24 July, 2018
The legislative framework in Australia supporting the private litigation of anti-competitive conduct has recently undergone significant reform. Whether these reforms will have an impact on the historical relative paucity of private claims for damages arising from anti-competitive conduct bought in Australia remains to be seen, although it is difficult to argue that they are not a step in right direction.
Setting the scene
Part IV of the Competition and Consumer Act 2010 (Cth) (CCA) prohibits a wide range of anti- competitive conduct in Australia including cartel conduct, misuse of market power, anti-competitive mergers and acquisitions, exclusive dealing and, following recent amendments, concerted practices.
Proceedings to recover loss or damage su ered as a result of anti-competitive conduct in Australia are commenced under section 82 of the CCA. Like most jurisdictions, private litigation of anti-competitive conduct in Australia enables the remedy of consequences of the conduct through compensatory damages.
In making an award of damages, section 82 requires the Court to select a measure of damages which conforms to the ‘remedial purpose of the CCA’ and the ‘justice and equity of the case’. In this regard, damages are calculated by reference to the detriment suffered by the parties that are subject to the conduct in question.
In the case of class action litigation, the resolution of common issues and factual disputes amongst a group or ‘class’ of affected consumers presents an efficient platform for multiple firms and individuals, aggrieved by the same or similar conduct, to be compensated through the one process. In the Federal Court, class action litigation is facilitated by the regime contained in Part IVA of the Federal Court of Australia Act 1976 (Cth) (FCA), which is accepted as the effective regime through which competition and consumer related class actions in Australia are pursued.
The dominance of public enforcement
Notwithstanding the regimes established by the CCA and FCA outlined above, when compared to the United States and European Union, litigation in relation to anti-competitive conduct in Australia is largely dominated by public enforcement by Australia’s competition regulator, the Australian Competition and Consumer Commission (ACCC). In bringing these proceedings, the ACCC will typically pursue the imposition of pecuniary penalties, rather than redress for affected consumers, the primary object being deterrence – putting a price on the contravention that is sufficiently high to deter repetition of the anti-competitive conduct in the future.
Amendments to section 76 of the CCA introduced from 1 January 2007, substantially increased the potential penalties the Court can award for contraventions of Part IV of the CCA, lifting the $10 million cap existing prior to that date. It also enabled the Court to determine the pecuniary penalty payable by the contravenor by reference to either three times the value of the benefit obtained by the contravenor from the relevant contravening act or, where the value cannot be determined, 10% of the annual turnover of the contravenor during a prescribed 12-month period.
Rarity of private enforcement
In contrast, private enforcement actions of anti-competitive conduct in Australia are rare. By sharp comparison, in the United States it is estimated that around 90% of antitrust cases are commenced by private litigants.
This is likely due to the high cost of conducting proceedings in the Federal Court of Australia, the more stringent constraints on access to documents and pro ers obtained by the ACCC in investigating anti-competitive conduct compared to other jurisdictions, and the di culties assessing damages. Determining the damages su ered by the applicant as a result of anti-competitive conduct will usually require the application of economic principles – in many cases this requires the Courts to calculate lost pro ts by establishing the hypothetical “free market price” that would have been charged absent the conduct at issue. In the case of class actions for price- xing cases, making this determination is particularly di cult due to the large number of firms and individuals who have purchased goods at excessive prices as well as the threshold question of which firms and individuals comprise part of the class itself.
A number of authors have also argued the lack of private enforcement action and recovery of damages in Australia is a result of the inadequacy of the legislative regime to provide an effective compensation mechanism, such as a ected commerce models or treble damages in the United States. Similar mechanisms in other jurisdictions are considered to encourage the pursuit of private litigation.
Where damages are sought by a competitor of the contravenor, an additional complication exists: is the complainant in fact seeking redress for economic harm arising from anti-competitive conduct or merely seeking redress for injury or loss su ered from or caused by competitive conduct (which will not be recoverable)? In some instances, these losses will be di cult to distinguish. If courts do not endeavour to draw this distinction, it would e ectively defeat the policy rationale for the competition law provisions of the CCA, namely to promote competition for the protection of consumers rather than to ensure the protection of particular competitors.
Reforms for the better?
As foreshadowed above, there have been a number of signi cant recent reforms to the CCA. Of relevance to private follow-on litigation which succeeds enforcement action by the ACCC, are amendments which broaden the scope of section 83. An admission of a fact made by a party in an earlier proceeding, in addition to a finding of any fact by a court in an earlier proceeding, can now be used as prima facie evidence in subsequent proceedings (the scope of s 83 previously being limited to findings of fact made by a Court only).
Other relevant reforms have also included:
- the strengthening of the definition of ‘competition’ under the CCA, meaning goods and services capable of importation, in addition to those actually imported, now clearly fall within the compass of the CCA
- the reframing of the prohibition on the misuse of market power contained in section 46 of the CCA to introduce an ‘effects test’ and
- confining the application of the CCA’s cartel provisions to conduct which has an effect on trade or commerce within Australia, or between Australia and elsewhere.
These latter amendments to the cartel provisions can be contrasted with the recent High Court decision of Air New Zealand v ACCC; PT Garuda Indonesia Ltd v ACCC [2017] HCA 21, in which the High Court unanimously dismissed two appeals from a decision of the Federal Court and thereby a rmed an expansive view of the concept of a ‘market’, affirming that the same market might exist in more than one jurisdiction (including Australia) and that a domestic market might exist by reference to the demand for services being derived locally, rather than by reference to the location in which the acquisition of services was transacted.
The decision has thereby arguably broadened the jurisdictional reach of the CCA involving the consideration of markets in respect of other forms of anti-competitive conduct prohibited by Part IV of the CCA.
Future outlook
The recent case law developments and reforms to the CCA, in particular the amendments to section 83 which have the potential to facilitate the ease at which private litigants can pursue follow-on litigation, should – in theory – liberalise the legal landscape in Australia to facilitate an increase in the number of private actions pursued arising from anti-competitive conduct.
Whether these reforms will actually result in an increase in private litigation of anti-competitive conduct is uncertain. Relevantly, the difficulties around the quantification of damages in these actions remain a significant obstacle – as does the prohibitive cost for firms and individuals in bringing such actions, although the recent growth in the litigation funding market in Australia may work to alleviate this constraint.
By Tom Bridges, Partner, Webb Henderson
For further information, please contact:
Ruth Stackpool-Moore, Director of Litigation Funding / Head of Harbour Hong Kong
ruth.sm@harbourlf.com
