18 February 2005
Reforms to make merger clearances and authorisations easier and remove some obstacles from joint ventures and joint promotions are back on track, following yesterday's introduction into Parliament of the Trade Practices Legislation Amendment Bill (No. 1) 2005. The new Bill will enact the Dawson Report's recommendations in these areas.
A previous Bill that was introduced last year lapsed because the Federal election was called (we looked at it in this Alert). This Bill is substantially the same, although the Government has made some minor changes. As with the previous version, the Bill also increases penalties dramatically, and prevents companies from indemnifying their officers for penalties or legal costs. However, unlike the previous version of the Bill, companies will be permitted (as they are now) to indemnify employees and agents who are not "officers" of the company.
In this Alert we'll briefly look at the main features of the Bill and the minor changes from last year.
Merger clearances and authorisations: As in the previous Bill, the new voluntary formal clearance system will require the ACCC to make a decision about whether to oppose a proposed merger or acquisition in respect of which a formal clearance has been sought, within 40 business days. That decision can be reviewed by the Australian Competition Tribunal. When reviewing that decision, however, under the new Bill, the Tribunal will now be able to disclose confidential information provided during the formal clearance process to "such persons and on such terms as it considers reasonable and appropriate for the purposes of clarifying the information." This is potentially a substantial enlargement of the Tribunal’s power to disclose confidential information and it will be interesting to see how this affects the take-up of the review process. As with the previous Bill, applications for authorisation of mergers on public benefit grounds will now go straight to the Australian Competition Tribunal.
Joint venture parties and exclusionary provisions: The new Bill provides exceptions to the strict prohibitions on exclusionary provisions (boycotts) and price fixing for joint ventures. Joint venture parties which enter into non-compete arrangements with the joint venture vehicle, or set uniform prices for products sold by the joint venture, will now have a defence. Under the Bill, there is no contravention of the prohibitions on exclusionary provision and price fixing if such arrangements are for the purposes of a joint venture, and do not have the purpose, effect or likely effect, of substantially lessening competition.
Bundling (third line forcing): A corporation which offers goods or services, or a discount, on the condition that the purchaser acquires or bundles other goods from a third person (including a related body corporate), will no longer automatically be in breach of the Act. Now, such conduct will only be illegal if it has the purpose or the effect of substantially lessening competition. A business will not be in contravention of the prohibition only for offering a discount to a customer on the condition that the customer acquire goods or services from a related body corporate of the business. This should avoid the need to seek immunity from the ACCC for most bundling discounts, fuel discount schemes and similar joint promotions .
Indemnities and disqualification for directors and officers: The new Bill is consistent with the position under the Corporations Act. Companies will not be able to indemnify officers against liability to pay pecuniary penalties for breaches of Part IV of the Act (ie. the competition law provisions), or legal costs in defending or resisting proceedings in which they are found to have such a liability. A corporation thus can only indemnify its officers when the officer wins the proceedings. An important change from last year's Bill is that corporations will now be able to indemnify employees and agents that are not officers, for such liability and legal fees.
An "officer" has the same meaning as in the Corporations Act and is, essentially, a director or secretary of the company or a person who makes, or participates in making, decisions that affect the whole, or a substantial part, of the business of the corporation or who has the capacity to affect significantly the corporation's financial standing or in accordance with whose wishes or instructions the directors of the corporation are accustomed to act.
Under the new Bill, courts will be able to disqualify a person from managing a corporation if the person has contravened, attempted to contravene, or has been involved in a contravention of Part IV, and the court thinks that disqualification is justified. Relevant factors include, but are not limited to, the person’s conduct in relation to the management, business or property of any corporation.
Collective bargaining for small businesses: Small businesses will be able to bargain collectively, with immunity from the prohibitions on price fixing, exclusionary provisions (boycotts) and anti-competitive arrangements, using a new notification process. This only applies where the total price of goods or services to be supplied to or from the "target" of the collective bargaining is reasonably expected to be under $3m in any 12 month period.
Turnover penalties: Maximum penalties for breaches of the competition law provisions (eg. boycotts, price fixing, misuse of market power) will be increased to the greatest of the following:
Conclusion
The Bill contains many measures that will assist businesses by relaxing a number of technical offences (such as price fixing in the context joint venture arrangements and third line forcing). The new formal ACCC merger clearance and Australian Competition Tribunal authorisation processes will provide businesses with alternatives to obtaining approvals for mergers and acquisitions that raise competition law issues.
However, the bulk of the competition laws are unchanged under this Bill. The vastly increased penalties, and prospect of disqualification from management, greatly increase the consequences for corporations and individuals of engaging in conduct that contravenes the competition laws.
These changes, together with the proposed separate introduction of jail sentences for cartel conduct, emphasise the need for companies to look at their trade practices compliance systems.
