29/07/2021

Section 10 of Doing Business in Australia


The Competition and Consumer Act 2010 (Cth) (CC Act) is made up of several parts and schedules, each dealing with particular issues or types of conduct relevant to competition or consumer protection law (for consumer protection law, see section 11).

The key competition law provisions of the CC Act are contained in Part IV which regulates cartels, restrictive trade practices and mergers. Its aim is to prevent anti- competitive activity by companies and individuals.

The CC Act also deals with obtaining access (by third parties) to services provided by major facilities of national significance (e.g. rail facilities, port facilities, gas, electricity, water, waste water, airports) (Part IIIA), the prescription of various industry codes (Part IVB), enforcement and remedies provisions (Part VI), and procedures for authorisation or notification of certain conduct which might otherwise be illegal (Part VII). The CCA also contains special provisions which apply to the telecommunications industry, the international shipping industry and to export agreements.

Competition and Consumer Act penalties 

The CC Act includes a variety of potential penalties for different offences. For example, the ACCC can seek penalties of up to $10 million for some breaches of the competition provisions of the CCA. The CCA also includes criminal penalties (including jail) for some offences, and an individual who has breached or been involved in a restrictive trade practice may be disqualified from being a director or being involved in the management of a corporation.

Conduct engaged outside Australia by a body corporate will also be caught by the CC Act if the corporation is either incorporated in Australia or carrying on business within Australia.

Conduct that is engaged outside Australia by individuals will be caught by the CC Act if the individual is an Australian citizen or ordinarily resident within Australia.

It is possible that a corporation outside Australia that engages in conduct in contravention of the CC Act can be considered to be acting in Australia through a subsidiary. This can occur where:

  • the corporation engages in communications (including phone calls and emails) from places outside Australia to its subsidiary in Australia; and
  • the corporation’s Australian subsidiary acts in a way that gives effect to the agreement reached outside Australia as a result of the direction or control of the parent.

Key competition law provisions

Part IV of the CC Act was originally modelled on the antitrust legislation and case law in the United States, but also includes many features in common with the antitrust provisions of the European Community’s Treaty of Rome and China’s Anti- Monopoly Law. It seeks to protect competition by prohibiting conduct that threatens the competitive process. The prohibited conduct, discussed at greater length below, includes cartel conduct, entering into contracts, arrangements or understandings that restrict dealings or affect competition, engaging in a concerted practice, misusing market power, anti-competitive exclusive dealing arrangements, resale price maintenance and mergers which would affect competition.

Cartel conduct (sections 45AD, 45AF, 45AG, s45AJ, s45AK)

Cartel conduct involves the making or giving effect to a contract, arrangement or understanding that contains a “cartel provision”.

A cartel provision is a provision of an agreement between competitors comprising:

  • price fixing – that is, a provision of an agreement which has the purpose or effect of fixing, controlling or maintaining prices;
  • output restrictions – for example, restrictions on production, capacity or supply;
  •      market sharing – for example, sharing of customers or sharing of geographic areas of supply; and
  • bid rigging – for example, a provision that has the purpose of ensuring that in the event of a request for bids, two or more parties to an agreement bid, but a material component of at least one of those bids is worked out in accordance with the agreement.

Contracts, arrangements and understandings include “meetings of the minds” whether or not in writing and whether express or implied. Understandings such as moral obligations and even a “nod and a wink” are also caught.

The CC Act provides for parallel civil prohibitions and criminal offences for cartel conduct.

There are certain exceptions to both the civil cartel prohibitions and the criminal cartel offences, however their operation can be quite complex and specific advice should always be sought on their application.

Concerted practices (section 45(1)(c))

The prohibition against concerted practices came into effect on 6 November 2017. A concerted practice is not defined in the CC Act, but has been described as involving any form of cooperation that substitutes the uncertainty of competition. The prohibition is aimed at businesses that publicly or privately disclose competitively significant information or take other coordinated action that is intended or likely to substantially lessen competition.

Conduct that does not meet the requirements of a contract, arrangement or understanding under the cartel provisions may fall within the wider scope of a concerted practice. For conduct to constitute a concerted practice, the ACCC has said that reciprocity is not required, meaning that even ‘one way’ communications with a competitor could potentially be a concerted practice.

The concerted practices prohibition captures horizontal as well as vertical arrangements, meaning that conduct involving suppliers, distributors, industry associations and consultants could also be caught. It is important to remember however, that the prohibition requires that there be an actual or likely substantial lessening of competition.

Anti-competitive agreements (sections 45(1)(a) & (b))

Contracts, arrangements or understandings which have the purpose, effect or likely effect of substantially lessening competition in a market (anti-competitive agreements) are also prohibited.

The ban on anti-competitive agreements applies to so-called horizontal agreements and vertical agreements.

A horizontal agreement is one between firms at the same level in the market (e.g. an agreement between two suppliers of components to share production facilities).

Determining what the “market” is and/or whether there has been a “substantial lessening of competition” is not straightforward and requires considered and detailed analysis.

Misuse of market power (section 46)

The misuse of market power prohibition applies to any conduct by a corporation with substantial market power that has the purpose, effect or likely effect of substantially lessening competition in a market. (Prior to 6 November 2017, it had to be shown that the corporation had taken advantage of its market power for one of 3 specified purposes).

If the corporation’s conduct does not have the purpose of lessening competition, it may still breach section 46 if it would have the effect or likely effect of substantially lessening competition.

The misuse of market power prohibition may apply to conduct such as bundling, pricing below cost, cross-subsidisation, price discrimination, loyalty rebates, or refusal to supply.

Market power is the ability to act unconstrained by competitors. A “substantial” degree of market power is a degree that is “large or weighty” or “considerable, solid or big”. A company may have market power even with a low market share.

