In this month’s Competition and Market Regulation Update we examine the:
We also take stock of the Rudd Government’s implementation of its competition policy agenda. Specifically, we consider:
The Attorney-General has announced the appointment of the Hon. Justice Robert French to the High Court of Australia as the new Chief Justice from 1 September 2008. Justice French will replace the Hon. Chief Justice Anthony Gleeson AC who, after 10 years, is retiring from the position.
Justice French has both a keen interest, and substantial experience, in competition matters. His appointment as Chief Justice of Australia’s highest court is potentially significant for the future development of law in this area.
Justice French was an Associate Member of the Trade Practices Commission between 1983 and 1986 and has been a Deputy President of the Australian Competition Tribunal since 2005. He has also written extensively on competition law issues. As a member of the Federal Court since 1986, Justice French has made important contributions to the development of Australian competition law.
In his 1991 decision in Trade Practices Commission v CSR Ltd, Justice French set out a list of factors for the court to consider when determining the appropriate penalties for a contravention of the Act. Although later decisions have added to this list, the so-called ‘French factors’ continue to guide judicial decision making in this area.
In Australian Gas Light Co v ACCC (No 3), Justice French broke new ground by making a declaration, at the request of a merger party, that the merger would not constitute a breach of section 50 of the Trade Practices Act 1974 (Cth) (Act). This decision was significant in providing certainty to the merger parties who were otherwise under threat of ex post divestiture proceedings. Justice French demonstrated a keen grasp of economic principles through his considered analysis of market power and the effect of the merger on the relevant markets.
The same depth of analysis was also evident in Justice French’s decision in Stirling Harbour Services v Bunbury Port Authority where he provided a detailed analysis of the practical effect on competition of certain licences to operate towage services, taking into account the commercial realities impacting the relevant market.
This year has brought a number of changes to the membership of the Commission. The new appointments reflect a change in policy emphasis by the Rudd Government.
The new membership is as follows:
- Chairperson—Graeme Samuel
- Deputy Chairpersons (2)—Peter Kell and Michael Schaper
- Commissioners (5)—Sarah Court, Dr Stephen King, John Martin, Pat Walker (until 30 September 2008) and Ed Willett, and
- Associate Commissioners (3)—Christopher Chapman, Steve Edwell and Geoff Swier.
Graeme Samuel’s reappointment as Chairman for a further three-year term was widely expected and ensures continuity.
Two new Deputy Chairperson appointments, each for a five-year term, are intended to add experience in two key areas.
- Peter Kell was previously the CEO of Choice (the Australian Consumers’ Association) and held various roles at ASIC and other organisations. He has experience in financial services, economics and consumer issues. His appointment evidences the Rudd Government’s focus on consumer issues.
- Michael Schaper’s appointment foreshadows the enactment of a legislative requirement (currently before parliament) that at least one Deputy Chairperson must have knowledge of, or experience in, small business matters. He has previously served as the Small Business Commissioner of the ACT.
The government has recommended that Louise Sylvan, the outgoing Deputy Chair, be appointed as a Commissioner at the Productivity Commission.
Earlier this year, the Rudd Government reappointed Ed Willett as a Commissioner for a further period of five years. He has been a Commissioner since 2003 and member of the Australian Energy Regulator (AER) since 30 June 2005. He has also been reappointed to the AER for a further term ending on May 2013.
In early May, Sarah Court was appointed to the ACCC following the resignation of David Smith. She previously worked as a Director with the Australian Government Solicitor (AGS) and has experience in competition law matters.
Another new face at the ACCC this year (as reported in our March newsletter1) was Pat Walker. He was appointed to the ACCC as the Petrol Commissioner as part of the Rudd Government’s focus on petrol pricing. However, Pat Walker has resigned with effect from 30 September 2008 due to personal circumstances. A new appointment of Petrol Commissioner is set to be announced in the coming weeks.
