Focus on Competition Law July 2001
In this issue: We take a look at the forthcoming amendments to the Australian Trade Practices Act and recent amendments to the New Zealand Commerce Act. Meanwhile, the Federal Court has taken a hard line on anti-competitive conduct.
- Amendments to the Trade Practices Act
- Record $26 million penalty against vitamin suppliers
- Changes to the New Zealand Commerce Act
Amendments to the Trade Practices Act
In brief: The recently passed Trade Practices Amendment Bill, incorporating amendments proposed by the Senate, will introduce a range of changes to the Australian Trade Practices Act. David Holme, an articled clerk in Competition Law, reports.
Contrary to all political expectations, on 19 June 2001, the Federal Government agreed to the amendments to the Trade Practices Amendment Bill (No 1) 2000 proposed by the Senate, and the amended Bill was passed that day. The Bill is currently awaiting Royal Assent. Most of the amendments will come into operation 28 days after Royal Assent.
The amendments to be introduced by the Bill have resulted mainly from the recommendations of the Australian Law Reform Commission Report No 68: Compliance with the Trade Practices Act 1974, as well as the report of the Joint Select Committee on the Retailing Sector: Fair Market or Market Failure? (the Baird Report) (1999) in which a number of recommendations were made for changes to the Trade Practices Act to enhance the protection of small businesses and consumers.
The major changes to the Trade Practices Act are:
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Section 50 (Mergers): Mergers affecting Regional Markets
The Bill will amend the definition of 'market' for the purposes of section 50 of the Act (the prohibition on anti-competitive mergers and acquisitions) to now include a substantial market in a region of Australia.
Many will believe this amendment merely codifies the Australian Competition and Consumer Commission's (ACCC) current position in dealing with mergers. However, the amendments will ensure that even greater attention is paid to regional markets. Further, the Court or Tribunal will be also directed to consider whether, and to what extent, the merger or acquisition has affected, or is likely to affect, competition in substantial regional markets.
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Representative Proceedings under Part IV
The Bill will amend section 87 of the Act to allow the ACCC to bring appropriate representative proceedings with respect to contraventions of Part IV (except for sections 45D and 45E, which are prohibitions on 'secondary boycott' activity). The ACCC currently only has the power to commence representative proceedings for contraventions of Parts IVA, IVB and V of the Act.
It was the eventual 'carve-out' of the secondary boycott prohibitions from the new power of the ACCC to bring representative proceedings for contraventions of Part IV that was the subject of the Senate amendments, and that caused a seemingly insurmountable deadlock between the two Houses of Parliament. Whilst the Government reluctantly agreed to this amendment to ensure that the other changes to be introduced by the Bill were passed, it has promised to seek to remove this carve-out in a further Bill.
The Bill will also simplify the requirements the ACCC must satisfy before it commences representative actions. It will extend the limitation period within which proceedings must be brought under section 87 to six years after the day on which the cause of action that relates to the conduct accrued. Currently, the limit is two years for the unconscionable conduct provisions and three years for all other provisions.
These amendments are also based on the recommendations of the Baird Report. It concluded that small business may not have the time, resources or legal expertise to engage in lengthy legal proceedings, and that the ACCC is better placed to initiate proceedings on behalf of small business for alleged contraventions of the restrictive trade practices provisions of the Trade Practices Act.
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Increased Fines for Consumer Protection contraventions
The Bill will amend section 79 of the Trade Practices Act to increase the maximum penalties a court may impose on a party for an offence arising out of a contravention of the provisions of Part V (which contains the Consumer Protection provisions of the Act). The maximum monetary penalty is now 2,000 penalty units on an individual and 10,000 penalty units on a corporation (which would currently translate into $220,000 and $1,100,000 respectively).
These amendments were proposed in light of the findings of the Commission that the current maximum penalties ($40,000 for individuals and $200,000 for corporations) did not adequately reflect the community's disapproval of actions that constitute a contravention of the Trade Practices Act.
The increased fines will only be applicable in relation to conduct on or after the commencement of the amendments introduced by the Bill.
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Other major changes
Strengthening the Unconscionable Conduct provisions
A person who has suffered loss or damage as a result of any contravention of Part IVA (Unconscionable Conduct) (and not just section 51AC) will now be able to recover damages under section 82 of the Trade Practices Act. This was not allowed previously. The greater monetary limit for actions based on unconscionable conduct under section 51AC was also confirmed in the legislation - it rises from $1 million to $3 million. This confirms the limit already prescribed by regulation. Finally, amendments will be introduced to ensure that state and territory laws prohibiting unconscionable conduct will operate along-side and in addition to, the provisions in the Trade Practices Act.
