of these policies is the assumption that a competitive market is more desirable than an anti-competitive market. In legislating against restrictive trading practices, governments are expressing the view that there is something desirable about competition whereas there is something not so desirable about anti-competitive conduct. 3.3

Therefore, what is it about the nature of competition that drives

governments to invest enormous amounts of time and money in drafting, defending and enforcing legislation like the Act which seeks to preserve the competitive process? Conversely, what is it about an anti-competitive market that is so anathema to governments? The first part of this chapter will explore the answers to these questions. We will discover that, in essence, if a market is competitive, consumers will benefit from the competition between firms, whereas in an anti-competitive market, firms have greater opportunities to exploit consumers. However, if competitive markets are preferred, then what is a market? How do you go about defining the boundaries of a market? What is the purpose of market definition in the context of the Act? The second part of this chapter will introduce you to the basic principles of market definition. 3.4 This chapter is closely related to Chapter 4, ‘Market Power and Substantial Lessening of Competition’. As we will see, market definition is not an end in itself, but merely a means by which a firm’s market power is evaluated. If a firm has market power it may be in a position to lessen competition; and if it can substantially lessen competition, then it may be in breach of a provision of Pt IV of the Act. It is for this reason that there is an inverse relationship between the level of competition in a market and the existence of market power — the more competitive a market is, the less likely that any one firm has market power. Therefore, market definition is always just the first aspect of the overall inquiry into the central question: ‘Does the conduct in question substantially lessen competition in a market?’ As the High Court noted in Queensland Wire Industries Pty Ltd v Broken Hill Proprietary Co Ltd (1989) 167 CLR 177; 83 ALR 577 at 582: Defining the market and evaluating the degree of power in that market are part of the same process, and it is for the sake of simplicity of analysis that the two are separated.

As we will see below, separating out the process of market definition from its intended purpose (that is, identifying the existence of market power) can

lead to highly artificial market definitions that are incapable of use in analysing the conduct in question.

Why are competitive markets preferred? 3.5

Section 2 of the Act provides:

The object of this Act is to enhance the welfare of Australians through the promotion of competition and fair trading and provision for consumer protection.

Implicit in s 2 is the belief that Australian consumers are in some way better off if markets are competitive; that is, if fair trading is encouraged and consumers are protected [page 27] from misleading, deceptive and unconscionable conduct. The obverse of this is the view that anti-competitive markets diminish consumer welfare. Why is this? 3.6 A competitive market is considered to be an ‘efficient’ market in the sense that competition is the mechanism by which society’s resources are efficiently allocated. The then Trade Practices Tribunal in Re Queensland Cooperative Milling Association Ltd (1976) ATPR 40-012 (Re QCMA) affirmed (at 17,245): Competition may be valued for many reasons as serving economic, social and political goals. But in identifying the existence of competition in particular industries or markets, we must focus upon its economic role as a device for controlling the disposition of society’s resources.

A market can really only properly function as a ‘device for controlling the disposition of society’s resources’ if it is functioning efficiently. Competitive markets display a number of characteristics that illustrate what is meant by the term ‘efficiency’. We need to explore what is meant by this term and the relationship between efficiency and consumer welfare.

Markets are not perfect 3.7 When Adam Smith wrote The Wealth of Nations in 1776, he remarked that, even though individual traders do not intend to promote the public interest, nevertheless the effect of the trader’s commercial activities seems to, in fact, promote it. Adam Smith called this tendency of the economy to guide self-interest into cultivating general economic well-being, the ‘invisible hand’. Put a different way, Adam Smith’s ‘invisible hand’ is a metaphor for the idea of perfect competition. In perfectly competitive markets, resources are optimally allocated to competing ends. 3.8 Economists generally describe perfectly competitive markets by reference to a number of assumptions. Those assumptions are:1 1. 2. 3. 4. 5.

There are many buyers and sellers. These sellers produce a homogeneous product. Buyers and sellers are equally informed about price. There are no barriers to entry, meaning that firms can enter and exit the market. Market forces of supply and demand establish the price of the product — suppliers cannot affect the price of the product since no one firm produces more of the product than the others.

3.9 Of course, no real market is perfect and deviations from this optimal competitive model occur in the form of anti-competitive conduct and information asymmetries, such as misleading and deceptive conduct. So how is the concept relevant to competition law? The relevance is described in this way: We study the predicted outcomes of the perfectly competitive model not because those predictions conform exactly to the ‘real world’ of our everyday economic experience, but because they provide an independent measuring rod — a benchmark model of economic performance against which economists compare the actual outcomes of real-world market

[page 28] situations … much of the work of the Australian Competition and Consumer Commission relies on the model of perfect competition as a benchmark against which to test potential or actual breaches of the Trade Practices Act.2

By understanding how perfectly competitive markets function, we can learn how certain forms of corporate behaviour cause ‘market failure’ which leads to deviations from the model. In such cases, the result is one of imperfect competition that results in a diminution of efficiency which, in turn, leads to consumer detriment.

The primacy of efficiency 3.10 A consistent theme in the development of competition policy is the concern with efficiency. Competitive markets are efficient markets. In 1989, the Economic Planning Advisory Council explained: Competition policy is based on the view that, in general, competitive markets lead to more efficient allocation of resources than do markets in which either buyers or sellers have significant market power. Such markets also promote technical efficiency (the effectiveness with which resources within a firm are utilised) and dynamic efficiency (the speed at which firms respond to changing problems and opportunities) … When firms are unable to increase their profits through exercising market power, their pursuit of profit is channelled into finding ways to increase their efficiency and into searching for better ways to serve their customers.3

This extract mentions the terms ‘technical efficiency’ and ‘dynamic efficiency’. To this list we can add ‘allocative efficiency’ and ‘x-efficiency’.4 What do these terms mean? How do they function as indicators of competitive markets? Let’s consider each of these forms of efficiency as they might appear in both a competitive market and in an uncompetitive market.

Efficiencies in theory 3.11 What do the terms ‘allocative efficiency’, ‘technical (or productive) efficiency’, ‘dynamic efficiency’ and ‘x-efficiency’ actually mean?

Allocative efficiency

3.12 What resources should firms allocate to the production of goods or services? In a competitive market, firms allocate resources to the production of those goods or services that consumers are willing to spend money on. Through their spending patterns, consumers signal to firms on what goods or services those firms should allocate resources. An uncompetitive market may even be characterised by a monopoly where it is dominated by one firm, or it may be ‘cartellised’; that is, it may be controlled by a cartel of a [page 29] few firms. In such a market, consumers do not have a variety of goods or services to choose from and the price-signalling mechanism is distorted. In such a market, therefore, firms have little or no incentive to allocate resources efficiently; that is, to allocate their resources to the production of goods or services that consumers actually want. A firm that might not survive in a competitive market because consumers are not buying its goods or services, may well be ‘propped up’ in an uncompetitive market. Since there is no competition, consumers have little or no choice but to buy that firm’s goods or services.

Technical or productive efficiency 3.13 It costs firms a certain amount of money to produce each unit of goods or services that they offer to customers. How much money should a firm spend on producing these goods or services? When should a firm look for more efficient ways to produce goods or services, and thus save money that would otherwise be wasted on older, inefficient production processes? In a competitive market, firms must continually look for more costeffective ways of producing their goods or services. A firm with inefficient production processes will not extract as much profit from the goods or

services it produces when its competitors produce their goods or services in a more efficient and cost-productive manner. Consequently, if such a firm wants to remain competitive, it will explore new and more efficient production processes. In an uncompetitive market, a firm with inefficient production processes has little or no incentive to look for more efficient ways of producing its goods or services. Since consumers have little choice of competing products, the increased cost of inefficient production practices is passed on to those consumers in the form of higher retail prices. In this way, inefficient firms are ‘propped up’ by the lack of competition.

Dynamic efficiency 3.14 When changes to the market occur, firms quickly adapt by changing their product range, production processes and distribution structures. A firm that is faced with a dynamic competitor will quickly lose customers unless it adapts to that competitive threat. The capacity and speed with which a firm adapts to the changing dynamics of the market is referred to as ‘dynamic efficiency’. In an uncompetitive market, there is little incentive for a firm to be dynamic. Since that firm does not face competition from rivals, it has little or no incentive to be innovative to initiate creative marketing campaigns and to keep ‘lifting its game’ to attract customers. When this happens, the market can become sluggish and ‘tired’.

X-efficiency 3.15 This is associated with dynamic efficiency because the decision to innovate and to be creative and dynamic originates with management. Xefficiency refers to managerial efficiency; how creative are a firm’s managers? Do they exhibit some form of ‘entrepreneurial flair’ in responding to the changing dynamics of the market? In an uncompetitive market, there is little or no incentive for managers to exhibit x-efficiency because they do not face

competitive threats in the form of vigorous and dynamic rivals. [page 30]

Efficiencies in practice — competitive tension 3.16 To begin with, it is helpful to think of competition in a market as taking place in the context of a tension that exists between firms and consumers. On the one hand, firms want to make goods or services at as low a cost as possible to themselves, and on the other hand, to sell those goods or services to consumers for as high a price as they can. In this way, firms attempt to widen the margin between their costs of production and sale prices. The difference between the two represents the profit the firm derives from its goods or services. On the other hand, consumers want to choose between a wide variety of goods and services and also to be able to buy those goods or services as cheaply as possible. The indicator of this tension is price. Through their purchasing patterns, consumers ‘signal’ to firms the goods or services that are preferred and the price levels they are prepared to pay for them. In this way, consumers ‘activate’ competition. Firms respond to those signals through product innovation, improved service and better allocation of resources as they compete with each other for customers. This process is described by Williams: We may imagine that each participant in the economy has a pile of dollar notes. Each dollar note counts for one vote in determining how the resources of the economy ought to be allocated. If a person spends some votes purchasing brown leather sandals, that expenditure will encourage resources to flow into the production of brown leather sandals. By voting in the marketplace with dollar notes, the consumer has been able to influence the allocation of resources.5

Where a firm is particularly effective, it may ‘cause’ economic damage to

competitors by taking away their customers. That damage may even be so extensive that a less efficient competitor could be eliminated from the market. However, this sort of damage is not the concern of the Act. 3.17 The High Court in Queensland Wire Industries Pty Ltd v Broken Hill Proprietary Co Ltd (1989) 167 CLR 177; 83 ALR 577 at 585 stated: Competition by its very nature is deliberate and ruthless, competitors jockey for sales, the more effective competitors injuring the less effective by taking sales away. Competitors almost always try to ‘injure’ each other in this way. This competition has never been a tort … and these injuries are an inevitable consequence of the competition that s 46 is designed to foster.

There is nothing wrong with these ‘ebbs and flows’ of the market. The Act does not prevent a firm from gaining market power (without prejudice to s 50) because it has been an efficient and effective competitor. Nor does the Act ‘rescue’ a competitor that has been forced from the market because of inefficiency, stagnation or other genuinely competitive pressures and processes. 3.18 However, firms can artificially interfere with the price signalling by consumers and, in so doing, manipulate the market to the detriment of consumers. Firms can collude to fix prices or to prevent competitive behaviour. In this way, firms can acquire market power [page 31] not through superior competitive behaviour or increased competitive efficiency, but simply through eliminating competition. Accordingly, the acquisition and use of market power may severely damage or even eliminate the efficient functioning of markets.

The structure, conduct, performance paradigm 3.19

Whether a market is competitive, functioning efficiently and

benefiting consumers, or whether it is uncompetitive, inefficient and detrimental to consumers, can be measured through what industrial economists call the ‘structure, conduct, performance paradigm’.6 Under this paradigm, it is assumed that the structure of a market influences the conduct of the firms within the market, which, in turn, influences the competitive performance of the market. 3.20 How does this paradigm operate? Assume a market is characterised by high barriers to entry, a high level of concentration (few firms), extensive vertical integration and product differentiation. This market structure will affect the conduct of the firms in the market. With high barriers to entry, the firm does not have to be concerned about new entrants selling competing products. Extensive vertical integration means that sources of supply and distribution are tightly controlled. These factors will affect the performance of the market. With little threat to their position, the few firms in it do not have an incentive to innovate or provide better customer service. A lack of new entrants — that have been deterred by high barriers to entry — means that an attempt by the existing firms to exercise market power (by giving less and charging more) is unlikely to be constrained. In this way, the market’s competitive and efficient performance is likely to be sub-optimal and may, in turn, lessen consumer welfare.7 3.21 The various prohibitions contained in Pt IV of the Act are therefore intended to strike at forms of corporate behaviour that generate anticompetitive market structures, or that take the form of coordinated cartel behaviour intended to lessen competition or constitute unilateral uses of market power for the purpose of eliminating or damaging competition. However, the very first step in trade practices law is to define a market in order to determine whether particular conduct has the purpose, effect or likely effect of substantially lessening competition.

Principles of market definition 3.22

‘We take the concept of a market to be basically a very simple idea’.

This simple remark by the then Trade Practices Tribunal in Re QCMA (1976) ATPR 40-012 at 17,247 has proven to be anything but correct. Despite years of consideration by the courts, the concept of a market and the process of market definition have remained both problematic and controversial. The recent decisions of the High Court in [page 32] Australian Competition and Consumer Commission v Flight Centre Travel Group Ltd (2016) 91 ALJR 143 and Air New Zealand Ltd v Australian Competition and Consumer Commission (2017) 91 ALJR 648 carry significant implications for defining relevant markets and we will consider these cases below. Market definition is absolutely crucial to competition law. Most of the prohibitions in Pt IV of the Act are only triggered if the conduct in question has the purpose, effect or likely effect of substantially lessening competition in a market. So, for example, exclusive dealing and horizontal arrangements between competitors that are caught by Pt IV Div 2 of the Act will only amount to a contravention if the conduct has the purpose, effect or likely effect of substantially lessening competition in a market. Likewise, anti-competitive mergers and acquisitions caught by s 50 of the Act will only be prohibited if the conduct has the purpose, effect or likely effect of substantially lessening competition in a market. Clearly, defining a market is a fundamental task in assessing whether conduct under scrutiny has an anti-competitive effect and is, therefore, in breach of the Act. 3.23

But how is a market defined? What elements distinguish a

competitive market from an uncompetitive market? What is the relationship between market power and market definition? What is the relationship between market definition, market power and determining whether certain conduct has the purpose, effect or likely effect of substantially lessening competition? These are the issues we will now explore. By the conclusion of this chapter, you should have an appreciation of both the importance of market definition in Australian competition law and the difficulties associated with the actual process of market definition. This chapter also establishes the framework for a more detailed consideration of the concepts of ‘market power’ and ‘substantial lessening of competition’ in the next chapter. This chapter and Chapter 4 together establish the economic foundations of Australian competition law. The concepts of ‘market power’ and ‘substantially lessening competition’ are the core concerns of the Act. Whether conduct is in breach of the Act depends upon the possession of market power and/or the capacity to engage in conduct that substantially lessens competition. However, the first and most basic foundation of this inquiry is to clearly establish the parameters of the market in which the allegedly anti-competitive conduct is taking place. Market definition is, therefore, the necessary first step in analysing a competition law issue.

Purposive exercise 3.24 Market definition is not an end in itself. Markets are defined for a specific purpose; that is, to facilitate an assessment of competition and the existence of market power. The High Court in Queensland Wire Industries Pty Ltd v Broken Hill Proprietary Co Ltd (1989) 167 CLR 177; 83 ALR 577 stated (ALR at 582): In identifying the relevant market, it must be borne in mind that the object is to discover the degree of the defendant’s market power. Defining a market and evaluating the degree of power in

that market are part of the same process, and it is for the sake of simplicity of analysis that the two are separated.

[page 33] Market definition is therefore a process intended to permit an evaluation of the conduct alleged to breach the Act. The Tribunal in Re Media Council of Australia (1996) ATPR 41-497 stated (at 42,262): The choice of market definition, ie, the specification of relevant markets in the particular case, must depend upon the issues for determination. For the Tribunal’s purposes it is the identification of a market or markets that best enables it to evaluate the likely effects of authorized conduct.

Likewise, the Court in Australian Competition and Consumer Commission v Liquorland (Australia) Pty Ltd (2006) ATPR 42-123; [2006] FCA 826 stated (at 45,244): Market definition is not an exact physical exercise to identify a physical feature of the world; nor is it the enquiry after the nature of some form of essential existence. Rather, it is the recognition and use of an economic tool or instrumental concept related to market power, constraints on power and the competitive process which is best adapted to analyse the asserted anti-competitive conduct.

More recently, Kiefel and Gageler JJ in the High Court’s Flight Centre decision (above) described a market (at 156) as: … a metaphorical description of an area or space (which is not necessarily a place) for the occurrence of transactions. Competition in a market is rivalrous behaviour in respect of those transactions. A market for the supply of services is a market in which those services are supplied and in which other services that are substitutable for, or otherwise competitive with, those services also are actually or potentially supplied.

Any ‘asserted anti-competitive conduct’ will always involve a firm doing something within a market for goods or services. It may be (but not always) that the alleged anti-competitive conduct involves the actual goods or services produced by the firm itself. However, it does not follow that the conduct of the firm therefore determines the boundaries of the market.

Basic principles of market definition 3.25 The classic statement on the principles of market definition is given in the decision of the then Trade Practices Tribunal (the Tribunal) in Re QCMA (1976) ATPR 40-012. The Tribunal stated (at 17,247): A market is the area of close competition between firms, or putting it a little differently, the field of rivalry between them … Within the bounds of a market, there is substitution between one product and another, and between one source of supply and another, in response to changing prices. So a market is the field of actual and potential transactions between buyers and sellers amongst whom there can be strong substitution, at least in the long run, if given a sufficient price incentive … Whether such substitution is feasible or likely depends ultimately on customer attitudes, technology, distance and costs and price incentives. It is the possibilities of such substitution which set the limits upon a firm’s ability to give less and charge more. Accordingly, in determining the outer boundaries of the market we ask a quite simple but fundamental question: If the firm were to ‘give less and charge more’ would there be, to put the matter colloquially, much of a reaction? … finally as is commonly

[page 34] recognised, the market is a multidimensional concept with dimensions of product, functional level, space and time … we have found it helpful in our market definition task to proceed in a step by step fashion dealing with each of these questions, What is the relevant product? What are the appropriate functional levels? What is the geographic scope of the market?

The statements of principle contained in this extract have been accepted by every decision of the Federal Court; see, for example, Australian Competition and Consumer Commission v Liquorland (Australia) Pty Ltd, above (at 45,244), the Full Federal Court in Australian Competition and Consumer Commission v Metcash Trading Ltd (2011) ATPR 42-380 (at 44,613) and the High Court in Boral Besser Masonry Ltd (now Boral Masonry Ltd) v ACCC (2003) 215 CLR 374; (2003) ATPR 41-915 (at 46,686) and most recently in Air New Zealand Ltd v Australian Competition and Consumer Commission (2017) 91 ALJR 648 (at 655). There are two very important principles concerning market definition mentioned by the Tribunal in Re QCMA, above: first, the ‘multi-dimensional’

aspect of markets; and second, the concept of ‘substitution’.

Dimensions of the market 3.26 1. 2. 3. 4.

Most markets are composed of four dimensions: a product dimension; a geographic dimension; a functional dimension; and a temporal dimension.

The extent and scope of these dimensions will give shape to the boundaries of the market in which the conduct is taking place. When these dimensions are identified, the effect of that conduct on competition can then be evaluated. However, these dimensions of the market are defined by reference to the notion of substitution.

Substitution 3.27 The Tribunal in Re QCMA (1976) ATPR 40-012 considered that a market was a ‘field of rivalry’ between firms in which there is ‘substitution between one product and another, and between one source of supply and another, in response to changing prices’: at 17,247. 3.28 In 1977, s 4E was inserted into the Act to give statutory recognition to the concept of substitution. Section 4E states: For the purposes of this Act, unless the contrary intention appears, ‘market’ means a market in Australia and, when used in relation to any goods or services, includes a market for those goods or services and other goods or services that are substitutable for or otherwise competitive with, the first-mentioned goods or services.

Chief Justice Mason and Wilson J in Queensland Wire Industries Pty Ltd v Broken Hill Proprietary Co Ltd, above, explained (ALR at 582): Section 4E directs that a market is to be described to include not just the defendant’s products but also those which are ‘substitutable for, or otherwise competitive with’, the

[page 35] defendant’s product. This process of defining a market by substitution involves both including products which compete with the defendant’s and excluding those which because of differentiating characteristics do not compete.

Cross-elasticities of supply and demand 3.29 The process of substitution involves identifying ‘cross-elasticities of supply and demand’, explained in the following way by McHugh J in Boral Besser Masonry Ltd v ACCC, above (at 46,705): The concepts of substitution and competition to which s 4E of the Act refers require an analysis of the nature and characteristics of each product alleged to compete in the one market. This analysis is a necessary step in determining whether consumers or producers can replace one product with another without a great deal of difficulty in response to price or condition changes. This is termed the cross-elasticity of demand or supply respectively. A high cross-elasticity of demand indicates close substitutability. Two products that are perfect substitutes would have an infinite cross-elasticity of demand; an increase in the price of one would result in a total consumer shift to the other product. Products that are not interchangeable have a cross-elasticity of zero: the price of one has no effect on sales of the other product.

Whether two or more products are part of the same product market depends on the degree to which they are considered to be substitutes for each other. For example, assume company A makes pencils and then attempts to ‘give less and charge more’ for them. Would there be much of a reaction? If, in response, customers stopped buying pencils and started buying pens, then it could be said that pens and pencils are part of the same product market. Following the reasoning of Dawson J in Queensland Wire Industries, there is evidence of cross-elasticities of demand between pencils and pens. An inquiry into cross-elasticities of demand focuses on the products that customers could switch to in the event of a price rise. Cross-elasticities of supply exist when a company can alter its production capacities to make the products which are considered good substitutes. 3.30 Why are markets defined by reference to cross-elasticities of supply and demand? Remember that the purpose of market definition is to discover

the degree of a firm’s market power. As we will see in Chapter 4, market power refers to the ability of a firm to engage in discretionary behaviour; that is, to behave in a way that is unconstrained by competitors. What constrains firm A from exercising market power by ‘giving less and charging more’ is the presence of substitutable goods or services. If firm A attempted to raise the price of its goods or services, then consumers could ‘swap’ over to the goods or services produced by firm B. In the language of s 4E, the goods produced by firm B are ‘substitutable for or otherwise competitive with’ the goods of firm A. In Seven Network Ltd v News Ltd (2007) ATPR (Digest) 42-274; [2007] FCA 1062, the Court accepted an explanation of the significance of substitution by one of the economists called to give expert economic evidence. The Court set out the explanation (at 54,580): In defining the relevant market for the purpose of analysing possible competition issues, the aim is to identify those buyers and/or sellers who constrain the pricing and production

[page 36] decisions of the firm (or supplier) whose conduct is alleged to raise competition concerns. The firm’s decision making will be constrained to the extent that buyers are willing to switch to other products and/or other producers are willing to offer an alternative product, if the original supplier increases prices by a relatively small amount: … discretionary power rests upon an absence of close substitutes for the firm’s output, either actually or potentially. This means that market power ultimately rests upon two factors that act as constraints upon a firm’s business behaviour: the numbers of (independent) firms and patterns of substitution for their products within an industry, and the extent to which there are barriers to entry of new firms, which would produce close substitute products, from ‘outside’ an industry (including the limbo of unborn firms) … Thus, substitutability becomes the basic concept.

3.31 Although the extract is a little lengthy, it does illustrate very clearly the importance and role of cross-elasticities of supply and demand for the purposes of competition law analysis. In particular, notice the emphasis on the purpose of market definition; that

is, to identify the existence of substitutable goods or services that might constrain any attempt by the firm to exercise market power by ‘giving less and charging more’. Notice also the relationship between market definition, substitutable goods or services and market power. Discretionary power (market power) depends on the absence of close substitutes for the firm’s goods or services. In Australian Competition and Consumer Commission v Flight Centre Travel Group Ltd (2016) 91 ALJR 143, Kiefel and Gageler JJ helpfully set out a number of principles concerning the process of market definition (at 156): [1] A market is commonly defined by reference to its dimensions. The dimensions of a market are commonly described in terms of products (the types of services supplied), function (the level within a supply chain at which those services are supplied) and geography (the physical area within which those services are supplied). A market might sometimes also usefully be described as having a temporal dimension (referring to the period within which the supplies occur). … [2] Because ‘[t]he economy is not divided into an identifiable number of discrete markets into one or other of which all trading activities can be neatly fitted’, the identification and definition of a market for particular services will often involve ‘value judgments about which there is some room for legitimate differences of opinion’. … [3] Identifying a market and defining its dimensions is a ‘focusing process’, requiring selection of ‘what emerges as the clearest picture of the relevant competitive process in the light of commercial reality and the purposes of the law’. [4] The process is ‘to be undertaken ‘with a view to assessing whether the substantive criteria for the particular contravention in issue are satisfied, in the commercial context the subject of analysis’. [5] ‘The elaborateness of the exercise should be tailored to the conduct at issue and the statutory terms governing breach’. Market definition is in that sense purposive or instrumental or functional. (numbers in square brackets added)

In the later decision of Air New Zealand Ltd v Australian Competition and Consumer Commission (2017) 91 ALJR 648, Kiefel CJ, Bell and Keane JJ appeared to minimise the role of substitution in the process of market definition, stating (at 655):

[page 37] The Tribunal (Re QCMA) did not say that substitutability will be the defining feature of a market in every case. The passage takes as its premise that it is the defining feature for the question at hand. (emphasis in original)

For reasons that we will explore below, the majority in the Air New Zealand decision considered (at 655) that the primary judge had placed too much emphasis on the role and function of substitutability in identifying the relevant product and geographic boundaries of the market. However, we will see that the reasoning of the majority in reaching that conclusion does not in fact minimise the evaluative function of substitutability much less the principles of market definition from the Flight Centre decision set out above.

Defining the product dimension of the market 3.32 How do we know whether two or more goods or services are close substitutes for each other and are therefore in the same product market? Exactly how do you evaluate ‘cross-elasticities of supply and demand’?

The ‘hypothetical monopolist’ test and the SSNIP test 3.33 The mechanism applied in evaluating the product dimension of the market is the SSNIP test which asks whether a hypothetical monopolist supplier of goods or services could initiate a ‘small but significant and nontransitory increase in the price’ of its goods or services. Because the test measures the ability of a hypothetical monopolist to instigate a SSNIP, the test is also referred to as the ‘hypothetical monopolist’ test. 3.34 The SSNIP test was described by the Full Court in Australian Competition and Consumer Commission v Metcash Trading Ltd (2011) ATPR 42-380 (at 44,614) in the following manner: One tool that is used to provide an analytical framework to identify and evaluate substitution possibilities is the ‘SSNIP’ test, also referred to in the present case as ‘the hypothetical monopolist

test’. This test involves determining whether a hypothetical monopolist supplier could profitably impose a small but significant non-transitory increase in price (most commonly, but not necessarily, between 5 and 10%) for the supply of a relevant product. Starting with the firm and product in issue, the market boundaries are expanded to include all sources of close substitutes that would defeat the increase. The smallest area, generally in terms of product identification and geographic space, over which the hypothetical monopolist supplier can profitably impose the increase, shows the boundaries of the market.

3.35 How the hypothetical monopolist/SSNIP test actually works was explained by the Court in Seven Network Ltd v News Ltd, above. The Court adopted the explanation of the test given in evidence by an economic expert (at 54,582): Put simply, we assume that all current producers of electric toothbrushes (for example) merge into one, or otherwise act as one and ask whether the ‘hypothetical monopolist’ could profitably increase or maintain prices about the competitive level by a ‘small but significant amount’ for a sustained period of time. If so, then electric toothbrushes are a proper product market.

[page 38] Both demand and supply side considerations can come into play when defining a market. We can ask not only how many consumers of electric toothbrushes would over time switch to manual toothbrushes (cross-elasticity of demand) but also the extent to which producers of related products (such as electric drills) could and would (in response to the assumed higher prices for electric toothbrushes) convert some or all of their facilities to the manufacture of electric toothbrushes and would succeed in making sales (cross-elasticity of supply).

The test is explained by the Australian Competition and Consumer Commission (ACCC) in its 2008 Merger Guidelines in the following way: 4.19 The HMT [hypothetical monopolist test] determines the smallest area in product and geographic space within which a hypothetical current and future profit-maximising monopolist could effectively exercise market power. In general, the exercise of market power by the hypothetical monopolist is characterised by the imposition of a small but significant and non-transitory increase in price (SSNIP) above the price level that would prevail without the merger, assuming the terms of sale of all other products are held constant. 4.20 The process of applying the HMT starts with one of the products and geographic areas supplied by one or both of the merger parties. If a hypothetical monopolist supplier of this product cannot profitably institute a SSNIP because of customers switching to alternative products, the next closest demand substitute is added. If a hypothetical monopolist supplier

of this extended group of products cannot profitably institute such a price increase because of customers switching to alternative products, the next best substitute is added. The collection of products is expanded until a hypothetical monopoly supplier of all those products could profitably institute a SSNIP.8

What does this mean and how does it work? 3.36 The hypothetical monopolist/SSNIP test, as it is explained by the Court in Seven Network Ltd v News Ltd and in the ACCC’s Merger Guidelines above, can appear confusing. Each year, thoughtful students become confused by a close reading of the last sentence in [4.20] of the ACCC’s Merger Guidelines, extracted above, which says: ‘The collection of products is expanded until a hypothetical monopoly supplier of all those products could profitably institute a SSNIP’. Students point out that the test, as it is set out in [4.19] above, involves identifying a product market by including all of those products that constrain the exercise of market power and which, therefore, make it impossible for the hypothetical monopolist to ‘profitably institute a SSNIP’. So how is this apparent inconsistency resolved? 3.37 An example will help clarify the process. Assume firm A makes pizzas and, as a condition of selling its pizzas, it also requires customers to buy its garlic bread. This conduct is alleged to be in breach of s 47(2) of the Act as it is a form of exclusive dealing conduct that is alleged to have the effect or likely effect of substantially lessening competition in ‘the market’. But what market is that? We assume that firm A is the monopolist supplier of pizza and ask the question: ‘If firm A were to initiate a small but significant and non-transitory increase (of say between 5–10%) in [page 39] the price of pizza, what would the reaction be?’ Assume that the reaction to

the price rise is that consumers start buying burgers. Therefore, burgers are included in the same product market. We then assume that firm A is the monopoly supplier of both pizzas and burgers and ask the same question again. This time, we find that consumers start buying fried chicken. Therefore, fried chicken is included in the same product market as pizzas and burgers. We then assume that firm A is the monopoly supplier of pizza, burgers and fried chicken and ask the same question once again. Eventually, we run out of products that consumers would be willing to substitute for the collection of products that we have identified. That collection of products is, therefore, a relevant product market. Now we re-visit firm A’s conduct and ask whether tying the sale of garlic bread to the sale of pizzas is likely to substantially lessen competition in the market composed of the other ‘fast foods’. The answer would be ‘no’, because, in response to A’s conduct, consumers would switch to other fast foods. Those other fast foods constrain the attempt by A to exploit consumers.

Closeness of substitutes 3.38 Accurately identifying actual and potential substitutes is very important because as the High Court in Queensland Wire Industries Pty Ltd v Broken Hill Proprietary Co Ltd (1989) 167 CLR 177; 83 ALR 577 noted (ALR at 582): After identifying the appropriate product level, it is necessary to describe accurately the parameters of the market in which the defendant’s product competes: too narrow a description of the market will create an appearance of more market power than in fact exists; too broad a description will create the appearance of less market power than there is.

It is theoretically possible to suggest that because all goods and services compete for customers, they are in the same market. Likewise, since most products are different, it is theoretically possible to suggest that each product is its own market. Even with products that are similar (such as Coca-Cola and Pepsi-Cola)

there are ‘core-customers’ who would never regard the other as an acceptable substitute. There are also some products that consumers may consider to be alternatives but not substitutes, such as beer and water. 3.39 Just how close do products have to be before they can be considered to be included in the same market? Recall that the purpose of market definition is to discover the degree of the firm’s market power. That analysis necessarily includes considering all those substitutes that would constrain an attempt by the firm to exercise market power. Therefore, only those substitutes that would actually or potentially constrain an attempted exercise of market power by the firm are included in the same product market. 3.40 How do you know if two or more products might function to constrain any attempted exercise of market power? In Boral Besser Masonry Ltd (now Boral Masonry Ltd) v ACCC (2003) 215 CLR 374; (2003) ATPR 41915; [2003] HCA 5, McHugh J considered (at 46,705): The views and practices of those within the industry are often most instructive on the question of achieving a realistic definition of the market. The internal documents and papers of firms within the industry and who they perceive to be their competitors and whose conduct they seek to counter is always relevant to the question of market definition [note omitted].

[page 40] What this means is that only those substitutes that are considered by industry practice to be close substitutes are included in the same product market. The decision of the High Court in Boral Besser Masonry Ltd v ACCC, above, demonstrates the principle. The ACCC instituted proceedings against Boral Besser Masonry Ltd (BBM) which alleged that it misused its market power in breach of s 46 of the Act by selling concrete masonry products below cost in order to drive out competition. The ACCC alleged that BBM possessed a substantial degree of power in the Melbourne metropolitan market for ‘concrete masonry products’ (CMP). In response, BBM argued that the market was much wider

and included walling and paving products. At first instance, Heerey J defined the market to include walling and paving products such as the ‘tilt-up’ type. In that wider market, BBM could not be found to possess a substantial degree of power. On appeal, the Full Court disagreed with Heerey J’s market definition. The Full Court concluded that while there was evidence of some substitution between CMP, walling and other paving products, it was not sufficiently close to justify the broader market definition. On further appeal, the High Court upheld the decision of the Full Court, agreeing with the analysis of Beaumont J who had concluded (extracted at 46,682 of the High Court’s decision): It is true that there were, to a degree, alternative products available, and that, on occasions, some measure of substitution occurred. But given the discontinuities of substitution previously mentioned, and the price differentials involved, it ought not, in my view, to be inferred that the relevant market was the wider walling products market advocated by BBM … The distinction drawn between competition on the one hand, and close competition on the other, is crucial in the present context.

The High Court therefore concluded that the relevant product market was for CMP in the Melbourne metropolitan area, and not a market that included tilt-up panels and pre-cast walls. While there was some evidence of substitution between those products, that substitution was relatively distant. Only close substitutes could function as constraints on the exercise of market power. One point to note about the decision in the Boral case is that, despite finding that the relevant product market was narrower than that pleaded by the ACCC, BBM was found not to possess power in that narrower market. Ordinarily, the narrower the market, the more likely it is that a firm possesses market power due to a lack of substitutes that could constrain an attempt by a firm to exercise power. The obverse is that the wider the market, the less likely it is that a firm possesses market power as there are sufficient substitutes to constrain an attempt by that firm to exercise power.

An appropriate product market definition — limits of the functional approach 3.41 It follows that an over-inclusive product market definition will give the impression that there is less market power than actually exists, whereas an under-inclusive market definition will give the impression that there is more market power than actually exists. It also follows that constructing a definition of a market in the abstract, that is, without understanding the actual commercial realities of the conduct under scrutiny, will defeat the purposive function of market definition. [page 41] Accordingly, it is crucial to approach market definition with the recognition that it is, in the words of the Court in Australian Competition and Consumer Commission v Liquorland (Australia) Pty Ltd (2006) ATPR 42-123 (at 45,244): … an economic tool or instrumental concept related to market power, constraints on market power and the competitive process which is best adapted to analyse the asserted anti-competitive conduct.

Likewise, the High Court in Australian Competition and Consumer Commission v Flight Centre Travel Group Ltd (2016) 91 ALJR 143 stated (at 156): The functional approach to market definition is taken beyond its justification, however, when analysis of competitive processes is used to construct, or deconstruct or reconstruct, the supply of a service divorced from the commercial context of the putative contravention which precipitates the analysis.

What does this mean? Essentially, it means that if a market is defined too narrowly so that it is only comprised of the goods or services of one of the parties, then there may be a ‘false positive’ for market power; that is, without exploring the existence of close substitutes, then it can appear that the party has more market power than commercial reality would reveal. If a market is

defined too widely, then it can appear that a party has less market power than actually exists. And if a market is defined without reference to the commercial context of the conduct, then either of these possibilities might ensue. The cases below will explain.

Product market defined too narrowly 3.42 This was the mistake made by the Court in Top Performance Motors Pty Ltd v Ira Berk (Queensland) Pty Ltd (1975) ATPR 40-004. Top Performance Motors operated a car dealership on the Gold Coast in Queensland and had been appointed by Ira Berk as the distributor for Datsun motor vehicles. Ira Berk then appointed another dealer on the Gold Coast as a distributor for Datsun motor vehicles and attempted to terminate Top Performance Motor’s dealership. Top Performance Motors sought an injunction restraining Ira Berk from terminating its Datsun motor vehicle dealership franchise. The Court accepted an argument from Top Performance Motors that the relevant product market was the retail market for the sale of Datsun motor vehicles in the city of the Gold Coast and Southport and that, as the sole distributor for Datsun motor vehicles in Queensland, Ira Berk was in a position to substantially control (which was the threshold test in s 46 at the time) the market for Datsun motor vehicles. Despite this extremely narrow single-brand market definition, Top Performance Motors’ application failed — the Court found its distributorship had been terminated because of extreme dissatisfaction with Top Performance Motors’ conduct. The decision by the Court to find a market definition coextensive with the product sold by Ira Berk and Top Performance Motors absolutely ignored the fact that other marques of motor vehicles might also have acted as competitive constraints on Ira Berk’s conduct. The Court failed to consider cross-elasticities of demand and supply. In other words, it ignored the possibility of substitutes and therefore defined a market in which Ira Berk was

said to possess more market power than it actually did. [page 42] Fortunately, s 4E was inserted into the Act in 1977, specifically directing the court’s attention to cross-elasticities of supply and demand.

Product market defined too widely 3.43 Likewise, it would be a mistake to simply define a product market so broadly that its utility as a tool for analysing the core issues of market power and constraints on market power is futile. This was the mistake made by the Court in News Ltd v Australian Rugby Football League Ltd (1996) 64 FCR 410; (1996) ATPR 41-521. News Ltd wanted to secure an A-Grade rugby league competition to broadcast on its Foxtel pay-TV service. The difficulty was that the Australian Rugby League competition had contracted for Kerry Packer’s Channel 9 to televise the competitions. News Ltd therefore decided to organise a new professional rugby league competition called ‘Super League’ to compete with the ARL competition and which it could then televise on its Foxtel service. Super League intended to sign on players and coaches from the existing ARL competition. In response, the Australian Rugby Football League Ltd (ARL) and the New South Wales Rugby League Ltd (League) requested their member clubs to sign ‘commitment agreements’ requiring those clubs to only play in the ARL competition for the next five years. The member clubs signed those agreements. The ARL and League then requested clubs to sign a further document called a ‘loyalty deed’ by way of confirming the commitment agreements that the clubs had previously signed. News Ltd instituted proceedings against the ARL and League alleging (inter alia) that the commitment agreements and loyalty deeds breached ss 45

and 46 of the Act. The ARL and League cross-claimed against both News Ltd and Super League. At trial, News Ltd argued for the existence of a number of markets, all of them confined to rugby league and no other sport or leisure activity. News Ltd, in essence, argued for the existence of a single rugby league market in which the ARL was the monopoly supplier of games, players and coaches. If this definition were to be accepted, it would follow that the ARL was a monopolist and, according to News Ltd, had taken advantage of its substantial degree of power in that market by refusing to permit players and coaches to transfer from the ARL competition to the Super League competition. Justice Burchett at first instance rejected News Ltd’s market definition, instead finding that the market included a variety of sporting codes such as cricket, Australian Rules football, rugby union, basketball and soccer. Burchett J’s approach was to define a product market to include every possible substitute for a game of rugby league, since customers liked to watch a variety of sports. On appeal, the Full Court found that the commitment agreements and loyalty deeds constituted contracts, arrangements or understandings containing exclusionary provisions in breach of s 45(2)(a)(i) and (b)(i) of the Act. Since exclusionary provisions are per se illegal, there was no need for the Full Court to reconsider Burchett J’s reasoning. However, that reasoning is open to severe criticism on at least two levels: 1.

The other forms of sports — while they are, theoretically, substitutes for rugby league — are imperfect substitutes. In terms of the analysis of the High Court in Boral Besser Masonry Ltd (now Boral Masonry Ltd) v ACCC (2003) 215 CLR 374; [page 43]

2.

(2003) ATPR 41-915; [2003] HCA 5, we can suggest that Burchett J did not consider sufficiently close substitutes. Burchett J did not consider cross-elasticities of supply. The High Court decision in Queensland Wire Industries Pty Ltd v Broken Hill Proprietary Co Ltd (1989) 167 CLR 177; 83 ALR 577 emphasised the importance of cross-elasticities of supply. In this case, Super League could not have been able to source its players from other codes, and certainly not from other sports such as basketball and cricket.

As Corones points out: A rugby forward could not easily switch to cricket or basketball in response to an increase in player salaries in those sports. This suggests that rugby league football and cricket or basketball are not part of the same relevant market.9

3.44 The difficulties with Burchett J’s decision have been noted in subsequent cases. In Australian Rugby Union Ltd v Hospitality Group Pty Ltd (2000) ATPR 41-768; [2000] FCA 823, the Court was concerned with the provision of corporate hospitality boxes at rugby union matches. Gyles J considered that each sport was unique and, although spectators may follow other sports, that did not detract from the unique characteristics of each particular one. In the words of the Court in Boral, above, while there may be some substitution patterns between different sports, that substitution is not sufficiently close for them to be considered part of the same product market.

Product market defined artificially or unrealistically 3.45 The decision of the High Court in Australian Competition and Consumer Commission v Flight Centre Travel Group Ltd (2016) 91 ALJR 143 illustrates what happens when a product or service market is defined in a highly artificial way in order to ‘fit’ the requirements of the Act. The case concerned allegations that Flight Centre Travel Group Ltd (‘Flight Centre’) had attempted to induce Malaysia Airlines, Singapore Airlines and Emirates not to discount the price of international air carriage services (flights) that those airlines sold direct to the public. Flight Centre was

a party to an agency agreement with each of those airlines pursuant to which it sold flights to the public on behalf of those airlines. However, under the agency agreement, Flight Centre was permitted to sell flights on those carriers as an independent trader. The ACCC alleged that the conduct of Flight Centre in attempting to induce the airlines not to discount international flights they sold direct to customers breached the provisions of s 45(2)(a)(ii) of the then Trade Practices Act 1974 (Cth). At the time, s 45(2) prohibited corporations from making and giving effect to contracts, arrangements or understandings that substantially lessened competition. Another section, s 45A in the TPA deemed contracts that fixed, controlled or maintained a price for goods or services to substantially lessen competition. However, according to the way s 45A was then structured, the ACCC had to prove that Flight Centre was competing with each of the airlines in some identifiable market. In pleading its case, the ACCC presented what was described as its ‘primary case’ and its ‘secondary case’. Both cases were intended to convince the courts (at all levels) that Flight [page 44] Centre was competing with the airlines in the sale of goods or services in the same market, thus satisfying the requirement in s 45A that the parties be competitors. The ACCC’s primary case was that Flight Centre and the airlines competed with each other in a market for supplying distribution and air travel booking services. Its secondary case, described by Kiefel and Gageler (at 154) as ‘considerably less elaborate but also considerably more obscure’ was that the services the subject of the attempted price fix, were services which the airlines supplied in competition with Flight Centre in a market for the supply to customers of international passenger air travel services.

It’s the ACCC’s primary case that we are interested in for the moment. To succeed, the ACCC needed to establish that Flight Centre and the airlines had colluded to attempt to fix the price of goods or services in circumstances where Flight Centre and the airlines were ordinarily competitive with each other in a market for those goods or services. The implication of the ACCC’s primary case was that the airlines were competitive with Flight Centre in supplying distribution and air travel booking services to themselves, that is, a market in which the airlines were supplying air travel booking services to themselves. Clearly, this did not reflect the actual commercial reality of the way airlines and their agents conduct the sale and distribution of international air travel booking services, a point that prompted Kiefel and Gageler JJ to note wryly (at 157) that ‘the ACCC’s primary case encounters essentially the… problem… one of economic theory doing violence to commercial reality’. Their Honours therefore concluded (at 157): There is no want of realism in describing Flight Centre as having provided distribution services to an airline when selling that airline’s ticket to a customer in accordance with the Agency Agreement. It is quite artificial, however, to describe the same airline as having provided those services (or any other services) to the airline itself when selling a ticket directly to a customer.

In other words the relevant ‘product market’ (in this case, service) could not be sensibly found by reference to substitution patterns involving the provision of distribution services where the airlines could somehow be competing with Flight Centre in providing those services… to themselves! Obscure indeed. In fact, the majority considered that the commercial reality of the Agency Agreement meant that because Flight Centre was free to sell tickets for international air travel in competition with the airlines, it was actually in competition with those airlines in a service market appropriately defined as the market for the provision of contractual rights to international air travel. Put more simply, the relevant product (service) market was for the sale of international air travel tickets.

The Court therefore concluded that even though this market definition was not exactly that advanced by the ACCC in its secondary case, the Court was prepared to find the existence of this market and that Flight Centre had indeed breached the Act.

The ACCC’s approach to assessing close substitutes 3.46 In its 2008 Merger Guidelines, the ACCC explains the factors that it looks for in determining whether products could be considered close substitutes:10 [page 45] Identifying products that may be close substitutes The following are examples of the types of information the ACCC may require to identify close substitutes of the relevant product: • • • • • • • •



the function or end use of the product physical and technical characteristics of the product costs of switching purchases between the product and potential substitutes views and past behaviour of buyers regarding the likelihood of substitution between products evidence of buyers switching to other products in response to price increases in the recent past evidence of producers redeploying their production capacity in response to price increases in the recent past costs of switching production and distribution systems from another product line to a product that is closely substitutable with the relevant product views, business records and past behaviour of suppliers of the relevant products regarding the impact of price and marketing decisions by suppliers of potential substitute products on their own pricing and marketing decisions relative price levels and price movements of the product compared to potential substitutes.

Where there has been no substitution 3.47 Markets are defined by reference to substitutable goods or services; two or more goods or services are in the same product market if there is

evidence of cross-elasticities of demand and supply between them. But what if there has never been any pattern of substitution? What if there are no substitutes for a firm’s goods? Does this mean there is no market? The answer is that there is still a market for that firm’s goods or services. After all, monopolists do exist! This was one of the errors made by the Full Court in Queensland Wire Industries Pty Ltd v Broken Hill Proprietary Co Ltd (1987) 17 FCR 211; (1988) ATPR 40-841. The Full Court held that there was no ‘market’ for the sale of Y-bar product because BHP had never sold Y-bar outside of its own corporate group and there was no other Australian producer of Y-bar. Because there was no evidence of cross-elasticities of supply and demand (required by s 4E of the Act), there could not be a market for the purposes of the Act — and because there was no market for the purposes of the Act, BHP could not have taken advantage of any market power in breach of s 46 of the Act. On appeal to the High Court, Queensland Wire Industries Pty Ltd v Broken Hill Proprietary Co Ltd (1989) 167 CLR 177; 83 ALR 577, Deane and Dawson JJ rejected the Full Court’s analysis. Deane J held (ALR at 588): While actual competition must exist and be assessed in the context of a market, a market can exist if there be the potential for close competition even though none in fact exists. A market will continue to exist even though dealings in it be temporarily dormant or suspended. Indeed, for the purposes of the Act, a market may exist for particular existing goods at a particular level if there exists a demand for (and the potential for competition between traders in) such goods at that level, notwithstanding that there is no supplier of, nor trade in, those goods at any given time — because for example, one party is unwilling to enter any transaction at the price or on the conditions set by the other.

[page 46]

Defining the geographic dimension of the market 3.48

Geographic market definition focuses on the areas over which

patterns of cross-elasticities of supply and demand are observed. How far are consumers prepared to go in seeking substitutable goods or services? Usually, the geographic dimension of the market is revealed when the product dimension of the market is determined. The application of the SSNIP test will reveal a certain bundle of goods or services to constitute the relevant product market. Where do those goods or services come from? This area — which, on the demand side, represents the location of those goods or services that consumers regard as good substitutes, and which, on the supply side, represents the location from which producers actually or potentially supply substitutable goods or services — is the geographic dimension of the market. Recalling the purpose of market definition — that is, to discover the degree of a firm’s market power and, in particular, any constraints on the potential exercise of that power — we can suggest another way of approaching the issue of geographic market definition. We could ask: ‘Where do constraints on the exercise of market power actually or potentially come from?’ For example, in Trade Practices Commission v Australia Meat Holdings Pty Ltd (1988) ATPR 40-876, Australia Meat Holdings (AMH) owned a number of abattoirs in North Queensland. It purchased cattle from local cattle farmers for slaughter and processing at those abattoirs. Thomas Borthwick & Sons (Australasia) Ltd (Borthwicks) also owned and operated abattoirs in North Queensland. In January 1988, AMH acquired all of the issued share capital in Borthwicks. The Trade Practices Commission (TPC) sought an injunction alleging that the acquisition would result in competition being lessened in ‘the market’ in breach of s 50 of the Act. The TPC was concerned that, once AMH had control over the abattoirs of North Queensland, AMH would be in a position to dictate pricing and trade terms to the cattle farmers in the region, without the constraint of the

competition previously offered by Borthwicks’ abattoirs. The TPC advanced a market definition described as the ‘Northern Queensland fat cattle market’. Tactically, AMH countered this argument by arguing for a wide market definition that included the entire state of Queensland. In this way, AMH argued that its acquisition of Borthwicks’ abattoirs would not inhibit competition because cattle farmers could send their cattle for processing to other privately owned abattoirs in South Queensland. The resolution of this issue turned on evidence of the cattle farmers regarding the suffering experienced by cattle in the process of transporting them to abattoirs. Evidence indicated that, during transport, cattle lost weight and bruised easily. The farmers were not concerned about this suffering per se, but rather about the economic effect of this suffering. The abattoirs paid the farmers based on ‘clean dressed weight’. Farmers were not paid as much for cattle that had lost weight and whose flesh was bruised. Accordingly, the evidence was that if AMH controlled the abattoirs in North Queensland and increased the price of their services, farmers would not send cattle for slaughter and processing to abattoirs in South Queensland because the increased bruising and weight [page 47] loss suffered by the cattle in transit would result in a much lower sale price. Based on this evidence, the relevant geographic market was correctly defined to be the ‘North Queensland fat cattle market’. During the trial, the Full Court examined extensive evidence demonstrating the harm and suffering experienced by the cattle — this was crucial to the Court’s eventual decision concerning market definition. However, the evidence of suffering was not considered from the context of the interests of the animals themselves. Rather, the suffering was relevant only because it diminished the economic value of the cattle as goods to be sold. It

was simply because the farmers lost money per ‘unit of product’ during transportation to South Queensland that the relevant market was confined to North Queensland.11

International limits of geographic market definition? 3.49 We have been approaching the task of defining the relevant geographic market as the geographic area of the source of potential substitutable goods or services which can function as potential constraints on the exercise of market power or conduct that might substantially lessen competition. In most situations, actual substitution possibilities are relatively proximate — the location a party might actually look to in swapping to goods or services ‘B’ in response to a small but significant non-transitory rise in the price of goods or services ‘A’. But what happens if the actual contracts and substitution behaviour occurs internationally, but nevertheless influences competition domestically? Is there a relevant ‘market’ in Australia? This was one of the issues decided by the High Court in Air New Zealand Ltd v Australian Competition and Consumer Commission (2017) 91 ALJR 648. The ACCC had instituted proceedings against Air New Zealand Ltd, PT Garuda Indonesia Ltd and a number of other international airlines alleging that between 2008 and 2010, those airlines had engaged in a price fixing cartel. It was alleged that the airlines had given effect to arrangements to fix the price of surcharges and fees associated with carrying air cargo from international ports of origin to Australian ports. The ACCC alleged that these arrangements had been formed at meetings between representatives of the airlines in Hong Kong, Indonesia and Singapore. Thirteen of the airlines admitted the allegations and civil penalties of $98.5 million were imposed. However, Air New Zealand Ltd and PT Garuda Indonesia refused to admit liability and contested the ACCC’s allegations at trial. At first instance, the Court dismissed the ACCC’s action. Although finding that Air New Zealand and Garuda had entered into the price fixing

arrangements, s 45(2)(a)(ii) and 45(2)(b)(ii) had not been breached. Recall from the Flight Centre case discussed above that at the time, s 45A of the then Trade Practices Act 1974 (Cth) deemed price fixing conduct between competitors to substantially lessen competition to be in breach of s 45(2). With the added requirements about markets and competition in s 45(3) and s 4E of the TPA, it was crucial for the ACCC to establish that Air New Zealand and Garuda had arrived at, and given effect to, an arrangement to fix prices in a market in Australia, a domestic market in which the airlines competed. At first instance, the Court held that since competition and thus substitution between providers of air cargo services, occurred outside Australia, the airlines did not compete in a market within Australia and therefore did not breach the TPA. [page 48] On appeal, the Full Court reversed the decision, finding that in fact Air New Zealand and Garuda did compete in a market in Australia even though customers wishing to send air cargo to Australia negotiated their contracts with the different airlines in the ports of origin; that is, outside of Australia. Not surprisingly, Air New Zealand and Garuda appealed to the High Court. The High Court dismissed the appeal, affirming the decision of the Full Court, holding that Air New Zealand and Garuda did compete in markets in Australia despite customers ‘shopping around’ and signing contracts for air cargo transport outside of Australia. How did the High Court reach this decision? Three separate judgments were delivered; Kiefel CJ, Bell and Keane JJ delivered a joint judgment while Nettle and Gordon JJ delivered separate judgments. Nevertheless, all the Justices were in agreement in concluding that Air New Zealand and Garuda competed in a market in Australia.

Where do the substitutable goods or services come from? 3.50 From our earlier discussion of the role and function of substitutability, it’s easy to understand how the Court at first instance reached its conclusion. Recall that goods or services are said to be close substitutes if consumers would swap between them given a small but significant and nontransitory increase in the price of one of those goods or services. Seen this way, if Air New Zealand were to raise the price for air cargo transportation from Hong Kong, Singapore or Indonesia to Australia, then customers or shippers in those places could simply obtain quotes from competitor air cargo service providers like Garuda. The point is that the location of this substitution and potential swapping occurs outside of any market in Australia. It’s the consumers of air cargo transportation services in those foreign countries wishing to send goods to Australia who benefit from competition in those foreign markets. So how did the Full Court and then the High Court reach the conclusion that in fact Air New Zealand and Garuda were competing with each other in markets in Australia? The reasoning of the High Court can be summarised as follows: 1. 2.

3.

4.

Section 4E of the Act orients the evaluation of substitutes in order to define a market in Australia. However, consistent with the Flight Centre decision, the process of market definition must be approached as a practical matter of business in the commercial context of the conduct under consideration. This means that identifying the relevant market must reflect the commercial realities of the relationship between the forces of supply and demand at work in the context of the conduct under consideration. While the Tribunal in Re QCMA underscored the importance of substitution in evaluating markets, it did not conclude that substitution was the only defining feature of markets in every case.

5.

The trouble with deploying substitution as the only defining feature of a market is the tendency to focus on the point where substitution occurs; that is, to regard the act of switching or substitution between rivals as the conclusion of rivalry, whereas in fact, market definition is a broader inquiry that looks to locate the area in which the rivalry occurs rather than only the location where it concludes. [page 49]

6.

Accordingly, traditional indicators of market definition (substitutability, geographic location of buyers and sellers, barriers to entry, functionality and temporality) were not decisive factors in market definition, but tools of analysis to be used in the process. 7. In the present case, although the supply of air cargo services occurred in Hong Kong, Singapore and Indonesia, this did not mean the relevant market was confined to those countries. It was possible for markets to exit across multiple countries that included Australia. 8. The evidence indicated that the air cargo transportation services offered by Air New Zealand and Garuda were actually composed of a suite of services and not just the physical act of flying cargo to Australia. Rather, services included ground handling of cargo at the origin and destination ports and inquiry services for lost or damaged cargo at the destination ports. 9. Further, evidence indicated that the demand for air cargo services from large freight shippers in Australia was economically significant, that the airlines actively marketed their services to these potential Australian customers and altered their scheduling, handling and storage services to meet the requirements of potential Australian customers. 10. In these circumstances, the commercial reality indicated that the ultimate source of demand for air cargo services was generated from

Australia by Australian cargo shippers. Just because the contracts for air cargo transportation might be signed and the transactions concluded in Hong Kong, Singapore or Indonesia ignored the fact that geographic market identification looks to the area in which rivalry occurs rather than the location at which rivalry (and thus substitution) occurs. The above summary is just that, a broad-brush overview of the reasoning of the High Court and careful attention must be paid to the detail of the reasoning. Despite appearances, the High Court is not diminishing the role of substitution in market definition — it can hardly ignore the express terms of s 4E of the Act. Rather, the Court is emphasising that substitution is a process rather than a static snapshot of a given transaction (such as a contract signed in Hong Kong). Instead, the commercial realities of the conduct under scrutiny requires a sensitivity to the fact that the dynamics of supply by traders and demand by customers goes beyond the contractual forms that mark the finalisation of agreements.

The hypothetical monopolist/SSNIP test 3.51 How does the hypothetical monopolist/SSNIP test fit into an analysis of geographic market definition? Recall that in its 2008 Merger Guidelines, the ACCC defines the SSNIP test in the following way: 4.19 The HMT determines the smallest area in product and geographic space within which a hypothetical current and future profit-maximising monopolist could effectively exercise market power.12

In any market definition analysis, the application of the SSNIP test first occurs when determining the grouping of products that constitute the relevant market. The products that [page 50]

form that group originate from some geographical space. What is that space? The answer to that question reveals the actual and potential geographic areas from which actual and potential substitutable goods or services might act to constrain any attempt by a firm to exercise market power. 3.52 The importance of the SSNIP test in determining sources of constraint is exemplified in the decision in Australian Competition and Consumer Commission v Liquorland (Australia) Pty Ltd (2006) ATPR 42-123; [2006] FCA 826. The Court was faced with competing submissions as to the correct geographic market within which to analyse the effect of Woolworths’ conduct on competition. The ACCC had instituted proceedings against both Liquorland (Australia) Pty Ltd (Liquorland) and Woolworths Ltd (Woolworths). Between 1997 and 2000, several hoteliers had applied for liquor licences to sell alcohol in certain areas of New South Wales. In those same areas, Woolworths and Liquorland either operated or intended to operate their own take-away liquor stores. The Liquor Act 1982 (NSW) provided a mechanism whereby third parties could object to the issue of a liquor licence to an applicant. Both Liquorland and Woolworths had actually either objected or threatened to object to the grant of liquor licences to the applicants. However, Liquorland and Woolworths then offered to discontinue their objections if the applicants entered into deeds that restricted their capacity to sell alcohol in competition with either Liquorland or Woolworths. The ACCC alleged that this conduct breached s 45 of the Act. Liquorland subsequently settled its case with the ACCC, admitting that it had engaged in the relevant conduct. However, Woolworths refused to admit that it had breached the Act and defended the ACCC’s action. One of the issues in contention between the ACCC and Woolworths was the relevant geographic market definition. The ACCC alleged that customers were prepared to substitute certain other forms of alcohol for that which was sold by the applicants, but would only be prepared to travel between two to

five kilometres of a given Woolworths store to do so. Woolworths argued that customers would be prepared to travel very significant distances to seek alternative sources of alcohol. Woolworths’ argument included the assertion that the geographic market might extend to the entire state of New South Wales. The Court rejected Woolworths’ argument concerning geographic market definition. In doing so, the Court undertook a detailed consideration of the SSNIP test to the facts of the case (at 45,289–45,300). The Court concluded (at 45,301): Taking into account all the matters to which I have had regard and approaching the matter from the point of view of the SSNIP test … I would conclude that a small but not insignificant nontransitory price increase of variably 5–10% over all the products in all the liquor stores in the respective pleaded geographical areas would not cause [sufficient large numbers] of customers to move outside the area or would not render the increase unprofitable.

The ACCC’s approach to geographic market definition 3.53 In its 2008 Merger Guidelines, the ACCC sets out the process it considers in identifying the geographic regions that may yield close substitutes. [page 51] Identifying geographic regions that may be close substitutes The following are examples of the types of information the ACCC may require to identify close substitutes of the relevant geographic region: • • • • •

the portability of the relevant product as determined by its perishability, weight, etc; transportation costs to move the relevant product between regions (particularly the transportation costs as a proportion of total value of the product); the costs to customers of obtaining supply from alternative regions; any limitations on the ability of customers to access alternative sources of supply in alternative regions; the costs of extending or switching production and distribution systems to supply the

• •

• •

customers in alternative regions; any regulatory or other practical constraints on suppliers selling to alternative regions; records relating to trade flows and the actual movement of customers and/or suppliers between geographic regions, especially related to changes in relative prices across regions in the recent past; views and business records of buyers and suppliers regarding the likelihood of switching between geographic sources of supply; and the relative price levels and price movements of different geographic sources of supply.13

Defining the functional dimension of the market 3.54 Products exist and are traded through various stages in the distribution chain. They are manufactured or grown, then sold to a wholesaler who might then sell them to a retailer, before being sold to consumers. Corporations may compete at any level of that distribution chain, or it may have a presence at all levels of the distribution chain (and, therefore, be vertically integrated). Accordingly, markets are comprised of different functional levels. Unlike the product and geographic dimensions of the market, the hypothetical monopolist test is not helpful in identifying the boundaries of the functional level of the market. The Full Court in Australian Competition and Consumer Commission v Metcash Trading Ltd (2011) ATPR 42-380 concluded (at 44,614) that, ‘the hypothetical monopolist test says little about the functional dimensions of the market. While substitution provides a basis for defining product and geographic markets, it does not provide a meaningful basis for determining the functional dimensions of the market’. 3.55 However, it is clear that alleged anti-competitive conduct can occur at and effect any or all of those levels. In addition, cross-elasticities of demand and supply that might constrain an exercise of market power can be found across several functional levels of the market. Let’s first consider how conduct at one functional level can harm competitive conduct at another functional level.

[page 52]

Anti-competitive conduct at different functional levels 3.56 In NT Power Generation Pty Ltd v Power and Water Authority (2004) 219 CLR 90; (2004) ATPR 42-021; [2004] HCA 48, the High Court considered an allegation that the Northern Territory Power and Water Authority (PAWA) had breached s 46 of the Act. PAWA was a statutory corporation, established by the Power and Water Authority Act 1987 (NT) for the purposes of managing the supply of electricity to residential and commercial customers in the Northern Territory. PAWA owned the distribution infrastructure (the lines, transmission and power grids) to transmit electricity to customers in the Darwin and Katherine regions of the Northern Territory. NT Power Generation Pty Ltd (NT Power) wanted to compete with PAWA in the sale of electricity to customers in the Darwin and Katherine regions. However, NT Power was only capable of producing electricity from its plant. It needed access to the distribution infrastructure owned by PAWA in order to transmit the electricity it produced to customers in Darwin and Katherine. However, PAWA had refused to allow NT Power access to its distribution infrastructure. NT Power alleged that, in doing so, PAWA had taken advantage of its substantial degree of power in the ‘market’ for the purposes of eliminating or substantially damaging NT Power. There were at least three activities involved in the supply of electricity to customers in the Darwin and Katherine regions. First, the electricity was generated. NT Power needed a reliable supply of gas in order to fire its turbines to produce the electricity. This aspect of NT Power’s activities was also an issue before the Court, but is not strictly relevant for our purposes. Second, the electricity was transformed into domestic and retail strength voltages. Third, it was retailed (transmitted) to customers.

The High Court concluded that PAWA had breached s 46 of the Act in refusing NT Power access to the distribution infrastructure. This was an example of conduct occurring at one functional level of the market — the stage before retail — in order to prevent NT Power from competing against PAWA at another functional level, that being the downstream retail level. 3.57 The conduct engaged in by PAWA is known as ‘leveraging’ and occurs when a corporation with power at one functional level of the market ‘leverages’ that power into either an up-stream or down-stream functional level of the market, usually in order to prevent another corporation from competing with it at that up-stream or down-stream functional level.

Constraints at different functional levels 3.58 Just as in product and geographic market definition, potential constraints on the exercise of market power can originate at different functional levels. In Australian Competition and Consumer Commission v Australian Safeway Stores Pty Ltd (2003) 129 FCR 339; (2003) ATPR 41-935; [2003] FCAFC 149, the ACCC alleged that Australian Safeway Stores Pty Ltd (Safeway) had breached the Act. Safeway was a major grocery retailer in Victoria and surrounding areas. It purchased bread from ‘plant bakers’ who made the bread and sold it to retailers who then sold it to customers. Safeway competed against independent grocery stores in various geographical areas. Those independent grocers also purchased bread from the plant bakers. [page 53] On occasion, the independent stores sold generic-brand bread, supplied by one of the plant bakers, at discounted prices. Safeway attempted to impose terms of trade on the plant bakers to the effect that if an independent retailer who was in competition with Safeway sold generic bread from a plant baker

at a discount, Safeway would refuse to acquire bread from that baker for as long as the discounted bread remained on sale. The ACCC alleged that Safeway’s conduct amounted to contraventions of ss 45 and 46 of the Act. At first instance, the case against Safeway was dismissed. On appeal by the ACCC, the Full Court found that Safeway’s conduct did, in fact, breach ss 45 and 46 of the Act. On appeal, one of Safeway’s arguments was that the trial judge had defined the boundaries of the market too narrowly. Safeway argued that it faced significant competitive constraint in the retail market for the sale of bread, and that it did not have the requisite degree of market power because competition at the retail functional level of the market prevented it from raising retail prices for bread. The Court rejected Safeway’s argument, stating (at 47,027): As the primary Judge pointed out, the critical question is whether there were competitive constraints upon Safeway’s power to impose the terms of trade upon plant bakers selling bread by wholesale. The issue is not whether Safeway could raise prices at retail level to supra-competitive levels. His Honour specifically found that competition in the retail market for bread, although preventing Safeway from raising its retail prices, did not constrain Safeway’s ability to impose terms of trade as an acquirer of bread in the wholesale market. In other words, the retail market for bread did not constitute an area of close competition so far as Safeway’s conduct as a buyer of plant baked bread in the wholesale market was concerned [emphasis added].

3.59 The important point to note is the necessity to factor in potential constraints on the exercise of potential anti-competitive conduct (market power) that exists across different functional levels of the larger market. The Full Court in Australian Competition and Consumer Commission v Metcash Trading Ltd (2011) ATPR 42-380 concluded (at 44,618): As a matter of principle, there is no reason why, for competition law purposes, a market cannot be defined by reference to multiple functional levels. They illustrate that it might be appropriate to do so where downstream activities function to constrain upstream behaviour.

We will explore the Metcash decision in more detail in Chapter 11, ‘AntiCompetitive Mergers and Acquisitions’. However, at this point we can note that in concluding that the acquisition by Metcash (an independent grocery wholesaler) of the Franklins supermarket business from owners Pick ‘n Pay

Retailers Pty Ltd would not substantially lessen competition, the Full Court found that competition at the retail functional level of the market would likely constrain any attempt by Metcash to exploit prices for its services at the wholesale functional level.

Defining the temporal dimension of the market 3.60 Markets change over time, and the issue is over what period of time do you consider the possibility of substitutes that might constrain the exercise of market power by a firm? [page 54] Taking a long-term view may underestimate the market power possessed by a firm because, in the long run, there may be many substitution possibilities. However, taking a short-term view may overestimate the market power possessed by a firm because immediate substitution possibilities may be limited. The Tribunal in Re QCMA (1976) ATPR 40-012 stated (at 17,247): … so a market is the field of actual and potential transactions between buyers and sellers amongst whom there can be strong substitution, at least in the long run, if given a sufficient price incentive …

3.61 But what is the ‘long run’? In Re AGL Cooper Basin Natural Gas Supply Arrangements (1997) ATPR 41-593, the Tribunal considered that it is (at 44,210): … the operational time required for organising and implementing a redeployment of existing capacity in response to profit incentives.

In terms of time, it might be helpful to consider part of the ACCC’s explanation of barriers to entry as expressed in its 2008 Merger Guidelines. Barriers to entry are the obstacles a firm must overcome in order to enter the

market. They are relevant to a consideration of the potential for crosselasticities of supply and demand to constrain an exercise of market power by a firm. 3.62 However, there are three dimensions to the inquiry as to whether firms can enter the market and offer substitutable goods or services to constrain any attempt by existing firms to exercise market power. These three dimensions are, first, whether new entry is timely; second, whether new entry is likely; and third, whether new entry is sufficient. 3.63 The issue of timeliness is relevant to our consideration of the temporal dimension of the market. The ACCC’s Merger Guidelines explain: Timeliness of entry 7.21 When considering the degree of competitive constraint provided by new entry, it is necessary to assess the time it would take a new firm to enter the relevant market and offer customers a competitive alternative to the merged firm. The evaluation of whether entry will be timely necessarily varies with each specific merger and the dynamics of the market. 7.22 Entry will generally provide an effective competitive constraint post-merger if actual or threatened entry would occur in an appropriate time to deter or defeat any non-transitory exercise of increased market power by the merged firm. While the ACCC’s starting point for timely entry is entry within one to two years, the appropriate timeframe will depend on the particular market under consideration.14

3.64 These comments assist us in conceptualising the inquiry into the temporal dimension of a market. Again, recall that the purpose of market definition is to discover the degree of a firm’s market power, including whether there are any constraints on the potential exercise of power. In these circumstances, the market includes a consideration of the timeliness of cross-elasticities of supply and demand to function as potential constraints on the exercise of market power by a firm. [page 55]

Sub-markets, single-brand markets and single-

product markets 3.65 There are several forms of economic activity between firms that have the appearance of markets but, at least in Australia, are not considered ‘markets’ for the purposes of the Act. Consider the following circumstances: •





A travel agent ‘specialises’ in holidays to a certain destination. The airline that carries people to that and other destinations refuses to accept bookings from that travel agent. The travel agent alleges that the airline possesses market power in the ‘market for flights to that specific destination’. Can there be a market comprising only that one specific destination? A manufacturer of ‘Zippy’ brand Cola enjoys incredible brand loyalty from its customers. Can a market that is comprised solely of ‘Zippy’ brand cola exist? People all over the world love chocolate. But people also like caramel, toffee and other sweets such as ice-cream. Some people prefer savoury snacks like chips. Can there be a market for ‘chocolate’, irrespective of the particular brand of chocolate?

3.66 These circumstances raise difficult issues for market definition. A ‘single-brand market’ is alleged to exist when there is such intense loyalty to a single brand of product that consumers do not consider other brands of the same product to be acceptable substitutes. A ‘single-product market’ is alleged to exist when there is consumer loyalty to a particular product irrespective of the particular brand of that product. A ‘sub-market’ for products is alleged to exist as a ‘segment’ within an overall larger market for similar products. 3.67 Australian courts are reluctant to accept the existence of single-brand markets and sub-markets. You will recall that in Top Performance Motors Pty Ltd v Ira Berk (Queensland) Pty Ltd (1975) ATPR 40-004, the Court defined a market to be a single brand: Datsun motor vehicles. This market definition was flawed because the Court did not consider

whether dealerships of other brands or ‘marques’ of motor vehicles could act as a competitive constraint on the exercise of market power by Ira Berk. The difficulty is that if a market is defined to comprise solely of a particular firm’s products, this may then give the impression that the firm possesses more market power than it actually does. The firm will always have market power because there will be no cross-elasticities of demand or supply that could function as constraints on the exercise of market power. It was for this reason that s 4E was inserted into the Act: to ensure that cross-elasticities of supply and demand are taken into account, and to inquire whether those substitutes function as competitive constraints on any attempt by a firm to exercise market power. 3.68 In Singapore Airlines Ltd v Taprobane Tours WA Pty Ltd (1992) ATPR 41-159, the Full Court overturned the finding at first instance of a separate sub-market for the provision of airline services to the Maldives by Singapore Airlines. Instead, the Full Court considered that Singapore Airlines competed within a wider product market for island holidays. [page 56] A sub-market is not considered to be a sufficient ‘market’ for the purposes of the Act. In Australian Competition and Consumer Commission v Universal Music Australia Pty Ltd (2001) 115 FCR 442; (2002) ATPR 41-855; [2001] FCA 1800, the Court stated (at 44,676): There is a problem in my view with the concept of sub-market in Australian competition law. In so far as the Act requires the delineation of markets … a factual finding as to the relevant market is all that is required. So, the question of market power relevant to s 46 of the Act, for example, requires consideration of market power in the market, not market power in some sub-market. What can be said, however, is that the delineation of sub-markets can be useful as pointing to a particular characteristic, a structural dimension of the market, ie, how the market works, once the market has been defined.

Some commentators would disagree with this view that sub-markets are

not markets in themselves and useful only as an instrument of analysis within the setting of an overall larger market. Such commentators argue that if a submarket is found to exist, then it is not helpful to call it a sub-market; instead, it is a market in and of itself. In this sense, there are only more markets.15 3.69 The suggestion that there are no sub-markets, just more markets, is based on the logical difficulty involved with sub-market definition. A market is defined by reference to demand and supply substitution patterns. A submarket is then said to be an area of even closer demand and supply substitution patterns. If an area of relatively weak substitution patterns is a market, how can an area of even closer substitution patterns not be a market? The issue remains unresolved.

Further reading R Smith and A Duke, ‘The Geographic Dimension of Markets: Some Observations’ (2017) 25 CCLJ 1 G Owbridge, ‘Globalisation, the Information Age and Market Definition under the Trade Practices Act 1974’ (2010) 18 CCLJ 28 D Brewster, ‘Market Definition and Substitutability — Australian Courts Continue to Struggle with Part IV of the Trade Practices Act 1974 (Cth)’ (1996) 12 QUTLJ 246 G Edwards, ‘From Super-League to the Super-market? The Appropriate Emphasis in Market Definition’ (1997) 4 CCLJ 220 G Edwards, ‘Sub-markets as Competition Law Markets: The Appropriate Approach to the Sub-market Concept in Market Definition’ (1998) 6 CCLJ 156 D Hay, ‘A Lesson from the US Hypothetical Monopolist about Market Definition: Timeframes and Thresholds and the QCMA Test’ (1998) 6 CCLJ 73

M Landrigan, ‘The Delineation of Sub-markets under TPA Part IV’ (1997) 5 CCLJ 58

1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15.

M Swann and W McEachern, Microeconomics: A Contemporary Introduction, 2nd ed, Thomson/Nelson, Melbourne, 2003, pp 219–20. Ibid, p 219. Economic Planning Advisory Council, Promoting Competition in Australia, Council Paper No 38, Australian Government Publishing Service, Canberra, 1989. R Smith, ‘The Economic Theory of Competition Law’, paper presented to APEC Partners for Progress Competition Policy Seminar, Bangkok, 18–21 March 1997. P Williams, ‘Why Regulate for Competition?’ in M James (ed), Regulating for Competition: Trade Practices Policy in a Changing Economy, Centre for Independent Studies, Sydney, 1989, p 13. R Caves et al, Australian Industry: Structure, Conduct, Performance, 2nd ed, Prentice Hall, Sydney, 1987. R Smith, ‘The Economic Basis of the Act’ in R Steinwall et al, Butterworths Australian Competition Law, Butterworths, Sydney, 2000, p 107. ACCC, Merger Guidelines, Commonwealth of Australia, Canberra, November 2008, p 17 (available online at ). S Corones, ‘Super League: A Victory for Competition and Free Markets’ (1997) 16 ABLR 150 at 153. ACCC, Merger Guidelines, 2008, p 19. See A Bruce, ‘Descartes’ Ghost and Animals under the Trade Practices Act 1974 (Cth)’ (2009) 2 AAPLJ 1. ACCC, Merger Guidelines, 2008, p 17. Ibid, p 19. Ibid, p 39. 54 G Edwards, ‘From Super-League to the Super-Market? The Appropriate Emphasis in Market Definition’ (1996) 4 CCLJ 220.

[page 57]

Chapter 4 Market Power and Substantial Lessening of Competition Overview This chapter is intended to: • • • • • •

explain the relationship between market definition, market power and the substantial lessening of competition threshold; introduce you to the concepts of competition, market power and substantial lessening of competition; examine the way market power is identified in the form of price and non-price discretionary behaviour; identify the factors that indicate whether a market is competitive or likely to facilitate the exercise of market power; explain the approach of the courts to the term ‘substantial lessening of competition’; illustrate the working of the ‘future with and the future without’ test as the process by which conduct may or may not substantially lessen competition; and



demonstrate the interrelationship between market definition, competition, market power and substantial lessening of competition.

Introduction 4.1 In Chapter 3, we saw that the process of defining a market is not an end in itself, but merely a means by which a firm’s market power is evaluated. If a firm has market power, it may be in a position to lessen competition; if it can substantially lessen competition, then the firm may be in breach of a provision of Pt IV of the Competition and Consumer Act 2010 (Cth) (CCA) (the Act). We saw that there is an inverse relationship between the level of competition in a market and the existence of market power. The more competitive a market is, the less likely that any one firm has market power. This is because a competitive market is characterised by cross-elasticity of supply and demand, so that if a firm attempted to raise the price of their goods or services above the competitive level then customers could swap to other goods or services that are (to use the words of s 4E of the Act) ‘substitutable for or otherwise competitive with’ that firm’s goods or services. [page 58] For this reason, we saw that market definition is always just the first aspect of the overall inquiry into the central question of whether the conduct in question is an expression of market power and whether that conduct might substantially lessen competition in a relevant market. This is why the High Court in Queensland Wire Industries Pty Ltd v Broken Hill Proprietary Co Ltd (1989) 167 CLR 177; 83 ALR 577 stated (ALR at 582): In identifying the relevant market, it must be borne in mind that the object is to discover the degree of the defendant’s market power. Defining a market and evaluating the degree of power in that market are part of the same process, and it is for the sake of simplicity of analysis that the

two are separated.

Likewise, the Court in Australian Competition and Consumer Commission v Liquorland (Australia) Pty Ltd (2006) ATPR 42-123; [2006] FCA 826 stated (at 45,244): Market definition is not an exact physical exercise … it is the recognition and use of an economic tool or instrumental concept related to market power, constraints on power and the competitive process which is best adapted to analyse the asserted anti-competitive conduct.

In Australian Competition and Consumer Commission v Flight Centre Travel Group Ltd (2016) 91 ALJR 143, Nettle J concisely identified the relationship between market definition and market power (at [126]): A market for goods or services within the meaning of s 4E is taken to exist where there is such a degree of substitutability between the goods or services of suppliers in the same or a related geographic area, and thus such competition between them, that the market power of each is significantly constrained.

4.2 But how does the process of market definition reveal the existence of market power? What does market power ‘look like’? What indicators or factors do the courts look for in evaluating a firm’s market power? What does the court mean when it talks about ‘constraints on power’? And what is the relationship between market power and the ‘substantial lessening of competition’ (SLC) threshold in Pt IV of the Act? These are the questions to be explored in this chapter. After reading and understanding the principles in this chapter and Chapter 3, you will have an idea of the basic economic principles that underpin the Act. These economic principles can then be ‘picked up and dropped into’ any problem involving conduct alleged to breach the Act. For example, whether you are considering the effect of a market-sharing arrangement or understanding between competitors under s 45(1), an exclusive dealing arrangement under s 47 or a potentially anti-competitive merger or acquisition under s 50 of the Act, the same economic principles will be relevant to your analysis. In each case, you will have to define a market that best enables an evaluation of the conduct at issue, consider the existence of structures and

patterns of behaviour that might facilitate the exercise of market power by a firm and then evaluate whether that firm’s conduct might substantially lessen competition in breach of a provision of Pt IV of the Act. For this reason, Chapters 3 and 4 form the ‘hermeneutical key’ to the Act; that is, the principles of market definition, market power, competition and SLC are the fundamental [page 59] interpretative concepts enabling you to understand and apply the provisions of the Act to any given situation involving potentially anti-competitive corporate conduct.

Market power 4.3 A corporation that has an effective and efficient competitive strategy will tend to acquire more customers, more market share and generally exert a more influential position in the market. The acquisition of power and influence in the market is a natural consequence of the forces of competition that the Act encourages. Therefore, the Act does not punish the acquisition of market power. However, it does punish the use of that market power for anti-competitive purposes. In Chapter 8, we will examine s 46 of the Act that specifically prohibits a corporation which has a substantial degree of power in a market from engaging in conduct that has the purposes, effect or likely effect of substantially lessening competition. We noted that market power is the antithesis or opposite of competition. But what is market power?

Identifying market power

4.4 No definition of the term ‘market power’ is found in the Act. The Competition and Consumer (Misuse of Market Power) Amendment Act 2017 (Cth) amends s 46 so that s 46(8) provides that a reference to power in s 46 is a reference to market power. This redundant-sounding definition does have considerable significance in distinguishing the use of market power by a corporation from the use of some other form of economic power, such as a contractual or regulatory right. This issue will be considered in more detail in Chapter 8. 4.5 For the moment, we can note that it has been left to the courts to determine the meaning of the phrase ‘market power’. A good starting point is the observation of the Tribunal In Re Queensland Co-operative Milling Association Ltd (1976) ATPR 40-012 which stated (at 17,246): As is often said in United States antitrust cases, the antithesis of competition is undue market power, in the sense of the power to raise price and exclude entry. That power may or may not be exercised. Rather, where there is significant market power the firm (or group of firms) acting in concert is sufficiently free from market pressures to ‘administer’ its own production and selling policies at its discretion.

There are several key concepts contained in this statement that have been agreed with and applied by all subsequent decisions concerning issues of market power. These concepts indicate the following as being characteristic of market power: • • • •

the power to raise price and exclude entry; freedom from competitive pressures; freedom to engage in discretionary production and selling policies; and the ability to do the above without rivals taking away customers ‘in due time’.

Let’s consider what the courts have had to say about these indicators of market power.

[page 60]

Market power identified by price and non-price strategies 4.6 On the first occasion it considered s 46 of the Act, the High Court in Queensland Wire Industries Pty Ltd v Broken Hill Proprietary Co Ltd (1989) 167 CLR 177; 83 ALR 577 (QWI) where Mason CJ and Wilson J defined market power to mean (ALR at 583): … the ability of a firm to raise prices above the supply cost without rivals taking away customers in due time, supply cost being the minimum cost an efficient firm would incur in producing the product.

While Mason CJ and Wilson J focused on the unconstrained ability to raise prices, Dawson J focused on other discretionary behaviour (ALR at 591): The term ‘market power’ is ordinarily taken to be a reference to the power to raise price by restricting output in a sustainable manner … But market power has aspects other than influence upon the market price. It may be manifested by practices directed at excluding competition such as exclusive dealing, tying arrangements, predatory pricing or refusal to deal … The ability to engage persistently in these practices may be as indicative of market power as the ability to influence prices …

Dawson J’s emphasis on non-price behaviour as an indicator of market power resulted from his Honour adopting an observation by an influential American text, Antitrust Policy by Kaysen and Turner, where the authors stated: A firm possesses market power when it can behave persistently in a manner different from the behaviour that a competitive market would enforce on a firm facing similar cost and demand conditions.1

4.7 In their text, Kaysen and Turner identify five factors that enable the evaluation of a market which influences the development of competition or market power: 1. 2. 3.

the breadth of the market and the character of demand; the number and size distribution of sellers and buyers; the conditions of entry for new sellers and of expansion for existing

4. 5.

sellers; the character and importance of product differentiation; and the degree of independence of action among buyers and sellers.

