Australia – 2016 In Competition Law.

8 March, 2016

 

2016 is shaping up as a very important year for the ACCC and competition law across Australasia.

 

In these notes we draw out a summary of the main events likely to unfold this year in competition and consumer law enforcement.

 

Also, we provide some more detailed commentary on a few areas in which there is likely to be keen interest among Australian businesses, as those events unfold – cartels, the (likely) new law on “concerted practices”, infrastructure regulation and misuse of market power. 

 

The highlights for 2016

 

 

The most important events in 2016 in competition and consumer law enforcement are likely to include:

 

• Law reform following on from the 2015 Harper Committee Review: in the rst half of 2016, the commonwealth Government proposes to release an exposure draft of legislation which adopts its preferences from the recommendations made in the nal harper review report in 2015.

 

Many of the reforms to be made will be widely welcomed by both the business community and the ACCC.1 however, others will be controversial and will bring with them some uncertainty as to their implementation and enforcement. Among these will be the new rules to be introduced in relation to “concerted practices”, which we discuss further, below.

 

• Reappointing the Chairman?: The current 5 year term of the Accc’s chairman, rod sims, expires in August 2016. we expect sims to be reappointed, with the approval of the states and Territories. This is a critical role in Australian public life and an experienced hand in the role has its advantages. if reappointed, sims will serve for 10 years; a span which is broadly consistent with that of previous chairmen (Graeme samuel’s eight year term, and Allan Fels’ 12 year term at the Tpc/Accc, before him).

 

• Consumer law enforcement: The Accc has just published (on 23 February 2016) details of its enforcement priorities for 2016. interestingly, the ACCC’s priorities are heavily skewed to enforcement of the Australian Consumer Law (Acl), focusing on the protection of disadvantaged and vulnerable consumers, product safety, consumer guarantees (especially in relation to new car retailing), health and scams. 

 

“Unfair terms” regulation for small business: The Accc will also be focusing on implementing the new laws on “unfair terms” in small business contracts. The new laws will apply to all standard form contracts with small businesses, made or varied from 12 november 2016, when the one year’s grace period to comply with the new law will expire. many challenges and unexpected consequences associated

with this regime have already been identi ed (see Ashurst Competition Law News, 21 october 2015), and we expect that more will emerge over the coming year, as businesses consider how to comply with the regime, and the Accc undertakes public education and prepares for enforcement in this area.

 

Unconscionable conduct: The use of the Acl’s unconscionable conduct prohibition to challenge consumer and small business contractual terms will continue to raise dif cult questions about the line between freedom of contract and unconscionable conduct. in the year ahead, highlights to watch out for include:

 

• After a hearing earlier this month, the high court’s judgment in Paciocco v ANZ will address (among other matters) the balance to be struck between contractual certainty and clarity, on the one hand, and the fairness and conscionability of the underlying bargain, on the other in respect of late payment fees charged to consumer credit card customers. Allsop cJ’s judgment on these issues in the Full Federal court decision in April 20152 is already a fascinating read, in circumstances where the court found that the contracts were clearly worded, customers were not vulnerable, customers understood the contract terms and the bank did not exert unfair pressure on customers.3 But more on this shortly …
• in late 2015, the Accc commenced proceedings alleging unconscionable conduct in business to business dealings against:
  • multimedia international services – where the allegations include unconscionable conduct in refusing to release small businesses from their contracts and pursuing them for non-payment; and
  • woolworths – concerning dealings with its suppliers. 

 

• Further review of the Australian Consumer Law: Yet more law reform is on the cards, with consumer Affairs Australia and new Zealand to conduct a review of the Acl in 2016, as required by the intergovernmental Agreement signed by the coalition of Australian Governments in July 2009. we expect a wide-ranging public consultation process to commence in the rst half of 2016.
• Agriculture: The Accc is considerably increasing its attention to the agricultural sector. There is now a dedicated unit at the Accc, and the government is about to appoint a new commissioner with special responsibility for agricultural issues. The Accc has also agged undertaking agricultural sector market studies across most agricultural supply chains over a period of 6 years, to identify and highlight particular issues (including the existence and effect of market power within supply chains). it expects to announce the subject of the rst of these market studies shortly. it also intends to undertake more enforcement of the competition and consumer protection laws across the sector.
• Misuse of market power: Although extensively considered by the harper committee, the controversy over Australia’s law on misuse of market power continues. it is now the subject of yet further issues papers and submissions (with the latest submissions received by Treasury on 12 February 2016). much heat has been generated, and expectations and apprehensions vary widely among those involved. Treasury is to put a recommendation on the issues before cabinet in march 2016. For those who can bear to read more on this topic!, we have set out below a tight summary of the issues involved.
• East Coast Gas Inquiry: After a full year of public inquiry, the Accc will present its ndings on the operation of east coast gas markets to the commonwealth Government in April 2016.
• Beyond Australia, around Asia, competition law is ever more prominent. most notably, the hong Kong Competition Ordinance came into effect in mid-December 2015 after a long gestation period (having been passed in June 2012). while we don’t expect immediate vigorous enforcement, a sophisticated competition law coming into effect in hong Kong, together with increasingly effective competition regulation in singapore (the competition commission of singapore celebrated its tenth anniversary last year) and in china, is clearly changing views across Asia on the importance of effective compliance. 

