26 October 2006
After more than two years, the Dawson reforms to the Trade Practices Act 1974 (Cth) ("TPA") were passed by Parliament on 19 October 2006 under the Trade Practices Legislation Amendment Act (No. 1) 2005. It is not clear when the Act will come into force, although media reports have suggested January 2007.
These significant reforms include reforms to introduce formal merger clearance applications, an easier notification system for collective bargaining, the removal of some obstacles from joint ventures, increased investigatory powers of the ACCC and increased penalties for contraventions of the TPA. The new Act implements the Dawson report recommendations in these areas.
In this Alert we will briefly look at the main features of the Act and the minor changes from last year.
Merger clearances and authorisations
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. Late changes to this Act proposed by Senator Fielding mean that the ACCC can extend the time they have to consider applications by an additional 20 business days.
The ACCC's decision can be reviewed by the Australian Competition Tribunal within 90 days, although this time frame can also be extended.
The amendments have also clarified that the ACCC has standing to appear before the Australian Competition Tribunal, provide evidence, examine and cross-examine witnesses and make submissions as determined by the ACCC.
Applications for authorisations of mergers on public benefit grounds can now go straight to the Australian Competition Tribunal.
The ACCC's response to these changes, in how it manages the current "informal" clearance system is yet to be announced.
Penalties increased
The Act provides for much higher penalties for contraventions of the TPA as a means of better deterring corporations or individuals from engaging in anti-competitive behaviour. 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:
This is a very significant change and will apply to conduct occurring after commencement of the new Act.
Search powers of the ACCC
The Act expands the search powers of the ACCC. The current provisions in the TPA provide the ACCC with the power to enter premises and inspect documents without a warrant. The Act will provide the ACCC with the ability to search premises and seize evidence and conduct dawn raids when backed by a warrant.
Indemnities and disqualifications for directors and officers
The Act extends the ban on indemnities for corporate officers 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 TPA (i.e. the competition law provisions), or legal costs in defending or resisting proceedings in which they are found to have such a liability regardless of "good faith". A corporation thus can only indemnify its officers when the officer wins the proceedings. (The Act however allows corporations to indemnify lower level 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 participants 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.
In addition, under the Act, the 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.
Joint venture parties and exclusionary provisions
The Act exempts joint ventures from the strict prohibitions on exclusionary provisions (boycotts) and price fixing. 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. There is no contravention of the prohibitions on exclusionary provisions and price fixing if such arrangements are for the purposes of the joint venture, and do not have the purpose, effect or likely effect, of substantially lessening competition.
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 $3 million in any 12 month period.
The Government has acknowledged that while the majority of small businesses will fit within the $3 million transaction threshold, there will be some small businesses that may require a higher transactional limit. The issue of thresholds will be addressed via regulations, which may include businesses like car dealers, petrol station retailers and farm equipment retailers. The regulations will be put in place no later than 19 April 2007.
Bundling (third line forcing)
Unfortunately, despite widespread calls for reform of the anachronism in section 47, the Act retains the per se prohibition in relation to third line forcing in the TPA, except between related entities.
Conclusion
The Act contains both carrots and sticks for Australian business.
Carrots
The amendments will assist businesses by relaxing technical offences such as price fixing in the context of joint venture arrangements and providing businesses with an alternative to obtaining approvals for mergers and acquisitions through a new formal ACCC merger clearance and the Australian Competition Tribunal authorisation process.
It remains to be seen how extensively the new clearance system will be used for most run of the mill matters. The formal application process will require significant planning and cost to be effectively utilised, and will probably only be used in large, contentious mergers. As well, it will be challenging to offer and negotiate undertakings through a formal application.
Sticks
The increase in the ACCC's powers, and 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 future introduction of jail sentences for cartel conduct, re-emphasise the seriousness of competition law breaches and the corresponding need for companies to ensure the effectiveness of their trade practices compliance systems.
Now the Dawson Bill has been passed, the Government has indicated it will move forward with the next stage of its TPA reform to expand the misuse of market power provisions and the unconscionable conduct provisions of the TPA under the Trade Practices Legislation Amendment Bill (No 2) 2006.