4.8 These five factors that enable an evaluation of market power are remarkably similar to the factors identified by the Court in Dowling v Dalgety Australia Ltd (1992) 34 FCR 109. Lockhart J summarised a number of factors that were relevant in identifying the existence of market power (at 138): • •



the ability of a firm to raise prices above the supply cost without rivals taking away customers in due time; the extent to which the conduct of the firm under scrutiny in the market is constrained by the conduct of competitors or potential competitors; although not determinative, the market share of the firm under scrutiny; [page 61]

• •

the presence of vertical integration; and the extent of barriers to entry.

From this list, which his Honour derived from the QWI decision above, you can see that market power in the form of discretionary behaviour can be identified by both price and non-price strategies. This list was also adopted by the Court in RP Data Ltd (ACN 087 759 171) v State of Queensland (2007) ATPR 42-197; [2007] FCA 1639 (at 48,267). 4.9 Identifying the presence of market power by looking at the ability of a firm to engage in both discretionary price and non-price behaviour was approved of by the High Court in its subsequent decision in Boral Besser Masonry Ltd (now Boral Masonry Ltd) v ACCC (2003) 215 CLR 374; (2003) ATPR 41-915; [2003] HCA 5. Gleeson CJ and Callinan J referred to the QWI

case and stated (at 49,471): Pricing may not be the only aspect of market behaviour that manifests power. Other aspects may be the capacity to withhold supply; or to decide the terms and conditions, apart from price, upon which supply will take place. But pricing is ordinarily regarded as a critical test … Power, that is, the capacity to act without constraint, may result from a variety of circumstances. A large market share may, or may not, give power. The presence or absence of barriers to entry into a market will ordinarily be vital. Vertical integration may be a factor … Power in a supplier ordinarily means the ability to put prices up, not down.

These comments were specifically adopted by the Full Court in Australian Competition and Consumer Commission v Baxter Healthcare Pty Ltd (No 2) (2008) 170 FCR 16; (2008) ATPR 42-247; [2008] FCAFC 141 at 49,470.

How do these factors indicate the existence of market power? 4.10 What is the relationship between the various factors listed above and the existence (or otherwise) of market power? Let’s consider how each of these factors work.

Barriers to entry 4.11 Barriers to entry are the obstacles that a firm must overcome in order to enter the market. In Queensland Wire Industries Pty Ltd v Broken Hill Proprietary Co Ltd, above, Dawson J stated (ALR at 592): The existence of barriers to entry may be conclusive in determining the relevant market and the degree of market power in it. In the context of s 46, the existence of significant barriers to entry into a market carries with it market power on the part of those operating within the market. Market power follows as a natural consequence of barriers to entry which are also a prerequisite to the establishment and maintenance of a monopoly.

A firm attempting to initiate a small but significant and non-transitory increase in the price (SSNIP) of its goods or services will be constrained if barriers to entry to the market are low. In response to the price rise, potential new firms could enter the market and constrain the attempt by the firm to exercise market power. 4.12

The relatively low barriers to entry into the market was significant for

the Court in Australian Gas Light Co v ACCC (No 3) (2003) 137 FCR 317; (2003) ATPR 41-966; [2003] FCA 1525. The Court examined whether the Australian Gas Light Company’s acquisition [page 62] of shares in the consortium that owned the Loy Yang Power Station would enable it to substantially lessen competition in the relevant market. The Court considered the possibility that Loy Yang could occasionally generate ‘price spikes’ by withholding supply. The issue was whether this ability was the result of Loy Yang enjoying a substantial degree of market power. Because of evidence that entry barriers to the market were low, the fact that gas turbines could be commissioned in less than two years and the presence of new entrants already trading in the market in response to the price spikes by Loy Yang, the Court concluded that the acquisition would not result in a substantial lessening of competition.

The constraining influence of competitors 4.13 In a competitive market, firms will find it difficult to initiate a significant and sustainable increase in the prices of its goods or services. In the event of a price rise, consumers can swap over to the goods or services produced by rivals. The presence of substitutable goods and services functions as a constraint on the acquisition or exercise of market power by a firm. In Boral Besser Masonry Ltd (now Boral Masonry Ltd) v ACCC, above, the ACCC alleged that Boral had taken advantage of its substantial degree of market power in selling concrete masonry products below cost in order to drive competitors out of the market. The High Court noted the remarks of Heerey J in finding (at 46,680):

The low barriers to entry and the existence of strong competitors, in particular Pioneer and, as time passed, C&M meant that BBM did not have power to behave independently of competition and competitive forces.

The constraining influence of customers — countervailing power 4.14 Powerful customers may constrain the ability of a firm to exercise market power through rises in prices or exclusionary conduct. In Boral Besser Masonry Ltd v ACCC, above, the High Court found that the over-capacity of concrete block manufacturers meant that builders and bricklayers could exert considerable influence over the prices charged by Boral and other manufacturers. Gleeson CJ and Callinan J stated (at 46,670): The unchallenged finding that customers were ‘able to force’ the price of masonry products ‘down and down’ is of major importance in considering whether BBM, or any other supplier, had, and took advantage of, a substantial degree of market power …

Market share 4.15 Although a firm may possess a large share of the market, this, by itself, does not indicate that it enjoys market power. In Queensland Wire Industries Pty Ltd v Broken Hill Proprietary Co Ltd (1989) 167 CLR 177; 83 ALR 577, Mason CJ and Wilson J stated (ALR at 583): A large market share may well be evidence of market power … but the ease with which competitors would be able to enter the market must also be considered. It is only when for some reason it is not rational or possible for new entrants to participate in the market that a firm can have market power.

[page 63] The existence of barriers to entry will be crucial in assessing whether a firm that enjoys a significant share of the market possesses market power. A firm that enjoys a market share of 80% in a market with low or no barriers to entry is unlikely to possess market power. This is because new entrants can enter the market in response to a rise in the price of the firm’s goods or

services. This is the reasoning behind the comment made by Gleeson CJ and Callinan J in Boral Besser Masonry Ltd v ACCC, above, where they stated (at 49,471): A large market share may, or may not give power. The presence or absence of barriers to entry into a market will ordinarily be vital.

Market power not established by conduct alone 4.16 It is true that non-price conduct, but especially exclusionary conduct (such as refusal to supply or the implementation of certain adverse trading terms), may indicate the presence of market power. Justice Finkelstein in the Full Court appeal in Australian Competition and Consumer Commission v Boral Ltd (2001) 106 FCR 328; (2001) ATPR 41-803; [2001] FCA 30 expressly drew this connection (at 42,643): Generally, an analysis of abuse of market power involves a two-stage process: first, it is necessary to determine whether a firm has market power, second it is necessary to examine whether that power has been abused. However, when the existence of market power is defined by reference to a firm’s ability to exclude competition, the two step investigation is not appropriate. The evaluation of market power and the abuse of that power is part of one analysis. The existence of market power based on this approach cannot be examined independent of the alleged exclusionary conduct. It is the exclusionary conduct that establishes market power, not the reverse.

However, on further appeal, the High Court disapproved of this approach, stating that it is not acceptable to conclude that a firm possesses market power solely on the basis of the conduct it has engaged in. 4.17 In Boral Besser Masonry Ltd (now Boral Masonry Ltd) v ACCC, above, Gleeson CJ and Callinan J stated (at 46,685): The questions whether BBM had a substantial degree of power in a market … and whether its behaviour and in particular it pricing behaviour … involved taking advantage of, that is, using that power, are closely related. But as the decision in Melway shows, they are two questions, not one.

Justices Gaudron, Gummow and Hayne also disagreed with this approach to identifying the existence of market power. Their Honours stated (at

46,693): In any event, as s 46 is framed and has been interpreted in this Court, what is required first is an assessment of whether the firm in question possessed a substantial degree of market power, having regard to considerations such as those referred to by Heerey J (the trial judge) and, if so, then asking whether the firm has taken advantage of that power for a proscribed purpose and in that way abused the power.

Essentially, the High Court is warning that it is not permissible to regard evidence about exclusionary conduct, as well as the purpose of that conduct, as also being evidence of market power. [page 64] 4.18 A good illustration of this approach is found in the decision of the Full Court in Universal Music Australia Pty Ltd v ACCC (2003) 131 FCR 529; (2003) ATPR 41-947; [2003] FCAFC 193. In 1998 and 1999, Universal Music Australia Pty Ltd (Universal) and Warner Music Australia Pty Ltd (Warner) were large distributors of recorded music in Australia. Universal was the creation of a merger between Polygram Pty Ltd and Universal Music Australia Pty Ltd. Warner and Universal, together with three other Australian recording companies, accounted for about 90% of the wholesale market for recorded music. However, Universal and Warner accounted for about 17% and 16% of that market respectively. Amendments to the Copyright Act 1968 (Cth) in 1998 permitted the importation of ‘non-infringing’ copies of sound recordings that included music CDs. In essence, the amendments permitted ‘parallel importing’, which meant that music retailers could directly import CDs rather than acquiring them through Warner and Universal. It was alleged that Warner and Universal, in response, had threatened to refuse supply of CDs to any music retailer who took advantage of the parallelimportation amendments. Clearly, Warner and Universal did not want to compete with overseas producers whose CDs could now be imported into

Australia. At first instance ((2001) 115 FCR 442; (2002) ATPR 41-855; [2001] FCA 1800), Hill J had adopted the approach to identifying market power that had been applied by the Full Court in Boral ((2001) ATPR 41-803). At the time Hill J was delivering his judgment, the High Court had not delivered its decision in Boral ((2003) ATPR 41-915). Therefore, Hill J was bound by the reasoning in the Full Court’s decision. As a matter of evidence, all music retailers needed to stock CDs that were only supplied by the major wholesalers of music, including Warner and Universal. This was the ‘leverage’ that both Warner and Universal exploited — they made it clear that they would not supply their music to any retailer who bought or intended to buy parallel import CDs. If that refusal to supply did occur, such a retailer would then find it very difficult to compete in the retail market. Specifically relying on the reasoning of Finkelstein J in the Full Court’s Boral decision above, Hill J concluded that this conduct of Warner and Universal was made possible only by their possession of market power. That power was not derived from Warner or Universal’s market shares (which were small) but from their ‘temporary monopolies’ over chart-hitting CDs. By the time of the appeal in this case, the High Court had delivered its decision in the Boral case above. We noted that the High Court specifically disapproved of the approach adopted by Finkelstein J in the Full Court decision in Boral. Not surprisingly, the Full Court considered that Hill J’s reasoning in finding that Warner and Universal possessed market power was inconsistent with the approach of the High Court in Boral to that same question. The Court stated (at 47,365): As we see the position, in the light of Boral, it is necessary for a court considering a case brought under s 46 of the Act to determine, as a threshold point, whether the relevant corporation has a substantial degree of power in the relevant market. This requires attention to the whole of the evidence relating to the market and the conduct of its participants. It is not legitimate for a court

to base a finding of substantial market power simply upon incidents of abuse of power in that market.

[page 65] The Full Court allowed Warner and Universal’s appeal in part, concluding that, although the firms did not possess a substantial degree of market power, they had engaged in exclusive dealing in breach of s 47 of the Act. However, the Full Court’s conclusion that Warner and Universal lacked market power was not a result of Hill J (incorrectly) inferring the existence of that power from their exclusionary conduct. In fact, the Full Court accepted Hill J’s finding that both Warner and Universal could exercise temporary monopolies over chart-hitting CDs that they owned and which every music retailer needed in order to compete. Rather, the Full Court concluded that Warner and Universal’s power was transitory. This ‘non-transitory’ aspect is a crucial indicator of market power.

Market power must be non-transitory 4.19 The High Court in Queensland Wire Industries Pty Ltd v Broken Hill Proprietary Co Ltd (1989) 167 CLR 177; 83 ALR 577 identified market power as discretionary behaviour unconstrained by rivals taking away customers ‘in due time’: ALR at 583. The phrase, ‘in due time’ is significant because it focuses the attention on those firms that can sustainably increase prices without being constrained by rivals. 4.20 When we considered the principles of market definition in Chapter 3, we encountered the SSNIP test. Through this test, the boundaries of a market are identified by assuming a hypothetical monopolist (HTM) supplier and identifying the response to that HTM instituting a ‘small, but significant and non-transitory increase in the price’ of its goods or services. One important aspect of the SSNIP test involves the temporal dimension

of the test. We now consider whether the HTM can instigate a non-transitory increase in the price of its goods or services. 4.21 Any firm can produce a new and exciting product that will capture the interest of the market for a short period of time. However, the fact that everyone has to have the latest CD, computer game or some other product does not mean that the firm possesses market power. In several weeks, the interest of the market will have moved on to another product. In these circumstances, a firm does not have market power in the sense that it is able to engage in discretionary behaviour, especially to the detriment of competition in ‘the market’ — firms producing new products will very quickly constrain the behaviour of the other firm. As we noted above, this was the reason the Full Court in Universal Music Australia Pty Ltd v ACCC found that neither Warner nor Universal possessed market power. While the Full Court accepted that each company enjoyed a ‘temporary monopoly’ over the CD titles under each company’s label, it stated (at 47,365): We accept the findings of Hill J that it was ‘commercially imperative’ for retailers to stock, or have access to, the Australian catalogue of each of the major distributors … We also accept that for any of those distributors to withdraw or refuse supply of their product to a retailer would be likely to cause the retailer at least significant inconvenience and possibly the loss of sales and profits … However, that is not enough to demonstrate the existence of substantial market power.

[page 66] It was ‘not enough’ because what matters is whether the firm has persistent and non-transitory market power. Accordingly, the Full Court concluded (at 47,368) that market power is evaluated by reference to persistent, rather than temporary, conditions. 4.22 This was also the reason the Court concluded in Australian Gas Light Co v ACCC (No 3) (2003) 137 FCR 317; (2003) ATPR 41-966; [2003] FCA 1525 that the Australian Gas Light Company’s acquisition of shares in the

consortium which owned the Loy Yang power station would not enable it to substantially lessen competition in the relevant market. The Court considered the possibility that Loy Yang could occasionally generate ‘price spikes’ by withholding supply. The issue was whether this ability was the result of Loy Yang enjoying a substantial degree of market power. The Court stated (at 47,729): No doubt, as Victoria’s largest generator, it is in a position opportunistically to respond to supply/demand imbalance in very short time intervals and if all the variables are in the right place, to affect both spot and forward contract prices. The question is whether the existence of such opportunities and the fact that it responds to them from time to time reflects the existence of market power. There is here a distinction to be drawn between what was referred to as ‘transient market power’ and ‘persistent but intermittent’ market power.

The ability of Loy Yang to occasionally take advantage of intermittent market conditions to generate price spikes was not an indication that it possessed market power, which refers to an ability to engage in pricing discretion over a longer period of time. The Court, therefore, concluded (at 47,736): I am prepared to accept that there are periods of high demand where a generator may opportunistically bid to increase the spot price. I do not accept that such inter-temporal market power reflects more than an intermittent phenomenon nor does it reflect a long run phenomenon having regard to the possibility of new entry through additional generation capacity and the upgrade of connections between regions. It does not amount to an ongoing ability to price without constraint from competition.

The ACCC’s view of market power 4.23 In its 2008 Merger Guidelines, the ACCC sets out what it considers to be the indicators of market power. These indicators are consistent with the indicators identified by the courts and discussed above: Market power and increases in price The most obvious and direct manifestation of an increase in market power is the ability of one or more firms to profitably raise prices post-merger for a sustained period. Market power can, however, be exercised in other ways. For example, a firm with market power may: • •

lower the quality of its products without a compensating reduction in price reduce the range or variety of its products

• •

lower customer service standards, and/or change any other parameter relevant to how it competes in the market.

While the exact nature of competitive detriment caused by a merged firm’s increased market power will vary depending on the particular circumstances of the matter, the ACCC often

[page 67] characterises an increase in market power as the ability to raise prices. References to ‘raising prices’ in these guidelines should therefore be read as implicitly incorporating the exercise of market power in other non-price ways.2

The ACCC’s interest in market power is relevant to s 46 of the Act and to evaluating whether, for example, a proposed merger or acquisition might substantially lessen competition. A merger or acquisition might substantially lessen competition if it results in the merged firm having the capacity to sustainably raise prices to a significant degree.

A summary of the principles relating to market power 4.24 Identifying the existence of market power and then evaluating its significance raises difficult issues. It might be helpful to attempt to draw together some of the principles we have considered so far: 1. 2.

3.

Discovering the existence and influence of market power is the purpose of undertaking the process of market definition. Market power is the antithesis of competition and there is an inverse relationship between competition and market power. The more competitive a market, the less market power that any one firm enjoys. The less competitive a market, the greater the likelihood that one or more firms enjoy market power. Market power refers to the ability of a firm to engage in discretionary behaviour. Discretionary behaviour means the ability to behave in

4.

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ways that are unconstrained by competitors. Discretionary behaviour principally takes the form of pricing discretion; the ability of a firm to sustainably initiate a rise in the price of its goods or services without losing customers to rivals. Discretionary behaviour can also take the form of non-price behaviour such as exclusionary conduct; for example, excusive dealing, tying arrangements, predatory pricing or refusal to deal. However, it is not permissible to identify exclusionary conduct and then, without more, conclude that the firm must possess market power. Attention to the whole of the evidence relating to the market and the conduct of its participants is required. It is not legitimate for a court to base a finding of substantial market power simply upon incidents of abuse of power in that market. Factors that assist in determining whether the market is conducive to competition or the acquisition of market power include barriers to entry, market share, power over price, product differentiation, market concentration and degree of vertical integration. Market power is a non-transitory phenomenon. A firm possesses market power when it can persistently engage in discretionary behaviour without losing customers to rivals. Short-term opportunistic behaviour, even if successful, does not represent the longer-term discretionary ability that indicates the presence of market power. [page 68]

Competition and substantial lessening of competition 4.25 At a very basic level, the Act characterises anti-competitive conduct in one of two ways. First, horizontal and vertical price-fixing conduct are

considered to be so harmful to competition that they are prohibited per se by the Act. In subsequent chapters, we will see that cartel conduct in Pt IV Div 1 and resale price maintenance (a form of vertical price-fixing) in Pt IV Div 2 are prohibited per se. No evaluation of whether the conduct substantially lessens competition in a market is required. 4.26 However, the other forms of anti-competitive conduct in Pt IV Div 2 of the Act are only prohibited if that conduct has the purpose, effect or likely effect of substantially lessening competition in a defined market. The Competition and Consumer Amendment (Competition Policy Review) Act 2017 (Cth) and the Competition and Consumer Amendment (Misuse of Market Power) Act 2017 (Cth) introduced significant changes to the evaluative thresholds of several important prohibitions. Prior to these amending Acts, taking advantage of a substantial degree of market power in breach of s 46 of the Act was prohibited per se. However, s 46 has been substantially amended so that conduct will only be prohibited if it substantially lessens competition in a relevant market. Likewise, the former per se prohibition against third-line forcing exclusive dealing has now been amended to a substantial lessening of competition threshold. These amendments emphasise the importance of understanding the role, function and analysis of the substantial lessening of competition threshold. But what does ‘substantial lessening competition’ (SLC) actually mean? What is this ‘competition’ that may or may not be substantially lessened by anti-competitive conduct? How does a court or tribunal test whether certain conduct has an SLC effect in the market?

Competition 4.27 By now you should have a reasonably good idea of what the courts and the Australian Competition Tribunal (the Tribunal) (prior to 1995, the Trade Practices Tribunal) mean when they evaluate the state of ‘competition’ in a market. Competition is a process, a state of affairs and not a static ‘thing’. The process of market definition is used as a mechanism for evaluating the

state of competition in a market and the presence of power in that market. The Court in Australian Competition and Consumer Commission v Liquorland (Australia) Pty Ltd (2006) ATPR 42-123; [2006] FCA 826 stated (at 45,244): Market definition is not an exact physical exercise to identify a physical feature of the world; nor is it the enquiry after the nature of some form of essential existence. Rather, it is the recognition and use of an economic tool or instrumental concept related to market power, constraints on power and the competitive process which is best adapted to analyse the asserted anti-competitive conduct.

These comments by the Court emphasise that competition is a ‘process’ and not some form of ‘essential existence’; that is, it is not some physical or static ‘thing’ to be discovered, such as the existence of consideration supporting a valid contract, the presence of stolen goods in the case of theft, or an asset which is the subject of a commercial transaction. [page 69] ‘Competition’ is a state of affairs that characterises a market in the same way that ‘healthy’ represents a state of affairs that may characterise a person. Of course, both of these terms exist in dependence on the presence or absence of certain features in the market or person. However, whether a market is competitive or whether a person is healthy is an evaluation made after considering the influence of these features, their strength and the way they interact. 4.28 In Re Queensland Co-operative Milling Association Ltd (1976) ATPR 40-012 (Re QCMA), the Tribunal noted (at 17,246): Competition expresses itself as rivalrous market behaviour … Competition is a process rather than a situation. Nevertheless, whether firms compete is very much a matter of the structure of the market in which they operate. The elements of market structure which we would stress as needing to be scanned in any case are these: (1) the number and size distribution of independent sellers, especially the degree of market concentration;

(2) the height of barriers to entry, that is, the ease with which new firms may enter and secure a viable market; (3) the extent to which the products of the industry are characterised by extreme product differentiation and sales promotion; (4) the character of ‘vertical relationships’ with customers and with suppliers and the extent of vertical integration; and (5) the nature of any formal, stable and fundamental arrangements between firms which restrict their ability to function as independent entities.

These indicia are also considered in defining the market. However, because market definition is simply a process for evaluating competition and market power, it follows that these indicia serve multiple functions.

‘Substantial’ lessening of competition 4.29 What does it mean to say that competition must be ‘substantially’ lessened? The Explanatory Memorandum accompanying the 1992 amendments to the Act stated:3 The term ‘substantial lessening of competition’ is used widely throughout the Principal Act. It is here intended to mean an effect on competition which is real or of substance, not one which must be large or weighty.

In Cool & Sons Pty Ltd v O’Brien Glass Industries Ltd (1981) ATPR 40-220, the Court stated (at 43,003): Its meaning must depend to a large extent on its context. In the context of s 47(10) in my opinion the word ‘substantially’ is not intended to convey the idea of some proportion of the whole of the actual or potential competition in the relevant market … However, although not required by s 47(10) to be some proportion of the whole, it is none the less required to be a ‘substantial’ lessening in the sense that the lessening of competition in the circumstances of the case under consideration must not be insubstantial or nominal. It must be capable of being fairly described as a lessening of competition that is real or of substance as distinct from a lessening that is insubstantial, insignificant or minimal …

[page 70] But where is the dividing line between anti-competitive conduct having an effect on competition that is ‘real or of substance’ and yet not ‘weighty or

large’ nor ‘insubstantial, insignificant or minimal’? Perhaps in exasperation, Deane J in Tillmanns Butcheries Pty Ltd v Australasian Meat Industry Employees’ Union (1979) ATPR 40-138, declared (at 18,500): The word ‘substantial’ is not only susceptible of ambiguity: it is a word calculated to conceal a lack of precision.

What it does not mean 4.30 Despite an alleged ‘lack of precision’, the term ‘substantially’ as part of the expression ‘substantial lessening of competition’ is not to be equated with the lack of competitive ability of individual competitors in the market. Just because an individual competitor is ‘injured’ or unable to compete because of the conduct, does not mean that competition in the market as a whole has been substantially lessened. 4.31 In Outboard Marine Australia Pty Ltd v Hecar Investments (No 6) Pty Ltd (1982) ATPR 40-327, Hecar had a dealership contract with Outboard Marine Australia (OMA) to stock and display Evinrude-brand outboard motors, manufactured by OMA, in its shop. Hecar subsequently entered into another dealership contract with Suzuki to stock and display Suzuki outboard motors. OMA then refused to supply Hecar with outboard motors because Hecar was displaying a competitor’s motors in the same shop. It was alleged that OMA’s refusal to supply had the effect of substantially lessening competition in the market for outboard motors on the Central Coast of New South Wales. In dismissing the argument, the Full Court stated (at 43,987): Although the competitive position of Hecar as an individual retailer may have been affected, there was no evidence to suggest that the refusal would lessen competition in the retail market generally by, for example, raising barriers to entry or reducing price competition. If Hecar had adduced evidence that Outboard Marine Australia’s refusal would be likely to discourage other retailers from stocking competing brands, so that other outboard motor suppliers were foreclosed from the market, the result might have been different.

Fitzgerald J stated (at 43,990): It would, I think, be an unusual and exceptional case in which it could be shown that competition in a generally competitive market was or was likely to be substantially lessened by a refusal to

supply one of a number of competitive retailers in the market with a product otherwise freely available and competitively marketed. Further, where there is a market which is generally competitive, it plainly does not follow that conduct which affects the balance of competition by advantaging or disadvantaging a particular dealer or dealers or a particular product or products necessarily lessens the competition in a market.

4.32 These conclusions were subsequently affirmed by the Court in ASX Operations Pty Ltd v Pont Data Australia Pty Ltd (No 1) (1991) ATPR 41-069. 4.33 However, these comments should not be seen as establishing a general proposition that conduct directed toward a single firm might never have the effect of substantially lessening competition. At least two circumstances might indicate that conduct directed toward a single firm may have the purpose or effect of substantially lessening competition. [page 71] First, the conduct might reduce price competition offered by a particularly vigorous firm and, second, the conduct might discourage other firms from engaging in competitive conduct which would then have a chilling effect on competition in the market. 4.34 An example of this first possibility is found in Mark Lyons Pty Ltd v Bursill Sportsgear Pty Ltd (1987) 75 ALR 581; (1987) ATPR 40-809. The Court concluded that conduct directed toward a single retailer reduced price competition to the point where the conduct substantially lessened competition in the market. In that case, Bursill supplied sporting equipment to various retailers. Mark Lyons had developed a reputation as a ‘discounter’ selling sportswear and equipment at town halls, warehouses and other public halls. Bursill was concerned that this practice would cheapen the image of its equipment and clothing. Bursill had also been receiving complaints from other suppliers of its equipment who were being undercut by Mark Lyons.

Bursill responded by refusing to supply Mark Lyons with its very popular ‘Salomon’ brand ski boot. This brand was very popular and was essential for the competitive survival of ski clothing and equipment retailers. From Mark Lyons’ perspective, not being able to retail Salomon ski boots meant a significant loss in sales. From the customer’s perspective, the absence of Mark Lyons from the market reduced intra-brand competition and the possibility of cheaper prices for the equipment. The Court found that Bursill had taken advantage of its market power for the purpose of preventing Mark Lyons from engaging in competitive conduct. The Court found that competition for ski boots would have been substantially lessened by Bursill’s refusal to supply, because Mark Lyons was a vigorous competitor whose town hall and warehouse sales constrained retail stores from increasing the prices of their ski boots. 4.35 An example of the second possibility is found in the decision of the Full Court in Universal Music Australia Pty Ltd v ACCC (2003) 131 FCR 529; (2003) ATPR 41-947; [2003] FCAFC 193 which we discussed above: see 4.18. During the appeal, counsel for Universal argued (at 47,375) that the alleged anti-competitive conduct was directed toward a small number of music retailers and that, following the reasoning of the Court in Outboard Marine Australia, above, that conduct was not sufficient to establish that competition in the market as a whole was substantially lessened. The Full Court disagreed, upholding the finding of Hill J at first instance that the conduct of Warner and Universal had the purpose of substantially lessening competition in the wholesale market for recorded music. The Full Court considered (at 47,382): In his analysis of the effect or likely effect of the exclusive dealing conduct of [Universal] and Warner, Hill J accepted that, if considered in isolation, the completed conduct of neither of them had, or would have been likely to have had, any real effect on competition. However, his Honour thought it necessary to view the conduct in conjunction with two other circumstances: first, the impact of knowledge of account closures upon other retailers; and, second, the fact that the conduct was discontinued only because of the intervention of the ACCC.

What is important for us at this stage is to consider what the Full Court

said concerning this first matter; that is, the impact of the knowledge that Universal and Warner were [page 72] threatening to close, and in fact did close, the accounts of those retailers who engaged in parallel importing. Music retailers needed to stock the brand of CDs produced by Warner and Universal in order to stay competitive. On this point, the Full Court went on to conclude (at 47,382–3): As to the first matter, we agree with the finding of Hill J that it was always inherently likely that word of the account closures would quickly spread through the industry. The amendments to the Copyright Act were widely known and extremely controversial. It can be assumed that everybody engaged in the Australian wholesale recorded music industry would have been aware of the amendments and the opportunity for parallel importation. Both [Universal] and Warner had taken steps to draw the attention of the retail account-holders to the changed situation. They had each made clear their desire for retailers not to avail themselves of their new right to parallel importation … Given that many retailers were banded together in buying cooperatives, it would have been difficult to prevent disclosure of an account closure, even if the distributor wished to do so.

In these circumstances, the Full Court accepted (at 47,385) that Warner and Universal’s purpose was to substantially lessen competition in the market by threatening to close retailer’s accounts if those retailers engaged in parallel importing. The threat was common knowledge in the industry and was intended to have a chilling effect on competition.

Evaluating SLC — the ‘future with and future without’ test 4.36 We have seen that other than the per se contraventions, only anticompetitive conduct that has a ‘substantial’ lessening effect on competition is prohibited by the Act. We have also seen that the term ‘substantial’ is difficult to identify beyond understanding that the conduct must have a ‘real and

weighty’ effect on competition. Conduct that is directed toward a single trader or a small number of traders will not ordinarily have the effect of substantially lessening competition in the market in which that trader or those traders compete. However, the exception is where the trader or traders offer(s) significant constraints on discretionary behaviour (market power) or where the conduct will deter or prevent future traders from engaging in competitive conduct. However, the central question remains: ‘How do you evaluate whether the conduct has the effect of substantially lessening competition in a market?’. Let’s explore this process. 4.37 The courts and the Tribunal apply what is known as the ‘future with and the future without test’ in evaluating whether conduct has the effect or likely effect of substantially lessening competition in a market. Essentially, the court looks to the future and engages in an evaluative exercise: what would the state of future competition in the market with the conduct be like when evaluated against the state of future competition in the market without the conduct. Hence, it is a future with and future without test. It is important to note that it is not a ‘before and after’ test. The court does not consider the state of competition in the market before the conduct and then consider the state of competition in the market after the conduct. 4.38 Although the ‘future with and future without test’ has its origins in the decision of the Full Court in the Outboard Marine Australia case, discussed above (see 4.31), the [page 73] more recent source of authority is the decision of the Full Court in Stirling Harbour Services Pty Ltd v Bunbury Port Authority (2000) ATPR 41-783; [2000] FCA 1381 where the Full Court affirmed and adopted the reasoning of

French J in the first instance decision ((2000) ATPR 41-752; [2000] FCA 38). At first instance, French J stated (at 40,731–2): It is critical to the applicant’s case under s 47 and s 45 that they show the conduct complained of on the part of the BPA … has the purpose, or has, or is likely to have the effect, of substantially lessening competition in the relevant market. In determining whether the proposed conduct has that purpose, effect or likely effect, the Court is not required to consider the present state of competition in the market against its projected state in the event the conduct occurs. It is rather a matter of considering a future state of competition in the market with and without the impugned conduct … This does not prevent reference to the present state of competition to illuminate the future state of the market where there may be a range of possibilities absent the impugned conduct.

On appeal, the Full Court affirmed this approach, stating (at 41,267): There was no dispute but that in determining whether the proposed conduct has the purpose, or has or is likely to have the effect, of substantially lessening competition in the relevant market, the Court has to: • •

consider the likely state of future competition in the market ‘with and without’ the impugned conduct; and on the basis of such consideration, conclude whether the conduct has the proscribed anticompetitive purpose or effect.

4.39 The Tribunal in Re VFF Chicken Meat Growers’ Boycott Authorisation (2006) ATPR 42-120 stated (at 45,062) that the ‘future with’ test is also referred to as the ‘factual’ test, whereas the ‘future without’ test is also referred to as the ‘counterfactual’ test. In fact, according to the Full Court in Australian Competition and Consumer Commission v Metcash Trading Ltd (2011) ATPR 42-380, both future scenarios (with and without the conduct) are called ‘counterfactuals’. It is important to understand that it is a forwardlooking test that involves attempting to evaluate the likely state of competition in the market in the future, with the conduct contrasted with the likely state of competition in the market in the future without the conduct. Because both scenarios have not yet eventuated, both necessarily involve counterfactual analysis. 4.40 The nature of the counterfactual analysis, its role in evaluating whether certain conduct might substantially lessen competition and the standard of proof that must be satisfied in establishing the counterfactual

analysis were explored by the Court at first instance and on appeal in Australian Competition and Consumer Commission v Metcash Trading Ltd (2011) ATPR 42-386 (first instance) and (2011) ATPR 42-380 (Full Court). In that case, Metcash Trading Limited entered into a contract with Pick n Pay Retailer Pty Ltd to purchase all of the issued share capital in a whollyowned subsidiary, Interfrank Holdings Pty Ltd. Interfrank Holdings owned the ‘Franklins’ brand of supermarkets in New South Wales, of which there were approximately 80 company-owned and 10 franchised stores. [page 74] Metcash sought informal clearance for the acquisition from the ACCC but was refused. The ACCC formed the view that the acquisition would be likely to substantially lessen competition in contravention of s 50 of the CCA. After Metcash completed its acquisition, the ACCC instituted proceedings in the Federal Court alleging a contravention of s 50 of the CCA. At first instance, the ACCC failed to establish its case. It appealed to the Full Court where it also failed. We will return to consider the Metcash decision in Chapter 11, in exploring s 50 of the CCA. However, for now it is important to understand what the courts in that case said about the nature of the ‘future with and future without’ test. The SLC threshold in ss 45(2), 47(10) and 50(1) are expressed in very similar terms; the relevant conduct is prohibited if it would have the purpose, effect, or be likely to have the effect of substantially lessening competition. The prohibition in s 50 does not contain the word ‘purpose’ and so an acquisition is prohibited if it ‘would have the effect or be likely to have the effect’ of substantially lessening competition in any market. The Metcash decisions are important because of the way the Courts interpreted the words ‘likely to have the effect’.

In Australian Gas Light Co v Australian Competition and Consumer Commission (No 3) (2003) 137 FCR 317; (2003) ATPR 41-966; [2003] FCA 1525, French J (as he then was) concluded (at [343]) that ‘likely’ refers to a ‘significant probability’ or ‘a real chance’ rather than ‘more probable than not’. In the Metcash case at first instance, the ACCC proposed a counterfactual scenario that in the market in the future without the acquisition, a consortium of independent retailers would buy the Franklins business. The ACCC argued that there was a ‘real chance’ that this counterfactual would come to pass and if it did, then the new consortium would be able to compete against Metcash in the market for the wholesale distribution of groceries in New South Wales and the Australian Capital Territory. In response, Metcash argued that the ACCC had applied the wrong test in establishing its counterfactual scenario. Metcash argued that the test was not whether there was a ‘real chance’ that the counterfactual would come about, but whether ‘on the balance of probabilities’ the counterfactual would come about. At first instance, Emmett J accepted this argument and held that the ACCC had not established that it ‘was more probable than not’ that the consortium of independent retailers would buy the Franklins business. Emmett J also found that the ACCC had not proven its market definition, with the result that whatever the standard to be applied to the ‘likely’ test, the acquisition would not substantially lessen competition. The ACCC appealed, arguing that Emmett J had erred in his conclusions both as to market definition and the standard or test to be applied in evaluating the counterfactual. In essence, the ACCC argued that the appropriate test to be applied was the ‘real chance’ test. As it happened, the Full Court (Finn, Yates and Buchannan JJ) did not think it necessary to resolve the issue. Justice Yates, with whom Finn J agreed, concluded that whatever the test (‘more probable than not’ or ‘real chance’) the ACCC had not demonstrated ‘appealable error’. Yates J concluded (at [233]) that even on the ACCC’s ‘real chance’ test, it had not demonstrated that if Metcash were

prohibited from acquiring the Franklins business then in the market in the future, a consortium of independent buyers would acquire the business and compete with Metcash. [page 75] It is interesting to note that in obiter, Buchanan J did not think that the ‘real chance’ test was appropriate and agreed with Emmett J that the counterfactuals should be evaluated ‘on the balance of probabilities’. 4.41 So where does this leave us? In applying the future with and the future without test, is a party required to establish the counterfactual scenarios ‘on the balance of probabilities’ or must there be a ‘real chance’ that the counterfactuals will come about? Since the Full Court in Metcash expressly declined to answer the question, the decision at first instance on this point remains. Accordingly, a party must demonstrate to the court that its counterfactuals are ‘more probable than not’. For now, let’s examine two cases that demonstrate how the ‘future with and future without’ test is actually applied to evaluate allegedly anticompetitive conduct.

Illustration of the ‘future with and future without’ test 4.42 By working our way through the cases below, you will see how the ‘future with and future without’ test is applied in the course of evaluating whether conduct substantially lessens competition. Let’s start with Stirling Harbour Services Pty Ltd v Bunbury Port Authority (2000) ATPR 41-783; [2000] FCA 1381 and then move on to the decision of the Full Court in Universal Music Australia Pty Ltd v ACCC (2003) 131 FCR 529; (2003) ATPR 41-947; [2003] FCAFC 193.

Stirling Harbour Services

4.43 The Bunbury Port Authority (the Authority) managed the Port of Bunbury (the Port) in Western Australia. It was empowered to do so by the Port Authorities Act 1999 (WA) which gave the Authority wide powers to manage the Port. In 1986, the Authority entered into a contract with Elder-Price Marine Services Pty Ltd for the provision of towage services to the Port for a period of 14 years. That company was subsequently acquired by Stirling Harbour Services Pty Ltd. Stirling was, in turn, a wholly-owned subsidiary of Adsteam Industries. In 1998, the Authority gave Stirling two years’ notice of its intention to terminate Stirling’s towage services contract. The Authority intended to call for tenders for the provision of towage services to the Port and intended to offer the successful tenderer an exclusive licence for a period of five to seven years. In due course, Adsteam received the tender documents. It considered that the documents breached the Act and sought undertakings from the Authority that it would not go through with the tender process. When the Authority refused to give such undertakings, Adsteam and Stirling instituted proceedings against the Authority, alleging that the exclusive licence which the Port intended to offer the successful tenderer would have the effect of substantially lessening competition in the market and that it was a misuse of market power on the part of the Authority. The Court at first instance and on appeal rejected both these arguments. The parties accepted that the relevant product and geographic market was the provision of towage services in the Port of Bunbury. Stirling argued that the award of an exclusive licence would have the effect of foreclosing competition in the market. In effect, the licensee would be a monopolist supplier of towage services in the Port of Bunbury. [page 76]

In applying the future with and the future without test, the following considerations were relevant: •







If the grant of an exclusive licence (the conduct) did not occur, then in the future there would likely be only one provider of towage services in any case. This was because the Port was a form of ‘natural monopoly’. Because the market was only weakly contestable, and sunk costs high, it was unlikely that, in the future, a monopolist provider of towage services would be constrained by the threat of a new entry into the market. If the grant of an exclusive licence did occur, then in the future there would still be only one provider of towage services and that provider would be directly insulated from the threat of competitive entry. However, the tender process functioned as a proxy for competition in the Port in the future. Because the tender process was competitive, providers of towage services would compete to submit tenders offering the most competitive terms. If successful, these competitive terms would carry through the life of the exclusive licence. The successful tenderer could not then increase prices (and thus exercise market power) without the agreement of the Authority.

For these reasons, the Court at first instance and on appeal concluded that the tender process would have a competitive effect on the market in the future, when compared with the state of competition that would exist in the market in the future without the conduct.

Universal Music 4.44 The Full Court concluded that both Warner and Universal had engaged in exclusive dealing conduct in breach of s 47(1) of the Act. We will see in Chapter 9 that the form of exclusive dealing conduct which the two companies had participated in only breaches the Act if it has the purpose, effect or likely effect of substantially lessening competition in the market.

In this case, the Full Court found that the conduct by Warner and Universal did not have the effect of substantially lessening competition in the market, because the ACCC’s legal proceedings had effectively stopped it before it could pervade the market; however, the conduct did have the purpose of substantially lessening competition in the market. You will recall that Warner and Universal’s conduct involved threatening to close retailer’s accounts if those retailers engaged in the parallel importing of CDs. The threat was common knowledge in the industry and was intended to have a chilling effect on competition. In applying the ‘future with and the future without’ test to this case, the following considerations were relevant: 1.

2.

3.

If the conduct were to continue, then in the future intra-brand competition for the CDs under Warner and Universal’s label would be lessened. This lessening of intra-brand competition would be the effect of Warner and Universal’s conduct, which would prevent the entry of retailers who might import Warner and Universal label CDs and then sell them in competition in the wholesale market. The result would be to preserve the monopoly that Warner and Universal enjoyed in the supply of their labelled CDs to the Australian market. [page 77]

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However, if the conduct was stopped, then in the future Warner and Universal would face competition from retailers who directly imported CDs. This would have the effect of increasing intra-brand competition; that is, competition for Warner and Universal label music in the Australian market. When these two possibilities were evaluated, the Full Court concluded

(at 47,386): If a major supplier could hold the line against intra-brand competition from imports, it could determine in its own time whether to respond to competition from other suppliers and, if so, how to do this. We are satisfied this comfortable situation would apply to a significant proportion of available titles, and amount to a substantial lessening of competition in the market.

The s 50(3) merger factors 4.45 In assessing whether an acquisition of shares or assets substantially lessens competition, s 50(3) of the Act provides the court with a nonexhaustive list of factors it is to take into account. The merger factors in s 50(3) are also utilised by the ACCC in making its own evaluation of the competitive effects of an acquisition of shares or assets. We will consider each of the factors in s 50(3) in more detail in Chapter 11 when we specifically examine anti-competitive mergers and acquisitions. However, at this stage, it is useful to note that they represent a statutory ‘distillation’ of the factors the courts and the Tribunal have used over the years in assessing whether any conduct alleged to be in breach of the Act might have the effect or likely effect of substantially lessening competition in a market. Therefore, these factors can be a useful guide in evaluating the likely anticompetitive effects of non-merger behaviour. Section 50(3) provides: Without limiting the matters that may be taken into account for the purposes of subsections (1) and (2) in determining whether the acquisition would have the effect, or be likely to have the effect, of substantially lessening competition in a market, the following matters must be taken into account: (a) (b) (c) (d) (e)

the actual and potential level of import competition in the market; the height of barriers to entry to the market; the level of concentration in the market; the degree of countervailing power in the market; the likelihood that the acquisition would result in the acquirer being able to significantly and sustainably increase prices or profit margins; (f) the extent to which substitutes are available in the market or are likely to be available in the market; (g) the dynamic characteristics of the market, including growth, innovation and product

differentiation; (h) the likelihood that the acquisition would result in the removal from the market of a vigorous and effective competitor; (i) the nature and extent of vertical integration in the market.

Each of these matters has been considered by the courts and the Tribunal in determining the effect of conduct on competition in a market since each one influences whether a post-merger firm would be constrained if it attempted to exercise market power. [page 78] In a non-merger context, such as exclusive dealing, a court would not specifically apply the s 50(3) factors since the provision applies to mergers and acquisitions. However, the court could employ each of the factors in themselves as tools to investigate whether the exclusive dealing conduct had the effect or likely effect of substantially lessening competition in a market.

The merger factors and the ‘future with and future without’ test 4.46 Let’s briefly consider the way in which each of the merger factors discussed above, taken by themselves, might be used as part of the ‘future with and future without’ test in evaluating whether conduct has the effect or likely effect of substantially lessening competition in a market. Keep in mind that the ‘future with and future without’ test is a forwardlooking test. We are attempting to make an evaluation between two potential states of the market: one in the future with the conduct, and one in the future without the conduct. Each of the factors in s 50(3) therefore work together to ‘paint a picture’ of these alternative future states of the market, in order to determine: •

whether the conduct in question will substantially lessen competition



in the market in the future, or whether competition in the market in the future can act as a constraint on the conduct so that the conduct will not substantially lessen competition (the future with); and what the state of competition in the market in the future without the conduct would be like (the future without).

Actual and potential level of import competition 4.47 Anti-competitive conduct is unlikely to have the effect of substantially lessening competition in a market if there is direct or potential effective competition being offered by imported goods or services in that market. If a firm attempts to raise the prices for its goods or services above the competitive level, customers can substitute by purchasing the imported goods or services.

The height of barriers to entry 4.48 Barriers to entry represent obstacles that prevent a firm entering a market and offering effective competition to the incumbent firms. Anticompetitive conduct is unlikely to have the effect of substantially lessening competition in a market where new firms can enter the market in response to existing firms engaging in the allegedly anti-competitive conduct.

The level of concentration in the market 4.49 A market is concentrated when there are few firms offering goods or services. Competition in a market might be substantially lessened if the anticompetitive conduct by a firm is not constrained. The conduct is unlikely to be constrained if there are few firms offering substitutable goods or services that consumers can switch to.

The degree of countervailing power in the market 4.50 Countervailing power exists where the ‘other’ party to a transaction — such as a customer in relation to a retailer, a retailer in relation to a wholesaler or a wholesaler in

[page 79] relation to a supplier — has sufficient power to constrain any attempt by the other party to engage in anti-competitive conduct. Where there is significant countervailing power, competition in the market is unlikely to be substantially lessened.

Ability to significantly and sustainably increase prices and/or profit margins 4.51 We have seen that market power is the ability to engage in discretionary behaviour; that is, for a firm to ‘give less and charge more’ without the constraining influence of competitors. More specifically, if a firm can instigate a small, sustained and non-transitory increase in price (SSNIP), then it has some degree of market power. Anti-competitive conduct that enables a firm to significantly and sustainably raise its prices and profit margins without the constraints offered by competitors may lead to a substantial lessening of competition.

Extent to which substitutes are available 4.52 The existence of substitutable products in a market potentially constrains anti-competitive conduct by a firm. If the firm attempts to exercise market power by raising the prices for its goods or services, then consumers can swap over to those substitutable goods or services. In this way, the existence of the substitutes constrains the exercise of market power by the merged firm, and is therefore unlikely to substantially lessen competition.

The dynamic characteristics of the market 4.53 Markets in which there is healthy growth and change tend to prevent individual firms from accumulating market power. This is because new firms enter the market in response to changes, especially where there are low barriers to entry. In these circumstances, anti-competitive conduct by existing

firms is unlikely to substantially lessen competition where the market is dynamic and where actual or threatened entry by rival firms is possible.

The removal of a vigorous and effective competitor 4.54 Vigorous and effective competitors ensure a competitive market. Through their ability to quickly and effectively respond to price rises by existing firms, such competitors constrain attempts to exercise market power. A future market in which such competitors were absent might enable the anti-competitive conduct to substantially lessen competition.

The nature and extent of vertical integration 4.55 Firms that are integrated in a market exert an influence at several functional levels. For example, a firm may exercise both wholesaling and retailing functions, or it may be both manufacturer and distributor of products. Anti-competitive conduct by such firms may substantially lessen competition, especially if there are no other constraining influences.

Summary of principles from Baxter Healthcare 4.56 The Full Court in Australian Competition and Consumer Commission v Baxter Healthcare Pty Ltd (No 2) (2008) 170 FCR 16; (2008) ATPR 42-247; [2008] FCAFC 141 examined most of the recent case law concerning market definition, competition in a [page 80] market and market power, before drawing together a number of helpful propositions from the recent case law. The Court stated (at 49,486): A number of propositions emerge from these authorities: • •

a market is a field of actual and potential transactions between buyers and sellers amongst whom there can be strong competition; competition in a market is the sum of activity engaged in by persons in promoting the sale

• •

• • • •

to potential buyers of the goods with which that market is concerned; competition in a market may be ‘deliberate and ruthless’, one competitor injuring another by attracting sales; application of the concept of substantially lessening competition in a market requires an assessment of the nature and extent of the market, the probable nature and extent of competition but for the conduct in question, and the nature and extent of the contemplated lessening; the effect of conduct upon competition is not to be equated with its effect upon competitors, however the latter effect may be relevant to the former; the convenience of customers has never been treated as an important feature of market structure for the purposes of determining the state of competition in a particular market; whether changes in market concentration have the effect of lessening competition must be determined by reference to competitive characteristics in the market; and the effect of the elimination of a competitor must also be addressed by reference to such characteristics.

A common theme of substitution 4.57 By now you should start to see the emergence of a common theme. In assessing any conduct, the first step is to define the market for goods or services. The object of market definition is to discover the degree of market power held by the defendant firm. The existence of market power will have a direct effect on the level of competition in the market. This is because the existence of both market power and competition depend on the structure of the market. In assessing the structure of the market, we consider barriers to entry, market concentration, the character of vertical relationships, the degree of product differentiation and the nature of relationships between firms. A consideration of these factors will indicate whether the market encourages the development of market power or competitive forces. Market power means the ability to engage in discretionary behaviour, principally through pricing strategies (such as raising prices), but can also be indicated through the ability to impose non-price strategies, especially exclusionary strategies.

Where the market is such that market power may be developed, the issue is whether the conduct under analysis is likely to lead to a substantial lessening of competition (ss 45, 46, 47 and 50). 4.58 These concepts of competition and market power are therefore linked by the concept of substitution that is reflected in s 4E of the Act. A corporation cannot exercise market power unless it can engage in discretionary behaviour; that is, act independently of competitive constraints. [page 81] Those competitive constraints are the goods or services that are substitutable for, or otherwise competitive with, the firm’s goods or services. If the market is characterised by a structure that encourages the production of effective substitutes, then it is unlikely that the firm will be able to engage in discretionary behaviour. This is why the factors identifying competition and the existence of market power, outlined by the courts and the Tribunal to assist in market definition, are pretty much identical. An accurate definition of the boundaries of the market will reveal the existence and extent of any market power enjoyed by a firm in that market. The extent of that market power will influence the extent to which the firm might be able to lessen competition — and where that firm can substantially lessen competition, it will be in breach of many of the provisions of Pt IV of the Act.

Further reading P Armitage, ‘The Evolution of the ‘Substantial Lessening of Competition’ Test — A Review of the Case Law’ (2016) 44 ABLR 74 S Corones, ‘Substantial Lessening of Competition — Twenty Years On’ (1994) 22 ABLR 239

S Corones, ‘Analysing the Effect of Conduct on Competition’ (1993) 21 ABLR 371 H Ergas, ‘Stirling Harbour Services v Bunbury Port Authority: A Review of Some Economic Issues’ (2002) 10 CCLJ 27 D Grant, ‘Substantial Lessening of Competition’ [2002] NZLJ 155 A Merrett, ‘The Court Speaks for Itself: What Australian Decisions Say about Assessing Market Power for the Purposes of s 46 of the TPA’ (2004) 11 CCLJ 1 A Rahman, ‘The “Real Chance” Interpretation of “Likely”’ (2012) 40 ABLR 196

1. 2. 3.

C Kaysen and D Turner, Antitrust Policy, Harvard University Press, Cambridge, 1959, p 75. ACCC, Merger Guidelines, Commonwealth of Australia, Canberra, November 2008, p 10. Trade Practices Legislation Amendment Bill 1992, Explanatory Memorandum, p 4.

[page 83]

Chapter 5 Understanding Competition Law Cases

Overview This chapter is intended to: • • •

introduce you to several unique features that distinguish competition law cases from cases involving other areas of law; explore several techniques that will assist you in reading and understanding competition law cases; and illustrate the techniques that will assist you in reading and understanding competition law cases by reference to an actual competition law case that you will encounter throughout this text.

Introduction 5.1 Encountering a competition law case for the first time can seem a daunting experience. Competition law cases typically involve multiple parties, complex commercial arrangements and allegations that are resolved through a combination of statute and economic principles. Adding to the challenge is the fact that decisions of higher courts in applying economic principles to the

unique facts before it are not necessarily binding or even helpful to the resolution of later competition law cases before lower courts. Market dynamics can change dramatically and quickly. Despite these challenges, there are a number of techniques that can make the task of reading and understanding competition law cases easier. In this chapter we will explore these techniques, illustrating them by reference to an actual case you will encounter throughout this text. By systematically applying these techniques, your understanding of the factual, commercial, legal and economic elements of competition law cases will deepen.

What are the elements of a competition law case? 5.2 Every competition law case you will encounter in your academic or professional career involves certain common elements. In each case there will be: 1. 2.

a factual element; a commercial element; [page 84]

3. 4. 5.

a legal element; an economic element; and a resolution element.

These elements are interrelated and together represent the basic framework of a competition law case. How are these elements related? 5.3 The factual relationship of each party to each other party involved in the case will reveal the commercial basis of the conduct at issue; what is the commercial basis of the complaint, what are the economic ‘pressure points’ — that is why does the conduct negatively affect or hurt the applicant so much and what is the commercial advantage to the party engaging in the

conduct? Once these elements are established, the applicant will then allege that the conduct represents a legal breach of a particular provision of the Competition and Consumer Act 2010 (Cth) (CCA) (the Act). Most of the provisions of the Act require the conduct to satisfy a particular economic threshold; for example, that the conduct substantially lessens competition. The court then comes to a resolution of the legal and economic issues relevant to the case. The dimensions and significance of these elements of competition law cases will become clearer after a series of questions are asked and answered.

Relevant questions 5.4 A thorough understanding of competition law cases and their dimensions can be gained by asking a series of questions. Set out below are nine questions that I often ask when reading competition law cases that help my understanding of them. After setting out these questions, I will explain why I consider them helpful and illustrate how they work by reference to an actual case: 1. 2. 3. 4. 5.

6. 7.

What is the factual and commercial relationship between the parties to a case? What is the actual conduct complained of that is the subject of the case? What are the commercial implications of the conduct; that is, how and why does the conduct negatively affect or hurt the applicant? How is the conduct legally characterised in terms of the Act? What are the legal issues to be decided; that is, what are the prerequisites of the relevant sections of the Act said to be implicated by the conduct? Are there economic thresholds involved and, if so, what are these thresholds? What did each party argue?

8. 9.

How did the court resolve the dispute and what were the orders made? What is the significance (if any) of the decision; that is, what is the relationship of the case to the law? Does it add to, detract from, or simply continue the jurisprudence of a particular competition law issue or legislative provision?

Keep in mind that it will usually take several close readings of a case to comprehend it, so don’t expect to understand the decision in one sitting. I usually read competition law cases by writing answers to these questions above as I go along. Eventually, I have the framework for a case note that I can refer back to when preparing lectures (or this book!). For the moment, let’s look a little more closely at what each of these questions asks and why they are important in understanding competition law cases. [page 85]

How and why these questions are important to understanding competition law cases 5.5 Set out below is an explanation of how and why each of the nine questions above is important to an understanding of any competition law case. After this brief explanation, I will illustrate how they are applied to analyse a case that we will encounter throughout this text.

What is the factual and commercial relationship between the parties to a case? 5.6 Most competition law cases involve transactions between multiple parties across different functional levels of one or more markets. The answer to this question enables us to identify how the parties are related to each

other, and to eliminate those parties and arrangements that are not relevant to the issues. It enables us to identify where the parties sit in the supply chain in relation to each other. In turn, this enables us to identify the nature of the commercial relationship between them and the significance of that relationship.

What is the actual conduct complained of that is the subject of the case? 5.7 With this question, we identify the actual conduct the applicant has complained of and that is the basis of the complaint. We are not trying to understand the legal nature of the conduct but simply identify factually what has happened. Has company A cut off supply to company B? Is company A forcing company B to purchase products that it does not want to buy? Is company A undercutting company B’s price?

What are the commercial implications of the conduct? 5.8 The answer to this question enables us to identify the economic impact of the conduct complained of by the applicant. What is it about the conduct that hurts the applicant? How does the conduct complained of negatively influence the applicant? I sometimes refer to this as the economic ‘pressure point’; where is the pressure being applied? How does the conduct complained of benefit the entity engaging in that conduct? The answer to these questions also anticipates potential remedies that the applicant might want to seek that address the economic impact of the conduct complained of.

How is the conduct legally characterised in terms of the Act? 5.9 Having identified the actual conduct complained of and how that conduct negatively impacts on the applicant, the next question directs our attention to the legal characterisation of that conduct. If the applicant is to obtain a remedy it must establish that the conduct breaches one or more provisions of the Act. In turn, this requires us to match the conduct to the

provisions of the Act and characterise the conduct in terms of the Act. In this way, we can characterise company A’s product forcing conduct as ‘the practice of exclusive dealing’ referred to in s 47(2) of the Act. [page 86]

What are the legal issues to be decided? 5.10 Having identified the factual basis of the conduct complained of, how the conduct negatively impacts on the applicant and the relevant provisions of the Act that relate to the conduct complained of, the next step is to identify the legal requirements imposed by those provisions; that is, what do the sections of the Act require before a breach can be established? For example, s 47(2) requires an applicant to establish certain elements including a ‘supply upon condition’.

Are there economic thresholds involved? 5.11 In our earlier discussion of the economic concepts underpinning the Act (see 4.29), we noted that there are two basic thresholds that must be established before conduct breaches the Act; some conduct is prohibited per se, while most conduct is prohibited if it has the purpose, effect or likely effect of substantially lessening competition in a defined market. Identifying the relevant economic threshold alerts us to be aware of analysis relating to market definition and the application of the ‘future with and future without’ test (see 4.36).

What did each party argue? 5.12 Sometimes, but not always, a judgment will set out the arguments each of the parties to the case advanced in support of their position. This enables us to identify the parameters of the issues to be decided and what each party considered the most important factual, legal and economic issues

in dispute.

How did the court resolve the dispute and what were the orders made? 5.13 This is a very important question because the reasoning of the court influences the development of the legal and economic principles that underpin the Act. For example, we noted that in Australian Competition and Consumer Commission v Metcash Trading Ltd (2011) ATPR 42-380, the Full Court did not resolve the issue of the legal standard for evaluating the ‘counterfactual’ test and that in these circumstances the reasoning of the court at first instance remains on foot (see 4.40).

What is the significance (if any) of the decision? 5.14 This question follows on from the previous question. Does the reasoning of the court add to, detract from, or simply continue the jurisprudence related to the Act? Here we are looking for how the case ‘fits into’ the larger legal framework of the Act. For example, the decision of the High Court in Australian Competition and Consumer Commission v Flight Centre Travel Group Ltd (2016) 91 ALJR 143 carries important implications for the process of market definition and the relationship between principals and their agents. [page 87]

Working with the questions — a practical example 5.15 Let’s explore how these questions enable us to read and understand an important competition law case that involved allegations of contraventions of multiple provisions of the Act and that required the resolution of both legal and economic issues. There have yet to be any reported decisions following

the 2017 amendments to the Act and so the case example below necessarily addresses the pre-2017 legislative regime. These amendments most relevantly modify the s 46, ‘misuse of market power’ allegation and I will point out how the analysis will change under the post-2017 amendments. 5.16 In Monroe Topple & Associates Pty Ltd v Institute of Chartered Accountants in Australia (2002) 122 FCR 110; (2002) ATPR 41-879; [2002] FCAFC 197, the Institute of Chartered Accountants in Australia (ICAA) provided training and materials, support materials, examinations and certification for persons wishing to describe themselves as ‘chartered accountants’. Monroe Topple & Associates (MTA) and several other entities competed with the ICAA in providing support materials such as ‘User Guides’ and ‘Examination Guides’. Until 2000, the ICAA charged an enrolment fee for the training material and a separate fee for other support materials. In 2000, the ICAA decided to supply the training material together with the other support materials when a candidate paid their enrolment fee. MTA alleged the following: 1.

2.

In breach of s 46 of the Act, the ICAA misused its substantial degree of market power in the market for the supply of the service of admission to membership of the ICAA of persons as chartered accountants (the CA certification market). Following the amendments made by the Competition and Consumer Amendment (Misuse of Market Power) Act 2017 (Cth), MTA would no longer need to establish that the ICAA had ‘taken advantage’ of its alleged substantial degree of market power. After proving that that the ICAA possessed a substantial degree of market power, MTA would now be required to demonstrate that the conduct complained of had the purpose, effect or likely effect of substantially lessening competition. In breach of s 47 of the Act, the ICAA engaged in the practice of exclusive dealing by providing candidates with enrolment in the chartered accountant’s program on condition that those candidates also accept the training and other support materials.

3.

In breach of s 45 of the Act, the ICAA made a contract or arrangement with each student proposing to undertake a certain course of study which would have the effect or likely effect of substantially lessening competition.

This case is a good example of a complex set of facts giving rise to allegations of contraventions of multiple provisions of the Act, and involving different economic thresholds. For example, in order to establish a contravention of ss 45 and 47 of the Act, MTA must establish that competition in a relevant market has been substantially lessened by the ICAA’s conduct. For the purposes of establishing a contravention of s 46, MTA must also establish that the ICAA has a substantial degree of power in that market. [page 88]

Questions and case analysis 5.17 Let’s consider how the questions set out assist in comprehending the issues in the case outlined above.

What is the factual and commercial relationship between the parties? 5.18 The ICAA and MTA were competitors and there was no commercial relationship between them. This tells us that they both compete for customers (the students) and that any alleged anti-competitive conduct may relate to those customers and/or competition for those customers.

What is the actual conduct complained of that is the subject of the case? 5.19

MTA complained that the ICAA was providing candidates with

enrolment in the chartered accountant’s program on the condition that those candidates also accept the training and other support materials.

What are the commercial implications of the conduct? 5.20 Why would MTA be upset that the ICAA were providing candidates with support materials as part of their candidacy for the chartered accountant’s program? The answer is revealed when we remember that MTA and the ICAA competed in the sale of support materials. If students were given relevant support materials when they enrolled with the ICAA, what incentive would there be for them to buy support materials from other providers such as MTA? MTA’s argument therefore was that the ICAA’s conduct had the effect of foreclosing customers from buying support materials from MTA and, in doing so, would cause MTA’s income stream to evaporate.

How is the conduct legally characterised in terms of the Act? 5.21 MTA alleged that by engaging in the conduct it did, the ICAA breached ss 45, 46 and 47 of the Act.

What are the legal issues to be decided? 5.22 We have identified the factual basis of the conduct complained of, how the conduct negatively impacts on the applicant and the relevant provisions of the Act that capture the conduct complained of — in this case, ss 45, 46 and 47. The next step is to identify the legal requirements imposed by each of those provisions; that is, what do the sections of the Act require before a breach is established? For example, s 47(2) requires an applicant to establish certain elements including a ‘supply upon condition’. [page 89]

Are there economic thresholds involved? 5.23 In our earlier discussion of the economic concepts underpinning the Act, we noted that there are two basic thresholds that must be established before conduct breaches the Act; that is, some conduct is prohibited per se, while other conduct is prohibited only if it has the purpose, effect or likely effect of substantially lessening competition in a defined market. MTA would need to establish the existence of a market in which the ICAA possessed, and then took advantage of, a substantial degree of power (the s 46 argument) as well as the existence of a market in which the ICAA’s conduct substantially lessened competition (the ss 45 and 57 arguments). If MTA were taking action after the 2017 amendments, it would not need to establish that the ICAA had ‘taken advantage’ of its substantial market power, only that its conduct had the purposes, effect or likely effect of substantially lessening competition in the relevant market. Therefore, MTA would need to define a relevant market, identify the existence of market power and apply the ‘future with and future without’ test in demonstrating that the ICAA’s conduct substantially lessened competition in a relevant market.

What did each party argue? 5.24 Sometimes, but not always, a judgment will set out the arguments of each party. Monroe Topple involved an appeal decision by the Full Federal Court, and in these circumstances it is often necessary to piece together the arguments by reading different judgments. A good summary of MTA’s arguments is set out by Heerey J at (2002) ATPR 41-879 at 45,040–45,041.

How did the court resolve the dispute and what were the orders made? 5.25 This inquiry involves two questions: first, what did the court factually decide? (that is, did it dismiss or allow the appeal? Did it find for or against one or other of the parties?); second, as a matter of reasoning, why did the

court reach that decision? 5.26 In Monroe Topple, the Court dismissed the appeal. It concluded that MTA had not demonstrated that the reasoning of the primary judge was demonstrably erroneous thereby justifying intervention by an appellate court. Because this does not actually tell us anything about how the causes of action pleaded by MTA were resolved, it becomes necessary to analyse the Court’s reasoning concerning the s 45, s 46 and s 47 causes of action. As we undertake this analysis, keep in mind that a cause of action may fail because an essential legal or economic component is not satisfied. The lack of both these components played a role in the Monroe Topple decision. 5.27 First, MTA had to establish that the ICAA possessed a ‘substantial degree of power in a market’. This is both a legal and an economic requirement of s 46 of the Act. Then, in order to establish breaches of ss 45 and 47 of the Act, MTA had to establish that the ICAA had substantially lessened competition in a defined market. As I noted above, post 2017, if MTA was to succeed in its argument under s 46, it would be required to [page 90] demonstrate substantial lessening of competition. What this means is that if MTA were bringing this action post 2017, the threshold to establish a breach of ss 45(2), 46 and 47 of the Act is substantial lessening of competition. MTA attempted to define three separate markets: a ‘CA certification market’ for the supply of the service of admission to membership of the ICAA of persons as chartered accountants; a ‘certification market’ for the supply of certification as a member of a learned body of accountants; and a ‘CA support market’ for the supply of written course materials and other training support for candidates. 5.28

In terms of s 46, MTA alleged that the ICAA had a substantial degree

of power in the CA certification market and the certification market and that it had taken advantage of that power by ‘not permitting the supply of the services of enrolment, examination and certification to be separately priced or unbundled from the supply of support services’. It was alleged (at 45,040) that the purpose of this conduct by the ICAA was to eliminate or damage its competitors in the CA support market and/or deter or prevent persons from engaging in competitive conduct in the CA support market. The Court of Appeal agreed that although there was a certification market there was no CA certification market. However, because the Court found that the ICAA did not possess a substantial degree of power in the certification market, it was not necessary to resolve the issue of whether the ICAA possessed a substantial degree of power (at 45,044). Accordingly, MTA’s cause of action under s 46 failed. Why did the ICAA lack the requisite degree of power in the certification market? The ICAA was not the only provider of professional certification for chartered accountants. In fact, CPA Australia was a body that had almost three times as many members as the ICAA and thus constrained any attempt by the ICAA to engage in discretionary behaviour; that is, to exercise market power (at 45,045). If a respondent does not possess a substantial degree of market power (and thus cannot breach s 46) and if in a post-2017 competition law landscape s 46 is only breached if the conduct has the purpose, effect or likely effect of substantially lessening competition, then does this mean that it can also never breach prohibitions with an SCL threshold? Put another way, if a firm does not have a substantial degree of power in a market for the purposes of s 46, how can its conduct nevertheless substantially lessen competition for the purposes of s 45(2) or s 47? This conclusion does not automatically follow because it is possible for a firm to engage in conduct that has the purpose, effect or likely effect of substantially lessen competition in a market without that same firm also possessing a substantial degree of market power. That said, the 2017

amendments will require a closer analysis of this issue in the circumstances of each case. 5.29 In terms of s 45 of the Act, the Court of Appeal agreed that MTA had established the legal elements of a ‘contract, arrangement or understanding’ required by s 45. However, the Court went on to find that MTA could not establish that the purpose or effect of that contract, arrangement or understanding substantially lessened competition. The Court found (at 45,050) that the ICAA’s role in the CA support market as a competitor of MTA and other providers of support materials ceased and became one of ‘instructor, assessor, examiner and certifier’. Accordingly, it did not compete in the relevant market. [page 91] 5.30 In terms of s 47, the Court of Appeal found (at 45,049) that ‘there was no evidence of any condition which would have the effect that when Candidates obtained support services from the Institute, they were in any way inhibited from obtaining similar services from MTA or anybody else’. In other words, the Court found that there was no ‘supply upon condition’ required by the terms of s 47 of the Act. The ICAA had not told candidates, ‘In order for us to certify you as an accountant you must also acquire support materials from us’. Instead, the ICAA was also providing support materials when the candidates enrolled for certification. It did not prevent candidates from also acquiring support materials from MTA. As the Court found (at 45,049): ‘[A]t the time of supply to Candidates, they are perfectly free to decide whether or not to also acquire support material from MTA …’. Because the Court found that there was no ‘supply upon condition’ for the purposes of s 47 of the Act, it concluded that there was no reason to explore whether the conduct had the purpose or effect of substantially lessening competition.

What is the significance (if any) of the decision? 5.31 There are several very interesting issues that this appeal decision highlights. In no particular order, the decision focuses attention on: • • • • •

the extent to which ownership of intellectual property rights can constitute a discrete market for the purposes of the Act (at 45,044); whether market power can flow from the use of intellectual property rights taking the form of certification systems (at 45,044); the role of ‘predatory pricing’ in the context of differential pricing schemes (at 45,047); the difference between ‘bundling’ and a supply on condition (45,049); and making the careful distinction between ‘issues of purpose and effect with that of condition’. Anti-competitive behaviour may be motivated by certain purposes and intended to achieve certain effects. However, unless the statutory requirements (the need for a supply on condition) are satisfied, purposes or effects are not sufficient to establish a breach (at 45,049).

Summary 5.32 It may seem that the process of reading and understanding competition law cases is a daunting task. However, with a reading plan and time, any case can be broken down and understood. In this chapter, and summarised below, I have set out a framework by which you can analyse competition law cases and gain an understanding of the legal and economic principles underpinning Australian competition law: 1.

Every competition law case you will encounter in your academic or professional career involves certain common elements. In each case, there will be factual, commercial, legal, economic and resolution elements. These elements are interrelated and together represent the

2.

basic framework of a competition law case. How does this work? The factual relationship of each party to each other party will reveal the commercial basis of the conduct at issue; what is the commercial basis of [page 92]

3.

4.

the complaint and why does the conduct negatively affect or hurt the applicant so much? The applicant will then allege that the conduct represents a legal breach of a particular provision of the Act. Many of the provisions of the Act require the conduct to satisfy a particular economic threshold; for example, that the conduct substantially lessens competition. The court then comes to a resolution of the legal and economic issues relevant to the case. A thorough understanding of competition law cases and their dimensions can be gained by asking a series of questions. The following nine questions enable an accurate understanding of the factual, legal and economic issues relevant to any competition law case: (a) What is the factual and commercial relationship between the parties to a case? (b) What is the actual conduct complained of that is the subject of the case? (c) What are the commercial implications of the conduct; that is, how and why does the conduct negatively affect or hurt the applicant? (d) How is the conduct legally characterised in terms of the Act? (e) What are the legal issues to be decided; that is what are the prerequisites of the relevant sections of the Act said to be implicated by the conduct? (f) Are there economic thresholds involved and, if so, what are these

5. 6.

7.

8.

thresholds? (g) What did each party argue? (h) How did the court resolve the dispute and what were the orders made? (i) What is the significance (if any) of the decision; that is, what is the relationship of the case to the law? Does it add to, detract from, or simply continue the jurisprudence of a particular competition law issue or legislative provision? It was explained how these questions operate by applying them to the decision of the Full Federal Court in Monroe Topple. By systematically working through each of these questions, we were able to deconstruct the reasons for the Full Court’s decision that the ICAA had not taken advantage of market power in breach of s 46 of the Act, engaged in exclusive dealing in breach of s 47 of the Act, or created a contract arrangement or understanding that substantially lessened competition in breach of s 45 of the Act. By examining ss 45, 46 and 47 of the Act, we were able to understand how and why both the legal and economic requirements were, or were not, satisfied. Finally, we were able to speculate on other issues of law and economics that the decision raised.

[page 93]

Chapter 6 Application of the Competition and Consumer Act 2010 (Cth) Overview This chapter is intended to: •

• • • • •

explain how the Competition and Consumer Act 2010 (Cth) (CCA) (the Act) applies to various trading entities (corporations, the Crown, government authorities, non-incorporated entities and individuals); consider how the Act captures the activities of trading and financial corporations; explore how the Act applies to the Crown in right of the Commonwealth, states and territories; see how recent amendments to the Act capture the activities of local government bodies; examine how the Act applies to the activities of non-incorporated entities and individuals; and provide resources for further reading.

Introduction 6.1 Most of the provisions in Pt IV of the Act are drafted to apply to corporations. However, while corporations comprise a very significant portion of the economy, other trading entities make important contributions to the efficient functioning of the market. Unincorporated sole traders, partnerships, the federal and state Crowns (either directly or through government business enterprises), and local government entities all trade in the market and compete with private corporations. While a corporation is principally liable for a contravention of the Act, we need to consider how a corporation can be held responsible for the actions of its directors, employees and agents, and whether those directors, employees and agents can also be liable under the Act for their conduct on behalf of their corporate employer. The Hilmer Report,1 in 1992, noted the existence of several ‘gaps’ in the application of the Trade Practices Act 1974 (Cth) (TPA). There were two significant gaps: the first [page 94] concerned the ongoing existence of the doctrine of ‘shield of the Crown’ that placed the Crown and its enterprises beyond the reach of the Act; the second concerned non-incorporated entities. Sole traders, partnerships and other non-corporate entities were also beyond the reach of the Act. With the introduction of the Competition Policy Reform Act 1995 (Cth) (CPRA), these gaps in the TPA, now the CCA, were addressed. In this chapter, we will examine how the Act applies to the various trading entities in the Australian economy. We will explore how the Act applies to: • •

trading and financial corporations; the Crown and its authorities;

• • •

local governments; non-incorporated entities, such as sole traders and partnerships; and the directors, employees and agents of these entities.

Why did these gaps exist? 6.2 The principal difficulty with the universal application of the Act continues to be the lack of an express constitutional head of power, enabling the Federal Government to make laws with respect to restrictive trading practices. The Federal Government has tried, of course. In Chapter 1, we saw that, after Federation, the newly formed Federal Government of the time unsuccessfully attempted to regulate for restrictive trading practices. The Australian Industries Preservation Act 1906 (Cth) represented an early attempt to protect Australian industries by prohibiting certain forms of trading conduct. Without any express power in the Constitution concerning ‘trade practices’, this early legislation was successfully challenged in cases such as Huddart Parker & Co Pty Ltd & Appleton v Moorehead (1909) 8 CLR 330 and Strickland v Rocla Concrete Pipes Ltd (1971) 124 CLR 468. 6.3 With the abolition of the ‘reserved powers’ doctrine by the High Court in Amalgamated Society of Engineers v Adelaide Steamship Co Ltd (Engineers’ Case) (1920) 28 CLR 129, the Act’s principal constitutional support is found in the corporations power in s 51(xx) of the Constitution. Other heads of power in support are the interstate trade and commerce power in s 51(i), the overseas trade and commerce power in s 51(i), the territories’ power in s 122 and the individuals’ power in s 51(xxxix) of the Constitution. 6.4 Before the CPRA, individuals, sole traders and government business enterprises were considered beyond the reach of the Act. While the Act now applies to these entities, the way in which it applies is complex and somewhat technical. How the Act applies to these entities will be considered below.

It will be easiest to first consider the application of the Act to corporations before examining the application of the Act to other trading entities. [page 95]

Application to corporations 6.5 Corporations are the principal trading entities regulated by the Act. Section 4(1) of the Act defines ‘corporation’ to mean a body corporate that: (a) is a foreign corporation; (b) is a trading corporation formed within the limits of Australia or is a financial corporation so formed; (c) is incorporated in a Territory; or (d) is the holding company of a body corporate of a kind referred to in (a), (b) or (c).

The decision in Strickland v Rocla Concrete Pipes Ltd put beyond doubt the validity of Parliament to utilise the trade and commerce power to regulate the trading and financial activities of corporations. This is reflected in the various provisions of Pt IV of the Act that were drafted to prohibit corporations from engaging in certain forms of anti-competitive conduct.

What is a ‘trading or financial corporation’? 6.6

A ‘financial corporation’ is defined in s 4 to mean:

… a body corporate that carries on as its sole or principal business the business of banking (other than State banking not extending beyond the limits of the State concerned) or insurance (other than State insurance not extending beyond the limits of the State concerned).

The essential feature which identifies a financial corporation is that it engages in the conduct of dealing in finance: State Superannuation Board (Vic) v Trade Practices Commission (1982) 150 CLR 282. 6.7 In Hughes v Western Australian Cricket Association (Inc) (1986) ATPR 40-748, the Court condensed a number of principles which are relevant to the issue of whether a corporation is a ‘trading corporation’:









The mere fact that a corporation trades does not mean that it is a trading corporation: R v Trade Practices Tribunal; Ex parte St George CC (1974) 130 CLR 533 (St George County Council). The purpose test, established in St George County Council above, is no longer valid. The test now used is based on the current activities of the corporation: State Superannuation Board (Vic) v Trade Practices Commission. The current activities test is not the sole criterion for determining whether a corporation is a trading corporation. Even where a corporation has not yet started to trade, its character may be found in its constitutions: Fencott v Muller (1983) 152 CLR 570. There are a variety of views about the necessary extent of trading. In R v Judges of the Federal Court of Australia and Adamson; Ex parte WA National Football League (Inc) (1979) 143 CLR 190 (Adamson), a number of views were expressed: the trading [page 96]

• •

• •

activities must form a sufficiently significant proportion of the corporation’s overall activities; the trading activities should not be insubstantial; and the corporation must carry on trading activities on a significant scale. An unincorporated sporting body can be a trading corporation if its activities meet the required test: Adamson. Incorporation under a statute such as state Associations Incorporation Acts does not prevent a corporate body from being a trading corporation. Trading denotes the activity of providing goods and services for reward. Although the TPA draws a distinction between trading corporations and financial corporations, the two classes are not mutually exclusive.

These principles have been consistently applied in considering the application of the Act to a particular corporation. In E v Australian Red Cross Society (1991) 27 FCR 310; (1991) ATPR 41-085, the Australian Red Cross Society and the Royal Prince Alfred Hospital were held to be trading corporations. In Australian Beauty Trade Suppliers Ltd v Conference & Exhibition Organisers Pty Ltd (1991) 29 FCR 68; (1991) ATPR 41-107, a trade association which operated through its members unpaid labour and which had organised an annual trade fair, was held to be a trading corporation. 6.8 The following trading entities have been held to be ‘trading corporations’ within the meaning of the term in s 51(xx) of the Constitution: • • • •

state statutory corporations (see Commonwealth v Tasmania (1983) 158 CLR 1); hospitals incorporated by statute and owned by the government (see E v Australian Red Cross Society); universities (see Quickenden v O’Connor (2001) 109 FCR 243); and non-profit organisations: see Orion Pet Products Pty Ltd v RSPCA (Vic) (2002) 120 FCR 191; (2002) ATPR (Digest) 46-223; [2002] FCA 860.

Accordingly, the High Court in New South Wales v Commonwealth (2006) 229 CLR 1; [2006] HCA 52 confirmed (HCA at [178]): … the regulation of the activities, functions, relationships and the business of a corporation described in that sub-section, the creation of rights, and privileges belonging to such a corporation, the imposition of obligations on it and, in respect of those matters, to the regulation of the conduct of those through whom it acts, its employees and shareholders and, also, the regulation of those whose conduct is or is capable of affecting its activities, functions, relationships or business … [the corporations power] ‘extends to laws prescribing the industrial rights and obligations of corporations and their employees and the means by which they are to conduct their industrial relations’.

The application of the Act to the activities of trading and financial corporations is well settled.

Imputing conduct and intention to a corporation 6.9

It is usually the case that the conduct which is said to be in breach of

the Act has been carried out by a corporation. However, of themselves, corporations cannot think or act. This means that for the corporation to be liable, it must be held accountable for the conduct of its directors, employees or agents. There are a variety of common law tests which assist in imputing to a corporation the conduct of its directors, employees or agents. [page 97] Likewise, the criminal cartel regime established by Pt IV Div 1, and that we will explore in Chapter 7, requires intention to be imputed to a corporation that is alleged to have created or given effect to a cartel. Section 84 of the Act contains mechanisms by which conduct and intention can be imputed to corporations. 6.10 Section 84 does two things. First, s 84(1) provides that, for the purposes of the cartel regime created by Pt IV Div 1 and where it is necessary to establish the state of mind of a body corporate, it is sufficient to show that a director, employee or agent, acting within the scope of that person’s actual or apparent authority, had the relevant state of mind. Second, s 84(2) provides that any conduct engaged in on behalf of a body corporate: (a) by a director, employee or agent of the body corporate within the scope of the person’s actual or apparent authority; or (b) by any other person at the direction or with the consent or agreement (whether express or implied) of a director, employee or agent of the body corporate, where the giving of the direction, consent or agreement is within the scope of the actual or apparent authority of the director, employee or agent; shall be deemed, for the purposes of this Act, to have been engaged in also by the body corporate.

6.11 Section 84(2) is a mechanism that permits the conduct of a director, employee or agent of a corporation to be imputed to that corporation. It is important to note that s 84(2) does not create a scheme of vicarious liability. Vicarious liability imputes liability and not conduct. Section 84(2)

imputes conduct but not necessarily liability. For example, if company A is vicariously liable for employee B, then company A is responsible for the conduct of employee B. It does not mean that company A has also engaged in the conduct of employee B. Section 84(2) will deem company A to have also engaged in the conduct of employee B, but that conduct may or may not constitute a breach of the Act. Liability is not guaranteed. 6.12 In relation to knowledge, the High Court in Krakowski v Eurolynx Properties Ltd (1995) 183 CLR 563; 130 ALR 1 stated (ALR at 15): Their knowledge was the knowledge of Eurolynx, for they were the persons who were responsible for the initial negotiations … A division of function among officers of a corporation for different aspects of the one transaction does not relieve the corporation from responsibility determined by reference to the knowledge possessed by each of them.

In Walplan Pty Ltd v Wallace (1985) 63 ALR 453; (1986) ATPR 40-650, the Court stated (ALR at 463): Subsection 84(2) is an enlarging provision of general application under the Act. It extends to proceedings, both civil and criminal, and is designed to eliminate the necessity to apply the various and at times divergent tests of the common law relating to a corporation’s responsibility for the acts of its servants or agents. It extends those common law principles in order to facilitate proof of a corporation’s responsibility.