 

cartel enforcement

 

more effective enforcement against cartels, and higher penalties for cartel conduct, are persistent objectives for the ACCC – just as they are for most of the world’s competition regulators. But 2015 was a mixed year for the ACCC.

 

in February 2015, the ACCC agged that:

 

“what should really focus people’s minds is that we have around a dozen in-depth cartel investigations under way. we have also established a new dedicated group exclusively responsible for investigating serious cartel conduct. This group is focused on criminal cartel investigations and is working very closely with the cDpp.”4

 

And yet, over the year since:

 

• there has been no criminal prosecution brought at all, and only one cartel prosecution case was launched in Accc civil proceedings (the Cascade Coal case, led in June 2015).
• there have been no penalties ordered by the courts in relation to cartel conduct (although a hearing on penalty in the Yazaki Corporation case (wire harness cartel) was held earlier this month, after a decision during 2015); and
• the Accc has recently lost a case involving attempted cartel conduct among Australian egg producers (brought against Australian egg corporation limited, an industry body). 

 

Also, in the related area of competitively sensitive information exchange among competitors, in December 2015, the Accc discontinued its Informed Sources proceedings against many of the major petrol retailers in Australia. in short, most of the parties agreed that the information exchange between many of them may continue, provided that the information is also made available publicly.

 

looking forward, the ACCC’s cartel enforcement efforts in 2016 may be more notable. particularly:

• the slow and careful process of bringing criminal proceedings in relation to cartel conduct for the first time, in conjunction with the commonwealth Director of public prosecutions, is another year further progressed, with several cases still being investigated and reviewed; and
• the Accc’s prosecutions of Cascade Coal and others (re bid rigging allegations involving mining exploration licences), Colgate-Palmolive (re allegations of anti- competitive arrangements in the supply of laundry powder) and Olex Australia (in relation to electrical cable supply) will all be heard in the rst half of 2016.

 

Irrespective of the ACCC’s recent track record, however, competitors across Australian industries should continue to take their competition compliance training and monitoring work very seriously. The Accc is persistently keen to ensure that there is effective cartel enforcement, and its Immunity Policy (reviewed and refreshed in late 2014 – offering complete immunity for the rst to confess to the Accc) operates to ensure that regulatory detection of any signi cant cartels in Australia is highly likely. 

 

“concerted practices”
– what does this mean?

 

in its report to the commonwealth Government, the harper committee recommended that:

 

“section 45 (of the CCA) should be extended to prohibit a person engaging in a concerted practice with one or more other persons that has the purpose, effect or likely effect of substantially lessening competition.”

 

The Government has endorsed the recommendation and a provision along these lines is now expected in the draft legislation to emerge this year.

 

The harper committee stated that there is no need to de ne the expression “concerted practice” – instead, it felt that “the word ‘concerted’ has a clear and practical meaning” – being that which is “jointly arranged or carried out or coordinated” – and that “no further de nition is required for the purposes of a legal enactment”.

 

if adopted, what does this recommendation mean for Australian business? we offer the following thoughts:

 

First, the new prohibition is not intended simply to duplicate the current prohibition on contracts, arrangements or understandings which have the purpose or likely effect of substantially lessening competition. A concerted practice must be something different.

 

Secondly, the prohibition should not apply to clearly unilateral conduct. An action initiated entirely of one’s own is not jointly arranged, carried out or coordinated.

 

Thirdly, it is likely that the prohibition will apply mainly to conduct between competitors (rather than among suppliers and customers, respectively).

 

This then leaves a concerted practice to be something which is informal, “joint” conduct among several competitors or rivals, but which does not involve an “understanding” (much less an arrangement or a contract) between them. 

 

• is parallel conduct caught? on rst principles, it seems unlikely that isolated parallel conduct (simply a one-off response to a rival’s price rise) could be a concerted practice. however, repeated conduct among oligopolists, with mutual responses, is much more likely to fall within the new provision. This may extend to:

–  consistent responses to a rival’s price rises (price signalling),

–  sharing competitively sensitive material between rivals (information exchange), and

–  some of the activities of trade associations.

