01 Jun 2015

The final report of the Competition Policy Review and Part IV of the Competition and Consumer Act

By Peter Sise

On 31 March 2015 the Competition Policy Review chaired by Professor Ian Harper released its final report.  The report has been a long time in the making.  The review was first announced on 4 December 2013.  Following the release of an issues paper on 14 April 2014, the review panel (Panel) consulted widely receiving almost 350 submissions and attending almost 100 meetings with stakeholders.  This culminated in a draft report released on 22 September 2014 which ran to over 300 pages and made 52 draft recommendations.  Further consultation then occurred resulting in around 600 additional submissions before this final report was released.  Such extensive consultation is perhaps to be expected given the review is the first of its kind since 1993.   

The final report is a weighty volume of close to 550 pages containing 56 recommendations addressing not only competition laws, but competition policy and institutions.  This article will focus on the recommendations concerning Part IV of the Competition and Consumer Act 2010 (CCA).  It does not cover all of the recommendations regarding the CCA.  There are other significant recommendations concerning compulsory information gathering by the ACCC, merger review, the application of the CCA to government and extra-territorial activity, the ability of plaintiffs to rely on admissions made in other court proceedings, and exceptions for intellectual property, to name a few.  For a complete list, please refer to pages 55 to 74 of the final report and appendix A for model legislative provisions proposed by the Panel.

Simplification of Part IV of the CCA

The Panel assessed whether the laws in Part IV remain ‘fit for purpose in light of consumer and business experience … and developments in the Australian economy and abroad.’[1]  It concluded that they were and that the concepts, prohibitions and structure of the CCA were ‘sound’.[2]  However, it concluded Part IV was in need of simplification.[3]  The Panel recommended the following provisions be removed: s 45(1) (which concerns contracts made before 1977), ss 45B and 45C (which concern covenants attaching to land affecting competition and prices), the price signalling provisions in Division 1A of Part IV and the prohibition on ‘exclusionary provisions’ in s 45.  The prohibition on ‘exclusionary provisions’ was said to be unnecessary because it overlaps with the cartel provisions in Division 1 of Part IV.  The Panel also recommended that consideration be given to repealing ss 46A and 46B, which concern misuse of market power in a trans-Tasman market, and s 47 (exclusive dealing).

Misuse of market power

Of all the issues considered by the Panel, the one that drew the most media attention was misuse of market power under s 46.  The debate focussed on two issues: (i) whether the defendant must ‘take advantage’ of their market power and (ii) whether s 46 should target conduct that has the likely effect of substantially lessening competition.

The Panel concluded that the current form of s 46 is ‘misdirected as a matter of policy and out of step with international approaches.’[4]  It recommended that the ‘take advantage’ element be removed because it has given rise to interpretative difficulties and is not a useful test to distinguish between competitive and anti-competitive conduct.  It also recommended that s 46 address conduct that has the effect, or is likely to have the effect, of substantially lessening competition.  In this regard, the Panel thought that s 46, as a matter of policy, should be directed at protecting the competitive process rather than protecting competitors. 

The recommendation of an effects-based test for s 46 is perhaps bold given that all previous reviews, the first occurring back in 1976, have not recommended this.  Several submissions to the Panel expressed concern that an effects-based test may capture pro-competitive conduct.  To address this concern, the Panel recommended in its draft report that s 46 be subject to a defence which would require a defendant to establish that its conduct (i) ‘would be a rational business decision or strategy by a corporation that did not have a substantial degree of power in the market’ and (ii) has the effect or likely effect of benefitting the ‘long-term interests of consumers’.[5]  The Panel has now withdrawn this draft recommendation and instead recommended that s 46 be amended to contain guidance for determining whether the impugned conduct has the purpose, effect or likely effect of substantially lessening competition.[6]  The guidance requires a court to consider (i) the extent to which the impugned conduct has the purpose, effect or likely effect of increasing competition (including by enhancing efficiency, innovation, product quality or price competitiveness) and (ii) the extent to which it has the purpose, effect or likely effect of lessening competition (including by restricting or deterring the potential for competitive conduct or new entry).[7] 

Several submissions also expressed concern regarding the uncertainty that an effects-based test could introduce.  The Panel acknowledged that there may be uncertainty and some associated costs, but said these detriments would be outweighed by the benefits that a revised s 46 would ultimately deliver.  Further, the Panel believed that uncertainty could be addressed by the introduction of authorisation for conduct otherwise contravening s 46 and the ACCC issuing guidelines regarding its approach to enforcing s 46, which would be prepared in consultation with business stakeholders, consumer groups and legal experts. 