Corporations whose conduct may otherwise be prohibited under the misuse of market power provisions can apply to the ACCC for authorisation to undertake the conduct.

Authorisation may be granted where the public benefits of the proposed conduct would outweigh any public detriments.

Exclusive dealing (section 47)

Exclusive dealing consists of supplying (or acquiring) goods or services on the condition that the purchaser (or supplier) accepts a restriction on its ability to deal with others.

Exclusive dealing can take many forms, including:

  • supply of goods or services on the condition that the acquirer will not (at all, or except to a limited extent):
    • acquire goods or services from a competitor;
    • re-supply a competitor’s goods or services; or
    • re-supply those goods or services to particular persons;
  • refusal to supply goods or services on the basis that a person has not fulfilled the above conditions;
  • acquisition of goods or services (at all, or at a particular price) on the condition that the supplier will not (at all, or except to a limited extent) supply the goods or services to particular persons; or
  • refusal to acquire goods or services on the basis that a person has not fulfilled the above conditions.

However, exclusive dealing is generally only illegal if it has the purpose or likely effect of substantially lessening competition in a market.

Third line forcing (sections 47(6) and 47(7))

Third line forcing is a type of exclusive dealing. It involves supplying products or services on the condition that the buyer will acquire products or services from a third party.

Third line forcing is only illegal if it has the purpose or likely effect of substantially lessening competition in a market. A party may engage in third line forcing so long as the conduct does not have the purpose, effect or likely effect of substantially lessening competition

If the proposed conduct may raise competition issues, the corporation can seek immunity by lodging a formal “notification” with the ACCC, but in most cases the need to notify third line forcing conduct is no longer required.

Resale price maintenance (section 48)

Resale price maintenance involves imposing a minimum resale price on a reseller. It is illegal for a company to set the minimum price at which dealers or distributors may sell or advertise products or services supplied to them by the company (although it is not illegal to recommend a retail price (RRP) provided it is just a recommendation).

A price includes any formula for calculating a price. Setting a minimum price includes inducing or attempting to induce a person not to sell below that price. This is prohibited absolutely. This means it is illegal regardless of any actual or likely effect on competition.

Some commercial arrangements can be structured to avoid resale price maintenance. Since November 2017, companies proposing to engage in resale price maintenance may lodge a formal “notification” with the ACCC to obtain immunity. If the ACCC does not object (by issuing a draft notice objecting to the notification) within 14 days of the notification being validly lodged, the conduct will be protected from legal action.

Mergers and acquisitions (section 50)

The CC Act prohibits a corporation from directly or indirectly acquiring shares or assets where the likely effect of the acquisition would be a substantial lessening of competition in a market. Mergers and acquisitions are subject to a competition test under the CC Act.

The ACCC investigates and reviews transactions that may raise concerns under the CC Act. The ACCC will approve a merger or acquisition if it does not substantially lessen competition or (depending on the type of clearance sought) if the public benefits outweigh any detriment to the public.

Following changes to the merger provisions in November 2017, parties now have two options to seek approval for their mergers:

  • informal clearance from the ACCC, which involves the parties requesting that the ACCC provide a “letter of comfort” that states it does not intend to oppose the proposed transaction. A party may initially approach the ACCC on a confidential basis, but the ACCC will in most cases wish to conduct a public review before providing a firm view about whether or not it will oppose the proposed merger. A clearance by the ACCC does not preclude third-party action (such as by customers, distributors or competitors – although this is uncommon); or
  • merger authorisation from the ACCC, as the ACCC now has power to authorise a proposed merger or acquisition if it is satisfied that it will not substantially lessen competition, or it is likely to result in a net public benefit. There is a 90 day statutory time frame for the ACCC to determine a merger authorisation, which may be extended with agreement from the applicant. If the applicant is unhappy with the ACCC’s authorisation decision, they can apply for a review of the decision by the Australian Competition Tribunal.

If none of these steps are taken and the ACCC seeks to challenge a merger, it may commence court proceedings seeking:

  • injunctions preventing companies completing transactions or preventing business reconstruction following acquisitions;
  • forced divestiture following a merger;
  • compensation for customers or competitors; and
  • penalties of up to $10 million for companies and up to $500,000 for the key employees of the company concerned.

ACCC reviewal process 

The ACCC has established processes for reviewing and giving clearance for mergers where there is a potential effect on competition. While it is not mandatory in Australia to notify the ACCC prior to a merger or acquisition, the ACCC strongly encourages merger parties to do so. It is therefore prudent to notify the ACCC in a timely manner and work effectively with the ACCC to manage the clearance process.

The role of the ACCC under the CC Act

The ACCC has broad powers under the CC Act to assist in the investigation of suspected breaches of the competition provisions of the CCA. In some cases, these powers are broader than police powers of investigation. As a first step in its investigation, the ACCC will usually seek voluntary interviews with anyone it suspects of contravening the CCA.

Section 155 of the CC Act gives the ACCC the power to force a company or individuals to disclose information, to attend hearings and answer questions, or to provide documents, and the ACCC can obtain warrants for “dawn raids” and other seizures.

The ACCC has the power to compel witnesses to submit to an investigation. A person may be compelled to furnish written information, produce documents or give evidence relating to a matter that may constitute a contravention.

The ACCC also has power to access telecommunications records of telephone calls, mobile telephone calls and faxes.

The ACCC also finds out about breaches of the CC Actwithout having to rely on its statutory powers of investigation. The ACCC often receives complaints from unhappy customers, employees, competitors or consumer associations. It also reviews advertisements in the media on a regular basis.

The ACCC shares information extensively with competition agencies in other countries throughout the world.

 

This guide is current as of April 2021.

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