Several difficult issues present themselves in the application of s 84(2) to particular circumstances. First, what is the position where a person is a director of multiple and [page 98] related corporate entities? If the director engages in anti-competitive conduct, does this mean that such conduct is attributed to all corporate entities associated with that director? Second, what is the position with subsidiary companies and their parent, holding companies? If a director of a corporate entity engages in anti-competitive conduct and that corporate entity is a

subsidiary within a group of corporations under the overall direction and control of a holding company, does s 84(2) deem the conduct of the director of the subsidiary company also to be the conduct of the ultimate holding company? The first issue may arise when a person is a director or board member of multiple corporate entities, especially in the context of trade associations. In ACCC v Australian Egg Corporation Ltd (2017) ATPR 42-553, the ACCC had instituted proceedings against Australian Egg Corporation Limited (AECL), Farm Pride Foods Pty Ltd (Farm Pride) and Ironside Management Services Pty Ltd t/a Twelve Oaks Poultry (Ironside). Both Farm Pride and Ironside were members of the AECL. The ACCC alleged that the AECL, Farm Pride and Ironside had encouraged egg producers to enter into a cartel arrangement for the purpose of restricting the production and wholesale supply of eggs. The ACCC also alleged that the conduct of several present and former directors of Farm Pride and Ironside who were also board members of the AECL during a summit meeting, could be deemed to also be the conduct of Farm Pride and Ironside. The Full Court disagreed, holding that while the conduct of the directors was also deemed to be the conduct of the AECL, it could not be deemed also to be the conduct of Farm Pride and Ironside. The reason appears to be that during the summit in question, the directors were explicitly acting in their capacity as members of the AECL Board and not as directors of their respective companies. Both at first instance and on appeal, the ACCC failed to establish that the AECL and member corporations had attempted to induce the creation of a cartel. We will return to this case in Chapter 7. The second issue may arise when a person is a director of an Australian subsidiary of an overseas group of corporations, or a subsidiary of an Australian group of corporations. In Consolo Ltd v Bennett (2012) 207 FCR 127, the Full Court considered whether the holding companies of various subsidiaries could be held liable under s 84(2) for the misleading and

deceptive conduct of those subsidiaries. The Full Court recognised the general principle that holding companies are separate corporate entities from their subsidiaries and that s 84(2) did not abrogate that principle by dissolving the corporate veil between subsidiary and principal. Curiously, the Full Court also admitted the possibility that s 84(2) could in fact operate to attribute the conduct of a subsidiary to also be the conduct of the principal. However, the Court did not then explain how, simply stating that pleading a mere commonality of commercial interest between subsidiary and principal was insufficient. These observations were adopted by the Court in ACCC v Prysmian Cavi E Sistemi Energia SRL (No 12) (2016) ATPR 42-525 at [220]. The Court also provided (at [215]–[218]) a helpful summary of the general principles associated with s 84(2). [page 99]

Application to the Crown 6.13 From the late 1980s and into the 1990s, successive Australian governments began a process of deregulation and privatisation of selected sectors of the economy. Strict government control over industries such as electricity, gas and telecommunications were relaxed, and private corporations were encouraged to enter into these industries and compete. The idea was that consumers would benefit from increased competition offered by new entrants following deregulation of a given industry. As Dixon observed in the Hilmer Report (p 119): There is an emerging trend of corporatisation of the commercial, developmental and financial functions of government, either by establishing a GOC [government-owned corporation] under a constituting enactment, or by incorporating it under the Corporations Law. The objectives in establishing GOCs are to improve the government’s economic performance and the delivery of its social objectives. GOCs have a predominantly commercial focus. They are intended to operate as businesses engaging in competitive commercial activities in the market alongside private

enterprises.

The Hilmer Report noted that because of constitutional limitations to the TPA, state government business enterprises (GBEs) appeared to be beyond the reach of the Act. This gave them a competitive advantage over their private-sector rivals. With the CPRA, the TPA was amended so that it applied to the Crown in right of the states and territories in so far as the Crown was ‘carrying on a business’ either directly or through an authority. The idea was to remove the ability of state GBEs to engage in anti-competitive conduct at the expense of private corporations by claiming immunity from the application of the TPA. 6.14 These amendments raise several questions: What is ‘the Crown’? And what kind of activities does it engage in to which the CCA would apply? Does the Crown engage in conduct in trade or commerce in competition with private corporations? Is the Crown exposed to the same penalties and sanctions under the Act as private corporations?

What is ‘the Crown’? 6.15 In its 2001 report, The Judicial Power of the Commonwealth, the Australian Law Reform Commission (ALRC) noted: 22.3 In the Australian federal context, the term ‘Crown’ does not refer to a single entity, but to the executive government of nine polities — the Commonwealth, the six States and the two internal self-governing Territories. In practical terms, the Crown refers to the collection of individuals and institutions that exercise the executive functions of each of these governments. The law sees these individuals and institutions as agents of the Crown and many executive functions as acts of the Crown [notes omitted].2

[page 100] In Australia, ‘the Crown’ refers to the executive government of the Federal Government and the Governments of Queensland, New South Wales, Victoria, South Australia, Western Australia, Tasmania, the Australian

Capital Territory and the Northern Territory.

The Crown in right of the Commonwealth 6.16 In 1977, the TPA was amended to include s 2A, which was designed to apply the Act to the activities of the Crown in right of the Commonwealth. In its current form, s 2A of the Act binds: … the Crown in right of the Commonwealth in so far as the Crown in right of the Commonwealth carries on a business, either directly or by an authority of the Commonwealth.

In Thomson Publications (Aust) Pty Ltd v Trade Practices Commission (1979) ATPR 40-133; 27 ALR 551, the Court stated (ALR at 567): Section 2A provides that, subject to irrelevant exceptions, the Act binds the Crown in the right of the Commonwealth in so far as the Crown in right of the Commonwealth carries on a business, either directly or by an authority of the Commonwealth. The plain inference to be drawn from the provisions of s 2A is that prohibitions … do not bind instrumentalities or agents of the Crown in right of the Commonwealth except in so far as they carry on a business.

The Crown in right of the states Background 6.17 When enacted in 1974, the TPA did not expressly state whether the Crown in right of either the Commonwealth or states was intended to be bound by its terms. This gap was noted by the Swanson Committee in 1976, when it recommended that: … the Commonwealth Government should be prepared to accept for itself, in relation to its commercial activities, restrictions which it places on others. The same standards of commercial conduct are clearly as appropriate for officers of the Government as for persons in less protected positions.3

6.18 The result was that, in 1977, s 2A was inserted into the TPA. This meant that the anti-competitive provisions in Pt IV applied to the Crown in right of the Commonwealth. Although the Swanson Committee suggested that the provisions of Pt V of the Act should also be applied to the Commonwealth, this recommendation was not adopted. As a matter of

interest, the committee also invited the Federal Government to consider ways to enable the Act to apply to the Crown in right of the states, but this was not acted upon until 1995. Until 1996, Pt IV of the Act was held not to apply to the Crown in right of the states or to instrumentalities of the state. While s 2A of the Act specifically refers to the Crown in right of the Commonwealth, it does not refer to the Crown in right of the states. [page 101]

A principle of statutory interpretation 6.19 Historically, the king or queen of England could not be sued in the courts that he or she created. This prerogative of immunity from suit also rested on the doctrine that the king or queen could also do no wrong. During the 17th and 18th centuries, as effective power passed from the king or queen to parliament, those prerogatives were absorbed by parliament. Accordingly, the government was able to then assert the privilege of immunity from suit historically reserved for the king or queen. One of the presumptions recognised to flow from this privilege was that if a statute, either federal or state, did not expressly bind that Crown which had participated in its enactment, then it would be held to do so by implication only if such outcome was ‘necessarily’ implied. Such ‘necessary’ implication was present only if it was ‘manifest from the very terms of the statute’ that it had been the legislature’s intention that the enacting crown be bound. 6.20 Until recently, the leading decision concerning whether this immunity could be rebutted came from the decision of the Privy Council in Province of Bombay v Municipal Corporation of Bombay [1947] AC 58. A ‘necessary implication’ could be discovered only if it was ‘manifest from the very terms of the statute’ that it had been the legislature’s intention to bind the Crown.

The result was that, while Commonwealth government-owned corporations (GOCs) were subject to the TPA to the extent that those GOCs were ‘carrying on a business’ (see, for example, Tytel Pty Ltd v Australian Telecommunications Commission (1986) 67 ALR 433), state GOCs were immune. This was confirmed by the High Court in Bradken Consolidated Ltd v Broken Hill Proprietary Co Ltd (1979) 145 CLR 107 only two years after the amendments were introduced. In holding that the Crown in right of the state of Queensland (in the form of the Commissioner for Railways) was immune from the Act, the High Court held that, since the newly introduced s 2A did not specifically refer to the Crown in right of the states, this must have been the intention of Parliament. In addition, the High Court held that the independent company who had contracted with the Commissioner for Railways was, by extension, also immune from the provisions of the TPA. 6.21 This test was significantly modified by the later High Court decision in Bropho v Western Australia (1990) 171 CLR 1; 93 ALR 207 which required the issue to be approached by consideration of (ALR at 217): … the provisions of the statute — including its subject matter and disclosed purpose and policy — when construed in a context which includes permissible extrinsic aids.

While commentators agree that the decision in Bropho relaxed the application of the Bombay test, the High Court went on to state that this newer test would only apply to legislation enacted after the decision. The effect of the decision would not overturn the settled construction of existing statutes. This was confirmed only a year later when in State Government Insurance Corporation v Government Insurance Office of NSW (1991) ATPR 41-110; 101 ALR 259, the Federal Court confirmed (ALR at 306): [page 102]

The modification of the presumption would not, according to the High Court, have the effect of overturning the settled construction of particular existing legislation … In my opinion, however, whatever the fate of Bradken in the future, the continued operation of the presumption and the express provisions of s 2A of the Trade Practices Act in relation to the Crown in right of the Commonwealth, supports the continuing validity of the view that the Act is not intended to bind the Crown in right of the State or its agencies or instrumentalities.

6.22 Accordingly, subsequent decisions held that the TPA did not bind the Crown in right of the states: Jellyn Pty Ltd v State Bank of South Australia [1996] 1 Qd R 271; (1995) ATPR 41-404 and Woodlands v Permanent Trustee Company Ltd (1996) 68 FCR 213; (1996) ATPR 41-509. Therefore, the principle that applies in relation to the TPA is stated in the 1995 decision of the High Court in Jacobsen v Rogers (1995) 182 CLR 572; 127 ALR 159 (ALR at 162): It must, we think, now be regarded as settled that the application of the presumption that a statute is not intended to bind the Crown extends beyond the Crown in right of the enacting legislature to the Crown in right of the other polities forming the federation. Thus, in construing a Commonwealth statute, there is a presumption that it is not intended to bind the Crown in right of the various States as well as the Crown in right of the Commonwealth.

How ‘shield of the Crown’ applied to state GOCs pre-1995 6.23 Until 1995, the consequence of the High Court’s decision in Bradken was that state GOCs that were proper emanations of the Crown attracted ‘shield of the crown’ — immunity from the TPA. In determining whether a particular GOC could assert ‘shield of the crown’, the courts usually examined two issues: 1. 2.

whether the enabling statute expressly provided the GOC with immunity; and if the statute did not do so, was it parliament’s intention that the GOC be regarded as an emanation of the Crown, thus attracting immunity?

In answering the second question, the courts looked at the extent to which the GOC acted independently from the Crown; the more control exerted by the Crown over the GOC, the greater the presumption that the GOC could assert immunity. The position was put by the High Court in Superannuation

Fund Investment Trust v Commissioner of Stamps (SA) (1979) 26 ALR 99, where the Court stated (at 111): If a statutory corporation is essentially autonomous, its acts being in no sense the outcome of directions by the executive but truly its own, there will be little reason to clothe it with any of those immunities or privileges.

The fact that s 2A of the Act expressly referred to the Crown in right of the Commonwealth was significant because it lent force to the suggestion that the legislature did not intend the Act to apply to the state Crowns. This was a point made by the then Trade Practices Commission (TPC) in its submission to the Independent Committee of Inquiry into National Competition Policy in 1992–93 (the Hilmer Committee). According to the TPC: … there is no equivalent of s 2A applying the Act at the State/Territory level, which has the effect of excluding State and Territory businesses with Crown Immunity from the Act.

[page 103] The fact that the Act is silent on its application to the States and Territories may lend force to the argument that there is no intention to apply it to them.4

Review by the Hilmer Committee 6.24 When it came to review National Competition Policy in 1992–93, the Hilmer Committee noted the effects and limitations of both the Bradken and Bropho decisions in concluding that: … it is difficult to identify any obvious ‘public interest’ rationale for permitting such a blanket exception from conduct rules, particularly in light of the increasingly commercial orientation of many government-owned businesses.5

The committee, therefore, recommended that: … current limitations in the application of the competitive conduct rules arising from the Shield of the Crown doctrine be removed from the Crown in right of the Commonwealth, the States and Territories in so far as the Crown in question carries on a business or engages in commercial activity in competition (actual or potential) with other businesses.6

Amendments introduced by the Competition Policy Reform Act 1995 (Cth) 6.25 In response to this recommendation, the CPRA amended s 2 of the TPA in order to make it clear that the anti-competitive provisions in Pt IV apply to the Crown in right of each of the states and territories. There are several threshold conditions on the application of Pt IV of the Act, and these are discussed below. 6.26 The CPRA inserted ss 2B, 2C and 2D into the TPA. These amendments were designed to apply Pt IV (and other Parts) of the Act to the Crown in right of the states and territories. The principal section is s 2B. It applies Pt IV of the Act to the Crown in right of each state and territory: • •

in so far as either the Crown itself or an authority of the Crown; in so far as it carries on a business.

The scheme in s 2B requires a consideration of three issues: 1.

2. 3.

What is the entity that is engaging in the conduct said to be in breach of the Act? Is it the Crown directly engaged in the conduct or is it an ‘authority’ of the Crown? Is the Crown or the authority of the Crown ‘carrying on a business’? As part of question (2), does one of the ‘exceptions’ in s 2C apply?

An ‘authority’ of the Crown 6.27 The Act will apply to the Crown in so far as the Crown carries on a business either directly or through an authority. What is an ‘authority’ of the Crown? [page 104] Section 4 of the Act defines an ‘authority’ of both the Commonwealth and the state to mean either:

• •

a body corporate established by a Commonwealth or state statute; or an incorporated company in which either the Commonwealth or state, or a statutory corporation established by a Commonwealth or state statute, has a controlling interest.

In NT Power Generation Pty Ltd v Power and Water Authority (2004) 219 CLR 90; (2004) ATPR 42-021; [2004] HCA 48, the Power and Water Authority (PAWA) was established by the Power and Water Authority Act 1987 (NT) and was held to be an authority of the Crown in the right of the Northern Territory for the purposes of the TPA. 6.28 Where the Commonwealth or state Crown acquires a ‘controlling interest’ in a corporation already established under the Corporations Law, then that corporation will be an ‘authority’ for the purposes of the Act. Although the term ‘controlling interest’ is not defined, if the Crown holds more than 50% of the issued share capital in the corporation or controls the board, then it will enjoy a controlling interest. 6.29 When is an authority ‘the Crown’ for the purposes of the Act? The answer to this question depends on the degree of closeness between the authority and the Crown. Does the Crown exercise such a degree of control over the authority that it can properly be considered the ‘alter ego’ of the Crown? Essentially, the greater the degree of control exercised by the Crown over the authority, the greater the presumption that the authority is an emanation of the Crown; Superannuation Fund Investment Trust v Commissioner of Stamps (SA) (1979) 145 CLR 330; 26 ALR 99. 6.30 In determining whether a particular authority is entitled to ‘shield of the Crown’ immunity, the state will need to examine the degree of closeness that the relevant authority has to the Crown. The authority will need to determine whether its structure and function make it part of the Crown. In Kinross v GIO Australia Holdings Ltd (1994) 55 FCR 210; (1995) ATPR 41-402, the Court said that, in answering that question, it is necessary to

consider: • • • • • •

the terms of the legislation which creates the relevant authority; the degree of control exercised by the relevant minister; who appoints/dismisses members of the authority; to what body does the authority report; where the authority’s profits go; and the extent to which the GBE carries on traditional governmental activity.

These factors were referred to by Finkelstein J in NT Power Generation Pty Ltd v Power and Water Authority (2002) 122 FCR 399; (2003) ATPR 41-909; [2002] FCAFC 302. His Honour stated (at [126]): If the Crown is able to control the activities of the corporation (whether directly, by instruction or direction, or indirectly, pursuant to a power to remove those in control of its operations otherwise than for misconduct or incapacity) the corporation will usually be the alter ego of the Crown. So in every case where the question arises it is necessary to examine the nature and degree of control that the Crown exercises over the corporation. If the corporation is subject to the same control as a government department it is likely to be the alter ego of the

[page 105] Crown. If the corporation is largely free of ministerial control, then it is unlikely to be the Crown’s alter ego.

Carrying on a business 6.31 When does an authority carry on a business? Section 4 defines ‘business’ to include a ‘business not carried on for profit’. While this is not particularly helpful, Mason J in Hope v Bathurst City Council (1980) 144 CLR 1; 29 ALR 557 explained that the concept ‘business’ means (ALR at 582): … activities undertaken as a commercial enterprise in the nature of a going concern, that is, activities engaged in for the purpose of profit on a continuous and repetitive basis.

One question that arises in this context is this: ‘Must the authority be carrying on a business in the actual conduct complained of?’ In NT Power

Generation Pty Ltd v Power and Water Authority (2004) 219 CLR 90; (2004) ATPR 42-021; [2004] HCA 48, it was alleged that PAWA had taken advantage of its substantial degree of market power in refusing NT Power access to the electricity distribution infrastructure that PAWA owned and managed. NT Power needed access to this infrastructure (the electricity grid and wires) in order to transmit and sell the electricity it produced at its Mt Todd station. In response, PAWA argued that it was not ‘carrying on a business’ for the purposes of s 2B of the TPA because it was not in the business of providing the service of access to its infrastructure. This argument was accepted both at first instance and by a majority of the Full Court on appeal. On further appeal, the High Court reversed the decisions, holding that, while the conduct alleged to breach the Act must be carried out in the course of carrying on a business, the conduct itself need not be the actual business engaged in. Accordingly, PAWA was carrying on an extensive business in the sale of electricity and the use of its infrastructure was an essential part of that business. The High Court concluded (at [172]): In short, PAWA’s denial of access to its infrastructure to NT Power, for no reason of want of capacity or technical difficulty or safety, but simply in order to protect its revenue position in relation to electricity sales, was conduct designed to secure PAWA’s position as part of its carrying on of a business.

A good illustration of these principles is found in the first instance decision in ACCC v Australian Egg Corporation Limited (2016) ATPR 42-519. We have already explored some aspects of the Full Court decision above in the context of s 84(2). However, at first instance, the AECL argued that it was an emanation of the Crown in right of the Commonwealth and could plead ‘shield of the Crown’ immunity from the Competition and Consumer Act 2010 (Cth). At first instance, the Court dismissed the argument, holding that the AECL was not an emanation of the Crown but even if it were, the Act would

still apply to it because the AECL was ‘carrying on a business’. The AECL did not appeal this aspect of the decision and so the reasoning of the Court at first instance stands as good law. Recall that the ACCC had instituted proceedings against the AECL alleging that it and several member corporations had intended to form a cartel restricting the supply of eggs. The AECL had been incorporated under the Corporations Act 2001 (Cth) as a company [page 106] limited by guarantee and described as an ‘industry owned’ rather than a government owned corporation. Its role was to represent its member egg growers and suppliers and to engage in research and development and marketing activities. Its relationship with the Commonwealth was largely governed by the Egg Industry Services Provision Act 2002 (Cth) pursuant to which the AECL entered into a ‘statutory funding agreement’ with the Commonwealth and that involved the Commonwealth providing the AECL with a certain amount of funding enabling it to carry out is functions. The Court at first instance concluded that despite these arrangements, the AECL was not an emanation of the Crown. Even though it received funding from the Commonwealth, it had not been established as a statutory corporation and the Commonwealth’s ability to directly exercise control over the AECL’s activities was limited. Since the AECL could not establish that it was an authority of the Crown, there was no need for the Court to investigate whether s 2B of the Act applied: the AECL was a corporation like any other. However, in obiter, the Court considered that even if the AECL was an emanation of the Crown, it was certainly ‘carrying on a business’ for the purposes of s 2B of the Act.

Exceptions

6.32 The Act will apply to the Crown in so far as the Crown is carrying on a business. However, s 2C(1)(c) then sets out seven transactions which are not to be considered as ‘carrying on a business’ for the purposes of s 2B: 1. 2. 3. 4.

5. 6. 7.

two parties acting for the same Crown, except where one is an authority of the Commonwealth or state (s 2C(1)(c)(i)); two parties acting for the same authority of the Commonwealth (s 2C(1)(c)(ii)); two parties acting for the same authority of the state or territory (s 2C(1)(c)(iii)); a transaction between the Crown in right of the Commonwealth and one or more non-commercial authorities of the Commonwealth (s 2C(1)(c)(iv)); the same sort of transaction as in (4) above, but in relation to the Crown in right of the state or territory (s 2C(1)(c)(v)); a transaction between two non-commercial authorities of the Commonwealth (s 2C(1)(c)(vi)); and the same sort of transaction as in (6) above, but in relation to the Crown in right of the state or territory: s 2C(1)(c)(vii).

Derivative Crown immunity 6.33 In its decision in Bradken Consolidated Ltd v Broken Hill Proprietary Co Ltd (1979) 145 CLR 107, the High Court held that since s 2A of the TPA did not refer to the Crown in right of the states, the Act did not apply to either the Queensland Commissioner for Railways or to third parties contracting to the Commissioner. The Crown in right of Queensland (in the form of the Commissioner for Railways) therefore enjoyed ‘shield of the Crown’ immunity, and the party contracting with the Queensland Commissioner for Railways enjoyed ‘derivative Crown immunity’. The other party to a contract with the Crown was consistently held to enjoy derivative Crown immunity: Woodlands v Permanent Trustee Company Ltd (1996) 68 FCR 213; (1996) ATPR 41-509.

[page 107] However, the decision of the High Court in Australian Competition and Consumer Commission v Baxter Healthcare Pty Ltd (2007) 232 CLR 1; (2007) ATPR 42-172; [2007] HCA 38 ended the existence of derivative Crown immunity. We will return to this decision in later chapters. For present purposes, in eliminating the existence of derivative Crown immunity, the High Court stated (at [64]): A conclusion that, in carrying on dealings with a government in the course of its own business, it enjoyed a general immunity not available to the government when the government was carrying on business itself would be remarkable. Such a conclusion would be impossible to reconcile with the object of the Act as now declared in s 2. Furthermore, such a conclusion would go far beyond what is necessary to protect the legal rights of governments, or to prevent a divesting of property, contractual and other legal rights and interests. As a result of changes to the Act since Bradken Consolidated, State and Territory governments no longer enjoy any general immunity from the Act.

Some points to note 6.34 Even if the conduct is caught by s 2B and Pt IV applies, it does not necessarily mean that the Crown or authority has breached the Act. Section 2B simply provides for a threshold test for the application of the Act. If that threshold is satisfied, the conduct in issue will be assessed under Pt IV. It is possible that, after this evaluation, the conduct might not be in breach of the Act. Another point to note is that s 2B(2) provides that if the Crown in right of a state is caught breaching Pt IV, then it will not be liable to prosecution or a pecuniary penalty. This sounds a bit odd, especially when s 2B(3) then says that this exception does not apply to an authority of the state or territory. This has never been tested in court. However, if conduct of an authority is caught and is a breach of Pt IV, then the following consequences seem to follow: •

The actual Crown is not liable for a penalty or prosecution, but may



be exposed to civil damages or injunctive relief. The actual authority (given that it is a separate legal entity) may be exposed to prosecution and penalties as well as to damages and injunctive relief.

Local governments 6.35 Prior to 2002, it was not especially clear whether and to what extent the TPA applied to local governments. The majority of the High Court in R v Trade Practices Tribunal; Ex parte St George CC (1974) 130 CLR 533 held that the St George County Council was not bound by the then Trade Practices Act 1971 because the council was not a ‘trading or financial corporation’. Established under the Local Government Act 1919 (NSW), the St George County Council did not, therefore, trigger the application of the Act. This narrow view of the corporations power was rejected by the later High Court decision in Judges of the Federal Court of Australia and Adamson; Ex parte WA National Football League (Inc) (1979) 143 CLR 190. However, while it is true that local councils are usually corporations established under the various Local Government Acts, doubts had been expressed as to whether the activities of a local government could be considered to be conduct ‘in trade or commerce’ as required by the Act. [page 108] In the context of local or municipal councils, the issue becomes whether a council’s trading activities form a sufficiently significant proportion of its overall activities as to justify its description as a trading corporation. If a council derives income predominantly from rates, levies, rents and other government grants or subsidies, it is unlikely to be considered to be engaging in trade or commerce. The Court in Mid Density Developments Pty Ltd v Rockdale Municipal

Council (1992) 39 FCR 579; (1993) ATPR (Digest) 46-100 concluded that, where a municipal council carries out statutory functions of government within its municipal responsibilities, it is not engaging in trading activity. The Court formed this view after finding that the majority of the council’s income was derived from municipal sources (such as rates). 6.36 Accordingly, it is doubtful whether some activities of shire councils could be considered conduct ‘in trade or commerce’ for the purposes of the Act. In 2002, the Productivity Commission recommended that Pt IV of the TPA apply to local government bodies. Accordingly, s 2BA was inserted by the Trade Practices Amendment Act (No 1) 2006 (Cth). Section 2BA states: (1) Part IV applies in relation to a local government body only to the extent that it carries on a business, either directly or by an incorporated company in which it has a controlling interest. (2) In this section: ‘local government body’ means a body established by or under a law of a State or Territory for the purposes of local government, other than a body established solely or primarily for the purpose of providing a particular service, such as the supply of electricity or water.

Local government bodies are now subject to Pt IV of the Act in so far as those local government bodies are carrying on a business, either directly or through their majority ownership in another corporation. 6.37 There are two points to note about s 2BA. First, there is no mention of an ‘authority’ of the local government. Second, there is no equivalent exemption from liability for pecuniary penalties or prosecution for an offence.

Application to non-corporate entities 6.38 Natural persons and non-incorporated entities can still be caught by the Act despite their lack of incorporation. Liability can attach in one of two ways: 1. 2.

through principal liability; or through ancillary liability.

Principal liability 6.39 A corporation or person may be principally liable for a contravention of the CCA where conduct engaged in directly contravenes the Act. That conduct may expose the person or corporation to either private action for damages (for example) under s 82, or to enforcement action being taken by the Australian Competition and Consumer Commission (ACCC) (the Commission). [page 109] In either case, Pt VI of the Act provides the innocent party and the Commission with rights of action against another party whose conduct directly contravenes the Act. There are two ways in which the ACCC can plead a cause of action against a person (an unincorporated entity) seeking to make that person principally liable for a contravention of the Act: 1. 2.

through the application of the ‘extended’ operation in s 6 of the Act; and through the application of the various state and territory Competition Codes.

Although, technically speaking, the Competition Codes are laws of the relevant state or territory, the ACCC, nevertheless, can attempt to establish personal liability under a Code in a similar way to that established under the Act. This will require some explanation in light of the High Court’s decision in Re Wakim; Ex parte McNally (1999) 163 ALR 270.

The ‘extended operation’ of the Act 6.40 Sections 5 and 6 of the CCA extend the operation of Pts IV and V of the Act to non-incorporated entities in certain circumstances. In particular, s 6 is a drafting mechanism designed to extend the application of the Act by relying on heads of power in the Constitution other than the corporations

power. Accordingly, s 6(3) extends the Act to individuals where the conduct involves the use of postal, telegraphic or telephonic services. In Haydon v Jackson (1988) ATPR 40-845, an agent was held personally liable for misrepresenting the profits of a motel which he was employed to sell, because the representations were made over the telephone. In Green v Ford (1985) ATPR 40-603, an unincorporated publisher was held liable for certain false representations which were made in a magazine which was then sent through the post.

Operation of the state and territory Competition Codes 6.41 In signing the Conduct Code Agreement (CCA), the various states and territories agreed to extend the competitive conduct rules contained in Pt IV of the Act to individuals and unincorporated entities, including local councils. This process also provided for the vesting of authority in the ACCC for Code enforcement, and for jurisdiction under the Code to be vested in the Federal Court. The procedure can be summarised in the following five-step process: 1. 2. 3. 4. 5.

the Conduct Code Agreement; state and territory application Acts — Competition Codes; capturing Commonwealth jurisdiction; vesting authority in the ACCC to enforce the Code; and vesting jurisdiction in the Federal Court to hear matters under the Codes.

6.42 The Conduct Code Agreement Clause 5 of the CCA requires participating states and territories to apply the Competition Code to their jurisdictions by way of application legislation. The term ‘Competition Code’ is defined in cl 1(1)(a) of the Act to mean the text in the ‘Schedule version of Pt IV of the Trade Practices Act’ (now the Competition and Consumer Act 2010 (Cth)). This Schedule version of Pt IV was introduced by the Competition Policy Reform Act 1995 (Cth) and is most of the text of Pt IV of the Act reworded to refer to persons rather than

corporations. It is appended to the end of the Act. [page 110] 6.43 State and territory Application Acts — Competition Codes As per cl 5 of the CCA, all participating states and territories have enacted application legislation giving force to the Schedule version of Pt IV of the Act. New South Wales was the first of the states to introduce its application Act which was called the Competition Policy Reform (NSW) Act 1995 (the New South Wales Application Act). All other states and territories enacted similar application legislation in 1995 or 1996, using the New South Wales Act as a model. The outline that follows is based on the New South Wales Application Act, but applies to all states and territories. Section 5 of the New South Wales Application Act gives force to the Competition Code by stating that the Competition Code text, as in force for the time being, applies as a law of New South Wales. Section 4 of the New South Wales Application Act then defines ‘Competition Code text’ to mean the Schedule version of Pt IV and the remaining sections of the Act, so far as they would relate to the Schedule version of Pt IV if the Schedule version of Pt IV were substituted for Pt IV of the Act. Section 8 of the New South Wales Application Act then states that the Competition Code applies to and in relation to: (a) (b) (c) (d)

persons carrying on business within [New South Wales], or bodies Corporate incorporated or registered under the law of [New South Wales], or persons ordinarily resident in [New South Wales], or persons otherwise connected with [New South Wales].

6.44 Capturing Commonwealth jurisdiction To ‘link in’ to Commonwealth jurisdiction, s 25 of the New South Wales Application Act

states that the Commonwealth laws apply as laws of the New South Wales jurisdiction in relation to an offence against the Competition Code as if that Code were a law of the Commonwealth. Section 25(2) makes it clear that an offence against the Competition Code is taken to be an offence against the laws of the Commonwealth, as if the Code were a law of the Commonwealth. 6.45 Vesting authority in the ACCC to enforce the Code Section 19 of the New South Wales Application Act then states that the authorities and officers of the Commonwealth, including the ACCC, the Australian Competition Tribunal and the National Competition Council, have certain powers to be conferred on them by the New South Wales Application Act. Section 27 then states that a Commonwealth law that applies because of s 25 and which confers on a Commonwealth officer or an authority (such as the ACCC) a function or power in relation to an offence against the Act, also confers on the officer or authority the same function or power in relation to an offence against the corresponding provisions of the Competition Code. In this way, the ACCC and its officers have authority to investigate and take action for contraventions of the New South Wales Competition Code as if it were a contravention of a Commonwealth Act. 6.46 Vesting jurisdiction in the Federal Court to hear matters under the Codes Part XIA of the Act facilitates the workings of the various Competition Codes and the Act. Section 150B of Pt XIA provides that the object of Pt XIA is to facilitate the application of the Competition Code. It attempts to do this by centralising enforcement of the state and territory Competition Codes. [page 111] An example of the way in which these various statutes interact to extend liability under Pt IV of the Act to unincorporated entities is found in CSR Ltd v Chuwar Transport Pty Ltd (unreported, FCA, Drummond J, 29 August

1996). Although the matter concerned an interlocutory application for injunctive relief (that was unsuccessful), his Honour explained the ‘mechanics’ of the application of the Queensland Competition Code and the Act to unincorporated entities.

Difficulties raised by Re Wakim; Ex parte McNally 6.47 Through this scheme of ‘cooperative federalism’, the ACCC has been granted the power to take action in respect of purely intra-state trade and commerce engaged in by unincorporated natural persons and entities. An example is found in Australian Competition and Consumer Commission v Trevor Davis Investments Pty Ltd (2001) ATPR 41-828; [2001] FCA 952, where Sundberg J imposed a penalty upon Mr Trevor Davis pursuant to the Competition Policy Reform (Victoria) Act 1995 (comprising the Victorian Competition Code) for an attempted price fix in breach of s 45 of the Code. However, following the decision of the High Court in Re Wakim; Ex parte McNally (1999) 163 ALR 270, significant doubt has been expressed about the ACCC’s ability to take action under the state Competition Codes. The High Court determined that Ch III of the Constitution did not permit the conferral of state jurisdiction on federal courts. The decision itself concerned the validity of state corporations statutes conferring jurisdiction on the Federal Court. While not directly concerned with the Act and the Competition Codes, the decision threw into doubt the validity of s 150D of the Act which allowed the Federal Court to exercise jurisdiction conferred on it by a state court in relation to a state Competition Code. The practical consequence of the decision is that: The Federal Court of Australia … will no longer be able to decide disputes arising from actions by regulators or private parties arising out of alleged breaches of the Competition Codes. Intra State competition law issues, the operations of associations that are not corporations and thus not within the ambit of the Trade Practices Act and other related matters, will have to be decided by State Supreme Courts and not by the Federal Court.7

6.48

To overcome these difficulties, the Commonwealth Government

enacted the Jurisdiction of Courts Legislation Amendment Act 2000 (Cth) (JCLA), which came into effect on 30 May 2000. The JCLA amended several pieces of legislation (including the then TPA) by removing references in s 150D of the TPA to state Competition Codes. The revised Explanatory Memorandum to the JCLA states (at item 78) that: … the proposed amendment of section 150D is consequential on the proposed repeal by the States of sections 21 and 22 of their respective CPRAs. The amendment will ensure that section 150D has no operation in relation to matters arising under State Competition Codes.

Most of the states have now enacted this ‘complementary’ legislation to amend their respective Competition Policy Application Acts. The following outline illustrates the process by reference to the Victorian amending statute: [page 112] 1.

2.

3.

Section 7 of the Federal Courts (Consequential Amendments) Act 2000 (Vic) repeals Div 3 of Pt 5 of the Competition Policy Reform (Victoria) Act 1995. Division 3 of Pt 5 of the Competition Policy Reform (Victoria) Act 1995 included s 21 which confers jurisdiction on the Federal Court of Australia with respect to ‘all civil and criminal matters arising under the Competition Code of this jurisdiction’ (that is, Victoria). Section 7 of the Federal Courts (Consequential Amendments) Act 2000 (Vic) works in tandem with s 78 of Sch 1 of the JCLA. Section 78 of Sch 1 amends s 150D of the CCA by deleting references to the Competition Codes of the states.

Section 150D now reads: The Federal Court may exercise jurisdiction (whether original or appellate conferred on that Court by an application law of a Territory with respect to matters arising under the Competition Code.

The amendment takes this form because the Commonwealth has the

constitutional power to make laws with respect to territories. 6.49 These amendments mean that the Federal Court does not have principal jurisdiction to hear trade practices matters instituted by the ACCC in respect of alleged contraventions of a state Competition Code. At the time of writing, there has not been a ‘referral of powers’ solution to the Wakim difficulties as there has been in the Corporations Law sphere. The various Corporations (Commonwealth Powers) Acts of 2001 enacted by the states are the mechanisms by which the states have referred jurisdiction on the Federal Court to hear matters arising under the Corporations Law. A good overview of the situation post-Wakim is found in the decision of the New South Wales Supreme Court in Hore v Albury Radio Taxis Cooperative Society Ltd (2002) 54 NSWLR 210; (2003) ATPR 41-917; [2002] NSWSC 1130. Subsequent decisions involving the state Competition Codes, such as Australian Competition and Consumer Commission v Dally M Publishing and Research Pty Ltd (2007) ATPR 42-176; [2007] FCA 1220 and Australian Competition and Consumer Commission v Australian Abalone Pty Ltd (2007) ATPR 42-199; [2007] FCA 1834, are valid because (using the Victorian Code as an example): 1.

2.

Although Div 3 of Pt 5 of the Competition Policy Reform (Victoria) Act 1995 has been repealed, ss 19 and 20 of that Act remain. Sections 19 and 20 confer powers on the ACCC and the Federal Court under the Competition Code. The effect of the amending legislation is not to remove the ability of the ACCC to institute proceedings in respect of an alleged contravention of a relevant Competition Code. The decision in Re Wakim; Ex parte McNally (1999) 163 ALR 270 did not affect the Federal Court’s accrued jurisdiction. McHugh J stated (at [71]):

If the substratum of fact which gives rise to a matter in federal jurisdiction cannot be effectively disposed of without the application of State law, the issues of State law are determined in the

exercise of federal jurisdiction. As Mason, Brennan and Deane JJ pointed out in Stack v Coast Securities (No 9) Pty Ltd, federal jurisdiction is ‘not restricted to the

[page 113] determination of the federal claim or cause of action in the proceeding, but extend[s] beyond that to the litigious or justiciable controversy between parties of which the federal claim or cause of action forms part’. The determination of State law issues in such circumstances is part of the ‘accrued jurisdiction’ of the Federal Court [notes omitted].

What this means is that, in appropriate circumstances, it would be possible for the ACCC to institute proceedings against both a corporate entity and a non-corporate entity on the same set of pleaded facts. In those circumstances, the ACCC would argue that there is a single substratum of facts that would attract the Federal Court’s accrued jurisdiction. Since accrued jurisdiction was not affected by the Wakim decision, the fact that one of the pleaded claims arising from that single substratum of facts involves state law does not invalidate the Federal Court’s jurisdiction. This reasoning has been implicitly followed in subsequent decisions involving state Competition Codes.

Ancillary liability 6.50 A more difficult question arises when considering the extent to which a third party should be made accountable for the principal actions of a party that has breached the Act. In the context of a contravention of Pt IV of the Act, the issue is relevant because s 82 provides that a party may also recover damages from a person who was ‘involved in’ the contravention. 6.51 In addition, the many orders and remedies that are available to both the ACCC and private parties in the event of a breach and set out in Part VI of the Act, can be sought against both the principal offender as well as any person who is knowingly concerned in a contravention. It follows that more

than one person may be liable for either fines or damages in respect of the same conduct. 6.52 Section 75B(1) provides, inter alia, that a reference in Pt VI to a person involved in a contravention of a provision of Pts IV, IVB, or s 55B, 60C, 60K or 92, shall be read as a reference to a person who: (a) has aided, abetted, counselled or procured the contravention; (b) has induced, whether by threats or promises or otherwise, the contravention; (c) has been in any way, directly or indirectly, knowingly concerned in, or party to, the contravention; or (d) has conspired with others to effect the contravention.

The purpose of s 75B is to identify the variety of ways in which a person can be said to be involved in a contravention for the purposes of activating the remedies outlined in Pt VI. Accordingly, s 75B does not create a new head of ancillary liability, but is merely procedural: Nella v Kingia Pty Ltd (1989) ATPR 40-952. 6.53 These provisions were considered by the High Court in Yorke v Lucas (1985) 158 CLR 661; 61 ALR 307. In summary, the Court stated: •

a person will be held to have aided and abetted a contravention where the person was aware, or should have been aware, of the facts that gave rise to the contravention; and [page 114]



a person will be said to have been knowingly concerned in a contravention if that person had knowledge of the essential facts which gave rise to the contravention.

Establishing ancillary liability 6.54 Recent litigation has emphasised the need for care in establishing ancillary liability under s 75B of the Act. The issue that continues to cause difficulties involves identifying what is required to establish that a person had

‘knowledge of the essential facts which gave rise to the contravention’. The Yorke v Lucas requirement of knowledge was confirmed by the later High Court decision in Rural Press Ltd v ACCC (2003) 216 CLR 53; (2003) ATPR 41-965; [2003] HCA 75 where the Court stated (at [48]): The trial judge rightly held that it was necessary to find that McAuliffe and Law participated in, or assented to, the companies’ contraventions with actual knowledge of the essential matters constituting the contraventions.

6.55 ‘Knowledge of the essential matters constituting the contraventions’ may mean several things, including: • • • • •

actual and subjective knowledge that the conduct engaged in is a breach of the Act; actual knowledge that the conduct was illegal, although not awareness of the particular law that is being broken; actual knowledge of the falsity of the conduct without being aware that it is illegal; wilful blindness to the truth or falsity of the conduct, amounting to knowledge of the facts that make up the contravention; and reckless indifference to the truth or falsity of the conduct, amounting to knowledge of the facts that make up the contravention.

These scenarios represent a sliding scale of knowledge on a continuum of subjective awareness of the matters that constitute the contravention. At some point, a person’s subjective awareness of the facts of what is happening becomes too remote to constitute a ‘knowing awareness’ of the facts that make up the alleged contravention for the purposes of s 75B of the Act. 6.56 Added to this complexity is the actual position of employees within the company structure. The cases indicate a sort of ‘sliding scale’ of closeness of involvement. Three situations may arise: 1.

2.

where the person making the representations is a director or officer of the company concerned (see Wheeler Grace and Pierucci Pty Ltd v Wright (1989) ATPR 40-940); where the person making the representations is an employee or agent

3.

of the company, but with actual knowledge of the conduct said to constitute the contraventions of the Act; and where the person making the representations is an employee or agent of the company and is simply passing on information provided by other corporate officers — the ‘mere conduit’ in the situation. [page 115]

This last category appears to be causing difficulties for courts in determining whether ancillary liability has been adequately pleaded. The difficulties arise in determining what degree of knowledge is required before it can be said that a person has been knowingly concerned in or involved in a contravention. In Williams v FAI Home Security Pty Ltd (No 2) [2000] FCA 726, the applicant argued that it was sufficient to plead material facts that indicated the respondent had constructive knowledge of the conduct said to breach the TPA. However, the respondent argued that actual knowledge of the essential facts constituting the contravention must be pleaded. Similar doubts were expressed by the Court in King v GIO Australia Holdings Ltd (2001) 184 ALR 98; [2001] FCA 308, where Moore J noted an apparent conflict of views as to what must be pleaded in alleging accessorial liability under s 75B of the TPA. In his earlier decision in Dimension Data Australia Pty Ltd v Kepper [1999] FCA 1446, Moore J noted that cases such as Fernandez v Glev Pty Ltd [2000] FCA 1859 and Chan Cuong Su t/as Ausviet Travel v Direct Flights International Pty Ltd (1999) ATPR 41-667 suggest that when alleging accessorial liability under s 75B, it is necessary to plead material facts that show the person knew of the falsity of the representations. However, in King v GIO Australia Holdings, his Honour noted that the decisions in Heydon v NRMA Ltd (2001) 51 NSWLR 1; (2001) Aust Torts

Reports 81-588; [2000] NSWCA 374 and Australian Competition and Consumer Commission v Giraffe World Australia Pty Ltd (1999) 95 FCR 302; [1999] FCA 1161 suggest that it is not required that the accessory should have appreciated the conduct was unlawful. On the basis of these apparently conflicting authorities, Moore J refused to strike out the pleading in question on the basis that (at [17]): In my opinion the question of whether a person potentially liable by operation of s 75B must know that the contravening conduct of the corporation was misleading or deceptive is not a settled one. It is a question of law that should not be determined at this stage of the proceedings unless there is some compelling reason to do so.

This conflict of views is probably more apparent than real. It is respectfully suggested that the law on point is sufficiently settled, but whether the facts said to give rise to the requisite degree of knowledge have been adequately pleaded is always an issue for argument. 6.57 Over the last few years, a number of views have begun to consistently emerge on these issues: 1.

It is not required to show that the accessory knew that the conduct engaged in by the principal was a breach of the Act. In dismissing the subsequent appeal, the Full Court in Dimension Data Australia Pty Ltd v Kepper [2000] FCA 218 stated (at [1]): It seems at least arguable that the state of mind required to establish accessorial liability under s 75B of the Trade Practices Act 1974 (Cth) does not necessarily involve actual subjective knowledge of contravention of s 52.

Similarly, in Australian Competition and Consumer Commission v Rural Press Ltd (2001) ATPR 41-804; [2001] FCA 116, the Court stated (at [136]): [page 116] If it is shown that those persons had knowledge of all material circumstances and engaged in conduct which was part of the conduct constituting the commission of

Rural Press, Bridge and Waikerie Printing respectively of the contraventions, those persons may be liable as accessories to the contraventions … It is not necessary that the accessory should have appreciated that the conduct was unlawful …

In Rural Press Ltd v ACCC (2003) 216 CLR 53; (2003) ATPR 41965; [2003] HCA 75, the High Court stated (at [48]): In the end, the argument was only that McAuliffe and Law ‘did not know that the principal’s conduct was engaged in for the purpose or had the likely effect of substantially lessening competition … in the market as defined.’ It is wholly unrealistic to seek to characterise knowledge of circumstances in that way … In order to know the essential facts, and thus satisfy s 75B(1) of the Act and like provisions, it is not necessary to know that those facts are capable of characterisation in the language of the statute.

2.

It is not required to show that the accessory knew that the conduct engaged in by the principal was unlawful. In Council of the City of Sydney v Goldspar Pty Ltd (2004) ATPR (Digest) 46-253; [2004] FCA 568, the Court stated (at [155]): It is necessary that Rawson-Harris be found to have had knowledge of the essential facts and circumstances constituting the contravention, and be relevantly associated with it, but it is not necessary that he appreciated that the conduct was unlawful in the respect alleged.

3.

At least in the context of misleading and deceptive conduct, it is required to show that the accessory was subjectively aware of the falsity of the information, even if they were not subjectively aware that the passing on of that false information was a breach of the law. In Medical Benefits Fund of Australia Ltd v Cassidy (2003) 135 FCR 1; (2003) ATPR 41-971; [2003] FCAFC 289, Stone J as part of the Full Court stated (at [82]): But it is necessary to know the essential elements of the contravention, by which I understand that one must know that which makes the conduct a contravention; in this case, its misleading and deceptive character. Only then can one form the intention to participate in the conduct of that character.

4.

Mere reckless indifference to the truth or the facts is not to be equated with knowledge of the essential facts of the contravention. In Doney v Palmview Sawmill Pty Ltd (2005) ATPR 42-064; [2005] QSC 062, the

Supreme Court of Queensland stated (at [42]): In my view, Yorke is against the plaintiff’s case that the defendants are liable if they ought to have been aware of the facts or that they were simply recklessly indifferent to them.

5.

A wilful blindness to the facts does not of itself establish the requisite degree of knowledge required for s 75B. However, wilful blindness could be evidence from [page 117] which knowledge could be inferred. The Court in Doney v Palmview Sawmill Pty Ltd stated (at [42]): A wilful blindness to the facts could be relevant for the operation of s 75B only where it is evidence from which actual knowledge could be inferred or (perhaps) where it involves some connivance in that the person has deliberately avoided any enquiry for fear of learning the truth.

A good summary of these principles can be found in the decision of the Full Court in Rafferty v Madgwicks (2012) 287 ALR 437; [2012] FCAFC 37 at [294] and following paragraphs.

Exceptions 6.58 The Act provides for limited exceptions to the operation of Pt IV. Section 51(1) of the Act provides that, in determining whether a person has contravened Pt IV, several forms of conduct are to be disregarded. These include: •



things done or authorised or approved by federal or territorial legislation, other than legislation relating to patents, trade marks, designs or copyright (s 51(1)(a)); things done in any state or territory specifically permitted by state or territory legislation, provided the state or territory is a party to the Competition Principles Agreement: s 51(1)(b)–(e).

6.59 There are limitations to these exceptions found in s 51(1C) which provides the following: • • •



Where s 51(1) refers to a thing being authorised, the authorising provision must expressly refer to the Act. Apart from a federal statute, the exceptions do not apply in considering a contravention of s 50, or s 50A, (the merger provisions). Federal, state or territory regulations which authorise an exception are ineffective if the event occurs two or more years after the regulation was approved. At the time of the contravention, for the exceptions to be effective, the state or territory must be a participant to the Competition Principles Agreement.

6.60 In addition, s 51(2) provides that the following are excepted from the secondary boycotts provisions and the resale price maintenance provisions: • • • • • •

matters relating to remuneration, conditions of employment, hours of work and working conditions of employees (s 51(2)(a)); restrictive provisions in employment contracts (s 51(2)(b)); provisions requiring compliance with a standard (s 51(2)(c)); certain arrangements between non-corporate partners (s 51(2)(d)); certain arrangements in relation to the purchase of goodwill (s 51(2) (e)); and certain arrangements relating to the export of goods or the supply of services outside Australia (s 51(2)(g)). [page 118]

Further reading C Bannon, Accessorial Liability under the Trade Practices Act 1974’ (2009) 83(6) ALJ 407

J Dietrich, Authorisation as Accessorial Liability: The Overlooked Role of Knowledge’ (2014) 24 AIPJ 146 J Dietrich, ‘The (Almost) Redundant Civil Accessorial Liability Provisions of the Trade Practices Act’ (2008) 16(1) TPLJ 37 L Griggs, ‘The Dismantling of Crown Immunity — The Hilmer Reforms Completed’ (2004) 12 CCLJ 224 B Michael, ‘Must an Accessory be a Know-It-All?’ (2010) TPLJ 234 W Pengilley, ‘Does “Derivative Crown Immunity” from the Trade Practices Act Still Exist?’ (2007) 23(7) Australian and New Zealand Trade Practices Law Bulletin 102 B Sweeney, ‘The Constitutional Basis of the Competition Code’ (2001) 27 MULR 78 R Wright, ‘The Future of Derivative Crown Immunity — With a Competition Law Perspective’ (2007) 14 CCLJ 240

1.

2. 3. 4. 5.

6. 7.

Independent Committee of Inquiry into Competition Policy in Australia, National Competition Policy: Executive Overview — Report by the Independent Committee of Inquiry, AGPS, Canberra, 1993. Australian Law Reform Commission, Judicial Power of the Commonwealth: A Review of the Judiciary Act 1903 and Related Legislation, Report 92, October 2001, [22.3]. Trade Practices Act Review Committee, Swanson Report, 1976, p 87, [10.25]. Independent Committee of Inquiry into Competition Policy in Australia, Submission to the National Competition Policy Review, Trade Practices Commission, April 1993, p 42. Independent Committee of Inquiry into Competition Policy in Australia, National Competition Policy: Executive Overview — Report by the Independent Committee of Inquiry (the Hilmer Report), AGPS, Canberra, 1993, p 116. Ibid, p 117. R Baxt, ‘The Wakim Decision: What Should be Done to Overcome its Impact?’ (1999) 17 CSLJ 518 at 520.

[page 119]

Chapter 7 Cartels and Anticompetitive Arrangements and Concerted Practices Overview This chapter is intended to: • • • • •



introduce you to the concept of coordinated anti-competitive conduct; illustrate the basic forms of cartel behaviour — price-fixing, output restrictions, market sharing and bid-rigging; explain how and why these forms of anti-competitive cartel arrangements between competitors harm consumers; introduce the scheme by which cartels are prohibited by the Competition and Consumer Act 2010 (Cth) (CCA) (the Act); explain the structure and function of that scheme following the Competition and Consumer Amendment (Competition Policy Review) Act 2017; examine the way s 45(1) of the Competition and Consumer Act 2010

• •

(Cth) regulates other forms of horizontal anti-competitive collusive behaviour; introduce and explore the prohibition against ‘concerted practices’; and provide further research materials.

Introduction 7.1 In a competitive market, consumers benefit from competition amongst firms at the same functional level. Retailers, for example, compete with each other using both price and non-price strategies to gain customers. The most basic form of competition between firms at the same functional level is reflected in the retail prices consumers pay for the firms’ goods and services. The existence of price competition is an indicator of a competitive market. 7.2 However, a significant amount of anti-competitive conduct involves coordinated conduct between two or more competitors designed to prevent price competition. Competitors might form a ‘contract, arrangement or understanding’ to fix the price of their goods or services. This form of ‘horizontal’ coordinated conduct has the effect of eliminating retail competition between those competitors for those goods or services. The [page 120] consumer suffers by having to pay a higher retail price for those goods or services than would prevail if those corporations were competing with each other. 7.3 There are many ways that firms can manipulate the market in this way. The most basic and blatant agreement involves a cartel. Two or more firms who would otherwise compete with each other decide to fix the price of their goods or services. Alternatively, the firms might agree to divide up the market

into geographic areas and assign each competitor a specific area. Alternatively, the firms might decide to ‘cover’ each other’s customers by providing artificially high quotes to each other’s customers and, in so doing, making it too expensive for them to shift firms. 7.4 Price-fixing and market manipulation represent the most basic and most serious forms of anti-competitive conduct prohibited by the Act. In Australia, there is evidence to suggest that, since 1990, cartel activity has steadily increased. Cartels work because consumers do not receive the benefit of price competition from suppliers who would ordinarily compete with each other. Consumers pay more for the goods or services the subject of a cartel. This ‘wealth transfer’ from consumer to cartel member is unjustified and, in many countries, is considered a form of theft. In 2002, the Dawson Committee recommended the Act (formerly the Trade Practices Act) be amended to introduce criminal sanctions for cartel conduct. In response, the Federal Government has amended the Act to more effectively address cartel conduct. The Trade Practices Amendment (Cartel Conduct and Other Measures) Act 2009 (Cth) (the Amendment Act) introduced a new legislative regime involving the ‘criminalisation’ of cartel conduct, including the possibility of jail terms for executives who engage in cartel conduct. An additional measure intended to prevent the formation of price-fixing cartels became effective in June 2012. The Competition and Consumer Amendment Act (No 1) 2011 (Cth) introduced a new Div 1A into Pt IV of the Act to prohibit competitors sharing pricing information. ‘Price signalling’ can often facilitate coordinated price-fixing behaviour thereby reducing the sort of spontaneous pricing responses that a competitive market encourages. 7.5 Initially confined to the banking sector, Div 1A was repealed by the Competition and Consumer Amendment (Competition Policy Review) Act 2017 (Cth) (2017 Amendment Act). No litigation under the Division was

instigated.

What is a ‘cartel’ for the purposes of the Act? 7.6 The prohibitions against various forms of cartel conduct (coordinated horizontal anti-competitive behaviour) are contained in Part IV, Division 1 of the Competition and Consumer Act 2010 (Cth). They were substantially amended by the Competition and Consumer Amendment (Competition Policy Review) Act 2017 (Cth). These amendments have not only made it much easier to navigate the scheme that prohibits cartel conduct but have also repealed the former stand-alone, very specific prohibition against exclusionary provisions. 7.7 In this chapter, I have set out the prohibitions as they are following the 2017 Amendment Act. This is the legislative scheme that currently prohibits cartel conduct. [page 121] However, it is likely that cartel litigation involving the former scheme will continue for some time as cases instituted by the ACCC before 2017 work their way through the courts. 7.8 What is a cartel? Section 45AA of the Act sets out a simplified outline of Pt IV Div 1 of the Act. It identifies four types of ‘cartel provisions’ which a corporation must not make or give effect to in a contract, arrangement or understanding. These consist of arrangements or understandings falling within the prohibition of a ‘cartel provision’: s 44AD. These four are: 1. 2. 3. 4.

price-fixing; restricting outputs in the production and supply chain; allocating customers, suppliers or territories; or bid-rigging.

At this early stage, note that s 44AD is an explanatory provision only; a corporation does not breach s 44AD. Let’s examine each of these forms of cartels to see how they actually operate and how consumers suffer as a result.

Price-fixing 7.9 This is the most basic form of cartel. It occurs when two or more firms, which would normally compete with each other in the market, agree to maintain the same prices. Ordinarily, consumers would benefit from the competition between these firms in the form of price competition and/or better service. If any one firm attempts to charge a higher price for its goods or services, consumers can shop around and swap suppliers, allowing them to buy a competitor’s less expensive goods or services. However, if all the firms in the market agreed to fix their prices, consumers would not benefit from price competition. The firms can set whatever price they like for their goods or services, secure in the knowledge that consumers will not find less expensive goods or services from competitors. In fact, in a price-fixing cartel, consumers end up paying more money for the goods or services than they would if the market were competitive. This form of ‘wealth transfer’ is likened to theft of money. In Australian Competition and Consumer Commission v Visy Holdings Pty Ltd (No 3) (2007) ATPR 42-185; [2007] FCA 1617, the Court imposed a pecuniary penalty of $36 million on the cardboard-packaging company, Visy, after it admitted to being part of a price-fixing cartel with its rival packaging company, Amcor, from 2002 to 2004. It was suggested that Visy and Amcor customers paid a staggering $700 million more than they would have paid if Amcor and Visy were competitive.

Restricting outputs 7.10 When firms are faced with a market in which supply exceeds demand for the goods or services they produce, profit margins fall. One solution to this problem is for firms to create an ‘artificial scarcity’ for their goods or

services. In this way, it is hoped that demand will exceed the supply available with the result that prices (and profit margins) will increase. Consumers suffer because they end up paying higher prices for goods or services that would normally be more available and less expensive. [page 122] This is an ancient form of market manipulation; recall that possibly the world’s first recorded antitrust trial in ancient Athens involved merchants creating an artificial scarcity for grain. A more recent example of this form of conduct is illustrated by the decision in ACCC v Tasmanian Salmonid Growers Association Ltd (2003) ATPR 41-954; [2003] FCA 788. The Tasmanian Salmonid Growers Association (the Association) was composed of individual farmers of Atlantic salmon. The farmers competed with each other in the sale of Atlantic salmon to wholesalers and retailers. In 2001, the production of Atlantic salmon created an over-supply in the market. This in turn led to a reduction in the price paid for the salmon, causing several of the farmers significant financial distress. In response, and at a members’ meeting, the board of the Association unanimously agreed that its members would ‘grade out’ at least 10% of the 2001 stock of Atlantic salmon with the possibility of further reductions if necessary. The idea was to create artificial scarcity (by reducing output) for Atlantic salmon thereby driving up the wholesale and retail price. The Association sent a written agreement to its member farmers to that effect and required them to sign it. Some member farmers signed and others did not. The ACCC instituted proceedings against the Association alleging that the agreement constituted a ‘contract, arrangement or understanding’ that would have the likely effect of substantially lessening competition in breach of s 45(2) of the then Trade Practices Act 1974 (Cth) (TPA). The Court found that the TPA had been breached. While s 45(2) continues to exist within Pt IV Div

2 of the CCA, redrafted as s 45(1), if the ACCC were taking action today it is likely that the actions of the Association would constitute cartel conduct in breach of Pt IV Div 1 of the CCA in restricting outputs.

Bid-rigging 7.11 Before corporations or governments commence large-scale projects, they will often call for tenders for the provision of goods or services associated with the project. For example, in Sirway Asia Pacific Pty Ltd v Commonwealth of Australia (2002) ATPR (Digest) 46-226; [2002] FCA 1152, the Commonwealth Department of Defence invited tenders for the provision of chinaware and crockery for the defence forces. Sirway Asia Pacific was the successful tenderer for that contract. By submitting tenders for a contract, firms are said to ‘bid’ against each other for the contract. Even though only one firm may ‘win’ the contract, the customer benefits from the antecedent competition between the firms as they draft and submit bids that will attract the customer: see Stirling Harbour Services Pty Ltd v Bunbury Port Authority (2000) ATPR 41-752; [2000] FCA 38. However, firms can collude and ‘rig’ their tenders or bids to guarantee that one of them will win the contract and at a price they want. In this way, the customer is deprived of the competition between the bidders and ends up paying a much higher price to the successful tenderer than they would have paid if the bidding process had been competitive. 7.12 An example of this occurred in Australian Competition and Consumer Commission v CC (New South Wales) Pty Ltd (No 8) (1999) 92 FCR 375; (1999) ATPR 41-732; [1999] FCA 954. Four construction companies created an arrangement or understanding relating [page 123]

to bids for construction contracts. Each company would bid for a contract and the successful tenderer would then pay each of the other companies an ‘unsuccessful tenderer’s fee’ by way of compensation. Of course, each company inflated their bids so that the fee would be paid from the contract price. In other words, the collusive bidding practice artificially inflated the cost to the customer of engaging that construction company. A more recent example of bid-rigging can be found in Australian Competition and Consumer Commission v TF Woollam & Son Pty Ltd (2011) ATPR 42-367.

Allocating customers, suppliers or territories 7.13 In a competitive market, customers benefit from competition between suppliers of goods or services by shopping around for the best prices or customer service. However, market-sharing arrangements between firms can limit or even eliminate this competition. If two or more firms agree to ‘divide up the market’, they can force consumers to accept higher prices or poorer service because consumers cannot obtain the goods or services from a competitor. In Trade Practices Commission v TNT Australia Pty Ltd (1995) ATPR 41375, several freight companies — including TNT Australia and Mayne Nickless — created a customer and territory market-sharing arrangement in order to fix the prices for express freight services. If a customer of TNT requested a quote for the provision of express freight services from Mayne Nickless, Mayne Nickless would ‘cover’ TNT by submitting a deliberately uncompetitive quote. In this way, the parties ensured that customers were ‘shared’ between them.

Brief background to the 2017 Amendment Act 7.14 The way in which the Act prohibits cartel conduct has changed dramatically over the last decade. The pace of this change means that litigation concerning cartel conduct over the last 10 years and from 2017

onwards potentially involves navigating three different legislative schemes depending on when the alleged conduct occurred, when litigation was commenced and when any judgment was given. Why is this? Because the limitation period in s 77 of the Act permits the ACCC to institute proceedings seeking the recovery of a civil penalty in respect of cartel conduct up to ‘6 years after the contravention’. What this means and by way of example, firms may have created and given effect to a cartel in 2008. The ACCC may institute proceedings in 2012. After trial, judgment and any appeals, a final decision might not be have been reached until 2017 and all involving the provisions of the former Trade Practices Act 1974 (Cth). Accordingly, we can characterise the evolution of those legislative schemes as follows: 1.

pre-2009 and before the amendments introduced by the Trade Practices Amendment (Cartel Conduct and Other Measures) Act 2009 (Cth). The recent decisions of the High Court in Air New Zealand Limited v Australian Competition and Consumer Commission (2017) 91 ALJR 648 and Australian Competition and Consumer Commission v Flight Centre Travel Group Ltd (2016) 91 ALJR 143 involved these pre-2009 provisions; [page 124]

2.

3.

post-2009 but pre-2017 and before the amendments introduced by the Competition and Consumer Amendment (Competition Policy Review) Act 2017 (Cth). The decision in Commonwealth Director of Public Prosecutions v Nippon Yusen Kabushiki Kaisha [2017] FCA 876 involved these post-2009 provisions; and post-2017 and the current scheme as introduced by the Competition and Consumer Amendment (Competition Policy Review) Act 2017 (Cth).

7.15 Before the 2009 amendments introduced by the Trade Practices Amendment (Cartel Conduct and Other Measures) Act 2009 (Cth) (the 2009 Amendment Act) s 45(2) of the then Trade Practices Act 1974 (Cth) addressed all forms of horizontal collusive activity in one of three ways: 1. 2.

3.

The making of and giving effect to exclusionary provisions was prohibited per se by s 45(2)(a)(i) and (b)(i). The making of and giving effect to other forms of ‘contracts, arrangements or understandings’ was prohibited by s 45(2)(a)(ii) and (b)(ii), but only if the contract, arrangement or understanding substantially lessened competition in the relevant market. Price-fixing was prohibited per se by s 45A, which deemed a provision of a contract, arrangement or understanding that fixed, controlled or maintained prices to have the effect of substantially lessening competition in the relevant market for the purposes of s 45(2)(a)(ii) and (b)(ii).

7.16 The 2009 Amendment Act repealed s 45A of the TPA. However, it retained s 45(2) and importantly, it introduced a criminal cartel regime into the TPA. Therefore, following the 2009 Amendment Act, there were three regimes in the CCA that dealt with cartel conduct: •



Part IV Div 1 (ss 44ZZRA–44ZZRV) created both criminal and civil regimes, which prohibited corporations from making or giving effect to a ‘cartel provision’. (regimes 1 and 2); and Part IV Div 2 (s 45(2)) created a civil regime (regime 3) which prohibited corporations from: – making or giving effect to a contract, arrangement or understanding that contains an exclusionary provision; and – making or giving effect to a contract, arrangement or understanding that has the purpose, effect or likely effect of substantially lessening competition.

There were several important differences between the pre- and post-2009 cartel regime:





All forms of contracts, arrangements or understandings prohibited by s 45 of the Act involved the imposition of civil pecuniary penalties only. The creation and maintenance of a cartel was not a criminal offence punishable on imposition of a fine or term of imprisonment. Only exclusionary provisions and price-fixing were prohibited per se. All other forms of cartel activity, such as restricting outputs and market sharing, were subject to a competition test. Such conduct was only prohibited if it had the purpose, effect [page 125] or likely effect of substantially lessening competition in a defined market. Following the Amendment Act, these forms of cartel activity were per se illegal if they meet the definition of a ‘cartel provision’.

From 2017 onwards, the Competition and Consumer Amendment (Competition Policy Review) Act 2017 amends s 45 to eliminate the per se prohibition against exclusionary provisions while prohibiting ‘concerted practices’, retains the civil and criminal cartel regimes, repeals the prohibition against sharing price information in Part IV, Div 1A, and substantially simplifies the process of navigating Part IV, Div 1. Clearly, the 2017 amendments changed a great deal within Part IV, Div 1 and Div 2 (s 45) and we now turn to explore these Divisions, commencing with Div 1.

Part IV Div 1 — overview 7.17 Part IV Div 1 creates a criminal regime and a civil regime for corporations that create or give effect to a contract, arrangement or understanding that contains a ‘cartel provision’. A ‘cartel provision’ is a provision which relates to price-fixing, restricting outputs, allocating

customers, suppliers, territories, or bid-rigging. Where a corporation makes or gives effect to a contract, arrangement or understanding containing a cartel provision, it potentially gives rise to both criminal and civil liability.

Criminal liability 7.18 Under the criminal regime, where a corporation makes or gives effect to a contract, arrangement or understanding containing a cartel provision, the corporation commits an indictable offence punishable on conviction by the imposition of a fine. The fine is calculated by taking the greater of three amounts: first, the sum of $10 million; second, three times the amount of the total value of the benefits derived from the cartel; or, third, where that value cannot be ascertained, then an amount of 10% of the corporation’s annual turnover during the previous 12 months, ending at the end of the month in which the corporation committed the offence: ss 44AF(3) and 44AG(3). Because corporations can only act through their directors and employees, those natural persons who engaged the corporation in the cartel offence face potential imprisonment for up to 10 years and/or a fine ‘not exceeding 2000 penalty units’: s 79(1)(e)(ii).

Civil liability 7.19 Under the civil liability regime, where a corporation makes or gives effect to a contract, arrangement or understanding containing a cartel provision, the court can impose a pecuniary penalty under s 76(1A)(aa) of the Act. The pecuniary penalty is calculated in the same way as the fine calculated in the criminal regime.

Part IV Div 1 — in detail

7.20 Part IV Div 1 comprises ss 45AA–45AU, contained in four subdivisions and inserted into the Act before s 45 of the Act (Div 2 commences with s 45 and contains the prohibitions [page 126] against most other forms of anti-competitive conduct explored in this text in subsequent chapters). Part IV Div 1 is structured as follows: 1.

2.

3.

4.

Subdivision A provides a simplified outline of Div 1 (s 45AA), a definition section (s 45AB) and, crucially for the entire regime, the definition of a ‘cartel provision’ (s 45AD). It is the making of and giving effect to a cartel provision in a contract, arrangement or understanding between competitors that attracts both civil pecuniary penalties and criminal sanctions. Subdivision B then establishes the criminal regime: prohibiting the making of (s 45AF) and/or giving effect to (s 45AG) a cartel provision within a contract, arrangement or understanding between competitors is an indictable offence, publishable on conviction. Subdivision C creates civil penalty provisions for the making of (s 45AJ) and/or giving effect to (s 45AK) a cartel provision within a contract, arrangement or understanding between competitors. Subdivision D then provides for exceptions from the scheme.

The criminal cartel regime 7.21 Part IV Div 1 creates a criminal regime for the making of and giving effect to a contract, arrangement or understanding containing a ‘cartel provision’. Section 45AF concerns the making of the contract, arrangement or understanding containing the cartel provision. It provides: (1) A corporation commits an offence if:

(a) the corporation makes a contract, or arrangement or arrives at an understanding; and (b) the contract, arrangement or understanding contains a cartel provision.

Section 45AG concerns the giving effect to the contract, arrangement or understanding that contains the cartel provision. It provides: (1) A corporation commits an offence if: (a) a contract, arrangement or understanding contains a cartel provision; and (b) the corporation gives effect to the cartel provision.

The civil cartel regime 7.22 Section 45AJ prohibits a corporation from making a contract, arrangement or understanding that contains a cartel provision. Section 45AK prohibits a corporation from giving effect to that cartel provision. In contrast to the criminal provisions, a fault element is not present within ss 45AJ and 45AK.

Fundamental concepts 7.23 From this brief overview, two concepts are fundamental to the operation of the cartel regime. First, the sections prohibit the making of and giving effect to a ‘contract, arrangement or understanding’, and, second, that contract, arrangement or understanding [page 127] contains a ‘cartel provision’. It will be easier to explore the idea of a ‘cartel provision’ before examining what is meant by the phrase ‘contract, arrangement or understanding’.

Cartel provision 7.24 The term ‘cartel provision’ is defined in s 45AD(1) and applies to both the criminal and civil liability regimes. A provision of a contract, arrangement

or understanding is a cartel provision if: • • •

the provision satisfies the purpose/effect condition set out in s 45AD(2); or the provision satisfies the purpose condition set out in s 45AD(3); and whether the provision is captured under s 45AD(2) or (3), the provision also satisfies the competition condition set out in s 45AD(4).

The cartel regimes in both Pt IV Divs 1 and 2 require that there is some provision of a contract, arrangement or understanding. In the case of Pt IV Div 1, the provision must satisfy a purpose or effect condition as well as a competition condition, and, in the case of s 45(1) in Pt IV Div 2, a provision must have the purpose, effect or likely effect of substantially lessening competition.

What exactly is a ‘provision’? 7.25 It is an aspect or element of the contract, arrangement or understanding that brings about the result intended: Australian Competition and Consumer Commission v Australian Safeway Stores Pty Ltd (No 2) (2001) 119 FCR 1; (2002) ATPR (Digest) 46-215; [2001] FCA 1861. It is the substance of the provision, and not its form, that is important. In Australian Competition and Consumer Commission v Leahy Petroleum Pty Ltd (2007) 160 FCR 321; (2007) ATPR 42-162; [2007] FCA 794, the Court stated (at [32]): A provision must provide for something to occur, or not to occur … What is important is its substance. There must therefore be sufficient substance to whatever is the result of the formation of an understanding for it to contain a provision of the required kind.

For example, in Australian Competition and Consumer Commission v CC (New South Wales) Pty Ltd (No 8) (1999) 92 FCR 375; (1999) ATPR 41-732; [1999] FCA 954, the ‘provision’ was the aspect of the agreement between the companies to pay an ‘unsuccessful tenderers fee’.

Purpose/effect condition

7.26 Section 45AD(2) states that a provision of a contract, arrangement or understanding will satisfy the purpose/effect condition if that provision ‘has the purpose, or has or is likely to have the effect of either directly or indirectly’: •

fixing, controlling or maintaining or providing for the fixing, controlling or maintaining of the price for, or a discount, allowance or rebate or credit in relation to: – goods or services supplied or likely to be supplied, or acquired or likely to be acquired by any or all of the parties to the contract, arrangement or understanding; and [page 128] –

goods or services re-supplied or likely to be re-supplied by persons or classes of persons to whom any of those goods or services were supplied or likely to be supplied by all or any of the parties to the contract, arrangement or understanding.

Purpose condition 7.27 Section 45AD(3) states that a provision of a contract, arrangement or understanding will satisfy the purpose condition if that ‘provision has the purpose of directly or indirectly’: •



preventing, restricting or limiting: – the production or likely production, the capacity or likely capacity, of all or any of the parties to the contract, arrangement or understanding (restricting outputs); or – the supply or likely supply of goods or services to persons or classes of persons, by any or all of the parties to the contract, arrangement or understanding (restricting outputs); allocating between any or all of the parties to the contract,



arrangement or understanding: – the persons or classes of persons who have acquired or who are likely to acquire, goods or services from, or who have supplied or are likely to supply goods or services to, any or all of the parties to the contract, arrangement or understanding (allocating customers); or – the geographical areas in which goods or services are supplied or are likely to be supplied, or acquired or likely to be acquired by all or any of the parties to the contract, arrangement or understanding (allocating territories); ensuring that in the event of a request for bids in relation to the supply or acquisition of goods or services, the bids are structured so that one or more of the parties is successful, or more likely to be successful than the others, or where a ‘material component’ of the bid is worked out in accordance with the contract, arrangement or understanding (bid-rigging).

Competition condition 7.28 Once a provision of a contract, arrangement or understanding satisfies the purpose/ effect condition in s 45AD(2) or the purpose condition in s 45AD(3), the next step is to inquire whether it also satisfies the competition condition in s 45AD(4). If both conditions are satisfied, then the provision will be a ‘cartel provision’. Section 45AD(4) provides that the competition condition is satisfied if at least two of the parties to the contract, arrangement or understanding: (a) are or are likely to be; or (b) but for any contract, arrangement or understanding, would be or would be likely to be in competition with each other in relation to [the relevant subparagraphs of s 45AD(2) or (3).

Putting the cartel regime together 7.29 Identifying a cartel provision for the purposes of the scheme in s 45AD is not especially difficult, but it is quite technical. It displays the same

statutory tendency to spell out in great detail the various forms of anticompetitive conduct that are prohibited. We will [page 129] encounter a similar tendency when we look at exclusive dealing conduct, prohibited by s 47 of the Act, and resale price maintenance, prohibited by s 48. Set out below is a worked example of the application of s 44ZZRD, taken from the Visy case, above. This application can be employed in identifying future cartel provisions for the purposes of the Act. 7.30 In Australian Competition and Consumer Commission v Visy Holdings Pty Ltd (No 3) (2007) ATPR 42-185; [2007] FCA 1617, Visy admitted to being part of a price-fixing cartel with rival packaging company Amcor Ltd (Amcor) from 2002 to 2004. The nature of the ‘contract, arrangement or understanding’ between Visy and Amcor included: •

• •

an agreement not to deal with each other’s customers. If a customer did change, then either Visy or Amcor (depending on who received the customer) would provide the other with one of their own customers by way of compensation; an agreement that prices for particular customers would be fixed; and an agreement that annual price increases would be fixed.

If Pt IV Div 1A was in effect at the time, and approaching the conduct from a civil and not criminal perspective, would Visy have contravened ss 45AJ (making a contract etc containing a cartel provision) and 45AK (giving effect to a cartel provision)? The following methodology applies: 1.

Both ss 45AJ and 45AK respectively provide that a corporation contravenes this section if it makes a contract, arrangement or understanding that contains a ‘cartel provision’ and/or gives effect to

2.

3.

4.

5.

6.

that ‘cartel provision’. A ‘cartel provision’ is defined in s 45AD(1)(a) and (b) to mean ‘a provision of a contract, arrangement or understanding’ that satisfies either the purpose/effect condition in s 45AD(2) or the purpose condition in s 45AD(3), and (for both conditions) also satisfies the competition provision in s 45AD(4). The contract, arrangement or understanding between Visy and Amcor contained a provision that had both the purpose and effect of directly fixing the price for cardboard boxes, supplied by both Visy and Amcor, both generally (the annual increase) and specifically (to identified customers). This provision directly falls within the scope of s 45AD(2)(c). Accordingly, the purpose/effect condition is satisfied. However, before it can be considered a cartel provision, s 45AD(1)(b) requires that it also satisfy the competition condition in s 45AD(4). Section 45AD(4)(c) is relevant because the relevant conduct falls within s 45AD(2) (c). Both Visy and Amcor would have been in competition with each other for the supply of cardboard boxes to customers had it not been for the contract, arrangement or understanding they created. Accordingly, the conditions in s 45AD(4) (c) are satisfied; two of the parties to the contract, arrangement or understanding (Amcor and Visy), but for the contract, arrangement or understanding, would be in competition with each other for the supply of goods (the cardboard boxes). Therefore, the provision of the contract, arrangement or understanding between Visy and Amcor concerning price-fixing is a ‘cartel provision’ for the purposes of s 45AD. [page 130]

7.

Another provision of the contract, arrangement or understanding

between Visy and Amcor provided for customer sharing; if Visy ‘poached’ an Amcor customer (or vice versa) then they would compensate by providing a customer of their own. Is this a ‘cartel provision’ for the purposes of the Act? 8. Section 45AD(3)(b)(i) provides that the purpose condition is satisfied when a provision of a contract, arrangement or understanding has the purpose of allocating between the parties to the contract, arrangement or understanding ‘the persons or classes of persons who have acquired, or who are likely to acquire, goods or services from any or all of the parties to the contract, arrangement or understanding’. This element is satisfied by the conduct of Visy and Amcor in ‘sharing’ customers in the event that the ‘no-poaching’ provision of their understanding was breached. However, before it can be considered a ‘cartel provision’, s 45AD(1)(b) requires that it also satisfy the ‘competition condition’ in s 45AD(4). 9. Again, s 45AD(4)(c) is relevant because the relevant conduct falls within s 45AD(3)(b). Both Visy and Amcor would have been in competition with each other for the supply of cardboard boxes to customers had it not been for the contract, arrangement or understanding they created. Accordingly, the conditions in s 45AD(4) (c) are satisfied; two of the parties to the contract, arrangement or understanding (Amcor and Visy), but for the contract, arrangement or understanding, would be in competition with each other for the supply of goods (the cardboard boxes). 10. It follows that both of the price-fixing provisions and the customersharing provision would be considered cartel provisions for the purposes of Pt IV Div 1. It also follows that by making and giving effect to a contract, arrangement or understanding containing those cartel provisions, Visy and Amcor would have been in breach of ss 45AJ and 45AK of the Act respectively.

Contract, arrangement or understanding 7.31 The second major concept which underpins both Pt IV Div 1 and the civil regime in Pt IV Div 2 is the expression ‘contract, arrangement or understanding’. Where a cartel provision forms part of such an arrangement between competitors, it will attract the operation of Pt IV Div 1. Before the introduction of Pt IV Div 1, courts had been interpreting the phrase ‘contract, arrangement or understanding’ for many years in the context of s 45 of the TPA. Much of the existing case law (although not all of it helpful) can therefore be drawn upon in interpreting this element of the cartel regime. The first thing to understand is the sheer difficulty in proving that two or more competitors have met and reached some agreement to fix prices, engage in bid-rigging or divide up customers and territories. After all, the parties to a cartel rarely ‘shout the fact of their arrangements from the rooftops’. Cartel activity is usually conducted in secrecy, with the parties involved employing code words and other forms of disguise in order to avoid detection. In the early 1990s, the then Trade Practices Commission instituted proceedings against TNT, Ansett and Mayne Nickless for what was, at that time, the largest price-fixing and customer-sharing cartel [page 131] in Australia, which happened to involve the express freight industry. The parties referred to their agreement as ‘the Honda’, which was an oblique reference to a motor vehicle manufactured by Honda and known as the ‘Accord’. Unless the proverbial ‘smoking gun’ evidence comes to light — such as a minute, email or other recording of the meeting — then the court will be asked to infer the existence of a ‘contract, arrangement or understanding’ on

the basis of circumstantial and witness evidence. This is a difficult task as the Court in Trade Practices Commission v Leslievale Pty Ltd (1986) ATPR 40679; [1986] FCA 119, noted (FCA at [25]): I can see the difficulty under which the Trade Practices Commission labours when trying to prove a case of this sort. It must not be at all easy to persuade witnesses, at least those who propose to stay in the area, to give evidence against their colleagues or former colleagues.

More recently, the Court at first instance in ACCC v Air New Zealand Limited (2014) ATPR 42-490 noted, at [464], that because parties to a pricefixing arrangement or understanding rarely do so in a way that is easily discovered, direct proof (the ‘smoking gun’ evidence) will rarely be available. The Court stated that in such situations, circumstantial evidence is required to establish the arrangement or understanding. However, the Court was also quick to point out, at [464]: … it is important to note that there is nothing inherently weak about cases based on circumstantial evidence. In truth, the strength of any particular circumstantial case will be a function of the number of elements of which it consists and the corresponding unlikelihood of those elements happening for reasons other than as a result of the posited collusive behaviour.

7.32 The difficulties associated with aggregating circumstantial evidence in a way that, on the balance of probabilities, the evidence suggests collusive behaviour rather than some other conduct (such as conscious parallelism) is reflected in the failure of the ACCC to establish the existence of a contract, arrangement or understanding between members of several industries. This includes petrol retailers in Apco Service Stations Pty Ltd v ACCC (2005) 159 FCR 452; (2005) ATPR 42-078; [2005] FCAFC 161 and Australian Competition and Consumer Commission v Leahy Petroleum Pty Ltd (2007) 160 FCR 321; (2007) ATPR 42-162; [2007] FCA 794 (the Leahy Petroleum case) and more recently, trade associations such as in Australian Competition and Consumer Commission v Australian Egg Corporation Ltd (2017) ATPR 42-553 (Full Court).

Definition of ‘contract, arrangement or understanding’ 7.33

The phrase is not defined in the Act and so it has been left to the

courts to define both its constitutive terms and its scope. A useful starting point is the decision of Gray J in the Leahy Petroleum case. His Honour considered the meaning of each of the words ‘contract’, ‘arrangement’ and ‘understanding’ as they appear in s 45(2), now s 45(1) of the Act, and in light of the relevant case law — particularly the earlier decision of the Full Court in Apco Service Stations Pty Ltd v ACCC. At this point, keep in mind that the cases here refer to s 45(2) of the Act. As we noted above, the 2017 Amendment Act repealed that provision. All references to s 45(2) should now be read as referring to s 45(1) of the Act. [page 132] To begin with, in Leahy Petroleum, Gray J considered that the words ‘contract’, ‘arrangement’ and ‘understanding’ are ‘intended to represent a spectrum of consensual dealings’: at [24]. What this means is that competitors can create an agreement amongst themselves with differing levels of formality. At one end of the spectrum, competitors can attempt to create a formal and binding written contract to fix prices or share the market. At the other end of the spectrum, competitors may hold some mutually shared expectations about how each of them will behave in order to bring about a price-fixing or market-sharing arrangement. However, actual documentary evidence of an agreement between competitors is rarely found. More often, the court is asked to move to the ‘lower’ end of the spectrum and to infer an ‘understanding’ based on less than direct evidence.

Contract 7.34 Gray J defined ‘contract’ for the purposes of s 45(2)(a), now s 45(1)(a), to describe ‘a consensual dealing with a high degree of formality’: at [25].

Usually, a contract is a legally binding agreement between parties resulting from the acceptance of an offer, supported by consideration and enforceable at law. However, a contract to engage in conduct which breaches s 45(2) of the Act is certainly not enforceable at law because of the illegality of its subject matter. For this reason, Gray J concluded (at [25]): Parliament must have intended to refer to a consensual dealing having the fundamental characteristics of a contract, but not necessarily being enforceable in a court of law, because s 45(2)(a) would itself give rise to the defence of illegality, and thereby prevent enforcement.

