Key Point

  • Courts could get greater power to address anti-competitive "understandings" under section 45 of the TPA.

On 8 January 2009, the Commonwealth Treasury announced that it was seeking submissions from interested parties concerning the meaning of "understanding" in section 45 of the Trade Practices Act, and the way in which the existence of an understanding can be proved.

Section 45 prohibits a corporation from making or giving effect to a provision of a contract, arrangement or understanding if that provision constitutes an exclusionary provision, or if it has the purpose or likely effect of substantially lessening competition.

Why is this important?

Any changes that are made to the TPA will probably make it easier for the ACCC to prove the existence of cartel arrangements in Australian markets, and therefore to take enforcement action.

The concept of a "contract, arrangement or understanding" is also a key element of the Commonwealth's proposed new criminal cartel offences.

Who would be affected?

Any changes to the current definition of "understanding" in section 45 of the TPA would potentially have an impact on any business that has regular dealings with its competitors (such as in industry forums).

Why is change being considered?

The Treasury's call for submissions reflects the concerns of the ACCC (and others) that the meaning of the word "understanding" has been progressively restricted by recent Federal Court decisions, making it difficult to establish when an understanding had been reached.

In particular, concerns have been expressed that:

  • to find competitors arrived at an "understanding" to collude, there must be proven a commitment of some kind- even if moral only - by the relevant parties to act in a particular way, rather than a "mere expectation" that those parties will act in that way;
  • it is very difficult to prove the existence of an arrangement or understanding where the alleged parties to it only partially comply with its alleged terms or claim they believed they were under no obligation to act in accordance with the alleged "understanding"; and
  • it is very difficult, in practice, to infer the existence of an understanding from surrounding circumstances (that is, in the absence of actual communications between the parties).

In its 2007 inquiry into the price of unleaded petrol in Australia, the ACCC therefore recommended that various amendments be made to the definition of "understanding" in section 45 of the TPA that would:

  • make it clear that the courts can draw inferences from factual matters in determining whether an "understanding" has been reached;
  • make it clear that a court can determine that an understanding has been reached even where the parties are not committed to giving effect to the understanding;
  • specify various factual matters that a court may consider in determining whether an understanding has been reached.

We believe that the case law, properly applied, makes it clear that no commitment or obligation is necessary to be shown to prove an understanding. So much was clearly stated in cases such as Lutovi investments (a tax case from the 1970s) and the Amcor case in 2000.

However, what has caused some concerns have been comments by some judges that one would "usually expect" to find some sense of obligation between the parties, if an understanding has been formed. That seems to have led the ACCC in the Geelong Petrol case to seek to prove the parties to the alleged understandings in that case, to increase prices, felt they were under some moral commitment to do so. The parties denied any such sense of commitment and the judge rejected the ACCC case. the ACCC chose not to appeal.

We sense that an appeal court could clarify the law without the need for an amendment - however, given Treasury views, it seems that amending legislation may be introduced in any event, whether or not it is strictly necessary.

What are the next steps?

In response to these concerns, the Treasury is now seeking submissions as to:

  • whether the current judicial approach to interpretation of "understanding" limits the ability of the TPA to address anti-competitive conduct, and if so, whether clarification of the term is necessary; and
  • whether the court is currently constrained to an inappropriate degree in its ability to draw inferences from factual matters when determining whether an understanding has been reached.

The closing date for submissions is 31 March 2009.

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