• ultimately though, the concerted practice must have the purpose or likely effect of substantially lessening competition for it to contravene the new law (as recommended). This signi cant hurdle of proving an anti- competitive purpose or effect sets the new prohibition clearly apart from the cartel rules.
• The Australian courts may take some guidance from the eu law, where rms are described as engaging in a concerted practice if there is a form of coordination between them (which is short of an agreement) by which they “knowingly substitute practical cooperation for the risk of competition” between them.
• Drawing from the eu experience, it may be the case that simply to receive competitively sensitive information from a competitor will be a ‘concerted practice’. This depends upon an assumption (which the eu commission and courts may make) that the recipient will take that information into account in its own competitive decision-making – at which point both rms will have substituted “practical cooperation for the risk of competition” between them. This points to the concept of “public distancing” – a defensive means of making it clear to your rival (and perhaps even publicly) that you do not wish to receive that information and will not take it into account in your own competitive strategies.

 

Australian rms should start thinking about these issues soon. we suggest particularly, that rms review the extent of any cooperative (and competitively sensitive) engagement with competitors, against these new benchmarks.  

 

infrastructure regulation – shifting sands in 2015/16

 

Infrastructure regulation recommendations – Harper, PC and Government

 

Infrastructure regulation was intriguing in 2015–with shifting positions on the policy underpinning the national Access regime in part iiiA of the Competition and Consumer Act (ccA), across the harper committee review and the commonwealth Government’s response to it.

 

in september 2014, the harper review’s Draft report seriously questioned the utility of retaining part iiiA at all:

 

The question that arises today is: what are the infrastructure facilities for which access regulation will be required under part iiiA in the future? unless it is possible to identify those facilities or categories of facilities, it is dif cult to reach a conclusion that the regulatory burden and costs imposed by part iiiA on Australian businesses is outweighed by economic bene ts, or that the bene ts can only be achieved through the part iiiA framework. 

 

And yet, by march 2015, the harper committee (in its Final report) recommended that part iiiA be retained. it found:

 

• partiii A should continue to provide a back stop to the current industry-specific access regimes. it may also be needed for future access regulation of airport and port infrastructure.
• however, imposing an access regime upon privately developed single-user infrastructure is more likely to produce inef ciency than ef ciency, impeding the competitiveness of Australian industry.
• The panel agrees with the conclusion of the recent pc inquiry that the national Access regime is likely to generate net bene ts to the community, but its scope should be con ned to ensure its use is limited to the exceptional cases where the bene ts arising from increased competition in dependent markets are likely to outweigh the costs of regulated third-party access.

 

To confine the scope of part iiiA as suggested, the harper committee recommended that the current approach to applying the part iiiA declaration criteria (as determined by the high court in the The Pilbara Infrastructure Pty Ltd v Australian Competition Tribunal case in 2012) essentially be retained. 

 

However, by november 2015, the Government decided to open up the application of part iiiA more broadly, in particular by endorsing change to the ever-controversial declaration criterion (b), which tests whether it would be “uneconomical to develop another facility” to provide the relevant service.

in doing so the Government said:

 

These changes will return the focus of the regime to allowing effective competition in downstream markets by restoring the test applied prior to the high court decision in 2012. This will ensure that the regime remains accessible and effective.

 

An exposure draft of legislation to preserve and extend part iiiA along these lines will be issued for comment during 2016.

 

And yet …

 

The ACCC doesn’t fully trust access regulation

 

in october 2015, the Accc publicly stated that access regulation (such as that provided for in part iiiA) would not satisfactorily address its competition concerns about the potential vertical integration of rail and port assets in the Brook eld consortium’s bid for Asciano.

 

“… an access regime is a second-best solution for competition concerns that arise from vertical integration of critical infrastructure where users have no (or only limited) viable alternatives available. … Access regulation has an important role in certain circumstances of market failure in the economy (such as the existence of a natural monopoly), however it is preferable to avoid structural changes to the market that would exacerbate such market failures.”5

 

while the Accc’s logic is powerful, its limited enthusiasm for part iiiA, as only “second-best”, sits inconveniently with the Government’s determination to “return the focus of [part iiiA] to allowing effective competition in downstream markets”.

 

Price regulation – or only essential access?

 

Another source of head-scratching in this eld is the current apparent con ict between:

 

• the Accc’s desire to have part iiiA regulate post- privatisation pricing in natural monopoly contexts; and
• the Government’s recent decision not to declare various services in the port of newcastle, following application by Glencore.

 

in 1993, the Hilmer Report (from which part iiiA was born) recommended that access to infrastructure should be required only where “access to the facility is essential to permit effective competition in a downstream or upstream activity”.

 

however, in 2015, the Accc has actively contributed to the public debate over price regulation to be imposed on privatised government infrastructure – advocating that part iiiA should play a prominent role.

