Australia: Major competition law reform imminent: Exposure draft legislation released

Last Updated: 13 September 2016
Article by Andrew Rankine and Michelle Hyams
Services: Competition & Consumer Law, Corporate & Commercial, Property & Projects
Industry Focus: Life Sciences & Healthcare

What you need to know

  • The Federal Government has released an exposure draft of the Competition and Consumer Amendment (Competition Policy Review) Bill signalling the biggest change to Australian competition law in years.
  • The exposure draft of the Bill proposes to introduce a new 'concerted practices' prohibition and vary the misuse of market power provision to bring in an effects test.
  • Those interested in making submissions on the exposure draft Bill, or on the ACCC's draft framework for approaching these two proposed changes, will need to act quickly.

On 5 September 2016 the Federal Government released an exposure draft of the Competition and Consumer Amendment (Competition Policy Review) Bill (Bill). The release of the Bill signals the biggest change to Australian competition law in years.

The purpose of the Bill is to implement reforms recommended by the Harper Competition Policy Review. These include changes to the Competition and Consumer Act 2010 (Cth) (CCA) to:

  • amend the existing misuse of market power prohibition (section 46) by introducing the 'effects test'
  • introduce a new offence, being a prohibition against concerted practices amongst competitors.

Alongside the Bill's release, the ACCC released draft framework documents setting out its proposed approach to each of these two changes if they are implemented. The ACCC is seeking submissions on its draft frameworks, due by 3 October 2016.

Misuse of market power

One of the more controversial recommendations from the Harper Competition Policy Review, which has been the subject of lively discussion and debate in recent months, is the proposed change to the misuse of market power provisions in section 46 of the CCA. The proposal is to move away from the current test which looks only at purpose of particular conduct, to include a new test that also looks at effects of that conduct (the so-called 'effects test'). The Harper Committee considered that the existing 'take advantage' limb of the section was not a useful test by which to distinguish competitive from anti-competitive unilateral conduct.

Proposed section 46

  1. A corporation that has a substantial degree of power in a market must not engage in conduct that has the purpose of, or has or would be likely to have the effect of, substantially lessening competition in that or any other market.
  2. Without limiting the matters to which regard may be had in determining for the purposes of subsection (1) whether conduct has the purpose of, or has or would be likely to have the effect of, substantially lessening competition in a market, regard must be had to the extent to which:
    1. the conduct has the purpose of, or has or would be likely to have the effect of, increasing competition in the market, including by enhancing efficiency, innovation, product quality or price competiveness in the market; and
    2. the conduct has the purpose of, or has or would be likely to have the effect of, lessening competition in the market, including by preventing, restricting, or deterring the potential for competitive conduct or new entry into the market.

For example, under the existing law, the ACCC or an aggrieved party bears the burden of proving that corporations engaging in a sustained practice of predatory pricing are doing so for a prohibited purpose. Under the proposed new law, the ACCC would not need to establish a prohibited purpose, only that the conduct would be likely to have the effect of substantially lessening competition. This is a significantly lower bar than the existing test.

The proposed change to section 46 has been divisive with some saying that the new test would "have a chilling effect on competition", while primary producers are hopeful that the test will curb the power of large retailers.

As the ACCC importantly notes in its draft 'Framework for misuse of market power guidelines', the intended effect of the change is that competition, not individual competitors, would be protected.

Concerted practices

While the concept of 'concerted practices' is new in Australian law, it is well established in competition law internationally.

The existing section 45 of the CCA prohibits corporations from making or giving effect to "contracts, arrangements and understandings" that have the purpose, effect or likely effect of substantially lessening competition. If the Bill is enacted, corporations will also be prohibited from engaging in a 'concerted practice' that has the purpose, effect or likely effect of substantially lessening competition. Importantly, it is intended that conduct will be prohibited even where competitors do not reach any arrangement, understanding or contract with each other.

Proposed section 45

  1. A corporation must not:...
    1. engage with one or more persons in a concerted practice that has the purpose, or has or is likely to have the effect, of substantially lessening competition.

Adopting the Harper Committee's view that "the word concerted has a clear and practical meaning and no further definition is required for the purposes of a legal enactment", the Bill does not include a definition for 'concerted practices'.

According to the ACCC's draft 'Framework for concerted practices guidelines', "a concerted practice is a form of coordination between competing businesses by which, without them having entered a contract, arrangement or understanding, practical cooperation between them is substituted for the risks of competition."

If the Bill becomes law, the deliberate provision to competitors of commercially sensitive strategy, pricing, pricing intention, tender responses, product range changes, or bid range at auction (or similar conduct), in the absence of a legitimate commercial justification for such exchanges of information, will be prohibited.

The practices are only intended to be prohibited where they have the purpose, effect or likely effect of substantially lessening competition. Unilateral conduct by a party without any form of prior cooperation with its competitors is also not intended to be caught by the prohibition.

If the Bill becomes law, the ACCC will issue detailed guidelines to assist business and consumers to understand how the proposed prohibition will operate (foreshadowed in its draft framework document). Additionally, authorisation may be granted by the ACCC to parties wanting to engage in concerted practices if the ACCC can be satisfied that the likely public benefits will outweigh the likely public detriment flowing from the concerted conduct.

Other proposed amendments

Among other things, the Bill also contains reforms proposed by the Harper Committee to:

  • cartel provisions;
  • price signalling provisions; and
  • exclusionary provisions.

The full text of the Bill and draft Explanatory Material can be accessed here at: https://consult.treasury.gov.au/market-and-competition-policy-division/ed_competition_law_amendments.

Want to have your say on the proposed reform?

Businesses and other stakeholders who wish to make submissions on the exposure draft legislation or the ACCC's draft frameworks will need to act quickly, with submission deadlines looming. They are:

  • Friday 30 September 2016 for submissions to the Government on the exposure draft of the Bill. Submissions can be made either through providing written submissions or participating in an online survey at: https://consult.treasury.gov.au/market-and-competition-policy-division/ed_competition_law_amendments
  • 3 October 2016 for submissions to the ACCC on its proposed draft frameworks. Interested parties can make submissions on both the draft 'Framework for concerted practices guidelines' and draft 'Framework for misuse of market power guidelines'.

This article is intended to provide commentary and general information. It 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 article. Authors listed may not be admitted in all states and territories

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