New range of remedies
The Bill will make available to the court a new range of punitive and non-punitive orders where a person has contravened the Trade Practices Act. These new remedies include community service orders, probation orders to ensure contraventions are not repeated (including ordering the establishment of compliance programs and/or other education or training programs), orders requiring the disclosure of information, orders requiring an advertisement to be published, or adverse publicity orders.
ACCC able to seek intervention/declaration
The ACCC will be able to seek a declaration in relation to a matter arising under the Trade Practices Act in its own right, to enable it to assist in the interpretation and enforcement of the Act.
The ACCC will also be able to intervene in private proceedings instituted under the Act with leave of the court, which will allow it to intervene in matters where the case raises issues of public interest, or to seek the Courts' determination of untested areas of the Act. (The High Court allowed the ACCC to intervene in the recent Melway case.)
Preference for compensation
The Bill will introduce provisions directing the court to give preference to an order for compensation where a defendant is required to pay both a fine or penalty and compensation to a plaintiff who has suffered loss or damage as a result of the breach and it is apparent that defendant does not have sufficient financial resources to pay both.
Extended limitation period for damages
A person will be able to commence an action to recover loss or damage under section 82 of the Trade Practices Act within six years from the date the cause of action accrued (previously three years). This will create a consistent limitation period across the Act and provide greater access to remedies for those who have suffered loss or damage.
Record $26 million penalty against vitamin suppliers
In brief: The Federal Court has again shown its willingness to impose significant monetary penalties on companies found to be in breach of the Trade Practices Act anti-competitive conduct provisions. Senior Associate Joe Irvin reports.
In a recent Federal Court decision in ACCC v Roche Vitamins Australia Pty Ltd and Others [2001] FCA 150, Justice Lindgren imposed record penalties totalling $26 million against three animal vitamin suppliers for alleged price fixing and market sharing in contravention of section 45 of the Trade Practices Act 1974.
The anti-competitive conduct affected the supply of animal vitamins A and E (and pre-mix containing these vitamins) in Australia by Roche Vitamins Australia Pty Ltd, BASF Australia Ltd and Aventis Animal Nutrition Pty Ltd.
The conduct of the Australian companies was a manifestation of market sharing and price fixing arrangements entered into overseas by their parent companies. The arrangements took place between 1994 and 1998 and included, among other things, reaching agreements and understandings on the prices they would sell animal vitamins for and the method and terms upon which they would tender for vitamin supply contracts.
This conduct was considered extremely serious, particularly given it involved local companies giving effect to global arrangements made by multi-national corporate groups.
The ACCC and the three companies gave the court statements of agreed facts and joint submissions on appropriate penalties. Justice Lindgren accepted the agreed penalties, which were:
- Roche: $15 million;
- BASF: $ 7.5 million; and
- Aventis: $ 3.5 million
Factors considered in assessing the penalties
In considering the appropriate penalties to be imposed, Justice Lindgren took into account the following factors:
- The nature and extent of the contravening conduct, including its deliberateness and manifestation in Australia of the overseas arrangements.
- The significant value of sales affected.
- The influence of the contravening companies in the market.
- The period of the contravening conduct (four years in the case of Roche and BASF and two years in the case of Aventis).
- The fact that the defendant companies controlled 90-100% of the market for the supply of vitamins A and E in Australia so that Australian customers had no real alternative source of supply.
- The participation of senior management.
- The co-operation of each party with the ACCC.
- Each company's undertaking to the Court to use its best endeavours to ensure their current trade practices compliance program conforms with Australian Standard AS3806.
The Court also acknowledged that general deterrence was of paramount importance in the case given that the conduct of the Australian companies:
- was a manifestation of overseas arrangements between large multi-national corporate groups,
- involved price fixing which was one of the most serious contraventions of the Act, and
- continued even after the Federal Court had handed down multi-million dollar penalties in respect of other cartel arrangements in the Australian express freight and pre-mix concrete industries.
Significance of the case
- It is the first time a penalty in excess of $10 million has been imposed under the Act on a single corporation.
- It continues a Federal Court trend to impose significant penalties on those companies that are found to have entered large-scale cartel arrangements in breach of the Act.
- The case reinforces earlier Federal Court authority on the factors that are appropriate to be taken into account in assessing the level of penalties in cases of this type.
- The ACCC and the courts will take a particularly dim view of Australian companies which seek to implement international cartels in Australia to the detriment of Australian markets and consumers.
Changes to the New Zealand Commerce Act
In brief: Changes to the New Zealand Commerce Act 1986 came into force on 26 May 2001 and included changes to the limitations period and the test for adjudicating mergers and acquisitions. Solicitor Jacqueline Downes and senior associate Emma Marsh report.