The Trade Practices Legislation Amendment Bill 2008 has been touted by the Rudd Government as the biggest reform to the Trade Practices Act 1974 (Cth) (Act) in the past 20 years.
Our May newsletter2 provided an overview of the main reforms contemplated by the exposure draft of the Bill. The reforms partly implement several amendments that had been rejected by the Howard Government, but were subsequently adopted by the Rudd Government to enhance the protections given to small businesses.
On 25 June, the Bill was introduced into the House of Representatives and subsequently referred to the Senate Economics Committee. After undertaking public consultation, the Senate Committee is due to report back on 27 August 2008.
The Bill contemplates several important amendments to the Act.
- It seeks to strengthen the existing prohibition against unilateral misuses of market power under section 46.
- It repeals the $10 million monetary ceiling on unconscionable conduct cases under section 51AC, meaning that the prohibition on unconscionable conduct now has much broader application.
- It requires that at least one Deputy Chairperson at the ACCC have experience in small business matters.
- It amends section 155 to clarify the ACCC’s information gathering powers after applying to the court for an interim injunction.
Of particular interest are the proposed amendments to section 46. The Explanatory Memorandum now provides further insights into the intended application of these amendments.
The proposed amendments to section 46 address several different issues.
- Predatory pricing: The proposed amendments improve the operation of section 46 in its application to predatory pricing conduct. The so-called ‘Birdsville amendments’ introduced by the Howard Government via subsection 46(1AA) are modified to reduce the inconsistency between those amendments and the remainder of section 46.
The new version of subsection 46(1AA) will prohibit a corporation with substantial market power from taking advantage of that power for a proscribed purpose by supplying, or offering to supply, goods or services for a sustained period at a price less than relevant cost. The concepts of ‘price less than relevant cost’ and ‘sustained period’ are therefore retained.
- Recoupment: The proposed amendments identify that it is not necessary to prove that a corporation has an ability to recoup losses incurred from predatory pricing to establish a breach of subsection 46(1AA).
The Explanatory Memorandum helpfully clarifies that it is intended that a court may still consider recoupment as a relevant factor in establishing a breach of subsection 46(1AA). On the particular facts of a case, an ability to recoup losses incurred from a particular pricing strategy may therefore still be an indicator of predatory pricing.
- Taking advantage: The proposed amendments clarify the meaning of the term ‘take advantage’ for the purposes of section 46. The Bill lists four non-exhaustive factors that a court may have regard to when determining whether a corporation has taken advantage of any substantial market power.
Three of these four factors are generally consistent with existing case law, so are not expected to lead to any material change in judicial interpretation. However, the last factor is more controversial as it allows a court to consider ‘whether the conduct is otherwise related to’ the corporation’s substantial market power. The Explanatory Memorandum states that this last factor is intended to provide a clear message to the courts of parliament’s intention for ‘take advantage’ to be interpreted more broadly than prior to the amendment.
- Federal Magistrates Court: The proposed amendments confer jurisdiction on the Federal Magistrates Court (FMC) to hear private actions arising under section 46. The Explanatory Memorandum confirms that the intent of the amendment is to assist small businesses.
Specifically, small businesses are regarded as not necessarily having the time or resources to commence proceedings through the Federal Court and therefore they may benefit from the less complex and lower cost of the FMC jurisdiction. However, the Law Council of Australia has publicly expressed some scepticism that such benefits will, in fact, arise.
In the lead up to the federal election on 24 November 2007, the Australian Labor Party (ALP) promised that, if elected, it would undertake significant competition policy reforms (an overview of some of the ALP’s plans for reform were provided in our December update3).
Eight months on, the Rudd Government is undeniably taking steps to implement its election promises. The changes to the membership of the ACCC identified above and the Trade Practices Legislation Amendment Bill 2008 are but two of the various Rudd Government competition policy initiatives. Some of the remaining policy initiatives and their current status are listed below.