Arrangement 7.35 An arrangement is some form of consensual dealing between the parties that is less formal than a contract. Gray J considered (at [26]): … a dealing that would otherwise be a contract may be described as an ‘arrangement’ if the parties to it intended not to create a legally binding relationship but only to give expression to their intentions as to the obligations that each felt morally bound to adhere to in relation to what was to pass between them, or to be carried out by them … At the very least, there must be some express communication between the parties, although what is said may not amount to offer and acceptance for the purposes of the law of contract … It is hard to see how two parties could ‘make’ an ‘arrangement’ without doing so expressly, at least as to the substance of the arrangement, even if the acceptance by one party of what the other has communicated is implicit in some act, rather than expressed in words.

Understanding 7.36 An understanding is some form of consensual dealing between the parties that is even less formal and structured than an arrangement. It is an understanding that is ‘broad and flexible’. Gray J stated (at [28]): However broad and flexible an understanding might be, for the purposes of s 45(2)(a) of the Trade Practices Act it must be a consensual dealing between parties. Like an arrangement, it falls outside the sphere of contractual obligations of a kind normally enforceable in a court. Unlike an arrangement, it can be tacit, in the sense that it can be arrived at by each party, either

[page 133]

by words or acts, signifying an intention to act in a particular way in relation to a matter of concern to another party. In order to be a consensual dealing, however, an understanding must involve a meeting of minds.

What is the relationship between these definitions? 7.37 The relationship and distinctions between these definitions was usefully summarised by Gray J in the Leahy Petroleum case. In essence, his Honour considered (at [39]–[40]): •











7.38

‘[T]he concepts of contract, arrangement and understanding relevant to the application of s 45(2)(a) of the Trade Practices Act are concepts representing points on a spectrum of consensual dealings’. ‘It is possible that the spectrum might be extended in one direction beyond contract, to include even more solemnly binding consensual obligations, such as deeds under seal’. ‘It is difficult to see that the spectrum of consensual dealings could extend in the other direction beyond the concept of “understanding”, whilst still remaining relevant for the purposes of s 45(2)(a)’. The ‘lower’ end of the spectrum (far from formal contracts) ‘lies somewhere between the outer limits of what constitutes an “understanding”’, on the one hand, and ‘the closest form of nonconsensual dealing that could be imagined’, on the other. ‘The line between what amounts to an “understanding” for the purposes of s 45(2)(a) and what falls outside the spectrum of consensual dealings relevant to that provision will always be difficult to draw’, especially when ‘there is an absence of evidence of express communications from which arrangements or understandings might have been derived’ and where the arrangement or understanding is sought to be established by evidence of conduct with circumstantial evidence. ‘The crucial question … is on which side of the shadowy line delimiting “understanding” the conduct of various parties’ falls’. Many of these observations by Gray J were adopted by the Court at

first instance in ACCC v Air New Zealand Limited (2014) ATPR 42-490. Although the case went on appeal, the Full Court did not disagree with or overturn a helpful summary of relevant principles by Perram J. His Honour reviewed the case law concerning the interpretation of the phrase: ‘contract, arrangement or understanding’, and distilled a number of principles at [463]: 1.

2. 3.

4.

Contracts are formal agreements while ‘arrangements and understandings’ are different concepts. However, at the heart of an arrangement or understanding is the need for a meeting of minds or a consensus; An arrangement will generally require some form of express negotiation or at least some communication between the parties; However, an understanding may be tacit and may arise without communication so long as there is a meeting of minds. This means that at least one party assumes an obligation to the other or gives an assurance or undertaking that it will act in a certain way; Ordinarily, the concept of a ‘meeting of minds’ will involve some element of reciprocity between the parties to the understanding. Although the law is not settled, there has been no case where the element of mutuality has been absent from an understanding;

[page 134] 5.

6.

7.

Although an understanding need not be overt, because of the requirement of consensus between the parties, there will generally be some action or conduct by the parties that evidences the understanding; However, there can be no understanding where one party decides to act in a unilateral way in raising the prices for their goods or services in response to the price movements of a competitor (see discussion on ‘conscious parallelism’); There can be no understanding where one party simply hopes or expects another to act in a certain way.

7.39 From this summary of the case law it seems reasonably certain that to prove an arrangement or understanding, the following three elements must be established: 1. 2.

evidence of some form of communication between the parties; evidence that the parties reached some ‘consensus’ or ‘meeting of the minds’ as to some course of action (for example, what was to be done

3.

or not done); and evidence that the parties accepted some form of commitment or obligation to implement the course of action consensually agreed upon.

In terms of proving an understanding, Gray J in the Leahy Petroleum case suggested that the ‘crucial question’ to ask is, on which side of the ‘delimiting’ line does the conduct of the parties fall? But what is this delimiting line? The case law presently indicates that this delimiting line is evidence of some form of commitment or obligation by the parties to implement the course of action consensually agreed upon.

What is not an ‘understanding’? 7.40 One way to approach the question of what is necessary to prove an understanding, and the associated question of when do parties accept some form of commitment or obligation, is to consider behaviour that the courts have said does not amount to an understanding. There are three forms of conduct that the courts have consistently held not to be evidence of an understanding. In other words, these forms of conduct fall on the ‘other side’ of the ‘delimiting’ line referred to by Gray J in the Leahy Petroleum case. These three forms are: 1. 2. 3.

the mere hope or expectation that a party will act in a certain way; parallel conduct that is the result of individual decision-making; and independently held beliefs.

If an understanding requires that parties consensually assume obligations to act or not to act in a certain way to further their agreement, then simply hoping or expecting that to occur is not sufficient. It was for this reason that the Full Court in ACCC v Australian Egg Corporation Ltd (2017) ATPR 42553 concluded that there was no consensus or meeting of minds between the AECL and its members during the relevant meeting, where members accepted mutual obligations to withhold the supply of eggs from the market.

A further case illustrates the point. 7.41 In Australian Competition and Consumer Commission v CC (New South Wales) Pty Ltd (No 8) (1999) 92 FCR 375; (1999) ATPR 41-732; [1999] FCA 954 (CC (NSW) case), the Court stated (at [141]): [page 135] The cases require that at least one party ‘assume an obligation’ or give an ‘assurance’ or ‘undertaking’ that it will act in a certain way. A mere expectation that as a matter of fact a party will act in a certain way is not enough, even if it has been engendered by that party. In the present case, for example, each individual who attended the Meeting may have expected that as a matter of fact, the others would return to their respective offices by car, or, to express the matter differently, each may have been expected by the other to act in that way. Each may even have ‘aroused’ that expectation by things he said at the Meeting. But these factual expectations do not found an understanding … The conjunction of the word ‘understanding’ with the words ‘agreement’ and ‘arrangement’ and the nature of the provisions show that something more is required [emphasis in original].

These comments were approved of by the Full Court in Rural Press Ltd v ACCC (2002) 118 FCR 236; (2002) ATPR 41-883; [2002] FCAFC 213. 7.42 What about a situation where firm A provides firm B with its price lists, whether through email, fax or phone conversation? What if this conduct assists firm B to match the prices of firm A, thereby effectively fixing the prices for the goods or services of both firms? Would this be an ‘understanding’ for the purposes of the Act? In Trade Practices Commission v Email Ltd (1980) ATPR 40-172, on similar facts, the Court found there was no understanding. Providing the price lists may have helped the competitor to follow the other party’s prices, but without evidence of some commitment between the parties to actually follow each other’s prices, there was no understanding. This was the basis of the decision of the Full Court in Apco Service Stations Pty Ltd v ACCC (2005) 159 FCR 452; (2005) ATPR 42-078; [2005] FCAFC 161. There was circumstantial evidence showing that the parties to the alleged

price-fixing agreement had communicated with each other by phone over a period of time. However, there was no evidence to show that, by receiving this information, Mr Anderson (the director of Apco) had created an expectation in the minds of the other service station owners that Apco would match the increased petrol prices. The Full Court applied the reasoning in the CC (NSW) case and affirmed that, in order to establish a contravention of s 45(2)(a) through an understanding, evidence of some form of commitment to an agreed-upon course of action is needed. It is not sufficient to demonstrate a mere hope or expectation that a course of action will be followed. In 2006, the ACCC sought special leave from the High Court to appeal the Full Court’s decision in Apco. In refusing special leave, the High Court concluded that the Full Court’s decision did not raise any serious issues involving the interpretation of the Act.

Part IV Div 2 s 45(1) 7.43 The 2017 Amendment Act repealed s 45(2) of the Competition and Consumer Act 2010 (Cth) that had, until the 2017 Amendment Act, regulated cartel behaviour, including price-fixing and market sharing. The relevant provision is now s 45(1). We noted earlier that, prior to its repeal, s 45(2) of the then TPA addressed all forms of horizontal collusive activity in one of three ways: see 7.15 above. 7.44 Under the former s 45(2), not all cartel behaviour was prohibited per se; only price-fixing carried that sanction because of the deeming provision in the now repealed s 45A of [page 136] the Act. Other forms of cartel behaviour, such as market sharing and output

restrictions, were only prohibited if that conduct had the purpose or the effect of substantially lessening competition in a defined market. In addition, the former s 45(2) prohibited the making of and giving effect to contracts arrangements or understandings that contained exclusionary provisions. Exclusionary provisions were prohibited per-se. These are discussed below. The 2017 Amendment Act repealed s 45(2) and inserted a re-drafted s 45(1) within Pt IV Div 2 of the CCA. The new s 45(1) creates three prohibitions against cartel-like conduct: 1.

2.

3.

Section 45(1)(a) prohibits the making of a contract, arrangement or understanding if a provision of that contract, arrangement or understanding has the purpose, effect or likely effect of substantially lessening competition; Section 45(1)(b) prohibits the giving effect to provision of a contract, arrangement or understanding that has the purpose, effect or likely effect of substantially lessening competition; and Section 45(1)(c) prohibits a corporation from engaging with one or more persons in a ‘concerted practice’ that has the purpose, effect or likely effect of substantially lessening competition.

What is a concerted practice? 7.45 Prohibiting concerted practices is something new for Australia, but the prohibition has existed for some time in competition law regimes in the European Union and the United States. Article 101 of the Treaty on the Functioning of the European Union (the TFEU) prohibits ‘all agreements between undertakings, decisions by associations of undertakings and concerted practices which may affect trade between Member States …’ Art 101 of the TFEU therefore prohibits ‘agreements, decisions and concerted practices’ while the cartel provisions in Part IV Div 1 and the more general provisions in Part IV Div 2, s 45(1) of the CCA prohibit ‘contracts, arrangements, understandings and concerted practices’. Naturally enough, the question arises: ‘what is the difference between a contract, arrangement or

understanding on the one hand, and a concerted practice on the other?’ We have seen from the Leahy Petroleum and Air New Zealand decisions, that the courts have formulated a number of interpretative principles in identifying an arrangement or understanding. But where does the concept of a ‘concerted practice’ fit in? The Explanatory Memorandum to the Competition and Consumer Amendment (Competition Policy Review) Act 2017 devotes several pages (28–32) to answering this question. Although the term ‘concerted practice’ is not defined in the CCA, the Explanatory Memorandum states, at [3.19]: A concerted practice is any form of cooperation between two or more firms (or people) that would be likely to establish such cooperation, where this conduct substitutes, or would be likely to substitute, cooperation in the place of the uncertainty of competition.

The odd sounding phrase: ‘… where this conduct substitutes, or would be likely to substitute, cooperation in the place of the uncertainty of competition’ is a reference to the decision in Imperial Chemical Industries Ltd v Commission (Dyestuffs) [1972] ECR 619 where the Court defined (at [64]) ‘concerted practice’ as ‘a form of coordination between undertakings which, without having reached the stage where an agreement properly [page 137] so-called has been concluded, knowingly substitutes a practical cooperation between them for the risks of competition.’ The Explanatory Memorandum also states (at [3.21]): ‘It is intended that the concept of a “concerted practice” should capture conduct that falls short of a contract, arrangement or understanding as the courts have interpreted each of those terms in section 45.’ However, a concerted practice may exist in addition to a contract, arrangement or understanding [3.23]. 7.46 So, conduct might be a ‘concerted practice’ where it involves some sort of strategic cooperative behaviour between two or more parties who

would otherwise be competitive with each other, in circumstances where there is no consensus, no meeting of minds and no assumption of obligations and thus no arrangement or understanding, but where the effect of their conduct is to neutralise competition. In other words, there is some form of cooperation but no consensus or agreement. What form of conduct answers that description? Both the case law from the EU and the Explanatory Memorandum suggest that price or behaviour signalling may amount to concerted practices. This is especially important in highly concentrated markets with few firms. Prohibitions against concerted practices are therefore important methods in addressing what is known as ‘the oligopoly problem’ and the Australian economy is populated by many oligopolies in the service, banking, oil, groceries, airlines and energy industries to name a few. The oligopoly problem is this: where there are few firms in a market supplying homogeneous goods (such as petrol or flights or groceries), and where customers have equal access to price information about those goods and it costs the customer little or nothing to swap between those suppliers, then the suppliers have no incentive to compete. If one supplier lowers the price for, say, petrol, then the other suppliers will quickly match the price so they do not lose market share. The trouble is that lowering the price for customers usually means the suppliers must absorb the price cut as their margins are squeezed and profits fall. What to do? Forming an agreement to fix prices or divide the market is illegal. However, there are other ways to coordinate pricing behaviour without creating an arrangement or understanding and one such way involves price signalling. 7.47 This is where it becomes a little tricky. These days, most oligopolistic markets are characterised by pricing transparency; think of prices on groceries on shelves or online, petrol stations advertising their prices and airlines advertising online. As the Court at first instance in ACCC v Air New Zealand Limited (2014) ATPR 42-490 noted, at [466]–[467], mere ‘conscious parallelism’, or circumstantial evidence of parallel pricing is not sufficient to prove a contravention of s 45. In such cases, what looks like competitors

agreeing to match each other’s prices is in fact normal commercial practice as in the Leahy Petroleum decision. However, the prohibition against concerted practices is intended to capture conduct involving competitors who are signalling their prices or pricing behaviour to each other ‘short of an agreement, but in a way that is just not normal commercial practice’. The Explanatory Memorandum to the 2017 Amendment Act provides such an example, at [3.22] involving a small country town with just three petrol stations, ‘X’, ‘Y’ and ‘Z’. Petrol station ‘X’ sends an email to the other petrol stations advising that it intends to increase its price and then does so a short time later. Petrol stations ‘Y’ and ‘Z’ join in and email each other their intended prices. All three petrol stations develop the practice of emailing prices and then matching those prices. At no stage have the directors of the petrol stations met or [page 138] even communicated their intention to stabilise the market in this way. What we have is a coordination of pricing strategies such that this coordinated behaviour substitutes for the ‘uncertainty of competition’ (Explanatory Memorandum [3.19]) The Explanatory Memorandum concludes that the petrol stations have each likely to have breached s 45 by engaging in a concerted practice with the purposes, effect or likely effect of substantially lessening competition. Each of the petrol stations could raise their prices above the competitive level and not suffer a loss of customers because they know that their rivals will do likewise. In terms of classic competition law economics, by engaging in this concerted practice, the service stations have eliminated the availability of substitutes that consumers could swap away to in the event of a price rise. The absence of substitutes, combined with pricing discretion are indicators of market power. And given the relatively small market, likely to be confined to the town (the

nearest other petrol station may be geographically impossible) the conduct is likely to result in a substantial lessening of competition for fuel products at the retail functional level. In October 2017, the Australian Competition and Consumer Commission issued its Interim Guidelines on Concerted Practices which contains a number of hypothetical scenarios illustrative of the prohibition.

What about exclusionary provisions? 7.48 Two or more competitors can form a contract, arrangement or understanding that is designed to target a third party. The third party may be excluded from being supplied goods or services by the competitors, or prevented from acquiring goods or services from the competitors. These sorts of arrangements are also commonly referred to as ‘primary boycotts’ because the competitors directly boycott the provision of goods or services to the third party or prevent the third party from acquiring goods or services directly from them. Prior to the 2017 Amendment Act, the making of a contract, arrangement or understanding that contained an exclusionary provision was prohibited by s 45(2)(a)(i) and the giving effect to that provision was prohibited by s 45(2) (b)(i). Section 45(2) simply prohibited the making of and giving effect to exclusionary provisions. They were prohibited per se because there was no statutory requirement to examine whether the exclusionary provisions had the purpose or effect of substantially lessening competition in a market. The Competition and Consumer Amendment (Competition Policy Review) Act 2017 repealed those parts of s 45 that specifically concerned exclusionary provisions and also repealed related provisions (like the former s 4D). Instead, the definition of ‘cartel provision’ now contained in s 45AD and discussed above was amended to include the circumstances where two or more parties refused to supply or restricted supply of goods or services to persons or classes of persons and/or refused to acquire or limited the

acquisition of goods or services from persons or classes or persons. Recall from the discussion of s 45AD, conduct must satisfy either the ‘purpose/effect condition’ and the ‘competition condition’ or the ‘purpose condition’ and the ‘competition condition’. The ‘purpose/effect condition’ captures price fixing conduct and so exclusionary conduct fits into the ‘purpose condition’ and is therefore found in s 45AD(3)(a)(iii) and (3)(a)(iv) of the Act. [page 139] 7.49 How does it work now? Let’s take the decision in McCarthy v Australian Rough Riders Association Inc (1988) ATPR 40-836, and analyse it as if it were being decided under the cartel provisions in Part IV Div 1. In McCarthy, the rules of the Australian Rough Riders Association Inc (the ARRA) included a term that individual rodeo riders who were not members of the ARRA were ineligible to compete in events organised by rodeo clubs that were members of the ARRA. The rules also provided that individual riders who were members of the ARRA could not compete in events organised by rodeo clubs that were not members of the ARRA. Member clubs agreed to adopt the rules as part of their membership of the ARRA. McCarthy and several other ARRA members competed at non-ARRA clubs rodeos in order to boost their income. In response, the ARRA attempted to enforce the rules by imposing fines and declaring that McCarthy and the other riders were ineligible to compete at ARRA events because of their breach of the rules. McCarthy and the other riders sought an injunction restraining the ARRA from giving effect to its rules. The Court concluded that there was a ‘serious question to be tried’ (the threshold for seeking interim injunctive relief) and that ARRA and member clubs had breached s 45(2)(a)(i) of the then Trade Practices Act 1974 (Cth) in creating an exclusionary provision.

If this case were decided today, the following analysis would apply: 1.

2.

3.

4.

5.

McCarthy and the other riders would allege that the ARRA and its member clubs breached s 45AJ and s 45AK of the Act in making and giving effect to a contract arrangement or understanding that contained a cartel provision. They would allege that the contract, arrangement or understanding took the form of the ARRA Rules or Constitution agreed to between the ARRA and member clubs and that the relevant ‘cartel provision’ was the individual rule prohibiting ARRA members (like McCarthy) from participating in non-ARRA events and the associated rules permitting exclusion in the event of a breach of those rules. See the decision in News Ltd v Australian Rugby Football League Ltd (1996) 64 FCR 410 for law concerning ‘agreements’ constituted by interclub and Association contracts. Is there a ‘cartel provision’? Section 45AD(1) provides that a provision of a contract, arrangement or understanding contains an exclusionary provision if it satisfies either the purpose/effect condition in s 45AD(2) and the competition condition in s 45AD(4), or the purpose condition in s 45AD(3) and the competition condition in s 45AD(4). Since these facts do not involve fixing, maintaining or controlling a price, the relevant section is s 45AD(3) the purpose condition. Specifically, s 45AD(3)(a)(iii) and (3)(a)(iv). How so? McCarthy and the others would argue that the rule permitting exclusion from the ARRA for participating in non-ARRA events had the purpose of directly preventing the supply of places at ARRA Rodeo events — 3(a) (iii) by member clubs, while also directly preventing member clubs from acquiring rodeo riding services from McCarthy and the others at ARRA events — 3(a)(iv). What about the competition condition in s 45AD(4)? Here it’s important to remember that McCarthy and the other riders were professionals, competing for spaces at rodeo events. Likewise, the

clubs were competitive with each other for the acquisition of premium rodeo riders (who would attract a good crowd). Again the decision in News Ltd v Australian Rugby Football League Ltd (1996) [page 140]

6.

64 FCR 410 discusses these dynamics. Accordingly, the relevant provisions are sections 45AD(4)(h) and 45AD(4)(i). In this way, primary boycotts are captured by the amendments to the cartel provisions in the Act.

Section 45(1) — contracts, arrangements or understandings 7.50 Part IV Div 2 contains s 45(1) prohibiting a corporation from making and/or giving effect to a contract, arrangement or understanding that has the purpose, effect or likely effect of substantially lessening competition. Until the 2009 Amendment Act introduced Pt IV Div 1, all forms of cartel conduct were assessed under s 45(2) of the then TPA. This meant that, with the exception of exclusionary provisions and price-fixing, most forms of market sharing, bid-rigging and other kinds of cartel activity were subject to the substantial lessening of competition threshold. With the introduction of Pt IV Div 1, provided the existence of a ‘cartel provision’ can be established, the contract, arrangement or understanding between competitors will be prohibited per se. Unlike the more general prohibition in s 45(1) there will be no need to demonstrate the conduct had the purpose or effect of substantially lessening competition in a defined market. This will be the case whether action is taken under the criminal or civil regimes established by Pt IV Div 1.

Elements required to establish a breach of s 45(1) 7.51 The two cases that are discussed below concern interpretation of the former s 45(2). Where these cases refer to s 45(2), you should substitute s 45(1). The Court in Sammy Russo Supplies Pty Ltd v Australian Safeway Stores Pty Ltd (1998) ATPR 41-641 identified, if a decision is made to take action under s 45(2), what must be established: 1. 2. 3. 4.

the making of a contract, arrangement or understanding; the identification of a particular provision of the contract, arrangement or understanding; that the provision would have the purpose or effect of substantially lessening competition in a defined market; and that competition in the market has, in fact, been substantially lessened and how that lessening has taken place.

7.52 More recently, in Australian Competition and Consumer Commission v Australia and New Zealand Banking Group Ltd (2008) ATPR 42-263; [2008] FCA 1623, the ACCC alleged that the ANZ Banking Group had formed a contract, arrangement or understanding with a corporation called Mortgage Refunds Pty Ltd in breach of s 45(2)(a)(ii) and (b)(ii). The ANZ Banking Group sought an order from the Court striking out the ACCC’s statement of claim on the basis that it did not adequately plead a s 45(2)(a) case. [page 141] In striking out the statement of claim and giving leave for the ACCC to replead its case, the Court considered that in order to plead a contravention of s 45(2), an applicant must demonstrate (at [8]): 1.

‘material facts that establish the making of a contract, arrangement or an understanding arrived at between the relevant participants’;

2.

3. 4.

that there is a ‘provision of that contract, arrangement or understanding which is said to have the purpose or would have or be likely to have the effect required by the Act’ (substantial lessening of competition); ‘material facts from which an inference of purpose might be drawn or facts from which the contended effect might be established’; and ‘material facts that establish the relevant market in which competition would be lessened and the circumstances of lessening’.

Consequences of a breach 7.53 By now it should be apparent that collusive behaviour may expose a corporation to legal action under the criminal or civil regimes established under Pt IV Div 1 and/or the civil regime under s 45(1) in Pt IV Div 2 of the Act. In these circumstances, which Division of Pt IV applies? This is going to be discussed in much more detail in Chapter 14 (Public Enforcement: Policies and Procedures of the ACCC), Chapter 15 (Public Enforcement: Orders and Remedies Available to the ACCC) and Chapter 16 (Private Actions and Remedies). For the moment however, the following should be noted: •







Only the ACCC can institute proceedings seeking the recovery of a pecuniary penalty for a breach of the civil regimes established under both Pt IV Divs 1 and 2. Only the Commonwealth Director of Public Prosecutions (the CDPP) can institute criminal proceedings for a contravention of Pt IV Div 1. The CDPP and the ACCC have concluded a Memorandum of Understanding relating to the prosecution of serious cartel conduct. A private party can institute civil proceedings seeking injunctive relief or damages in relation to loss suffered as a result of conduct in contravention of either Pt IV Div 1 or Pt IV Div 2. Although it is theoretically possible that the same conduct might expose a corporation to action under both Pt IV Divs 1 and 2, the

reality is that there is very little reason to do so. In fact, there is greater advantage to taking action under Pt IV Div 1 because it does not require evidence that the contract, arrangement or understanding has substantially lessened competition.

Further reading Contracts, arrangements and understandings W Pengilley, ‘What is Required to Prove a “Contract, Arrangement or Understanding”’ (2006) 13 CCLJ 241 [page 142] I Tonking SC, ‘Belling the CAU: Finding a Substitute for “Understandings” About Price’ (2008) 16 CCLJ 46 I Wylie, ‘Understanding “Understandings” under the Trade Practices Act— An Enforcement Abyss?’ (2008) 16 TPLJ 20

Cartel conduct & concerted practices ACCC, Interim Guidelines on Concerted Practices, October 2017. F Ghezzi and M Maggiolino, ‘Bridging EU Concerted Practices with US Concerted Actions’ (2014) 10(3) Journal of Competition Law and Economics 647. R Gilsenan, ‘Could the Harper Review Recommendations Revive Private Enforcement of Cartel Provisions?’ (2016) 24 AJCCL 6 S Meacock and T Kearney, ‘Criminal Cartel Conduct: A Brief Survey of Domestic and International Criminal Cartel Enforcement Activity’ (2017) 25 AJCCL 53

C Beaton-Wells, ‘Criminalising Cartels: Australia’s Slow Conversion’ (2008) 31(2) World Competition Law and Economics Review 205 C Beaton-Wells and B Fisse, Australian Cartel Regulation: Law, Policy and Practice in an International Context, Cambridge University Press, 2011 C Beaton-Wells and B Fisse, ‘Criminalising Serious Cartel Conduct: Issues of Law and Policy’ (2008) 36 ABLR 166 Hon Justice M Gordon, ‘Criminalisation of Cartel Conduct’ (2011) 34 ABLR 177 A Hoel, ‘Crime Does Not Pay but Hard-Core Cartel Conduct May: Why Should It Be Criminalised?’ (2008) 16 TPLJ 102

[page 143]

Chapter 8 Taking Advantage of Market Power

Overview This chapter is intended to: • •



• •



introduce you to the concept of single-firm anti-competitive conduct; note the distinction between ruthless but legal conduct that eliminates competition and the illegal uses of market power that achieve the same result; explain the difficult history of interpreting s 46 of the Competition and Consumer Act 2010 (Cth) (CCA) (the Act) which prohibits firms with a substantial degree of power in a market from engaging in conduct that has the purpose, effect or likely effect of substantially lessening competition; identify the structure and essential elements of s 46 of the Act; note the difference between the purpose of s 46 — to protect competition and the competitive process rather than to protect individual traders; examine the distinction between ‘market power’ and other forms of power such as contractual or statutory power; and



examine the different forms of conduct that might attract the operation of s 46 of the Act.

Introduction 8.1 A significant amount of anti-competitive conduct involves the coordinated conduct of two or more corporations. For example, two competitors might form a ‘contract, arrangement or understanding’ to fix the price of their goods or services. This form of ‘horizontal’ coordinated conduct has the effect of eliminating retail competition between those two competitors for those particular goods or services. The consumer suffers by having to pay a higher retail price for those goods or services than the price that would prevail if those corporations were competing with each other. These forms of horizontal anti-competitive conduct, prohibited by the cartel provisions in Pt IV Div 1 and s 45 within Pt IV Div 2 of the Act, were discussed in Chapter 7. 8.2 Another form of coordinated conduct involves corporations at different levels of the supply chain. A manufacturer or wholesaler may create a restrictive arrangement (whether voluntary or coerced) with a retailer who is lower down in the distribution [page 144] chain. The arrangement might restrict the ability of the retailer to compete in certain markets or places. These forms of vertical anti-competitive conduct, prohibited by s 48 of the Act as forms of ‘resale price maintenance’, will be discussed in Chapter 10. Yet another form of coordinated conduct (although not always friendly) involves one corporation purchasing all of the assets or issued share capital in another corporation. One of the easier ways to eliminate competition altogether is to buy your competitor. With that competitor out of the way,

there may be little to prevent you from raising the retail price of your goods or services. These forms of anti-competitive conduct, prohibited by s 50 of the Act as ‘anti-competitive mergers or acquisitions’, will be discussed in Chapter 11. Not all forms of anti-competitive behaviour depend upon horizontal or vertical cooperation amongst competitors. A single firm that has a substantial degree of power in a market may be in a position to take advantage of that power in order to lessen competition. 8.3 You should recall from Chapter 4 that market power involves the ability of a corporation to engage in discretionary behaviour. Discretionary behaviour usually manifests as the ability to raise prices or alter terms of supply without constraint. Constraints usually take the form of competitors who offer goods or services that consumers regard as good substitutes for the other goods or services. The existence of effective substitutes is indicative of a competitive market, and that basket of substitutable goods or services is the relevant product market. The lack of effective substitutes is indicative of an uncompetitive market. This is why the existence of market power (discretionary ability) is said to be the antithesis of competition. Recall also the observation of the High Court in Queensland Wire Industries Pty Ltd v Broken Hill Proprietary Co Ltd (1989) 167 CLR 177; 83 ALR 577 at 585: Competition by its very nature is deliberate and ruthless. Competitors jockey for sales, the more effective competitors injuring the less effective by taking sales away. Competitors almost always try to ‘injure’ each other in this way. This competition has never been a tort … and these injuries are an inevitable consequence of the competition that s 46 is designed to foster.

There is nothing wrong with these ‘ebbs and flows’ of the market. The Act does not prevent a firm from gaining market power (without prejudice to s 50) because it has been an efficient and effective competitor. Nor does the Act ‘rescue’ a competitor that has been forced from the market because of inefficiency, stagnation or other genuinely competitive pressures and processes.

8.4 A corporation can attempt to artificially manipulate the market by ‘using’ its substantial degree of market power to create a situation in which it can damage or even eliminate competitors. By damaging or eliminating competitors, the corporation also damages or eliminates the number and effectiveness of substitutable products in the market that would otherwise constrain the corporation’s discretionary behaviour. In this way, a corporation might use its substantial degree of market power to entrench its existing market power and to eliminate competitors altogether by becoming a monopolist, or to ‘leverage’ its power in one market into an ancillary market. In that situation, the corporation’s market power has not been acquired through superior and efficient competitive behaviour that benefits consumers. In addition, competitors have not been eliminated from the market through their inefficient behaviour or through the [page 145] operation of genuinely competitive pressures. Rather, the corporation’s market power has been manipulated to eliminate competition and further entrench its power, ultimately to the detriment of consumers who end up paying more or receiving less because of the lack of competitive alternatives. Where a corporation that has a substantial degree of power in a market engages in conduct that has the purpose, effect or likely effect of substantially lessening competition in any market in which the corporation supplies goods or services, then it is in breach of s 46 of the Act.

A difficult history 8.5 The current prohibition in s 46 of the Act was created by the Competition and Consumer Amendment (Misuse of Market Power) Act 2017

(Cth). However, the new prohibition did not come into force until the enactment of the Competition and Consumer Amendment (Competition Policy Review) Act 2017 (Cth). The principal reason for this coordinated implementation was to ensure that certain amendments to the ‘Authorisation and Notification’ procedures in Part VII of the Act were in place. Those amendments permit conduct that might otherwise breach s 46 of the Act to be the subject of an application for Authorisation, something that was never possible for s 46 conduct before these amendments. Section 46 of the Act has experienced a difficult life. Over the past two decades, a number of decisions of the High Court interpreted the elements of s 46 (as it then was) in ways that made it difficult to establish the elements of the prohibition. In turn, these decisions prompted many legislative amendments to the Act in an attempt to bring clarity to the operation and interpretation of s 46. These amendments generated additional interpretative difficulties. By the time of the 2015 Harper Review Report into competition law and policy, s 46 of the Act had become extremely complex and unwieldy, with several subsections attempting to address the same behaviour in different ways (predatory pricing for example). Understanding the operation of the current version of s 46 of the Act presents some challenges. On the one hand, it is a completely new prohibition and it will take some time before first instance and appellate courts develop jurisprudence in interpreting and applying it. However, on the other, it will take some time for existing investigations (by the ACCC) and litigation involving the former version of s 46 to work their way through the Courts. So, should this chapter simply focus on the new version of s 46, or should it continue to discuss the former version of s 46 but also include the new version? After all, there are a wealth of cases involving the interpretation of ‘market power’ as that term appeared in the former version of s 46. In the spirit of compromise, I have decided to focus principally on the new version of s 46 (after all, it is the law) while also providing some historical jurisprudential context from previous cases where necessary. Hopefully by

doing so, you will come to understand not only how the new version of s 46 operates but also appreciate the judicial context that gave rise to it. In this way, you will be able to make sense of the many previous decisions of the courts involving the former incarnation of s 46. [page 146]

Structure and elements of s 46 8.6

Section 46(1) of the Act states:

(1) A corporation that has a substantial degree of power in a market must not engage in conduct that has the purpose, or has or is likely to have the effect, of substantially lessening competition in: (a) that market; or (b) any other market in which that corporation, or a body corporate that is related to that corporation: (i) supplies goods or services, or is likely to supply goods or services; or (ii) supplies goods or services, or is likely to supply goods or services, indirectly through one or more other persons; or (c) any other market in which that corporation, or a body corporate that is related to that corporation: (i) acquires goods or services, or is likely to acquire goods or services; or (ii) acquires goods or services, or is likely to acquire goods or services, indirectly through one or more other persons.

Section 46 contains seven subsections intended to assist in the interpretation and evaluation of ‘substantial degree of market power’. Curiously, the numbering proceeds directly from s 46(1) to s 46(3). An earlier draft of the Competition and Consumer Amendment (Misuse of Market Power) Act 2017 (Cth) contained the missing s 46(2) which provided that in evaluating whether conduct had the purpose, effect or likely effect of substantially lessening competition, certain economic factors needed to be taken into account. However, s 46(2) was dropped from the final version of the Amendment Act — hence the gap in numbering. Prior to the 2017 Amendment Act, s 46 of the Act stated:

A corporation that has a substantial degree of power in a market shall not take advantage of that power in that or any other market for the purpose of: (a) eliminating or substantially damaging a competitor of the corporation or of a body corporate that is related to the corporation in that or any other market; (b) preventing the entry of a person into that or any other market; or (c) deterring or preventing a person from engaging in competitive conduct in that or any other market.

8.7 It was necessary to find that the corporation possessed a substantial degree of power in a market, that it then ‘took advantage’ of that power for one of the proscribed purposes. Much of the former jurisprudence concerning s 46 focussed on the ‘take advantage’ and ‘purpose’ elements of the prohibition. It was necessary to demonstrate a nexus between the conduct complained of and the substantial degree of market power of the corporation, such that the conduct was a ‘use’ of that power. It was then necessary to establish that the conduct was for a proscribed anti-competitive purpose. Many of the former cases concerning s 46 became entangled in these issues rather than focussing on the alleged anti-competitive harm said to flow from the conduct. These and other difficulties were noted by the Harper Review into Competition Law, with the result that it recommended significant amendments to s 46. These recommendations were [page 147] accepted and, after further scrutiny of the then Competition and Consumer Amendment (Misuse of Market Power) Bill 2016 by the Senate Economics Legislation Committee, the amendments were eventually passed and have now come into effect. There are three very important differences between the present and former version of s 46 of the Act. 1.

Section 46 is now breached when a corporation with a substantial

2.

3.

degree of power in a market engages in conduct that has the purpose, effect or likely effect of substantially lessening competition in a market. This prohibition in s 46 is now consistent with the evaluative threshold for almost all (except cartels and RPM) of the other prohibitions in Part IV of the Act. The focus of analysis in s 46 is now directed to whether the conduct has the purpose, effect or likely effect of substantially lessening competition rather than whether there is a nexus between the corporation’s substantial degree of market power and the conduct. The emphasis on anti-competitive ‘purpose’ in the former version of s 46 has been replaced by ‘purpose, effect or likely effect’ of substantially lessening competition.

Elements of s 46 8.8 1. 2. 3.

The elements of the prohibition in s 46 of the Act are: A corporation possessing a substantial degree of market power engaging in conduct that has the purpose, effect or likely effect of substantially lessening competition in a market.

The concepts of a substantial degree of ‘market power’ and ‘substantial lessening of competition’ are by now familiar. The Revised Explanatory Memorandum to the Competition and Consumer Amendment (Misuse of Market Power) Bill 2016 indicated (at [1.27]) that these ‘existing concept(s) within the competition law, and the jurisprudence that has developed under other provisions of Part IV of the Act will inform the application of this test to section 46.’ In other words, the case law that we explored in Chapters 3 (Market Definition) and 4 (Market Power and SLC) will now apply in evaluating conduct alleged to breach s 46 of the Act. What is new will be applying the analysis in these cases to single firm conduct rather than multifirm conduct (such as ‘contracts, arrangements or understandings’ in s 45(1)

or exclusive dealing in s 47). 8.9 One interesting consequence of applying a SLC threshold test for conduct alleged to breach s 46 of the Act involves revisiting cases decided under the former thresholds. Would those cases be decided the same way today? For example, in Australian Competition and Consumer Commission v Cement Australia Pty Ltd [2017] FCAFC 159, the ACCC had instituted proceedings against Cement Australia and several other cement production companies. The cement companies had entered into certain agreements with power stations for the cement companies to purchase very large quantities of fly-ash, a by-product of power generation and an ingredient for cement. The ACCC alleged that by entering into the purchase contracts, the cement companies were buying amounts of fly-ash that far [page 148] exceeded demand, simply for the purpose of preventing potential competitors from gaining access to the fly-ash they would need to make concrete. The ACCC alleged that this conduct breached sections 45 and 46 of the Act. The Court found that the cement companies had not breached s 46 of the Act because the act of entering into the contracts was not a ‘taking advantage’ of market power. However, the Court did find that the cement companies had breached s 45 of the Act by entering into a contract, arrangement or understanding that had the purpose, effect or likely effect of substantially lessening competition in the relevant market. Given the finding at first instance that the cement companies possessed a substantial degree of market power, and if the conduct occurred today, perhaps they would also be in breach of s 46.

Protection of competition or of individual

competitors? 8.10 Like all of the prohibitions in Part IV of the Act with a substantial lessening of competition threshold, s 46 is not (and was never) intended to protect individual firms from competitive pressures. The High Court has repeatedly stated that s 46 is not intended to protect individual competitors but, rather, the larger competitive processes in the market. The reasoning of the Court is that since consumers benefit from a competitive market, s 46 is to be interpreted in such a way that protects competitive processes in a market and thereby benefit consumers. For example, in Queensland Wire Industries Pty Ltd v Broken Hill Proprietary Co Ltd (1989) 167 CLR 177; 83 ALR 577, Mason CJ and Wilson J stated (ALR at 585): The object of s 46 is to protect the interests of consumers, the operation of the section being predicated on the assumption that competition is a means to that end.

This would mean that s 46 is not concerned with issues of ‘fairness’ or the ‘morality’ of conduct but with the economics of the market in which the conduct occurs. This was confirmed by Deane J in the Queensland Wire decision in stating (ALR at 587): … the essential notions with which s 46 is concerned and the objective which the section is designed to achieve are economic and not moral ones. The notions are those of markets, market power, competitors in a market and competition. The objective is the protection and advancement of a competitive environment and competitive conduct …

Similar views have been expressed by subsequent decisions of the High Court. For example, in Boral Besser Masonry Ltd (now Boral Masonry Ltd) v ACCC (2003) 215 CLR 374; (2003) ATPR 41-915; [2003] HCA 5, Gleeson CJ and Callinan J stated (at [87]): The purpose of the Act is to promote competition, not to protect the private interests of particular persons of corporations. Competition damages competitors. If the damage is sufficiently serious, competition may eliminate a competitor [note omitted].

8.11 Again, the underlying assumption is that by maintaining a competitive market, consumers will benefit from competition. McHugh J in

the Boral decision stated (at [261]): While conduct must be examined by its effect on the competitive process, it is the flow-on result that is the key — the effect on consumers, not the effect on other competitors. Competition

[page 149] policy suggests that it is only when consumers will suffer as a result of the practices of a firm that s 46 is likely to require courts to intervene and deal with the conduct of that firm.

This focus is confirmed by the Revised Explanatory Memorandum which states (at [1.15]): ‘The amendments reframe s 46 to focus the provisions and tests on the competitive process rather than individual competitors. The competitive process is harmed, and competition is lessened, when actual or potential competitors are prevented or deterred from competing on their merits. However, the objective of s 46 is not to shield inefficient competitors from the natural effects of strong competition in a market.’

A substantial degree of market power 8.12 Section 46 is directed toward corporations that possess a substantial degree of market power. The concept of ‘market power’ was explored in Chapter 4. However, s 46(3)–(7) contain important provisions that impact on the initial evaluation of a corporation’s market power. Section 46(3) provides: (3) A corporation is taken for the purposes of this section to have a substantial degree of power in a market if: (a) a body corporate that is related to that corporation has, or 2 or more bodies corporate each of which is related to that corporation together have, a substantial degree of power in that market; or (b) that corporation and a body corporate that is, or that corporation and 2 or more bodies corporate each of which is, related to that corporation, together have a substantial degree of power in that market.

This provision permits aggregation of market power of related bodies

corporate. It acknowledges the situation where a firm is behaving in ways that lessen competition and where it is being supported by the ‘deep pockets’ of related bodies corporate. Section 46(4) provides: (4) In determining for the purposes of this section the degree of power that a body corporate or bodies corporate have in a market: (a) regard must be had to the extent to which the conduct of the body corporate or of any of those bodies corporate in that market is constrained by the conduct of: (i) competitors, or potential competitors, of the body corporate or of any of those bodies corporate in that market; or (ii) persons to whom or from whom the body corporate or any of those bodies corporate supplies or acquires goods or services in that market; and (b) regard may be had to the power the body corporate or bodies corporate have in that market that results from: (i) any contracts, arrangements or understandings that the body corporate or bodies corporate have with another party or other parties; or (ii) any proposed contracts, arrangements or understandings that the body corporate or bodies corporate may have with another party or other parties.

[page 150] 8.13 Section 46(4) directs attention to the existence of competitive constraints in evaluating whether a firm has a substantial degree of power in a market. In Chapter 4 we noted that market power exists when a firm can engage in discretionary behaviour, usually manifesting as the ability to sustainably increase the price of its goods or services without losing its customer base. It is the existence of a competitor’s substitutable goods or services that may constrain any attempt by a firm to raise the price of its goods or services. A firm is unlikely to possess a substantial degree of power if the market is populated by vigorous and effective competitors offering consumers substitutable goods or services. Section 46(5) provides: (5) For the purposes of this section, a body corporate may have a substantial degree of power in a market even though:

(a) the body corporate does not substantially control that market; or (b) the body corporate does not have absolute freedom from constraint by the conduct of: (i) competitors, or potential competitors, of the body corporate in that market; or (ii) persons to whom or from whom the body corporate supplies or acquires goods or services in that market.

One of the issues associated with evaluating the degree of market power involves the question of just how free from competitive constraints a corporation must be in order that it can be said to possess a ‘substantial’ degree of market power. Section 45(5) is intended to neutralize arguments that a corporation must be absolutely free from competitive constraints in order to possess a substantial degree of market power. This is confirmed by s 47(7) which simply states: ‘To avoid doubt, for the purposes of this section, more than one corporation may have a substantial degree of power in a market.’

Market power versus other forms of power 8.14 Some corporations have powers or rights granted to them by licence, contract or statute, and, by exercising those rights or powers, can diminish or even eliminate competition. Section 46(8)(a) of the Act states: ‘A reference to power is a reference to market power.’ Is there a difference between the exercise of economic ‘market’ power and the exercise of a power that is gained through statute, contract or licence? This issue remains a little confusing. The difference is illustrated by two decisions involving the exercise by a statutory corporation of a power, granted by its statute, to refuse to award a licence. 8.15 In Plume v Federal Airports Corporation (1997) ATPR 41-589, Mrs Plume alleged that the Federal Airports Corporation (the FAC) had breached s 46 of the Act in refusing to issue her a licence to operate a shuttle bus service to and from the city centre and Alice Springs Airport. The FAC’s power to issue licences and leases of concession stands at Alice Springs Airport was

derived from the Federal Airports Corporation Act 1986 (Cth). Justice O’Loughlin considered that whatever the relevant market definition, the FAC did not exercise market power in deciding not to award Mrs Plume a licence (at 44,133): [page 151] Putting to one side the problem of identifying the correct market, it seems to me to be obvious that the conduct of the FAC could not be described as the exercise of an economic market power. Rather it was the use of a regulatory power designed for the benefit of the members of the public who have occasion to use the facilities of the Airport.

8.16 The exercise of a regulatory power also occurred in Stirling Harbour Services Pty Ltd v Bunbury Port Authority (2000) ATPR 41-752; [2000] FCA 38, where the port authority called for tenders to provide towage services for the port of Bunbury in Western Australia. Since the port could efficiently support only one towage provider, the successful tenderer would effectively be granted an exclusive licence. It was held that in granting the licence, the port authority was not exercising market power but was exercising power under the Port Authorities Act 1999 (WA) in granting the towage licence (at [124]): In my opinion, the [Bunbury Port Authority] contention is correct that the exercise by it of a statutory power to licence the provision of towage services in the Port of Bunbury is not an exercise of market power but rather the discharge of a regulatory function conferred upon it by the legislature in the public interest.

8.17 Similar reasoning has been relied upon when a corporation exercises a contractual right granted to it by a licence. In Helicruise Air Services Pty Ltd v Rotorway Australia Pty Ltd (1996) ATPR 41-510, both Helicruise and Rotorway operated commercial helicopter charter businesses from the Wickham heliport. Both companies competed for work in and around the Newcastle area and the Wickham heliport was the closest to Newcastle. The lease of Wickham heliport was transferred to Rotorway upon certain

conditions that included the issuing of licences to other helicopter charters. Pursuant to the lease, Rotorway granted Helicruise a licence to enter and use part of the Heliport. When the licence expired, Rotorway gave notice to Helicruise to vacate the land. Helicruise alleged that Rotorway had misused its market power in refusing to renew the licence. The Court concluded (at 42,399–400): It cannot be said, in my view, to be a taking advantage of market power to exercise a right which one has as a lessee and occupier of land, to terminate the rights of a licensee at will in respect of part of that land … [T]he matter has been the subject of consideration by judges of this court … In each case where the matter has arisen it has been held that the exercise of rights at law does not fall within s 46 merely because the corporation exercising those rights has market power.

Note the phrase ‘the exercise of rights at law does not fall within s 46 merely because the corporation exercising those rights has market power’. This is an indirect reference to the observation of the Court in Natwest Australia Bank Ltd v Boral Gerrard Strapping Systems Pty Ltd (1992) ATPR 41-196; 111 ALR 631 that: There must be a causal connection between the conduct alleged and the market power pleaded such that it can be said that the conduct is a use of that power.

8.18 Thus, where a corporation that has the requisite degree of market power and a right at law to exercise behaviour that might damage a competitor (for example, in Helicruise, refusing access to the facilities needed to compete) the exercise of that legal right does not involve the use of market power. Such a right could just as easily be exercised by a firm without market power. [page 152] 8.19 This argument cannot be pressed too far. There are many government business enterprises, statutory authorities and statutory corporate entities that now compete on the same footing as private corporations, especially in deregulated markets and privatised industries. In one sense, every action by

these entities can be traced back to the statutes by which they were established. However, it would be absurd for those entities to argue that every action they undertake is therefore exempted because it is not an exercise of market power. 8.20 Even if such an argument were raised, the cases we have just examined may need to be re-considered in light of the High Court’s decision in NT Power Generation Pty Ltd v Power and Water Authority (2004) 219 CLR 90; (2004) ATPR 42-021; [2004] HCA 48. Put simply, the Northern Territory Power and Water Authority (PAWA) was responsible for the distribution of electricity in the Northern Territory pursuant to the Power and Water Authority Act 1987 (NT). PAWA owned the infrastructure necessary for electricity generated in the ‘upstream’ market to be transformed and then distributed to residential and business consumers in the ‘downstream’ market. NT Power wanted to sell electricity in the downstream market in competition with PAWA but needed access to the infrastructure (transformers, sub-stations and high- and low-voltage wires) in order to distribute the electricity. PAWA refused to grant NT Power access, thus ‘insulating’ itself from competition in the retail market for electricity. NT Power argued that PAWA had a substantial degree of power in a number of alleged markets and that it took advantage of that power to prevent NT Power from competing. PAWA responded by denying it had exercised market power for the purposes of s 46(4)(c) of the Act. A number of reasons were given. Of most relevance here is PAWA’s argument that since it was the owner of the distribution infrastructure, the decision to refuse NT Power access to that infrastructure was an exercise of proprietary rights and not an exercise of market power. The High Court rejected this argument, stating (at [125]): [T]o suggest there is a distinction between taking advantage of market power and taking advantage of property rights is to suggest a false dichotomy, which lacks any basis in the language

of s 46 … property rights can be a source of market power attracting liability under s 46 …

The Court held that PAWA had a substantial degree of power in the downstream electricity market because it was the monopoly supplier. It was the monopoly supplier because it owned the distribution infrastructure. Thus (at [124]): PAWA did take advantage of market power, because it was only by virtue of its control of the market or markets for the supply of services for the transport of electricity along its infrastructure … and the absence of other suppliers, that PAWA could in a commercial sense withhold access to its infrastructure …

Professor Stephen Corones has therefore concluded that: In the light of the High Court’s finding in the NT Power case it would seem that no valid distinction can be drawn on market power sourced in a right conferred by an intellectual property statute and market power sourced in a right conferred by some other statute.1

[page 153] 8.21 Remember that the essence of market power is discretionary behaviour; that is, the capacity to raise prices above the competitive level without losing customers or to behave in ways unconstrained by competitors. The absence of competitors means that the process of competition cannot ‘discipline’ an attempt to exercise market power. What does it matter whether the source of the ability to engage in discretionary behaviour lies in a contract, statute or intellectual property right? If, as a result of that right, a corporation has a substantial degree of power in a market and it uses that power to eliminate or substantially damage a competitor or competition in that or any other market, then s 46 will be breached. In fact, the Explanatory Memorandum attached to the Trade Practices Revision Bill 1986 stated (at [44]): Market power can be derived from statutory limitations on competition (for example, through the creation of statutory monopolies) in the same way as any other constraints on competition can affect the operation of the market.

Specific forms of prohibited conduct 8.22 The ways in which a corporation can potentially breach s 46(1) of the Act are endless and limited only by its particular commercial circumstances. However, conduct in breach of s 46(1) of the Act generally involves either price or non-price strategies. Examples of price strategies include the notoriously difficult predatory pricing conduct, price-squeezing and monopoly pricing. Non-price strategies include refusal to supply, bundling, termination of distributorships and imposing restrictive conditions. For clarity of analysis, it is easier to consider these forms of conduct separately. 8.23 It is important to remember that following the Competition and Consumer Amendment (Misuse of Market Power) Act 2017 (Cth) the various price and non-price strategies discussed below will now only breach s 46 if the conduct has the purpose, effect or likely effect of substantially lessening competition in a market. What this means is that in every situation, the price or non-price strategy must be evaluated by reference to the ‘future with and future without’ tests discussed in Chapter 4. 8.24 In October 2017, the ACCC published its Interim Guidelines on Misuse of Market Power.2 The ACCC notes (at p 3) that it has statutory responsibility to investigate and institute proceedings for conduct in breach of s 46. The ACCC states (at p 3) that it has issued the Interim Guidelines in order to ‘set out how the ACCC currently proposes to interpret s 46 and describes the general approach the ACCC will take in investigating alleged contraventions of s 46.’ Like its Merger Guidelines, these Interim Guidelines in relation to s 46 provide very useful explanations of important concepts of ‘markets’, ‘market power’ and ‘substantial lessening of competition’. They also give practical examples of both price and non-price strategies that may raise issues in terms of s 46 of the Act. [page 154]

Price strategies 8.25 We will consider two forms of price strategies that are frequently alleged to constitute conduct in breach of s 46(1) of the Act: monopoly pricing and predatory pricing.

Monopoly pricing 8.26 If a firm has an effective competitive strategy and an efficient trading structure, it will be rewarded in the form of increased profits and market share. Sometimes, a firm may emerge from a volatile market as the sole supplier, possessing a monopoly over the production and distribution of its product. It is in the interests of a firm to exploit the ruthlessness of competition in order to gain power, wealth and market share. The TPA was never intended to prevent such a firm enjoying the results of its efficient and effective competitive strategies. Justice Wilcox in Pont Data Australia Pty Ltd v ASX Operations Pty Ltd (1990) 21 FCR 385; 93 ALR 523; ATPR 41-038 noted in relation to s 46 that (ALR at 555): [I]t is true that the section does not eliminate the evils of monopolisation and it does not require corporations to deny their own self-interests.

It costs a corporation a certain amount to produce the goods or services that it supplies to the market. It is, therefore, in the interests of a corporation to set the prices for its goods or services as high as possible in order to maximise the margin between the cost of production and the profit it earns. But how high is too high? The answer is relatively simple. A corporation can set the prices for its goods or services at whatever level it chooses. If the market is competitive, the corporation will find its attempts to raise its prices disciplined by its competitors. A corporation that stubbornly maintains high prices in the face of significant price competition will quickly find itself out of business. This underscores the importance of competitive markets. When markets are competitive, no corporation has the power to raise prices above the competitive level without losing customers. However, if the market is not

competitive, there will be few disciplining pressures on the corporation and consumers may be vulnerable to exploitation.

Predatory pricing 8.27 A firm with a substantial degree of power in a market may attempt to eliminate rivals by pricing them out of the market. This does not involve setting prices too high but, rather, setting prices so low that rival firms cannot afford to match them. A rival may not be able to match the lower prices because its own costs in making those products are higher. Therefore, in order to both cover its costs of production and to make even a small profit margin, a rival firm must charge a certain price below which it cannot go, to remain in the market. The firm with market power is aware of this and deploys a strategy of setting prices very low, even to the point of making zero profit or even a loss, in order to drive its rivals from the market. The powerful firm may be hoping that when its rivals have been eliminated from the market, it can both recover its losses during the ‘price war’ and make even higher profits because there are no rivals to discipline its price-setting. [page 155] The way predatory pricing operates to eliminate competition was described by the Court in Australian Competition and Consumer Commission v Cabcharge Australia Ltd (2010) ATPR 42-331. The Court explained (at 43,227): Firms engage in predatory pricing to drive rivals out of business and scare off potential entrants. Then, they raise prices, capturing monopoly/oligopoly rents. Once firms gain monopoly/oligopoly power, it is often extremely difficult to take that power away; firms are likely to be deterred from entering the market because they know the incumbent has the ability to undercut them and if new firms try to enter the market, the incumbent is likely to engage in predatory pricing to force them out.

8.28

Predatory pricing is often alleged by smaller firms who compete with

larger firms. Despite its apparently blatant nature, predatory pricing is an extremely difficult contravention to establish. There are a number of reasons for this difficulty. First, predatory pricing is often regarded as an economically ‘irrational’ form of behaviour. Economic theory usually assumes that a firm is a ‘rational profit maximiser’; that is, the firm will engage in the most rational behaviour consistent with maximising its profits. Predatory pricing appears irrational because the firm may well lose money through its extreme discounting. Second, the outward form of predatory pricing manifests as a reduction in the price of goods or services to consumers. Noting this, the Court in Eastern Express Pty Ltd v General Newspapers Pty Ltd (1991) 30 FCR 385; (1991) ATPR 41-128; 103 ALR 41 stated ALR at 62): [T]he special difficulty about a case of predatory pricing is that … the outward manifestation of a decision to engage in predatory pricing is a lowering of prices, an action which, on its face is procompetitive.

Third, not all forms of price-cutting by large firms reflect a sinister intention to accept short-term losses in order to reap longer-term supracompetitive profits. The discounting may simply reflect internal productive efficiencies of the firm. The Trade Practices Revision Bill 1986 noted: A corporation which is able to price its goods very competitively by reason, for example, of economies of scale or the acquisition of new efficient production facilities, would not be inhibited from doing so by reason of the fact that it enjoys a substantial degree of market power. By reflecting in its pricing policy its efficiency it would not, without more, be taking advantage of its market power notwithstanding any effect of its pricing on its competitors.

8.29 Few cases have successfully established predatory pricing as a breach of s 46(1) of the Act. It was established in Victorian Egg Marketing Board v Parkwood Eggs Pty Ltd (1987) ATPR 40-081 and again, more recently, in Australian Competition and Consumer Commission v Eurong Beach Resort Ltd (2006) ATPR 42-098. The principal High Court decision concerning predatory pricing is Boral Besser Masonry Ltd (now Boral Masonry Ltd) v ACCC (2003) 215 CLR 374; (2003) ATPR 41-915; ]2003] HCA 5, which has been extensively analysed.

You will find references to this detailed analysis in Further reading at the end of this chapter. In effect, the High Court held that Boral Besser Masonry (BBM) did not possess the requisite degree of market power to sustain the ACCC’s allegation that it had engaged in predatory pricing. [page 156] 8.30 The decision is a good illustration of the difficulties associated with establishing predatory pricing. Two issues, in particular, have tended to cause difficulties for applicants, the ACCC and the courts in approaching allegations of predatory pricing: 1. 2.

What measure of ‘cost’ is to be used in determining whether the firm is pricing ‘below cost’? Must there be some prospect of ‘recoupment’ following the predatory pricing strategy?

8.31 The first issue reflects the fact that economists use different measures in determining how much it ‘costs’ a firm to produce its goods or services. There are fixed costs, variable costs, total costs, average costs, marginal costs and average variable costs, as well as a combination of any or all of them. What is the measure? At first instance in the Boral decision ((1999) ATPR 41-715; [1999] FCA 1318), Heerey J employed the measure of ‘avoidable cost of production’. His Honour explained (FCA at [104]): The concept of avoidable cost may be illustrated by the following example. Assume that to make an article, a firm has to pay $6 for raw materials and incurs fixed costs of $4. Thus a sale for any price above $10 will return a profit. If the firm sells for $8, it will sell below cost and accordingly make a loss. But it will recover its raw materials costs and make a contribution to its fixed costs. So the firm is better off making the article than not making it. But if the price received is less than $6 the firm is worse off. It would be better not to make the article. In this example $6 is the avoidable cost, the cost that will be avoided by not making the article.

Heerey J found that, although BBM was pricing below its avoidable cost of

production, it was not taking advantage of its market power. The difficulty is that a firm can sell its goods or services below the avoidable cost of production for either a pro-competitive or anti-competitive purpose (at [166]): It will be anti-competitive if the firm has engaged in the conduct so that competitors will exit the market so that in due course it will more readily enjoy the advantages of market power and recoup its losses. Such conduct is taking advantage of power because only the firm with market power can elect to price lower knowing it is a worthwhile outlay. It is worthwhile incurring those losses because the firm can recoup them later.

This was the difficulty in the Boral case. The High Court noted that BBM faced significant competition from Besser Pioneer Pty Ltd so that while the prospect of recoupment in the post-conduct market was not a legal requirement in s 46(1), the fact that BBM could not hope or expect to recoup its losses indicated its lack of market power. Mc Hugh J stated (at [289]): Recoupment involves the capacity of a firm to price in a manner inconsistent with what a competitive market would dictate in order, at a minimum, to make good the losses sustained during a price war. Although a firm may seek not only to recoup its losses but also to earn monopoly profits, at a minimum a clearing of the losses would be required to make the conduct rational. The greater the degree of recoupment that a firm can achieve, the greater is its market power. But a firm that is unable to recoup any of its losses has no market power.

[page 157] 8.32 The High Court’s views on the necessity or otherwise of recoupment in establishing predatory pricing were obiter since BBM did not possess the requisite degree of market power. However, the de facto implication of the decision meant otherwise. According to the 2008 Senate Standing Committee on Economics report: This decision meant that the ability to recoup losses incurred from below cost pricing is a necessary precondition to establish that a corporation has engaged in predatory pricing. It would not be possible to establish whether a firm had actually recouped its losses until years after the anti-competitive conduct had occurred. Proving that future market conditions will allow a firm to recoup losses would be very difficult.3

8.33 Under the new SLC threshold in s 46, whether a firm has engaged in predatory pricing in breach of s 46, will not depend upon a finding that its pricing behaviour was a function or use of its substantial market power. After establishing that the firm has a substantial degree of market power, the critical evaluation will involve evaluating the likely state of competition in the market in the future with the predatory pricing strategy against the likely state of competition in the market in the future without the predatory pricing strategy. 8.34 Applying the ‘future with and the future without’ test in the context of predatory pricing raises several issues: 1.

2.

3.

If the predatory firm successfully drives its competitors from the market, then the future with the conduct will likely result in a highly concentrated market. Indeed, the predatory firm is probably hoping this will be the result because it can then raise the price of its goods or services to supra-competitive levels. The ability of the predatory firm to sustainably raise its prices to supra-competitive levels without constraint suggests competition may be substantially lessened. However, if barriers to entry to the market are low, then new firms may be able to enter the market and offer effective price competition. The threat of credible new entry means it’s unlikely the predatory firm will have the power to engage in the sort of discretionary pricing behaviour involving setting supra-competitive prices. In the market in the future, if potential new entrants offer effective substitutes for the predatory firm’s goods or services it’s unlikely that competition will be substantially lessened. If the predatory firm is highly vertically integrated in a market and so has long-term contracts with suppliers of essential inputs needed to make their goods, then this will impact on the likelihood of future entry into the market. If new entrants cannot secure essential inputs then competition in the market in the future may be substantially lessened.

Two examples of recently concluded predatory pricing cases follow. 8.35 The decision of the Court in Australian Competition and Consumer Commission v Cabcharge Australia Ltd (2010) ATPR 42-331 included a finding that Cabcharge Australia Ltd had engaged in predatory pricing by selling taxi meters below cost for the [page 158] purpose of preventing other providers of taxi meters from entering the relevant market. However, this decision was not reached after a trial of the matter. Instead, like the Ticketek decision discussed below, Cabcharge Australia Ltd admitted the contravention and agreed with the ACCC to court-imposed penalties and orders. 8.36 A different form of pricing strategy found to be in breach of s 46 of the Act occurred in Australian Competition and Consumer Commission v Ticketek Pty Ltd (2010) ATPR 42-385. Ticketek provided ticketing services to venue operators or promoters of various forms of public entertainment such as concerts and sporting events. In this case, promoters entered into contracts with Ticketek that included a term granting Ticketek exclusive rights to print, prepare, sell and distribute tickets at the venue of the relevant events. Ticketek was not the only provider of ticketing services and in fact competed with another company, Lasttix. Lasttix specialised in providing ‘last minute’ discounted tickets to promoters of events. These discounted tickets were set at a price lower than Ticketek’s own discounted tickets. However, for customers to gain access to Lasttix’s discounted tickets, it was necessary for Ticketek to publish those tickets on its own ticketing system. In effect, this meant that Ticketek was advertising a competitor’s cheaper tickets on its own system. During 2009 and 2010, the promoters of different events requested Ticketek publish Lasttix’s discounted tickets on its ticketing system. Ticketek

refused, resulting in the ACCC instituting proceedings alleging that Ticketek had breached s 46 of the Act. The ACCC alleged that by refusing to publish Lasttix’s discounted tickets, it had deterred or prevented Lasttix from engaging in competitive conduct in the ticketing-related services market. Ticketek did not contest the ACCC’s allegations at trial. Instead, it admitted to the contraventions and jointly sought orders for declarations and pecuniary penalties. Nevertheless, the case is an example of how a refusal by Ticketek to implement a competitor’s pricing structure in order to shield itself from price competition constituted a breach of s 46 of the Act.

Non-price strategies 8.37 There are a number of common forms of non-price strategies including refusal to supply, termination of distributorships, leveraging and bundling. Set out below is an analysis of the principal cases involving non-price strategies. As we investigate the case law, try to think strategically about the alleged anti-competitive conduct: • •

How did the conduct potentially eliminate or substantially damage a competitor? What was the commercial advantage to the firm in engaging in the conduct?

8.38 Given that s 46 is not directly concerned with the fate of individual competitors, how would that conduct be evaluated under the SLC threshold: ‘future with and the future without’ test? We started our investigation of s 46 by examining the important decision of the High Court in Queensland Wire Industries Pty Ltd v Broken Hill Proprietary Co Ltd (1989) 167 CLR 177; 83 ALR 577. BHP was the monopoly producer of ‘Y-bar’, the extruded steel rods used for making ‘star picket’ rural fencing. Queensland Wire Industries (QWI) wanted to buy Y-bar from BHP to use in the production of rural fencing, which it would then offer for sale in the retail market, in competition

with BHP. [page 159] While BHP did not actually refuse to supply Y-bar to QWI, it offered to supply the product at wholesale prices so expensive that, in order to make a profit, QWI would have had to offer its product at retail prices far higher than BHP’s retail prices. BHP’s conduct amounted to a ‘constructive refusal to supply’. BHP did not want competition at the retail level for Y-bar and so it sought to foreclose QWI from competing with it. The commercial advantage to BHP flowed from the fact that it would not face competition at the retail functional level of the market. Since there would be little competition, BHP could raise prices (exercise market power) without being constrained by QWI. The absence of substitutable products from QWI would mean that consumers would have no choice but to pay the higher prices for the Y-bar. Under the current s 46(1) of the Act, BHP’s conduct would only be in breach if it had the purpose, effect or likely effect of substantially lessening competition in the market. Applying the future with and the future without test in circumstances of monopolies requires some care. Consider an assertion by BHP that competition in the market in the future where it did not supply Y-bar to QWI would be little different from competition in the market in the future where it did supply Y-bar to QWI because BHP is a virtual monopolist. Since there is very little difference, BHP’s refusal to supply would not substantially lessen competition in a market because there never was any competition to begin with. This is a fallacy for the same reasons that the Full Court (before the case went to the High Court) decided there was no market because there were no substitutable products because BHP was a monopolist. Recall that market power is the antithesis of competition. The complete absence of competition

in a market leaves BHP as a monopolist with absolute discretionary pricing power. QWI would argue that BHP’s refusal to supply would substantially lessen competition because (perhaps based on the Mark Lyons reasoning discussed below), in the market in the future without the conduct, QWI could act as a competitive constraint on BHP, but in the market in the future with the conduct, BHP remains an unconstrained monopolist. 8.39 In NT Power Generation Pty Ltd v Power and Water Authority (2004) 219 CLR 90; (2004) ATPR 42-021; [2004] HCA 48, NT Power wanted to compete with PAWA for the retail sale of electricity in the Northern Territory. However, it needed access to the transmission and distribution infrastructure owned by PAWA. PAWA refused access. From PAWA’s perspective, NT Power represented a competitive threat to its monopoly over the retail supply of electricity. Unconstrained by any competitor, PAWA could charge consumers of electricity prices that would be higher than those that would prevail in a competitive market. Consumers would be disadvantaged by PAWA’s refusal because they would miss out on the possibility of choosing their own electricity provider and on the benefits of inter-brand competition in electricity, such as lower prices and better service. 8.40 The opposite of conduct involving a refusal to supply involves a refusal to acquire. A large corporation can exercise enormous buying power over its smaller suppliers. Just as there can be a monopoly, which involves one supplier in the market, so too there can be ‘monopsony’, which involves one significant buyer in the market. For example, producers of products depend on large national retailers to get their goods out into the market. In Australian Competition and Consumer Commission v Australian Safeway Stores Pty Ltd (2003) ATPR 41-935; 198 ALR 657; [2003] FCAFC 149, Safeway was a dominant buyer of grocery products from suppliers. It operated about 130 supermarkets in Victoria. Safeway

[page 160] bought bread from the three major plant bakers (the bakers of the bread) — Buttercup, Sunicrust and Tip Top. The plant bakers naturally sought to charge the maximum wholesale price for the bread they sold to retailers such as Safeway. Likewise, the retailers attempted to buy the bread for as economical a price as possible. Safeway competed against bakeries, corner stores and hot bread shops for the sale of bread that was supplied to them by Buttercup, Sunicrust or Tip Top. During 1994 and 1995, independent retailers were selling bread at a discounted price after receiving discounts from the various plant bakers on the bread supplied to them. Safeway then instituted a policy whereby it would first ask the plant bakers for the same discounted wholesale price that had been given to the independent retailers. If that request was refused, Safeway would then ‘delete’ the baker’s product and take the baker’s bread from its shelves. Safeway was faced with competition in the retail market for bread. It could not maintain higher retail prices for bread while independent retailers received a discount on the wholesale price from the plant bakers. In such circumstances, Safeway would be consistently undercut by the independent retailers. Safeway’s solution was to use its substantial degree of power in the wholesale market for bread in Victoria to extract similar wholesale discounts from the bakers. The effect of this conduct was to deter and prevent several independent stores from engaging in competitive conduct in the retail market for bread in Victoria. 8.41 In Melway Publishing Pty Ltd v Robert Hicks Pty Ltd (2001) 205 CLR 1; (2001) ATPR 41-805; [2001] HCA 13, Robert Hicks wanted to sell Melway street directories. At one time, Hicks had been partners in an automotive parts business that did sell Melway street directories but had since formed his

own business. For many years, Melway maintained a ‘segmented distribution structure’ involving retailers who sold to separate ‘segments’ of the market. One sold to service stations, another to newsagents and bookshops, and another to retail stores which sold automotive parts. Hicks asked Melway to supply him with 30,000–50,000 street directories. Hicks’ reasoning was that since he was no longer part of Melway’s segmented distribution system, he could sell to whoever he liked. Melway refused to supply him. The High Court found that Melway had not breached s 46 of the Act in refusing to supply Hicks with its street directories. Melway possessed a substantial degree of power in the market for Melbourne street directories but had not ‘taken advantage’ of that power in refusing to supply Hicks. From Hicks’ perspective, Melway’s refusal to supply seemed like conduct designed to prevent him from engaging in competitive conduct in the retail market for Melbourne street directories. Melway’s refusal also seemed to Hicks to prevent him from competing against Melway’s existing distributors. Intra-brand competition was at issue. 8.42 The outcome was different in Mark Lyons Pty Ltd v Bursill Sportsgear Pty Ltd (1987) ATPR 40-809; 75 ALR 581. Bursill supplied sporting equipment to various retailers. Mark Lyons had developed a reputation as a ‘discounter’ selling sportswear and equipment at town halls, warehouses and other public halls. Bursill was concerned that this practice would cheapen the image of its equipment and clothing. Bursill had also been receiving complaints from other suppliers of its equipment who were being undercut by Mark Lyons. [page 161]

Bursill responded by refusing to supply Mark Lyons with its very popular ‘Salomon’ brand ski boot. This brand was very popular and was essential for the competitive survival of ski clothing and equipment retailers. From Mark Lyons’ perspective, not being able to retail Salomon ski boots would mean a significant loss in sales. From the customer’s perspective the absence of Mark Lyons from the market would reduce intra-brand competition and the possibility of cheaper prices for the equipment. The Court found that Bursill had taken advantage of its market power for the purpose of preventing Mark Lyons from engaging in competitive conduct. 8.43 Recall in Australian Competition and Consumer Commission v Baxter Healthcare Pty Ltd (No 2) (2008) 170 FCR 16; (2008) ATPR 42-247; [2008] FCAFC 141, Baxter manufactured and supplied both sterile fluids and peritoneal dialysis (PD) fluids for use in hospitals. The act of bundling the products for which it was the dominant supplier (the sterile fluids) with the PD fluids (where it faced domestic competition) is an example of a non-price strategy which involved the ‘leveraging’ of market power in relation to the supply of sterile fluids for the purpose of deterring or preventing competition offered by suppliers that Baxter competed with in the supply of PD fluids.

Further reading The former version of s 46 generated a great deal of volatility and difficulty in interpretation. So, it is not surprising that it has generated a large amount of academic commentary (including one article entitled ‘Not Another Article about s 46 of the Trade Practices Act!’). Set out below is a representative sampling of the literature to provide you with some context to the current version of s 46. I have also included a recent article considering the new s 46.

New section 46 ACCC, ‘Interim Guidelines on Misuse of Market Power’, October 2017, Commonwealth of Australia (available on the ACCC’s website)

J Clarke, ‘Section 46: Its Purpose and the Proposed New Effects Test’ (2017) 45 ABLR 364 S Corones, ‘Section 46: Exposure Draft Legislation and Draft ACCC Misuse of Market Power Guidelines’ (2016) 44 ABLR 384 P McLaughlin, ‘Margin Squeezes as Misuse of Market Power’ (2016) 24 AJCCL 279 S Quo, ‘Unilateral Conduct and the Role of the Purpose Test in s 46 of the Competition and Consumer Act 2010 (Cth)’ (2016) 24 AJCCL 114

Queensland Wire Industries F Hanks and P Williams, ‘Implications of the Decision of the High Court in Queensland Wire’ (1990) 17 MULR 437 K McMahon, ‘Refusals to Supply by Corporations with Substantial Market Power’ (1994) 22 ABLR 7 M O’Bryan, ‘Section 46: Law or Economics?’ (1993) 1 CCLJ 64 [page 162]

Melway and Boral S Corones, ‘Non-price Vertical Restraints After Melway’ (2001) 75 ALJ 437 G Hay, ‘Boral — Free at Last’ (2003) 10 CCLJ 232 W Pengilley, ‘Misuse of Market Power: Australia Post, Melway and Boral’ (2002) 9 CCLJ 1 R Smith and R Trindade, ‘The High Court on Boral: A Return to the Past?’ (2003) 10 CCLJ 1 R Steinwall, ‘Melway and Monopolisation — Some Observations on the High Court’s Decision’ (2001) 9 CCLJ 1 R Wright and M Painter, ‘Recent Developments in the Application of s 46:

Melway and Boral Considered’ (2001) 21 ABR 105

Market power A Merrett, ‘The Court Speaks for Itself: What Australian Decisions Say about Assessing Market Power for the Purposes of s 46 of the TPA’ (2004) 11 CCLJ 1 (Many of the articles discussing Melway and Boral also discuss approaches to measuring market power.)

Take advantage M Brock, ‘Section 46 of the Trade Practices Act — Has the High Court Made a “U-turn” on “Taking Advantage”?’ (2005) 33 ABLR 327 A Duke, ‘The Need to Close the “Take Advantage” Gap in the Regulation of Unilateral Anti-competitive Conduct’ (2008) 15 CCLJ 284 H Ergas and M Landrigan, ‘Not Another Article about Section 46 of the Trade Practices Act!’ (2004) 32 ABLR 415 I Stewart, ‘Taking Advantage of Market Power in Section 46 of the Trade Practices Act 1974 (Cth)’ (2005) 33 ABLR 343

Purpose S Quo, ‘Interpretation and Application of the Purpose Test in s 46 of the Competition and Consumer Act 2010’ Pt 1 (2011) 19 CCLJ 90; Pt 2 (2012) 19 CCLJ 215

Legitimate business decision B Marshall, ‘The Relevance of a Legitimate Business Rationale Under Section 46 of the Trade Practices Act’ (2003) Deakin LR 3

Predatory pricing

G Campbell, ‘Quo Vadis? Towards an Effective Predatory Pricing Provision’ (2009) 17 TPLJ 82 [page 163] J Clarke, ‘Australia’s Radical Predatory Pricing Reforms: What Business Must Know’ (2008) 1 Deakin LR 6 S Corones, ‘Sections 46(1) and 46(1AA) of the TPA: The Struggle of the Small Against the Large’ (2009) 37 ABLR 110

Bundling J Gans and S King, ‘Potential Anti-competitive Effects of Bundling’ (2005) 33 ABLR 30 I Wylie, ‘When is Bundling Illegal in Australia under s 46 or s 47 of the Trade Practices Act 1974 (Cth)?’ (2005) 33 ABLR 190

1. 2. 3.

S Corones, Competition Law in Australia, 5th ed, Law Book Co, Sydney, 2010, p 140. ACCC, Interim Guidelines on Misuse of Market Power, 2017, Commonwealth. Senate Standing Committee on Economics, Trade Practices Legislation Amendment Bill 2008 [Provisions], Parliament of Australia, August 2008, [2.40].

[page 165]

Chapter 9 Exclusive Dealing

Overview This chapter is intended to: • • • • • • •

• • •

introduce the concepts of vertical price and vertical non-price restraints; identify the basic forms that vertical non-price restraints can take; explain why exclusive dealing is considered ‘bad’ for competition; explore the basic structure of s 47 of the Competition and Consumer Act 2010 (Cth) (CCA) (the Act); illustrate that structure in detail by reference to the most common forms of product, customer and territorial restraints; understand the basic and common concepts that underpin s 47 of the Act; examine the courts’ approach to analysing whether exclusive dealing conduct has the purpose or effect of substantially lessening competition; provide a detailed and worked ‘road map’ of every subsection of s 47 of the Act; introduce the amendments made by the Competition and Consumer Amendment (Competition Policy Review) Act 2017; and provide references to academic articles for further reading.

Introduction 9.1 Vertical restraints on competitive behaviour operate across different functional levels of the production and distribution of goods or services in a market. They usually involve the behaviour between suppliers and wholesalers or between wholesalers and retailers. In this form, they are unlike horizontal restraints, such as price-fixing or market sharing, because the restraints are not made between potential competitors at the same functional level of the market. 9.2 Vertical restraints generally take one of two forms. The first form can involve pricing behaviour. In that case, a supplier might try to ensure that their retailers maintain a minimum resale price. These vertical price restraints are referred to as the ‘practice of resale price maintenance’ (RPM) and are discussed in Chapter 10. 9.3 The second form of vertical restraint may not be concerned with price. These vertical non-price restraints often take the form of exclusive dealing arrangements. They usually occur when a supplier of goods or services will only supply to a retailer if that retailer accepts some form of condition that restricts their ability to resell those goods or services. [page 166] These conditions generally restrict the retailer in one of three ways: 1.

2. 3.

The supplier can restrict the retailer from buying goods or services from a competitor of the supplier. These restraints often involve product ties. The supplier can restrict the retailer from selling the supplier’s goods to particular persons or classes of persons. The supplier can restrict the retailer from selling the suppliers’ goods in certain places or classes of places. These restraints often involve

territorial restrictions. 9.4 Following amendments made by the Competition and Consumer Amendment (Competition Policy Review) Act 2017, all forms of exclusive dealing are prohibited if they have the purpose, effect or likely effect of substantially lessening competition.

Why is exclusive dealing ‘bad’ for competition? 9.5 Vertical restraints on competitive conduct between producers and distributors influence both intra-brand competition and inter-brand competition. This influence is not always detrimental to the competitiveness of the market and, in some circumstances, the restraint may have a procompetitive effect on the market. For example, in Melway Publishing Pty Ltd v Robert Hicks Pty Ltd (2001) 205 CLR 1; (2001) ATPR 41-805; [2001] HCA 13, the High Court recognised that although Melway’s segmented and restrictive distribution system restricted competition for Melway Street Directories (intra-brand competition), it may have encouraged rival producers of street retailers to become more efficient, thus enhancing interbrand competition. As the influence of vertical restraints on the market continues to be analysed, economists are less likely to argue that such restraints are either always anti-competitive or always pro-competitive. See Further reading at the end of this chapter. 9.6 Inter-brand competition exists when retailers sell different brands of the same product, such as computers or shoes. The consumer benefits from interbrand competition because they are able to ‘shop around’ for the best price for the kind of product they are after. Generally speaking, where there is healthy inter-brand competition, it prevents individual retailers and suppliers charging a price that is greater than the competitive level. However, vertical non-price agreements that involve product restrictions have the potential to lessen inter-brand competition. For example, assume

that retailer A is selling several brands of shoes and wishes to stock the next season’s range of shoes from manufacturer X. Assume then that manufacturer X agrees to supply those shoes to A on condition that A also buys 90% of its shoes from X. In that situation, A no longer sells other brands of shoes. Competition for different brands of shoes is thus reduced. 9.7 Intra-brand competition exists where different retailers sell the same brand of product that is made by the manufacturer. The consumer benefits from intra-brand competition because they are also able to ‘shop around’ for the best price for the particular brand of product they are after. Generally speaking, where there is healthy intra-brand competition, the consumer benefits. [page 167] 9.8 Non-vertical price agreements involving territorial or customer restrictions have the potential to lessen intra-brand competition. For example, assume that in the Sydney CBD there are seven retailers that offer producer X’s brand of running shoe. Customers can shop around among these retailers to find the best-priced brand of X’s shoe. However, assume that X then offers to supply next season’s shoes on condition that each of the retailers agrees not to supply to certain ‘segments’ of the market. Competition for that brand of shoe may be lessened since not everyone may then be able to shop around for that brand of shoe. 9.9 These concerns are reflected in the way the courts approach the analysis of vertical non-price restraints: a market is defined, its competitive dynamics identified and the likely effect of the restraint upon those dynamics is assessed. Where the effect of the restraint (except for the per se provisions) is to substantially lessen competition in the market, then it is prohibited by the Act. We will return to the anti-competitive nature of s 47 when we examine

how different forms of vertical non-price restrictions affect competition in a market.

The structure of s 47 9.10 Section 47 is a very complex section. It contains thirteen subsections and spans at least four pages in most versions of the Act. There are three important steps in establishing exclusive dealing conduct: 1.

2.

3.

Section 47(1) simply states that ‘[s]ubject to this section, a corporation shall not, in trade or commerce, engage in the practice of exclusive dealing’. Section 47(1) therefore prohibits the conduct but does not then define what the ‘practice of exclusive dealing’ actually means. The ‘practice of exclusive dealing’ is defined in s 4(1) of the Act to mean ‘the practice of exclusive dealing referred to in subsection 47(2), (3), (4), (5), (6), (7), (8) or (9)’. The practice of exclusive dealing is then prohibited if the conduct has the purpose, effect or likely effect of substantially lessening competition.

9.11 Section 47(6) and (7) are special forms of exclusive dealing conduct commonly referred to as ‘third line forcing’. The difference between third line forcing conduct and other forms of exclusive dealing conduct will be explained below. For the moment, it is important to note that all forms (practices) of exclusive dealing, will only breach s 47(1) if the conduct substantially lessens competition. 9.12 1. 2. 3.

Therefore, the elements of a cause of action under s 47 of the Act are: the conduct must fit the definition of ‘the practice of exclusive dealing’; for all forms of exclusive dealing conduct must have the purpose, effect or likely effect of substantially lessening competition; and the exclusive dealing conduct must have occurred ‘in trade or

commerce’.

