05 September 2016

Reforming the cartel provisions post-Harper – a litigation and enforcement perspective

The exposure draft legislation will, if implemented, result in significant changes to Australia’s cartel law regime, as well as the enforcement of Australia’s competition laws more generally.

Confining cartel conduct to Australian trade or commerce

The term "trade or commerce" is used in numerous parts of the CCA as a means of identifying conduct caught by the CCA but did not form part of the cartel provisions when introduced in 2009.

"Trade or commerce" is currently defined as meaning trade or commerce within Australia, or between Australia and places outside Australia. The proposed amendments will import this concept into the cartel law regime by providing that cartel laws only apply where parties are in competition with each other in relation to the supply/acquisition of goods/services in trade or commerce.

The intended effect of this amendment is to confine cartel laws so that they only cover conduct affecting competition in Australia.

Conduct between actual or likely competitors

A pre-condition to the application of the cartel provisions is that two or more parties to the contract, arrangement or understanding are actual or likely competitors. However, the CCA currently specifies that "likely" includes a mere "possibility that is not remote" that the parties are in competition.

The exposure draft legislation removes the cartel-specific definition, leaving the common law interpretation of "likely" (which appears in other provisions of the CCA) to apply.

Joint venture exceptions

The CCA currently provides for exceptions to the cartel provisions in certain circumstances where parties are in a joint venture. The exposure draft legislation simplifies and broadens these exceptions in a number of different ways, including to arrangements and understandings. The changes are summarised in the table below:

Current regime

Exposure draft legislation

Joint venture exceptions only apply to contracts containing cartel provisions

Joint venture exceptions will apply to contracts, as well as arrangements and understandings

Joint venture exceptions only apply to joint ventures for the production or supply of goods or services

Joint ventures exceptions will also apply to joint ventures for the acquisition of goods

Joint venture exceptions only apply to cartel provisions that are for the purposes of a joint venture

Joint venture exceptions will also apply to joint cartel provisions that are reasonably necessary for undertaking a joint venture (in addition to where it is for the purposes of a joint venture)


Exception for vertical trading restrictions

The CCA currently excludes "exclusive dealing" conduct (which is dealt with in section 47 of the CCA) from consideration as cartel conduct. Under the exposure draft legislation, this would be replaced by an exception that explicitly sets out, and broadens the types, of vertical trading restraints that are excluded from the operation of the cartel provisions.

These amendments would not mean that these sorts of exclusive dealing or vertical trading restrictions will not be subject to competition law altogether. They may still fall foul of other provisions, such as sections 45 and 47, if they have the purpose or effect of substantially lessen competition.

In addition, changes are proposed to make third line forcing (a form of exclusive dealing involving the supply of goods/services on the condition that the acquirer also acquire other goods/services from a third party), which was previously prohibited regardless of its purpose or effect on competition to be prohibited only where it has the purpose or effect of substantially lessening competition. This is a long overdue change.

Exclusionary provisions

As part of the simplification of the cartel law regime, the exposure draft legislation repeals the separate prohibition under section 45 on "exclusionary provisions" (defined in section 4D of the CCA as contracts, arrangements and understandings between competitors for the purpose of preventing, restricting or limiting the supply or acquisition of goods or services by those competitors).

In light of this proposed repeal, the exposure draft legislation extends the cartel provisions so that they apply to contracts, arrangements and understandings between competitors that have the purpose of preventing, restricting or limiting the acquisition of goods by those competitors.

Re-numbering of provisions

Another simplification is the proposed renumbering of the cartel provisions so that they will be found in sections 45AA to 45AU, rather than the slightly longer and more confusing presentation of the prohibitions in sections 44ZZRA to 44ZZRV.

Admissions of fact

Section 83 of the CCA currently allows findings of fact made in certain proceedings against a corporation (such as enforcement proceedings commenced by the ACCC) to be used as prima facie evidence against the corporation in certain other proceedings (for example, private follow-on damages claims). This provision plays an important role in seeking to reduce the cost of private competition litigation, but has suffered from uncertainty as to whether its operation is restricted to findings of fact made by a Court after a hearing.

The exposure draft legislation clarifies that section 83 can be used by private litigants in relation to admissions of fact made by parties to resolve proceedings (for example, in agreed statement of facts) as well as to formal findings of fact.

The ACCC’s investigative powers

Under section 155 of the CCA, the ACCC currently has the power to compel parties to provide information, documents and give oral evidence. The exposure draft legislation makes changes to the scope of this power so as to:

  • Enable recipients of section 155 notices to rely on a "reasonable search" defence when required to provide documents by the ACCC. Under this welcome change, which is consistent with many Court processes, parties will only be required to undertake a reasonable search for documents, and provide the documents that were found as a result of that reasonable search.
  • Increase the penalties for non-compliance with a section 155 notice to $90,000 for corporations and $18,000 for individuals (compared to the current penalties of $18,000 for corporations and $3,600 for individuals).

The ACCC will also be able to use its powers to investigate breaches of Court enforceable undertakings, as well as breaches of the CCA. This represents a significant extension of the ACCC’s investigative powers.

Competition from imports

In a more broad-reaching change than the cartel provisions, the definition of “competition” in section 4 of the CCA is to be amended to clarify that it includes not just actual imports, but also competition from goods that are capable of being imported into Australia, and services that are capable of being rendered in Australia by persons not resident or not carrying on business in Australia.

This change will require the ACCC and Courts to take account of all credible threats of import when considering the potential effects of conduct or a proposed transaction.

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