Major shake-ups to Australian competition laws commence soon

19 Oct 2017

Businesses operating in Australia must prepare for fundamental changes to market power, merger clearance, cartels, price signalling, and exclusionary laws which will commence in the next few weeks, following the passage of the Competition and Consumer Amendment (Competition Policy Review) Bill on 18 October 2017.

The Bill is the second of the two Bills implementing reforms recommended by the Harper Review into competition law. The first, the Competition and Consumer Amendment (Misuse of Market Power) Bill 2017 (Cth), was passed in August, but its commencement was delayed to coincide with the commencement of this second Bill.

The Harper reforms at a glance

Unilateral exercise of market power: For the first time in Australia, firms with market power will now need to carefully consider whether any conduct they engage in, or propose to engage in, could be said to have the purpose, or have or be likely to have the effect, of lessening competition.

The revised section 46 will prohibit a corporation that has a substantial degree of power in a market engaging in any conduct that has the purpose or effect of substantially lessening competition in a market in which the corporation (or its related bodies corporate) supplies or acquires goods or services.

The ACCC has published guidelines as to how it will apply the new laws but there remain many questions how far the new "effects test" will reach and whether it will meet the calls from the small business sector for greater protection.

Any company with more than a 20% market share in Australia should consider whether the new law may apply to its strategies and market conduct.

ACCC merger clearance: Currently there is a direct process which enabled the parties to apply directly to the Australian Competition Tribunal for authorisation, as seen in the current Tabcorp/Tatts matter where the parties opted to bypass the ACCC informal clearance process. The Competition Policy Review abolishes that avenue and requires parties to apply first to the Australian Competition and Consumer Commission.

There will be a limited review right to appeal an ACCC merger decision to the Australian Competition Tribunal but only on the material that was before the ACCC. This will put the onus on merger parties to submit a full-blown merger application to the ACCC, including expert evidence, witness statements and other material.

Concerted practices: There will be a new prohibition of concerted practices following UK and EU law that deal with the problems of proof of collusion, when competitors interact and communicate but do not reach a specific agreement or commitment to follow each other.

The new law will prohibit any concerted practice or conduct by companies that has the purpose, effect or likely effect of substantially lessening competition; this could catch information exchanges between competitors, price signalling, industry association meetings and other practices which fall short of an agreement but which involve forms of co-operation that reduces competition. The ACCC has failed to prove agreements in a number of recent cases, including the eggs case and the Ballarat petrol retailers case, and is likely to be keen to test these new provisions.

Price signalling: The provisions dealing with price signalling which applied only the banks will go, to be largely replaced by the new concerted practices laws.

Cartels - criminal and civil prohibitions: The recent (2009) cartel provisions will also be simplified to focus on cases where the parties are clearly competitors.

The Bill will also expand the existing joint venture exception to protect a wider group of legitimate joint ventures including joint ventures involving the production, supply, acquisition or marketing of goods or services where the JVs do not have the purpose or effect of substantially lessening competition.

Third line forcing: Perhaps long overdue, third line forcing or "third party bundling" of goods and services will no longer be subject to per se prohibition unless the conduct is notified to the ACCC. Instead this practice will be subject to a test of whether the bundling is likely to have the purpose, effect or likely effect of substantially lessening competition.

Exclusionary provisions: The separate prohibition on exclusionary provisions are removed from the Act, as it substantially overlaps with the cartel prohibitions.

Third party rights to demand access rights to monopoly infrastructure: The current "private profitability" test for declaring monopoly assets is replaced by a "natural monopoly" test, reverting to the position before the High Court decision in the Pilbara litigation.

Getting ready for the changes

If you haven't already, you need to review multiple points in your business to ensure you do not breach the new laws (or, indeed, can engage in conduct which was previously prohibited).

The ACCC has created the Substantial Lessening of Competition Unit which will be responsible for misuse of market power and concerted practices investigations and litigation within the ACCC. It will soon release additional guidance on the new misuse of market power and concerted practice provisions.

Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.