21 May, 2015
Background
In its final report, published in mid-April, the Harper Review panel made a number of recommendations for sweeping changes to Australian competition law and policy. Among those recommendations are a number which have practical implications for the mining industry, including:
- simplification of the operation of the joint venture defence to cartel conduct, providing greater legal certainty for mining joint ventures, and
- restricting the circumstances in which access seekers can rely upon the National Access Regime to obtain access to key infrastructure.
The panel has also recommended changing the law on misuse of market power to include an 'effects test'. If this recommendation is accepted, a corporation which has a substantial degree of market power would be prohibited from engaging in conduct that has the purpose, effect or likely effect of substantially lessening competition.
Cartel Conduct And The Joint Venture Defence
The panel recognised that Australia’s competition laws must strike the right balance between prohibiting anti-competitive conduct and fostering pro-competitive conduct. In light of this, the panel recommended simplifying the overly complex prohibitions on cartel conduct.
As part of those changes, the panel recommended amending the joint venture defence to cartel conduct. As presently drafted, the current joint venture defence is narrowly framed and may inadvertently impose unnecessary obligations in respect of various common joint venture arrangements, such as some forms of joint marketing.
The panel considered that the joint venture defence should be amended as follows:
- Removal of contract requirement for joint venture defence,
Under the present defence, all relevant agreements between joint venture arrangements must be contained in a contract. The panel’s recommendation that the joint venture defence apply to less formal joint venture arrangements or understandings, such as operating procedures, ensures that the defence reflects the commercial realities of legitimate joint ventures.
- Removal of requirement for production and / or supply joint venture,
There was significant concern that this requirement did not provide comfort to parties engaging in R&D activities. The proposed amendments will remove this uncertainty.
While the proposed joint venture defence appears to be an improvement on the current drafting, it remains to be seen how the provision will operate in practice. Ultimately, however, the arrangements in question will still need to satisfy the requirement that they be “for the purposes of the joint venture”, a term yet to be defined, but generally understood to mean that the arrangement in question is efficiency enhancing.
Access Regulation
The National Access Regime was also the subject of a recent review by the Productivity Commission (PC). While the Harper Review panel considered that the National Access Regime should remain, it made a number of recommendations to the declaration criteria which should limit the circumstances in which the National Access Regime will apply. The amendments include:
- Competition in dependent market – criterion (a)
Access should only be granted if the access (on reasonable terms and conditions) promotes a 'substantial' increase in competition in a dependent market 'that is of national significance'. This increases the current test of promoting a 'material' increase in competition in any dependent market (whether local or off-shore).
- Uneconomical to duplicate – criterion (b)
Following the adoption of different tests by the National Competition Council, the Australian Competition Tribunal and, most recently, the High Court, the panel recommended the adoption of a test which requires that it be uneconomical for anyone (other than the service provider) to develop another facility to provide the same service, as a pre-requisite to allowing access to the infrastructure in question.
- Public interest – criterion (f)
The panel endorsed the PC’s recommendation that an access declaration should be made only where access on reasonable terms and conditions would promote the public interest. This modifies the current provision, which only requires the Minister to be satisfied that access to the service not be contrary to the public interest.
The proposed amendments to the declaration criteria recognise the potential economic costs and inefficiencies associated with the National Access Regime, while accepting that access under the regime may still be appropriate in some limited circumstances.
The panel also recommended that the Australian Competition Tribunal be able to conduct a merits review of access declaration decisions, partially reversing amendments made in 2010 which limited the scope of a Tribunal review.
The panel also recommended that the powers of the ACCC and NCC under the National Access Regime be transferred to a new Access and Pricing Regulator with the NCC being dissolved.
Conclusion
Although the recommendations made by the panel are significant, reform of Australia’s competition laws, policies and institutions is long overdue. However, the degree to which the recommendations will ultimately be accepted by Government and successfully implemented remains to be seen. The government is presently undertaking further consultation in relation to the panel’s final report.
For further information, please contact:
Daniel Preston, Partner, Herbert Smith Freehills
daniel.preston@hsf.com
Matthew Bull, Partner, Herbert Smith Freehills
matthew.bull@hsf.com