Changes to the limitations period
Changes to the limitations period in the Commerce Act have come into effect only a few months after the New Zealand Commerce Commission indicated it could not take action over the animal vitamins price fixing cartel in New Zealand because of the expiry of the statutory time period. However, the Commerce Minister indicated that the new legislation would not have a retrospective effect.
The amendments to the Commerce Act now allow the Commerce Commission to commence proceedings within three years 'after the matter giving rise to the contravention was discovered or ought reasonably to have been discovered' rather than within three years from the date of the contravention itself. However, no proceedings may be commenced more than 10 years after the contravention.
The Commerce Act still differs from the Australian Trade Practices Act 1974, however, which enables the ACCC to take action within six years from the time of contravention of Part IV.
It is unclear what 'ought reasonably to have been discovered' will mean in the Commerce Act. It most likely will require that some fact or matter has come to the Commission's attention that should have brought about an inquiry into a potential contravention. This may include prosecutions overseas for the same or similar offences or relevant complaints or reports that the Commission may have received.
New test for adjudication of mergers and acquisitions
Amendments to section 47 of the Commerce Act provide that a person must not acquire assets of a business or shares if the acquisition is likely to substantially lessen competition in a market. The test is expressed similarly to that in section 50 of Australia's Trade Practices Act.
Business acquisitions will now be tested according to their likely impact on competition rather than the market power of the merged entity alone (the old dominance test).
The NZCC has published a Practice Note setting out its intended approach to adjudicating on business acquisitions under the changed threshold (see www.comcom.govt.nz), saying it intends to use the analysis applied in Australia for guidance, while bearing in mind the unique attributes of New Zealand markets.
The Practice Note sets out a process for analysing business acquisitions, similar to the process set out by the Australian Competition and Consumer Commission (ACCC) in its merger guidelines. However, there are some important differences that take into account New Zealand's smaller economy and more concentrated markets.
Safe harbours
The revised 'safe harbours' set out the levels of post-merger market shares that are unlikely to raise competition concerns.
An acquisition will fall within the safe harbours under the new test if, after the proposed acquisition:
- the top three firms in the market have a combined market share above 70% but the merged entity's market share is less than 20 per cent; or
- the top three firms have a combined market share below 70% and the merged entity's market share is below 40%.
Applying for clearance or authorisation
The NZCC advises parties to apply for clearance or authorisation if a proposed acquisition is likely to fall outside the new safe harbours. The Commerce Act continues to provide for voluntary notification in relation to business acquisitions. Parties contemplating acquisitions can therefore submit an application for clearance or authorisation if they believe a proposed acquisition might breach section 47.
Unlike the ACCC, the NZCC will not provide parties with a decision unless it has had the opportunity to make market enquiries. This means that parties will not usually submit an application until they are comfortable in making the acquisition public.
Penalties
If parties proceed with an acquisition without seeking clearance or authorisation and the NZCC subsequently considers that the acquisition will breach section 47, the NZCC may apply to the High Court to seek a declaration of a breach and remedies including injunctions, divestment and pecuniary penalties.
The amendments to the Commerce Act have increased penalties for a body corporate to the greater of NZ$10 million, or three times the value of any commercial gain or expected commercial gain, or, if commercial gain is not known, 10% of the turnover of the body corporate and any interconnected bodies corporate. Individuals may also be liable for pecuniary penalties.
The amendments also allow the NZCC to make a 'cease and desist' order if it is satisfied that a person has breached section 47 and it needs to act urgently to prevent a particular person or consumers from suffering serious loss or damage, or to protect the public interest. The penalty for breaching a cease and desist order is up to NZ$500,000.
Other important changes to the Commerce Act
Defence to presence of an exclusionary provision
The Commerce Act prohibits contracts, arrangements or understandings containing an 'exclusionary provision', a provision in an agreement between competitors which has the purpose of restricting supply to particular persons. The amendments to the Commerce Act now provide a defence to the presence of an exclusionary provision 'if it is proved that the provision does not have the purpose, or does not have or is not likely to have the effect, of substantially lessening competition in a market'.
Taking advantage of market power
The amending Act also replaces the concept of 'dominant market position' with the concept of 'a substantial degree of market power' in section 36 of the Act which prohibits the taking advantage of market power for an anti-competitive purpose. This reduces the threshold of the offence and brings it in line with the Australian Trade Practices Act.
For further information, please contact:
- Tony KuhnPartner,
Melbourne
Ph: +61 3 9613 8940
Tony.Kuhn@aar.com.au - Geoff RankinPartner,
Brisbane
Ph: +61 7 3334 3235
Geoff.Rankin@aar.com.au