Criminalisation of cartels
An exposure draft of legislation to criminalise cartel conduct was released by the Rudd Government for consultation in January 2008 (details of the proposal were provided in our February update4).
While there has been no further developments in relation to this legislation since the close of public submissions on the draft, several interesting developments in the criminal enforcement of cartel legislation overseas are worthy of note.
- A former senior Qantas executive, Mr Bruce McCaffery, has been sentenced to six months imprisonment and fined $20,000 by a United States court for his involvement in an international cartel to fix prices for air cargo. Mr McCaffery pleaded guilty to the charges against him and entered into a plea agreement with the Department of Justice whereby a joint recommendation was made to the court regarding his sentence (details of the plea were provided in our June update5).
- United Kingdom businessman, Mr Ian Norris’ attempts to avoid extradition to the United States to face criminal charges for alleged price fixing during his employment with Morgan Crucible, have had a set back after a recent decision by the United Kingdom court. After the House of Lords ruled that Mr Norris could not be extradited on the principal charge relating to his alleged participation in a cartel (see our April update6), the matter was remitted to the District Magistrates Court to determine whether extradition could be granted for related charges of obstruction of justice. District Judge Nicholas Evans ruled that the charges against Mr Norris were of such gravity that his extradition was warranted. Mr Norris is expected to appeal this decision.
Regulation of the grocery industry
In January 2008, the Federal Government requested the ACCC to conduct an inquiry into the competitiveness of retail prices for standard groceries.
The ACCC provided its report to the Minister for Competition Policy and Consumer Affairs on 31 July 2008.
The report, and the government’s response to it has now been released to the public.
We will be reviewing the ACCC’s findings and recommendations in a special edition of this newsletter.
Regulation of the petrol industry
In February 2008, the Rudd Government created the position of Petrol Commissioner to monitor petrol pricing practices. As identified above, Pat Walker was initially appointed to that position but has now resigned and a new appointment will be announced within the coming weeks.
The Rudd Government has also proposed the introduction of a National Fuel Watch Scheme based on the scheme currently operating in Western Australia. Two Bills to establish that scheme were introduced into parliament on 29 May 2008. Both Bills were referred to the Senate Economics Committee on 17 June 2008. The Committee’s report is due by 29 September 2008.
Creeping acquisitions
The Trade Practices (Creeping Acquisitions) Amendment Bill 2007 was introduced to the Senate by the Howard Government on 20 September 2007. The Bill is currently under consideration by the Senate Economics Committee and a report is due on 27 August 2008.
Meanwhile, creeping acquisitions have also arisen as an issue in the ACCC’s national grocery price inquiry. The Rudd Government has indicated that while it will await the ACCC’s final report on the inquiry, any reform will need to achieve an appropriate balance between:
- the desirability of empowering the ACCC to regulate the incremental accretion of substantial market power, and
- the ability of small business owners to sell their businesses at an attractive price.
The Minister for Competition Policy and Consumer Affairs, Mr Chris Bowen, has announced an intention to reform Part IIIA of the Trade Practices Act 1974 (Cth) to streamline the process for third parties seeking to gain access to privately owned infrastructure. Presently, disputes arising under the existing regime can take several years to be finally resolved.
While the government is yet to announce the details of its proposed changes to the existing regime, Mr Bowen has indicated that some of the possible options are to reduce the timeframes for decisions by the regulators and for instituting an appeal. A much more radical option would be to combine some of the steps presently involved. For example, a decision on access might cover both the preliminary question of whether access should be granted and the secondary matter of the terms of access, rather than addressing these questions in two separate processes.
Endnotes
1.
Competition and Market Regulation Update March 2008 2.
Competition and Market Regulation Update May 2008 3.
Competition and Market Regulation Update December 2007 4.
Competition and Market Regulation Update February 2008 5.
Competition and Market Regulation Update June 2008 6.
Competition and Market Regulation Update April 2008
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