Snapshot

• Legislation implementing many - but not all - of the Harper Review recommendations has been introduced to Parliament. 
• The Bills contain several amendments since the exposure draft legislation was circulated in December 2016.
• In this Update we review the key changes from the exposure draft legislation.  For further information on the changes in the exposure draft legislation, see Rethinking the Competition and Consumer Act: Exposure draft legislation lays groundwork for the most significant change in a generation.
• The key changes from the exposure draft legislation are:
  • Misuse of market power: the requirement for the court to consider “mandatory factors” has been removed, and a limitation of the scope of the markets to which section 46 applies has been added
  • Joint venture exception to cartel conduct: the scope of this exception has been narrowed
  • Vertical restraints: there is no longer an amendment expanding the vertical restraint exception (beyond limited categories of exclusive dealing) to the cartel laws
  • The current definition of “likely” competitors will now remain for the purposes of Part IV of the CCA
  • Authorisations and class exemptions: changes to the information that the ACCC must take into account, and the circumstances in which authorisations may be revoked have been limited, and the ACCC has power to revoke class exemptions
  • Competition Tribunal may accept new information and evidence not in existence at the time of the ACCC’s determination
  • Declaration criteria for access to services in Part IIIA have been clarified
  • Transitional provisions are included clarifying the application of the new laws to merger authorisations

Background

Two years after the Competition Policy Review chaired by Professor Ian Harper (Harper Review) delivered its final report on 31 March 2015, the Government has introduced two Bills into the Parliament which largely mirror the exposure draft legislation that was released in December to amend the Competition and Consumer Act 2010 (CCA) in line with the majority of the recommendations of the Harper Review.

The proposed amendments to the CCA are contained in two Bills:

• The Competition and Consumer Amendment (Misuse of Market Power) Bill 2017 (MMP Bill).  The MMP passed the House of Representatives on 28 March 2017, and was introduced into the Senate on 29 March, and
• The Competition and Consumer Amendment (Competition Policy Review) Bill 2017 (CPR Bill), which was introduced into the House of Representatives on 30 March 2017.

Further consideration of both Bills has been adjourned to the next sitting of Parliament in May 2017.

There have been some changes to the Bills since the draft exposure legislation was released.  In this update we report on the key changes, and the practical implications.  For further information on the changes in the exposure draft legislation, see Rethinking the Competition and Consumer Act: Exposure draft legislation lays groundwork for the most significant change in a generation.

Misuse of Market Power: Requirement for court to consider “mandatory factors” has been removed, and a limitation of the scope of the markets to which section 46 applies has been added

Section 46(2) of the exposure draft legislation and of the MMP Bill as introduced to Parliament listed several pro-competitive and anti-competitive “mandatory factors” which a court must take into account in determining whether conduct had the purpose, effect or likely effect of substantially lessening competition.  After debate in the House of Representatives, this requirement was removed before the MMP Bill passed the House.

The removal of this requirement will mean that (assuming the MMP Bill passes the Senate without further modification) there will still be a new test for misuse of market power that introduces an “effects” element to the conduct, but a court will not be required to take into account certain factors in assessing whether conduct has the purpose, effect or likely effect of substantially lessening competition.

The removal of the requirement to consider mandatory factors was recommended by the Senate Economics Legislation Committee in its report on the Bill of 16 February 2017.

The MMP Bill also narrows the scope from the exposure draft legislation of the scope of the “market” to which section 46 applies.  In the exposure draft (and as recommended by the Harper Review), a firm with a substantial degree of power in a market was prohibited from engaging in conduct with the purpose, effect or likely effect of substantially lessening competition in any market.  In the MMP Bill this has been narrowed to remove the reference to “any” market and stipulate that competition must be affected in a market in which the corporation with market power directly or indirectly supplies or acquires goods or services.

Joint venture exception to cartel conduct: the scope of this exception has been narrowed

The exposure draft of the CPR Bill contained amendments that expanded the scope for companies to rely on the joint venture exception to cartel conduct contained in section 44ZZRO of the CCA.  In its current form the CCA provides only limited exceptions for joint ventures and vertical arrangements within narrowly prescribed definitions.

The CPR Bill still expands the exception for joint ventures to include joint ventures contained in an arrangement or understanding (not simply contracts), and includes joint ventures for the acquisition of goods and services (not just for production and/or supply).  However, the CPR Bill imposes some additional requirements to qualify for the joint venture exception:

• the joint venture must not be carried on for the purpose of substantially lessening competition, and
• the cartel provision must be for the purposes of a joint venture; and
• the cartel provision must be reasonably necessary for undertaking the joint venture.

Vertical restraints: there is no longer an amendment expanding the vertical restraint exception (beyond limited categories of exclusive dealing) to the cartel laws

The CCA currently excludes from consideration as cartel conduct the categories of “exclusive dealing” conduct that are assessed under section 47.  Under the exposure draft this was replaced by an exception that explicitly set out and broadened the types of vertical trading restraints that were excluded from the operation of the cartel provisions.  This broader exemption to the cartel provisions meant that most vertical supply restrictions would be assessed under a substantial lessening of competition test rather than a per se prohibition – and would not be subject to criminal sanctions.