The practice of exclusive dealing 9.13 Section 47(2)–(9) then sets out the various forms of behaviour that constitute ‘the practice of exclusive dealing’. In overview, these forms of behaviour are as follows: [page 168] •



Section 47(2): A corporation engages in the practice of exclusive dealing if the corporation supplies or offers to supply goods or services on condition that: the purchaser will agree not to acquire goods or services from a competitor of the supplier (s 47(2)(d)); the purchaser accepts some restriction on the right to re-supply goods or services acquired from a competitor (s 47(2)(e)); the purchaser accepts some restriction on the re-supply of goods or services to persons or particular classes of persons or to ‘places or particular classes of places’: s 47(2)(f). Section 47(3): A corporation engages in the practice of exclusive dealing if the corporation refuses to supply goods or services for the reason that: the person (the acquirer) has acquired, or has not agreed not to acquire, goods or services from a competitor of the supplier (in other words, the negative or reverse of s 47(2)(d)) (s 47(3)(d)); the person has re-supplied, or has not agreed not to re-supply, goods or services acquired from a competitor of the supplier (s 47(3)(e)); the person has re-supplied, or has not agreed not to re-supply, goods or services to particular persons or classes of persons or to







• •



places or particular classes of places: s 47(3)(f). Section 47(4): A corporation ‘engages in the practice of exclusive dealing if the corporation acquires, or offers to acquire, goods or services’ on condition that the supplier will not, or will not to a limited extent, supply goods or services to ‘particular persons or classes of persons’ or to places or particular classes of places. Section 47(5): A corporation engages in the practice of exclusive dealing if the corporation refuses to acquire goods or services from a person for the reason that the supplier will not or will not to a limited extent supply goods or services to particular persons or classes of persons or to places or particular classes of places. Section 47(6): A corporation also engages in the practice of exclusive dealing if it supplies or offers to supply goods or services on condition that the acquirer will acquire goods or services ‘from another person’. Section 47(7) is the negative form of s 47(6) above (refusing to supply). Section 47(8): A corporation also engages in the practice of exclusive dealing if it grants or renews an interest in land on certain restrictive conditions. Section 47(9) is the negative form of s 47(8) (refusing to grant a lease, licence or interest in land because of a refusal to accept a restrictive condition).

9.14 There are a number of ways to think about the structure of s 47 of the Act and the restrictions that it targets. One way is to think about the object of the restriction; that is, whether the supply upon restriction involves a product, customer or a certain distribution territory. Another way is to think about the nature of the supply upon condition; that is, whether it involves a ‘negative’ or refusal to supply or acquire unless a restrictive condition is accepted, or a ‘positive’ agreement to supply or acquire but only after a restrictive condition is accepted. Both of these ways of approaching the structure of s 47 are outlined below.

[page 169]

Products, customers and territories 9.15 All of the ‘practices of exclusive dealing’ that are described in s 47 concern restrictions on goods or services, customers and areas of supply (territories).

Product restrictions 9.16 •











The practices involving product restrictions are: where corporation A supplies or offers to supply goods or services to B on condition that B will not acquire goods or services (products) from a competitor of A (s 47(2)(d)); where corporation A supplies or offers to supply goods or services to B on condition that B will acquire goods or services from a third party (s 47(6)); where corporation A acquires or offers to acquire goods or services from B on condition that B will not supply goods or services of any description to any person (s 47(4)(b)); where corporation A refuses to supply goods or services to B for the reason that B has not agreed to accept a restraint on its ability to deal with those goods or services (s 47 (3)(d)); where corporation A refuses to acquire goods or services from B for the reason that B has supplied or has not agreed not to supply goods or services (47(5)(b)); or where corporation A refuses to supply goods or services to B for the reason that B has not acquired goods or services from a third party: s 47(7).

Customer restrictions 9.17

The practices involving customer restrictions are:











where corporation A supplies or offers to supply goods or services to B on condition that B will not re-supply goods or services that B acquired from a competitor of A (s 47(2)(e)); where corporation A supplies or offers to supply goods or services to B on condition that B will not re-supply the goods or services to particular persons or classes of persons (s 47(2)(f)(i)); where corporation A refuses to supply goods or services to B for the reason that B has re-supplied goods or services acquired from a competitor of A (s 47(3)(e)); where corporation A refuses to supply goods or services to B for the reason that B has re-supplied goods or services acquired from A to any person or to particular persons or classes of persons (s 47(3)(f)(i)); or where corporation A refuses to acquire goods or services from B for the reason that B has supplied goods or services to particular persons or classes of persons: s 47(5)(c).

Territorial restrictions 9.18 •

The practices involving territorial restrictions are: where corporation A supplies or offers to supply goods or services to B on condition that B will not re-supply the goods or services in particular places or classes of places (s 47(2)(f)(ii)); [page 170]





where corporation A refuses to supply goods or services to B for the reason that B has re-supplied goods or services acquired from A in particular places or classes of places (s 47(3)(f)(ii)); where corporation A acquires or offers to acquire goods or services from B on condition that B will not supply the goods or services in



particular places or classes of places (s 47(4)(d)); or where corporation A refuses to acquire goods or services from B for the reason that B has supplied goods or services in particular places or classes of places: s 47(5)(d).

Positive and negative conduct 9.19 These practices can also be thought of as involving ‘positive’ and ‘negative’ forms of conduct. Positive conduct involves a supply or acquisition upon a restrictive condition, and is found in s 47(2), (4), (6) and (8). Negative conduct involves a refusal to supply or acquire because of failure to do so or to accept a restrictive condition and is found in s 47(3), (5), (7) and (9). Generally speaking, the ‘positive’ forms of exclusive dealing are found in the even-numbered subsections, while the ‘negative’ forms of exclusive dealing are found in the odd-numbered subsections. It’s all a bit odd.

Product ‘forcing’ and ‘tying’ 9.20 Sometimes, certain forms of exclusive dealing conduct are referred to as ‘full line forcing’, ‘third line forcing’ and ‘product tying’. For example, in KAM Nominees Pty Ltd v Australian Guarantee Corporation Ltd (1994) 51 FCR 338; (1994) ATPR 41-325, the Court considered an earlier decision involving s 47(6) conduct and stated (ATPR at 42,292): Smithers and Northrop JJ held that, for s 47(6) to apply, the requirement that the acquirer from the third line forcing supplier ‘will’ acquire goods or services …

Likewise, the headnote to Australian Automotive Repairers’ Association (Political Action Committee) Inc (in liq) v Insurance Australia Ltd (2006) ATPR 42-111; [2006] FCAFC 33 states: ‘Trade Practices — Exclusive dealing — First line forcing’. The High Court in SST Consulting Services Pty Ltd v Rieson (2006) 225 CLR 516; (2006) ATPR 42-118; [2006] HCA 31 employed

the heading ‘Third line forcing’ before commencing its discussion of s 47(6) of the Act. None of these terms are contained in the text of s 47 but they are useful descriptors of the mechanics of exclusive dealing conduct. Here is how they work. 9.21 To begin with, it is important to recall the basic wrong that exclusive dealing prohibits. In its most basic form, this wrong is the ‘forcing’ or ‘tying’ of product A, that one party wants, to another product, B, that the party does not want. Assume company A wants to buy pens from company B. Company B is happy to sell pens, but it also wants to increase its flagging sales of ink. No one wants to buy B’s ink [page 171] because of its poor quality. Therefore, B decides to create a market for the ink by ‘tying’ the sale of the ink to the pens. In this way, B agrees to supply pens to A on the condition that A will also buy the ink from B. The ink product is therefore ‘forced’ onto A. The pen is the ‘tying product’ and the ink is the ‘tied product’. If we change these facts slightly, we can see how the mechanics of ‘third line forcing’ works. Assume that company B agrees to sell pens to company A, but only on condition that it also buys its ink from company C. In this case, C is the third party whose goods (ink) are ‘forced’ by company A onto company B as a condition of the sale of pens. Hence, this is third line forcing.

Forms of exclusivity 9.22 Using the above scheme, we can see that s 47(2)–(9) (outlined at 9.13) describes five basic forms of exclusive dealing conduct, each one of them

having the potential to lessen competition in a market: 1. 2. 3. 4. 5.

product exclusivity; customer exclusivity; territorial exclusivity; third line forcing; and conduct involving interests in leases and licences of land.

Set out below are common examples of these forms of conduct as they are found in the case law. At this stage, we won’t be concerned with how the court concluded whether or not the conduct in each case actually substantially lessened competition. The method, process and tests involved in assessing whether exclusive dealing conduct ‘substantially lessens competition’ will be discussed in more detail later. At this stage, try to see how the conduct at issue ‘fitted’ the statutory description of the practice of exclusive dealing in s 47. Also, try to see how the conduct might have affected inter-brand or intra-brand competition for the products in question.

Product exclusivity 9.23 Why would suppliers want to impose restrictions in relation to the supply of their products? There are a number of common reasons: • • • •

to prevent customers from buying a competitor’s goods or services, thus reducing or even eliminating inter-brand competition; to require customers to buy all or most of their stock from the supplier (requirements contracts); to require customers to buy more than one product in the same transaction (bundling); or to require customers to buy products from a third party with whom the supplier has a commercial relationship (third line forcing).

The following cases demonstrate how these practices work.

[page 172]

Reducing or eliminating inter-brand competition 9.24 In Australian Competition and Consumer Commission v Eurong Beach Resort Ltd (2006) ATPR 42-098; [2005] FCA 1900, the respondents owned and operated a barge transporting passengers to Fraser Island, off the coast of Queensland. For some time, the respondents operated the only barge service to Fraser Island. However, a rival company began operating barge transportation services to Fraser Island in competition with the respondents. The respondents then (inter alia) entered into contracts with customers to offer discounts on barge services if those customers did not use the competing service. The Court found that the respondents had breached ss 45, 46 and 47 of the Act. However, this was not a case of product tying because the respondents were not supplying barge transport services to customers on condition that they also acquire other services (such as accommodation) from them. Nor were the respondents offering to supply barge transport services on condition that the customers acquire other goods or services from a third party. This doesn’t seem like a case of product tying or forcing in the way we have described it above. So how did the respondent’s conduct amount to ‘the practice of exclusive dealing’ as defined in s 47(2)(d)? The easiest way to work this out is to substitute the names of the parties and the supplied goods or services into the relevant legislative scheme. Therefore, in this case, we can submit that Eurong Beach Resort Pty Ltd (Eurong) engaged in the practice of exclusive dealing because it gave a discount in relation to the supply of transportation services (s 47(2)(c)) on the condition that customers did not acquire barge transportation services from a competitor of Eurong: s 47(2)(d). How might this conduct affect competition? The presence of the rival barge operator meant that there was competition for the provision of barge

transportation services to Fraser Island — this being inter-brand competition. However, Eurong was clearly attempting to damage the competitive position of the rival barge operator by offering discounts to customers who did not use the rival service. Eurong was thus attempting to diminish inter-brand competition. 9.25 Likewise in Australian Competition and Consumer Commission v FILA Sport Oceania Pty Ltd (2004) ATPR 41-983; [2004] FCA 376, FILA wholesaled sports clothes that were licenced by five teams within the Australian Football League (AFL) competition. These clothes were of two types: ‘on field’ clothes, worn by players and officials, and ‘team spirit’ clothes, offered for sale to the general public. Some clothing retailers also sold ‘on field’ clothes to the public. FILA competed with other wholesalers of both ‘on field’ and ‘team spirit’ clothing. After a licensing re-structure by the AFL, only wholesalers of ‘on field’ clothing would be licenced to provide both ‘on field’ and ‘team spirit’ clothing. FILA then implemented what it called a ‘selective distribution policy’ whereby it would only wholesale ‘on field’ clothing worn by members of the licenced five teams to retailers on condition that those retailers did not stock ‘team spirit’ clothing provided by other wholesalers. The Court found that this policy was in breach of s 47(2)(d) of the Act. Again, we can insert the names and products into the legislative scheme to see how this conclusion was reached. In this case, we can submit that FILA engaged in the practice of exclusive dealing because it supplied or offered to supply licenced ‘on field’ clothing to retailers on condition that those retailers did not also acquire ‘team spirit’ clothing from competitors of FILA. [page 173] Effectively, FILA wanted to reduce inter-brand competition for the retail

sale of ‘team spirit’ clothing by maximising the purchases of its own ‘team spirit’ clothing. The retailers needed to stock ‘on field’ clothing of teams for which FILA was licenced. However, the retailers also needed to stock ‘team spirit’ clothing for teams beyond the five that FILA was licenced for in order to sell to supporters of teams other than FILA. FILA did this by making the supply to retailers of the ‘on field’ clothing, for the five teams that it was licenced for, conditional upon the retailers not stocking the ‘team spirit’ clothing for other teams for which FILA was not licenced. Since it was imperative for retailers to have FILA’s ‘on field’ clothing, they had little choice but to comply by stocking only the ‘team spirit’ clothing for FILA’s licenced teams.

Requirements contracts 9.26 In O’Brien Glass Industries Ltd v Cool & Sons Pty Ltd (1983) ATPR 40-376; 48 ALR 625, O’Brien both manufactured and wholesaled windscreens. As a matter of evidence, O’Brien had the largest share of the wholesale market for the supply of windscreens in New South Wales. In the Wagga district, O’Brien also retailed and fitted windscreens. Cool & Sons was one of many retailers and fitters of windscreens in the Wagga district. Most of the retailers in the area were service stations and smash repairers. O’Brien administered a wholesale discount program, offering retailers different discounts on the wholesale price of different windscreens. The Court found that O’Brien had breached s 47(1) because it (ALR at 627): … had a general practice of giving and offering to give to retailers discounts of 45 percent or 50 percent in relation to the supply of windscreens on the condition that each such retailer would purchase all of the substantial majority of its purchases of windscreens from the respondent [O’Brien].

Bundling 9.27 Suppliers sometimes attempt to ‘bundle’ two separate products which are packaged together and sold as a unit. Usually, bundling is not a form of exclusive dealing in breach of s 47 because the sale of one product is not made

conditional on the purchase of another. The two products are sold as one unit and the purchaser is entitled to buy goods or services from other suppliers. There is no ‘supply on condition’. 9.28 For example, in Monroe Topple & Associates Pty Ltd v Institute of Chartered Accountants in Australia (2002) 122 FCR 110; (2002) ATPR 41879; [2002] FCAFC 197, the Institute of Chartered Accountants in Australia (the ICAA) provided training and materials, other support materials, examinations and certification, for persons wishing to describe themselves as ‘Chartered Accountants’. Monroe Topple & Associates (MTA) and several other entities competed with the ICAA in providing support materials such as ‘User Guides’ and ‘Examination Guides’. Until 2000, the ICAA charged an enrolment fee for the training material and a separate fee for the other support materials. In 2000, ICAA decided to supply the training material together with the other support materials when a candidate paid their enrolment fee. MTA alleged that the ICAA had engaged in the practice of exclusive dealing by providing candidates with enrolment in the Chartered Accountant’s program on [page 174] condition that those candidates also accepted the training and other support materials. MTA alleged that this had the effect of foreclosing competition for the provision of other support materials. The Full Court disagreed, stating (at [105]): This approach confuses the issues of purpose and effect with that of condition. It really alleges no more than … hope or expectation on the part of the Institute that Candidates will not purchase support material from other suppliers including MTA … For a trader to offer products A and B for a single price which might make the consumer more inclined to purchase the package and not buy a competing trader’s product B, is not to impose any sort of condition within the meaning of s 47(2).

9.29 However, bundling can become the practice of exclusive dealing when the supplier provides the bundle on condition that the purchaser does not acquire goods or services from a competitor. For example, in Australian Competition and Consumer Commission v Baxter Healthcare Pty Ltd (No 2) (2008) 170 FCR 16; (2008) ATPR 42-247; [2008] FCAFC 141, the basis upon which Baxter was prepared to supply sterile fluids separately from PD fluids was so expensive that the various state purchasing authorities had no real option but to accept a bundled product. In fact, although Baxter provided what appeared to be a bundled product, the practice was unlike that in Monroe Topple & Associates Pty Ltd v Institute of Chartered Accountants in Australia because the purchase of sterile fluids at the economically realistic price was made conditional upon the purchase of PD fluids. In Monroe Topple above, enrolment in the Chartered Accountants program was not made conditional upon the purchase of support materials. Those support materials were bundled products in the true sense. The trial judge found, and the Full Court agreed, that (at [193]): There was no dispute that Baxter’s impugned conduct amounted to conduct that fell within s 47(2). That is quite clear: its alternative offer strategy included offering to supply sterile fluids and PD fluids on condition that the relevant SPAs would not acquire, or would acquire only to a limited extent, PD fluids from any competitor of Baxter in the PD fluids market.

The decisions in Monroe Topple and Baxter Healthcare appear similar because in both cases, the second party received two products. However, the crucial difference lies in how the second party came to acquire the second product. In Monroe Topple, the second party (students) simply received both products: training and support materials when they paid their enrolment fee. However, in Baxter Healthcare, Baxter effectively forced the second party (hospitals) to acquire the second product (PD fluids) by making it too expensive for them to acquire sterile fluids if they did not also acquire PD fluids. That was the whole point of Baxter’s ‘alternative offer strategy. 9.30 Similar considerations were adopted by the Court in Australian Competition and Consumer Commission v Pfizer Australia Pty Ltd (ACN 008

422 348) (2015) 323 ALR 429. Until 2012, Pfizer Australia Pty Ltd owned a patent for a drug known as ‘atorvastatin’ the key ingredient in cholesterol lowering drugs and marketed under the name ‘Lipitor’. Evidence indicated that Lipitor was the highest selling cholesterol-lowering drug prescribed by Australian medical practitioners. However, Pfizer’s patent over atorvastatin was to expire [page 175] in May 2012 when it was expected to face fierce competition from generic cholesterol-lowering drug manufacturers. Pfizer gave evidence that it expected to lose approximately $100 million in profits once its patent expired and generic drug manufacturers entered the market. In order to mitigate these anticipated losses, Pfizer devised a three-fold strategy involving the purchase of its Lipitor product: 1.

2.

3.

selling prescription pharmaceuticals, including Lipitor, direct to pharmacies, bypassing pharmaceutical wholesalers under a scheme it called ‘Pfizer Direct’; establishing an ‘accrual fund scheme’ for pharmacies that continued to purchase Lipitor. Under the scheme, Pfizer would credit each fund with an amount calculated as 5% of each pharmacy’s wholesale purchase price of Lipitor; and making a bundled offer to pharmacies involving those pharmacies continuing to buy both Lipitor and Pfizer’s generic version of Lipitor (ATV Pfizer).

Under the offers, pharmacies would receive both significant discounts on the wholesale price of Lipitor and ATV Pfizer as well as rebates from the Accrual Fund. Pharmacies were required to buy 75% of their need for generic ATV requirements over six, nine and twelve months (essentially a bulk purchase of generic cholesterol lowering medication before the expiration of

Pfizer’s patent. The terms of this offer were contained in a document called the ‘’Pharmacy Acceptance Form’. There were several ‘levels’ to the discounts available — platinum, silver and gold. The platinum level carried the highest level of commitment (requiring purchase of 75% of anticipated needs). The ACCC alleged that in creating these three strategies, Pfizer had taken advantage of a substantial degree of market power in breach of s 46 of the Act and had engaged in the practice of exclusive dealing in breach of s 47 of the Act. What concerns us here is the aspect of the judgment relating to the exclusive dealing allegation. The Court dismissed both of the ACCC’s allegations. In relation to s 47, the ACCC alleged that Pfizer had engaged in the practice of exclusive dealing by offering to provide the platinum discount on the wholesale price of Lipitor and to receive rebates from the Accrual Fund on condition that the pharmacies not acquire more than 25% of their generic atorvastatin stock from Pfizer’s competitors. The ACCC argued that this conduct amounted to the practice of exclusive dealing in breach of s 47(1) of the Act. At trial, Pfizer accepted that this aspect of its three-fold strategy (the other two being the ‘Pfizer Direct Scheme’ and the ‘accrual fund scheme’) amounted to the practice of exclusive dealing set out in s 47(2)(e). We can understand this as follows: Pfizer has engaged in the practice of exclusive dealing because it is offering to supply a discount in relation to the wholesale supply of Lipitor and generic ATV Pfizer on condition that the pharmacies will not acquire more than 25% of their requirements for generic ATV from wholesale suppliers of that drug who are competitors of Pfizer.

However, while this was admitted, Pfizer argued that the purpose of the supply upon condition was not to substantially lessen competition in the atorvastatin market, but to ensure its continued corporate survival once its patent expired. Curiously, the ACCC appears to have failed to ‘direct any attention to the likely state of future competition in the market with and without Pfizer’s impugned conduct’.

[page 176] In relation to the ‘silver’ and ‘gold’ levels of the bundled offer, the Court found, at [446] that there was no ‘supply upon condition’. While these levels of promised discounts may have disinclined pharmacies from buying nonPfizer, generic cholesterol lowering drugs from generic suppliers, that was not a ‘supply upon condition’, consistent with the reasoning of the Court in Monroe Topple & Associates Pty Ltd v Institute of Chartered Accountants in Australia (2002) 122 FCR 110. Not surprisingly, the ACCC has appealed the Pfizer decision and Pfizer Australia has cross-appealed. While the Full Court has heard argument, as at the date of writing, the decision has not been handed down.

Customer exclusivity 9.31 Customer exclusivity involves a supply, or refusal to supply, goods or services on condition that one party accepts restrictions on the persons, or classes of persons, to whom they can re-supply the goods or services.

Territorial exclusivity 9.32 Territorial exclusivity involves the supply, or refusal to supply, goods or services on condition that the retailer accepts restrictions on the places or classes of places where it can re-supply the goods or services. For example, in Mark Lyons Pty Ltd v Bursill Sportsgear Pty Ltd (1987) ATPR 40-809; 75 ALR 581, Mark Lyons sold ski equipment both in retail stores and in warehouses and town halls. Bursill was the exclusive Australian distributor of the ‘Salomon’ brand of ski equipment. Salomon’s alpine ski boots were the most popular ski boot in the market and, to remain competitive, all ski equipment retailers stocked these boots. Mark Lyons’ practice of retailing discounted ski equipment through warehouses and town halls caused other retailers of ski equipment to

complain to Bursill, which then sent a letter to Mark Lyons stating (ALR at 586): The style of your operation, selling upmarket ski boots through town halls and warehouses is not conducive to the image that we are attempting to project for these boots.

Following that letter, Bursill refused to supply Mark Lyons with the next season’s Salomon ski boots. Mark Lyons instituted proceedings against Bursill, alleging that it had breached ss 46, 47 and 49 (the latter a nowrepealed section of the Trade Practices Act 1974 (Cth) which concerned price discrimination) of the Act. The Court found that Bursill had breached ss 46 and 47 of the Act in refusing to supply Salomon ski boots to Mark Lyons. The Court found that Bursill had engaged in the practice of exclusive dealing described in s 47(3)(f) (ii) of the Act. This was because Bursill had refused to supply Salomon ski boots to Mark Lyons for the reason that Mark Lyons had re-supplied ski boots ‘in particular places’ (the town halls and warehouses).

Third line forcing conduct 9.33 Third line forcing conduct, found in s 47(6) and (7), takes a particular form involving two products and three parties. An example of this is where A agrees to supply goods or services on condition that B also agrees to acquire other goods or services from C. [page 177] 9.34 In Trade Practices Commission v Tepeda Pty Ltd (1994) ATPR 41-319, a customer wanted to buy an ex-lease car from Tepeda and to trade in his old car. Tepeda (which traded under the name ‘Metro Motor Market’) offered the customer a trade-in price of $2000 or, alternatively, of $2640 if the customer acquired financing for the purchase of his new car from Ford Credit. The Court concluded (ATPR at 42,247):

In my opinion, the trade-in allowance on Mr Jones’ Honda was an allowance or credit for the purposes of s 47(6)(c). The allowance or credit was offered and was given in relation to the proposed supply and the supply of the Corolla vehicle by Metro Motor market [Tepeda] to Mr Jones. The allowance or credit was given or allowed on the condition that Mr Jones sought and obtained finance from Ford Credit … These facts constituted a breach of the terms of s 47(1) and (6) …

A month later, the reverse set of facts arose in KAM Nominees Pty Ltd v Australian Guarantee Corporation Ltd (1994) 51 FCR 338; (1994) ATPR 41325. Mrs Croft wanted to buy a car from KAM Nominees and sought to finance the purchase through a loan from Australian Guarantee Corporation (AGC). However, AGC allegedly offered to supply finance to Mrs Croft, provided she acquired her car from an AGC-accredited dealer. Since KAM Nominees was not an accredited dealer, AGC refused to lend Mrs Croft the money needed to buy the car she wanted. KAM Nominees instituted proceedings, alleging that AGC had breached s 47 of the Act and seeking compensation for the loss of the sale. In response, AGC brought a notice of motion seeking to have the case dismissed. The Court dismissed AGC’s notice of motion, finding that AGC had engaged in the practice of exclusive dealing as described in s 47(6). More recently in Australian Competition and Consumer Commission v Link Solutions Pty Ltd (No 3) (2012) ATPR 42-390; [2012] FCA 348, the Court found that WorldTel Communications Company had breached s 47(6) of the Act by offering to give their customers call credits on the cost of telecommunication services on condition that those customers leased equipment from another telecommunications company specified by WorldTel Communications.

Exclusivity in relation to property leases 9.35 Exclusivity in relation to property leases involves a corporation granting or renewing a lease or licence, or exercising a right to terminate a lease or licence, in respect of land or buildings, on condition that the other party accepts some restriction on their ability to supply or acquire goods or

services. These practices of exclusive dealing are found in s 47(8) and (9) of the Act. 9.36 For example, in Paul Dainty Corporation Pty Ltd v National Tennis Centre Trust (1989) ATPR 40-951, Paul Dainty wanted to lease the National Tennis Centre in Melbourne (the Centre) as a venue for both the Pink Floyd and Mick Jagger concerts it was promoting. The National Tennis Centre Trust owned the Centre and had a contract with the Victorian Arts Centre Trust for it to provide ticketing services at the Centre under the name of ‘BASS’. The National Tennis Centre Trust was prepared to grant a lease of the Centre to Paul Dainty, but on the condition that all ticketing would be carried out by BASS. At the time, [page 178] Paul Dainty reluctantly agreed but later instituted proceedings against the National Tennis Centre Trust, alleging that it had engaged in the practice of exclusive dealing described in s 47(8)(c) and (9)(d) of the Act. These subsections involve the supplier granting, or refusing to grant, a lease or licence for the reason that the other party will acquire, or has not acquired, goods or services from a third party. Essentially, these subsections involve a form of third line forcing in relation to the supply of leases or licences. Paul Dainty argued that the National Tennis Centre Trust was offering to provide a lease of the Centre on condition that Paul Dainty acquired ticketing services from a third party (BASS). The Court disagreed and dismissed Paul Dainty’s case. An appeal was also rejected. Why? Both the Court at first instance and the Full Court found that Paul Dainty was not being required to acquire ticketing services from BASS. This was

because the contract with BASS was between the National Tennis Centre Trust and the Victorian Arts Centre Trust. Essentially, Paul Dainty was leasing a ‘ticketed venue’.

Supply ‘on condition’ 9.37 Like most highly prescriptive provisions of the Act, s 47 contains several basic concepts that must be understood in order for conduct to be the ‘practice of exclusive dealing’. In the structure of s 47 (outlined above at 9.15–9.18) in terms of product, customer or territory restrictions, several terms and phrases are apparent. The most important of these is the concept of ‘supply on condition’. In its usual form, a supplier will have engaged in the practice of exclusive dealing by offering to supply or acquire goods or services ‘on condition’ that the person being supplied agrees to accept one of the restrictions described above. It is the existence of the supply on condition that explains the other common descriptors for exclusive dealing conduct; that is, ‘full line forcing’ or ‘product tying’. 9.38 The other form a supply on condition can take appears in the negative forms of exclusive dealing which involve a refusal to supply. Clearly, there is no supply on condition because there is no supply. However, the supplier is refusing to supply goods or services to another person ‘for the reason that’ the other person has not accepted a restriction. For example, s 47(3) describes the practice of exclusive dealing involving a refusal to supply goods or services ‘for the reason that the person’ has acquired, re-supplied or not agreed to supply, etc. The condition is implicit in the text of the section itself. Why has there been a refusal to supply? Because the other party has not agreed to accept a restrictive condition.

Definition of ‘on condition’

9.39 This phrase is not limited by the law of contract and has a very wide meaning. The High Court in Visy Paper v ACCC (2003) 216 CLR 1; (2003) ATPR 41-952; [2003] HCA 59 stated (at [8]): [page 179] It also should be observed that ‘condition’, the word used in s 47(4), likewise has a meaning uncircumscribed by contract law notions.

The High Court went on to refer to s 47(13)(a) which defines the term ‘condition’ for the purposes of s 47. It stated (at [8]): [A] reference to a condition shall be read as a reference to any condition, whether direct or indirect and whether having legal or equitable force or not, and includes a reference to a condition the existence or nature of which is ascertainable only by inference from the conduct of persons or from other relevant circumstances.

This definition posits three forms of ‘condition’: 1. 2. 3.

any direct or indirect condition; any condition whether it has legal or equitable force; and any condition that can only be identified by inference from conduct.

‘Supply on condition’ and not ‘imposition of a condition’ 9.40 Early case law made it clear that the text of s 47 means what it says — that there is a supply upon a condition and not necessarily the imposition of a condition. The difference is subtle and can be confusing. 9.41 In Re Ku-ring-gai Co-operative Building Society (No 12) Ltd (1978) ATPR 40-094; 22 ALR 621, the Full Federal Court stated (ALR at 649): The practice of exclusive dealing does not necessarily involve the imposition of any condition. It involves supply upon a condition. The condition may well have been suggested by the recipient of supply. It may have been imposed by some third party. It may arise, by implication, from all the circumstances in which the goods or services were supplied … the section does not look to the origin of the condition upon which there is a supply of services. The section looks to the supply of services upon that condition.

This sounds like there is no need to find that there is a degree of

compulsion in the transaction between the supplier and the ‘other person’. However, in the cases we have considered above, the other person very much felt compelled to accept the conditional supply of goods or services; otherwise they would not have been supplied! 9.42 In Stationers Supply Pty Ltd v Victorian Authorised Newsagents Association Ltd (1993) 44 FCR 35; (1993) ATPR 41-255, the Court stated (at 41,444): It is not, in my view, necessary that the supplying corporation impose the condition. The condition may be attached to the supply at the instigation of either party, or indeed, a third party … the applicant must, in my view, establish an element of compulsion, not necessarily one that is legally enforceable, but one which goes beyond creating a mere hope or expectation in the person whose benefit the condition has been attached.

In that case, the Court made a distinction between the existence of some condition (whatever the source of the condition), which a party feels compelled to accept if they are to receive their goods or services, and the mere hope or expectation that a condition will be complied with. [page 180] 9.43 In SWB Family Credit Union Pty Ltd v Parramatta Tourist Services Pty Ltd (1980) ATPR 40-180; 32 ALR 365, a travel agency, Alliance Travel Services (Alliance) and a Credit Union, SWB, entered into an arrangement in which Alliance would pay SWB 4% of any amount spent by SWB members who purchased overseas air travel tickets from Alliance. Under the arrangement, SWB then paid the 4% ‘rebate’ back into the account of the member who bought the airline ticket. Parramatta Tourist Services instituted proceedings against SWB, seeking an injunction to stop the arrangement. Theoretically, if every member of SWB took advantage of the arrangement, then they would only buy their overseas airline tickets from Alliance. No other travel agent, such as Parramatta Tourist Services, could compete with Alliance for SWB’s

members. Parramatta Tourist Services alleged that SWB was offering cheaper airfares to its members (as a result of the 4% rebate paid by SWB into their account) on condition that those members acquire the airfares from Alliance. The Court at first instance found that SWB had engaged in the practice of exclusive dealing. SWB’s appeal was allowed and the decision was reversed. The Full Court made the distinction between a supply on a condition and the promise of a benefit. On the facts, there was no obligation on SWB members to buy their air tickets from Alliance. However, if they did, then SWB would provide a benefit. In a rather convoluted passage, Smithers J stated (ALR at 372): It is clear that the act of exclusive dealing contemplated by the section is the supply of services by A to B in circumstances such that it is a correct assessment of the facts, as at the moment of supply, to say that the act of supply as has been performed pursuant to a transaction the terms of which include some sort of arrangement as between A and B … which gives to the supply the character of being made on the condition that B will acquire the services from C … A supply in other circumstances might be a supply on the hope, or even on the expectation, that B would acquire the services from C, but it could not be a supply ‘on the condition’ that B will acquire such services.

If we substitute the facts and parties of the actual case into Smithers J’s formulation, we see that there was a transaction the terms of which included an arrangement between SWB and its members, in which SWB provided the 4% rebate to its members in circumstances where those members bought their air tickets from Alliance. There was an expectation or hope that SWB’s members would buy their air tickets from Alliance, but no compulsion to do so — members were also perfectly free to buy their tickets from other travel agents. 9.44 This was also the situation in Monroe Topple & Associates Pty Ltd v Institute of Chartered Accountants in Australia (2002) 122 FCR 110; (2002) ATPR 41-879; [2002] FCAFC 197: see 9.28. You will recall that the Full Court stated (at [105]): This approach confuses the issues of purpose and effect with that of condition. It really alleges no more than … hope or expectation on the part of the Institute that candidates will not purchase support material from other suppliers including MTA … for a trader to offer products A and B

for a single price which might make the consumer more inclined to purchase the package and not buy a competing trader’s product B, is not to impose any sort of condition within the meaning of s 47(2).

Like the members of the SWB Family Credit Union, the ICAA candidates were also free to purchase other support materials from other suppliers. There was no compulsion [page 181] attached to the payment of their enrolment fee, as there was in the Baxter decision, for example. Another way of thinking about this subtle distinction might be to distinguish between a condition precedent to the enjoyment of a benefit and a supply on condition. If the SWB members wanted the benefit of the 4% rebate, then it was a condition precedent that they acquire their air tickets from Alliance. However, there was no compulsion on them to do so. Northrop J, in the SWB Family Credit Union case above, made the following distinction (ALR at 381): [I]n my opinion, the condition must have some attributes of compulsion and futurity. This can be expressed in the form: ‘if we do this, you will [must] do that’. A condition in the nature of an obligation must be imposed upon the person dealing with the corporation. The condition to be complied with by that person must result from something done or to be done by the corporation imposing the condition.

Third line forcing issues 9.45 Two difficult issues are associated with third line forcing conduct. One of those issues involves the form of the transaction, while another involves the identity of the third party.

Form over substance?

9.46 Earlier, we discussed the Paul Dainty decision as an example of exclusive dealing conduct regarding leases or licences in relation to land. In that case, the Court found that the National Tennis Centre Trust had not engaged in the practice of exclusive dealing by agreeing to lease the National Tennis Centre to Paul Dainty with ticketing at the Centre being provided by BASS. However, this sounds exactly like third line forcing conduct. The National Tennis Centre Trust offers to supply a lease of the National Tennis Centre on condition that Paul Dainty also use ticketing services provided by a third party — BASS. You will recall, however, that the Court found that there had been no breach because there was effectively only one contract. That contract was the one that existed between Paul Dainty Corporation and the Tennis Centre Trust which had a separate contract with BASS. This form of ‘bundling’ two contracts into one poses difficulties for the application of the third line forcing provisions in s 47 of the Act. Those difficulties stem from an earlier decision of the High Court in Castlemaine Tooheys Ltd v Williams and Hodgson Transport Pty Ltd (1986) ATPR 40-751; 68 ALR 376; [1986] HCA 72. 9.47 In that case, Castlemaine Tooheys brewed and wholesaled beer at a plant in Milton, Brisbane.1 It then wholesaled the beer to retailers throughout Queensland. For retailers (pubs and hotels) in North Queensland, it offered two methods of delivery. The retailers [page 182] could either take delivery of the beer from one of Castlemaine Toohey’s regional delivery depots, or they could have the beer delivered to their premises directly from the brewery in Brisbane. At the time, relevant liquor licence regulations concerning the calculation of licence fees made it far more attractive for retailers to have the beer

shipped directly to their hotels or pubs. Those retailers that then chose to have their beer delivered direct to their hotel or pub were required to take delivery of the beer from Castlemaine Toohey’s ‘preferred carrier’ which, at the time, was Queensland Railfast Express (QRX). When the retailer took delivery of the beer, they received an invoice that included a ‘total price’; that is, the invoice required payment of the beer, freight and freight insurance. Williams and Hodgson Transport wanted to freight the beer to retailers in North Queensland and offered lower freight charges than QRX. When some North Queensland retailers placed orders for beer and requested Williams and Hodgson to transport it, Castlemaine Tooheys refused to allow Williams and Hodgson to take delivery of the beer. Not surprisingly, Williams and Hodgson instituted proceedings against Castlemaine Tooheys, alleging that Castlemaine Tooheys’ freight delivery arrangement with QRX was the practice of exclusive dealing as described in s 47(6) — third line forcing. It was argued that Castlemaine Tooheys supplied beer on condition that the retailers also acquired freight transportation services from QRX. At first instance, the Court found that Castlemaine Tooheys had engaged in conduct as described in s 47(6) of the Act. An appeal to the Full Court failed. A further appeal to the High Court succeeded and the decisions of the lower courts were reversed. The High Court concluded that the QRX freight delivery services were acquired by Castlemaine Tooheys and not the North Queensland retailers. The contract for freight delivery was made between Castlemaine Tooheys and QRX, and not between the North Queensland retailers and QRX. Accordingly, the beer was supplied on a condition, but the condition was that Castlemaine Tooheys should arrange transport of the beer and deliver it to the retailer. The Court concluded (ALR at 384): In this case, there is no condition of supply by the brewer that the respective licencees should acquire any services from QRX. There is no acquisition of services, directly or indirectly, by the

respective licencees from QRX. There is no contract or arrangement between a person acquiring goods supplied by a corporation to a third person. The provisions of s 47(6) are not satisfied.

It would have been different if Castlemaine Tooheys had offered to supply beer on condition that the North Queensland retailers also enter into a contract for the acquisition of freight transportation services by QRX. 9.48 Recalling the facts of the Paul Dainty case (above at 9.36), there was no third line forcing exclusive dealing conduct in that case because the National Tennis Centre Trust did not require Paul Dainty to enter into a second contract with BASS to provide the ticketing as a condition of the lease of the National Tennis Centre. 9.49 The reasoning of the High Court has been followed in subsequent cases such as Australian Competition and Consumer Commission v IMB Group Pty Ltd (2002) ATPR (Digest) 46-221; [2002] FCA 402 and Australian Automotive Repairers’ Association [page 183] (Political Action Committee) Inc (in liq) v Insurance Australia Ltd (2006) ATPR 42-111; [2006] FCAFC 33. In each of these cases, an allegation of third line forcing conduct was dismissed on the basis that there was only a single supply of goods or services. 9.50 In order to establish third line forcing conduct, it will therefore be necessary to establish that the provision of one good or service is being made conditional upon the acquiring party also entering into a second contract to acquire other goods or services from a third party. Successful examples include Re Ku-ring-gai Co-operative Building Society (No 12) Ltd (1978) ATPR 40-094; 22 ALR 621 and Trade Practices Commission v Tepeda Pty Ltd (1994) ATPR 41-319.

‘Another person’

9.51 Section 47(6) involves the supply, or the offer to supply, goods or services on condition that the customer also acquires other goods or services from ‘another person’. The issue that has arisen involves the nature of that ‘other person’. Does the identity of the ‘other person’ have to be specifically identified, or can a range of persons or even a general descriptor be sufficient? 9.52 In Trade Practices Commission v Tepeda Pty Ltd, the Court held that the term ‘another person’ in s 47(6) means that there must be a specified person who is identified. In that case, the specified person was Ford Credit. However, in KAM Nominees Pty Ltd v Australian Guarantee Corporation Ltd (1994) 51 FCR 338; (1994) ATPR 41-325, the Court expressly disagreed with this view and held that s 47(6) did not require the identification of a specific other person. 9.53 What to do? Corones takes the view that the decision of the Court in KAM Nominees is to be preferred, stating: With respect, the findings of Drummond J are correct. The words ‘another person’ in s 47(6) are used in this context to distinguish the goods or services of the person imposing the restriction and it is not necessary to identify specifically the third person whose goods or services must also be acquired. Elsewhere in s 47 in defining the practice of exclusive dealing, where a specific person needs to be identified the phrase ‘particular person or class of persons’ is adopted.2

Professor Corones, therefore, offers two reasons why it is not necessary to identify a ‘specific person’ for the purposes of s 47(6). First, the term is used to make clear the separation of goods and services, and, second, as a matter of consistent statutory interpretation, s 47 evidences an intention to identify ‘particular persons or classes of persons’ where a specific person needs to be identified.

Exclusive dealing and substantial lessening of competition 9.54 Since the introduction of the Competition and Consumer Amendment (Competition Policy Review) Act 2017, the various practices of

exclusive dealing are only prohibited by s 47(1) if those practices have the purpose or effect, or likely effect, of [page 184] substantially lessening competition in a market. Section 47(10) makes this clear. What is meant by the phrase ‘substantial lessening of competition’ was discussed earlier. However, it is useful to take that general discussion into the specific circumstances of exclusive dealing conduct to see how such conduct can diminish competition in a market to the detriment of consumers.

A reminder 9.55 It is helpful to recall that competitive markets are characterised by price competition. Firms in such markets are unable to engage in discretionary pricing behaviour by ‘giving less and charging more’ for their products because customers would simply start buying the competitors’ products. A market that does not display competitive characteristics is conducive to firms being able to engage in discretionary pricing behaviour. Such firms are said to possess market power. This is why it is also said that competition is the antithesis of market power. What has this got to do with exclusive dealing conduct? 9.56 A supplier that places restrictions on a retailer’s ability to sell its goods may have the effect of lessening competition for those goods, thus lessening intra-brand competition. Suppliers that impose requirements contracts, in which retailers must purchase a significant amount of their stock from the supplier, may reduce inter-brand competition. In either case, the restrictive conditions may have the effect of reducing the quantity and quality of rival products to act as a competitive restraint on the exercise of discretionary behaviour by the firm imposing the restraint. In other words, exclusive dealing conduct may facilitate the acquisition

and exercise of market power to the detriment of consumers. The existence and exercise of this market power may diminish competition in the market, and where that competition is substantially lessened, the exclusive dealing conduct will breach s 47(1) of the Act.

Examples from the case law 9.57 How does substantial lessening of competition through exclusive dealing work? The principal anti-competitive effect of exclusive dealing conduct is that of foreclosure. An exclusive dealing arrangement can also represent an attempt by a firm with power in one product market to ‘leverage’ that power into another product market by the use of tying arrangements. Exclusive dealing arrangements can also act to create market-sharing arrangements through the use of territorial restrictions. Whatever form the exclusive dealing conduct takes, the potential is there for competition for a good or service to be lessened. 9.58 Let’s consider how this works by re-examining five cases we have explored earlier in this chapter. Instead of looking at these cases for their statements on certain terms and definitions, we will explore three matters: 1. 2.

We will identify the form the exclusive dealing conduct took by asking: ‘What was the nature of the restraint?’. We will try to identify what sort of commercial advantage the supplier hoped to gain by imposing the restraint. [page 185]

3.

We will examine how the courts evaluated whether the exclusive dealing conduct substantially lessened competition in the relevant market.

9.59 In Australian Competition and Consumer Commission v Eurong Beach Resort Ltd (2006) ATPR 42-098; [2005] FCA 1900 (see 9.24), we saw that

Eurong operated a barge transportation service to Fraser Island, off the coast of Queensland. When a rival company began operating barge transportation services to Fraser Island in competition, Eurong then (inter alia) entered into contracts with customers to offer discounts on its barge services if those customers did not use the competing service. The Court found that the respondents had breached ss 45, 46 and 47 of the Act. In this case, the nature of the restraint involved offering substantial discounts to customers on condition that those customers did not acquire the barge transportation services of Eurong’s competitor. What was Eurong hoping to achieve by this practice? It seems clear that Eurong wanted to price its competitor out of the market and regain sole operation of barge transportation services to Fraser Island. Finally, how did this practice affect competition in the market? The presence of the rival barge operator meant that there was competition for the provision of barge transportation services to Fraser Island — there was interbrand competition. However, Eurong was clearly attempting to damage the competitive position of the rival barge operator by offering discounts to customers who did not use that rival service. It was thus attempting to diminish and eliminate inter-brand competition. 9.60 In Australian Competition and Consumer Commission v Baxter Healthcare Pty Ltd (No 2) (2008) 170 FCR 16; (2008) ATPR 42-247; [2008] FCAFC 141, Baxter was found to have engaged in exclusive dealing through its ‘alternative offer strategy’. The nature of that restraint involved Baxter offering to supply State Purchasing Authorities (SPAs) with a ‘bundled’ product of sterile fluids and 90–100% of the required PD fluids at a substantial discount. However, Baxter also offered the same products on an item-by-item basis, without the discount, and at wholesale prices that were very high. What commercial advantage did Baxter hope to gain from this form of

restraint? Although Baxter was the dominant supplier of sterile fluids in Australia, it faced competition for PD fluids. The purpose of this alternative offer strategy, therefore, was to discourage the SPAs from acquiring PD fluids from Baxter’s competitors. Through its alternative offer strategy, Baxter tried to make it too expensive for the SPAs to buy both sterile fluids and PD fluids on an item-by-item basis. How did this practice affect competition in the market? Baxter was the dominant supplier of sterile fluids in Australia. It had power in that market because of the lack of competing suppliers of sterile fluids. Baxter attempted to leverage its power in the market for sterile fluids into the market for PD fluids. It did this not just by bundling the products, but by making it extremely expensive for the SPAs to acquire PD fluids from competitors. Since the SPAs needed sterile fluids, the evidence was that they felt compelled to also accept the PD fluids when purchasing sterile fluids from Baxter. Baxter’s alternative offer strategy, therefore, had the effect of foreclosing the SPAs as customers for Baxter’s competitors in the PD fluids market. 9.61 In Mark Lyons Pty Ltd v Bursill Sportsgear Pty Ltd (1987) ATPR 40809; 75 ALR 581, the Court found that Bursill’s refusal to supply Mark Lyons amounted to the practice of [page 186] exclusive dealing described in s 47(3)(f)(ii) and in breach of s 47(1) of the Act. This finding was a little unusual. It is not often that exclusive dealing conduct which diminishes the ability of a single trader to compete has the effect of substantially lessening competition in the market as required by s 47(10). The Court emphasised a passage from an earlier case (ALR at 598): (It would) be an unusual and exceptional case in which it could be shown that competition in a generally competitive market was or was likely to be substantially lessened by a refusal to supply one of a number of competitive retailers in a market with a product otherwise freely available and competitively marketed.

However, the Court found that Mark Lyons was not just ‘one of a number of competitive retailers in the market’. Rather, it was a vigorous competitor that had the effect of bringing heated price competition amongst retailers of ski equipment generally, and Salomon ski-boots particularly. By removing Mark Lyons from the market, Bursill could hope to end price discounting, thereby bringing about a rise in the retail price of Salomon ski boots. 9.62 In Australian Competition and Consumer Commission v FILA Sport Oceania Pty Ltd (2004) ATPR 41-983; [2004] FCA 376, the Court found that FILA had engaged in the practice of exclusive dealing defined in s 47(2)(d) in implementing its ‘selective distribution policy’ whereby it would only wholesale ‘on field’ clothing worn by members of the licenced five teams to retailers on condition that those retailers did not stock ‘team spirit’ clothing provided by other wholesalers: see 9.25. Through this selective distribution policy, FILA had engaged in the practice of exclusive dealing because it supplied, or offered to supply, licenced ‘on field’ clothing to retailers on condition that those retailers did not also acquire ‘team spirit’ clothing from FILA’s competitors. How did the implementation of FILA’s selective distribution policy negatively affect competition in the market? As a matter of evidence, it was found that the effect of the policy was (at [31]–[33]): … felt Australia-wide amongst the over four hundred retailers who stocked AFL licenced apparel. In particular, it affected those specialist AFL apparel retailers who were compelled to agree to the SDP by the necessity to stock On Field apparel for the five FILA sponsored teams. Retailers affected included Rebel Sports (thirty-seven stores across Australia), AMART (twenty-three stores in Queensland) and the AFL stores (seventeen stores in Victoria, South Australia, Western Australia and Tasmania). The contravening conduct had serious effects on FILA’s competitors. The sales of Burley Sekem declined in 2000 for Essendon, Geelong, Bulldogs and Melbourne apparel. From 2000 to 2001 Vivid’s sales of apparel for FILA-sponsored teams declined by the following percentages:

Essendon

24%

Adelaide

36%

Geelong

42%

Melbourne

42%

Bulldogs

33%

...

[page 187] Other suppliers and retailers also suffered losses as a result of their compliance with the SDP, as it reduced the range of stock available at various prices. As examples, between 1999 and 2000 there was a fifty-seven per cent decrease in Burley’s sales to Rebel Sports and an eighty-three per cent decrease in Burley sales to AFL Club shops.

9.63 In Outboard Marine Australia Pty Ltd v Hecar Investments (No 6) Pty Ltd (1982) ATPR 40-327, Hecar was a retail supplier of outboard motors and parts. It was the authorised supplier of ‘Evinrude’ brand motors and parts wholesaled by Outboard Marine. When Hecar began to stock, display and sell outboard motors made by rival manufacturer Suzuki, Outboard Marine refused to supply Hecar with Evinrude motors. At first instance and on appeal, the Courts found that Outboard Marine’s conduct amounted to the practice of exclusive dealing described by s 47(3) of the Act. However, since the conduct did not have the effect of substantially lessening competition in the market, the conduct did not breach the prohibition on excusive dealing in s 47(1). The Court found that although Hecar’s competitive position might be diminished, competition in the market as a whole was not substantially lessened.

A worked explanation of s 47 9.64 Set out below is an attempt to offer a worked explanation of how each of the subsections of s 47 fit together and operate. As part of this explanation, I have provided practical examples that illustrate how each element of s 47 actually works. Section 47 is not especially intellectually difficult (except perhaps the market definition and substantial lessening of competition (SLC)

analysis of course!) but it is very technically complex. The worked explanations are intended as a sort of ‘road-map’ of the entire section.

Preliminary points to note 9.65 1.

Points to note include the following: Most of the subsections in s 47 involve the supply of goods or services in one of three situations based on the pattern in s 47(2). A corporation engages in the practice of exclusive dealing if the corporation: (a) supplies, or offers to supply, goods or services; (b) supplies, or offers to supply, goods or services at a particular price; or (c) gives or allows, or offers to give or allow, a discount, allowance, rebate or credit in relation to the supply or proposed supply of goods or services by the corporation [emphasis added]; …

2.

Then the supply of goods or services in the form of either (a), (b) or (c) above is stated to be made on one of the conditions that then follow; for example, on condition that the person to whom the corporation supplies: (d) will not, or will not except to a limited extent, acquire goods or services, or goods or services of a particular kind or description, directly or indirectly from a competitor of the corporation (the supplier) or from a competitor of a body corporate related to the corporation; (e) will not, or will not except to a limited extent, re-supply goods or services, or goods or services of a particular kind or description, acquired directly or indirectly from

[page 188]

(f)

a competitor of the corporation or from a competitor of a body corporate related to the corporation; or in the case where the corporation [the acquirer this time!] supplies or would supply goods or services, will not re-supply the goods or services to any person, or will not, or will not except to a limited extent, re-supply the goods or services: (i) to particular persons or classes of persons or to persons other than particular persons or classes of persons;

(ii)

in particular places or classes of places or in places other than particular places or classes of places [emphasis added].

9.66 Therefore, each form of supply in (a), (b) or (c) above can be made on one of the conditions in (d), (e) or (f) above. So, thinking of this in a pattern form, you can have a combination of: (a)+(d), (a)+(e), (a)+(f); or (b)+(d), (b)+(e), (b)+(f); or (c)+(d), (c)+(e), (c)+(f). As you can tell, this can get very complex, so it is best to take things slowly and methodically rather than trying to ‘see’ the instant solution. The idea is to systematically work through each ‘combination’ in a given situation to see which form of exclusive dealing in s 47 ‘fits’ the facts at hand, taking care to note the ‘negative’ (refusing) provisions and the ‘positive’ (acquiring) provisions in s 47(4).

Section 47(2)(d) 9.67 The s 47(2)(d) restriction relates to the ability of the acquirer to acquire goods or services from a competitor of the supplier. This restriction has the effect of foreclosing both the customer (from the demand side) and the competitor (from the supply side). If SLC occurs, then the conduct is prohibited. Examples include the following: 1.

2.

3.

A supplies B with heaters on condition that B will not acquire heaters or some other goods of a particular description from C who is a competitor of A (this is the s 47(2)(a) plus (2)(d) combination). A supplies B with heaters at a ‘preferred retailers price’ on condition that B will not acquire heaters or other goods of a particular description from C who is a competitor of A (this is the s 47(2)(b) plus (2)(d) combination). A supplies B with heaters but also agrees to provide an ‘advertising subsidy’ to B on condition that B will not acquire heaters or other goods of a particular description from C who is a competitor of A (this is the s 47(2)(c) plus (2)(d) combination).

Section 47(2)(e)

9.68 The s 47(2)(e) restriction relates to the ability of the acquirer to resupply goods or services that have been acquired from a competitor of the supplier. This restriction has the effect of foreclosing B as a re-supplier of C’s goods. This may reduce inter-brand competition. Examples include the following: 1.

2.

A supplies B with heaters on condition that B will not, or will not except to a limited extent, re-supply heaters or other goods of a particular description that have been acquired from C who is a competitor of A (this is the s 47(2)(a) plus (2) (e) combination). The same as (2) under s 47(2)(d) above — A supplies B with heaters at the preferred retailers price on condition that B will not, or will not except to a limited extent, [page 189]

3.

re-supply heaters or other goods or services of a particular kind or description that have been acquired from C who is a competitor of A (this is the s 47(2)(b) plus (2) (e) combination). The same as (3) under s 47(2)(d) above — A supplies B with heaters and the accompanying advertising subsidy on condition that B will not, or will not except to a limited extent, re-supply heaters or other goods or services of a particular kind or description that have been acquired from C who is a competitor of A (this is the s 47(2)(c) plus (2)(e) combination).

Section 47(2)(f) 9.69 The s 47(2)(f) restriction relates to ‘customer’ and ‘territorial’ exclusivity. The restrictions relate to the ability of the acquirer (who would ordinarily re-supply the acquired goods or services) to re-supply the goods or services to persons, or particular persons, in places or particular places. This may have the effect of lessening intra-brand competition for the supplier’s

goods or services. Examples include the following: 1.

2. 3.

4.

5.

6.

7.

A supplies B with heaters (where B would normally re-supply those heaters) on condition that B will not, or will not to a limited extent, re-supply those heaters to any person, or will not supply, or will not except to a limited extent re-supply, those heaters to: (a) particular persons or classes of persons or to persons other than particular persons or classes of persons (where A supplies B with heaters on condition that B will not supply to C, or will not supply those heaters to ‘ANU students who should be used to the cold’, or only to ‘students from Queensland who are not used to the cold’); (b) particular places or classes of places or in places other than particular places or classes of places (where A supplies B with heaters on condition that B will not sell them at the ANU, or to all universities, or only at ANU, or only at universities). A supplies B with heaters on condition that B will not sell the heaters to ‘ANU students’ (this is the s 47(2)(a) plus (2)(f)(i) combination). A supplies B with heaters on condition that B will not sell the heaters at ‘any university campus sale’ (this is the s 47(2)(a) plus (2)(f)(ii) combination). A supplies B with heaters at the ‘preferred retailers price’ on condition that B will not sell the heaters to ‘ANU students’ (this is the s 47(2)(b) plus (2)(f)(i) combination). A supplies B with heaters at the ‘preferred retailers price’ on condition that B will not sell the heaters at ‘any university campus sale’ (this is the s 47(2)(b) plus (2)(f) (ii) combination). A supplies B with heaters together with the advertising subsidy on condition that B will not sell heaters to ‘ANU students’ (this is the s 47(2)(c) plus (2)(f)(i) combination). A supplies B with heaters together with the advertising subsidy on condition that B will not sell heaters at ‘any university campus sale’

(this is the s 47(2)(c) plus (2)(f) (ii) combination). [page 190]

Section 47(3)(d) 9.70 Section 47(3)(d) is the ‘negative’ of s 47(2) and so concerns the refusal to supply goods or services for the reverse of the reasons set out in s 47(2)(d), (e) and (f). The refusal to supply has taken place because of a refusal to do or to accept the restriction not to acquire goods or services from a competitor of the supplier. Where supply has been given and then cut off, the effect will be to foreclose that acquirer as a distributor of the supplier’s goods. Inter-brand and intra-brand competition may be reduced. Examples include the following: 1.

2.

3.

A refuses to supply B with heaters because B has acquired, or has not agreed not to acquire, heaters or other goods or services of a specified kind directly or indirectly from C who is a competitor of A (this is the s 47(3)(a) plus (3)(d) combination). The same as (2) under s 47(2)(d) above — A refuses to supply B with the preferred retailer’s price because B has acquired, or has not agreed not to acquire, heaters or other goods or services of a specified kind directly or indirectly from C who is a competitor of A (this is the s 47(3)(b) plus (3)(d) combination). The same as (3) under s 47(2)(d) above — A refuses to allow the advertising subsidy because B has acquired, or has not agreed not to acquire, heaters or other goods or services of a specified kind directly or indirectly from C who is a competitor of A (this is the s 47(3)(c) plus (3)(d) combination).

Section 47(3)(e) 9.71

Under s 47(3)(e), the refusal to supply has taken place because the

acquirer has re-supplied goods acquired from a competitor of the supplier or has not agreed not to so re-supply (that is, the acquirer has not accepted the supplier’s requirement that it (the acquirer) will not re-supply goods or services which were acquired from a competitor of the supplier). Examples include the following: 1.

2.

3.

A refuses to supply B with heaters because B has re-supplied heaters acquired from C (a competitor of A) or A refuses to supply B because B has not agreed with A that it will not re-supply goods or services that B has acquired from C (this is the s 47(3) (a) plus (3)(e) combination). Same as (2) under s 47(2)(e) above — A refuses to supply B with the preferred retailer’s price because B has re-supplied heaters acquired from C (a competitor of A) or A refuses to supply B because B has not agreed with A that it will not re-supply goods or services that B has acquired from C (this is the s 47(3)(b) plus (3)(e) combination). Same as (3) under s 47(2)(e) above — A refuses to supply B with the advertising subsidy because B has re-supplied heaters acquired from C (a competitor of A) or A refuses to supply B because B has not agreed with A that it will not re-supply goods or services that B has acquired from C (this is the s 47(3)(c) plus (3)(e) combination).

Section 47(3)(f) 9.72 Under s 47(3)(f), the refusal to supply has taken place because the acquirer has re-supplied goods or services acquired from the supplier (not goods acquired from a competitor of the supplier), or has not agreed not to re-supply goods or services acquired [page 191] from the supplier to particular persons, classes of persons, places or classes of places. Examples include the following:

1.

2.

3.

4.

5.

6.

A refuses to supply heaters to B because B has re-supplied heaters to ‘ANU students’ or because B has not agreed that it will not supply heaters to ‘ANU students’ (this is the s 47(3)(a) plus (3)(f)(i) combination). A refuses to supply heaters to B because B has re-supplied heaters at a ‘university campus sale’ or because B has not agreed that it will not supply heaters to ‘university campus sales’ (this is the s 47(3)(a) plus (3)(f)(ii) combination). A refuses to supply B with heaters at the preferred retailers price because B has re-supplied heaters to ‘ANU students’ or has not agreed that it will not sell heaters to ‘ANU students’ (this is the s 47(3)(b) plus (3)(f)(i) combination). A refuses to supply B with heaters at the preferred retailers price because B has re-supplied heaters at ‘university campus sales’ or has not agreed that it will not sell heaters at ‘university campus sales’ (this is the s 47(3)(b) plus (3)(f)(ii) combination). A refuses to supply B with heaters together with the advertising subsidy because B has re-supplied heaters to ‘ANU students’ or because B has not agreed that it will not sell heaters to ‘ANU students’ (this is the s 47(3)(c) plus (3)(f)(i) combination). A refuses to supply B with heaters together with the advertising subsidy because B has re-supplied heaters at ‘university campus sales’ or because B has not agreed that it will not sell heaters at ‘university campus sales’ (this is the s 47(3)(c) plus (3) (f)(ii) combination).

Section 47(4) 9.73 Section 47(4) involves restrictions that an acquirer of goods or services attempts to impose upon the supplier of those goods or services. Customers may have countervailing power, particularly when they are large customers. This countervailing power can be used to prevent the supplier providing the acquirer’s competitors with goods or services, thus reducing both intra-brand and inter-brand competition. Examples include the

following: 1.

2.

3.

4.

A buys or offers to buy heaters from B on condition that B will not supply heaters to C who is a competitor of A, or on condition that B will not supply heaters to ‘all ANU students’ (this is the s 47(4)(a) plus (4)(c) combination). A buys or offers to buy heaters from B on condition that B will not supply heaters to ‘university campus stores’ (this is the s 47(4)(a) plus (4)(d) combination). A buys or offers to buy heaters from B at the special ‘invitation price’ offered by B (in order to attract large buyers) on condition that B will not supply heaters to ‘all ANU students’ (this is the s 47(4)(b) plus (4) (c) combination). A buys or offers to buy heaters from B at the special ‘invitation price’ offered by B on condition that B will not supply heaters to ‘university campus stores’ (this is the s 47(4)(b) plus (4)(d) combination).

Section 47(5) 9.74 Section 47(5) is simply the reverse of s 47(4) — in s 47(5), A refuses to acquire heaters from B for the reason that … (and then all of the above combinations in s 47(4) apply). [page 192]

Section 47(6) 9.75 Section 47(6) is the ‘third line forcing’ provision and is, per se, illegal. It involves two products and three parties and follows the form: ‘I will sell you my pen if you buy the ink from my brother’. Examples include the following: 1. 2.

A supplies or offers to supply heaters to B on condition that B buys spare parts or repair services from C: s 47(6)(a). A supplies or offers to supply heaters to B at the ‘special retailers price’

3.

on condition that B buys spare parts or repair services from C: s 47(6) (b). A supplies or offers to supply heaters to B together with the advertising subsidy on condition that B buys spare parts or repair services from C: s 47(6)(c).

Section 47(7) 9.76 Section 47(7) is the ‘negative’ of s 47(6) — in s 47(7), A refuses to supply heaters to B because B has not acquired spare parts from C, or because B has not agreed that it will acquire spare parts from C. The combinations in s 47(6) above apply.

Section 47(8) 9.77 Section 47(8) provides restrictions imposed in the context of a grant or renewal of an interest in land, or in the exercise of a power or right to terminate a right or interest in land, a lease of land, or a licence in respect of land, a building or part of a building. Examples include the following: 1.

2.

3. 4. 5.

A (who is a hairdressing salon selling hairdressing products but also the owner of the building) will renew B’s lease of building (B is also a hairdresser) on condition that B will not acquire certain hairdressing products made by C (who competes with A in the manufacture of hairdressing products): s 47(8)(a)(i). A will renew B’s lease on condition that B will not resupply hairdressing products made by C (who competes with A in the manufacture of hairdressing products): s 47(8)(a)(ii). A will renew B’s lease on condition that B will not supply hairdressing products to customers who also go to C’s salons: s 47(8)(b)(i). A will renew B’s lease on condition that B will not supply a mobile hairdressing service to university campuses: s 47(8)(b)(ii). A will renew B’s lease on condition that B will acquire scissors from C: s 47(8)(c).

Section 47(9) 9.78 Section 47(9) is the ‘negative’ of s 47(8) — in s 47(9), A refuses to grant or renew an interest in land because B has acquired, resupplied, supplied or not acquired goods or services of a particular description or has not accepted a restriction relating to the acquisition, resupply, supply or nonacquisition of goods or services of a particular kind or description. Examples include the following: 1.

A refuses to renew B’s lease because B has bought hairdressing products from C, or because B has not agreed with A that it will not buy C’s products: s 47(9)(a). [page 193]

2.

3.

4. 5.

A refuses to renew B’s lease because B has re-supplied hairdressing products made by C, or because B has not agreed with A that it will not re-supply products made by C: s 47(9)(b). A refuses to renew B’s lease because B has supplied hairdressing services to persons who also sometimes get their hair cut by C: s 47(9) (c)(i). A refuses to renew B’s lease because B has supplied a mobile hairdressing service to university campuses: s 47(9)(c)(ii). A refuses to renew B’s lease because B has not acquired scissors from C, or because B has not agreed with A that it will acquire scissors from C: s 47(9)(d).

Further reading In this list of further reading, I have included a brief explanation of why I think the material is worth the time and effort to read: N Blycha and J Duns, ‘Tying, Bundling, Loyalty Rebates and Exclusive

Dealing in US Antitrust: What Can Australia Learn?’ (2006) 14 TPLJ 26: A more general concern with exclusive dealing is how to accurately assess the alleged anti-competitive effects of the conduct. The antitrust law of the United States is advanced on this issue. This article is a good introduction to the United States jurisprudence on non-price vertical restraints and whether such jurisprudence could usefully be adopted in Australia. D Clough, ‘Law and Economics of Vertical Restraints in Australia’ (2001) 25 MULR 20: This is a lengthy article that comprehensively examines the economics of vertical restraints. In particular, the article considers the Australian case law approach to assessing the impact of vertical restraints on competition in a market. A Coorey and P Panikabutara, ‘Exclusive Dealing: How Exclusive are Minimum Quantity Condition Dealings?’ (2006) 14 TPLJ 145: There have always been difficulties in characterising minimum quantity obligations in terms of s 47 of the Act. This is because they are a different form of restrictive practice than restrictions on dealing with competitors. This article does a great job in evaluating how difficult it is to assess minimum quantity obligations under s 47(2)(d) of the Act. L Griggs, ‘Tying Arrangements Within Franchise Contracts — How Should They be Evaluated?’ (1998) 6 TPLJ 220: Australia has one of the largest franchise participation rates in the world. However, it is an industry prone to economic exploitation, to the point of requiring regulation which occurs through the compulsory Franchising Code of Conduct. This article considers one of the more common forms of potential economic exploitation — tying arrangements that benefit the franchisor. J Lipton, ‘Third Line Forcing in Australia: Current Problems and Future Directions’ (1996) 4 TPLJ 77: An older article that, nevertheless, explores the difficult issues associated with third line forcing exclusive dealing conduct, especially as a per se contravention of the Act.

1.

2.

During the time the author was at law school at Queensland University of Technology in Brisbane, the Castlemaine Toohey’s Milton brewery was not all that far away from the Arnotts biscuit factory. Both the brewery and the biscuit factory were not far upriver from QUT, so occasionally, when the wind was blowing in the right direction, everyone in class could smell a sweet odour of baking biscuits and fresh beer! S Corones, Competition Law in Australia, 4th ed, Lawbook Co, Sydney, 2007, pp 509–10.

[page 195]

Chapter 10 Resale Price Maintenance

Overview This chapter is intended to explain: • •







• •

why the practice of resale price maintenance (RPM) is harmful to competitive markets and to consumers; the debate in Australia about whether the extent of this competitive harm justifies the present per se prohibition of RPM, especially in the context of ‘premium brand’ goods; explain how RPM can operate to eliminate intra-brand competition for goods and therefore function in much the same way as a horizontal price-fixing cartel; how the harm to competitive markets caused by RPM practices can be analysed in terms of market power and lessening of competition generally; the elements and structure of the different forms of conduct that are deemed to constitute RPM by s 96(3) of the Competition and Consumer Act 2010 (Cth) (CCA) (the Act); the fundamental concepts such as ‘price specified’, ‘making it known’ and ‘inducing or attempting to induce’ RPM conduct; how these principles actually work by examining decisions of the Federal Court concerning proven RPM conduct;

• •

explain the changes to RPM instituted by the Competition and Consumer Amendment (Competition Policy Review) Act 2017; and provide a process that makes it relatively simple to navigate the complex provisions of s 96(3).

Introduction 10.1 Resale price maintenance (RPM) involves vertical price restraints. They are vertical because the practices involve restrictions placed upon a retailer, lower down in the supply chain, by that retailer’s supplier, who is higher in the supply chain. They involve price restraints because the restrictions imposed by the supplier on the retailer concern the price that the retailer is to charge to consumers. RPM is therefore a form of vertical price fixing and is prohibited per se by s 48 of the Act. [page 196]

Approach of the Act 10.2 Part IV of the Act takes two basic approaches to identifying and prohibiting anti-competitive conduct. Some provisions simply condemn anti-competitive activity. For example, s 46 of the Act simply prohibits a corporation that has a substantial degree of power in a market from engaging in conduct that substantially lessens competition. It does not contain sections that attempt to prohibit the individual forms of this conduct (such as refusal to supply). However, most other provisions in Pt IV of the Act target very specific structural forms of anti-competitive conduct. Section 48 of the Act does not attempt to prohibit RPM by broadly condemning it. Instead, the Act attempts to precisely identify and prohibit a number of structural forms that vertical

price restrictions can take. Presently, RPM is a per se prohibition. The Competition and Consumer Amendment (Competition Policy Review) Act 2017 did not amend the substance of the prohibition against RPM. It did not change its per se threshold or elements of the contravention. However, it did amend the ‘Authorisations and Notifications’ provisions of the Act (Chapter 12 of this text) so that RPM conduct may be ‘notified’. Briefly, and to anticipate Chapter 12 a little, parties to some forms of anticompetitive conduct may approach the ACCC seeking ‘authorisation’ or ‘notification’ for that conduct. Authorisation and notification are usually conferred when the party can demonstrate that despite the anti-competitive effect of the conduct, it nevertheless results in some overriding public benefit. Notification is a faster process than authorisation and the Explanatory Memorandum notes (at [8.6]) that permitting the ACCC to notify RPM may assist in products reaching the market sooner for the benefit of consumers.

Why is RPM considered ‘bad’ for competition and consumers? 10.3 In designating some forms of anti-competitive conduct to be per se illegal, parliament has concluded that the relevant conduct is particularly detrimental to the competitive process and therefore to consumer welfare. In Australian Competition and Consumer Commission v TF Woollam & Sons Pty Ltd (No 2) (2011) ATPR 42-376, the Court remarked on the significance of per se contraventions in the Act by noting (at 44,439): The very designation of the conduct as a per se prohibition is said to reflect an expression of the Parliament that in that case, resale price maintenance conduct poses a real threat, like price fixing conduct, ‘to the central nervous system of the economy’.

In relation to RPM specifically, the Court in Trade Practices Commission v Stihl Chain Saws (Aust) Pty Ltd (1978) ATPR 40-091 (at 17,897) stated that s 48 is intended: … to create conditions in which the public will benefit from traders competing with each other in

respect of prices unfettered by price restraints imposed by suppliers of goods upon retailers.

Since 1978, the courts have repeated these views. For example, in Australian Competition and Consumer Commission v Colgate-Palmolive Pty Ltd (2002) ATPR 41-880; [2002] FCA 619, Weinberg J repeated the above, stating (at [29]): [page 197] … Contraventions of s 48 are serious violations of the conditions laid down by Parliament for the conduct of corporate trade and commerce. The prohibition upon resale price maintenance is intended to create conditions under which the public will benefit from traders competing with each other in respect of prices, unfettered by price restraints imposed by suppliers of goods upon retailers.

10.4 These observations of the court raise at least three important questions in relation to the ongoing purpose and function of RPM: 1. 2. 3.

Why do consumers ‘benefit from traders competing with each other in respect of prices, unfettered’ by restraints imposed by suppliers? What is the nature of the detriment suffered by consumers when traders impose price restraints upon suppliers? Do all vertical price restraints necessarily involve detriment to consumers?

Benefit and detriment 10.5 When a market functions efficiently, consumers benefit from price competition between retailers of goods and services. This competitive benefit takes two broad forms. First, consumers benefit from inter-brand competition, where retailers sell different brands of a particular product (such as whitegoods, computers or shoes). Second, consumers benefit from intrabrand competition, where different retailers sell products of the same brand. Therefore, in an efficient market, a consumer who wants to buy a new

computer can visit different retailers and compare prices across different brands of computers (inter-brand) as well as compare prices across a particular brand of computer (intra-brand). All forms of anti-competitive conduct have potentially positive and negative consequences for inter- and intra-brand competition. 10.6 The consequences of RPM on an efficient market were summarised by the Full Federal Court in Australian Competition and Consumer Commission v High Adventure Pty Ltd (2006) ATPR 42-091; [2005] FCAFC 247 (at [7]): … s 48 was indeed enacted on the premise that competition is important in the distribution of goods and that vertical price fixing, or resale price maintenance (supplier regulation of the price at which goods are resold), eliminates that competition. Several reasons have been put forward to explain why resale price maintenance is undesirable. One is that it permits the supplier to take advantage of retailers by denying them the freedom to set a price most advantageous to themselves. Another is that resale price maintenance is often a manifestation of price fixing among retailers themselves. A third reason is that a powerful supplier may insist that minimum prices be imposed on its retail goods. Yet another view is that resale price maintenance inevitably eliminates dealer competition with the undesirable consequence that consumers are limited in the range of choices they have with respect to price.

We will use the facts in the High Adventure decision to illustrate the economics of RPM in the discussion below. [page 198]

Product image and RPM 10.7 Recently, there has been much debate in Australia about whether RPM is so hostile to efficient competition that it should be per se illegal. There are persuasive arguments for the view that RPM can have procompetitive effects. On these views, RPM conduct should not be per se illegal, but the conduct should be prohibited only if it substantially lessens competition in the market.

10.8 Advocates of this view point to the recent decision of the United States Supreme Court in Leegin Creative Leather Products Inc v PSKS Inc (2007) 127 S Ct 2705; 551 US 877, in which the Court overturned earlier decisions condemning RPM as per se illegal. The Court stated (at p 14 Pt III(C)): … it cannot be stated with any degree of confidence that resale price maintenance ‘always or almost always tend[s] to restrict competition and decrease output’ … Vertical agreements establishing minimum resale prices can have either procompetitive or anti-competitive effects, depending on the circumstances in which they are formed …

And (at p 28 Pt IV(B)): Vertical price restraints are to be judged according to the rule of reason. 10.9 Similar views have been expressed by Australian courts. For example, in the first instance decision in Australian Competition and Consumer Commission v High Adventure Pty Ltd, Gray J expressed his personal view that: I’m not such an ardent disciple of competition as an economic model that it seems to me to be necessary to go knocking out of the ring everyone who does something slightly anti-competitive every so often. I happen to believe personally that competition is not necessarily a great economic model but I know that it’s the one that the Act adopts and the one that I have to apply.1

10.10 On these views, RPM should be prohibited only if it substantially lessens competition in the relevant market. This kind of threshold analysis is often referred to as a ‘rule of reason’ approach and is consistent with most of the other anti-competitive provisions in Pt IV of the Act.

Discounting 10.11 Of particular concern to manufacturers is the effect that ‘discounting’ might have on the public perception of their products. The fear is that because products are discounted, consumers might regard them as defective, ‘common’ or somehow of lesser quality than more expensive products. A good discussion of the issues involved in this debate can be found in Australian Competition and Consumer Commission v Jurlique International

Pty Ltd (2007) ATPR 42-146; [2007] FCA 79. Jurlique admitted that it had engaged in RPM in relation to the [page 199] supply of premium skincare products to specialist retailers. However, the Court also noted that Jurlique had developed considerable brand value through preserving an image of its products as expensive and luxurious. There is evidence that for some ‘prestige’ goods a higher price can lead to an increased demand for those goods. The fact that goods are expensive often lends them an aura of exclusivity that consumers find attractive. The general idea is that: When consumers buy a prestige product they are buying more than just its practical usefulness; they are also buying the ability to show off the purchase, that is, to demonstrate to others that they can afford prestige. Consumer welfare is enhanced since it must be assumed that consumers do derive genuine benefit from the purchase of this non-tangible prestige.2

Jurlique submitted that discounting undermined these qualities and, thus, the value of the Jurlique brand. The company submitted that the maintenance of resale prices enhanced the value of the brand and, by implication, protected the returns to retail outlets. 10.12 What is the theory behind Jurlique’s submissions? Manufacturers of exclusive goods frequently invest large sums of money in advertising and presentation to create and maintain an aura of exclusivity associated with their goods. The retailers of those goods then have a vested interest in maintaining this prestigious image so that customers remain attracted to the goods and, more importantly (at least from the retailer’s perspective), remain willing to pay higher retail prices associated for those goods. There are at least two circumstances in which manufacturers of prestige goods, such as Jurlique, claim that price competition in the form of discounting harms the image of their goods.

10.13 First, when retailers discount these types of goods, manufacturers frequently complain that consumers will believe that there is something wrong with the quality of the goods and will not buy them. This was Jurlique’s principal concern and as the Court noted (at [65], [69]): Resale price maintenance is said to enable a supplier to maintain the reseller’s profit level, and therefore the incentive the reseller has to distribute the goods … There is a strong case for the argument that by employing a minimum resale price, and preventing the undercutting of prices by discount retailers, the image and status of a product is protected; that is, the high price is a mechanism through which a manufacturer can certify to its customers that the products they are purchasing are of a high quality.

Remember that such ‘certification’ of the product is regarded by consumers as valuable non-tangible prestige for which they are willing to pay higher retail prices. This is a risky tactic for manufacturers because they are depending on customers continuing to value the non-tangible prestige associated with the product. Once this prestige diminishes, the manufacturer may find it difficult to continue to maintain higher prices through RPM conduct. 10.14 The second issue that manufacturers of prestige goods are sometimes faced with concerns the ‘free rider’ problem. As an example, retailer A might invest a significant amount of time and money in the promotion and maintenance of its products, including an [page 200] excellent customer-service program. In order to recoup the expenses associated with these services, retailer A sets a higher retail price for the product. However, retailer B does not invest a similar amount of money in advertising and customer service and is therefore able to set a lower retail price for the product. The free rider problem occurs when customers are attracted to the product

because of A’s extensive promotional and customer service campaigns, but then buy the product from B at the lower retail price. In this way, B is said to have taken a ‘free ride’ on the effort and expense of A’s hard work. In these circumstances, there is little incentive for retailers to spend money in developing customer services and other benefits. One way to prevent the free rider problem is for suppliers to require their retailers to maintain consistent resale prices. By doing so, retailers would be prohibited from attracting customers by engaging in price wars and discounting campaigns. Instead, the retailers would have to engage in nonprice competition in order to attract customers. For suppliers of prestige goods, non-price competition between its retailers carries the additional benefit of maintaining the prestige image of the product, thus enhancing the appearance of its exclusivity. Further discussion by an Australian court on this issue can be found in Australian Competition and Consumer Commission v Netti Atom Pty Ltd (2007) ATPR 42-204; [2007] FCA 1945 at 48,386.

Practical examples 10.15 The following recent decisions of the Federal Court illustrate the concern that manufacturers have with retailers discounting their products. When you read these cases, keep in mind the competing economic and policy issues discussed above: • •

On the one hand, consumers benefit from intra-brand price competition between retailers, usually in the form of lower prices. On the other hand, in all the cases, there is evidence that the act of RPM was motivated by the manufacturer’s concerns that discounted prices might somehow give the impression to the public that their products were inferior, cheaper or lacked professional or exclusive status.

10.16 In Australian Competition and Consumer Commission v High Adventure Pty Ltd (2006) ATPR 42-091; [2005] FCAFC 247, a company in the Czech Republic called Sky Paragliders (Sky) manufactured paragliding, hang gliding and paramotoring equipment. Its Australian wholesaler was High Adventure Pty Ltd (High Adventure). High Adventure advertised Sky’s gliders and equipment for sale in a magazine named Soaring Australia. Another Australian company called Walkerjet began to buy equipment directly from Sky and also offered it for sale in Soaring Australia magazine. However, Walkerjet’s retail prices were up to A$1000 cheaper than the retail prices advertised by High Adventure. High Adventure complained to Sky, who responded by sending an email to Walkerjet advising: We have received some claims from our customers that you are relegating [sic] good name of the company by offering the gliders for very low prices. Therefore we would like to ask you

[page 201] not to sell our gliders ‘under the price’ on Australian trade as this causes problems to our other dealers who are complaining to us now.3

Obviously, customers would have benefited from the competition between these two retailers of paragliding and hang gliding equipment. However, High Adventure would almost certainly have lost sales to the cheaper-priced Walkerjet products. Notice also Sky’s concern with ‘problems to our other dealers who are complaining to us now’. What are these problems? And how is Sky’s insistence that retailers maintain a certain retail price intended to solve those problems? Apart from concerns about the reputation of its products, suppliers such as Sky have a vested interest in maintaining a stable and happy retail distribution network. If one of Sky’s retailers begins to undercut another then

from Sky’s perspective this potentially destabilises the stability of its retail chain and may even result in a price war between retailers. A price war between retailers of Sky’s products may result in fierce intra-brand competition benefiting the consumer. However, a price war also reduces the profit margins earned by Sky retailers. This is why Walkerjet’s discounting caused ‘problems to our other dealers who are complaining to us now’. In order to ‘stabilise’ the market, Sky’s retailers might create a horizontal price-fixing cartel. Alternatively, if the retailers either cannot or do not form and maintain a price-fixing cartel they may pressure Sky as the supplier to direct all retailers to maintain the same resale price. This is what appears to have happened in this case. Sky then assumed responsibility for eliminating intra-brand competition at the retail level by imposing minimum resale price requirements on its retailers. Since all retailers are required to sell Sky equipment at the same price, profit margins are preserved from attack from discounters. Evaluating this conduct in terms of market power and consumer detriment is discussed in more detail below at 10.20. 10.17 In Australian Competition and Consumer Commission v Dermalogica Pty Ltd (2005) ATPR 42-046; [2005] FCA 152, two beauty salons advertised Dermalogica products for sale on their websites at prices that were lower than Dermalogica’s recommended retail prices (RRPs). Various Dermalogica sales representatives met with the owners of the beauty salons, urging them to bring their prices into line with the RRPs. It was alleged that various threats were made by the Dermalogica sales representatives to the beauty salon owners, to the effect that the discounting of the beauty salons’ accounts with Dermalogica might be cancelled if the discounting continued. In a letter to one of the salons, the general manager of Dermalogica in Australia stated (at 42,574): It has come to our attention that your website is offering the Dermalogica product range for sale lower than the recommended retail price. Our web guidelines and policies clearly states [sic] that ‘in order to maintain Dermalogica’s premium brand image … we strongly discourage the selling

of Dermalogica’s products for more or less than their suggested retail prices [sic].

[page 202] 10.18 The issue of product image and reputational concerns can also be found in Australian Competition and Consumer Commission v TEAC Australia Pty Ltd (2007) ATPR 42-201; [2007] FCA 1859, where the Court noted that the RPM conduct was intended to prevent discounting from ‘undermining TEAC’s strategy to re-position itself as a more expensive brand in the electrical goods market’: at 48,345. 10.19 It is also evident in Australian Competition and Consumer Commission v Netti Atom Pty Ltd, above, where RPM was alleged in relation to the sale of ‘Scott’ sports bikes. The Court noted evidence from the national sales manager of Netti that he was concerned about ‘the devaluing of the Scott brand via the practice of discounted pricing of Scott Sport Bikes by other Dealers on websites’: at 48,386.

