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Allens Arthur Robinson

Striking the right balance: business will welcome the Dawson Report

16 April 2003

The Federal Government's release of the much awaited report from the Dawson Committee's review of Part IV of the Trade Practices Act will be warmly welcomed by most sections of the business community as a balanced response to the competing interests of the ACCC, large and small business and consumer groups.

The key to the Committee's conclusions and perspective on these issues was that the competition provisions of the Act are designed to protect the competitive process rather than a specific market structure or individual businesses. The Committee also recognised the critical role of compliance by each business with the Act.

The Government accepted virtually every one of the Committee's recommendations. Overall, the Committee concluded that:

the competition provisions have served Australians well. The Act has sustained a competitive environment which has benefited consumers in terms of service and price. In doing so, it has achieved an appropriate balance between the prohibition of anti-competitive conduct and the encouragement of competition.


The recommendations for reform are designed to achieve three main objectives:

  • greater transparency, speed and certainty for business and consumers in the administration of the Act by the ACCC;
  • modernising the Act to deal with new business structures such as joint ventures and dual listed companies; and
  • fixing the law where it did not strike the right balance between business conduct and consumer interests, such as third line forcing, the scope of exclusionary provisions and the need for small business to engage in collective bargaining.

The Committee and the Government have heeded the call by the ACCC and others for the introduction of criminal sanctions including imprisonment for serious cartel type offences. Importantly, however, they have both recognised that there is no straight forward way of introducing this into the Australian judicial system without weakening the effectiveness of the present system and recommended that a committee should be established to consider this issue further.

The next step is for the Government to engage in a three-month consultation with the State and Territory governments. This may result in some changes to the final legislative package.

AAR's perspective on the specific recommendations:

Mergers: If introduced, business will have three options to obtain merger approval as a result of the Committee's recommendations on the merger processes:

  1. the current informal clearance process, with an obligation on the ACCC to provide reasons where requested or where a merger has been rejected or undertakings accepted;
  2. a new voluntary formal 40-day ACCC clearance process under which parties receive a binding clearance and immunity from third party action, with limited right of appeal to the Tribunal; and
  3. a new formal authorisation process direct to the Tribunal instead of the ACCC (with 3 months to consider). The ACCC will cease to administer the public benefit test in mergers.

Whilst the Committee did not recommend the introduction of a test of economic efficiency into section 50 as requested by business, in our view these amendments to the merger processes will lead to greater accountability of ACCC decision-making and consideration of efficiencies by the Tribunal which historically has been more receptive to such arguments.

Section 46: It was accepted that no amendment should be made to section 46 which governs the misuse of market power. Claims that proving the purpose element of section 46 is difficult were rejected and it was recognised that the introduction of an effects test could stifle competition and innovation to the detriment of consumers. Calls by small business for special treatment following the High Court's decision in Boral were also rejected presumably on the basis that the Act is about protection of competition and not particular competitors who might be damaged in the competitive process.

Price discrimination: It was acknowledged that there is no basis for reintroducing a specific price discrimination provision as this conduct is adequately covered by section 46.

Cease and desist orders: The ACCC's request for additional power to issue cease and desist orders was rejected on the basis that injunctions are a sufficient remedy.

Authorisation: The authorisation process for non-mergers will be streamlined by imposing a six-month time limit on the ACCC and giving it the flexibility to reduce application fees. This will make authorisation, which is now slow, cumbersome and expensive, a more practical option for business.

Collective bargaining: The unique nature of small business has been recognised by allowing the sector to collectively bargain with large businesses using a simplified notification procedure proposed by the ACCC, which is quicker and cheaper than seeking authorisation from the ACCC.

Third line forcing: It was recognised that third line forcing may be beneficial and pro-competitive and as such, the third line forcing prohibition should be subject to a competition test and related companies treated as a single entity. If enacted, one of the immediate benefits of this will be that corporations operating pro-competitive loyalty reward schemes and retailers offering discounts or credit conditional upon consumers acquiring goods or services from a third party will no longer be technically in breach of the law or need to incur the trouble and expense involved in lodging notifications.

Exclusionary provisions: Exclusionary provisions will be significantly narrowed. There will be a defence if the conduct does not have the purpose, effect or likely effect of substantially lessening competition. In addition, only conduct targeting competitors will be prohibited. These changes will significantly assist common place commercial arrangements and will bring Australia's laws into line with those in New Zealand.

Joint Ventures: In recognition that goods and services can often be supplied more efficiently by businesses through joint ventures, the Government will update the price fixing exemption available to joint ventures to ensure that it applies to all joint ventures, including newer forms of joint ventures in e-commerce, provided they do not substantially lessen competition.

Dual Listed Companies: DLCs are to be treated on the same basis as corporate groups, so that they avoid technical breaches of the Act as a result of the separate status of the companies.

Criminal Sanctions: Whilst it was acknowledged that there is a need for criminal sanctions for serious cartel behaviour, the ACCC's proposals in this regard were not accepted. Rather, it was recognised that there is a need for a considered approach to this issue, including a satisfactory definition of the offence and a workable means of combining it with a clear and certain leniency policy. The Government agreed that these problems must be resolved before any criminal sanctions are introduced and is also keen to ensure that the penalty does not impose significant additional uncertainty or complexity for business.

Civil Penalties: The armoury of civil penalties will be augmented by the introduction of a financial penalty that is the greater of $10 million, three times the gain from the contravention or, where the gain cannot be calculated, 10% of the turnover of the corporate group. Other recommendations follow the recent amendments in New Zealand that would allow a court to exclude an individual implicated in a contravention from being a director or a manager of a corporation. It has also recommended that corporations be prohibited from indemnifying their officers, employees or agents for the imposition of a financial penalty. This clarifies the position and imposes a greater individual incentive to ensure corporate compliance.

Corporate Governance: Several reforms were recommended to address the real concerns expressed about the ACCC's accountability. Those reforms include the establishment of a Joint Parliamentary Committee to oversee the ACCC's administration of the Act; the development of a media code of conduct governing the ACCC's use of the media and all formal and informal comments by the ACCC to the media in order to ensure accurate and balanced reporting; a consultative committee to advise the ACCC on the administration of the Act which would report to Parliament through the ACCC's annual report and the appointment of an associate commissioner to the ACCC to receive and respond to individual complaints about the administration of the Act. The Government has reserved its response on these last two recommendations pending the release of another report by Mr John Uhrig concerning corporate governance of Commonweath statutory bodies generally.

S155 – Production and search for documents: Section 155 gives the ACCC extensive powers to demand documents and information from a company and to enter a company's premises to search for and seize documents, as used by the ACCC to conduct raids on three oil companies last year.

Whilst the ACCC will get extended powers to search and seize information, it will have to obtain a warrant from a judge or magistrate before it is permitted to conduct searches. This is an appropriate 'check and balance' given the extensive power given to the ACCC to conduct searches.

It was recognised that there are real financial costs to a company in complying with an ACCC demand for documents and information. The Committee reinforced the need for the ACCC to give careful consideration to these financial implications prior to using its power under section 155. The recommendations stopped short however of allowing parties to claim costs from the ACCC in the event of an unsuccessful investigation.

Ends

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Allens Arthur Robinson has staff in 14 cities and eight countries across the Asia Pacific.