Price signalling

The Panel recommended that the price signalling provisions in Division 1A of Part IV be repealed. The price signalling provisions appear to have been universally unpopular given that the Panel received no submissions that supported them in their current form.[8]  At the same time, the Panel has recommended that s 45 be extended to include ‘concerted practices with one or more other persons’ which have the purpose, effect or likely effect of substantially lessening competition.[9]  While the price signalling provisions are confined to the banking industry, s 45 applies to all industries.  Hence, considering the Australian economy as a whole, the increase in regulatory burden resulting from the extension of s 45 is unlikely to be offset by the removal of the price signalling provisions.

The Panel provided model provisions for its recommended changes to s 45, but these do not contain a definition of ‘concerted practice.’[10]  The Panel considered that the word ‘concerted’ has a clear meaning making a legislative definition unnecessary.[11]  Still, the final report describes a ‘concerted practice with one or more other persons’ as conduct between market participants that is ‘jointly arranged or carried out or co-ordinated between the participants’ but is not unilateral conduct or ‘mere parallel conduct’, such as selling products at the same price.[12] 

Although the Panel believes the meaning of ‘concerted’ is clear, it provided a different description of a ‘concerted practice’ in its draft report to that found in its final report.  The draft report described a ‘concerted practice’ as any ‘regular and deliberate activity undertaken by two or more firms’,[13] which appears to be broader than the description in the final report. 

If s 45 is extended to ‘concerted practices’, three matters may assist with its interpretation.  First, the statements in the final report may be relevant, provided the final report is placed before parliament prior to any amendments to s 45 being enacted.[14]  Secondly, the phrase ‘concerted practice’ is currently found in competition laws of the European Union,[15] so European decisions may be relevant.  European courts have described a ‘concerted practice’ as ‘a form of coordination between undertakings which, without having reached the stage where an agreement … has been concluded, knowingly substitutes practical cooperation between them for the risks of competition.’[16]  European courts have said that there is an inherent concept in European competition law that each firm must independently determine its strategy.  This concept does not forbid firms from adapting ‘intelligently to the existing and anticipated conduct of their competitors’, but ‘strictly precludes any direct or indirect contact between such operators with the object or effect either to influence the conduct … of an actual or potential competitor or to disclose to such a competitor the course of conduct which they themselves have decided to adopt or contemplate adopting’.[17]  Thirdly, the secondary boycott provisions in the CCA address conduct performed ‘in concert’.  Although the phrase is slightly different, secondary boycott cases interpreting ‘in concert’ could be of assistance.[18]     

The ACCC submitted that the Panel should consider extending the prohibition on ‘concerted practices’ beyond s 45 to per se prohibitions that have ‘cartel-like outcomes’.[19]  The Panel did not adopt this suggestion because it believed criminal sanctions should require proof of a contract, arrangement or understanding between competitors rather than a mere ‘concerted practice’.[20]

Cartel conduct

As noted above, the Panel recommended that the cartel provisions be simplified.  The Panel described the current provisions as ‘overly complex’ and not providing business with sufficient clarity and certainty.[21]  The Panel provided model cartel provisions, which it believes maintain the essential elements of the current provisions but in a simplified form.[22]

In addition to simplification, the Panel made four substantive recommendations.[23]  First, it recommended that the provisions only apply to conduct involving persons who compete to supply goods or services to, or acquire goods or services from, persons resident in or carrying on business in Australia. 