RPM, market power and consumer detriment 10.20 How does the practice of RPM relate to the central concerns of competition policy — market power, market definition, consumer choice and substitutable sources of supply and demand — discussed earlier? In particular, what is the relationship of RPM to the acquisition and use of market power by corporations to the potential detriment of consumers? 10.21 Earlier it was noted that a firm possesses market power when it can engage in discretionary price and non-price behaviour. The most common expression of market power is the ability of a firm to initiate a small but significant and non-transitory increase in the price of its goods or services. When a firm can do this, consumers have little choice but to accept that price. Such a firm is said to possess market power.

This is because there are no substitutable (or competing) goods or services produced by other firms that can constrain the firm from raising its prices at its discretion. For consumers, a market in which there are few firms producing substitutable goods or services means that they will usually pay a higher retail price for those goods or services than they would pay if the market was competitive. How do these considerations come together in analysing how RPM conduct can distort the market resulting in consumers paying higher prices? 10.22 A good example can be found in Australian Competition and Consumer Commission v High Adventure Pty Ltd: see 10.16 above. Customers had been paying up to A$3000 for Sky’s equipment imported and sold by High Adventure. Initially, there was no other retailer offering similar equipment. The lack of substitutable forms of equipment meant that customers could not ‘shop around’ to get a better price, thus there was no constraint forcing High Adventure to lower its prices to a competitive level. High Adventure was able to set the price of its equipment at its discretion and, for present purposes, can be said to have possessed market power. However, when Walkerjet entered the market, it started offering paragliding and hang gliding equipment that were acceptable substitutes for the equipment sold by High Adventure. In addition, Walkerjet sold its equipment for up to $1000 less than the prices demanded by High Adventure. The evidence indicated that customers were buying the equipment from Walkerjet. It’s no wonder that High Adventure was upset! [page 203] Walkerjet’s lower retail prices constrained the ability of High Adventure to set retail prices at its discretion. Suddenly, the market was more competitive and the consumer benefited from the intra-brand competition for Sky’s equipment.

High Adventure was not in a position to maintain its higher retail prices or to directly threaten Walkerjet into raising its prices. Customers were not so attached to High Adventures’ service and equipment that they would not shop anywhere else for equipment — especially if it was cheaper. Because Walkerjet was also importing its equipment from Sky, High Adventure’s only realistic chance to prevent the competitive erosion of its prices was to indirectly threaten Walkerjet. High Adventure did this by going to Walkerjet’s supplier and attempting to convince Sky to discipline Walkerjet by ordering the company to raise its retail prices or risk losing future supplies. It did this under the guise of ‘safety’ and ‘product image’ concerns. If High Adventure had succeeded and Walkerjet had been forced to maintain minimum resale prices, then its ability to constrain High Adventure’s power to extract a higher retail price from customers would have been crushed. In addition, intra-brand competition for Sky’s products would have been eliminated, Walkerjet’s products would not have been effective substitutes, and, consequently, High Adventure would have been able to raise its retail prices. Consequently, customers would have been forced to pay retail prices above the level that would have prevailed if the market were competitive. 10.23 In this way, RPM conduct by suppliers — higher in the chain of distribution — can have the effect of indirectly facilitating the exercise of market power by retailers — lower in the distribution chain — ultimately to the detriment of consumers. At present, RPM is per se illegal and does not require a finding that competition has, in fact, been substantially lessened. Nevertheless, it is in this way that RPM conduct can be analysed in terms of markets, market power and competitive markets, the lessening of competition and consumer detriment, like any other form of anti-competitive conduct.

Elements of the prohibition 10.24

RPM is prohibited by s 48 of the CCA and there is a three-step

process involved in identifying conduct that amounts to ‘the practice of resale price maintenance’: •

First, s 48 simply states: ‘A corporation or other person shall not engage in the practice of resale price maintenance’. It prohibits the conduct but does not assist in identifying the forms that various price restraints imposed by suppliers upon retailers can take. One important point to note about the text of s 48 involves the threshold of the prohibition. RPM is a ‘per se offence’. It does not require an applicant to establish that the conduct substantially lessens competition. We know this because s 48 lacks an equivalent provision like s 47(10), which imposes a ‘substantial lessening of competition’ threshold on certain forms of exclusive dealing conduct. Section 48 simply prohibits the practice of RPM without qualification. [page 204]





Second, the ‘practice of resale price maintenance’ is defined in s 4 of the Act to mean ‘the practice of resale price maintenance referred to in Part VIII’. Third, Pt VIII of the Act contains ss 96–100 in which the various practices of RPM are defined, clarified and supported.

It is important to keep this tripartite structure in mind when approaching an allegation of RPM. While the actual conduct is identified in Pt VIII of the Act, a supplier does not breach a provision of Pt VIII. A supplier breaches s 48 of the Act because it has engaged in ‘the practice of resale price maintenance’ as defined in the scheme of Pt VIII; if a supplier has breached s 48 of the Act, there is no additional need to consider the effect of that conduct upon either competition in the market generally, or upon the competitive ability of the retailer specifically.

Structure of Pt VIII 10.25 The various ‘practices of resale price maintenance’ are defined in s 96(3). Other sections within Pt VIII clarify elements of individual practices, function as deeming provisions and impose evidentiary presumptions. Section 96 is the principal section prohibiting RPM. Section 96(1) and (2) deal with who may engage in the various acts of RPM that are then set out in detail in s 96(3).

The practice of RPM 10.26 Section 96(3) sets out six forms of conduct that will amount to ‘the practice of resale price maintenance’. These six forms, in overview, are: 1.

2.

3.

4.

5.

A supplier making it known to a second person that the supplier will not supply unless that person agrees not to sell at a price less than a price specified by the supplier (s 96(3)(a)). A supplier inducing or attempting to induce a second person not to sell goods supplied by the supplier at a price less than a price specified by the supplier (whether those goods were obtained from the supplier or from a third person who obtained them from the supplier) (s 96(3) (b)). A supplier entering into an agreement for the supply of goods containing a provision that the purchaser will not sell below the supplier’s specified price (s 96(3)(c)). A supplier withholding supply because: (a) the purchaser has not agreed not to sell below the supplier’s specified price; or (b) the purchaser has sold the supplier’s goods or services at a price less than the supplier’s specified price (whether obtained from the supplier or from a third party who obtained them from the supplier) (s 96(3)(d)). A supplier withholding supply to a second person because:

a third person who has obtained the goods from the second person has not agreed to sell those goods at prices less than the price specified by the supplier; (b) the third person has sold the supplier’s goods at a price less than the supplier’s specified price (s 96(3)(e)). (a)

[page 205] 6.

A supplier using a statement of price in the supply of goods to a second person that is understood as a statement of price below which the goods are not to be sold (s 96(3)(f)).

‘Positive’ and ‘negative’ conduct 10.27 These practices can also be thought of as involving ‘positive’ and ‘negative’ forms of conduct. Section 96(3)(a), (b), (c) and (f) are ‘positive’ because the conduct involves the supplier actually attempting to influence the retailer to maintain their resale price through statements of price, threats and inducements. Section 93(3)(d) and (e) are ‘negative’ because the conduct involves the supplier refusing to supply a retailer because the retailer has not maintained a resale price.

Corporate and non-corporate parties 10.28 We noted earlier, in Chapter 6, that because of constitutional reasons, the Act is principally drafted to target the conduct of corporations. In most situations of RPM, the supplier and retailer will be corporations. However, three other possibilities exist: 1.

It is possible that a corporate supplier may attempt to engage in RPM directed toward a non-corporate retailer.

2. 3.

It is possible that a non-corporate supplier may attempt to engage in RPM directed toward a corporate retailer. It is also possible that a non-corporate supplier will attempt to engage in RPM directed toward another non-corporate retailer.

10.29 Section 96(1) and (2) provides drafting mechanisms that are intended to ensure that at least the first two circumstances are also caught by the prohibition of RPM in s 48. The subsections do this by identifying a corporation somewhere in the supply chain in the following two ways: 1.

2.

Section 96(1) states that a corporation engages in the practice of RPM if it does any of the acts of RPM referred to in s 96(3). There are two possibilities: (a) a corporation engages in any of the acts in s 96(3) in the course of supplying goods to another corporation; or (b) a corporation engages in any of the acts in s 96(3) in the course of supplying goods to a non-incorporated entity. This is the first of the three other possibilities mentioned above at 10.28. Section 96(2) states that a person (not being a corporation) engages in the practice of RPM if it does any of the acts referred to in s 96(3) where the second person (the retailer) is a corporation. This is the second of the possibilities mentioned above.

10.30 Finally, there is the situation where a non-corporate supplier attempts to engage in RPM conduct directed toward a non-corporate retailer. This is the third of the three other possibilities mentioned above at 10.28. The Act will not directly capture these activities [page 206] because there is no corporate nexus. However, the RPM conduct would most likely be captured by the state Competition Codes, subject to jurisdictional issues created by the decision of the High Court in Re Wakim; Ex parte

McNally (1999) 198 CLR 511; 163 ALR 270; [1999] HCA 27.

Goods and services 10.31 When it was originally drafted, s 96 did not refer to RPM conduct involving services. It was confined to RPM conduct involving the supply of goods only. The text of s 96, as it presently reads, does not mention services. How do we know that s 96 also applies to services? Following the Hilmer Report in 1992, the Competition Policy Reform Act 1995 (Cth) inserted s 96A to apply the acts specified in s 96(3) to services.

Common concepts 10.32 The practice of RPM is not especially complex in the way that misuse of market power is complex, for example. However, because s 96(3) approaches the practices of RPM by attempting to define specific forms of conduct rather than establishing a broad prohibition, it is a technically complex section. Throughout the text of s 96(3), there are several common concepts and patterns. For example, in all subsections, the phrase ‘a price specified’ is repeated. Similarly, the pattern of a person supplying to ‘a second person’ or from a second person to a ‘third person’ is repeated. Because it is technically drafted in this way, it is very important to establish a clear understanding of the chain of distribution; that is, who is the supplier, who is the ‘second person’ and who is the ‘third person’ in relation to the supplier of the goods or services. Understanding RPM and the application of s 96(3) can appear to be difficult — it is easy to get lost amongst the dense drafting of the section. However, once the common concepts and repeated patterns of behaviour are understood, navigating the section becomes relatively straightforward.

‘A price specified’

10.33 Since the basis of RPM is the retailer’s lack of freedom to set its own retail price, it follows that retailers must be aware that their suppliers want them to maintain a certain retail price. In its most blatant form, therefore, RPM consists of a supplier specifying to its retailers the price at which the supplier’s goods or services are to be sold to consumers. However, the supplier may specify the price in a number of ways, including indirectly. In all cases, the retailer is aware that the supplier is specifying a price below which the retailer cannot sell certain goods or services. This requirement is a common concept found in s 96(3)(a), (b), (c), (d), (e) and (f). 10.34 The common concept of ‘a price specified’ raises several important questions: • •

What does ‘price’ mean? What does ‘a price specified’ mean? Does it have to be a specific price or can it be more general? [page 207]

• • •

• • •

When does a supplier ‘make it known’ to a retailer that a price must be maintained? Does the retailer have to know that it will lose supply if it refuses to comply with the price specified? Do the supplier and retailer have to reach a mutually understood agreement that the retailer will maintain a specific price before s 48 has been breached? What if someone specifies a price on behalf of the supplier? Does the retailer actually have to comply by maintaining the price for a certain period before the supplier has breached s 48? What if it is the retailer who requests the supplier to impose minimum resale prices in order to disguise a horizontal price-fixing

arrangement?

What does ‘price’ mean? 10.35 Section 4 of the Act defines ‘price’ to include ‘a charge of any description’. In almost all of the RPM cases, the supplier is concerned with ensuring that the retailer maintains retail prices. This is consistent with the concern of some suppliers to ensure that consumers continue to think of the suppliers’ products as exclusive or of professional quality. 10.36 However, the text of s 96(3) does not confine the definition of ‘price’ to retail prices alone. The practices of RPM are simply defined by s 96(3) to involve the supplier requiring ‘a second person’ not to sell goods or services ‘at a price less than a price specified’. RPM could equally occur where a manufacturer attempts to force its distributor (the ‘second person’) into maintaining a minimum resale price to retailers. That situation involves the specification of a wholesale price charged to retailers, and not the retail price charged to customers.

What does ‘price specified’ mean? 10.37 Exactly how the supplier makes a ‘second person’ aware that it is required to maintain a ‘price specified’ is extremely varied. A spectrum of possibilities exists. At its simplest, the supplier may simply tell the distributor the exact resale price that is to be maintained. At its most complex, a third party acting on behalf of the supplier directs the second person to a formula or some commonly understood descriptor of the price that is to be maintained. Both s 96(4) and the case law assist in identifying when a price is specified for the purposes of RPM. Section 96(4) is a deeming provision. It deems that a price shall have been specified by a supplier in one of four circumstances: 1.

where a price has been specified on behalf of the supplier by a third person;

2. 3. 4.

where the supplier makes it known that the price that is to be maintained has been specified by a third person; where a formula has been specified on behalf of the supplier; or where the supplier makes it known that the price to be maintained is calculated from a formula that has been specified by a third person.

Case law 10.38 The case law also reveals several possibilities in identifying the ‘price specified’, as outlined below. [page 208] 10.39 Where there is an oblique reference to prices The courts have consistently stated that it is not necessary that an actual price in dollars and cents be stated by the supplier in order to satisfy the ‘price specified’ requirement. In Heating Centre Pty Ltd v Trade Practices Commission (1986) 9 FCR 153; (1986) ATPR 40-674; 65 ALR 429, the Full Court stated (ALR at 432): To attract s 96(3)(a), (b) or (f) it is not necessary that a particular price be specified or that a formula be specified from which a particular price may be ascertained. It is true that the notion of a specified price is partially defined in s 96(4) and that s 96(4)(c) deems the price to have been specified where a formula is specified from which the price may be ascertained …; but subs (4) is intended merely to extend the meaning of the phrase ‘specified by the supplier’. It is not an exhaustive definition and does not prevent a finding that a price may be specified by an anterior document …

10.40 It follows that a supplier may specify a price by reference to another document, reference or standard from which the retailer can identify the price that is to be maintained. For example, in Trade Practices Commission v Bata Shoe Co of Australia Pty Ltd (1980) ATPR 40-161, Bata Shoe Co had been supplying shoes to Woolworths stores in Sydney. Woolworths had been discounting the shoes. A

sales representative from Bata Shoe Co told a Woolworths representative that Bata shoes would ‘be able to continue supplying Woolworths’ if Woolworths sold the shoes ‘somewhere near the selling price of Gowings Limited in Sydney’: at 42,262. The Bata Shoe Co representative had not specified an exact dollars and cents price amount as the level Woolworths had to maintain in order to ensure continued supply. The Court stated (at 42,266–7): The fact that a price is stated to be within a range of a particular figure, or that otherwise an element of approximation is introduced, does not detract from the true character of the price as being a ‘specified price’.

The Bata Shoe Co representative knew that Woolworths monitored the prices that other retailers were charging for Bata’s shoes, including the price charged by Gowings’ Market Street store. This meant that Woolworths was aware of the approximate retail price it was being told to maintain for Bata shoes. However, where it is alleged that the ‘price specified’ is ascertainable from a range of prices, reference or some document, there must be actual evidence that enables the court to conclude that a price could, in fact, be specified. Uncertain or very wide-ranging price lists will not be sufficient evidence. 10.41 In Trade Practices Commission v Penfolds Wines Pty Ltd (1992) ATPR 41-163; 104 ALR 601, the Full Court stated (ALR at 612): [There] are authorities for the proposition that the fact that a price is stated to be within a range of a particular figure or that otherwise an element of approximation is introduced does not detract from the true character of the price as a specified price. And that proposition can be accepted without reservation. It does not, however, set out the criteria for identifying a mere approximation or the limits of the range within which a price may be said to be ‘specified’.

[page 209] In the Penfolds decision, the Full Court found that the Trade Practices Commission had not provided evidence that Penfolds had specified, with

sufficient precision, a price below which the wine wholesaler Foodland was required not to sell. 10.42 Likewise, in Australian Competition and Consumer Commission v Australian Safeway Stores Pty Ltd (No 2) (2001) 119 FCR 1; (2002) ATPR (Digest) 46-215; [2001] FCA 1861, the Court stated (at 53,384): However, where a particular monetary amount is not specified and an approximation or range is relied upon to establish a ‘price specified’ or a ‘statement of price’ by the supplier for the purposes of s 96(3), it is necessary that the evidence establish that the approximation or range does, in fact, identify a relevant range of prices.

The ACCC had failed to lead evidence establishing that Safeway had made it known to its plant bakers that there was a price below which bread was not to be sold. The Court found (at 53,384): [I]t was not made out by the evidence in any of the incidents relied upon as constituting an inducement or an attempted inducement by Safeway to induce the plant bakers to engage in resale price maintenance. The Commission submitted that the price of Safeway’s cheapest grocery bread from time to time was a published notorious fact. No such price was pleaded and the evidence showed that Safeway’s cheapest grocery bread and its price varied from store to store and from week to week. Unlike what occurred in Trade Practices Commission v Bata Shoe Company of Australia Pty Ltd (No 2), there was no such price which was ascertainable as applying generally.

10.43 Where there is a reference to a commonly understood descriptor of price It is enough to satisfy the ‘price specified’ element if the supplier refers to some descriptor which is commonly understood as the price that is to be maintained. For example, in Trade Practices Commission v Pye Industries Pty Ltd (1978) ATPR 40-088 and, more recently, in Australian Competition and Consumer Commission v TEAC Australia Pty Ltd (2007) ATPR 42-201; [2007] FCA 1859, both Pye Industries and TEAC Australia attempted to stop their retailers selling products below what was referred to as the ‘go price’. The ‘go price’ was understood by all of the parties as referring to the supplier’s RRP. 10.44 Where there is a reference to a commonly understood formula by which a resale price can be established In Trade Practices Commission v Mobil Oil Australia Ltd (1984) 3 FCR 168; (1984) ATPR 40-482, Mobil Oil

informed one of its retailers that Mobil would not provide its temporary dealer assistance scheme if the retailer discounted its retail petrol price. What was the ‘price specified’? The Court stated (at 45,530): Equally, I would suggest, a price may be specified by reference to some standard well known to the parties, from which a price may be ascertained.

10.45 Where there is a reference to ‘recommended retail prices’ accompanied by threats if those recommended prices are not maintained The use by suppliers of RRP schedules, lists, stickers or other tags is not a breach of the Act. Section 97 of the Act makes it clear that the use of RRP statements is not an inducement or an attempt to induce a retailer to maintain those prices. However, the situation is different if the retailer is threatened with retaliation should it discount those recommended prices. [page 210] For example, in Heating Centre Pty Ltd v Trade Practices Commission (1986) 9 FCR 153; (1976) ATPR 40-674; 65 ALR 429, the Heating Centre issued its retailers with an RRP list for its products. A representative of the Heating Centre told one of its retailers that (ALR at 432): If you entertain the idea of discounting the product, I would find a million and one ways of stopping supply.

10.46 The use of RRP lists as the statement of the price below which a retailer is not to sell a product is common in recent litigation. In Australian Competition and Consumer Commission v Netti Atom Pty Ltd (2007) ATPR 42-204; [2007] FCA 1945, Netti Atom wholesaled bicycles and accessories to retailers throughout Australia, including the ‘Scott Bike’ brand. The Court found that Netti Atom had engaged in RPM after its national sales and purchasing manager sent a letter to all retailers of the Scott Bike brand advising (at 48,391): I would also like to point out that any Scott Bikes being listed on Dealer websites should be listed at no less than the recommended retail price as set out on our Dealer Price List. Dealers that list

Scott Bikes at below recommended retail prices run the risk of not being included as a Dealer for the following season.

10.47 Sometimes this attitude manifests in remarkably wild statements made by sales managers. For example, in Australian Competition and Consumer Commission v Dermalogica Pty Ltd (2005) ATPR 42-046; [2005] FCA 152, a Dermalogica sales representative telephoned the manager of a beauty salon that was discounting Dermalogica products and asked why he was doing it. Recalling his basic business studies, the manager asked whether Dermalogica was allowed to control prices. Without pause, the Dermalogica sales representative responded: ‘Yeah, we can even cut off supply and close your account’: at 42,575. 10.48 The supplier in Australian Competition and Consumer Commission v Westminster Retail Pty Ltd (2005) ATPR 42-084; [2005] FCA 1299 went even further. After one of its retailers queried whether Westminster (the supplier) was able to dictate retail prices, Westminster responded by letter, advising (at 44,320): Clause 3(ae) of the Franchise Agreement states that you must adhere to (that is … sell at the Franchisor’s standard selling price unless otherwise approved in writing … We do not agree that maintaining standards of price throughout the Westminster Franchise offends the Trade Practices Act [original emphasis] …

The ‘smoking gun’ evidence of RPM 10.49 Australian Competition and Consumer Commission v Westminster Retail Pty Ltd also illustrates another business practice that is difficult to understand; that is, the practice of including a clause or clauses in franchise agreements or distributorship contracts which require franchisees or distributors to maintain RRPs or risk termination of their contract. [page 211]

In some cases, companies and sales managers seemed to have been operating under the belief that they can control prices as they see fit. 10.50 In Australian Competition and Consumer Commission v Jurlique International Pty Ltd (2007) ATPR 42-146; [2007] FCA 79, the Jurlique’s franchise agreements contained express terms which required franchisees and retailers to price Jurlique products at a retail price that was determined by Jurlique. If a franchisee or retailer was not prepared to abide by these terms, it risked termination of its franchise or distribution contract. 10.51 Similarly, in Australian Competition and Consumer Commission v Hobie Cat Australasia Pty Ltd (2008) ATPR 42-225; [2008] FCA 402, Hobie Cat’s terms of trade with its distributors included terms which required those distributors not to sell kayaks below the ‘manufacturers recommended retail price’. 10.52 The usual explanation for this behaviour has been that the companies and relevant sales managers involved were ignorant of the Act and its requirements, and that the companies did not have any form of trade practices compliance program, or, if they did, it was not implemented. This was the explanation that Hobie Cat Australasia offered during the hearing on penalty: at 49,090. It was also offered by TEAC Australia in its hearing on penalty: above, at 48,346. In other cases, such as Australian Competition and Consumer Commission v Mitsubishi Electric Australia Pty Ltd (2012) ATPR 42-456, management was well aware that RPM is prohibited, and attempted to dissemble. The manager in this case emailed his superior, informing him of his attempt to ensure the retailer maintained a specified price. The email stated (at [41]): ‘I have told them that they are somewhere around $200 off the current market recognised sell price. Of course this has all been of a verbal nature as we cannot be seen to be price fixing ($500K personal fine).’

Making it known 10.53

The most basic form of RPM described by s 96(3)(a) occurs where a

supplier is ‘making it known’ to a second person that the supplier will not supply goods to the second person unless the second person agrees not to sell those goods at a price that is less than a price specified by the supplier. As a form of disciplining pricing behaviour, RPM will not work unless the retailer (the second person) is actually aware that a minimum resale price must be maintained. How does this occur? Is some sort of ‘meeting of the minds’, similar to that required in horizontal price-fixing (s 45), also required for vertical price-fixing in the form of RPM conduct? Does the retailer have to subjectively be aware that it will lose supply if it refuses to comply with the price specified? What amount or level of pressure must be established before the requirement to maintain a price is ‘made known’?

No need for ‘meeting of the minds’ 10.54 Sometimes it is argued that both the supplier and the second person must have formed a sort of ‘contract, arrangement or understanding’ in order to satisfy the agreement requirement in s 96(3)(a). It is argued that just as horizontal price-fixing in s 45 requires [page 212] a ‘meeting of the minds’ so too vertical price-fixing must involve a similar mutuality in understanding. 10.55 The courts have rejected these sorts of arguments. In Australian Competition and Consumer Commission v Dermalogica Pty Ltd, the Court stated (at 42,578): I do not consider the notion of ‘agreement’ in the context of s 96(3)(a) should be confined to something resembling a negotiated contract or the explicit provision of an assurance. It can extend to acquiescence or submission by the second person to a unilateral demand by the supplier … There is no need for evidence that a formal agreement is sought. All that must be shown is that the supplier made it known that agreement by the second person not to discount is required to maintain supply; it need not be shown that the supplier was even seeking

acknowledgement that it had been made known, let alone any indication of the second person’s intended course of conduct in response to the making-known.

These views were subsequently affirmed by the Court in Australian Competition and Consumer Commission v Telwater Pty Ltd (2009) ATPR 42276 at 40,615.

The certainty and language of the threat 10.56 Must there be evidence that the ‘second person’ was subjectively aware that the supplier would certainly or definitely or probably stop the supply of goods if it did not maintain the price specified? Must there be evidence that the supplier absolutely intended to stop supply of goods? 10.57 In relation to the first question, in Australian Competition and Consumer Commission v Dermalogica Pty Ltd, counsel for Dermalogica argued that the words ‘known’ and ‘will’ as they appear in s 96(3)(a) require evidence that there was absolute certainty that the supplier would withhold the supply of goods unless the second person agreed to sell at the price specified. The Court disagreed, stating (at 42,577): It is necessary to show that the second person appreciated the supplier’s statement of their intentions. The second person must have understood the supplier’s threat to be serious, that is that the supplier’s withholding of goods would be the actual or likely outcome if the second person did not agree to sell those goods at the specified price … The supplier must bring about in the mind of the second person a clear apprehension that the threatened action is at least likely.

10.58 As to the second question, whether the supplier must have the subjective intention to absolutely intend to stop supply if the second person does not maintain the price specified, the Court also stated (at 42,577): The threat itself, however, should convey an unequivocal intention to cease supply. It is not necessary that the supplier or the second person have supernatural foresight in order for the provision to be satisfied, but the threat must unequivocally indicate that withholding of supply is either certain or at least a likely consequence of the second person failing to maintain the specified resale price … The second person must have understood the supplier’s threat to be serious … This is really where the element of likelihood becomes relevant, because the ‘knowledge’ or ‘awareness’ is in the mind of the person being threatened.

[page 213] 10.59 In most cases, the conduct of the supplier is such that the ‘second person’ is in no doubt as to what the consequences of discounting will be or why it is being refused supply. Several examples illustrate the point. In Australian Competition and Consumer Commission v Sundaze Australia Pty Ltd (2000) ATPR 41-736; [1999] FCA 1642, Sunglass World was refused supply of ‘Oakley’ brand sunglasses by Sundaze Australia, Oakley’s Australian distributor. Sunglass World was known to discount the sunglasses it offered for sale. A representative of Sundaze flatly stated (at 40,536): There is nothing to talk about. We will not supply anybody who cuts the price. We will not allow anybody to cut the price and we do not cut the price. There is no deal and no discount and we will not allow you to discount either …

In Australian Competition and Consumer Commission v TEAC Australia Pty Ltd (2007) ATPR 42-201; [2007] FCA 1859, the national sales manager for TEAC sent an email to one of its retailers, stating (at 48,339): Please see attached price list as promised. I need to make one thing clear, we do not want to see our product advertised below our recommended go pricing. We are very careful with our pricing to ensure this doesn’t happen with every customer. If this does occur, we will be forced to cancel our arrangement …

Recall that in Australian Competition and Consumer Commission v Netti Atom Pty Ltd (see 10.46 above) that Netti Atom’s national sales and purchasing manager sent a letter indicating that dealers who listed Scott Bikes below RRPs would ‘run the risk of not being included as a Dealer for the following season’: at 48,391.

Who is the supplier? 10.60 The text of s 96(3) anticipates that it is the supplier that will be ‘making it known’ to a second person that a certain price level must be maintained. In all of the cases discussed above this was the pattern; the

supplier — TEAC Australia, Netti Atom, Sundaze Australia or Dermalogica — making it known to their retailers that a minimum resale price was to be maintained. 10.61 However, what if the supplier is dealing with a national franchise chain and makes it known only to the master franchisor that its individual franchisee stores must maintain a certain retail price? In that situation, the supplier does not make a price known to each individual franchisee, but leaves that task to the master franchisor. These were the facts in Australian Competition and Consumer Commission v Mayo International Pty Ltd (1998) 85 FCR 327; (1998) ATPR 41-653. Mayo International (Mayo) manufactured and distributed a range of hairdressing products under the ‘John Le Court’ brand. Mayo had been supplying those products to the Price Attack franchise stores with a 15% discount offered to Price Attack if certain conditions were met. Price Attack retailed the products at discounted prices. After a period of this discounting, the director of Mayo, Mr John Le Court, met with the director of the Price Attack franchise chain (the master franchisor, Mr Jackson) and advised that the 15% discount would be withdrawn as a result. The Court stated (at 41,277): [page 214] It is, however, clear, that Mr Le Court intended that all those in the Price Attack group, whom he supposed to be subject to the influence, if not direction, of the franchisor company and Mr Jackson [the director], should sell at Mayo International’s price if the fifteen per cent discount were reinstated … In these circumstances, it is not necessary to consider the position of Price Attack itself as a reseller, through its own corporate stores.

For the Court, it was sufficient that Mayo believed that making the price known to the master franchisor would result in the Price Attack franchisees adhering to that price.

Inducing and attempting to induce RPM 10.62 The conduct of the suppliers in the cases discussed above was intended to influence the retailers to maintain a minimum retail price. Some of these suppliers were successful, some were not. However, in all cases, the Court found that the suppliers had engaged in RPM conduct. Section 96(3)(b) states that a supplier engages in RPM conduct by ‘inducing or attempting to induce’ a second person not to sell goods below a price specified. What does this mean? This raises the question of how successful the supplier has to be before engaging in RPM conduct. Put simply, can a supplier engage in RPM conduct where its attempt to maintain prices is not successful? Does ‘inducement’ require finding that the supplier has actually offered some benefit to the second person in exchange for maintaining the retail price? Would a mere request by the supplier that the second person maintain a resale price be considered an ‘inducement’? Does the expression ‘attempting to induce’ require evidence of some subjective mental element on the part of the supplier? What is the situation where the inducement is unsuccessful? Does that failed inducement nevertheless amount to an ‘attempt to induce’? 10.63 All of these questions have been answered by the courts and the following principles can be extracted from the cases: 1.

It is not necessary for the supplier to offer any benefit in exchange for the second person maintaining the price specified. The Court in Heating Centre Pty Ltd v Trade Practices Commission (1986) 9 FCR 153; (1986) ATPR 40-674; 65 ALR 429 stated (ALR at 439): It is true that the word (induce) ordinarily refers to some proffered advantage or disadvantage, promised or threatened, to follow from following or failing to follow a stipulated course of action. There is no reason, however, to read into para (b) a necessity to find that anything is offered in exchange, so to speak, for not discounting: mere persuasion, with no promise or threat may well be an attempt to induce.

2.

In most cases, there will be some conduct on the part of the supplier that is designed to induce the second person to maintain the price

specified. This conduct can amount to the promise of benefits or the threat of termination of benefits. For example, in Trade Practices Commission v Simpson Pope Ltd (1980) ATPR 40-169, the Court found that the removal of advertising allowances for retailers [page 215] that did not maintain the supplier’s specified retail price amounted to inducement for the purposes of s 96(3)(b). In Australian Competition and Consumer Commission v TEAC Australia Pty Ltd (2007) ATPR 42-201; [2007] FCA 1859, the Court found that the threat by TEAC to cancel distributorship contracts with retailers that discounted from TEAC’s ‘go-price’ amounted to an inducement. Similar threats by Netti Atom Australia in Australian Competition and Consumer Commission v Netti Atom Australia Pty Ltd also amounted to an inducement which, in that case, was not to sell Scott bikes below Netti Atom’s RRP or ‘run the risk of not being included as a Dealer for the following season’: at 48,391. 3.

‘Inducement’ generally refers to actions that are successful. In Australian Competition and Consumer Commission v Mayo International Pty Ltd, the Court stated that (at 41,277): ‘Inducing’ to my mind conveys both the means employed and the result. It refers to actions which are effective, although they may not have comprised actual coercion or pressure, or the offer of an advantage. This understanding of ‘inducement’ has been affirmed in subsequent cases, such as Australian Competition and Consumer Commission v Telwater Pty Ltd [2009] FCA 263. The cases discussed above — in which retailers or distributors signed franchise or distributorship contracts that actually contained clauses requiring them to maintain a specified retail price — are, therefore, examples of inducements within the meaning of s 96(3)(b).

4.

‘Attempting to induce’ requires evidence of some subjective intent on the part of the supplier to bring about the result. The Court in Trade Practices Commission v Mobil Oil Australia (1984) 3 FCR 168; (1984) ATPR 40-482 stated that: … in the case of attempt, there must be an intention to bring about the prohibited result [at 45,530]. Where the contravention alleged is one of inducement, s 96(3)(b) contains an absolute prohibition on the conduct in question, absolute in the sense that proof of the conduct proscribed is sufficient … With the exception of ‘attempting to induce’, s 96 was concerned with conduct, not with the mental element that might accompany the conduct [at 45,519].

In all of the cases discussed above, where the respondents admitted that they had engaged in RPM conduct, the Court also found that the respondents had ‘induced or attempted to induce’ the second person to maintain the price specified.

Recommended retail prices 10.64 In almost all of the cases discussed above, the supplier had been attempting to influence the retailer to maintain the supplier’s RRP. Sometimes that RRP was referred to [page 216] as a ‘go price’ or by some other description. It may appear that the use of an RRP is a risky tactic for a supplier, especially where such a supplier encourages the retailer to adhere to that price. 10.65 However, this is not always the case. Section 97 of the Act states that a person will not be taken to have induced or attempted to induce a second person to engage in RPM simply because the supplier has set an RRP. Section 97 is an acknowledgement that the supplier of goods or services is

often best placed to know the competitive price for the goods it produces. For example, in Australian Competition and Consumer Commission v Navman Australia Pty Ltd (2007) ATPR 42-208; [2007] FCA 2061, the general manager of Navman’s marine division sent a letter and price list to all of Navman’s marine dealers. The letter stated (at 48,436): As you are aware Navman products are very keenly priced. If we have good products that are priced below our competitors, as I have stated before, the discounting of our products makes no commercial sense.

10.66 It is entirely appropriate for a supplier of goods who understands their product and has a good idea of that product’s price placement, to recommend an RRP to its retailers. The problem is not the use of RRPs by suppliers. The problem is with the apparent belief by some of those suppliers that RRPs are absolutely nonnegotiable minimum prices below which their goods must not be sold. The cases discussed above demonstrate the lengths to which some suppliers are prepared to go in order to enforce RRPs. It has been alleged that some suppliers have even suggested that it is illegal for retailers to discount products below the RRP. For example, in Australian Competition and Consumer Commission v Mayo International Pty Ltd, it was alleged that a Mayo sales representative, Ms Shaw, told a Brisbane Price Attack franchisee that discounting was illegal. 10.67 To make it abundantly clear that retailers are entitled to depart from the RRP, s 97(b) provides that where a supplier does supply an RRP, the supplier must also supply a further statement advising: ‘The price set out or referred to herein is a recommended price only and there is no obligation to comply with the recommendation’.

Refusing to supply goods 10.68 In several cases, the supplier has either threatened or actually refused to supply goods to the second person because of that person’s failure to

maintain the price specified by the supplier. Often this threat is expressed quite bluntly. Recall, for example, in Heating Centre Pty Ltd v Trade Practices Commission (see 10.45 above) that the representative of Heating Centre told one of its retailers that it ‘would find a million and one ways of stopping supply’: ALR at 432. 10.69 Likewise, in Australian Competition and Consumer Commission v Sundaze Australia Pty Ltd (2000) ATPR 41-736; [1999] FCA 1642, an abrasive Sundaze sales representative told several Bright Eyes eyewear outlets that (at 40,536): ‘You can’t discount. Your account will be closed if you keep it up’. 10.70 Where a supplier actually refuses to supply goods or services to a second person for this reason, s 96(3)(d) and (e) deems that conduct to be RPM. Section 96(3)(d) and (e) [page 217] is a complex section that is intended to deal with indirect forms of RPM. The five possible combinations of RPM conduct, which are addressed by s 96(3) (d) and (e), are outlined below.

Section 96(3)(d)(i) 10.71 The supplier will have engaged in RPM where the supplier withholds the supply of goods to a second person because that person has not agreed to sell those goods at a price less than that specified by the supplier. This is the most straightforward situation.

Section 96(3)(d)(ii) 10.72 There are two possibilities with s 96(3)(d)(ii). First, a supplier will have engaged in RPM where the supplier withholds the supply of goods to a second person because the second person has sold, or is likely to sell, goods supplied to him or her by the supplier at a price less than that specified by the

supplier. This sounds like a duplication of s 96(3)(d)(i). However, it is not, because the goods that are withheld may be different to the goods that are the subject of the price specified. An example of this might be where the retailer sells computer printers made by the supplier at a price less than a price specified by the supplier. In response, the supplier refuses to supply computer monitors or other goods. The second possibility is where the second person actually obtains the supplier’s goods from a third party and discounts those goods. In response, the supplier withholds the supply of goods to the second person. An example of this might be where retailer A obtains computer printers made by the supplier from wholesaler B and begins to discount them. In response, the supplier withholds the supply of monitors or cables or some other goods to A.

Section 96(3)(e)(i) 10.73 Section 96(3)(e)(i) deals with conduct that targets indirect discounters. It deems the supplier to have engaged in RPM where the supplier withholds the supply of goods to a second person because a third person, who has obtained those goods from the second person, has not agreed to maintain a price specified by the supplier. An example of this might be where retailer B is discounting cosmetics that he or she obtains from retailer or wholesaler A. In order to prevent B from discounting the cosmetics, the supplier refuses to supply A, thus cutting off B’s source of supply.

Section 96(3)(e)(ii) 10.74 Section 96(3)(e)(ii) targets even more indirect conduct. Its deems the supplier to have engaged in RPM where the supplier withholds the supply of those or other goods to a second person because a third person, who obtains goods from the second person, has sold or is likely to sell the goods at a price less than that specified by the supplier. An example might be where retailer B is discounting cosmetics that he or

she obtains from retailer or wholesaler A. In response, the supplier refuses to supply A with other goods such as shampoo or hair care products. [page 218] The difference between these subsections is subtle but consistent with the scheme of s 96 in attempting to specify the precise patterns of behaviour that are deemed to be RPM conduct.

Deemed withholding 10.75 The conduct defined by s 96(3)(d) and (e) to be RPM is strengthened by s 98, which deems certain conduct on the part of the supplier to be withholding the supply of goods for the purposes of those subsections. That conduct includes: • • •

where the supplier refuses or fails to supply the goods; where the supplier refuses to supply the goods except on disadvantageous terms; or where the supplier does actually supply the goods, but discriminates against the person it is supplying to in terms of the method, time or place of delivery.

The Court in Trade Practices Commission v Stihl Chain Saws (Aust) Pty Ltd (1978) ATPR 40-091 (see 10.3) explained the operation of s 98 and its relationship with s 96(3)(d) and (e) as follows (at 17,895): Section 98(1) is concerned not to create or define obligations but to state circumstances in which, if other factors are operative in the transaction, the total conduct involved may well constitute a contravention of s 48. This may arise, inter alia, by reason of the provisions of s 96(3)(d) or (e). In other words, unless the conduct defined in s 98(1), which for the purposes of s 96(3)(d) or (e) is deemed to constitute withholding of supplies, is committed for a reason specified in s 96(3)(d) or (e), no contravention of the Act is involved.

The ‘loss leader’ defence 10.76 ‘Loss leadering’ is a practice where a retailer sells a product at a very low price — that is, below the cost to the retailer — in order to attract customers into the retailer’s shop. The idea is that the loss made on the sacrificed product is compensated for by the increased number of customers that are led into the shop, attracted by the lower-priced product. 10.77 How loss leadering works was explained by the Court in Wallace v Brodribb (1985) ATPR 40-541; 58 ALR 737, where the Court stated (ALR at 742): The intention of ‘loss leader’ advertising is to attract customers to the premises of the advertiser, the expectation being that, in addition to purchasing the products advertised at the ‘loss leader’ price, those potential customers will purchase other goods or services on which a profit will be made which will more than compensate for the loss suffered on the loss leader.

10.78 A retailer that continually practices loss leadering is unattractive to a supplier. For example, if retailer A continually sells a supplier’s product at a loss leader price, then retailer B might not agree to sell that same product. Why would retailer B sell that product at a higher price? Customers would simply go to retailer A. In this way, the supplier may find it difficult to increase its retail outlets. Intra-brand competition may be reduced, and customers may form the view that the supplier’s product is inferior or cheap. The product’s reputation may thus be diminished. [page 219] Section 98(2) provides that s 96(3)(d) does not apply in relation to acts of withholding the supply goods to another person where that other person has sold goods at less than their cost to that other person within the past year, for the purpose of attracting customers to buy other goods (s 98(2)(a)) or otherwise for the purpose of promoting the business of that other person: s 98(2)(b).

10.79 There are several important points to note about the loss leader defence: 1.

2.

The defence only applies to the withholding of goods in circumstances that would be caught by s 96(3)(d). It does not apply to withholding of goods in circumstances that would be caught by s 96(3)(e). It will be necessary to calculate the cost of the goods to the retailer. In Trade Practices Commission v Orlane Australia Pty Ltd (1984) 1 FCR 157; (1984) ATPR 40-437; 51 ALR 767, the Court stated (ALR at 772): When s 98(2) speaks of ‘their cost’ in relation to goods, it is referring to the cost of the goods in the context of obtaining them from a supplier. In our opinion, that context suggests that the cost referred to is the cost of obtaining or landing the goods; that is, ‘landed’ or ‘delivered’ cost or, as it is put, net acquisition cost.

3.

The loss leader defence in s 98(2) does not apply when goods are sold below cost as part of a ‘genuine seasonal or clearance sale of goods’; that is, where the goods were not acquired for the specific purpose of being sold at that seasonal or clearance sale. In addition, the loss leader defence does not apply to a sale of goods that took place with the consent of the supplier. These exceptions from the loss leader defence are provided for in s 98(3).

Successfully navigating s 96(3) 10.80 The RPM provisions in s 96(3) of the Act are not intellectually difficult. However, they are technically complex, involving multiple parties and the possibility of the indirect supply of goods or services through third parties. It is easy to become tangled in the provisions without reaching the clarity needed to decide whether particular conduct amounts to RPM. 10.81 However, the most straightforward way of navigating the legislative scheme in s 96(3) is to simply substitute the names of the parties and the relevant products into the text of the section itself, as follows.

A simple example

10.82 Section 96(3)(a) describes one of the acts constituting the practice of RPM to be: … the supplier making it known to a second person that the supplier will not supply goods to the second person unless the second person agrees not to sell those goods at a price less than a price specified by the supplier;

Taking the facts of Australian Competition and Consumer Commission v Netti Atom Pty Ltd (2007) ATPR 42-204; [2007] FCA 1945 and substituting the parties’ names and [page 220] goods into s 96(3)(a), we can state that Netti Atom engaged in the practice of RPM because Netti Atom (the supplier) made it known to its retailers (the second person) that it would not supply goods (Scott bikes) to those retailers unless those retailers agreed not to sell those Scott bikes at a price less than the price set out in the Netti Atom ‘Dealer Price List’. In this way, the requirements of the section are satisfied and it is relatively easy to see how the parties and goods fit into the section. This process becomes particularly important when dealing with the more complex provisions of s 96(3). Consider the following scenario.

A complex example Facts 10.83 Headspace Pty Ltd (Headspace) is a retailer of electronic goods such as DVD and MP3 players, as well as DVDs, CDs and other electronic media items. It buys most of its DVD players from Muso Pty Ltd (Muso), a major importer and wholesaler of electronic equipment including the popular ‘Blue T’ brand high-definition DVD player. Headspace continually offers the Blue T DVD player for sale at retail prices lower than other electronic goods retailers in the state. After receiving a

number of complaints regarding Headspace’s discounting practices from other such retailers, Muso cancels Headspace’s supply of Blue T DVD players. In response, Headspace obtains Blue T DVD players from another retailer called Hifi Pty Ltd (Hifi). On discovering this, Muso cuts off the supply of CDs to Hifi. When contacted by Hifi about this decision, Muso responds by saying that Headspace is loss leadering Muso’s products and that Muso is entitled to cut off supply to Hifi Pty Ltd in order to ‘deter those who supply to rebel retailers like Headspace’. Hifi Pty Ltd seeks legal advice as its principal sales items are CDs.

Suggested analysis 10.84

In analysing the facts of this case, the following methodology applies:

1.

Section 48(1) prohibits a corporation from engaging in the ‘practice of resale price maintenance’. The ‘practice of resale price maintenance’ is defined in s 4 of the Act to mean the ‘practice of resale price maintenance referred to in Part VIII’ of the Act. Within Pt VIII of the Act, s 96(1) states that ‘a corporation … engages in the practice of resale price maintenance if that corporation does an act referred to in any of the paragraphs of subsection (3)’. Section 96(3) sets out the acts of RPM. On these facts, Muso’s conduct appears to fit the practice of RPM as described in s 96(3)(e)(ii). That subsection states:

2.

3.

4.

(e) the supplier withholding the supply of goods to a second person for the reason that a third person who, directly or indirectly, has obtained, or wishes to obtain, goods from the second person: … (ii) has sold or is likely to sell, goods supplied to him or her, or to be supplied to him or her, by the second person, at a price less than a price specified by the supplier as the price below which the goods are not to be sold; …

[page 221] 5.

How do the facts fit this subsection? It is a complex situation involving three parties (Headspace, Muso and Hifi) and two different products (Blue T DVDs and CDs), in which the supplier (Muso) is concerned with only one of those products (the Blue T DVD players) being discounted. In this situation, Hifi alleges that Muso has engaged in the practice of RPM because Muso (the supplier) has withheld the supply of goods (CDs) to a second person (Hifi) for the reason that a third person (Headspace), who has directly obtained goods (Blue T DVD players) from the second person (Hifi), for the reason that the third person (Headspace) has sold goods (Blue T DVD players) supplied to it by the second person (Hifi) at a price less than a price specified by the supplier (Muso).

6. 7.

In response, Muso attempts to raise the loss leader defence in s 98(2). Hifi counters this argument by pointing out that the loss leader defence in s 98(2) is confined in its operation to refusals to supply that are caught by s 96(3)(d), and not to refusals to supply that, as in this case, are caught by s 96(3)(e). Hifi would, in any case, point out that it was not the party who was engaging in loss leader conduct, thereby negating any application of s 98(2) in any case.

Further reading G Edwards, ‘When Should Resale Price Maintenance be Authorised?’ (1996) 4 TPLJ 161 L Olsen, ‘Tools Down: First Resale Price Maintenance Application Authorised’ (2015) 23 AJCCL 45 R Miller, ‘The Prohibition on Resale Price Maintenance: From Controversial

Beginnings to Redundancy?’ (2014) 22 AJCCL 224 W Pengilley, ‘Resale Price Maintenance: An Overview of the Per Se Ban in Light of Recent Court Observations’ (2008) 16 CCLJ 1

1.

2. 3.

This is not reflected in the decision at first instance but is recounted in the Full Court’s decision. See Australian Competition and Consumer Commission v High Adventure Pty Ltd (2006) ATPR 42-091; [2005] FCAFC 247 at 44,564. G Edwards, ‘When Should Resale Price Maintenance Be Authorised?’ (1996) 4 TPLJ 161 at 170. See the decision at first instance: Australian Competition and Consumer Commission v High Adventure Pty Ltd (2005) ATPR 42-073; [2005] FCA 762 at 43,146.

[page 223]

Chapter 11 Anti-Competitive Mergers and Acquisitions

Overview This chapter is intended to: •

• •



• •

introduce you to the way the Competition and Consumer Act 2010 (Cth) (CCA) (the Act) regulates anti-competitive mergers and acquisitions; explain how different forms of mergers and acquisitions may lessen competition; show how the ‘merger factors’ in s 50(3) of the Act influence the assessment of markets, competition and the potential anti-competitive effects of a merger or acquisition; provide an overview of the Australian Competition and Consumer Commission’s different regulatory approaches to assessing mergers and acquisitions; explain relevant amendments introduced by the Competition and Consumer Amendment (Competition Policy Review) Act 2017; and provide you with some sources for further reading and research.

Introduction 11.1 Mergers and acquisitions benefit competition in markets in various ways. They enable firms to diversify their functions, broaden their distribution base, achieve economies of scale and spread risk. Inefficient or struggling firms may also be acquired, and their under-performing structures and managers replaced by more efficient ones. However, mergers and acquisitions can also alter the very structure of the market, making it less competitive. For example, mergers and acquisitions can increase market concentration by reducing the number of firms competing in the market. After all, a comprehensive way to reduce competition is to buy your competitor. 11.2 Mergers or acquisitions that have the effect or likely effect of substantially lessening competition in a market are prohibited by s 50 of the Act. The Australian Competition and Consumer Commission (ACCC) has power under the Act to prevent anti-competitive mergers or acquisitions, or to seek orders requiring firms to divest themselves of shares or assets acquired in contravention of s 50 of the Act. Since 1974, the Trade Practices Act 1974 (Cth) (TPA) and then the CCA have regulated anti-competitive mergers and acquisitions under different threshold tests, from [page 224] a ‘substantial lessening of competition’ threshold to a ‘dominance’ threshold and back to the present ‘substantial lessening of competition’ threshold. A good discussion of the evolution of s 50 is found in Australian Gas Light Co v ACCC (No 3) (2003) 137 FCR 317; (2003) ATPR 41-966; [2003] FCA 1525 at 47,699–47,700. The January 2003 Review of the Competition Provisions of the Trade

Practices Act by the Trade Practices Act Review Committee (the Dawson Review) recommended a number of amendments to the way in which mergers and acquisitions were considered by the ACCC. These recommendations did not relate to the ‘substantial lessening of competition’ threshold, but to the internal procedures employed by the ACCC in evaluating applications for mergers and acquisitions. These amendments were embodied in the Trade Practices Legislation Amendment Act (No 1) 2006 (Cth) (Amendment Act). Prior to this Amendment Act, there were two ways in which merging parties could approach the ACCC to avoid having their merger challenged. First, parties could seek an ‘informal clearance’ from the ACCC. This essentially involved the ACCC providing an assurance that it would not challenge the merger in circumstances where it considered the merger would not contravene s 50. Second, parties could seek an authorisation from the ACCC in circumstances where an anti-competitive merger or acquisition would deliver overriding public benefits. Following the Amendment Act, parties had three procedures available to enable the evaluation of their anticipated merger or acquisition under the Act: 1.

2.

3.

An informal clearance process which enabled parties to apply to the ACCC for an informal assessment about whether their proposed merger or acquisition potentially raised issues under s 50 of the Act. A formal clearance process which enabled parties to apply to the ACCC for clearance of their proposed merger or acquisition. Clearance insulates the parties from legal action under s 50 of the Act or by any other party. A formal application process made directly to the Australian Competition Tribunal (the Tribunal), which bypassed evaluation by the ACCC.

11.3 The 2015 Competition Policy Review (the Harper Review) noted that the formal clearance procedure had not been used since its introduction in 2007 and that the direct-to-Tribunal authorisation process had been used

infrequently. Accordingly, the Harper Review proposed significant changes to the way that mergers are evaluated by the ACCC and the Tribunal. The Competition and Consumer Amendment (Competition Policy Review) Act 2017 streamlines the merger assessment process by combining steps 2 and 3 above; that is, creating a single procedure whereby the ACCC becomes the first institution to evaluate merger applications instead of the Tribunal. Accordingly, the 2017 amendments remove the ability of a party to seek authorisation directly from the Tribunal, repeal the separate ACCC formal clearance process and establish a single authorisation process direct to the ACCC, with the Tribunal able to review the decisions by the ACCC. We will return to this process in Chapter 12. For the moment, it’s important to note that the Competition and Consumer Amendment (Competition Policy Review) Act 2017 did not amend the threshold in s 50 of the Act, nor did it amend the legal and economic components of s 50 that are relevant in determining whether a proposed merger or acquisition might substantially lessen competition. [page 225] 11.4 Therefore, in this chapter, we will be considering both the legal and economic evaluation of mergers and acquisitions under s 50 of the Act, as well as the procedural evaluation of mergers and acquisitions by the ACCC under its Informal Merger Review Process Guidelines (September 2013), and its Merger Guidelines (November 2008). Although these Merger Guidelines were recently updated to reflect the amendments introduced by the Competition and Consumer Amendment (Competition Policy Review) Act 2017, the updates were largely procedural, reflecting the elimination of the formal merger review process and did not amend the legal or economic methodologies contained in those Guidelines. 11.5

The ACCC’s approach to evaluating mergers and acquisitions reflects

the legal and economic issues associated with those mergers and acquisitions. We will also return to the important decision of the Full Federal Court in Australian Competition and Consumer Commission v Metcash Trading Ltd (2011) ATPR 42-380, first encountered in Chapter 4. It is rare to encounter a fully litigated dispute under s 50 of the Act and so the Metcash decision is very important.

Forms of mergers and acquisitions 11.6 Generally, mergers and acquisitions take one of three forms: horizontal, vertical or integrated. 1.

2.

3.

A horizontal merger occurs between firms operating at the same functional level of the market. Typically, this occurs where one firm acquires a competitor. The reduction in competing firms results in an increase in market concentration. Inter-brand competition may be reduced as the ‘target’ firm’s goods or services are absorbed by the acquiring firm and no longer function as competitive constraints on the activities of the acquiring firm. A vertical merger occurs between firms at different functional levels. This can occur when a wholesaler acquires a manufacturer or a retailer. This sort of merger may lessen competition by foreclosing competitors’ access to the services previously offered by the target firm. For example, Firms A and B are wholesalers who distribute their goods through Firm C, a national retailer. If Firm A acquires Firm C, it could prevent Firm B from being able to retail its goods and thus offer competition for the goods retailed by Firm A. An integrated merger occurs between firms that are competing in different but related markets.

The Act

11.7 Anti-competitive mergers and acquisitions are prohibited by s 50(1) and (2) of the Act. Those subsections provide (notes omitted): (1) A corporation must not directly or indirectly: (a) acquire shares in the capital of a body corporate; or (b) acquire any assets of a person; if the acquisition would have the effect, or be likely to have the effect, of substantially lessening competition in a market. [page 226] (2) A person must not directly or indirectly: (a) acquire shares in the capital of a corporation; or (b) acquire any assets of a corporation; if the acquisition would have the effect, or be likely to have the effect, of substantially lessening competition in a market.

11.8 Section 50 therefore anticipates several transactions that may raise anti-competitive issues: • • • •

where a corporation acquires issued share capital of another corporation; where a corporation acquires assets of a person; where a person acquires issued share capital in a corporation; or where a person acquires assets of a corporation.

In each of these possibilities, there is a corporation involved in the transaction in order to ensure constitutional validity. Note that s 50(1)(b) talks about a corporation acquiring the ‘assets of a person’. What about where it acquires the assets of another corporation? Does ‘person’ also include ‘corporation’? It does, because s 22(1)(a) of the Acts Interpretation Act 1901 (Cth) defines the term ‘person’ to include a body corporate. It states: [E]xpressions used to denote persons generally (such as ‘person’, ‘party’, ‘someone’, ‘anyone’, ‘no-one’, ‘one’, ‘individual’, ‘another’ and ‘whoever’), include a body politic or corporate as well as an individual.

What is an ‘acquisition’?

11.9 Section 50(1) and (2) of the Act refers to an acquisition of shares or assets. Section 4(1)(a) of the Act defines the word ‘acquire’ in its general sense to include ‘in relation to goods — acquire by way of purchase, exchange or taking on lease, on hire or on hire-purchase’. However, s 4(4)(a) and (b) specifically refers to the ‘acquisition of shares in the capital of a body corporate’ and to the ‘acquisition of assets of a person’.

Acquisition of shares 11.10

Section 4(4)(a) provides:

[A] reference to the acquisition of shares in the capital of a body corporate shall be construed as a reference to an acquisition, whether alone or jointly with another person, of any legal or equitable interest in such shares.

A corporation or person can acquire shares in the capital of a body corporate both directly or indirectly; for example, through an option over shares. An option over shares creates an equitable interest: Arnotts Ltd v TPC (1990) 24 FCR 313; (1990) ATPR 41-061.

Acquisition of assets 11.11

Section 4(4)(b) provides:

[A] reference to the acquisition of assets of a person shall be construed as a reference to an acquisition, whether alone or jointly with another person, of any legal or equitable interest in such assets but does not include a reference to an acquisition by way of charge only or an acquisition in the ordinary course of business.

[page 227]

The threshold test 11.12 An acquisition of shares in the capital of a corporation or of the assets of a person will only breach s 50 of the Act if the acquisition would have the effect, or be likely to have the effect, of substantially lessening competition in a market. It is not sufficient that competition in the relevant

market be diminished or affected. The acquisition must result in competition in the relevant market being substantially lessened.

The relevant market 11.13 In 1999, the Federal Government established a committee of inquiry (the Baird Committee) into the behaviour of the large supermarket chains who incrementally acquired other supermarkets throughout Australia. This was a practice referred to as ‘creeping acquisitions’. The concern was that such creeping acquisitions would not substantially lessen competition nationally, or even in a given state or territory, but would diminish competition in a region of a state or territory. 11.14 The Trade Practices Amendment Act (No 1) 2001 (Cth) amended s 50(6) of the Act to state that a ‘market’ means a substantial market for goods or services in Australia, or in a state, territory or region of Australia. The relationship of the term ‘region of Australia’ to the definition of ‘market’ in s 4E remains largely unexplored. 11.15 4.31

However, the ACCC’s 2008 Merger Guidelines state: Section 50(6) also states that ‘market’ means a market for goods or services in Australia, or in a state, a territory or region of Australia. In addition, s 4E specifies that ‘market’ is a market in Australia. The ACCC’s view is that this does not preclude it from analysing a merger proposal in the context of a geographically broader market — for example, a trans-Tasman market or even a global market — provided that at least some part of it is located in Australia. In most cases the ACCC will define the relevant market to be Australia or part of Australia … „1

Section 50(3) — merger factors 11.16 In assessing whether an acquisition of shares or assets substantially lessens competition, s 50(3) of the Act provides courts with a non-exhaustive list of factors that must be taken into account. The merger factors in s 50(3) are also utilised by the ACCC in making its own evaluation of the competitive effects of an acquisition of shares or assets. Section 50(3) provides:

Without limiting the matters that may be taken into account for the purposes of subsections (1) and (2) in determining whether the acquisition would have the effect, or be likely to have the effect, of substantially lessening competition in a market, the following matters must be taken into account: (a) the actual and potential level of import competition in the market; (b) the height of barriers to entry to the market; [page 228] (c) the level of concentration in the market; (d) the degree of countervailing power in the market; (e) the likelihood that the acquisition would result in the acquirer being able to significantly and sustainably increase prices or profit margins; (f) the extent to which substitutes are available in the market or are likely to be available in the market; (g) the dynamic characteristics of the market, including growth, innovation and product differentiation; (h) the likelihood that the acquisition would result in the removal from the market of a vigorous and effective competitor; (i) the nature and extent of vertical integration in the market.

11.17 Each of these factors has been considered by the courts and the Tribunal in determining the effect of conduct on competition in a market, because each factor influences whether a post-merger firm would be constrained if it attempted to exercise market power. 11.18 The presence of constraints is crucial. In its 2008 Merger Guidelines, the ACCC states: 7.4

The likely presence of effective competitive constraints post-merger is a key indicator that a merger is unlikely to result in a substantial lessening of competition. While all the merger factors must be taken into consideration, it may not be necessary for all factors to indicate that the merged firm would face effective competitive constraints. In some cases a single constraint can be sufficient to prevent a significant and sustainable increase in the market power of the merged firm while in other cases the collective effect of several constraints may be required. Conversely, the absence of a single particular constraint is unlikely to be indicative of an increase in market power as a result of the merger.2

Remember that market power is the ability of a firm to engage in discretionary behaviour. Often, market power is indicated by the ability of a

firm to institute a small but significant and non-transitory increase of between 5–10% in the price of its goods or services without losing customers. For example, in Australian Competition and Consumer Commission v Metcash Trading Ltd (2011) ATPR 42-380, the ACCC alleged that if Metcash Trading were permitted to acquire the Franklins Stores from Interfrank Holdings (the corporate entity that owned the stores) then Metcash would be in a position to increase the cost of supplying wholesale services to independent grocery stores. It is the existence of substitutable goods or services produced by its competitors that constrains attempts by a firm to exercise power in this way. However, the structure and dynamics of the market must be such that competitors can actually engage in this sort of competition. A merged firm in a market that does not facilitate competition can exercise market power, which can lessen competition. Where a potential merger or acquisition would allow the merged firm to substantially lessen competition in a market, the merger or acquisition is prohibited by s 50 of the Act. 11.19 Let’s examine each of the merger factors in s 50(3) to see how they influence an analysis of whether a potential merger or acquisition might substantially lessen competition. When you are considering the merger factors for this purpose, it is important to keep in mind two points. [page 229] First, these factors work together to ‘paint a picture’ of the market in order to determine whether it facilitates competition or whether it is conducive to the exercise of market power that might substantially lessen competition. The ACCC’s 2008 Merger Guidelines emphasise the importance of this integrative approach to the merger factors: 7.5

… many of the factors are interrelated and the ACCC adopts an integrated approach, taking into account all potential competitive constraints.3

Second, a market facilitates competition when there are substitutable goods or services that can act as constraints on any attempt by the merged firm to exercise market power by ‘giving less and charging more’. Hence, the 2008 Merger Guidelines emphasise (at para 7.4) the presence or absence of effective competitive constraints. The key question to always keep in mind is this: ‘If this merger or acquisition were to occur, would the post-merger market structure and function constrain any attempt by the merged firm to exercise market power?’

Actual and potential level of import competition — s 50(3)(a) 11.20 A merger or acquisition is unlikely to have the effect of substantially lessening competition in a market if there is direct or potential competition offered by imported goods or services. If the merged firm attempted to raise the prices for its goods or services above the competitive level, then customers could substitute the imported goods or services. In this way, the imported goods or services act as a competitive constraint on the exercise of market power by the merged firm. Of course, if imported goods and services are minimal or non-existent, they will be unlikely to constrain attempts by the merged firm to exercise market power. 11.21 The ACCC’s 2008 Merger Guidelines states that imports are most likely to provide an effective constraint in the following circumstances: 7.35

Imports are most likely to provide an effective and direct competitive constraint in circumstances where all of the following conditions are met: •





independent imports (that is, imports distributed by parties that are independent of the merger parties) represent at least 10 per cent of total sales in each of the previous three years there are no barriers to the quantity of independent imports rapidly increasing that would prevent suppliers of the imported product from competing effectively against the merged firm within a period of one to two years (for example, government regulations, the likelihood and impact of anti-dumping applications on imports, customer-switching costs or the need to establish or expand distribution networks) the (actual or potential) imported product is a strong substitute in all respects (that

is, quality, range, price, etc.) for the relevant product of the merged firm, taking into account factors including the need to meet any relevant Australian or industry standards, any increase in the complexity of customers’ logistical arrangements, increased transport times and costs, and the risk of adverse currency exchange rate fluctuations [page 230] •

• •

the price of actual or potential landed imports, including any tariffs or other importspecific taxes and charges, (that is, the import parity price) is close to the domestic price of the relevant product that would prevail in the absence of the merger importers are able to readily increase the supply volume of the product they import with minimal or no increase in the price paid the merged firm and other major domestic suppliers do not have a direct interest in, are not controlled by, and do not otherwise interact with, actual or potential import suppliers.4

The height of barriers to entry — s 50(3)(b) 11.22 ‘Barriers to entry’ represent obstacles to a firm entering a market and offering effective competition to the incumbent firms. The Explanatory Memorandum to the Trade Practices Amendment Act 1992 (Cth) described these barriers to entry in the following terms: Barriers to entry can be any feature of a market that places an efficient prospective entrant at a significant disadvantage compared with incumbent firms, including for example, the presence of economies of scale or scope, control over essential inputs or government regulations which restrict entry into the market. Barriers to entry can include barriers to exit, such as high ‘sunk’ costs. Properly understood, the height of barriers to entry represents the ease with which new firms can enter or leave the market now or in the future.5

11.23 A merger or acquisition is unlikely to have the effect of substantially lessening competition in a market where new firms can enter the market in response to the merged firm raising the prices for its goods or services above the competitive level. If the merged firm were to attempt to exercise market power in this way, new firms could enter the market and produce goods or services that consumers could switch to. Practical examples of barriers to entry include:

• • • •

legal or regulatory barriers; access to scarce resources that existing firms enjoy; product differentiation and brand loyalty; and threat of retaliation by incumbents.

11.24 Legal or regulatory barriers Firms wanting to enter the market may have to spend significant sums of money obtaining licences, permits, planning permission and satisfying other regulatory requirements. If the cost of satisfying these regulatory requirements deters or prevents new firms from entering the market, then the existing merged firm may be able to increase the prices for their goods or services above the competitive level without constraint. 11.25 Access to scarce resources that existing firms enjoy Some industries are dependent on the continued supply of resources; for example, minerals and other primary products. Where access to these resources or products is relatively limited, new firms may be deterred or prevented from entering the market. There would be little point in competing [page 231] against existing firms when there is little chance of consistent and dependable access to the resources needed to compete. 11.26 Product differentiation and brand loyalty If the merged firms enjoy significant brand loyalty in a market that is characterised by product differentiation, then it will be difficult for new firms to enter the market and compete effectively. Establishing both a reputation in the market and customer loyalty takes a significant amount of time. Potential firms may be deterred from entering the market and offering substitutable products for this reason. 11.27 Threat of retaliatory action by incumbents Existing firms may engage in predatory behaviour in an attempt to drive off potential

competitors. Where existing firms develop a reputation for this sort of predatory response to new entry, it may deter or prevent potential new firms from entering the market; they may fear a similar predatory response. 11.28 From the perspective of the ACCC, there are three dimensions to the inquiry as to whether firms can enter the market and offer substitutable goods or services that could constrain any attempt by existing firms to exercise market power. These three dimensions are, first, whether new entry is timely, second, whether it is likely and, third, whether it is sufficient. The ACCC’s 2008 Merger Guidelines explain: Timeliness of entry 7.21

When considering the degree of competitive constraint provided by new entry, it is necessary to assess the time it would take a new firm to enter the relevant market and offer customers a competitive alternative to the merged firm. The evaluation of whether entry will be timely necessarily varies with each specific merger and the dynamics of the market.

7.22

Entry will generally provide an effective competitive constraint post-merger if actual or threatened entry would occur in an appropriate time to deter or defeat any non-transitory exercise of increased market power by the merged firm. While the ACCC’s starting point for timely entry is entry within one to two years, the appropriate timeframe will depend on the particular market under consideration.

7.23

When determining whether potential entry is likely to be timely the ACCC considers the barriers outlined in paragraphs 7.30 to 7.32, as well as factors such as the frequency of transactions, the nature and duration of contracts between buyers and sellers, lead times for production and the time required to achieve the necessary scale.

Likelihood of entry 7.24

The ACCC needs to be satisfied that actual or threatened entry post-merger is not just possible but likely in response to an attempted exercise of market power by the merged firm. The likelihood of entry generally depends on the profitability of entering the market. The ACCC will assess whether a new entrant could expect to make a commercial return on its investment taking into account the price effects the additional output may have on the market and the likely responses of the incumbent firms and other costs/risks associated with entry.

7.25

Factors likely to affect the profitability of entry include the examples of barriers outlined in paragraphs 7.30 to 7.32. Evidence of the past success or failure of new entrants in establishing themselves as effective competitors in the relevant market may also provide insight into the profitability of entry into particular markets but will not necessarily indicate ease of entry. To test the likelihood of entry where it is not possible to identify

potential new entrants, the ACCC requires identification of the likely categories of entrants that could potentially enter. [page 232] Sufficiency of entry 7.26

Entry must be of sufficient scale with a sufficient range of products to provide an effective competitive constraint. In differentiated product markets, the sufficiency of entry will critically depend on the ability and incentive of entrants to supply a sufficiently close substitute to that of the merged firm. Entry at the fringe of the market is unlikely to constrain any attempted exercise of market power by incumbents if incumbents are unlikely to lose significant sales to those fringe entrants. Therefore individual entry that is small-scale, localised or targeted at niche segments is unlikely to be an effective constraint post-merger.

7.27

Sufficiency does not require in all circumstances that one new entrant alone duplicates the scale and all the relevant activities of the merged firm. Timely entry by multiple firms may be sufficient if the combined effect of their entry would defeat or deter the exercise of increased market power by the merged firm [note omitted].6

The level of concentration in the market — s 50(3)(c) 11.29 A market is concentrated when there are few firms offering goods or services. A merger or acquisition can increase market concentration, especially where it involves a horizontal merger that effectively eliminates a competitor from the market (because it has been acquired). 11.30 A merger that increases market concentration may reduce or even eliminate competition in several ways: • •



first, the lack of effective competition may enable the merged firm to raise the prices of its goods or services above the competitive level; second, the reduced number of competitors in the market post-merger may make it easier for the remaining firms to engage in coordinated conduct; and third, a concentrated market may raise barriers to entry, discouraging potential new firms from offering competition.

11.31 Before 2008, the ACCC evaluated the potential anti-competitive effects of a merger based on ‘concentration ratios’. The 1999 Merger

Guidelines adopted the following methodology: 5.95

If the merger will result in a post-merger combined market share of the four (or fewer) largest firms (CR4) of 75 per cent or more and the merged firm will supply at least 15 per cent of the relevant market, the Commission will want to give further consideration to a merger proposal before being satisfied that it will not result in a substantial lessening of competition. In any event, if the merged firm will supply 40 per cent or more of the market the Commission will want to give the merger further consideration. The twofold thresholds reflect concerns with the potential exercise of both coordinated power and unilateral market power [note omitted].7

11.32 In its 2008 Merger Guidelines, the ACCC adopts a different methodology to assessing the significance of market concentration. The CR4 methodology has been replaced by a methodology based on market shares, concentration ratios and the Herfindahl-Hirschman Index (the HHI). [page 233] 11.33 The HHI is a metric mechanism that has been employed for some time in many parts of the world, such as the United States, the United Kingdom and the European Union, for assessing market concentration. The ACCC explains the use of the HHI this way: 7.13

The HHI is calculated by adding the sum of the squares of the post-merger market share of the merged firm and each rival firm in the relevant market, thereby giving greater weight to the market shares of the larger firms. The HHI therefore requires the market shares, or estimates of them, for all the participants in the relevant market. The HHI indicates the level of market concentration while the change in the HHI (or ‘delta’) reflects the change in market concentration as a result of the merger.

HHI threshold 7.14

As part of its overall assessment of a merger, the ACCC will take into account the HHI, as a preliminary indicator of the likelihood that the merger will raise competition concerns requiring more extensive analysis. The ACCC will generally be less likely to identify horizontal competition concerns when the post-merger HHI is: • •

11.34

less than 2000, or greater than 2000 with a delta less than 100.8

How does the HHI work? The HHI is calculated by reference to both

the pre-and post-merger market shares of the firms in the market. The ACCC’s 2008 Merger Guidelines explain: 7.12

In assessing market concentration, the ACCC takes into account the pre- and postmerger market shares of the merged firm and its rivals and the actual increase in concentration, as well as the level of symmetry between rival firms’ market shares.9

Therefore, two calculations are made: the first calculates a pre-merger ratio, and the second calculates a post-merger ratio. Consider the following example. A pre-merger market is composed of five firms: A, B, C, D and E. Each firm has the following market shares: A: B: C: D: E:

12% 15% 18% 25% 30%

The pre-merger HHI value is 2218 (adding the squares of the market share of each of the firms; for example, A = 12 x 12 = 144). The post-merger market is composed of four firms: A, a merged B and C, D and E. The market shares are: A: B + C: D: E:

12% 33% 25% 30% [page 234]

The post-merger HHI value is, therefore, 2758. According to the ACCC’s 2008 Merger Guidelines, the merger invites closer scrutiny because the HHI value is greater than 2000 and the ‘delta’, or

change from the pre-HHI value to the post-HHI value, is also greater than 100 (2758 - 2218 = 540). 11.35 However, the use of the HHI level does not automatically mean that a merger or acquisition is either likely or unlikely to be anti-competitive. The application of the HHI does not imply a presumption one way or another. It is simply a threshold indicator of potential anti-competitive concerns. In the final analysis, whether a merger or acquisition is likely to raise anticompetitive concerns depends in all cases on the application of the merger factors in s 50(3). The ACCC explains: 7.15

These HHI levels should not be taken to imply a presumption as to whether or not a merger will be likely to result in a substantial lessening of competition. Only by considering the merger factors can this assessment be made. To illustrate this point, a merger that falls below the HHI threshold may still raise competition concerns if any of the following are relevant: •



a substantial number of customers consider the products of the merger parties to be particularly close substitutes — for example, the merger parties represent their first and second choices the target firm has shown a recent rapid increase in market share, has driven innovation or has tended to charge lower prices than its competitors in one or more markets (properly defined) in which the merged firm would operate.

11.36 What is the comparative advantage of the HHI methodology over the CR4 thresholds? There are several potential advantages to the HHI methodology including: 1.

2.

the CR4 threshold was based on the unadjusted market shares of the four largest firms in the market. The HHI accounts for the market shares of all of the firms in the market and adjusts to give greater weight to the firms with the largest shares; and because it accounts for all of the firms in the market, the HHI provides more detailed information concerning market dynamics than the CR4 threshold that accounted for only the four largest firms.

More information concerning the HHI can be found in the Further reading section at the conclusion of this chapter.

The degree of countervailing power in the market — s 50(3)(d)

11.37 Countervailing power exists where the ‘other’ party to a transaction, such as a customer in relation to retailer, a retailer in relation to a wholesaler or a wholesaler in relation to supplier, has sufficient power to constrain any attempt by the other party to exercise market power. For example, assume a merged firm that manufactures biscuits (a supplier) attempts to raise the wholesale prices for certain product lines. Assume also that the buyers of those product lines are very large national chain stores (retailers). In response, those chain stores threaten to delete the biscuit manufacturing firm’s product lines from their supermarket shelves. If that merged manufacturing firm then reduces its prices for those product lines, [page 235] the chain stores can be said to have exercised ‘countervailing power’ to constrain the attempted price rise. 11.38 Sometimes a merger or acquisition might restore some parity to the market where prices at one functional level are above the competitive level. In the example above, assume the power at the functional level of biscuit manufacturing is relatively weak. The major national chain stores are therefore able to drive down the wholesale price of biscuits (the cost to those chain stores of buying the biscuits) as well as dictate the kind of biscuits being made. The chain stores then sell the biscuits to customers at the highest retail price that they think the customer will accept. The chain store’s profits are made from the margin which is the significant difference between the wholesale cost to themselves of buying the biscuits (low) and the retail price at which the biscuits are sold (relatively high). Assume now that a significant merger occurs between biscuit manufacturers. The merged firm may be able to constrain the attempts by the

national chain stores to extract low prices from the manufacturers and their ability to dictate which lines of biscuits are to be made. Since the chain stores are already pricing the biscuits at the highest retail level that customers are prepared to pay, the stores have little option but to absorb the higher wholesale prices in the form of reduced margins. In circumstances where the chain stores face retail competition, customers benefit in the form of lower retail prices for the biscuits. Competitive pricing is, therefore, returned at the wholesale functional level of the market because the biscuit manufacturers have constrained the attempts by the major chain stores to extract very low wholesale prices. A merger or acquisition is unlikely to substantially lessen competition in a market in which countervailing power exists to such an extent that attempted price rises would be constrained.

Ability to significantly and sustainably increase prices and/or profit margins — s 50(3)(e) 11.39

In its former, 1999 Merger Guidelines, the ACCC stated:

If the merger facilitates sustained increases in prices or profit margins above competitive levels, this will be indicative of an increase in market power and a reduction in competition … Sustained price increases above competitive levels are the most obvious and visible manifestation of market power and a substantial lessening of competition.10

We have seen that market power is the ability to engage in discretionary behaviour; that is, for a firm to ‘give less and charge more’ without the constraining influence of competitors. More specifically, if a firm can instigate a small but significant non-transitory increase in price (SSNIP), then it has some degree of market power. A merger or acquisition which results in the merged firm being able to significantly and sustainably raise prices and profit margins without the constraints offered by competitors may lead to a substantial lessening of competition.

[page 236] 11.40 In the current 2008 Merger Guidelines, the ACCC identifies the nature of the information it relies upon in assessing this merger factor: The following are examples of the types of information the ACCC may require to determine the extent to which merger parties may be able to increase prices or profit margins: • • •



details of recent and current levels of pricing in the relevant market/s, including the use of rebates and discounts details of supply costs of goods and services supplied by the merger parties including manufacturing, marketing and distribution costs in the relevant market/s a description of any competitive constraints likely to prevent the merger parties from significantly and sustainably increasing the prices paid by their customers, or lowering the prices paid to their suppliers post-merger in the relevant market/s a description of the likely effect of the merger on the profit margins of the merger parties post-merger and the expected cause of any change.

In an informal merger review, providing a base level of information to the ACCC will, in noncontroversial cases, usually be sufficient to satisfy the ACCC of whether or not a substantial lessening of competition is likely. Whether a wider range of information will be required by the ACCC will be assessed on a case-by-case basis and will depend on the complexity of the matter and the potential competition concerns raised.11

Extent to which substitutes are available — s 50(3)(f) 11.41 The existence of substitutable products in a market potentially constrains the exercise of market power by a merged firm. In this situation, if the merged firm attempts to exercise market power by raising the prices for its goods or services, then consumers can switch to those substitutable goods or services. In this way, the existence of the substitutes constrains the exercise of market power by the merged firm which is, therefore, unlikely to substantially lessen competition. 11.42 The Explanatory Memorandum to the Trade Practices Amendment Act 1992 (Cth) described this factor in the following terms: The availability of substitute products in a market where a merger takes place allows consumers to purchase alternative products if the merged firm seeks to raise its price. Similarly, the scope for substitution in production may limit the scope for the merged firm to raise prices. For example, in response to any attempt to increase prices, manufacturers of other products which use similar

production processes may be able to switch at low cost to producing the merged firm’s products. In such circumstances it is less likely that the merger would substantially lessen competition. Similarly if new substitutes are likely to be available if the merged firm raises its price, the merged firm is likely to be constrained in its behaviour, and competition is less likely to be lessened.12

11.43 Remember that s 4E of the Act expressly requires consideration of substitutes in supply and demand for the purposes of market definition. Since the central inquiry in competition law is the extent to which a firm can exercise market power and whether there are constraints on the exercise of that power, the existence of substitutes is relevant to both analyses. [page 237]

The dynamic characteristics of the market — s 50(3)(g) 11.44 Markets in which there is healthy growth and change tend to prevent individual firms from accumulating market power. This is because new firms enter the market in response to changes, especially where there are low barriers to that entry. Existing firms are unlikely to acquire and then exercise market power where the market is dynamic and where actual or threatened entry by rival firms is possible. On the other hand, markets that are relatively stagnant tend to facilitate the accumulation of market power by existing firms. New firms are unlikely to enter the market in response to changes and, therefore, do not offer competitive constraints on the exercise of market power by existing firms. A merger or acquisition in a market that is dynamic and in which there is product innovation and differentiation is unlikely to substantially lessen competition.

The removal of a vigorous and effective competitor — s 50(3)(h) 11.45 Vigorous and effective competitors ensure a competitive market. Through their ability to quickly and effectively respond to price rises by existing firms, such competitors constrain attempts to exercise market power.

Where a merger or acquisition would result in the removal of such a competitor, the merged firm may then be able to exercise market power without fearing the constraints represented by the (now removed) vigorous and effective competitor. 11.46 In its 2008 Merger Guidelines, the ACCC identified the nature of the information it relies upon in assessing this merger factor: Removal of a vigorous and effective competitor The following are examples of the types of information the ACCC may require to ascertain the extent to which each party to the transaction would separately be considered as a vigorous and effective competitor in the relevant market/s: • • • •

evidence of past competitive pricing behaviour, for example discounting and promotions levels of point-of-sale service (for example opening hours and store format) and after-sales service past and expected innovation, for example in design or production technology past evidence of leadership in non-price competition, for example product quality and loyalty programs.

In an informal merger review, providing a base level of information to the ACCC will, in noncontroversial cases, usually be sufficient to satisfy the ACCC of whether or not a substantial lessening of competition is likely. Whether a wider range of information will be required by the ACCC will be assessed on a case-by-case basis and will depend on the complexity of the matter and the potential competition concerns raised.13

The nature and extent of vertical integration — s 50(3)(i) 11.47 Firms that are integrated in a market exert an influence at several functional levels. For example, a firm may exercise both wholesaling and retailing functions, or it may be both the manufacturer and distributor of its products. [page 238] Where a merger or acquisition occurs between parties at different functional levels, the potential exists for the merged firm to exercise market power in either up-stream or down-stream markets.

11.48 The possibility that vertical integration can foreclose or lessen competition at one or more functional levels of the market was expressly referred to by the High Court in Queensland Wire Industries Pty Ltd v Broken Hill Proprietary Co Ltd (1989) 167 CLR 177; 83 ALR 577. Mason CJ and Wilson J stated (ALR at 584): … vertical integration may help a monopolist distinguish between customers whose demand is less and more elastic. Where consumers are able to trade amongst themselves, the monopolist cannot discriminate. By integrating vertically it may be possible for a monopolist to prevent this inter-trading. For example, power companies usually own distribution systems. This enables them to discriminate in pricing between residential and commercial users. Therefore, although vertical integration does not by itself mean that a firm has a substantial degree of market power, it may well be the means by which the firm capitalises on that market power.

11.49 The relationship between vertical integration and the potential lessening of competition at different functional levels of the market is further explained by the ACCC in its 2008 Merger Guidelines: 7.59

The nature and extent of vertical relationships between firms in separate areas of activity along a vertical supply chain can affect the competitive implications of consolidation in any one of those areas. For example, a horizontal merger can increase the likelihood of coordination in cases where downstream integration increases the visibility of pricing. Generally, horizontal mergers involving a vertically integrated firm are unlikely to lessen competition provided effective competition remains at all levels of the vertical supply chain post-merger.

Vertical integration The following are examples of the types of information the ACCC may require to ascertain whether vertical integration is likely to be relevant to the competition assessment: • •



whether the merger will result in vertical integration between firms involved at different functional levels of the relevant market/s whether the merger is likely to increase the risk of limiting the supply of inputs or access to distribution, such that downstream or upstream rivals face higher costs post-merger or risks of full or partial foreclosure of key inputs or distribution channels the extent of existing vertical integration, noting in particular where either merger party currently operates as a customer or supplier to competitors in the relevant market/s.

In an informal merger review, providing a base level of information to the ACCC will, in noncontroversial cases, usually be sufficient to satisfy the ACCC of whether or not a substantial lessening of competition is likely. Whether a wider range of information will be required by the ACCC will be assessed on a case-by-case basis and will depend on the complexity of the matter and the potential competition concerns raised.14

[page 239] 11.50 In Australian Competition and Consumer Commission v Metcash Trading Ltd (2011) ATPR 42-380, the Full Court concluded that the proposed acquisition of Franklins stores by Metcash would not substantially lessen competition in breach of s 50 of the Act. We have already explored this decision: see 4.40. In concluding that the acquisition would not substantially lessen competition, the Full Court thought it particularly significant that competition at the retail functional level of the market would likely constrain any attempt by Metcash to exploit prices for its services at the wholesale functional level. While the Full Court did not systematically work its way through each of the factors in s 50(3), those factors implicitly guided the Court’s evaluation of the appeal.

