Allens

Competition Law

Increase text sizeDecrease text sizeDefault text size

Competition & Consumer Law Quarterly

6 August 2010

Introduction: Welcome to the first edition of the Allens Arthur Robinson Competition & Consumer Law Quarterly newsletter.

This newsletter is designed to give you an update and overview of the significant developments in competition and consumer law and policy in the first half of 2010. These have included multiple amendments to the Trade Practices Act 1974, ongoing cartel litigation, some significant merger decisions by the Australian Competition & Consumer Commission and a landmark access decision by the Australian Competition Tribunal. We are also to have a name change for our legislation: with effect from 1 January 2011, Australia's competition and consumer law will be found in the Competition and Consumer Act 2010.

We are also very pleased to introduce our newest partner in the Allens Competition Law Group, Kon Stellios, (view CV) who joined the partnership on 1 July 2010. Kon specialises in competition law litigation, policy and regulation, and acts for clients in major administrative law and trade practices litigation. He has worked on a range of high-profile matters for the firm, including for Amcor Limited in connection with the alleged cartel between Visy and Amcor, for Hutchison on the high-profile merger with Vodafone and in the C7 litigation case, where he advised News Limited, FOXTEL and Fox Sports.

New legislation

There have been a number of significant amendments to the Trade Practices Act in the first half of 2010:

  • The Trade Practices Amendment (Australian Consumer Law) Act (No 1) 2010 (Cth) was passed in March this year. This Act introduces the first phase of the Australian Consumer Law (ACL), including additional enforcement powers for the Australian Competition & Consumer Commission (ACCC), new civil penalties and an unfair contracts regime. These changes are described in more detail below. The commencement dates for the various provisions have been staggered.
    • From 15 April 2010, the ACCC and Australian Securities and Investments Commission (ASIC) have an increased range of enforcement options for consumer protection laws, such as the ability to issue disqualification orders, substantiation notices and infringement notices.
    • Provisions setting out new civil pecuniary penalties also apply from 15 April 2010. The changes authorise the ACCC and ASIC to seek monetary penalties of up to $1.1 million against corporations and $220,000 against individuals that make false or misleading representations or engage in unconscionable conduct.
    • Provisions relating to unfair contract terms (in consumer contracts only) take effect from 1 July 2010. Standard form contracts that are entered into on or after 1 July 2010, and the terms of existing contracts that are renewed or varied on or after 1 July 2010, will be subject to the new regime.
  • The Trade Practices Amendment (Australian Consumer Law) Act (No 2) 2010 (Cth) was passed on 24 June 2010. The Act implements the second tranche of ACL reforms aimed at unifying and modernising the national competition law. The provisions of the Act take effect from 1 January 2011 (including amendments proposed by the Senate).
  • The Competition and Consumer Legislation Amendment Bill 2010 aims to clarify the operation of provisions relating to mergers and acquisitions to deal with 'creeping acquisitions'. In addition, the Bill will insert a statement of interpretive principles into the unconscionable conduct provisions of the ACL and the Australian Securities and Investments Commission Act 2001 (Cth) (the ASIC Act) and unify sections 21 and 22 of the ACL (currently ss 51AB and 51AC of the Trade Practices Act). The Bill passed the House of Representatives on 24 June 2010 but was not introduced into the Senate before the Australian federal election was called, and has consequently lapsed.
  • The Trade Practices Amendment (Infrastructure Access) Act 2010 was passed on 24 June 2010. This Act amends the National Access Regime in Part IIIA and related provisions in Part IIA of the Trade Practices Act, as discussed further below. Amendments to the Act commenced on 14 July 2010. Under transitional arrangements, applications lodged under the old regime will not be subject to the amendments, except for amendments to the Australian Competition Tribunal (the Tribunal) processes which will apply to applications for review whether made before or after the commencement of the amendments.
  • Changes to the Franchising Code of Conduct took effect from 1 July 2010. These changes involve amendments to the Trade Practices (Industry Codes – Franchising) Regulations 1998. The amendments apply to any franchise agreement entered into, renewed, transferred or extended on or after this date. The amendments increase the disclosure obligations on franchisors and strengthen dispute resolution procedures under the Code.

Merger clearances

Since January 2010, the ACCC has publicly opposed five mergers:

  • National Australia Bank's proposed acquisition of AXA;
  • the merger of Caltex and Mobil's retail assets;
  • the takeover of Breville by GUD (Sunbeam);
  • Cargill's proposed acquisition of Goodman Fielder's commercial fats and oils business; and
  • Link Marketing Services' proposed acquisition of Newreg.