Secondly, the Panel recommended that two firms should not be treated as being in competition, for the purposes of the cartel provisions, unless it is more likely than not that they are in competition.  This recommendation addressed the conclusion reached in Norcast S.ar.L v Bradken (No 2) that there need only be a possibility of competition that is not remote.[24] 

Thirdly, the Panel recommended that the current joint venture defence be broadened so that (i) the impugned cartel provision need not be recorded in a contract and (ii) the joint defence apply to any joint venture for the production, supply, acquisition or marketing of goods or services.[25]  The Panel recommended that the defence apply where the impugned cartel provision (i) relates to goods or services that are acquired, produced, supplied or marketed for the purposes of the joint venture, (ii) is reasonably necessary for undertaking the joint venture, or (iii) is for the purpose of the joint venture.[26]  It noted that a joint venture will be subject to the prohibition in s 45, even if exempt from the cartel provisions, and hence must fulfil the substantial lessening of competition test.  The Panel considered that joint ventures should be primarily assessed against this test.

Finally, the Panel recommended that a broader exemption be included for vertical arrangements so that they are assessed under a competition test rather than being a per se prohibition under the cartel provisions.  The Panel noted that conduct falling within s 47 is currently exempt from the cartel provisions, but not all vertical arrangements are captured by s 47.   

Vertical arrangements

The Panel was critical of the current s 47 saying that it is long and complex yet still does not exhaustively cover all forms of vertical arrangements.[27]  Some submissions suggested that s 47 be entirely deleted so that uncompetitive vertical arrangements be addressed by the general prohibition on uncompetitive contracts, arrangements and understandings in s 45.  The Panel noted that s 47 covers refusals to deal while s 45 does not, but considered that if s 47 were deleted, the gap left by s 45 would be covered by s 46, provided s 46 was reformulated in the way the Panel had recommended. [28]  The Panel noted that s 46 only applies if a defendant has a substantial degree of power in a market, which is not a requirement of s 45, but considered this to be immaterial since ‘[i]t is well accepted that vertical restrictions will not substantially lessen competition unless they are imposed by a corporation with substantial market power.’[29]  The Panel referred to no authority for this proposition.  It is perhaps overstating things since it has been noted that a substantial degree of market power is not a requirement for a contravention of s 47.[30]  Further, s 47 captures conduct which has the ‘purpose’ of substantially lessening competition.  An uncompetitive purpose, as opposed to an uncompetitive effect, can exist even if that purpose could not be achieved.[31]

The Panel recommended that s 47 be entirely deleted, provided s 46 is amended as the Panel has recommended.[32]  However, if s 46 is not so amended, the Panel recommended that s 47 be simplified as proposed in its draft report.[33]  The draft report recommended that s 47 be redrafted so that it prohibits:

  • the supply or offer to supply of goods or services (including the supply at a particular price or with a particular discount, allowance, rebate or credit) on a condition imposed on the purchaser that has the purpose, effect or likely effect of substantially lessening competition; and
  • refusing to supply goods or services (including refusing to supply at a particular price or with a particular discount, allowance, rebate or credit) for the reason that the purchaser has not agreed to a condition that has the purpose, effect or likely effect of substantially lessening competition.

The two reciprocal categories of conduct relating to acquisitions would also be prohibited.[34]

The Panel recommended that resale price maintenance remain a per se prohibition but be subject to the notification regime and be exempt if conducted between related bodies corporate, as is the case for ss 45 and 47.[35]  It also recommended that the per se prohibition on ‘third-line forcing’ be removed.[36]

If s 47 is deleted, it will no longer be possible to obtain clearance through notification of conduct that currently falls within s 47.  Instead, a business will have to use authorisation to avoid the risk of a vertical arrangement, which may substantially lessen competition, contravening s 45.  Compared to notification, authorisation is a more involved process.  However, both business and the ACCC would benefit from the removal of s 47 because it would do away with the hundreds of ‘third-line forcing’ notifications filed each year.