Creeping acquisitions 11.51 In July 2008, the ACCC issued its Report of the ACCC Inquiry into the Competitiveness of Retail Prices for Standard Groceries (the Report). In the Report, the ACCC expressed concern about the anti-competitive nature of ‘creeping acquisitions’. The January 2003 Review of the Competition Law Provisions of the Trade Practices Act (Dawson Review) described creeping acquisitions this way: The term ‘creeping acquisitions’ generally refers to the acquisition of a number of individual assets or businesses over time that may have a cumulative effect upon the market share of a competitor. However no individual acquisition by itself would necessarily constitute a substantial lessening of competition in the relevant market so as to fall within the prohibition imposed by section 50.15

11.52 In response to the Report, the Assistant Treasurer and Minister for Competition Policy and Consumer Affairs released a discussion paper in September 2008 on creeping acquisitions. That discussion paper defined the term ‘creeping acquisitions’ as being used to:

… describe conduct that comprises the accumulated effect of a number of small individual transactions which, when considered in isolation at the time that each transaction occurred, would not breach section 50. That is, while each transaction considered at the time it occurred may have a limited impact on competition, and would therefore not fall within the scope of s 50, over a longer period a series of such transactions may have the cumulative effect of substantially lessening competition in a market.16

11.53 Various proposals have been considered to address the alleged threat posed by creeping acquisitions. Independent Senator Fielding introduced the Trade Practices (Creeping Acquisitions) Amendment Bill 2007 (Cth) into the Senate, however the bill has not progressed. The reason for this is that in 2008 and then again in mid-2009 the Federal Government issued discussion papers inviting comment from the wider community concerning an appropriate way to address creeping acquisitions. After considering the [page 240] responses to the discussion papers, the Competition and Consumer Legislation Amendment Act 2011 (Cth) (the Amendment Act) became operative on 1 January 2012. The Amendment Act makes two important changes to s 50 of the Act. First, it amends s 50(1) and (2) so that the word ‘market’ is replaced by the words ‘any market’. Second, it amends s 50(6) which defines ‘market’ for the purposes of s 50. Section 50(6) had previously defined a market by reference to a ‘substantial market’. Defined this way, it would be difficult to see how a number of small acquisitions over time could amount to activity in a substantial market. The Amendment Act deletes the word ‘substantial’ with the effect that potential acquisitions in all markets may be evaluated under s 50 of the Act, and this would include small, sequential acquisitions in regional or small markets.

The ACCC and merger regulation 11.54

We have examined the way in which mergers and acquisitions can

lessen competition. Through a consideration of the merger factors in s 50(3), we have also seen how s 50 of the Act is applied to the task of assessing whether a merger or acquisition might substantially lessen competition. The ACCC is the principal regulator of mergers and acquisitions in Australia and its approach to evaluating mergers and acquisitions reflects the legal/economic issues discussed above. 11.55 To recap, we saw that the Dawson Review recommended a number of amendments to the internal procedures employed by the ACCC in its evaluation of applications for mergers and acquisitions. Those amendments were embodied in the 2006 Amendment Act. Parties had three procedures through which their anticipated merger or acquisition could be evaluated under the Act: 1.

2.

3.

an informal clearance process which enables parties to apply to the ACCC for an informal assessment about whether their proposed merger or acquisition potentially raises issues under s 50 of the Act; a formal clearance process which enables parties to apply to the ACCC for clearance of their proposed merger or acquisition. Clearance insulates the parties from legal action under s 50 of the Act by the ACCC or any other party; and a formal application process made directly to the Tribunal, which bypasses evaluation by the ACCC.

However, the Competition and Consumer Amendment (Competition Policy Review) Act 2017 streamlined this process, eliminating both the formal clearance process and direct application to the Tribunal. From 2017, parties have two options: 1.

2.

Approaching the ACCC on an informal basis. The ACCC then evaluates the potential merger or acquisition in terms of the substantial lessening of competition threshold test; and Approaching the ACCC with an application for authorisation pursuant to s 88 of the Act. The ACCC then evaluates the potential

merger or acquisition in terms of [page 241] the threshold test contained in s 90(7) of the Act. That section provides that the ACCC must not grant an authorisation unless it is satisfied that the conduct would not have the effect or likely effect of substantially lessening competition or that the conduct would result in a benefit to the public that would outweigh any detriment to the public resulting from the conduct. Now we turn to the procedural evaluation of mergers and acquisitions by the ACCC under its Informal Merger Review Process Guidelines (September 2013), and its Merger Guidelines (November 2008).

The notification threshold 11.56 At the outset, it is important to note that in Australia there is no formal requirement that parties to a proposed merger or acquisition notify or advise the ACCC about their plans. However, the parties would also be aware that a proposed merger or acquisition might run the risk of intervention by the ACCC. How do parties know whether it would be best to approach the ACCC for its views on their merger or acquisition? 11.57 In its 2008 Merger Guidelines, the ACCC sets out what is called the ‘notification threshold’. If the parties to a merger or acquisition believe that their plans meet or exceed the threshold they are encouraged to approach the ACCC for its evaluation of the merger or acquisition. The 2008 Merger Guidelines explain: 2.2

To assist merger parties and their advisers to determine whether they should notify the ACCC, the ACCC has developed a notification threshold, outlined below. This threshold has been established by the ACCC to filter and thereby limit the merger reviews it conducts to those mergers which, in its view, may potentially raise competition concerns.

The notification threshold is set at a level that reflects the ACCC’s experience in determining which mergers are more likely to raise competition concerns and therefore require further investigation. 2.3

If merger parties believe their merger proposal will meet the notification threshold, they are encouraged to approach the ACCC on a confidential and informal basis as soon as there is a real likelihood that the merger may proceed to discuss possible competition issues and options for having the matter considered.

2.4

Merger parties are also encouraged to approach the ACCC where the ACCC has indicated to a firm or industry that notification of mergers by that firm or in that industry would be advisable.

2.5

Parties may choose to seek informal or formal clearance from the ACCC. The informal clearance process provides flexibility in terms of timeframes, information requirements and confidentiality, while the formal clearance process has mandated timeframes and information and transparency requirements.

… 2.7

Mergers that fall outside the notification threshold will rarely require investigation by the ACCC. However, the notification threshold is indicative only. It is intended to provide a starting point for identifying those mergers that may raise competition concerns and [page 242] therefore require investigation in accordance with these guidelines. Importantly, the notification threshold should not be confused with the concentration threshold (set out in chapter 7) which the ACCC has regard to as part of an overall assessment of whether a merger is likely to substantially lessen competition under s. 50.17

11.58 The notification threshold itself is simply explained in these guidelines: Notification threshold Merger parties are encouraged to notify the ACCC well in advance of completing a merger where both of the following apply: • •

the products of the merger parties are either substitutes or complements the merged firm will have a post-merger market share of greater than 20 per cent in the relevant market/s.18

If these thresholds are met or exceeded, the parties have the option of seeking either an informal or a formal merger clearance from the ACCC. Let us look at each of these.

Informal merger clearance procedures 11.59 Prior to the Amendment Act, parties could approach the ACCC for its informal view on whether their merger or acquisition might raise competition issues under s 50 of the Act. The idea was to discover whether the ACCC might oppose or challenge the merger or acquisition by seeking orders in the Federal Court to restrain the merger or acquisition. The process was largely informal because there was no right of review of the ACCC’s decision and, even if the merger or acquisition was ‘cleared’ by the ACCC, that decision did not confer immunity on the parties from a legal challenge by either the ACCC or another party. 11.60 This informal merger clearance process remains the first and simplest option for parties seeking the ACCC’s view on whether their proposed merger or acquisition might offend s 50 of the Act. The regulatory process adopted by the ACCC in assessing informal merger applications is embodied in its Informal Merger Review Process Guidelines (September 2013) (the Informal Guidelines). At the outset, the Informal Guidelines adopt different procedures depending on whether the proposed merger or acquisition is confidential or non-confidential. However, before these different procedures are activated, for both confidential and non-confidential applications, the ACCC will conduct an ‘Initial Assessment’. This is described by s 2.10 of the Informal Guidelines in the following terms: 2.10.

For each merger, the ACCC will make an initial assessment based on the information available to determine whether a public review will be required. Where the ACCC is satisfied, based on the information provided, that there is a low risk of a merger substantially lessening competition, the ACCC may decide that it is not necessary to conduct a public review of that merger. These mergers are described as being ‘preassessed; [page 243]

2.12.

A significant proportion of the mergers notified to the ACCC are able to be pre-assessed

expeditiously, often within two weeks of notification to the ACCC.

If the ACCC concludes that a merger or acquisition cannot be ‘preassessed’, further evaluation will be necessary. And the processes involved in this further evaluation depend on whether the merger or acquisition is public or confidential.

Confidential merger and acquisition reviews 11.61 There are two kinds of confidential merger reviews. First, the ACCC might receive information about a merger or acquisition, or proposed merger or acquisition, from other government regulators. Second, parties to a proposed merger or acquisition might approach the ACCC directly with a request that it evaluate their proposal on a confidential basis.

Third party approaches 11.62 The ACCC may sometimes receive information concerning a potential merger or acquisition from third parties which are usually other regulatory agencies. The Foreign Investment Review Board (FIRB) and the Australian Prudential Regulatory Authority (APRA) are two such agencies. 11.63 The FIRB administers the Foreign Acquisitions and Takeovers Act 1975 (Cth) and examines potential foreign investments and acquisitions taking place within Australia. APRA has several responsibilities within the financial sector, including oversight of acquisitions of shares or assets of corporations within the financial sector. Both the FIRB and APRA regularly liaise with the ACCC in relation to transactions involving the acquisition, or potential acquisition, of shares or assets within their jurisdiction. An assessment by the ACCC of a merger or acquisition falling within the regulatory ambit of either the FIRB or APRA is confidential and will not ordinarily be published on the ACCC’s website. However, if the merger or acquisition is in the public domain, then the assessment may be published by the ACCC.

Private approaches 11.64 The ACCC commonly receives, on a confidential basis, requests from parties to a proposed merger or acquisition for a view on whether the transaction may raise anti-competitive issues under s 50 of the Act. In its Informal Guidelines, the ACCC sets out its approach in these circumstances: 2.17.

For mergers that have not been publicly announced, and which the ACCC considers cannot be pre-assessed, the ACCC can conduct a confidential review at the request of the merger parties. The ACCC will not conduct confidential reviews of proposed mergers that are public knowledge, completed mergers (see from 2.65, below) or purely speculative or hypothetical mergers.

2.18.

Where merger parties request a confidential review, this process will usually take around 2–4 weeks, but can be longer if the materials to be considered by the ACCC are substantial or particularly complex. The ACCC expects merger parties to provide sufficient written information to the ACCC, taking into account the guidance provided in Appendix A. The ACCC may request further information from the merger parties throughout its confidential review. [page 244]

2.19.

Any view the ACCC is able to provide merger parties on a confidential basis will be qualified. Specifically, the ACCC’s views regarding confidential mergers are based on the information available at the time of the review and are not formed with the benefit of information gathered through market inquiries. Subject to that qualification, the outcome of a confidential review will be, based on the information available to the ACCC at the time, one of the following: • • • •

The ACCC’s preliminary view is that the proposed acquisition does not appear to raise competition concerns pursuant to s 50 of the Act. The ACCC is not in a position to determine whether the proposed acquisition raises competition concerns pursuant to s 50 of the Act without market inquiries. The ACCC will conduct a public review once the transaction is public. The ACCC is concerned that the proposed acquisition may (or is likely to) substantially lessen competition in contravention of s. 50 of the Act and the ACCC will conduct a public review once the transaction is made public.19

Non-confidential public merger or acquisition reviews 11.65 More commonly, the ACCC will receive requests for the review of potential mergers or acquisitions that are not confidential. In these

circumstances, the ACCC is not constrained by the need for extensive confidentiality and can conduct broader inquiries in assessing the potential anti-competitive effect of the merger or acquisition. Paragraph 2.23 of the Informal Guidelines describes the process: 2.23.

Acquisitions that are in the public domain and that the ACCC has determined cannot be preassessed undergo a public merger review. These reviews involve market consultation with interested parties who have information that may assist the ACCC’s assessment (or who may be affected by the transaction) as well as further engagement with the merger parties. The ACCC refers to this process as ‘market inquiries’. The results of these market inquiries assist the ACCC to decide whether to publish a Statement of Issues (identifying its preliminary competition concerns), and to ultimately form a view as to whether or not the transaction is likely to substantially lessen competition.

Set out below is a summary of the procedure adopted by the ACCC in assessing an informal and non-confidential merger or acquisition. The summary is drawn from the Informal Guidelines.

Initial market inquiries 11.66 An initial assessment is made regarding market inquiries. This means that the ACCC will seek submissions from interested parties about the nature and extent of the proposed merger or acquisition. These submissions enable the ACCC to evaluate the influence that the merger or acquisition may have on competition in the market. This period of initial assessment may take between 2–5 weeks from commencement to public review. [page 245]

Evaluation of market Information and decision by the ACCC 11.67 After internal evaluation of the market information, the ACCC will reach a decision about the likely anti-competitive effects of the proposed merger or acquisition. This process may take between 2–4 weeks from close of market inquiries. There are two possible results of this evaluation process: 1.

a determination is made that the potential merger or acquisition is not

2.

likely to substantially lessen competition in the relevant market(s); or a determination is made that the potential merger or acquisition does raise issues of concern for competition in the market(s) and that further evaluation is required.

Publication of Statement of Issues 11.68 Where the ACCC’s evaluation suggests that the acquisition or merger may raise concerns for competition in the market(s) it will publish a ‘Statement of Issues’. The Statement of Issues is a public document that sets out the concerns the ACCC has with the merger or acquisition and the reasons for those concerns. The Informal Guidelines state: 2.51.

A Statement of Issues is a document published by the ACCC in merger reviews where the ACCC has come to a preliminary view that a proposed merger raises competition concerns that require further investigation. A Statement of Issues sets out the preliminary findings of the ACCC’s review, including any preliminary findings (and the basis for such findings) that the ACCC considers a merger may substantially lessen competition or is considered likely to do so. The release of a Statement of Issues will usually be accompanied by a press release.

2.52.

The release of a Statement of Issues is aimed at providing guidance to the merger parties and other interested parties and provides a basis upon which the ACCC can obtain further information that may either alleviate or reinforce the concerns of the ACCC. This practice is consistent with the ICN’s guiding principles for transparency and procedural fairness.

With the publication of the Statement of Issues, a secondary timeline for the evaluation of the merger or acquisition is established: 2.53.

Following the release of a Statement of Issues, the ACCC will conduct further public consultation and may make specific requests for information from the merger parties and third parties. In some cases, information will be sought through the use of the ACCC’s statutory information gathering powers (s 155 notices — see section 2.42 for further details). As noted in paragraphs 2.46 and 2.49 above, the ACCC may also provide to merger parties details of any relevant issues or concerns raised during consultation on a Statement of Issues, and where additional relevant issues are raised, the opportunity to comment on these issues prior to the ACCC making a final decision. The duration of this phase of the review will, in part, depend on the responsiveness of parties to information requests and the length of time merger parties may require to respond to the additional issues raised during public consultation on a Statement of Issues.

Subsequent consultation 11.69 The idea of publishing the Statement of Issues is to provide all parties with an interest in the merger an opportunity to consider the ACCC’s concerns and to make further submissions about those concerns. [page 246]

Decision by the ACCC 11.70 After further submissions have been received, the ACCC will make a decision concerning the merger or acquisition. Three possible outcomes include: 1. 2.

3.

the parties have addressed the concerns in the Statement of Issues and the ACCC decides not to oppose the merger or acquisition; although some of the concerns in the Statement of Issues have been addressed, the merger or acquisition will be permitted subject to the parties providing enforceable undertakings pursuant to s 87B of the Act; or despite subsequent consultation and submissions from the parties, the proposed merger or acquisition raises anti-competitive issues and will not be cleared by the ACCC.

Advising the parties and publication of the decision 11.71 Following its evaluation of the merger or acquisition, the ACCC will notify the parties of its decision and will publish the decision on its website in appropriate circumstances.

Further information 11.72 Appendix A to the ACCC’s Informal Guidelines contains further information concerning the issues that the ACCC will examine as part of its merger or acquisition assessment, and the information that it requires in

doing so. This information includes company details, the nature of the entity or asset that is to be acquired, the relevant market definition and matters related to the s 50(3) criteria.

Application for authorisation 11.73 The Competition and Consumer Amendment (Competition Policy Review) Act 2017 repealed the formal merger clearance process and the process of applying directly to the Tribunal for authorisation. The Explanatory Memorandum notes, at [9.8]: [9.8]. The Harper Review recommended combining the formal clearance process with the merger authorisation process to create a single, streamlined authorisation process with the following features: • •

• •

the Commission should be the decision-maker at first instance (as it is better suited to undertaking investigations); the Commission should be empowered to authorise a merger if satisfied the merger would not substantially lessen competition or would result, or be likely to result, in a net public benefit; decisions of the Commission should be subject to review by the Tribunal under a process that is also governed by strict timelines; and the review by the Tribunal should be based upon the material that was before the Commission, but the Tribunal should have the discretion to allow a party to adduce further evidence, or to call and question a witness, if the Tribunal is satisfied there is sufficient reason.

[page 247] The 2017 Amendments now require parties to directly approach the ACCC with an application for authorisation pursuant to s 88 of the Act (unless they are seeking an informal review). The ACCC then evaluates the potential merger or acquisition in terms of the threshold test contained in s 90(7) of the Act. That section provides that the ACCC must not grant an authorisation unless it is satisfied that the conduct would not have the effect or likely effect of substantially lessening competition or that the conduct

would result in a benefit to the public that would outweigh any detriment to the public resulting from the conduct. We will explore the tests for authorisation contained in s 90(7) in Chapter 12.

Further reading ACCC, Merger Authorisation Guidelines, Commonwealth of Australia, 2017 (available online at ) ACCC, Informal Merger Review Process Guidelines, Commonwealth of Australia, 2013 (available online at ) ACCC, Merger Guidelines, Commonwealth of Australia, Canberra, November 2008 (available online at ) M Bassi, ‘Introducing the Herfindahl-Hirschman Index to Australian Merger Analysis’ (2008) 24(1) TPLB 26 M Bull and D Wood, ‘The Fairest of the All? Rival Bidder Counterfactuals in Australian Merger Clearance’ (2012) 19 CCLJ 231. D McCracken-Hewson, ‘How Likely is “Likely”? Metcash, Counterfactuals and Proof under s 50’ (2012) 40 ABLR 363 R Nicholls and J Buchan, ‘Failing Firm, Failing Franchisor: Local Market Analysis in Australian Merger Clearance’ (2016) 23 CCLJ 247. V Pham, ‘The Treatment of Efficiencies Under the Informal Merger Clearance Process’ (2013) 21 CCLJ 127 D Poddar and K Newman, ‘Stormy Seas Make Skilful Sailors; Changes to the Australian Merger Control Regime’ (2008) 16 TPLJ 191 C Veljanovski, ‘Mergers, Counterfactuals and Proof after Metcash’ (2012) 40 ABLR 263 D Wood and M Bull, ‘Holding Out for a Hero: Assessing Mergers Between Potential Competitors’ (2012) 20 CCLJ 125

1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19.

ACCC, Merger Guidelines, Commonwealth of Australia, Canberra, November 2008, p 20 (available online at ). Ibid, p 35. Ibid, p 35. Ibid, pp 41–2. Trade Practices Legislation Amendment Bill 1992, Explanatory Memorandum at [18]. ACCC, Merger Guidelines, 2008, p 39. ACCC, Merger Guidelines, Commonwealth of Australia, Canberra, 30 June 1999, p 44. ACCC, Merger Guidelines, 2008, p 37. Ibid. ACCC, Merger Guidelines, 1999, p 60 at [5.175], [5.176]. ACCC, Merger Guidelines, 2008, p 48. Trade Practices Legislation Amendment Bill 1992, Explanatory Memorandum at [27]. ACCC, Merger Guidelines, 2008, p 49. Ibid, p 50. Trade Practices Act Review Committee, Review of the Competition Provisions of the Trade Practices Act, Commonwealth of Australia, Canberra, 2003, p 66. C Bowen MP, ‘Creeping Acquisitions — Discussion Paper’, Australian Government, 1 September 2008, p 3 at [17] (available online at ). ACCC, Merger Guidelines, 2008, p 8. Ibid, p 9. ACCC, Merger Review Process Guidelines, Commonwealth of Australia, July 2006, pp 10–11 (available online at ).

[page 249]

Chapter 12 Authorisation and Notification

Overview This chapter is intended to: • • •

• •

introduce you to the processes of authorisation and notification under the Competition and Consumer Act 2010 (Cth) (CCA) (the Act); identify the forms of anti-competitive conduct that may be the subject of an application for authorisation or notification; discuss the tests the Australian Competition and Consumer Commission (ACCC) and the Australian Competition Tribunal (the Tribunal) employ in evaluating applications for authorisation and notification; illustrate the ACCC’s procedural framework for evaluating applications for authorisation and notification; and describe the process for review of an authorisation or notification determination by the ACCC.

Introduction 12.1

We have noted that there are two fundamental principles that

underpin competition policy. First, that anti-competitive conduct which has the effect of substantially lessening competition or is a misuse of market power should be prohibited; and, second, anti-competitive conduct should be authorised if the benefits to the public outweigh its anti-competitive effect. Up to this point, most of this text has been concerned with the first of these policies. Accordingly, we have considered why certain conduct injures competition; we have learned how to define markets and assess competition or market power within those markets; and we have also learned how to evaluate whether conduct might substantially lessen competition within those markets. 12.2 In this chapter, we will consider the second of these two fundamental principles: the approach of the Act to evaluating anti-competitive conduct that is alleged to have overriding public benefits and which should thus be authorised or notified. Part VII of the Act (ss 87ZP–95AB ) is titled ‘Authorisations and Notifications’ and provides a scheme whereby certain forms of anticompetitive conduct may be evaluated by the ACCC or the Tribunal and then granted ‘immunity’ from legal proceedings by either the ACCC, competitors or private parties. [page 250]

The structure of Pt VII 12.3 Part VII of the Competition and Consumer Act 2010 (Cth) has been repeatedly amended over the past decade. It was substantially amended by the Trade Practices Amendment Act (No 1) 2006 (Cth), following recommendations made by the Dawson Review.1 This Amendment Act created new procedures in relation to mergers or acquisitions that substantially lessen competition in breach of s 50 of the Act. It permitted

parties to seek a clearance from the ACCC for the proposed merger or acquisition, or an authorisation direct from the Tribunal. The Competition and Consumer Amendment (Competition Policy Review) Act 2017 once again amended Part VII. This chapter will explore those amendments. Part VII of the Act contains three divisions: •

• •

Division 1 — concerns authorisations in respect of all anticompetitive conduct subject to a ‘substantial lessening of competition threshold’; Division 2 — concerns notification of exclusive dealing conduct and resale price maintenance; and Division 3 — deals with class exemptions.

What conduct can be authorised, notified or cleared? 12.4 Essentially Part VII of the Act now creates a two-fold system for authorisation and notification of potentially anti-competitive conduct that would otherwise breach a provision of Part IV of the Act. First, s 88(1) of the Act provides: 88 Commission may grant authorisations Granting an authorisation (1) Subject to this Part, the Commission may, on an application by a person, grant an authorisation to a person to engage in conduct, specified in the authorisation, to which one or more provisions of Part IV specified in the authorisation would or might apply.

12.5 All forms of potentially anti-competitive conduct that are subject to the SLC threshold can be the subject of an application for authorisation. There are no specific sections of the Act that say, for example, ‘misuse of market power may be authorised’. Instead, the formulation in s 88(1) refers to the ability of the ACCC to grant authorisation to a person to ‘engage in conduct’ to which one or more provisions of Part IV would apply. The key is the phrase ‘engage in conduct’. That phrase is given an extended meaning by

s 4(2) of the Act as follows: 4(2) In this Act: (a) a reference to engaging in conduct shall be read as a reference to doing or refusing to do any act, including the making of, or the giving effect to a provision of, a contract or arrangement, the arriving at, or the giving effect to a provision of, an understanding or the engaging in of a concerted practice; …

[page 251] In other words, the creation of and giving effect to a contract, arrangement or understanding that contains a cartel provision or action constituting conduct that might breach ss 45(1), 46, 47 or 50 will be ‘engaging in conduct’ for the purposes of s 4(2)(a) and therefore come within the scope of s 88(1) of the Act. 12.6 In addition, some of the sections that create prohibitions also contain provisions anticipating authorisation. For example, s 45AM is titled, ‘Cartel Provisions Subject to Grant of Authorisation’. That section exempts the giving effect to a contract that contains a cartel provision from the action of s 45AF (criminal liability) and s 45AJ (civil liability) if the contract does not come into effect until the grant of authorisation. Section 45(9) operates in relation to contracts, arrangements or understandings that might breach s 45(1). Second, s 93(1) of the Act provides: 93 Notification of exclusive dealing or resale price maintenance (1) Subject to subsection (2): (a) a corporation that engages, or proposes to engage, in conduct of a kind referred to in subsection 47(2), (3), (4), (5), (6), (7), (8) or (9); or (b) a corporation or other person who engages, or proposes to engage, in conduct of a kind referred to in section 48; may give to the Commission a notice setting out particulars of the conduct or proposed conduct.

12.7 A party to an exclusive dealing arrangement may apply for either authorisation or notification of the conduct. There are two principal

differences between procedures. First, the threshold tests for authorisation and notification of conduct are different and second, unlike authorisations, immunity from legal action commences when an application for notification has been lodged. In relation to authorisation, s 90(7) of the Act provides: 90(7) The Commission must not make a determination granting an authorisation under section 88 in relation to conduct unless the Commission is satisfied in all the circumstances: (a) that the conduct would not have the effect, or would not be likely to have the effect, of substantially lessening competition; or (b) that: (i) the conduct would result, or be likely to result, in a benefit to the public; and (ii) the benefit would outweigh the detriment to the public that would result, or be likely to result, from the conduct.

In relation to notification, s 93(3) provides: 93(3) If the Commission is satisfied that the engaging by a corporation in conduct or proposed conduct of a kind described in subsection 47(2), (3), (4), (5), (6), (7), (8) or (9) and referred to in a notice given by the corporation under subsection (1): (a) has or would have the purpose or has or is likely to have, or would have or be likely to have, the effect of substantially lessening competition within the meaning of section 47; and (b) in all the circumstances: (i) has not resulted or is not likely to result, or would not result or be likely to result, in a benefit to the public; or [page 252] (ii) has resulted or is likely to result, or would result or be likely to result, in a benefit to the public that has not or would not outweigh the detriment to the public that has resulted or is likely to result from the conduct or would result or be likely to result from the proposed conduct.

In relation to RPM conduct, s 93(3A) provides: (3A) If: (a) a corporation or other person has notified the Commission under subsection (1) of conduct or proposed conduct described in section 48; and (b) the Commission is satisfied that the likely benefit to the public from the conduct or proposed conduct will not outweigh the likely detriment to the public from the conduct or proposed conduct;

the Commission may give the corporation or other person a written notice stating that the Commission is so satisfied and accompanied by a statement setting out its reasons for being so satisfied.

What is the result of authorisation and notification? 12.8

Section 88(2)provides:

(2) While the authorisation remains in force, the provisions of Part IV specified in the authorisation do not apply in relation to the conduct to the extent that it is engaged in by: (a) the applicant; and (b) any other person named or referred to in the application as a person who is engaged in, or who is proposed to be engaged in, the conduct; and (c) any particular persons or classes of persons, as specified in the authorisation, who become engaged in the conduct.

Put briefly, the grant of authorisation by the ACCC provides immunity to the parties to the relevant conduct from legal action in respect of that conduct (that would ordinarily be a breach of Part IV). A similar provision, s 93(7) confers immunity in respect of notifications.

Tests for authorisation and notification 12.9 The tests applied by the ACCC for evaluating anti-competitive conduct differ depending on the conduct under consideration. These tests were noted above and are contained in ss 90(7), 93(3) and 93(3A). There are different types of tests — which test applies depends upon the form of anticompetitive conduct under consideration. The tests differ depending on whether: 1. 2. 3.

An application for authorisation is sought in respect of conduct subject to a ‘substantial lessening of competition’ threshold; Parties notify the ACCC in relation to exclusive dealing conduct; and Parties notify the ACCC in relation to resale price maintenance conduct (vertical price fixing).

[page 253]

Conduct involving substantial lessening of competition thresholds 12.10 This test is set out in s 90(7). Essentially, the ACCC will not grant authorisation unless: 1. 2.

It is satisfied that the conduct would not have the effect or likely effect of substantially lessening competition; or The conduct would or would be likely to result in a benefit to the public where that benefit would not be outweighed by the detriment to the public resulting or likely to result from the conduct.

Conduct involving notification applications 12.11 In relation to excusive dealing conduct, the test is set out in s 93(3) and is a little more complex. 1.

2.

First, the ACCC must be satisfied that the conduct (s 47 exclusive dealing) would have the purpose, effect or likely effect of substantially lessening competition. If this anti-competitive effect is likely, then the ACCC must be satisfied that the conduct: (a) has not resulted or is not likely to result, or would not result or be likely to result, in a benefit to the public; or (b) has resulted or is likely to result, or would result or be likely to result, in a benefit to the public that has not or would not outweigh the detriment to the public that has resulted or is likely to result from the conduct or would result or be likely to result from the proposed conduct.

In relation to resale price maintenance conduct, the test is contained in s 93(3A): (3A) If:

(a) a corporation or other person has notified the Commission under subsection (1) of conduct or proposed conduct described in section 48; and (b) the Commission is satisfied that the likely benefit to the public from the conduct or proposed conduct will not outweigh the likely detriment to the public from the conduct or proposed conduct; the Commission may give the corporation or other person a written notice stating that the Commission is so satisfied and accompanied by a statement setting out its reasons for being so satisfied.

Public benefit 12.12 The key concept in determining applications for authorisation involves the notion of a public benefit. Although the term is not defined, the Tribunal in Re Queensland Co-operative Milling Association Ltd (1976) ATPR 40-012 (Re QCMA) stated (at 17,242): Public benefit should be given the widest possible conception … anything of value to the community generally, any contribution to the aims pursued by society including … the achievement of the economic goals of efficiency and progress.

[page 254] Several years later, the Tribunal in Re Rural Traders Co-operative (WA) Ltd (1979) ATPR 40-110 adopted this understanding of public benefit (at 18,123): 12.13 The need for a nexus between efficiency and progress was underscored by the Tribunal in Re 7-Eleven Stores Pty Ltd (1994) ATPR 41357, in which it stated (at 42,677): Public benefit has been, and is, given a wide ambit by the Tribunal as, in the language of QCMA … Plainly the assessment of efficiency and progress must be from the perspective of society as a whole: the best use of society’s resources. We bear in mind that (in the language of economics today) efficiency is a concept that is usually taken to encompass ‘progress’.

12.14 The Tribunal in Re Qantas Airways Ltd [2004] ACompT 9 considered that public benefit must be ‘likely to result’ from the conduct. It

considered that the term ‘likely to result’ meant (at 42): Thus, for a benefit or detriment to be taken into account, we must be satisfied that there is a real chance, and not a mere possibility, of the benefit or detriment eventuating. It is not enough that the benefit or detriment is speculative or a theoretical possibility. There must be a commercial likelihood that the applicants will, following the implementation of the relevant agreements, act in a manner that delivers or brings about the public benefit or the lessening of competition giving rise to the public detriment. We must be satisfied that the benefit or detriment is such that it will, in a tangible and commercially practical way, be a consequence of the relevant agreements if carried into effect and must be sufficiently capable of exposition (but not necessarily quantitatively so) rather than ‘ephemeral or illusory’ …

12.15 In Re ACI Operations Pty Ltd (1991) ATPR (Com) 50-108, the Trade Practices Commission set out the following non-exhaustive list of factors that it considered would constitute public benefits: • • • • • • • • • • • • • •

economic development, such as encouragement of research and capital investment; fostering business efficiency; industrial rationalisation resulting in a more efficient allocation of resources, and in lower or contained unit production costs; expansion of employment or prevention of unemployment; employment growth in particular regions; industrial harmony; assistance to efficient small business; improvement in the quality and safety of goods and services; supply of better information to consumers and businesses to permit informed choices in their dealings; promotion of equitable dealings in the market; promotion of industry cost savings; development of import replacements; growth of export markets; and steps to protect the environment.

From this non-exhaustive list, it is clear that the term ‘public benefit’ includes both economic benefits — such as increased allocative and productive efficiencies — as well as non-economic benefits, such as the

supply of better information to consumers and businesses, and protection of the environment. [page 255] In November 2017, the ACCC released its Guidelines for Authorisation of Conduct (non-merger) policy document. It is a large document, comprising 73 pages and contains an extensive discussion of what the ACCC considers to constitute public and private benefits as well as public detriments.

Public detriment 12.16 The term ‘public detriment’ is not defined in the Act and it has been left to the ACCC and the Tribunal to explore its ambit. The Tribunal in Re 7Eleven Stores Pty Ltd (1994) ATPR 41-357 stated (at 42,683): In the present context, anti-competitive detriment refers, in the language of s 90(6) to ‘the detriment to the public constituted by any lessening of competition’ that would result, or be likely to result from the system under examination. As with the assessment of benefit, we give the characterisation of the ‘detriment to the public’ a wide ambit, namely, any impairment to the community generally, any harm or damage to the aims pursued by the society.

It is important to recall that the public detriment flows principally (but not exclusively) from the way the anti-competitive conduct substantially lessens competition in the relevant market. In its November 2017 Guidelines for Authorisation of Conduct (non-merger) policy document, the ACCC identifies factors that it considers may fall within the ambit of ‘public detriment’.

The test for evaluating public benefits and public detriments 12.17 We have identified that the ACCC will weigh public benefits and public detriments in evaluating whether the benefit to the public outweighs

the detriment caused by the substantial lessening of competition that flows from anti-competitive conduct. What is the actual test employed in undertaking this evaluation? It is the ‘future with and the future without’ test that we considered in Chapter 4 (see 4.36). The ACCC therefore weighs the benefits/detriments that would be likely to exist in the market in the future if the authorisation were granted, against the benefits/detriments that would be likely to exist in the market if the authorisation were not granted. 12.18 This process was described by the Tribunal in Re Media Council of Australia (No 2) (1987) ATPR 40-774 (at 48,419): In identifying the relevant public benefit, the Tribunal must compare the position which would apply in the future were the proposed arrangement not entered into or given effect to, with the position in the future which would arise if the arrangement were entered into or given effect. The Tribunal must consider all the circumstances that relate to public benefit including how the proposed arrangement is likely to operate in practice so as to give rise to public benefit.

The Tribunal in Re QCMA (1976) ATPR 40-012 remarked on this balancing process (at 17,243): We accept that the statute calls upon us to adopt a balance sheet approach: we must balance the likely benefits and detriments flowing from the acquisition.

[page 256] 12.19 In its November 2017 Guidelines for Authorisation of Conduct (nonmerger) policy document, the ACCC notes: Balancing public benefit and detriment 7.31

The ACCC will balance the benefits to the public from the proposed conduct with the detriments to the public and determine which is the greater. Consistent with the net public benefit limb of the authorisation test, the ACCC may grant authorisation if the likely public benefit from the proposed conduct outweighs the likely public detriment from the proposed conduct (see paragraph 6.1).

7.32

In weighing the benefits and detriments the ACCC places less weight on those that are less likely to occur, those for which the evidence is less strong, and those which may not be realised for some time.

ACCC authorisation procedure 12.20 There is a fairly technical procedure involved in a party seeking an application for authorisation and the ACCC evaluating the application. Sections 89–91C of the Act set out the procedural framework for this process. In its November 2017 Guidelines for Authorisation of Conduct (non-merger) policy document, the ACCC devotes several pages to explaining the actual procedure involved in seeking authorisation.

Variation and revocation of authorisations 12.21 Sections 91A, 91B and 91C of the Act concern variations and revocation of the terms of the authorisation. Section 91B(3) allows the ACCC to review or revoke authorisations if: 1. 2. 3.

the authorisation was granted on the basis of false or materially misleading information; a condition that was attached to the authorisation has not been complied with; or there has been a material change in circumstances which effects competition or public benefit since authorisation was granted.

Notification of exclusive dealing conduct 12.22 Notification is a procedure relative to exclusive dealing only and is dealt with in s 93 of the Act. When exclusive dealing conduct is validly notified with the ACCC, immunity begins from the date of lodgement.

Notification of resale price maintenance conduct 12.23 Vertical price fixing, also known as resale price maintenance, is prohibited per se by s 48 of the Act. We considered RPM in Chapter 10. The Competition and Consumer Amendment (Competition Policy Review) Act 2017 amended the CCA to permit vertical price fixing conduct to be notified. Section 93(1) now permits a party to a resale price maintenance arrangement

to notify the ACCC of the conduct. In evaluating the notification, the ACCC applies the test set out in s 93(3A) of the Act: [page 257] In relation to RPM conduct, s 93(3A) provides: (3A) If: (a) a corporation or other person has notified the Commission under subsection (1) of conduct or proposed conduct described in section 48; and (b) the Commission is satisfied that the likely benefit to the public from the conduct or proposed conduct will not outweigh the likely detriment to the public from the conduct or proposed conduct; the Commission may give the corporation or other person a written notice stating that the Commission is so satisfied and accompanied by a statement setting out its reasons for being so satisfied.

In November 2017, the ACCC released its Resale Price Maintenance Notification Guidelines that explain the approach taken by the ACCC in evaluating RPM conduct notified by parties.

Merger authorisations by the ACCC 12.24 During our exploration of anti-competitive mergers and acquisitions in Chapter 11, we noted the very significant changes to the authorisation process introduced by the Competition and Consumer Amendment (Competition Policy Review) Act 2017. Aside from informal clearances, the ACCC is permitted to authorise potentially anti-competitive mergers and acquisitions in the same way that it evaluates applications for authorisation of other anti-competitive conduct. Since the prohibition in s 50 is tested by reference to the substantial lessening of competition threshold, the same tests in s 90(7) discussed above apply. In November 2017, the ACCC released its Merger Authorisation Guidelines policy document. That document describes the processes that the ACCC will

employ in evaluating applications for authorisation for mergers or acquisitions that might breach s 50 of the Act. Prior to the Competition and Consumer Amendment (Competition Policy Review) Act 2017, parties were able to by-pass the ACCC and seek authorisation directly from the Tribunal. However, this procedure has been repealed. This means that it is the ACCC that has principal responsibility for evaluating all applications for authorisations that involve conduct subject to an SCL threshold, as well as application for notification for exclusive dealing and resale price maintenance conduct.

Review by the Tribunal 12.25 A party who is dissatisfied by a decision of the ACCC in relation to an application for authorisation made by that party can appeal to the Australian Competition Tribunal (the Tribunal). Part IX of the Act provides the mechanisms by which the Tribunal can review the decision of the ACCC. Section 101(1AA) is a ‘standing’ provision which restricts the persons who can apply for such a review to either the person who applied for the authorisation or notification, or a person the Tribunal considers to possess a ‘sufficient interest’. [page 258] Regulation 20(1) of the Competition and Consumer Regulations 2010 provides that an application for review must be made within 21 days of the ACCC’s determination. Section 101A permits a party to apply to the Tribunal for the review of an ACCC decision concerning notifications. The process is the same as for an application for the review of an authorisation. In hearing an application, the Tribunal is empowered by s 102 to make a

determination affirming, setting aside or varying the determination of the ACCC. 12.26 The nature of the review process was described by the Tribunal in Re QCMA (1976) ATPR 40-012 as follows (at 17,226): There is, in my opinion, no presumption that any particular finding by the Commission is correct. There is no onus on an applicant to show that the Commission was in error. The form requires an applicant to state in which respect it is dissatisfied with a determination by the Commission and this again serves to alert the Tribunal to the main issues likely to be raised in the hearing before it. It is not necessary for the applicant to allege any particular error on the part of the Commission or to criticise the Commission’s proceedings in any way. Indeed the Tribunal could have no interest in investigating any alleged procedural defect in the Commission’s proceedings. It is concerned only to determine the right answer to the question posed by the applicant’s request for authorisation and to do so by a fresh hearing.

Further reading ACCC, Merger Authorisation Guidelines, November 2017, Commonwealth ACCC, Guidelines for Authorisation of Conduct (non-merger), November 2017, Commonwealth ACCC, Exclusive Dealing Notification Guidelines, Commonwealth

November

2017,

ACCC, Resale Price Maintenance Notification Guidelines, November 2017, Commonwealth G Carter and S Barker, ‘The New Formal Merger Clearance Regime — White Knight or White Elephant?’ (2008) 24 (3) TPLB 40 A Fels and T Grimwade, ‘Authorisation: Is it Still Relevant to Australian Competition Law?’ (2003) 11 CCLJ 187 R Officer and P Williams, ‘The Public Benefit Test in an Authorisation Decision’ in M Richardson and P Williams (eds), The Law and the Market, Federation Press, Sydney, 1995 R Smith, ‘Authorisation and the Trade Practices Act: More about Public

Benefit’ (2003) 11 CCLJ 21 R Smith and T Grimwade, ‘Authorisation: Some Issues’ (1997) 25 ABLR 351 P Strickland, ‘Do We Need a Better Way for Reviewing Mergers?’ (2012) 40 ABLR 143 H Tan, ‘Further Reflections on the Interpretation of Private and Public Benefits in Merger Authorisation Decisions’ (2011) 19 CCLJ 38 I Tonking, ‘Let the Sun Shine In: New Merger Approval Procedures under the Trade Practices Act’ (2005) 13 CCLJ 73

1.

Trade Practices Act Review Committee, Review of the Competition Provisions of the Trade Practices Act, Commonwealth of Australia, 2003, Canberra (the Dawson Review).

[page 259]

Chapter 13 Access Regimes

Overview This chapter is intended to: • •

• • •





discuss the difficulties for fair, competitive and informed markets that are characterised by natural monopolies; explore the regime in Pt IIIA of the Competition and Consumer Act 2010 (Cth) (CCA) (the Act) that creates three statutory access regimes to infrastructure; identify the amendments to Part IIIA made by the Competition and Consumer Amendment (Competition Policy Review) Act 2017 (Cth); examine the process by which access declarations are sought and evaluated; consider how state and territory governments may insulate infrastructure from the Access Declaration process in Pt IIIA of the CCA by establishing and seeking certification of ‘existing effective access regimes’; contrast the access declaration and existing effective access regime processes with the process by which owners of infrastructure may provide access undertakings to the Australian Competition and Consumer Commission (ACCC); highlight the ongoing relationship between s 46 and Pt IIIA of the

• •

CCA as separate but related means of obtaining access to services provided by essential facility infrastructure; identify various industry-specific access regimes that operate independently from Pt IIIA of the CCA; and provide resources for further reading and research.

Introduction 13.1 In Chapters 3 and 4 we explored how consumers benefit from fair, competitive and informed markets. When markets are competitive, no single firm can exercise market power by raising prices above the competitive level or by restricting supply. This is because a competitive market is characterised by substitutable products or services. If a firm attempts to raise the price of its products then consumers can swap and buy substitutable products from other firms. It is the existence of these substitutable goods or services that constrain any attempt by firms to exercise discretionary market power. A market must be carefully defined to include all potential substitutable sources of both supply and demand. If a market is defined too narrowly, then it may appear that a firm possesses more power than it actually does. Likewise, if a market is defined too widely, then it may appear that a firm does not possess [page 260] market power when in fact it does. It is for this reason that in defining markets, s 4E of the Act directs attention to substitutable sources of supply and demand. We have seen that while the process of market definition may be controversial and hard-fought, the courts have generally been able to define a relevant market for the purposes of evaluating allegedly anti-competitive

conduct. For the majority of industries in Australia, markets can be defined and associated competitive forces or market power can be evaluated. However, there are some rare situations in which competition does not exist simply because of the nature of a particular industry. For example, in Chapter 8 we explored s 46 of the Act, prohibiting a firm that has a substantial degree of power in a market from engaging in conduct that has the purposes, effect or likely effect of substantially lessening competition. At 8.20 we examined the decision of the High Court in NT Power Generation Pty Ltd v Power and Water Authority (2004) ATPR 42-021; [2004] HCA 48. 13.2 You will recall in that case that the Power and Water Authority (PAWA) owned the infrastructure necessary for electricity generated in the ‘upstream’ market to be transformed and then distributed to residential and business consumers in the ‘downstream’ market. There was only one electricity distribution grid (composed of transformers, sub-stations and high- and low-voltage wires) and it was owned by PAWA. NT Power wanted to sell electricity in the downstream market in competition with PAWA but needed access to the infrastructure in order to distribute the electricity. For NT Power, the electricity distribution grid was an essential facility. PAWA refused to grant NT Power access, thus ‘insulating’ itself from competition in the downstream retail market for electricity. NT Power alleged that PAWA had misused its substantial degree of market power by refusing to allow access to the electricity distribution grid it owned. In these circumstances, PAWA’s ownership of the sole electricity distribution infrastructure gave it a natural monopoly over the related wholesale and retail downstream markets for electricity. 13.3 Natural monopolies raise difficult issues for competition and consumer policy-makers, a fact noted by the 1993 Hilmer Review into Australia’s National Competition Policy. On the one hand, it is important that consumers have the benefit of competition introduced into markets that, because of natural monopolies, might be quarantined from market forces. But, on the other hand, why should a company that has spent a lot of time

and money developing and building infrastructure be required to make it easier for a competitor? And even if the company should be required to allow a competitor access to its infrastructure, on what terms should this access be allowed? Who would set access prices and supply terms: the courts, parliament or some other tribunal? 13.4 In Re Fortescue Metals Group Ltd (2010) 271 ALR 256, the Australian Competition Tribunal (the Tribunal) described the problem this way (at [503]): The efficient functioning of key infrastructure sectors of the economy — transport, energy and communications — is vital to sustaining the economic development of a country. One reason is that infrastructure provides inputs into a wide range of services that support distinct (so-called ‘dependent’) markets. There is, however, a tendency toward monopoly in infrastructure sectors. This arises because the key sectors are characterised by large capital costs, the immobility of the incumbent(s) and strong economies of scale. For this reason, [page 261] such infrastructure has sometimes been described as ‘natural monopolies’. Those features have also historically led governments to provide infrastructure services which were shielded from direct competition.

13.5 A potential solution to infrastructure monopolies was created in 1995 when the Trade Practices Act 1974 (Cth) (TPA) (now the CCA) was amended by the Competition Policy Reform Act 1995 (Cth). That Act inserted a new Pt IIIA into the TPA (now Pt IIIA of the CCA) creating three generic forms of access regime. It is a ‘generic’ regime because Pt IIIA of the CCA is not confined to any one or other industry, but is operative across all industries to which the regime applies. Part IIIA is very complex. There are at least three reasons for this complexity; 1.

Many legal and regulatory entities are responsible for the administration and interpretation of the access regimes in the CCA, including the Tribunal, the ACCC, the National Competition Council (NCC), the Federal Court and the High Court.

2.

3.

These access regimes are under continual review and amendment. Following a review by the Productivity Commission, Pt IIIA was amended by the Trade Practices Amendment (National Access Regime) Act 2006 (Cth), and following the Council of Australian Governments (COAG) signing the Competition and Infrastructure Reform Agreement, Pt IIIA was amended yet again by the Trade Practices Amendment (Infrastructure Access) Act 2010 (Cth). Recently, Pt IIIA was considered by the High Court in Pilbara Infrastructure Pty Ltd v Australian Competition Tribunal (2012) 246 CLR 379; [2012] HCA 36, resulting in significant shifts in the interpretation of several key provisions. In November 2012, the Productivity Commission commenced yet another review into Pt IIIA of the CCA releasing its Report in October 2013, the Competition Policy Review (Harper Review) in 2015 made certain recommendations concerning Part IIIA and finally, the Competition and Consumer Amendment (Competition Policy Review) Act 2017 (Cth) amended Part IIIA in very important ways that we will explore below; As the High Court decision in NT Power Generation Pty Ltd v Power and Water Authority (2004) ATPR 42-021; [2004] HCA 48 indicated, a de facto access regime, independent of the mechanisms in Pt IIIA, can be created by a successful cause of action under s 46 of the CCA. The relationship between the general prohibition against misuse of market power in s 46 of the CCA and the more specific access regime in Pt IIIA is difficult and relatively unexplored.

13.6 This chapter is intended to provide you with an overview of the three forms of access regime provided for in Pt IIIA of the CCA, without attempting a comprehensive analysis of them. At the conclusion of this chapter you will find Further reading, to enable you to explore the difficult issues dealt with throughout this chapter in more detail. In this chapter we will explore why these access regimes are needed, how they are structured and

how the mechanisms in the regimes actually work. We will also consider the way both the courts and the Tribunal have approached the administration of these regimes. In fact, the Competition Policy Review 2015 (Harper Review) found (at p 426) that very few infrastructure assets are [page 262] regulated by Part IIIA of the Act. Most infrastructure assets that exhibit natural monopoly characteristics are regulated by industry-specific schemes.

Natural monopolies, essential facilities and access regimes 13.7 Traders and firms have exploited natural monopolies to their financial advantage throughout history. For example, a trader may own the only mill in a village, or a freight company may own the only railway bridge into a town. In these circumstances, the possession and control of one resource, such as a bridge, enables a trader to exploit a related upstream or downstream market, such as retail trade in a town, to their advantage. The trader is thus said to possess an ‘essential facility’ that is necessary to compete in related upstream or downstream markets. In these circumstances, the trader can effectively insulate itself from competition in related upstream or downstream markets. The absence of substitutable goods or services within those related markets means that any attempt by the trader to exercise market power (usually in the form of higher prices) is unlikely to be constrained. The Tribunal in Re Fortescue Metals Group Ltd (2010) 271 ALR 256 clearly identified the problems: 516 A firm operating as a natural monopoly is, in one sense, efficient. By definition, it is able to supply market demand at a lower cost than two or more firms could. But when there is no competition, there can, and usually will, be market failure. 517 Firms with natural monopoly characteristics often exhibit poor economic performance: ie

there can be market failure … a firm with natural monopoly characteristics can, and often does, set prices above marginal cost. 518 Another instance of market failure in the case of industries characterised by a natural monopoly is the likelihood of strategic behaviour by the monopolist to deter entry and to protect its monopoly position. This may entail building excess capacity and other spending of resources in socially wasteful ways.

13.8 In the United States, the ‘essential facilities doctrine’ was developed to circumvent monopoly ownership of facilities that were needed by traders to compete in related downstream markets. For example, in United States v Terminal Railroad Association of St Louis 224 US 383 (1912), the Association controlled the only operative railroad terminal for goods and services coming from the western United States into St Louis on the eastern boarder of Missouri. The Association was able to deny competitor rail freight companies access to lucrative wholesale and retail markets in St Louis. The United States Supreme Court characterised the railroad terminal as an essential facility and condemned the actions of the Association in conspiring to deny competitors access. The Court ordered the Association to permit access to the terminal and thus access to the markets of St Louis. Since 1912, the essential facilities doctrine has developed considerably in the United States. 13.9 When the 1993 Independent Committee of Inquiry into National Competition Policy (the Hilmer Committee) into Australia’s National Competition Policy addressed the issue of natural monopolies, it explicitly rejected the essential facilities doctrine, on the [page 263] ground that it ‘had not developed with clarity, coherence or consistency let alone with strong economic foundations’.1 Instead, the Hilmer Committee recommended that a statutory access regime be included in the TPA that would require owners of essential

infrastructure to allow access by competitors. The Court in BHP Billiton Iron Ore Pty Ltd v National Competition Council (2007) ATPR 42-141; [2006] FCA 1764 explained at [45]: The notion of shared access within the context of a vertically integrated operation is part of the scenario the Hilmer Report was seeking to address. That is, it is the very prevention of a vertically integrated organisation using its control over access to an essential facility to limit effective competition in dependent markets that is a key activity that the access regime seeks to deal. Hence, it was envisaged — certainly by the Hilmer Report — that the access regime would be applied to require vertically integrated organisations to provide access to services provided over some of their infrastructure.

With this economic and regulatory background in mind, let’s turn to Pt IIIA of the CCA.

Part IIIA — overview of the three pathways to access 13.10 Following the Trade Practices Amendment (National Access Regime) Act 2006 (Cth), s 44AA was inserted into Pt IIIA of the CCA to describe the objects of the Part. It provides: 1. 44AA Objects of Part The objects of this Part are to: a.

b.

promote the economically efficient operation of, use of and investment in the infrastructure by which services are provided, thereby promoting effective competition in upstream and downstream markets; and provide a framework and guiding principles to encourage a consistent approach to access regulation in each industry.

This objects clause reflects the importance of Pt IIIA as a mechanism that will facilitate competition in previously restricted upstream and downstream markets. However, s 44AA also makes it clear that this process must involve the economically efficient use of and investment in infrastructure. The relationship between efficient infrastructure investment and consumer welfare was noted by the Tribunal in Re Fortescue Metals Group Ltd (2010) 271 ALR 256, which stated (at [797]):

If there is efficient investment in infrastructure and competition in dependent markets, welfare is maximised. At a simple level, both efficient use of infrastructure and competition maximise welfare because they result in lower prices, better products and greater choice. More technically, competition in particular ensures efficient market outcomes.

[page 264] How does Pt IIIA of the CCA achieve these objects? To begin with, it is important to note that neither the common law nor the CCA give third parties automatic rights to negotiate access to certain facilities. Accordingly, Pt IIIA creates three statutory pathways for third parties to gain access to services that are provided by a facility where access is required by that third party to compete in related upstream or downstream markets: 1.

2.

3.

A declaration process: The third party makes an application for the NCC to make a recommendation to the relevant minister that a service should be declared. If the minister makes the declaration, then the third party is entitled to negotiate access with the owner of the facility that provides the service. If agreement concerning access cannot be reached, the dispute will be arbitrated by the ACCC. An ‘effective access regime’: State or territory governments may have an existing access regime in place in relation to services provided by a facility, that has been approved by the NCC. In such a case, a third party may seek access pursuant to that effective access regime. An access undertaking: The owner of a facility that provides services may request the ACCC to accept its undertaking that third parties will be permitted access to those services. Part IIIA empowers the ACCC to accept such undertakings after it has evaluated them according to certain criteria.

Each of these pathways to access is considered below, with an emphasis on the first pathway to access, the declaration process, since this is the most common pathway by which a third party can seek access to the services

provided by an essential facility.

Access pathway 1 — access through declaration process 13.11 Part IIIA, Divs 2 and 3, as amended by the Competition and Consumer Amendment (Competition Policy Review) Act 2017 (Cth), create a process by which a person seeking access to facilities provided by infrastructure can apply to the NCC requesting that it recommend to the relevant minister that a particular service be declared. There are three steps to the declaration process. First, s 44F(1) permits the designated Minister or any other person to apply in writing to the NCC requesting that a particular service be declared. However, there are some limitations; an application cannot be made where: (a) the service is the subject of a regime for which a decision under section 44N that the regime is an effective access regime is in force (including as a result of an extension under section 44NB); or (b) the service is the subject of an access undertaking in operation under Division 6; or (c) if a decision is in force under subsection 44PA(3) approving a tender process, for the construction and operation of a facility, as a competitive tender process—the service was specified, in the application for that decision, as a service proposed to be provided by means of the facility; or (d) if the service is provided by means of a pipeline (within the meaning of a National Gas Law)—there is: [page 265] (i)

a 15-year no-coverage determination in force under the National

Gas Law in respect of the pipeline; or (ii) a price regulation exemption in force under the National Gas Law in respect of the pipeline; or (e) there is a decision of the designated Minister in force under section 44LG that the service is ineligible to be a declared service. Second, if the NCC does receive an application, s 44F(2) provides that it must recommend either that the service be declared or that it not be declared. Third, if the Minister does declare the service then the applicant is then entitled to negotiate terms of access with the owner of the facility that provides the service. If the Minister does not declare the service then s 44K(2) permits the applicant to appeal that decision to the Tribunal. If the parties are unable to reach agreement concerning terms of access, then Pt IIIA, Div 3 enables them to make a request to the ACCC to arbitrate their dispute.

The NCC decision-making process 13.12 The first step in the declaration process involves the NCC making a recommendation to the Minister that the service provided by the facility be declared. Section 44G provides that the Council cannot recommend that a service be declared unless it is satisfied of all the declaration criteria for the service. ‘Declaration criteria’ is defined in s 44B to mean: ‘the meaning given by s 44CA’ of the Act. Section 44CA states: 44CA Meaning of declaration criteria (1) The declaration criteria for a service are: (a) that access (or increased access) to the service, on reasonable terms and conditions, as a result of a declaration of the service would promote a material increase in competition in at least one market (whether or not in Australia), other than the market for the service; and (b) that the facility that is used (or will be used) to provide the service could meet the total foreseeable demand in the market: (i) over the period for which the service would be declared; and (ii) at the least cost compared to any 2 or more facilities (which could include the first-mentioned facility); and

(c) that the facility is of national significance, having regard to: (i) the size of the facility; or (ii) the importance of the facility to constitutional trade or commerce; or (iii) the importance of the facility to the national economy; and (d) that access (or increased access) to the service, on reasonable terms and conditions, as a result of a declaration of the service would promote the public interest. (2) For the purposes of paragraph (1)(b): (a) if the facility is currently at capacity, and it is reasonably possible to expand that capacity, have regard to the facility as if it had that expanded capacity; and (b) without limiting paragraph (1)(b), the cost referred to in that paragraph includes all costs associated with having multiple users of the facility (including such costs that would be incurred if the service is declared). [page 266] (3) Without limiting the matters to which the Council may have regard for the purposes of section 44G, or the designated Minister may have regard for the purposes of section 44H, in considering whether paragraph (1)(d) of this section applies the Council or designated Minister must have regard to: (a) the effect that declaring the service would have on investment in: (i) infrastructure services; and (ii) markets that depend on access to the service; and (b) the administrative and compliance costs that would be incurred by the provider of the service if the service is declared.

13.13 •



• • •

The requirements of s 44CA may be summarised as follows: Access to the service would promote a material increase in competition in another market, but that other market does not have to be in Australia. The facility that is used must be able to meet the ‘total foreseeable demands’ of the market over the period of the declaration and at least compared with any two or more facilities. The facility providing the service to which access is sought must be of national significance. Access or increased access to the service would promote the public interest. Access to the facility must promote the public interest.

Let’s explore some of these factors a little more closely. 13.14 First, the recommendation relates to a ‘service’. A distinction needs to be drawn between a ‘service’ and the ‘facility’ that provides that service. This distinction is made clear by the definition of ‘service’ in s 44B: service means a service provided by means of a facility and includes: (a) the use of an infrastructure facility such as a road or railway line; (b) handling or transporting things such as goods or people; (c) a communications service or similar service; but does not include: (d) the supply of goods; or (e) the use of intellectual property; or (f) the use of a production process; except to the extent that it is an integral but subsidiary part of the service.

Although there is an intimate relationship between a facility and the service it provides, the declaration process relates only to the service and there can be considerable argument about this relationship and how to distinguish the two. For example, in Re Virgin Blue Airlines (2005) 195 FLR 242 the Tribunal identified the relevant facilities as the runways, parking aprons, taxiways and related facilities. The services were then defined to include the activities that those facilities make possible. In that case, these services included the preparation of aircraft for departure, the loading and unloading of passengers and the distribution of baggage. [page 267] 13.15 Second, s 44CA(1)(a) requires a party to identify two distinct markets: the market for the service itself and the related market that will benefit from the competition introduced by the party gaining access to the service. In Re NSW Minerals Council Ltd (1997) ATPR (NCC) 70-005, the NCC adopted the following three-stage process in order to evaluate whether access would promote competition in the related market:

1.

2.

3.

Assess the current level of competitiveness in the subject market. If the subject market is already competitive, access may not increase competition and provide improvement in terms and conditions sufficient to affect the competitiveness of additional markets. Verify that nominated markets are additional. This involves ensuring that the products affected by access are in additional markets rather than the market to which access is required. Determine whether access benefits are likely to be retained in the terms and conditions of products in additional markets. Benefits are likely to be maintained if the additional markets are competitive, but if they are uncontested then the benefits are likely to be absorbed by monopoly power. If the service is insignificant the benefits of access are likely to be insignificant.

13.16 Third, in order for a facility to be declared, it must be of ‘national significance’. This criterion means that only facilities that play a very significant role in Australia’s national economy are within the scope of Pt IIIA. In Pilbara Infrastructure Pty Ltd v Australian Competition Tribunal (2012) 246 CLR 349; [2012] HCA 36, the High Court explained at [43] that this criterion ‘directs attention to matters of broad judgement of a generally political kind’. In its February 2013 Declaration of Services: A Guide to Declaration under Part IIIA of the Competition and Consumer Act 2010 (Cth) (the Guide), the NCC stated (at p 41, para 5.2): National significance is to be determined having regard to: (i) the size of the facility; or (ii) the importance of the facility to constitutional trade or commerce; or (iii) the importance of the facility to the national economy.

A good example of this evaluation is found in Re Sydney Airports Corp Ltd (2000) 156 FLR 10. The Tribunal (on appeal from the NCC) determined that Sydney International Airport was of national significance because approximately $21 billion of freight was cleared at the airport in 1997 — an

amount that represented approximately 50% of all Australia’s air freight. 13.17 Fourth, an access declaration cannot be made unless the Minister is satisfied that making the declaration would promote the public interest. Although the term ‘public interest’ is not defined in the CCA, the NCC in Re Specialised Container Transport (1997) ATPR (NCC) 70-004, considered the following factors in evaluating the public interest: • • • •

ecologically sustainable development; social welfare and equity considerations; transitional issues created by reform programs; policies concerning occupational health and safety and industrial relations; [page 268]

• • •

economic and regional development, including employment and investment growth; the interests of consumers generally, or a of class of consumers; and the competitiveness of Australian business.

These factors are derived from cl 1(3) of the Competition Principles Agreement, which is intended to guide the interpretation of ‘public interest’. The High Court in Pilbara Infrastructure Pty Ltd v Australian Competition Tribunal (2012) 246 CLR 349; [2012] HCA 36 considered at [42] that assessment of the public interest ‘imports a discretionary value judgement to be made by reference to undefined factual matters’. 13.18 At this point it is important to note that the decision of the Full Court in Port of Newcastle Operations Pty Ltd v Australian Competition Tribunal (2017) ATPR 42-547 in which the Full Court analysed the ‘promotion of competition’ and ‘the public interest’ criteria have been overtaken by the amendments to Part IIIA introduced by the Competition and Consumer Amendment (Competition Policy Review) Act 2017 (Cth).

Time limits on the NCC making a recommendation 13.19 Section 44GA(1) provides that the NCC must make a recommendation on an application for declaration under s 44F within ‘the consideration period’. That period is defined in s 44GA(2) as a period of 180 days. Section 44GA also provides for parties to ‘stop the clock’ on the period of evaluation. In evaluating the application, s 44GB provides that the NCC may invite public submissions. These public submissions are subject to confidentiality requests made by the applicant and permitted by s 44GB(5).

The Minister’s response 13.20 Once the NCC has made its recommendation, s 44H(1) provides that the ‘designated Minister’ must either declare the service or decide not to declare it. In making that decision, s 44H(4) requires the Minister to be satisfied of a number of factors. Those factors are the same as those considered by the NCC under s 44CA. Having made his or her determination, s 44HA requires the Minister to publish the decision. If the decision is made to declare the service, then s 44I provides that it becomes effective at the time specified in the declaration, but in any case not earlier than 21 days after the declaration is published.

Review of the Minister’s decision to declare a service 13.21 If the Minister decides to declare a service, s 44K enables the provider of that service (the entity most affected by the decision) to apply in writing to the Tribunal for a review of that decision. Section 44K(3) provides that a request to review the Minister’s decision to declare a service must be made within 21 days after the publication of the decision.

In the Tribunal 13.22

After making its own determination of the appeal, s 44KA(2)

provides that the Tribunal may make a number of orders including: [page 269] (a) an order staying, or otherwise affecting the operation or the taking of steps in reliance on, the declaration if the Tribunal considers that: (i) it is desirable to make the order after taking into account the interests of any person who may be affected by the review; and (ii) the order is appropriate for the purpose of securing the effectiveness of the hearing and determination of the application for review; or (b) make an order varying or revoking an order made under paragraph (a) (including an order that has previously been varied on one or more occasions under this paragraph).

Services that cannot be declared 13.23 Despite the apparently wide range of services that can be the subject of an application for an access declaration, there are limits. The Trade Practices Amendment (Infrastructure Access) Act 2010 (Cth) inserted a new Div 2AA into Pt IIIA of the CCA. Division 2AA provides that a person with a material interest in a proposed new infrastructure facility may apply to the NCC for a decision that a particular service is ineligible to be a declared service for the purpose of the access regime created by Pt IIIA of the CCA. The purpose of Div 2AA is to create a mechanism whereby a person or corporation constructing a new facility can pre-emptively insulate that ‘proposed facility’ and its ancillary services from being the subject of an access declaration under Pt IIIA of the CCA. In such a case, the person seeks an ‘ineligibility declaration’. This is reflected in s 44B which defines ‘proposed facility’ to mean: … a facility that is proposed to be constructed (but the construction of which has not started) that will be: (a) structurally separate from any existing facility; or (b) a major extension of an existing facility.

An application for an ‘ineligibility declaration’ also involves a two-stage

process. An application is made to the NCC, which must then evaluate the application against certain criteria. These procedures are set out in Div 2AA, Subdiv B of the CCA. Having made its decision, the NCC makes a recommendation to the designated Minister, who then makes the actual ‘ineligibility declaration’. The procedures followed by the designated Minister are set out in Div 2AA, Subdiv C of the CCA. Like standard access recommendations, the decision by the designated Minister to make an ineligibility declaration may be appealed to the Tribunal. Div 2AA, Subdiv E provides the mechanisms by which the Tribunal conducts a review of an ineligibility declaration.

Negotiating with the owner of the facility 13.24 If the designated Minister accepts a recommendation of the NCC that a service be declared, then the party seeking access has the right to negotiate terms of access to the service with the owner of the facility. As stated previously, a party has no automatic right to seek access to the services of a facility. The right to negotiate is provided for after the designated Minister makes a declaration in relation to the service. If the parties agree to the terms of access to the services provided by the facility, then the terms of their agreement will constitute a binding contract that governs the [page 270] commercial relationship between those parties. Section 44ZW provides that, subject to limited exceptions, the ACCC must register private contracts when requested to do so by the parties to the negotiated access agreement. Section 44ZY provides that a registered contract may then be enforced as if it were a determination of the ACCC. However, in the event that the parties are unable to reach agreement as to the terms of access to the service provided by the

facility, Pt IIIA, Div 3, Subdiv B of the CCA provides a mechanism by which the ACCC will arbitrate the dispute between them and reach a determination.

The ACCC as arbiter of access disputes 13.25 Section 44S of the CCA provides that a party seeking access to a declared service, who is unable to agree on terms of access with the provider of that service, triggers the arbitration process by notifying the ACCC in writing that an access dispute exists. After receiving the notification of the access dispute, s 44Y provides the ACCC with the power to summarily terminate an arbitration if it thinks the application is vexatious, trivial, misconceived, lacking in substance or if the party notifying of the dispute lacked good faith during the negotiation process. Sections 44YA and 44ZZCB also provide for the summary termination of the arbitration. In its April 2006 document, Arbitrations — A Guide to Resolution of Access Disputes Under Part IIIA of the Trade Practices Act 1974 (the 2006 Arbitration Guide), the ACCC noted the following in considering the bona fides of an access dispute (at p 3): By way of guidance, the ACCC sets out the following rule of thumb for use in considering whether the access seeker and access provider are ‘unable to agree’: • •

either the access seeker or the access provider must have made a request of the other party, or put a proposal to the other party that the other party must have refused the request or rejected the proposal.

The refusal may be an explicit refusal or a constructive refusal (for example, where the other party has not responded to the request or proposal within a reasonable time). If the ACCC does not terminate an arbitration, then s 44V provides that the ACCC may make a written interim or final determination. Section 44V(2) provides that any determination by the ACCC may: (a) (b) (c) (d)

require the provider to provide access to the service by the third party; require the third party to accept, and pay for, access to the service; specify the terms and conditions of the third party’s access to the service; require the provider to extend the facility;

(da) require the provider to permit interconnection to the facility by the third party; (e) specify the extent to which the determination overrides an earlier determination relating to access to the service by the third party.

Access arbitrations undertaken by the ACCC involve three separate but related stages; (i) preliminary; (ii) substantive; and (iii) determination. Its 2006 Arbitration Guide explains these stages (at p 4): During the preliminary phase of arbitration, the ACCC seeks to ascertain the parties to the dispute, resolve any jurisdictional issues and ensure that the relevant parties have identified the substantive issues in dispute. [page 271] The substantive phase involves the ACCC shaping the processes relevant to the arbitration and receiving all the relevant information. The ACCC will generally make directions for the parties to follow and seek submissions from the parties before deliberating on the issues in dispute. The ACCC may also seek expert advice on particular matters. In arbitrating an access dispute, the ACCC does not merely choose between the positions put by each party. The ACCC may take into account any matter that it thinks is relevant. Further, a determination may deal with any matter relating to access by the third party to the service including matters which were not the basis of the notification. The ACCC, however, must take certain matters into account in making a determination. These matters are specified in Part IIIA of the Act. In considering its position on the relevant matters, the ACCC may undertake its own analysis and seek information in addition to that provided by the parties. The determination phase of an arbitration involves the ACCC issuing a draft determination for comment by the parties and finally making a determination. The ACCC may terminate the arbitration in certain circumstances without making a determination.

The ‘certain matters’ which the ACCC must take into account in making a final determination concerning an access dispute are outlined in s 44X(1) and provide that the ACCC must have regard to: (aa) the objects of this Part; (a) the legitimate business interests of the provider, and the provider’s investment in the facility; (b) the public interest, including the public interest in having competition in markets (whether or not in Australia); (c) the interests of all persons who have rights to use the service; (d) the direct costs of providing access to the service; (e) the value to the provider of extensions whose cost is borne by someone else; (ea) the value to the provider of interconnections to the facility whose cost is borne by someone

else; (f) the operational and technical requirements necessary for the safe and reliable operation of the facility; (g) the economically efficient operation of the facility; (h) the pricing principles specified in section 44ZZCA.

However, in arbitrating the dispute and reaching its final decision, s 44W provides that the ACCC must not make a decision that would have any of the following effects: (a) preventing an existing user obtaining a sufficient amount of the service to be able to meet the user’s reasonably anticipated requirements, measured at the time when the dispute was notified; (b) preventing a person from obtaining, by the exercise of a pre-notification right, a sufficient amount of the service to be able to meet the person’s actual requirements; (c) depriving any person of a protected contractual right; (d) resulting in the third party becoming the owner (or one of the owners) of any part of the facility, or of extensions of the facility, without the consent of the provider; (e) requiring the provider to bear some or all of the costs of extending the facility or maintaining extensions of the facility; (f) requiring the provider to bear some or all of the costs of interconnections to the facility or maintaining interconnections to the facility.

[page 272] Section 44XA then provides that the ACCC must make a final determination within 180 days of the start of the day the application was received. In its 2006 Arbitration Guide, the ACCC states (at p 9): The commission will generally seek to make a decision within six months of being notified of the access dispute, provided it has been given sufficient information at each stage of the arbitration process and depending on the time required for submissions.

Once the ACCC makes its determination, s 44ZO provides that it becomes effective 21 days after the determination is made. A party dissatisfied with a determination by the ACCC may apply to the Tribunal under s 44ZP seeking a review of the determination. Section 44ZR then provides for a further avenue of appeal from the Tribunal to the Federal Court on a question of law.

Access pathway 2 — certification of existing effective access regimes 13.26 When Pt IIIA was created it was not intended to supplant existing effective access regimes that had been created by state and territory governments. Clause 6(3) of the Competition Principles Agreement, which supported the reforms at the time Pt IIIA was created, anticipated that state or territory access regimes could operate alongside access regimes created through the declaration process discussed above. The effect of cl 6(3) of the Competition Principles Agreement is to enable states and territories to create another access regime that operates in tandem with Pt IIIA of the CCA. Part IIIA, Div 2A contains the mechanisms by which the responsible Minister for a state or territory may make a written application to the NCC for it to recommend that the Commonwealth Minister decide that the regime is an ‘effective access regime’. The term ‘effective access regime’ is not defined in the CCA, but best describes an access regime that meets the criteria in cl 6 of the Competition Principles Agreement. Like the access through declaration process discussed above, an application by a state or territory for recognition of an existing effective access regime is initially evaluated by the NCC. The NCC then makes a recommendation to the Commonwealth Minister that the access regime either should or should not be recognised as an effective access regime for the purposes of Pt IIIA of the CCA. 13.27 Section 44M(4) provides that in deciding what recommendation it should make, the NCC must ‘assess whether the access regime is an effective access regime by applying the relevant principles set out in the Competition Principles Agreement’. This is a reference to the terms of cl 6 of the Agreement, which provides: 6(3) For a State or Territory access regime to conform to the principles set out in this clause, it should: (a) apply to services provided by means of significant infrastructure facilities where: (i) it would not be economically feasible to duplicate the facility; (ii) access to the service is necessary in order to permit effective competition in a

downstream or upstream market; and [page 273] (iii) the safe use of the facility by the person seeking access can be ensured at an economically feasible cost and, if there is a safety requirement, appropriate regulatory arrangements exist; and (b) incorporate the principles referred to in subclause (4).

The principles ‘referred to in subclause (4)’ enumerate a long list of factors that are intended to provide the framework for a negotiated access arrangement and are listed by the NCC in its August 2011 publication, A Guide to Certification under Part IIIA of the Competition and Consumer Act 2010 (Cth) (Guide to Certification): 6(4) A State or Territory access regime should incorporate the following principles: (a) Wherever possible third party access to a service provided by means of a facility should be on the basis of terms and conditions agreed between the owner of the facility and the person seeking access. (b) Where such agreement cannot be reached, Governments should establish a right for persons to negotiate access to a service provided by means of a facility. (c) Any right to negotiate access should provide for an enforcement process. (d) Any right to negotiate access should include a date after which the right would lapse unless reviewed and subsequently extended; however, existing contractual rights and obligations should not be automatically revoked. (e) The owner of a facility that is used to provide a service should use all reasonable endeavours to accommodate the requirements of persons seeking access. (f) Access to a service for persons seeking access need not be on exactly the same terms and conditions. (g) Where the owner and a person seeking access cannot agree on terms and conditions for access to the service, they should be required to appoint and fund an independent body to resolve the dispute, if they have not already done so. (h) The decisions of the dispute resolution body should bind the parties; however, rights of appeal under existing legislative provisions should be preserved. (i) In deciding on the terms and conditions for access, the dispute resolution body should take into account: (i) the owner’s legitimate business interests and investment in the facility; (ii) the costs to the owner of providing access, including any costs of extending the facility but not costs associated with losses arising from increased competition in upstream or downstream markets;

(j)

(iii) the economic value to the owner of any additional investment that the person seeking access or the owner has agreed to undertake; (iv) the interests of all persons holding contracts for use of the facility; (v) firm and binding contractual obligations of the owner or other persons (or both) already using the facility; (vi) the operational and technical requirements necessary for the safe and reliable operation of the facility; (vii) the economically efficient operation of the facility; and (viii) the benefit to the public from having competitive markets. The owner may be required to extend, or to permit extension of, the facility that is used to provide a service if necessary but this would be subject to: (i) such extension being technically and economically feasible and consistent with the safe and reliable operation of the facility; (ii) the owner’s legitimate business interests in the facility being protected; and [page 274]

(k)

(l)

(m) (n) (o)

(p)

(iii) the terms of access for the third party taking into account the costs borne by the parties for the extension and the economic benefits to the parties resulting from the extension. If there has been a material change in circumstances, the parties should be able to apply for a revocation or modification of the access arrangement which was made at the conclusion of the dispute resolution process. The dispute resolution body should only impede the existing right of a person to use a facility where the dispute resolution body has considered whether there is a case for compensation of that person and, if appropriate, determined such compensation. The owner or user of a service shall not engage in conduct for the purpose of hindering access to that service by another person. Separate accounting arrangements should be required for the elements of a business which are covered by the access regime. The dispute resolution body, or relevant authority where provided for under specific legislation, should have access to financial statements and other accounting information pertaining to a service. Where more than one State or Territory regime applies to a service, those regimes should be consistent and, by means of vested jurisdiction or other cooperative legislative scheme, provide for a single process for persons to seek access to the service, a single body to resolve disputes about any aspect of access and a single forum for enforcement of access arrangements.

You will notice that the contents of cl 6(4) of the Competition Principles Agreement attempts to describe the content of an effective access regime — those terms that would make such an access regime work. In its 2006 Guide to

Certification, the NCC summarises what it calls the ‘clause 6 principles’ in the following terms (at p 18): 2.

Applying the clause 6 principles

2.3

In essence, the clause 6 principles: • •

2.4

identify the types of services provided by means of significant infrastructure facilities that may be subject to access regulation establish the principles that the access regime should incorporate.

In assessing whether a state or territory regime is effective the Council must: • • •

apply each of the clause 6 principles as guiding principles have regard to the objects of Part IIIA not consider any other matters (s 44M(4) and clause 6(3A)).

After the NCC makes its recommendation, the Commonwealth Minister is required by s 44N(1) to decide whether the access regime is or is not an effective access regime for the service. The Minister is then required by s 44NG to publish his or her decision. Under s 44O, that decision may be appealed by the relevant state or territory Minister to the Tribunal which may, in turn, either affirm, vary or reverse the Commonwealth Minister’s decision: s 44O(6). 13.28 Since the creation of this form of access pathway in 1995 there have been a number of applications by state and territory Ministers seeking declarations of existing effective access regimes. Not all of these applications have been successful. For example, in Re Australian Cargo Terminal Operations Pty Ltd (1997) ATPR (NCC) 70-000, the then Federal Airports Corporation (FAC) enjoyed a statutory monopoly over many Australian airports. [page 275] The control by the FAC extended to determining third party access to the facilities at those airports. An application was made seeking a decision that the access arrangements in place under the FAC’s control constituted an

existing effective access regime. The argument was rejected, because the power to grant access to airport facilities was entirely at the discretion of the FAC. The access arrangements provided by the FAC did not comply with the principles in cl 6 of the Competition Principles Agreement.

Access pathway 3 — access undertakings and industry codes 13.29 Part IIIA, Div 6 of the CCA provides the framework for the third and final access pathway. Section 44ZZA provides that a person who is, or expects to be, the provider of a service may give a written undertaking to the ACCC in connection with the provision of access to the service. In making its decision whether to accept an access undertaking, the ACCC is required to have regard to the matters in s 44ZZA(3). Those matters include: (aa) (ab) (a) (b)

the objects of [Part IIIA]; the pricing principles specified in section 44ZZCA; the legitimate business interests of the provider; the public interest, including the public interest in having competition in markets (whether or not in Australia); (c) the interests of persons who might want access to the service; (da) whether the undertaking is in accordance with an access code that applies to the service; (e) any other matters that the [ACCC] thinks are relevant.

13.30 On its website, the ACCC describes the process by which it evaluates applications for access undertakings. That process comprises six stages, described in the following manner:2 1.

Pre-lodgement

The ACCC strongly encourages parties contemplating submitting an access undertaking to first contact the ACCC to discuss their application. ACCC staff will be able to provide guidance on the ACCC’s assessment process, and on matters that may be of significance during assessment of the undertaking. Pre-lodgement discussions with ACCC staff are intended to facilitate the undertaking assessment process to the benefit of all parties, and they are not a replacement for a formal assessment process. The ACCC’s ultimate decision on whether to accept or reject an access undertaking will

occur following a thorough assessment, typically including public consultation. 2.

Formal Lodgement

The ‘formal lodgement’ of an access undertaking application will commence a 180 day statutory time period for the ACCC to make a decision. The ACCC expects that a formal access undertaking application will include sufficient information to enable the ACCC to begin its assessment. [page 276] 3.

Assessment

The ACCC will commence assessment of the undertaking application, having regard to the matters specified in the Act. The ACCC will usually conduct public consultation on the application, which may involve publishing the application on the ACCC’s website, calling for submissions from interested parties, and holding meetings with relevant stakeholders. The ACCC may also request further information from the access provider or other parties. 4.

Draft Decision

The ACCC will usually publish a Draft Decision, setting out its preliminary view on whether or not it thinks it is appropriate to accept the proposed undertaking, having regard to the matters specified in the Act, and explaining its reasons for reaching this view. The ACCC may alternatively set out its preliminary view in a Position Paper. The ACCC’s preliminary view is just that; a preliminary view, taking into account all relevant information available up to that point. The ACCC will typically conduct further public consultation on its preliminary view, seeking further submissions from interested parties. The ACCC may consequently revise its preliminary view in light of new or additional information. If the ACCC expresses the preliminary view that an undertaking is not appropriate to accept, the ACCC may also provide guidance to the access provider on possible changes to the undertaking that, if incorporated, might make the undertaking more likely to be acceptable. 5.

Further Assessment

Following publication of the ACCC’s preliminary view, and consideration of any submissions from interested parties, the ACCC will form its decision. 6.

Decision

Having conducted its assessment, the ACCC will make a decision on whether it is appropriate to accept the undertaking, having regard to the matters specified in the Act. The ACCC will publish its decision and its reasons for reaching that decision.

In following this process, s 44ZZBC requires the ACCC to make its decision within the period of 180 days and then publish that decision: s 44ZZBE. If the ACCC does accept an access undertaking, then s 44ZZBA(1) provides that the undertaking will come into operation within 21 days after

the ACCC has published its decision. Decisions by the ACCC concerning access undertakings are subject to review by the Tribunal (s 44ZZBF) upon the application of a person whose interests are affected by the access undertaking decision. However, that person must apply for a review within 21 days after the ACCC has published its decision. Upon review, the Tribunal is empowered by s 44ZZBF(6) and (7) to either affirm or deny the ACCC’s decision.

The relationship between s 46 and Pt IIIA of the CCA 13.31 The decision of the High Court in NT Power Generation Pty Ltd v Power and Water Authority (2004) ATPR 42-021; [2004] HCA 48 clearly indicates that s 46 of the CCA can be deployed as a mechanism enabling a third party to gain access to the services provided by essential infrastructure. Section 46 can continue to operate in this way because s 44ZZNA provides that ‘this Part [Pt IIIA] does not affect the operation of Parts IV and VII’. In these circumstances, the difficult issue is whether and to what extent s 46 and Pt IIIA of the CCA can co-exist. The short answer is that following the decision in NT Power, provided the [page 277] elements can be established, s 46 can in fact be used to create access to facilities in addition to the three access pathways in Pt IIIA of the CCA. The nature and extent of this difficult relationship is explored in several of the articles listed in Further reading at the conclusion of this chapter.

