A new record has been set in Australia for fines for misuse of market power. Some are saying a new era of enforcement has dawned in misuse of market power prosecutions.
This is an about face from the not too distant days in which the ACCC had to fight misuse of market power prosecutions all the way to the High Court, and then more often than not lost at the last hurdle.1
Section 46 of the Trade Practices Act 1974 (Cth) ("the Act") is the provision that outlaws misuse of market power. It is complex, and has been amended several times since 2007 to increase penalties, and to improve the ACCC's chances of success in bringing prosecutions under it. It is early days, but this result suggests the amendments may be having the desired effect.
In a nutshell, a company that has a substantial degree of power in a market breaches section 46 when it takes advantage of that power in that, or any other market, for the purpose of:
- Eliminating or substantially damaging a competitor;
- Preventing the entry of a person into the market; or
- Deterring or preventing a person from engaging in competitive conduct in the market.
The ACCC has been after Cabcharge for a while now. Cabcharge has built up and enjoyed for over 30 years a position of market leadership in the Australian market for meters and payment facilities in taxi cabs. The ACCC has been concerned that Cabcharge had begun to use its market power for the purpose of eliminating or at least deterring potential competitors.
The regulator was particularly concerned with Cabcharge's:
- Refusal to deal with a Western Australian based competitor, Travel Tab/Mpos in relation to allowing its Cabcharge Instruments to be accepted and processed on the Travel Tab/Mpos system, in 2005 and 2008 (the "refusal to deal"); and
- Supply of at least 6,178 units of the Cabcharge XUS 6000 taxi meter between September 2004 and November 2007 either free of charge or at a price that was $150 below their cost price, and supply of free schedule updates for taxi fare rate changes for taxis using their meters (the "predatory pricing").
On 24 September 2010 the ACCC settled its case against Cabcharge for breaches of sections 45 and 46 of the Trade Practices Act, commenced in June 2009.
Originally, the ACCC's case against Cabcharge included a claim that Cabcharge had breached section 45 of the Act in its arrangements with Townsville Taxis to acquire their payment system, in order to replace it with the Cabcharge system and so consolidate their position as the dominant supplier of these services in Queensland. The charges in relation to section 45 were dropped, and in fact Cabcharge effectively pled guilty to 3 out of 11 original charges, 2 in relation to the refusal to deal with Travel Tab/Mpos in 2005 and 2008, and one in relation to the predatory pricing described above.
The judge in this case has yet to hand down his reasons for judgement, but the consent orders he approved on the 24th September are interesting for at least three reasons:
- Far from fighting all the way to the High Court, which has been the pattern in these types of cases for many years, Cabcharge has copped a plea, and to a record multimillion dollar set of fines. The ACCC had prepared a massive case with scores of affidavits filed and 52 witnesses. The case was expected to take up several weeks of hearing time.2 Cabcharge was unsuccessful in an interlocutory bid to have the case moved to Sydney3 and partially unsuccessful in amending its defence to put in issue several matters which it had previously admitted.4 This result is likely to encourage the ACCC to prosecute more of these types of cases, particularly as part of the settlement included $1M contribution towards the ACCC's legal costs. From Cabcharge's point of view, it will be interesting to see whether in pleading guilty they will have opened the floodgates to civil claims from customers and/or competitors and will face possible class action suits such as were brought in the wake of the exposure of the Amcor/Visy cartel. Cabcharge has been careful to state that all admissions made by it were for the purposes of these proceedings only, and has also denied any loss or damages was caused to consumers or competitors.5
- The total amount ($14M) of the penalties ordered are impressive. The maximum penalties for this type of conduct were increased by amendments to the Act in January 2007 to the greater of $10M, 3 times the value of the benefit obtained from the conduct, or 10% of the annual Australian turnover of the corporation involved, for each act or omission, instead of simply a maximum fine of $10M. The result in this case suggests that the ACCC is pursuing significant penalties, and that the Federal Court is prepared to approve them.
- The breakdown of the penalties approved were:
- $2M for the refusal to deal in 2005
- $9M for the refusal to deal in 2008
- $3M for the predatory pricing
Note the $7M difference between the penalties for what was essentially the same conduct in 2005 and 2008. This can only be explained by the introduction of the new penalty regime referred to above.
Market dominant players will be examining the reasons for judgement in this case closely, but they would be well advised to lose no time in reviewing their compliance systems and processes to ensure that the risk of the company using its position of market dominance for an unlawful, anti-competitive purpose in its, or any other market, is minimised.
1 Boral Besser Masonry Limited v Australian Competition and Consumer Commission  HCA 5; 215 CLR 374; 195 ALR 609; 77 ALJR 623
2 Australian Competition and Consumer Commission v Cabcharge Australia Ltd (No 2)  FCA 837
3 Australian Competition and Consumer Commission v Cabcharge Australia Limited [2010} FCA 731
4 Above, note 2 5 Cabcharge press release, 24 September 2010
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