Definition of ‘competition’ and ‘market’

The Panel recommended that the definition of ‘market’ in s 4E continue to be a ‘market in Australia’ because the CCA is concerned with the economic welfare of Australians and not people of other countries.[37] 

The Panel considered whether the definition of ‘competition’ in s 4 gives adequate weight to global competition.  It noted that the definition already specifically refers to competition from imports but thought that greater clarity should be given regarding potential imports.  Accordingly, the Panel recommended that the definition be redrafted to include competition from goods capable of being imported into Australia and competition from services capable of being rendered in Australia.[38] 

What now?

The Minister for Small Business has said the Commonwealth Government will embark on an 8 to10 week consultation before responding to the final report.[39]  It is anyone’s guess what amendments to Part IV will be introduced into Parliament and what form they will be in once passed.  It could also be a long time before any amendments are enacted.  Some might recall that the Dawson Review recommended in January 2003 that criminal penalties be introduced for cartel conduct but this was not implemented until June 2009.  With this in mind, we should perhaps put aside any speculation, gather our patience, and await the next instalment in the process.


This article was originally published in (2015) 31(3&4) Competition and Consumer Law News 38.

[1] Final report, 307.Back to article

[2] Final report, 310.Back to article

[3] Recommendation 23.Back to article

[4] Final report, 9.Back to article

[5] Draft report, 44.Back to article

[6] Recommendation 30.Back to article

[7] Final report, 344, 513 and 514.Back to article

[8] Final report, 369.Back to article

[9] Recommendation 29.Back to article

[10] Final report, 511 and 512.Back to article

[11] Final report, 372.Back to article

[12] Final report, 371.Back to article

[13] Draft report, 42 and 229.Back to article

[14] When interpreting an ambiguous provision, s15AB(2)(b)(i) of the Acts Interpretation Act 1901 (Cth) allows reference to be made to any relevant report of a committee of inquiry or similar body that was laid before Parliament before the time when the provision was enacted.Back to article

[15] See article 101 of the Treaty on the Functioning of the European Union which prohibits, among other things, 'concerted practices … which have as their object or effect the prevention, restriction or distortion of competition'.Back to article

[16] Imperial Chemical Industries Ltd v Commission of the European Communities [1972] ECR 619, [64], followed in Züchner v Bayerische Vereinsbank AG [1981] ECR 2021, [12] (Züchner) and Limburgse Vinyl Maatschappij & Ors v Commission of the European Communities [1999] ECR II-931, [720] (Limburgse).Back to article

[17] Limburgse, [720]; Züchner, [13]-[14]; Coöperatieve Vereniging "Suiker Unie" UA & Ors v Commission of the European Communities [1975] ECR 1663, [173]-[174].Back to article

[18] For example, see J-Corp Pty Ltd v Australian Builders Labourers Federated Union of Workers (WA Branch) (1992) 44 IR 264; [1992] FCA 436, [15]-[17].Back to article

[19] Supplementary submission of the ACCC (26 November 2014), 47.Back to article

[20] Final report, 372.Back to article

[21] Final report, 360.Back to article

[22] Final report 360, 361 and 503-510.Back to article

[23] Recommendation 27.Back to article

[24] (2013) 219 FCR 14, [259].  Back to article

[25] Final report, 364.Back to article

[26] Final report, 508-509.Back to article

[27] Final report, 374 and 375.Back to article

[28] Final report, 375.Back to article

[29] Final report, 375.Back to article

[30] Universal Music Australia Pty Ltd v ACCC (2003) 131 FCR 529, [268] (Full FC).Back to article

[31] Ibid [249].Back to article

[32] Recommendation 33.Back to article

[33] Final report, 376.Back to article

[34] Draft recommendation 28.Back to article

[35] Recommendation 34.Back to article

[36] Recommendation 32.Back to article

[37] Final report, 321 and recommendation 25.Back to article

[38] Recommendation 25.Back to article

[39] See the transcript of the joint press conference with Prof Ian Harper on 31 March 2015 <http://bfb.ministers.treasury.gov.au/transcript/036-2015>Back to article


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