This broader exception has been removed from the CPR Bill pending further consideration if and when section 47 is simplified or removed as recommended by the Harper Review.  The removal of the broader exception for vertical restraints means that vertical supply arrangements that do not, or are not likely to, substantially lessen competition but which fall outside the current forms of exclusive dealing listed in section 47 of the CCA potentially may be assessed as being cartel conduct, if the parties are in competition with each other in relation to the goods or services subject of the cartel provision.  This may particularly affect “dual distribution” models where goods or services are supplied both through a distributor and directly to the public, as in the recent High Court case involving Flight Centre.

The current definition of “likely” competitors will now remain for the purposes of Part IV of the CCA

In relation to the cartel provisions of the CCA, the current definition of “likely” in section 44ZZRB (as it applies to “actual or likely competitors” in Part IV of the CCA) will not be repealed as previously suggested in the exposure draft of the CPR Bill.  Section 44ZZRB currently provides that “likely” means “a possibility that is not remote”, and the Court in Bradken found this to be a low threshold. Had the definition of “likely” been repealed as proposed in the CPR Bill’s exposure draft, its meaning would have been left to judicial interpretation, which is arguably a higher threshold of probability.

Authorisations and class exemptions: changes to the information that the ACCC must take into account and the circumstances in which authorisations may be revoked have been limited, and the ACCC has power to revoke class exemptions

The CPR Bill includes amendment to the information that the ACCC is required to take into account under section 90 of the CCA when considering applications for authorisation, not foreshadowed in the exposure draft of the CPR Bill.  At the moment, when making an authorisation decision, the ACCC must take into account all submissions received from an applicant, the Commonwealth, a state or any other person. The CPR Bill removes this requirement and provides that the ACCC may invite written submissions, request information or consult with persons it considers reasonable and appropriate before its determination.  If it chooses to do so, it must then take this information/submissions into account when making its decision.

The CPR Bill also raises the bar from the exposure draft legislation in relation to the circumstances in which an authorisation for anti-competitive conduct can be revoked by the ACCC.  In the exposure draft in order for an authorisation to be revoked, the ACCC had to be satisfied that the conduct either had the purpose, effect or likely effect of substantially lessening competition or failed to meet the public benefit test.  The CPR Bill provides that in order to revoke an authorisation, the ACCC needs to be satisfied that the conduct has the purpose, effect or likely effect of substantially lessening competition and would not result in a public benefit that outweighs any public detriment from the conduct.

As contained in the draft exposure legislation, the CPR Bill introduces a new “class exemption” process whereby the ACCC will be given additional powers to grant “class exemptions” in relation to common business practices that do not generate competition concerns and could otherwise be authorised individually.  The class exemption process was anticipated to be an alternative to Part X of the CCA (which exempts certain provisions in liner cargo shipping conference agreements from the operation of the cartel provisions of the CCA) and apply more broadly to other classes.  For the moment, however, Part X is not being repealed.

An additional provision was included in the CPR Bill that was not in the draft exposure legislation which provides the ACCC with the power to withdraw the benefit of class exemption in a particular case if it is satisfied that the conduct would have or be likely to have the effect of substantially lessening competition which would not result or be likely to result in a public benefit that would outweigh a public detriment.  The ACCC’s decision will be appealable to the Australian Competition Tribunal.

Competition Tribunal may accept new information and evidence not in existence at the time of the ACCC’s determination

The CPR Bill allows the Tribunal, in its discretion, to accept new information and evidence that was not in existence at the time the Commission made its determination (this change was not in the exposure draft legislation).

Declaration criteria for access to services in Part IIIA have been clarified

The CPR Bill makes additional amendments to Part IIIA of the CCA from those contained in the exposure draft legislation.  In relation to the declaration criteria for access to services in section 44CA the CPR Bill now also:

• requires that the facility that is used or will be used could meet the total foreseeable demand in the market (i) over the period for which the service would be declared; and (ii) at the least cost compared to any 2 or more facilities; and
• when considering if the facility could meet the total foreseeable demand and it is currently at capacity, but the capacity could reasonably be extended, have regard to that facility as if it had the expanded capacity.

Transitional provisions clarifying the application of the law

The Bill includes transitional provisions clarifying in what circumstances after the commencement of the amendments the current CCA will apply to merger authorisations and clearances which were applied for or granted under the old law.

Next Steps

Consideration of the CPR Bill and the MMP Bill has been adjourned to the next sitting of Parliament in May.  At this stage, all changes to the CCA would be anticipated to come into effect by July 2018 (and possibly sooner), with the ACCC likely to finalise its guidance on the approach to the new misuse of market power and concerted practices provisions before these changes come into effect.