Industry-specific access regimes

13.32 Earlier in this chapter it was noted that the three access pathways established by Pt IIIA of the CCA were generic in nature; that is, the mechanisms in Pt IIIA are applicable across all industries. However, the Commonwealth Government, as part of the COAG framework, has created several industry-specific forms of access regimes. These industry-specific regimes operate independently of the more generic access pathways established by Pt IIIA of the CCA. Industry specific access regimes have been created in relation to the following industries: •







Telecommunications: Pt XIC of the CCA creates a special access regime confined to the telecommunications industry. The Court in Foxtel Management Pty Ltd v ACCC (2000) 173 ALR 362 noted that the special complexity of the telecommunications industry necessitated a customised access regime that operated separately from Pt IIIA of the CCA. Rail Networks: Australia’s interstate rail network is owned by monopoly provider Australian Rail Track Corporation (ARTC). In 2008, the ACCC accepted an access undertaking from the ARTC that provides for third party access to certain interstate networks. Electricity: Deregulation of the electricity industry in the 1990s resulted in the formation of the National Electricity Market (NEM). The NEM is complemented by the National Electricity Law (NEL) that has been adopted by all states and territories through application legislation. The NEM is regulated through the NEL and, in turn, regulated by the Australian Energy Regulator (AER). The AER coexists with the ACCC, but has particular responsibility for administering the economic regulation of electricity distribution throughout Australia. Gas distribution: Australia has a National Gas Law (NGL) defined in s 44B of the CCA as legislation contained in the Gas Pipelines Access (South Australia) Act 2008 (SA). The NGL creates an access regime



that is similar to the NEL in form and function. Airports: In the mid-1990s, most Australian airports were privatised. Access to selected airport services is now regulated by the Civil Aviation Legislation Amendment Act 2003 (Cth), which in turn applies Pt IIIA of the CCA.

Further reading ACCC, Arbitrations — A Guide to Resolution of Access Disputes under the Trade Practices Act 1974 (Cth), April 2006, Commonwealth of Australia J Daniels, ‘Part IIIA of the Trade Practices Act: Reflections After Fortescue’ (2010) 18 CCLJ 165 [page 278] J de Ridder, ‘The Council’s Work under the National Access Regime in 2016 — 2017’ (2017) 25 AJCCL 228 T Jones and S Godden, ‘Is There a Future for Part IIIA After Fortescue?’ (2011) 19 AJCCL 181 L McClurg, ‘Are Gas Processing Facilities “Safe” from Third-Party Access?’ (2016) 24 AJCCL 103. NCC, Declaration of Services: A Guide to Declaration under Part IIIA of the Competition and Consumer Act 2010 (Cth), February 2013, Commonwealth of Australia J Oliver, ‘A Tale of Two Access Regimes: Declaration of Services under Commonwealth and Queensland Third Party Access Legislation’ (2012) 20 CCLJ 84 I Stewart, ‘When Should Competitors Give Their Rivals Access to Services Provided by Facilities of Telecommunications Services?’ (2006) 34 ABLR 322

1. 2.

Independent Committee of Inquiry into National Competition Policy — Report by the Independent Committee of Inquiry, Australian Government Publishing Service, Canberra, 1993, p 244. See .

[page 279]

Chapter 14 Public Enforcement: Policies and Procedures of the Australian Competition and Consumer Commission Overview This chapter is intended to: •

• • •



introduce you to the role of the Australian Competition and Consumer Commission (ACCC) (the Commission) in enforcing Australian competition law as well as its objectives and priorities; consider the ACCC’s Compliance and Enforcement Policy; identify the elements of the ACCC’s ‘compliance pyramid’; explore how the ACCC’s Immunity and Cooperation Policy for Cartel Conduct and its Cooperation Policy for Enforcement Matters integrate with the ACCC’s enforcement strategies; explain the principal information-gathering powers of the ACCC — the ‘search and seizure’ mechanism in Pt XID of the Competition and Consumer Act 2010 (Cth) (CCA) (the Act) and the power under s 155

• •

of the Act enabling the ACCC to seek information, documents and oral evidence; consider the burden of proof that the ACCC must satisfy in taking legal action under the Act; and discuss the ACCC’s obligations under the Commonwealth’s ‘model litigant’ direction in pursuing its enforcement objectives.

Role of the ACCC in enforcing Australian competition law 14.1 Competition and consumer protection law, embodied in the CCA and the Australian Consumer Law (ACL), is regulated and enforced by the ACCC. The ACCC was established by the Competition Policy Reform Act 1995 (Cth) as the successor to the former Trade Practices Commission (TPC). In 2004, the Trade Practices Amendment (Australian Energy Market) Act 2004 (Cth) inserted a new Pt IIIAA into the CCA creating the Australian Energy Regulator (AER). The creation of the AER was motivated by the establishment of the national [page 280] energy market that includes the regulation of electricity and gas transmission and distribution throughout Australia. Although the AER and the ACCC are different Commonwealth regulators, they are both governed by the Act and pursue similar regulatory goals. Both the ACCC and the AER are therefore concerned with ensuring fair, competitive and informed markets in their respective spheres of regulation. Because the Act vests the ACCC with principal responsibility for regulating anti-competitive activity, this chapter will confine its discussion to the enforcement policies and procedures of the ACCC. The governance, management structures, the systems and processes

enabling the ACCC to implement is statutory investigative responsibilities are outlined in its 2013 policy, The Australian Competition and Consumer Commission’s Accountability Framework for Investigations.1

Purpose and function of the ACCC 14.2 Part II of the Act establishes the ACCC generally and outlines its functions and powers. Specifically, s 6A(2) of the Act establishes the ACCC as a body corporate with all the characteristics of a body corporate, including perpetual succession and the right to sue or be sued in its corporate name. 14.3 An interesting feature of Pt II of the Act is the absence of express power given to the ACCC to investigate and collect information concerning alleged contraventions of the Act. As we will see later in the chapter, other Parts of the Act confer power on the ACCC to undertake informationgathering processes. 14.4 The basic purpose and function of the ACCC is explained in its 2016– 2017 ACCC & AER Corporate Plan.2 The Corporate Plan explains that the ACCC is committed to undertaking its ‘core’ responsibilities, described as: 1. 2. 3. 4. 5.

reviewing mergers to prevent structural changes that substantially lessen competition; considering applications for authorisation and notifications; assessing product safety issues that have the potential to cause serious harm to consumers; assisting small businesses and consumers to understand their fair trading rights and obligations; and regulating natural monopoly infrastructure facilities in communication, bulk water, post and transport industries.

Role of the ACCC 14.5 According to the ACCC’s 2016–2017 Annual Report, the ACCC’s role in making markets function more effectively for consumers is achieved by:3



maintaining and promoting competition (Strategy 1) [page 281]







protecting the interests and safety of consumers, and supporting fair trading in markets affecting consumers and small business (Strategy 2) promoting the economically efficient operation of, use of, and investment in infrastructure; and identifying market failure (Strategy 3) promoting efficient investment in, and efficient operation and use of, energy services for the long-term interests of consumers with respect to price, quality, safety, reliability and security (Strategy 4).

14.6 In its 2016–2017 Annual Report the ACCC explains the strategies it employs in achieving these goals:4 Strategy 1: Maintaining and promoting competition To maintain and promote competition, we: Deliverable 1.1 Deliver outcomes to address harm to consumers and businesses resulting from anti-competitive conduct Deliverable 1.2 Assess mergers to prevent structural changes that substantially lessen competition Deliverable 1.3 Make decisions on authorisation, notification and certification trade mark applications in the public interest Strategy 2: Protecting the interests and safety of consumers and supporting fair trading in markets affecting consumers and small business To protect the interests and safety of consumers and support fair trading in markets affecting consumers and small business, we: Deliverable 2.1 Deliver outcomes to address harm to consumers and small businesses resulting from non-compliance with the Australian Consumer Law Deliverable 2.2 Enhance the effectiveness of the ACCC’s compliance and enforcement initiatives through partnerships Deliverable 2.3 Identify and address the risk of serious injury and death from safety hazards in consumer products Deliverable 2.4 Support a vibrant small business sector

Deliverable 2.5 Empower consumers by increasing their awareness of their rights under the Australian Consumer Law Strategy 3: Promoting the economically efficient operation of, use of, and investment in infrastructure; and identifying market failure To promote the economically efficient operation of, use of, and investment in infrastructure and identify market failure, we: Deliverable 3.1 Deliver network regulation that promotes competition in the long-term interests of end users Deliverable 3.2 Provide industry monitoring reports to government in relation to highly concentrated, newly deregulated or emerging markets Deliverable 3.3 Improve the efficient operation of markets by enforcing industry-specific competition and market rules. [page 282] Strategy 4: Promote efficient investment in, and efficient operation and use of, energy services for the long-term interests of consumers with respect to price, quality, safety, reliability and security To promote efficient investment in, and efficient operation and use of, energy services for the long-term interests of consumers with respect to price, quality, safety, reliability and security, we: Deliverable 4.1 Provide effective network regulation Deliverable 4.2 Build consumer confidence in retail energy markets Deliverable 4.3 Support efficient wholesale energy markets

The ACCC’s approach to enforcement 14.7 In February 2017, the ACCC published its Compliance and Enforcement Policy which ‘sets out the principles adopted by the Australian Competition and Consumer Commission to achieve compliance with the law and outlines the ACCC’s enforcement powers, functions, priorities, strategies’.5 As a national regulator of competition and consumer protection law and policy, the ACCC will involve itself with matters of national and international significance. Accordingly, the ACCC will not involve itself with private commercial disputes, it will not settle employment disputes or give legal

advice as to whether certain conduct is legal or not, and it will not pursue issues that are more appropriately dealt with at a state or local level.6 Generally speaking, when it is faced with an apparent breach of the Act, the ACCC’s principal goals are to:7 • •

maintain and promote competition and remedy market failure, and protect the interests and safety of consumers and support fair trading in markets.

With these goals in mind, the ACCC takes action to: • • •

• •

stop unlawful conduct; deter future offending conduct; where possible, obtain remedies that will undo the harm caused by the contravening conduct (for example, by corrective advertising or securing redress for consumers and businesses adversely affected); encourage the effective use of compliance systems; and where warranted, obtain court orders which impose penalties or fines and deter others from breaching the Act.

The ACCC’s ‘compliance pyramid’ 14.8 When it is faced with conduct in breach of the Act, the ACCC does not automatically institute proceedings in the Federal Court to seek the imposition of pecuniary penalties. [page 283] There are a range of enforcement and compliance strategies available to the ACCC. In its 2017 Compliance and Enforcement Policy, the ACCC explains the broad enforcement and compliance strategies which are available to it:8 In ascending order, those strategies are outlined below:

1. 2.

3.

4.

5.

6.

Education, advice and persuasion: It is better to avoid potential breaches of the Act through education and other information campaigns than it is to take legal action after a breach has occurred. Voluntary industry self-regulation, codes and schemes: Individual traders and industry groups are able to implement self-regulatory schemes in the form of codes of conduct. Part IVB of the Act provides for the regulation of industries through codes of conduct. Administrative resolution: Where there has been conduct in breach of the Act and if the risk of harm flowing from the conduct is low, the ACCC may resolve the matter administratively. ‘Administrative resolutions generally involve the trader agreeing to stop the conduct and compensate those who have suffered a detriment because of it, and to take other measures necessary to ensure that the conduct does not recur.’9 Infringement notices: The ACL permits the ACCC to issue ‘infringement notices’ in relation to alleged contraventions of the ACL that are relatively minor. These notices are used for conduct that ‘requires a more formal sanction than an administrative resolution but where the ACCC considers that the matter may be resolved without legal proceedings’.10 Section 87B enforceable undertakings: Section 87B provides that the ACCC can accept enforceable undertakings from a party in breach of the Act. As the name suggests, an enforceable undertaking is a formal agreement whereby the party in breach agrees to undertake certain action to address the breach. The undertaking is court enforceable. Litigation: In the event of a particularly serious breach, the ACCC may institute legal proceedings.

The Compliance and Enforcement Policy indicates that the ACCC also has two additional enforcement strategies: the cooperation policy and the immunity policy for cartels. Let us explore these two policies to see how they ‘fit in’ with the ACCC’s broader enforcement strategies above.

ACCC cooperation policy 14.9 In July 2002, the ACCC published its Cooperation Policy for Enforcement Matters (the cooperation policy) which set out the ACCC’s position in relation to immunity or leniency in circumstances where a potential respondent (individual or corporate) has [page 284] cooperated with the ACCC in responding to allegations of a contravention of Pt IV of the Act. The cooperation applies only to civil contraventions of Pt IV of the Act. It does not apply to the cartel regime in Pt IV Div 1 since that Division establishes a criminal regime. Discretion in relation to criminal contraventions of the Act rests with the Commonwealth Director of Public Prosecutions (CDPP). Where a director or corporation is able to take advantage of the cooperation policy, the recognition of that cooperation may take the form of either complete or partial immunity from action by the ACCC, administrative settlement of the contravention or a submission to the court for a reduction in the penalty to be imposed in respect of the contravention. Clearly, there are advantages for a corporation and its directors in seeking to invoke the cooperation policy. Rather than contest a long and expensive court case, the ACCC encourages compliance through ‘rewarding’ selfdirected admissions of contraventions of the Act. The ACCC decides whether and to what extent the cooperation policy will be activated to the benefit of a director or corporation.

Leniency for individuals 14.10

The cooperation policy:

… applies to directors, managers, officers or employees of a corporation who come to the Commission as individuals and not on behalf of a corporate entity with evidence of conduct contravening the Trade Practices Act (or other legislation administered by the Commission). Leniency, including immunity, is most likely to be considered appropriate for individuals who: • • • • •

come forward with valuable and important evidence of a contravention of which the Commission is either otherwise unaware or has insufficient evidence to initiate proceedings provide the Commission with full and frank disclosure of the activity and relevant documentary and other evidence available to them undertake to cooperate throughout the Commission’s investigation and comply with that undertaking agree not to use the same legal representation as the firm by which they are employed have not compelled or induced any other person/corporation to take part in the conduct and were not a ringleader or originator of the activity.

Immunity would not be granted where the person seeking leniency has compelled or induced any other person/corporation to take part in the conduct or was a ringleader or originator of the activity.11

Leniency for corporations 14.11

Under the policy:

Leniency is most likely to be considered for a corporation which: •

comes forward with valuable and important evidence of a contravention of which the Commission is otherwise unaware or has insufficient evidence to initiate proceedings [page 285]

• •

• • • •

upon its discovery of the breach, takes prompt and effective action to terminate its part in the activity provides the Commission with full and frank disclosure of the activity and all relevant documentary and other evidence available to it, and cooperates fully with the Commission’s investigation and any ensuing litigation has not compelled or induced any other corporation to take part in the anti-competitive agreement and was not a ringleader or originator of the activity is prepared to make restitution where appropriate is prepared to take immediate steps to rectify the situation and ensure that it does not happen again, undertakes to do so and complies with the undertaking does not have a prior record of Trade Practices Act, or related, offences.

Immunity would not be granted where the corporation seeking leniency has compelled or induced any other person/corporation to take part in the conduct or was a ringleader or

originator of the activity.12

Immunity policy for cartel conduct 14.12 Cartel conduct is notoriously difficult to detect and to establish to the satisfaction of the court. For this reason, the discovery of cartel conduct is usually more difficult than other forms of anti-competitive conduct, such as resale price maintenance (RPM). Recall from Chapter 10 that in many RPM cases, there was an actual email or letter from the supplier to the retailer specifying the price that was to be maintained. This sort of documentation is rarely found in cartel conduct and the ACCC must rely on inferential evidence. For example, in 2006, the chair of the ACCC explained that: Investigations into cartels are some of the most complex and difficult investigations that the Commission undertakes. In a typical investigation, the ACCC will usually gather information about communication between competitors (eg by analysing telephone records and e-mails). An example from one recent case … the ACCC analysed more than 20 archive boxes of telephone call records. This revealed more than 1600 calls between competitors.13

An effective immunity policy can provide clear incentives for corporations and individuals to disclose cartel conduct to the ACCC. An immunity policy also acts to deter the creation of new cartels because of the greater risk of detection. 14.13 Accordingly, in July 2009, the ACCC initially published its Immunity Policy for Cartel Conduct. That policy document was very brief, comprising only 21 paragraphs. It was intended to be read with another policy titled: ACCC Immunity Policy Interpretation Guidelines 2009. After some years of engagement, both 2009 Policies were repealed and in 2014, a new policy was released in September 2014. The revised policy is titled ACCC Immunity and Cooperation Policy for Cartel Conduct (the cartel immunity policy). It applies only to ACCC-initiated civil proceedings in relation to cartel conduct. This is because criminal proceedings under Pt IV Div 1 of the Act are undertaken by the CDPP and not the ACCC. The CDPP has its own

policy regarding immunity in criminal matters. The cartel [page 286] immunity policy has yet to be updated to reflect the amendments introduced by the Competition and Consumer Amendment (Competition Policy Review) Act 2017. However, I have incorporated these amendments into the explanation of this policy below. The cartel immunity policy will apply to: • •

civil action taken under ss 45AJ and 45AK within Pt IV Div 1; or civil action taken under s 45(1).

The conditions that must be met in order for a corporation to invoke the cartel immunity policy are set out in paragraphs 15 and 16 of that policy: Corporate immunity from proceedings 15. A corporation may apply for immunity under this section of the policy. 16. A corporation will be eligible for conditional immunity from ACCC-initiated civil proceedings where: (a) it applies for immunity under this policy and satisfies the following criteria: (i) the corporation is or was a party to a cartel, whether as a primary contravener or in an ancillary capacity (ii) the corporation admits that its conduct in respect of the cartel may constitute a contravention or contraventions of the CCA (iii) the corporation is the first person to apply for immunity in respect of the cartel under this policy (iv) the corporation has not coerced others to participate in the cartel (v) the corporation has either ceased its involvement in the cartel or indicates to the ACCC that it will cease its involvement in the cartel (vi) the corporation’s admissions are a truly corporate act (as opposed to isolated confessions of individual representatives) (vii) the corporation has provided full, frank and truthful disclosure, and has cooperated fully and expeditiously while making the application, and undertakes to continue to do so, throughout the ACCC’s investigation and any ensuing court proceedings, and (b) at the time the ACCC receives the application, the ACCC has not received written legal advice that it has reasonable grounds to institute proceedings in relation to at least one contravention of the CCA arising from the conduct in respect of the cartel.

Similar considerations apply to applications by individuals for immunity

in respect of their participation in cartel conduct.

Information-gathering powers 14.14 The Act provides the ACCC with two very powerful mechanisms for gathering information during the investigation of alleged contraventions of the Act. Information is employed by the ACCC from as early as a preliminary consideration of the conduct complained of, through to its eventual use in an agreed statement of facts in support of penalty submissions to the court. First, s 154X (contained in Pt XID of the Act) enables ACCC officers to obtain a search warrant authorising them to enter premises to search for, copy and remove ‘evidential [page 287] material’; that is, documents or other things that may afford evidence relating (inter alia) to a breach of the Act. Part XID is a ‘search and seizure’ regime. Second, s 155 (contained in Pt XII of the Act) permits the ACCC to issue a notice to a person to provide answers to questions, to provide documents, to attend and give evidence on oath, or a combination of these three, if the Commission has ‘reason to believe’ that the person is capable of producing information in relation to a matter that either constitutes, or may constitute, a breach of the Act.

The ‘search and seizure’ regime — Pt XID 14.15 Part XID was inserted into the Act by the Trade Practices Legislation Amendment Act (No 1) 2006 (Cth), following the 2003 report of the Dawson Review into the competition provisions of the Act. 14.16

Prior to the amendment, s 155(2) of the TPA enabled officers of the

ACCC to enter premises, inspect any documents and to make copies extracts. The subsection did not empower the ACCC to use force to gain entry to premises, or to seize documents or objects and take them away. While the power was exercised sparingly, the ACCC was sometimes accused of a lack of impartiality in the issuing of an authority to enter premises, and of unreasonableness in the execution of the authority. Accordingly, the Dawson Committee recommended that s 155(2) be amended to enable the ACCC to search for and seize documents and to require that the ACCC seek a warrant from a Federal Court judge or magistrate to exercise that power.14 14.17 Part XID became operative from 1 January 2007 and provides that an ‘inspector’ appointed by the chairperson of the ACCC may apply for a search warrant from a magistrate, authorising entry into premises for the purpose of searching for and seizing ‘evidential material’. The ACCC’s 2016– 2017 Annual Report notes (at p 312) that two search warrants were issued by a magistrate under s 154X. These warrants were unchallenged. There are two possibilities anticipated by Pt XID for the use of the search and seizure powers.

Entry to premises with consent 14.18 The first possibility involves the inspector entering premises with the consent of the occupier. No search warrant is required. Pursuant to s 154D(1), an inspector may enter premises if the Commission, the chairperson or the deputy chairperson of the ACCC ‘has reasonable grounds for suspecting that there may be evidential material on the premises’ and ‘the inspector obtains the consent of the occupier of the premises to enter’. However, before entering the premises, s 154D(3) requires the inspector to first inform the occupier that he or she may refuse consent to enter.

[page 288] 14.19 One uncertainty that has been noted in relation to the issue of consent15 involves the situation where the occupier withdraws consent after the inspector has already entered the premises and begun collecting evidential material. The answer is that the inspector must leave the premises. Since no search warrant was obtained, the initial entry to the premises was gained by licence of the occupier. Once that licence to enter and remain is withdrawn, the inspector must leave or potentially be exposed to liability for trespass.

Entry to premises without consent 14.20 Where an occupier does not consent to an inspector entering premises, or withdraws consent after initially permitting entry to the premises, then s 154X of the Act permits the ACCC inspector to apply to a magistrate for a warrant to enter and search the premises. Pursuant to s 154X(2), the magistrate may issue the warrant if he or she ‘is satisfied, by information on oath or affirmation, that there are reasonable grounds for suspecting that (a) there is evidential material on the premises or (b) there may be evidential material on the premises within the next 72 hours’. If the matter is very urgent, s 154Y permits an inspector to apply for a warrant by telephone, fax or other electronic means.

Legal professional privilege 14.21 Curiously, Pt XID does not expressly preserve legal professional privilege. Can the ACCC inspector search and seize documents that contain communications that are the subject of legal professional privilege? The issue is important because s 154R provides for penalties if a person at the premises fails to comply with a request to answer questions or to produce evidential material to which the warrant relates. As we will see below, until recently s 155 of the Act was also silent as to

legal professional privilege. However, the High Court in Daniels Corporation International Pty Ltd v ACCC (2002) 213 CLR 543; 192 ALR 561; [2002] HCA 49 determined that s 155 did not abrogate legal professional privilege. Despite this decision, Pt XID contains a different legislative scheme to s 155. I suspect that if the issue ever arose, the court would find a ‘necessary implication’ to the effect that Pt XID did not intend to abrogate legal professional privilege.

The s 155 regime — Pt XII 14.22 By far the most common formal mechanism by which the ACCC gathers information involves the mechanism in s 155 of the Act which allows the Commission to gather information for use in civil and criminal litigation involving breaches of the Act. In its 2016–2017 Annual Report, the ACCC notes that it issued: • •

135 notices under s 155(1)(a) and (b) (requiring the addressee to furnish information in writing and to produce documents); 11 notices under s 155(1)(a) (requiring the addressee to furnish information); [page 289]

• •

45 notices under s 155(1)(b) (requiring the addressee to produce documents); and 36 notices under s 155(1)(c) (requiring the addressee to appear in person and give evidence.16

Overview of legislation 14.23 Section 155(1) of the Act provides (inter alia) that where the Commission, the ‘chairperson or the deputy chairperson [of the ACCC] has reason to believe that a person is capable of furnishing information, producing documents or giving evidence relating to a matter that constitutes, or may constitute a contravention of [the] Act’ (emphasis added), a member of the Commission may issue a notice requiring the person: •

to furnish information by writing within the time and in the manner

• •

specified (s 155(1)(a)); to produce documents specified in the notice to the Commission or to a person specified in the notice (s 155(1)(b)); to appear before the Commission, or before a member of the staff assisting the Commission who is a Senior Executive Service (SES) employee or acting SES employee who is specified in the notice at a time and place specified in the notice to give evidence, either orally or in writing, and produce documents (s 155(1)(c)).

Section 155(5) provides that a person shall not ‘refuse or fail to comply’ with a s 155 notice, or ‘knowingly furnish information or give evidence that is false or misleading’. Section 155(7) expressly provides that a person is not excused from furnishing information, producing documents or permitting the inspection of a document on the ground that the information or document may tend to incriminate the person. However, s 155(7B) provides that a person is excused from producing a document that would disclose information that is the subject of legal professional privilege.

ACCC’s common law power to question 14.24 Officers of the ACCC have power at common law, like all citizens, to ask questions about particular matters. The High Court in Clough v Leahy (1904) 2 CLR 139 stated (at 156–7): The power of inquiry, of asking questions, is a power which every individual citizen possesses, and, provided that in asking these questions he does not violate any law, what Court can prohibit him from asking them?

However, the obvious limitation of this general power in the context of an investigatory authority was pointed out by the High Court in Huddart Parker & Co Pty Ltd & Appleton v Moorehead (1909) 8 CLR 330, which said ‘[it] is of little value unless it has behind it the authority to enforce answers and to compel the discovery and production of documents’: at 377.

[page 290]

Role and importance of s 155 of the Act 14.25 The role and utility of the s 155 power was put forcefully by Pagone, who stated: Section 155 of the Trade Practices Act gives the Commission very broad powers of investigation. The section has rightly been described as the ‘lynchpin’ of the Commission’s enforcement role: ‘without it the Commission would be sterile’. The role of the courts in this context is to maintain the delicate balance between conflicting social objectives. Without effective powers of investigation the Commission will not be able to discharge its public duty of implementing and maintaining the standards of market practices laid down in the Act, and the courts must strive to ensure that the Commission’s task is not made too difficult.17

14.26 These comments have been mirrored by both the Federal and High Courts in many decisions. In Melbourne Home of Ford Pty Ltd v Trade Practices Commission (1979) ATPR 40-107, the Federal Court stated (at 18,084): Part XII is obviously designed by Parliament to confer upon the Commission the authority to seek and obtain information from corporations and others for the purpose of facilitating the enforcement of the Act by legal process. So important did Parliament consider this function that it authorised the Commission to seek and obtain such information even from those suspected of contraventions of the Act and even where, in supplying it, the persons concerned may make incriminating admissions.

In Pioneer Concrete (Vic) Pty Ltd v Trade Practices Commission (1982) 152 CLR 460, the High Court stated (at 472): Its purpose, and this will have a bearing on its construction, is to aid the Commission in the discharge of its functions under the Act. These functions include the investigation of alleged breaches, the acquisition of information and the obtaining of evidence for submission to the Court in proceedings in respect of contravention.

Remember that when competitors create cartels and other anticompetitive arrangements, they do not usually publicise the fact. Hence, the then TPC’s 1981—1982 Annual Report notes that s 155 has been effective in investigations into price-fixing arrangements between competitors which are ‘typically arrived at in conditions of utmost secrecy’.18

The High Court reflected these comments a year later in Pyneboard Pty Ltd v Trade Practices Commission (1983) 152 CLR 328; (1983) ATPR 40-341 at 44,106: Without obtaining information, documents and evidence from those who participate in contraventions of the provisions of Pt IV of the Act, the Commission would find it virtually impossible to establish the existence of those contraventions. The consequence would be that the provisions of Pt IV could not be enforced by successful proceedings for a civil penalty under s 76(1).

These comments were later adopted by the Full Federal Court in Kotan Holdings v Trade Practices Commission (1991) 30 FCR 511; (1991) ATPR 41134 at 52,960. [page 291] As Spier notes: This power has been used extensively by the [TPC] and has been the subject of much litigation over some 20 years. Most of the litigation upheld the TPC’s powers and at the same time, defined and clarified them.19

14.27 These decisions consistently emphasise that the power conferred by s 155 is to be construed widely in order to enable the ACCC to fulfil its statutory function. The Court in Trade Practices Commission v Allied Mills Industries Pty Ltd (1981) ATPR 40-204 at 42,864 stated that ‘the powers conferred by the section ought not to be regarded as restrictive of the Commission’s function but rather as enabling provisions empowering the Commission more expeditiously to carry out its function’. Accordingly, the Court in Melbourne Home of Ford Pty Ltd v Trade Practices Commission (No 3) (1980) ATPR 40-174 at 42,411 stated: ‘The power conferred by s 155(1) … [is] a power which authorise[s] enquiries both wide in scope and indefinite in subject matter’.

Administrative, not judicial, power

14.28 Generally, powers of investigation conferred on a statutory authority are administrative in nature and do not involve the exercise of judicial power. Accordingly, s 155 is an administrative power conferred on the Commission to enable it to conduct investigations into alleged contraventions of the Act. In WA Pines Pty Ltd v Bannerman (1980) ATPR 40-144 at 42,097, Toohey J stated: ‘A notice under s 155 is an administrative act not part of a judicial or quasi-judicial function’.

ACCC’s approach to use of s 155 notices 14.29 In January 2018, the ACCC published ACCC Guidelines — Use of s 155 Powers (s 155 Guidelines) intended to: ‘relate to the exercise of the (ACCC’s information gathering) powers in connection with the ACCC’s functions, with a particular focus on the use of s 155 powers in the ACCC’s enforcement and merger activities. As the circumstances of an informal merger review process can vary from a typical enforcement investigation, these guidelines refer to the use of s 155 powers in the course of a merger review where relevant’.20 Under the s 155 Guidelines, the ACCC states that it obtains most of its information through public and voluntary means. However, it also notes that in some circumstances the voluntary production of information is not appropriate. These circumstances include:21 1.

2.

it is important for the ACCC’s decision making on investigations to have confidence that it has full and complete information on key issues in circumstances where voluntary requests will not deliver the same confidence; a party may have previously failed to respond or respond fully to a voluntary request; [page 292]

3. 4.

5.

6.

7. 8. 9.

a party is unable to cooperate because of legal or confidentiality restrictions on disclosure; a third party requests that the information or documents be compulsorily required to avoid being seen to be cooperating freely with the ACCC and to be protected from possible retaliation from the party that is the subject of an ACCC investigation; the ACCC has obtained information from other sources (including market enquiries) that is inconsistent with the information voluntarily provided by the party under investigation or subject to an informal merger review; the ACCC has concerns that a voluntary request will be met with delays or protracted negotiations impacting on the ACCC’s ability to carry out its functions and appropriately act to address any competitive or consumer harm; a party does not want to cooperate with the ACCC; critical information required by the ACCC will be most efficiently sought through the use of a s 155 notice; and the ACCC has a particular forensic reason to issue a s 155 notice.

Factors relevant to the issue of a s 155 notice 14.30 There are a number of procedural requirements which the ACCC must satisfy before it can validly issue a s 155 notice.

Reason to believe 14.31 Before a s 155 notice can be issued, the ACCC, the chairperson or deputy chairperson (of the ACCC) must have ‘reason to believe’ that the recipient of the notice is capable of providing documents or information relating to a matter that constitutes, or may constitute, a contravention of the Act. This requirement, imposed by s 155(1), contains three elements. The Commission, the chairperson or deputy chairperson:

1. 2. 3.

must have ‘reason to believe’; that a person is capable of furnishing information, producing documents or giving evidence; relating to a matter that constitutes or may constitute a contravention of the Act or is relevant to a wide range of decision matters referred to in s 155(2).

Litigation during the 1970s and 1980s developed several principles in the interpretation of ‘reason to believe’, as outlined below.

‘Reason to believe’ is a condition precedent to the exercise of s 155 power 14.32 The statutory requirement that the Commission chairperson or deputy chairperson must have the appropriate ‘reason to believe’ must be satisfied before s 155 notices can be validly issued. Accordingly, the Full Court in Melbourne Home of Ford Pty Ltd v Trade Practices Commission (1979) ATPR 40-107 at 18,100, stated that: ‘[i]t is sufficient to say that satisfaction of the requirement of “reason to believe” is in the nature of a condition precedent to the exercise of the statutory power to give a notice under s 155(1) of the Act’. [page 293]

‘Reason to believe’ relates to the ability of the recipient to provide information, not to the belief that a contravention has occurred 14.33 It is clear that the chairperson does not have to have reason to believe that a contravention of the Act has occurred. The Full Federal Court in WA Pines Pty Ltd v Bannerman (1980) ATPR 40-163 stated that the requisite belief (at 42,258): … is that the person to whom the notice is to be given is capable of furnishing information, producing documents or giving evidence relating to the facts known or suspected. It is not necessary that he should believe that the information documents or evidence will establish or

tend to establish a contravention, but merely that they relate to the matter. Information documents and evidence which tend to negative a suspected contravention or liability to conviction or which tend to exculpate a person suspected to be a party to a contravention or offence are as much within the ambit of s 155(1) as information documents or evidence which tend in the other direction. Thus, an enquiry under s 155 may relate to a defence or possible defence under s 85.

Accordingly, ‘the belief relates to the ability to provide information and not that an offence has been committed’.22 A useful summary of these principles was provided in TNT Australia Pty Ltd v Fels (1992) ATPR 41-190. In considering a challenge by TNT Australia to several s 155 notices issued by the TPC, the Court distilled the following principles (at 40,598–9): • •







The expression ‘reason to believe’ ‘states a condition precedent to the valid imposition of requirements under the section’. What is involved is, therefore, ‘both an actual belief and a proper basis in fact for that belief, in the sense that there must be reasonable grounds or cause for that belief’. The belief ‘must relate to the capacity of the addressee of the notice to furnish, produce or give the information, document or evidence sought’. There was no statutory requirement that the TPC (now the Commission), chairperson or deputy chairperson should have believed that there had been, or may have been, a contravention of the statute. The phrase ‘relating to a matter’ refers to ‘a body or complex of facts that constitute or may constitute contraventions’.

Purpose of issue of a s 155 notice 14.34 In terms of the purpose for which a s 155 notice is issued, the Court in Kotan Holdings Pty Ltd v Trade Practices Commission (1991) 30 FCR 511; (1991) ATPR 41-134 stated the following: •

The power to issue a notice must be used in good faith for the purpose



for which it was conferred; that is, the performance of the Commission’s functions under the Act. Regard should be had to the effect the exercise of the power will have upon those affected by its issue. [page 294]

• • •

The power must not be exercised for a collateral purpose or without regard to the burden it would impose upon the recipient. The inquiry the subject of the notice must relate to is a matter that constitutes, or may constitute, a contravention of the Act. Valid purposes for issuing a s 155 notice, therefore, include: – –

to provide the Commission with admissible evidence intended to be tendered in anticipated legal proceedings; and to obtain evidence to be used in penalty proceedings on the question of the quantum of any penalty.

Principles of construction — s 155 14.35 A number of principles in relation to the exercise of the power under s 155 of the Act can be extracted from the decisions of the Courts in Riley McKay Pty Ltd v Bannerman (1977) ATPR 40-036 and SA Brewing Holdings Ltd v Baxt (1989) 23 FCR 357; (1989) ATPR 40-967. These principles have been developed in response to a variety of challenges to the validity of s 155 notices issued by the ACCC and its predecessor, the TPC. Invariably, the challenges related to the construction and interpretation of s 155 itself. Accordingly, these principles should be read in the context of the construction of s 155: •

The power to require information under s 155 must be exercised for the purpose of assisting the Commission in the exercise of its



• •



• •







functions and not otherwise. The Commission, chairperson or deputy chairperson must have reason to believe that a person has information relating to a matter that constitutes, or may constitute, a contravention of the Act. The information requested must relate to and specify the matter which may constitute a contravention. Matter is to be construed in its ordinary sense of an affair or thing that refers to a body of facts which constitutes, or may constitute, a contravention of the Act. The notice must disclose the necessary relationship between the information sought and the matter in respect of which it is sought. This requires a sufficient description of the matter to enable the disclosure of this relationship to be discerned — ‘the entitlement disclosure condition’. A notice requiring information must specify the information sought with sufficient detail to enable the recipient to know what is required. The mere fact that compliance with a requirement to furnish information or to produce documents would be burdensome will not invalidate the notice. Mere uncertainty or ambiguity will not invalidate a s 155 notice, and an over-technical or hypercritical approach to its construction should not be taken. Section 155 notices will, therefore, be reasonably and not preciously construed. It is not appropriate for the Commission to seek information which would require the recipient to give an interpretation of a document, except where the explanation of symbols, codes and so on may be necessary. Because it is part of the Commission’s function to be concerned as to whether proceedings should be brought under the Act, the Commission will be interested as

[page 295]



to whether there is a possible defence under s 85(1). It is, therefore, proper to direct inquiries under s 155 to such defences. A notice may be directed to a body corporate itself, but where a question seeks information as to awareness, knowledge or belief, the question should refer to particular officers, directors and certain employees.

Prima facie obligation to comply with a s 155 notice 14.36 The intention of parliament is that s 155 cast a prima facie obligation on recipients of s 155 notices to answer them. In Melbourne Home of Ford Pty Ltd v Trade Practices Commission (1979) ATPR 40-107, Smithers J stated (at 18,087): One aspect of the substantive law is that pursuant to s 155(1) and (5) of the Act the obligation of the recipient of a notice served on him is to comply with the requirements of that notice … The prima facie duty to comply with a notice complete and regular on its face must be recognised. Also the burden of showing invalidity will rest on the party so alleging it. Where the issue is whether the chairman had the requisite reason to believe the relevant matters the validity of the notice will not be impugned until there is satisfactory evidence that he did not have such reason to believe.

It is, therefore, not necessary for a s 155 notice to disclose the grounds on which the required reason to believe is held by the chairperson. Several decisions in the late 1970s and early 1980s involved challenges to s 155 notices on the basis that the chairperson of the then TPC did not have the requisite reason to believe. These arguments were generally not favourably received. In Melbourne Home of Ford Pty Ltd v Trade Practices Commission, above, Smithers J found that, as part of the prima facie validity of s 155 notices, the duty to comply with its terms arose without proof of the validity of the notices (at 18,084): Parliament’s intention would be frustrated if the obligation of the person to whom a notice is

directed arose not on the receipt of the notice but only after the recipient or the court was satisfied that the chairman in issuing the notice had the specified reason to believe.

Privilege against self-incrimination/exposure to penalty 14.37 It is now well established that a recipient of a s 155 notice cannot refuse to answer on the grounds that to do so would involve the provision of self-incriminating material, or material that might expose the recipient to a penalty. Section 155(7) specifically provides that a person is not excused from furnishing information or producing or permitting the inspection of a document ‘on the ground that the information or document may tend to incriminate the person’. Section 155(7) makes no distinction between self-incrimination and the related privilege against exposure to a civil penalty. In Melbourne Home of Ford Pty Ltd v Trade Practices Commission, above, the Court stated (at 18,083): It is my view that s 155(7) of the Act on its proper construction effectively declares that the privilege of refusing to answer questions, the answers to which may expose the person concerned to conviction for crimes or the imposition of a pecuniary penalty, is abolished in [page 296] relation to the furnishing of information or production of documents in response to a notice under s 155(1) of the Act.23

The substantial limitation on the use to which incriminating evidence can be put by the ACCC is contained in s 155(7). That section provides that information obtained in response to s 155 notices is not admissible in evidence against a natural person in any criminal proceedings other than proceedings under or relative to s 155. Material is not admissible in evidence against a corporate respondent in any criminal proceedings other than

proceedings under the Act.

Legal professional privilege 14.38 The decision of the High Court in Daniels Corporation International Pty Ltd v ACCC (2002) 213 CLR 543; 192 ALR 561; [2002] HCA 49 determined that s 155 of the Act did not abrogate legal professional privilege/client legal privilege. Section 155 was subsequently amended to include s 155(7B) which provides that a person is not required to produce a document which would disclose information that is the subject of legal professional privilege.

The ACCC’s burden of proof in Pt IV enforcement 14.39 Part IV of the CCA does not provide for the consequences for a breach of one of its sections. The consequences for a breach of a provision of Pt IV are found in Pt VI of the Act (Enforcement and Remedies). Section 76 of the Act provides that the Federal Court can impose a pecuniary penalty for a contravention of most of the provisions of Pt IV of the Act. There are certain exceptions, the most relevant being ss 45AF and 45AG concerning the making of, and giving effect to, a ‘cartel provision’. The ACCC is then empowered under s 77 of the Act to institute proceedings in the court for the recovery of a pecuniary penalty, referred to in s 76, on behalf of the Commonwealth. When the ACCC seeks the imposition of pecuniary penalties for alleged contraventions of a provision of Pt IV of the Act, the proceedings are civil in nature — s 78 expressly provides that criminal proceedings cannot be brought against a person for contraventions of Pt IV of the Act (other than ss 45AF and 45AG ). This position stands in contrast to s 79 of the Act which permits the court to impose fines on a person in criminal proceedings for contraventions of a

provision of Pt VC (Criminal Consumer Protection Regime) and a ‘cartel offence provision’ defined in s 45AF or s 45AG contained in Pt IV Div 1 of the Act. We will first consider the civil standard of proof before moving on to the criminal standard of proof. [page 297]

Standard of proof in civil litigation 14.40 It has always been recognised that when the ACCC institutes proceedings seeking the imposition of pecuniary penalties for a breach of Pt IV of the Act, it has to prove its case on the civil ‘balance of probabilities’ standard. The classic statement of the civil standard of proof outlined in Briginshaw v Briginshaw (1938) 60 CLR 336 at 347 was readily adopted in the context of civil proceedings instituted by the then TPC.24 However, the courts have indicated that even though they will consider the ACCC’s case on the civil balance of probabilities, they will nevertheless have regard to the gravity of the consequences of a breach of a provision of Pt IV of the Act.25 14.41 The practical consequence of such comments was put by Corones who suggests: ‘This is an important consequence in cases where there is no direct evidence of an alleged contravention and the court is asked to draw an adverse inference against one or more of the respondents’.26 This distinction was referred to by the Full Court in Heating Centre Pty Ltd v Trade Practices Commission (1986) 9 FCR 153; (1986) ATPR 40-674; 65 ALR 429, where Pincus J stated (ATPR at 47,421): Whatever may be the reason for the distinction, the position is that the Act clearly characterises proceedings under s 76 as civil; see s 78 and contrast with s 79, while equally characterising proceedings for a penalty in respect of a breach of Pt V of the Act as criminal proceedings. In so doing, Parliament must be taken to have intended that the court would apply the respective

standards of proof applicable to each category. It is, of course, an attribute of civil proceedings that the necessary facts must be proved on the balance of probabilities, but, of course, taking into account the gravity of the matters alleged …

14.42 The locus classicus for the proposition that the civil standard of proof requires a person to prove their case on the balance of probabilities stems from the decision of the High Court in Briginshaw v Briginshaw, above. During the course of its judgment, the Court stated (at 361–2) that the seriousness of the allegation made would contribute to the question of whether the standard of proof had been satisfied in a given case. 14.43 This carries particular relevance to litigation which involves the ACCC. It has been a consistently noted feature of ACCC litigation involving the imposition of pecuniary penalties that the court will have regard to the seriousness or ‘gravity’ of the allegations. The issue becomes practically relevant in two circumstances: 1. 2.

What is the degree of satisfaction required before the ACCC can be said to have established its case on the balance of probabilities? How does the seriousness of ACCC proceedings affect a court’s willingness to draw inferences of collusive behaviour in Pt IV litigation? [page 298]

What degree of satisfaction is required? 14.44 In the early decision in Trade Practices Commission v Ansett Transport Industries (Operations) Pty Ltd (1978) ATPR 40-071, the Court considered the first circumstance at 14.43 above. Although not making a definitive pronouncement, the Court stated (at 17,720): In the present case the civil standard of proof is to be applied, but I keep in mind the gravity of the consequences resulting from a finding that the acquisition of the shares constitutes a contravention of s 50 of the Act.

Some colour to the proposition was given by the Court in Trade Practices Commission v Nicholas Enterprises Pty Ltd (No 2) (1978) ATPR 40-126, where his Honour stated (at 18,352): I accept the submission of counsel for the defendants … that I should pay regard to the gravity of the matters in issue on the ground that the graver the allegation the greater should be the strictness of proof required.

This view cannot be taken so far as to suggest that the distinction between the standards of proof in civil and criminal trade practices litigation is minimal or meaningless. In Heating Centre Pty Ltd v Trade Practices Commission (1986) 9 FCR 153; (1986) ATPR 40-674; 65 ALR 429, the TPC alleged contraventions of the RPM provisions of Pt IV of the Act. Although involving civil litigation, it was argued on behalf of the Heating Centre that (ATPR at 47,431): … if the criminal standard [of proof] was not applicable, then, in view of the penalties imposed, the civil standard should have been so modified in favour of the appellant [The Heating Centre] as to be very little different from the criminal standard.

In rejecting this suggestion, the Court adopted a passage from the decision of the High Court in Rejfek v McElroy (1965) 112 CLR 517 in which the High Court held (at 521–2): The difference between the criminal standard of proof and the civil standard of proof is no mere matter of words; it is a matter of critical substance. No matter how grave the fact which is to be found in a civil case, the mind has only to be reasonably satisfied and has not with respect to any matter in issue in such a proceeding to attain that degree of certainty which is indispensable to the support of a conviction upon a criminal charge …

Application to inferences of collusive behaviour 14.45 The second circumstance has practical relevance when the ACCC invites the court to draw inferences that competitors have formed an arrangement or understanding in breach of either Div 1 or Div 2 of Pt IV of the Act. As Corones notes, this might commonly occur where the ACCC has ‘no direct evidence of an alleged contravention and the court is asked to draw an adverse inference against one or more of the respondents’.27 In Trade Practices Commission v Nicholas Enterprises Pty Ltd above, the

TPC had alleged that the respondents had entered into a collusive arrangement in breach of s 45 of the TPA to fix the price of beer. It was alleged the arrangement was made at a lunch arranged by one of the brewers. [page 299] It was argued on behalf of the respondents that, given the serious nature of the action by the TPC, the court should be influenced in its determination of whether the TPC had established its case. Justice Fisher considered (at 18,353): It seems to me therefore that in so far as these proceedings are civil in nature, I should be more prepared to draw the inference sought by the plaintiff than if they were criminal.

However, the Court approved a passage from a 1951 unreported decision of the High Court in Bradshaw v McEwans Pty Ltd, cited in Luxton v Vines (1952) 85 CLR 352 at 358. In Bradshaw, the Court observed: The difference between the criminal standard of proof and the civil is that in the former, the facts must be such as to exclude reasonable hypotheses consistent with innocence, while in the latter you need only circumstances raising a more probable inference in favour of what is alleged. In questions of this sort, where direct proof is not available, it is enough if the circumstances appearing in evidence give rise to a reasonable and definitive inference: they must do more than give rise to conflicting inferences of equal degrees of probability so that the choice between them is a mere matter of conjecture … But if circumstances are proved in which it is reasonable to find a balance of probabilities in favour of the conclusion sought then, though the conclusion may fall short of certainty, it is not to be regarded as mere conjecture or surmise.

The principles have been consistently employed in trade practices litigation and the reader is referred to the decisions in Trade Practices Commission v Nicholas Enterprises Pty Ltd (No 2) (1978) ATPR 40-126 and Australian Competition and Consumer Commission v Amcor Printing Papers Group Ltd (2000) ATPR 41-749; [2000] FCA 17. 14.46 The reception of these principles into trade practices litigation has practical significance in that if a witness provides the court with an alternative explanation for parallel conduct, then it is unlikely that the court will be

prepared to accept inferential evidence from the ACCC that the behaviour amounts to a collusive arrangement in breach of s 45: Trade Practices Commission v Nicholas Enterprises Pty Ltd. This was the basis of the finding of the Court in Australian Competition and Consumer Commission v Amcor Printing Papers Group Ltd, above. The ACCC had alleged that Amcor, Visy Paper and a number of executives had entered into a collusive arrangement in breach of s 45 of the Act. At the close of the ACCC’s evidence, the respondents advanced a no case submission. The Court repeated the principle that (at 40,678): … in determining what inferences should be drawn from the primary facts, it is necessary to have regard to the seriousness of the allegations made against the respondents and the gravity of the consequences of adverse findings against them … in civil proceedings where the applicant’s case rests on inferences from primary facts, it is not enough for the circumstances to give rise to conflicting inferences of equal degrees of probability.

The Court considered that an alternative explanation did, in fact, exist to explain certain communications that had taken place between the respondents. Accordingly, the Court refused to draw the inferences alleged by the ACCC. [page 300]

How does the ACCC satisfy the burden of proof in civil litigation? 14.47 When it institutes civil proceedings for alleged contraventions of the Act, the ACCC must satisfy both a legal burden of proof and an evidential burden of proof. In Australian Competition and Consumer Commission v Golden Sphere International Inc (1998) 83 FCR 424; (1998) ATPR 41-638 at 41,054–5, the Court provided an excellent discussion of the burdens placed on the ACCC in conducting civil litigation. The Court made several observations which can be summarised as follows:

• •











When the court is requested by the ACCC in its application and statement of claim to grant certain relief, the court must be satisfied that material facts exist to justify granting that relief. In substantiating those facts, the ACCC must discharge two burdens: first, it must adduce evidence of those facts and, second, it must persuade the court that those facts actually occurred. The first burden is called the legal burden and it requires the ACCC to satisfy the requirement in law that a fact in issue is proved by a preponderance of evidence in civil litigation, or beyond reasonable doubt in criminal litigation. The second burden is called the evidential burden and it requires the ACCC to show that there is sufficient evidence to raise an issue as to the existence or non-existence of a fact in issue, having regard to the standard of proof. The ACCC will discharge the evidential burden when it adduces prima facie evidence of the fact in issue. If the court believes the evidence adduced by the ACCC in discharging this burden, it will be entitled to draw an inference of the existence of the fact contended by the ACCC. Where the ACCC has discharged the evidential burden by adducing prima facie evidence of the fact in issue, the evidentiary burden shifts to the respondent to adduce evidence to the contrary, or at least to throw doubt upon the fact. This shifted burden is known as the ‘provisional burden’. Where the ACCC has discharged the evidential burden by adducing prima facie evidence and that evidence is believed, and a respondent does not call evidence to discharge the provisional burden, then the court is bound to decide the issue in favour of the ACCC.

Criminal standard of proof

14.48 In Chapter 7, we examined anti-competitive agreements between competitors. We paid special attention to Pt IV Div 1 of the Act which was introduced by the Trade Practices Amendment (Cartel Conduct and Other Measures) Act 2009 (Cth) and maintained by the Competition and Consumer Commission (Competition Policy Review) Act 2017 (Cth). We noted that the ACCC can now seek the institution of criminal proceedings against both corporations and directors for the making of, and giving effect to, a contract, arrangement or understanding that contains a cartel provision. 14.49 If the ACCC intends that criminal proceedings be instituted against a corporation and/or its directors, then we need to be aware that there are several differences between [page 301] ACCC civil and criminal litigation. These differences carry certain consequences for the way in which the ACCC approaches the investigation and litigation of the different matters. These consequences include the following: •



Some proceedings involve criminal matters relative to the Crimes Act 1914 (Cth): When proceedings are commenced for an alleged criminal contravention of the Act, the ACCC must have regard to the Crimes Act 1914 (Cth). Civil proceedings are normally conducted on the basis that the Act is the sole legislation that applies. The Crimes Act 1914 imposes its own set of requirements on the ACCC in prosecuting criminal offences. Criminal prosecutions are conducted by the CDPP: In civil proceedings, it is the ACCC who has ultimate control over the proceedings. It might instruct either a private law firm or the Australian Government Solicitor to actually run the litigation, but, in all cases, the ACCC determines whether the matter is to proceed.

In criminal proceedings, the ACCC does not have the final say over whether an alleged criminal contravention of the Act is actually prosecuted. As noted above, prosecutions are conducted by the CDPP. Pursuant to the Director of Public Prosecutions Act 1983 (Cth) (which established the CDPP), the CDPP is an independent office that is answerable to the Attorney-General.28 As such, the CDPP has formulated its own Prosecution Policy of the Commonwealth (the policy) to determine which matters warrant prosecution by the CDPP. Broadly, the policy stipulates that a matter should only be prosecuted if there are reasonable prospects of conviction and if prosecution is in the public interest. Accordingly, when the ACCC refers an alleged contravention of the Act to the CDPP, the CDPP decides whether or not to prosecute by assessing the evidence (for prospects of conviction) and the public interest factors. This carries two procedural consequences for the ACCC in criminal litigation: –





The CDPP can advise the ACCC that the proposed litigation does not meet the requirements of its Prosecution Policy of the Commonwealth and decline to prosecute on that basis. The CDPP influences the choice of charges to be included on the relevant Summons and Information for an Offence — the documents initiating the prosecution. As former CDPP Martin notes: ‘It is vital to be selective about the counts included in an indictment and to ensure that they adequately reflect the criminality alleged’.29

In July 2009, the ACCC and the CDPP concluded a Memorandum of Understanding (MOU) concerning criminal action for ‘serious cartel conduct’ under Pt IV Div 1 of the Act: The MOU reflects the seriousness of instituting criminal proceedings for cartel conduct. Clause 4.4 of the MOU outlines the circumstances the ACCC will consider before referring a potential cartel prosecution to the CDPP:

[page 302] Referral of possible serious cartel conduct will concentrate upon conduct of the type that can cause large scale or serious economic harm, and the ACCC will have regard to considerations including such as whether: • •







the conduct was longstanding or had, or could have had, a significant impact on the market in which the conduct occurred the conduct caused, or could have caused, significant economic detriment to the public, or a class of the public, or caused, or could have caused, significant loss or damage to one or more customers of the alleged participants one or more of the alleged participants has previously been found by a court to have participated in, or has admitted to participating in, cartel conduct either criminal or civil the value of the affected commerce exceeded or would have exceeded $1 million within a 12 month period (that is, where the combined value for all cartel participants of the specific line of commerce affected by the cartel would exceed $1 million within a 12 month period) in the case of bid rigging, the value of the bid or series of bids exceeded $1 million within a 12 month period.30

What is the criminal standard of proof? 14.50 Unlike civil Pt IV contraventions, when it is taking action for cartel conduct under ss 45AF and 45 AG of Pt IV Div 1, the ACCC must establish its case on the criminal standard of proof; that is, beyond reasonable doubt: Ballard v Sperry Rand Australia Ltd (1975) ATPR 40-006. In 2006, the chair of the ACCC noted that, while the burden of proof in criminal cartel prosecutions is higher than in civil proceedings, the introduction of the ‘search and seizure’ powers in Pt XID of the Act is: … an important development in the ACCC’s ability to gather evidence using an element of surprise, rather than relying on the information and evidence provided by the company in response to a s 155 notice.31

14.51 It may be that there will be circumstances in which the ACCC believes that it has sufficient evidence of cartel conduct to satisfy the criminal standard of proof under Pt IV Div 1 but the CDPP does not agree. In these circumstances, the chair of the ACCC considers:

[t]he ACCC understands that it is ultimately the DPP’s decision whether or not to commence criminal proceedings. If the DPP does not consider a criminal prosecution to be warranted, the Trade Practices Act will specifically provide that the ACCC may commence civil proceedings.32

The ‘civil proceedings’ mentioned in the quote refer to Pt IV Div 2 of the Act, containing s 45(1). [page 303]

Standard expected of ACCC as a model litigant 14.52 It has always been regarded that, as a litigant, the Commonwealth is expected to conduct itself with especial propriety. As far back as Melbourne Steamship Co Ltd v Moorehead (1912) 15 CLR 333, the Court observed (at 342–3): It used to be regarded as axiomatic that the Crown never takes technical points, even in civil proceedings, and a fortiori not in criminal proceedings. I am sometimes inclined to think that in some parts — not all — of the Commonwealth, the old-fashioned traditional, and almost instinctive, standard of fair play to be observed by the Crown in dealing with subjects, which I learned a very long time ago to regard as elementary, is either not known or thought out of date. I should be glad to think that I am mistaken.

14.53 On 1 September 1999, the Attorney-General’s Commonwealth Legal Services Directions (the directions) came into effect. The directions were issued pursuant to s 55ZF of the Judiciary Act 1903 (Cth) and were designed to establish a framework for large-scale reforms to the Commonwealth litigation activities. The directions included ‘Directions on the Commonwealth’s Obligation to Act as a Model Litigant’ (the model litigant direction). The model litigant direction was designed to give effect to the various comments of the courts to the effect that, as a party to litigation, the Commonwealth must act with complete propriety, fairly and in accordance with the highest professional standards. The current version is found in Appendix B to the Legal Services Direction (2017).

How the ACCC is bound by the model litigant direction 14.54 The Commonwealth litigates in many different capacities. The ACCC is a Commonwealth agency engaged in litigation on behalf of the Commonwealth in administering the Act. The ACCC’s principal litigation activities are conducted in the Federal Court of Australia. The Commission’s legal action ranges from applications for the imposition of pecuniary penalties, the imposition of fines for criminal contraventions of the Act, as well as injunctive and corrective advertising relief. Accordingly, it is beyond doubt that, as a Commonwealth authority, the ACCC is bound by the model litigant direction.

What are the ACCC’s obligations in complying with the model litigant direction? 14.55 The model litigant direction requires the Commonwealth (through the ACCC) to act honestly and fairly in handling claims by: • •

• •

promptly dealing with claims and not causing unnecessary delay; paying legitimate claims without litigation, including making partial settlements of claims or interim payments, where it is clear that liability is at least as much as the amount to be paid; acting consistently in the handling of claims; endeavouring to avoid litigation wherever possible; [page 304]



where it is not possible to avoid litigation, keeping the costs of litigation to a minimum, including by: – not requiring the other party to prove a matter which the Commonwealth knows to be true; and – not contesting liability if the Commonwealth knows that the

• •





dispute is really about quantum; not taking advantage of a claimant who lacks the resources to litigate a legitimate claim; not relying on technical defences, unless the Commonwealth’s interests would be prejudiced by the failure to comply with a particular requirement; not undertaking and pursuing appeals unless the Commonwealth believes that it has reasonable prospects for success or the appeal is otherwise justified in the public interest; and apologising where the Commonwealth is aware that it or its lawyers have acted wrongfully or improperly.

Boundaries of the model litigant direction 14.56 While the model litigant direction imposes a high standard of conduct on the ACCC, it can sometimes give rise to unrealistic assumptions in the minds of respondents in terms of the way the ACCC is expected to behave when conducting litigation. Importantly, s 55ZG(3) of the Judiciary Act 1903 (Cth) provides that the issue of non-compliance with the model litigant direction cannot be raised in any proceeding except by or on behalf of the Commonwealth. Nevertheless, in conducting litigation, the ACCC has encountered three arguments relating to its obligations under the model litigant direction: 1.

Respondents have been known to argue that litigation was unnecessary and that ‘their’ matter should have either settled or been resolved administratively: In Trade Practices Commission v Cue Design Pty Ltd (1996) ATPR 41-475, the respondents argued that the matter should never have proceeded to litigation but should have been resolved administratively, through the use of a s 87B undertaking. The Court was unsympathetic to this argument, stating that it was not for the Court to express a view as to whether the Commission should or should not have proceeded under s 87B of the TPA.

2.

Respondents have argued that, instead of instituting legal proceedings, the matter should have been the resolved through mediation: In an address on 12 September 2000 to the Government Law Group on Justice and Accountability, the Attorney-General referred to this aspect of the model litigant direction and stated: Another area where difficulties sometimes arise is with the obligation to avoid litigation wherever possible. This aspect of the model litigant obligation is designed to ensure that the Commonwealth considers alternatives to litigation, including settlement and alternative dispute resolution, and that in general it does not pursue litigation unless it has reasonable prospects of success.33

[page 305] The ACCC considers alternative dispute resolution (ADR) procedures a valuable mechanism in achieving compliance with the Act; indeed, the ACCC has statutory arbitration functions under Pts IIIA and XIC of the Act in certain circumstances. If the ACCC considers that its enforcement objectives can be achieved through ADR procedures, then it will consider such procedures favourably.34 The ACCC has employed negotiation and mediation procedures in the resolution of alleged contraventions of Pt IV of the Act in two circumstances: (a) negotiating an agreed submission on a pecuniary penalty in respect of admitted contraventions of Pt IV of the Act; and (b) negotiating enforcement outcomes in litigation, such as compliance mechanisms and costs. However, the ACCC does not believe that all matters should properly be resolved through mediation. Mediation is a means to an end rather than an end in itself. Since ACCC litigation involves the public interest, it must have regard to its public accountability and statutory obligations. It follows that ‘the Commission’s interests in

resolving litigation or issues in litigation are not the same as the interests of a private party’.35 These competing interests came into conflict in Australian Competition and Consumer Commission v Lux Pty Ltd [2001] FCA 600. In seeking an order to set aside earlier orders for mediation, the ACCC asserted (inter alia) that in the circumstances of the present case, the public interest would be best served by allowing the Court to exercise its judicial functions and determine: (a) where the alleged breaches took place; and (b) where the matter is contested. The respondents argued (inter alia) that even if the ACCC regarded mediation as inappropriate, it had the potential to result in a resolution of some or all of the issues and lead to a reduction of litigation costs consistent with the model litigant directions. In dismissing the application, the Court nevertheless concluded that, in some circumstances, mediation may be preferable to litigation, stating that (at [31]): To conclude that the formation by the applicant (ACCC) of the view that the matter requires curial resolution in a manner thought by the applicant to meet its public interest obligations would fail to recognise the competing public and curial interest in the mediation process as an important (if not vital) part of curial requirements. There is no necessary reason why the former public interest objective could not be met in the give and take of true mediation.

3.

Respondents have been known to argue that ACCC litigation is ‘speculative’ and, therefore, an abuse of process: In its 2017 Compliance and Enforcement Policy (at p 2) the ACCC stated that its enforcement criteria include considering whether the [page 306] potential action will have a worthwhile educative or a deterrent effect. Accordingly, the ACCC might often proceed to litigation because of a

desire to develop the law relating to a particular area. In the context of the unconscionable conduct provision in the Act, the ACCC has actually been given a direction by the Minister to institute legal proceedings in order to develop a body of law concerning the scope of s 51AC. In Australian Competition and Consumer Commission v Leelee Pty Ltd (2000) ATPR 41-742; [1999] FCA 1121, the Court rejected an argument that the ACCC’s action (designed to generate new law) was an abuse of process. 14.57 More recently, in Australian Competition and Consumer Commission v European City Guides SL (2011) ATPR 42-365 it was alleged that the ACCC had failed to comply with the model litigant direction in relation to the non-disclosure of certain documents during the interlocutory stages of the litigation. The Court rejected the allegation. While s 55ZG(3) of the Judiciary Act 1903 (Cth) neutralizes the ability of private parties pleading the model litigant direction against a Commonwealth Agency such as the ACCC, in November 2017, the Judiciary Amendment (Commonwealth Model Litigant Obligations) Bill was introduced into the Senate. If it is passed, the Bill will: 1.

2.

3. 4. 5.

require that Commonwealth litigants and persons acting for Commonwealth litigants abide by model litigant rules, which must be issued by the Attorney-General; enable a party to a proceeding involving a Commonwealth litigant, or person acting for a Commonwealth litigant, to complain to the Commonwealth Ombudsman that the relevant party has contravened or is likely to contravene the model litigant rules; empower the Commonwealth Ombudsman to investigate complaints about alleged contraventions of the model litigant rules; require the Ombudsman to include details of complaints in its annual reports; and empower a court to order a stay of proceedings pending the investigation of a complaint, and make orders as it considers

appropriate if it is satisfied that a contravention has occurred or is likely to occur. The Bill would allow courts to make orders promoting future compliance by a Commonwealth litigant, or address a failure to act as a model litigant through a costs order.

Further reading ACCC, ACCC Guidelines — Use of s 155 Powers: A Guide to the Australian Competition and Consumer Commission’s Power to Obtain Information, Documents and Evidence under s 155 of the Competition and Consumer Act 2010 (Cth), January 2018 ACCC, Compliance and Enforcement Policy, February 2017 ACCC, Immunity and Cooperation Policy for Cartel Conduct, September 2014 [page 307] ACCC, The Australian Competition and Consumer Accountability Framework for Investigations, May 2013

Commission’s

G Samuel, ‘The Enforcement Priorities of the ACCC’ (2006) 14 TPLJ 71 I Wylie, ‘When Too Much Power is Barely Enough — s 155 of the Trade Practices Act and Noblesse Oblige’ (2006) 16 CCLJ 314 F Zumbo, ‘The New Search and Seizure Regime: A Review’ (2007) 15 TPLJ 176

1. 2. 3. 4.

ACCC, The Australian Competition and Consumer Commission’s Accountability Framework for Investigations, Commonwealth, May 2013. ACCC, ACCC & AER Corporate Plan 2016-2017, Canberra, 2016 . ACCC, 2016-2017 Annual Report, Commonwealth of Australia, Canberra, 2017, p 16. Ibid, p 25 .

5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20.

21. 22. 23. 24. 25. 26. 27. 28.

29. 30.

31. 32.

ACCC, Compliance and Enforcement Policy, Commonwealth of Australia, Canberra, 2017, p 1 . Ibid, p 2. Ibid, p 2. ACCC, Compliance and Enforcement Policy, Commonwealth of Australia, Canberra, 2017 pp 5–7. Ibid, p 6. Ibid. ACCC, Cooperation Policy for Enforcement Matters, Commonwealth of Australia, Canberra, 2002, p 2. 284 Ibid. G Samuel, ‘The Enforcement Priorities of the ACCC’ (2006) 14 TPLJ 71 at 83. Trade Practices Act Review Committee, Review of the Competition Provisions of the Trade Practices Act, Commonwealth of Australia, Canberra, 2003, p 197. F Zumbo, ‘The New Search and Seizure Regime: A Review’ (2007) 15 TPLJ 176 at 178. ACCC, 2016–2017 Annual Report, Commonwealth of Australia, Canberra, p 311. G Pagone, ‘Access to Information: Guerilla Warfare under the Trade Practices Act’ (1983) 11 ABLR 79 at 106. Trade Practices Commission, Annual Report: 1981–1982, AGPS, Canberra, para 4.4.3. 290 H Spier, ‘Section 155 of the Trade Practices Act 1974: Some Practical Issues — A Trade Practices Commission Perspective’ (1994) 2 TPLJ 116. ACCC, ACCC Guidelines — Use of s 155 Powers: A Guide to the Australian Competition and Consumer Commission’s Power to Obtain Information, Documents and Evidence under s 155 of the Competition and Consumer Act 2010 (Cth), Commonwealth, 2018, p 1. Ibid, pp 2–3. G Pagone, ‘Access to Information: Guerilla Warfare Under the Trade Practices Act’ (1983) 11 ABLR 79 at 88. See also Pyneboard Pty Ltd v Trade Practices Commission (1983) 152 CLR 328; (1983) ATPR 40341 at 44,107. See, for example, Trade Practices Commission v Nicholas Enterprises Pty Ltd (1979) ATPR 40-126 at 18,352. Trade Practices Commission v Ansett Transport Industries (Operations) Pty Ltd (1978) ATPR 40071 at 17,720. S Corones, Competition Law in Australia, 2nd ed, LBC Information Services, Sydney, 1999, p 458. Ibid. B Martin, ‘Prosecution Issues’, Perspectives on White Collar Crime: Towards 2000, Australian Institute of Judicial Administration Conference,1998. See also ss 7 and 8 of the Director of Public Prosecutions Act 1983 (Cth). B Martin, ‘Prosecution Issues’, Perspectives on White Collar Crime: Towards 2000, Australian Institute of Judicial Administration Conference,1998, p 4. ACCC and CDPP, Memorandum of Understanding Between the Commonwealth Director of Public Prosecutions and the Australian Competition and Consumer Commission Regarding Serious Cartel Conduct, July 2009, available online at . G Samuel, ‘The Enforcement Priorities of the ACCC’ (2006) 14 TPLJ 71 at 85. Ibid at 88. 302

33.

34. 35.

D M Williams, Attorney-General, ‘Justice and Accountability: The Establishment of the Administrative Review Tribunal and the Model Litigant Obligation’, address to the Government Law Group, Justice and Accountability, Canberra, 12 September 2000. S Bhojani, ‘The ACCC’s ADR Experience’, ACCC Journal, Issue 22, 1999. Ibid, p 13.

[page 309]

Chapter 15 Public Enforcement: Orders and Remedies Available to the Australian Competition and Consumer Commission Overview This chapter is intended to: •



introduce you to the specific orders and remedies available to the Australian Competition and Consumer Commission (ACCC) in addressing conduct in breach of Pt IV of the Competition and Consumer Act 2010 (Cth) (CCA) (the Act); and explore individual orders and remedies under the Act in more detail, including: – declarations (Federal Court of Australia Act 1976 (Cth) (FCAA) s 21); – injunctive relief (s 80); – divestiture orders (s 81); – pecuniary penalties (s 76);

– – – – – –

fines and terms of imprisonment (s 79); non-punitive orders (s 86C); punitive orders (s 86D); disqualification orders (s 86E); enforceable undertakings (s 87B); and ‘other orders’ (s 87).

Introduction 15.1 In Chapter 14 we examined the enforcement policies and strategies that guide the ACCC’s approach to compliance with the Act. We saw that while the ACCC’s principal methods of fostering compliance with the Act involve education and administrative strategies, the Act also equips the ACCC with formidable powers to seek court orders in the event of a breach of Pt IV of the Act. The consequences for breaches of most of the provisions of Pt IV of the Act involve administrative action and/or civil proceedings at the hands of the ACCC. [page 310] 15.2 With the introduction of the criminal cartel regime in Pt IV Div 1 of the Act by the Trade Practices Amendment (Cartel Conduct and Other Measures) Act 2009 (Cth), the ACCC can now institute both civil and criminal proceedings with respect to restrictive trading practices. In Chapter 14 we noted that it is actually the Commonwealth Department of Public Prosecutions (CDPP) that has jurisdiction to institute criminal proceedings on the part of the ACCC, and not the ACCC itself. So, for example, when the ACCC wishes to enforce the criminal cartel regime in Pt IV Div 1, it is actually the CDPP that institutes proceedings.

In this chapter, we will consider the various orders and remedies the ACCC can seek in addressing conduct in contravention of the Act. In terms of the compliance pyramid discussed in Chapter 14 (see 14.8) we will principally be focusing on the orders and remedies the ACCC can seek during litigation.

The ACCC’s powers and orders it can seek 15.3 While the ACCC encourages consultation and negotiation as the principal mechanism for settling disputes, the ACCC can seek a very wide range of orders when it does institute legal proceedings, including: • • • • • • • • • •

declarations that particular conduct breaches the Act; injunctions (court orders) to prevent the prohibited conduct continuing, or to require some action be taken; damages; findings of fact; community service orders; probation orders; banning orders; adverse publicity orders; corrective advertising, public notices and disclosure for breaches of anti-competitive conduct; pecuniary penalties of up to $10 million, three times the value of the illegal benefit, or 10 per cent of corporate group annual turnover (whichever is the greater) for companies and $500 000 for individuals.

As this list shows, there are a wide variety of orders and remedies available to the ACCC which gives it a significant degree of remedial flexibility in addressing conduct that is in breach of Pt IV of the Act. You will also notice that not all of the orders in the list above correspond to the orders set out in the ‘Overview’ to this chapter, above. That is because corrective advertising, banning orders, public notices and adverse publicity orders are made pursuant to ss 86C and 86D of the Act. The Act does not provide for the level of specificity of orders that are mentioned in the ACCC’s document. We will explore how one section of the Act — for example, s 86C

— can give rise to a variety of different orders depending on the circumstances of the case. [page 311]

ACCC regulates in the public interest 15.4 As a statutory regulator, the ACCC stands in a different position to private parties when addressing breaches of the Act. For example, the ACCC does not suffer loss or damage by conduct in breach of the Act and so does not pursue civil litigation seeking to recover compensation for itself. However, it has been consistently recognised that the ACCC’s role in enforcing the Act is grounded in the public interest. It was noted by the Full Court in World Series Cricket Pty Ltd v Parish (1977) ATPR 40-040 that (at 17,426): Proceedings under the Trade Practices Act have a special character in that the Act deals with the protection of the public interest …

Accordingly, ‘the Commission’s interests in resolving litigation or issues in litigation are not the same as the interests of private parties’.1 The Act therefore permits the ACCC to seek a variety of orders that are not available to private parties. In addition, where there are orders that both the ACCC and private parties can seek, the courts will sometimes treat the ACCC in a different manner to the way in which they treat private litigants. An example of this is where the ACCC seeks injunctive relief pursuant to s 80 of the Act: see Australian Competition and Consumer Commission v IMB Group Pty Ltd (1999) ATPR 41-688; [1999] FCA 313. The variety of civil orders available to the ACCC was increased by the Trade Practices Amendment Act (No 1) 2001 (Cth). Additional orders available to the ACCC include community service and probation orders (see the ACCC list at 15.3 above). These orders and other amendments to the

orders that are available to the ACCC are discussed below. Let’s start by considering the ability of the ACCC to seek declarations in relation to alleged contraventions of Pt IV of the Act.

Declarations 15.5 Frequently, the ACCC seeks declarations from the court that the conduct of specific corporations amounts to contraventions of particular provisions of Pt IV of the Act. When made, such orders are commonly referred to as ‘declaratory relief’. There is no section in the Act that empowers the ACCC to seek declaratory relief. Therefore, the ACCC invokes s 21 of the FCAA which permits the court to make binding declarations in a matter over which it has jurisdiction. 15.6 The grant of a declaration pursuant to s 21 is a discretionary remedy and is not available as of right. The High Court in Rural Press Ltd v ACCC (2003) 216 CLR 53; (2003) ATPR 41-965; [2003] HCA 75 criticised the trial judge for making a declaration in very general terms, even though it had been made with the consent of the parties. In recent years, the courts have taken this kind of admonishment of the High Court to represent concern with the practice of making declarations that merely record the bare fact of a contravention of the Act and nothing more: see Australian Competition and Consumer Commission v Francis (2004) ATPR (Digest) 46-250; [2004] FCA 487 at [92]–[113]. [page 312] The ‘more’ that might be required to convince the Court to exercise its discretion to grant declaratory relief was suggested in Australian Competition and Consumer Commission v Telwater Pty Ltd (2009) ATPR 42-276; [2009] FCA 263. In granting declarations, the Court stated (at 40,617):

The declarations sought contain sufficient information as to how and why the conduct complained of is a contravention of the TP Act. They ‘indicat[e] the gist’ of the contravening conduct. The parties [agree] they should be made.

15.7 A useful recent discussion of the approach of the court to declaratory relief is found in Australian Competition and Consumer Commission v Coles Supermarkets Australia Pty Ltd [2014] FCA 1405. The Court explained the principles relevant to the grant of orders sought by agreement and declarations (at [70]–[79]): The applicable principles are well established. First, there is a well-recognised public interest in the settlement of cases under the Act: NW Frozen Foods Pty Ltd v Australian Competition & Consumer Commission (1996) 71 FCR 285 at 291. Second, the orders proposed by agreement of the parties must be not contrary to the public interest and at least consistent with it: Australian Competition & Consumer Commission v Real Estate Institute of Western Australia Inc (1999) 161 ALR 79 at [18]. Third, when deciding whether to make orders that are consented to by the parties, the Court must be satisfied that it has the power to make the orders proposed and that the orders are appropriate: Real Estate Institute at [17] and [20] and Australian Competition & Consumer Commission v Virgin Mobile Australia Pty Ltd (No 2) [2002] FCA 1548 at [1]. Parties cannot by consent confer power to make orders that the Court otherwise lacks the power to make: Thomson Australian Holdings Pty Ltd v Trade Practices Commission (1981) 148 CLR 150 at 163. Fourth, once the Court is satisfied that orders are within power and appropriate, it should exercise a degree of restraint when scrutinising the proposed settlement terms, particularly where both parties are legally represented and able to understand and evaluate the desirability of the settlement: Australian Competition & Consumer Commission v Woolworths (South Australia) Pty Ltd (Trading as Mac’s Liquor) [2003] FCA 530 at [21]; Australian Competition & Consumer Commission v Target Australia Pty Ltd [2001] FCA 1326 at [24]; Real Estate Institute at [20]–[21]; Australian Competition & Consumer Commission v Econovite Pty Ltd [2003] FCA 964 at [11] and [22] and Australian Competition & Consumer Commission v The Construction, Forestry, Mining and Energy Union [2007] FCA 1370 at [4]. Finally, in deciding whether agreed orders conform with legal principle, the Court is entitled to treat the consent of Coles as an admission of all facts necessary or appropriate to the granting of the relief sought against it: Thomson Australian Holdings at 164. Declarations The Court has a wide discretionary power to make declarations under s 21 of the Federal Court Act: Forster v Jododex Australia Pty Ltd (1972) 127 CLR 421 at 437–8; Ainsworth v Criminal Justice Commission (1992) 175 CLR 564 at 581–2 and Tobacco Institute of Australia Ltd v

Australian Federation of Consumer Organisations Inc (No 2) (1993) 41 FCR 89 at 99. [page 313] Where a declaration is sought with the consent of the parties, the Court’s discretion is not supplanted, but nor will the Court refuse to give effect to terms of settlement by refusing to make orders where they are within the Court’s jurisdiction and are otherwise unobjectionable: see, for example, Econovite at [11]. However, before making declarations, three requirements should be satisfied: (1) The question must be a real and not a hypothetical or theoretical one; (2) The applicant must have a real interest in raising it; and (3) There must be a proper contradictor.

These principles were subsequently adopted by the Court in Australian Competition and Consumer Commission v JJ Richards & Sons Pty Ltd (2017) ATPR 42-558 (at [7]). 15.8 The Court in Australian Competition and Consumer Commission v Construction, Forestry, Mining and Energy Union (2007) ATPR 42-140; [2006] FCA 1730 usefully summarised the circumstances in which it was appropriate to make the declarations sought by the ACCC. The Court (at 46,726) said the declarations: 1. 2. 3. 4. 5. 6.

are an appropriate vehicle to record the Court’s disapproval of the contravening conduct …; serve to vindicate the Commission’s claim that the respondents contravened the Act …; are of some assistance to the Commission in the future in carrying out the duties which are conferred upon it by the Act …; are of assistance in clarifying the law …; may inform consumers of the dangers arising from a respondent’s contravening conduct …; and may deter corporations from contravening the Act …

15.9 In many situations, the ACCC seeks declarations in circumstances where consent orders are sought. As we will see later in this chapter (see 15.45), it is becoming increasingly common for litigation under Pt IV of the Act to be concluded by consent of the parties without the need for a full trial of the issues in dispute. In these circumstances, an issue has arisen concerning

the appropriateness of the court making declarations as part of the stable of orders made by consent. 15.10 In Australian Competition and Consumer Commission v MSY Technology Pty Ltd (No 2) (2011) ATPR 42-353, the Court concluded that in order for declarations to be made there had to be a ‘proper contradictor’; that is, a party who contests or ‘contradicts’ the substantive proceedings and the application for a declaration. The trouble is that if a party consents to an application by the ACCC for declaratory relief, how could that party be called a ‘proper contradictor’ since it is not actually contesting the proceedings? On appeal, the Full Court in Australian Competition and Consumer Commission v MSY Technology Pty Ltd (2012) ATPR 42-391 concluded that a party that consents to final orders being made can still constitute a ‘proper contradictor’ for the purposes of making consent orders. These considerations were affirmed by the Court in Australian Competition and Consumer Commission v Edirect Pty Ltd (in liq) (2012) ATPR 42-415 at 45,784 and most recently in Australian Competition and Consumer Commission v JJ Richards & Sons Pty Ltd (2017) ATPR 42-558 (at [7]). [page 314]

Pecuniary penalties and criminal fines 15.11 Where there has been a breach of Pt IV of the Act (other than the criminal provisions of Pt IV Div 1), s 77 provides that the ACCC may institute a proceeding in the court for the recovery of a pecuniary penalty on behalf of the Commonwealth. Section 76 then sets out the penalty regime for contraventions of Pt IV. At this stage, we need to recall that the cartel regime in Pt IV Div 1 provides for both criminal and civil consequences for the making of, and giving effect to, a contract, arrangement or understanding that contains a

‘cartel provision’. The distinction is important because pecuniary penalties can be sought for contraventions of the civil regime, while criminal fines, and even terms of imprisonment, can be sought for contraventions of the criminal cartel regime. We need to consider the legislative basis permitting the ACCC and the CDPP to seek the imposition of both forms of sanction.

Civil pecuniary penalty regime 15.12 First, in relation to contraventions of Pt IV Div 1 (that is, the prohibitions in ss 45AJ and 45AK ) the following civil pecuniary penalties apply: •



In relation to corporations, s 76(1A)(aa) provides that the penalty is the greater of the following: – $10 million; – three times the value of the benefits obtained by the corporation that are reasonably attributable to the anti-competitive conduct; or – where the value of that benefit cannot be determined, 10% of the annual turnover of the corporation during the period of 12 months ‘ending at the end of the month in which the act or omission occurred’. In relation to individuals, s 76(1B) provides for a penalty of $500,000 for each act or omission in breach of Pt IV of the Act (which includes ss 45AJ and 45AK).

Second, in relation to contraventions of Pt IV Div 2 (that is, the prohibition ins 45(1)) the same civil penalties apply.

Criminal fines and terms of imprisonment 15.13 Where the ACCC and the CDPP institute criminal proceedings alleging contraventions of Pt IV Div 1 of the Act (that is, ss 45AF and 45AG),

the consequences for a corporation differ from the consequences for that of a corporation’s director or agent. First, in relation to corporations, s 45AF(3) provides that in making a contract, arrangement or understanding that contains a ‘cartel provision’, and in giving effect to a ‘cartel provision’ in contravention of s 45AG(3), the corporation is punished on conviction by a fine not exceeding the greater of: • •

$10 million; three times the value of the benefits obtained by one or more persons that are reasonably attributable to the anti-competitive conduct; or [page 315]



where the value of that benefit cannot be determined, 10% of the annual turnover of the corporation ‘during the 12-month period ending at the end of the month in which the corporation committed, or began committing, the offence’.

Second, in relation to individuals, s 79(1)(e) provides that a person may be liable to a term of imprisonment for a period not exceeding 10 years or a fine ‘not exceeding 2,000 penalty units’ or both where that person is found to have breached a ‘cartel offence provision’ (ss 45AF or 45AG).

Statutory framework for pecuniary penalties 15.14 In the most serious cases involving civil contraventions of Pt IV of the Act, the ACCC will institute proceedings seeking the imposition of pecuniary penalties. There is a statutory mechanism that allows the ACCC to seek pecuniary penalties, as set out below: •

Section 77 provides that the ACCC may institute a proceeding in the court for the recovery on behalf of the Commonwealth of a pecuniary penalty referred to in s 76.





Section 77 is the originating section empowering the ACCC to seek pecuniary penalties. Because s 77 only refers to the ACCC, it automatically excludes private parties from seeking orders for the imposit