Australia: Understanding ´Understandings´

In response to the ACCC's Report of the ACCC inquiry into the price of unleaded petrol (Petrol Report) which suggested amending the meaning of 'understanding' in the TPA, the Treasury has released a discussion paper on the issue calling for submissions. This article considers the proposed amendments, the submissions received and what it could mean for Australian companies.


Section 45 of the TPA 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."1

In December 2007, the ACCC released its "Petrol Report", following its inquiry into the causes of petrol pricing in Australia. In it, the ACCC expressed concerns that recent court decisions had narrowed the type of conduct that is caught by the term 'understanding' in the TPA by requiring that there be a commitment or obligation between the parties before an 'understanding' can be reached. The ACCC also raised concerns as to the willingness of courts to accept circumstantial evidence in determining whether parties have reached an 'understanding'. These concerns were prompted by decisions of the Federal Court in two petrol related cases: Apco Service Stations Pty Ltd v ACCC2 and ACCC v Leahy3.

The ACCC's proposed amendments to the TPA will expand the meaning of 'understanding' in section 45 in two ways. First, to enable the courts to find that a corporation has arrived at an 'understanding' by considering any factual matters it deems appropriate (accompanied by a non-exhaustive list of factual matters the court may consider). Second, the courts can make this finding regardless of whether or not the corporation, or any other parties to the alleged understanding, is 'committed' to giving effect to the understanding.

The Treasury released a discussion paper calling for submissions in relation to the proposed amendments on 9 January 2009 and the Government is currently considering responses to the inquiry.

Circumstantial evidence

A widely held view, reflected in the submissions to Treasury, is that the proposed amendment relating to circumstantial evidence adds little to the current interpretation of the law and may in fact detract from it.

The courts have long used circumstantial and inferential evidence to provide proof of an 'understanding' in competition law cases such as the coincidence of telephone calls between the parties to the alleged 'understanding' followed by sharp price increases. Companies should remain alert to this fact whether the amendment is legislated or not. In respect of circumstantial evidence, the proposed amendment will in effect reflect the current approach already adopted by the courts. However, by including a list of factual matters for the court to consider, while expressed to non-exhaustive, the list of 'factors' could nonetheless detract from the position currently adopted by the Courts and, in practice, work to limit the circumstantial evidence that the courts will look at by reference to the 'shopping list' of factors set out in the TPA.

Removal of 'commitment'

The more controversial amendment is the proposed removal of the long held judicial requirement for an 'understanding' to incorporate a "meeting of the minds" or a "moral obligation" or "commitment" between the parties to the understanding. Removing the requirement for a 'commitment' from the meaning of 'understanding' means introduces the potential for section 45 of the TPA to capture unilateral conduct. For example, Firm A may, acting on its own, publish its price lists to the market at large (which it knows will be viewed by competitor Firms B, C and D). There may be an 'expectation' amongst the firms that Firm A does this with the hope that its competitors will follow its prices but there is no commitment from the other Firms that they will in fact do so. Indeed, they may use the information to match or undercut firm A's prices or leave their prices stable if they wish. Notwithstanding the absence of any moral obligation or commitment between the firms to follow Firm A's pricing, there may be an 'understanding' between the Firms within the meaning of the proposed amendment to section 45 of the TPA. This is a clear movement away from current Australian trade practices law on the meaning of 'understanding'.

Removing 'commitment' from the meaning of 'understanding' means there is also the potential for section 45 of the TPA to capture mere 'parallel conduct'. For example, in markets with few sellers, similar products and significant barriers to entry, firms frequently make pricing decisions based on the actions of its competitors. When one firm amends its prices, other firms often follow. This is a common practice, particularly in Australia relatively smaller economy where markets are frequently concentrated. The proposed amendments could be interpreted in a way which imputes an 'understanding' between the competitors, notwithstanding the absence any commitment among them to follow the lead of their competitor.

If the amendment is adopted Australian companies will need to be extremely careful even when dealing unilaterally. This care should, at the least, extend to the distribution of price lists and is especially pertinent to companies operating in highly concentrated markets where mere parallel conduct is more prevalent.

Potential effect on criminalisation of cartels

On 16 June 2009, the Government announced it had passed legislation criminalising cartel conduct (a commencement date has not yet been announced). Any amendments to the definition of 'understanding' are likely to apply to the new criminal provisions.


1 Discussion Paper, p 2.

2 [2005] FCAFC 161.

3 [2007] FCA 794.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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