The Accc commented publicly on the privatisation of the port of melbourne, to argue that:

 

• regulation of the privatised infrastructure is critically important, 

 

• light handed “price monitoring” (as distinct from more direct price regulation) is not suf cient to regulate privatised natural monopoly infrastructure, being “ill-conceived in economic theory” and “failed in practice”, and
• the desire on the part of state governments to maximise sale proceeds from privatisations should not outweigh the imperative for appropriate (price) regulation.6
• And yet, in nsw, at the port of newcastle, the ncc and the commonwealth Treasurer have (correctly, in our view) determined that part iiiA should not be used to regulate prices of services provided by privatised infrastructure, where access is otherwise available.

 

In may 2015, Glencore sought “declaration” of channel and berth services at the recently privatised port of newcastle. The nsw government had privatised the port on the basis that it would be subject to “light-handed” price-monitoring, but not more extensive access or price regulation. Following signi cant price increases by the new private port operator, Glencore applied for declaration, not to gain access to the port (since coal producers already had access), but in order to impose price regulation at the port. in January 2016, the Acting commonwealth Treasurer decided not to declare the services, and Glencore has now sought review of that decision by the Australian competition Tribunal.

 

In its recommendation to the Treasurer (not to declare the port services), the national competition council made it very clear that:

 

Declaration under the national Access regime is not a mechanism for imposition of price regulation and was never intended to be such. “excessive”, “monopolistic” or “gouging” pricing per se is not the focus of part iiiA. where such pricing in one market merely transfers income or value from one party in the supply chain to another without materially impacting competition in any other market, part iiiA does not provide a remedy. 7

 

This case highlights the philosophical question about the role of access to infrastructure regulation. The traditional focus of such regulation is as set out by the ncc, above – that is, to solve a competition problem (but with the incidental necessity to determine pricing outcomes in doing so, pursuant to the negotiate/arbitrate model in part iiiA). however, it is now being invoked to solve what is only a price regulation issue (with access already assured).

 

The case is now to be considered by the Australian competition Tribunal, with a decision due mid-year. if it were decided (contrary to the minister’s decision) to declare the relevant services (and from there impose price regulation), the case would crystallise serious risks for purchasers of privatised infrastructure that the regulatory settings, and hence commercial value of the privatised asset, may effectively be rewritten after the bid is nalised and the cheques are cashed. 

 

Misuse of market power – changes to improve the Australian law?

 

So much has been written and said over the last two years on whether to change section 46 of the ccA (which prohibits the misuse of market power), that we are loathe to add more.

 

However, for those who have resisted the temptation to delve into the many submissions and opinions offered to date, we set out the following, very condensed points which are at the heart of the continuing debate. 

 

The commonwealth Treasury is currently reviewing the 70 further submissions it received on 12 February 2016 (including those from Ashurst and the law council of Australia, in which we were involved). cabinet is scheduled to consider these issues further in march – with the new Deputy prime minister, Barnaby Joyce, keen for change. 

 

1 These include removing the per se prohibition on “third line forcing”, amending the cartel laws to provide for a clearer “joint venture” exception and simplifying authorisation processes, by way of just three examples. 

2  [2015] FcAFc 50.

3  The high court was also asked to consider whether the late payment fees were penalties,

were unfair terms pursuant to the Victorian Fair Trading Act (1999) and whether they constituted unjust transactions pursuant to the national credit code. 

4 Priorities 2015, ceDA Address, rod sims, 19 February 2015. The ACCC cofirmed that, as at september 2015, it had “more than 12 cartel investigations underway” – ACCCount, sept 2015 quarter. most recently, it has said that there are “around 20 cartel investigations underway” – Accc compliance and enforcement priorities for 2016, ceDA Adress, sydney, rod sims, 23 February 2016. 

5 ACCC, statement of issues, Brook eld consortium/Asciano, 15 october 2015. 

6 Accc submission to the inquiry into the proposed lease of the port of melbourne (10 september 2015) at p 2. “how did light handed regulation of monopolies become no regulation (rod sims, Gilbert + Tobin regulated infrastructure policy workshop, melbourne, 29 october 2015), and “competition key to restoring Australia’s productivity” (rod sims, address to infrastructure partnerships Australia conference, sydney, 4 september 2014).

7 Final recommendation, 3.15.

8  The “slc test” is whether conduct has the purpose, effect or likely effect of substantially lessening competition in an Australian market.

9  This challenge is at the heart of the abuse of dominance cases in the eu and the monopolization cases in the us: each has a very different provision to s46, on its face, but each of these jurisdictions struggles with the hard cases. 

 

For further information, please contact:

 

Bill Reid, Partner, Ashurst

bill.reid@ashurst.com