Other transactions, such as Woolworths/Danks and Novartis/Alcon, have been approved, following the submission of revised proposals and/or court enforceable undertakings.

The ACCC has focused on market concentration resulting from proposed mergers and in some cases, the removal of a vigorous and effective competitor in the market, leading to potential concerns about coordinated effects. Coordinated effects arise when a merger or acquisition alters the relationship between the firms in a market and enhances their ability and incentive to coordinate decisions or compete less vigorously. The ACCC considers that mergers which increase the likelihood of coordination occurring are likely to substantially lessen competition. This will have particular relevance to parties considering transactions where, post merger, there will be only two or three significant competitors in a market.

The ACCC's decision to oppose National Australia Bank's acquisition of AXA led to a flurry of public commentary, attributing the ACCC's 'new' approach to the influence of Mergers Commissioner Jill Walker, who was appointed in August 2009. ACCC Chairman Graeme Samuel has strongly rejected this suggestion, affirming that decisions are taken by the ACCC and not any single commissioner.

Cartel proceedings

The ACCC has indicated that it is conducting more than 30 investigations at present, and it has been actively using its statutory information-gathering powers. However, no proceedings have yet been commenced under the criminal cartel provisions in the Trade Practices Act, which came into effect in July last year. The following is a summary of developments in cartel enforcement:

  • Federal Court imposes $8 million penalty in marine hose cartel case: The Federal Court has ordered four foreign-based suppliers of marine hose to pay penalties exceeding A$8.24 million for engaging in cartel conduct in breach of s45 of the Trade Practices Act. The ACCC instituted proceedings in June 2009, alleging that Dunlop Oil & Marine, Bridgestone Corporation, Trelleborg Industrie SAS and Parker ITR had given effect to an international cartel arrangement in Australia from 2001 to 2006, by submitting rigged bids for the supply of marine hose to customers in Australia. The ACCC chairman, Graeme Samuel, noted that investigators were greatly assisted by both US and UK regulators in the provision of documents and information located overseas. The ACCC's request for documents was the first the UK Office of Fair Trading has granted to any overseas competition regulator.
  • Further airlines joined in ACCC's air cargo proceedings: Since January, the ACCC has continued its strategy of sequentially issuing proceedings against international airlines allegedly involved in an air cargo cartel. In March, the ACCC filed Federal Court proceedings against Korean Airlines; in April proceedings were commenced against Malaysian Airlines; and, in May, the ACCC brought proceedings against Air New Zealand and Japan Airlines. The ACCC has now issued proceedings against 15 airlines, with six of those airlines reaching settlements with the ACCC that have resulted in the payment of more than A$40 million in penalties. The remaining airlines are defending in these proceedings, including Garuda and Malaysian Airlines, which both recently lost their claims for immunity under the Foreign States Immunities Act 1985 and have appealed on this issue to the Full Court of the Federal Court.
  • ACCC's immunity policy: The ACCC has noted that many of its current cartel investigations have been commenced following applications for immunity. After the collapse, in May, of the first contested cartel case brought by the UK Office of Fair Trading against four British Airways executives following the belated recovery of previously undisclosed materials held by Virgin Atlantic Airlines, the immunity applicant, the ACCC is likely to be looking to ensure that procedures for document production by immunity applicants are put in place that are demonstrably thorough, to avoid the Commonwealth DPP ever being in a similar embarrassing situation which faced the UK regulator.

Consumer Law

The passage of the Trade Practices Amendment (Australian Consumer Law) Act (No 1) 2010 heralded the introduction of a new national consumer law regime in Australia, to be known as the Australian Consumer Law (ACL). The new law creates a unified consumer protection law that will eventually incorporate and build on the consumer protection provisions in Parts IVA and V of the Trade Practices Act. The Act also amends the ASIC Act to introduce corresponding provisions that will apply to financial services.

The ACL is being implemented in two parts. The first tranche of amendments introduced:

  • a new unfair contract terms regime. Under the new regime, a term in a consumer contract will be void if it is unfair and the contract is a standard form contract. A term in a consumer contract will be unfair if:
    • it would cause a significant imbalance in the parties' rights and obligations arising under a contract; and
    • it is not reasonably necessary to protect the legitimate business interests of the party who would be advantaged by the term (ie the supplier); and
    • it would cause detriment (whether financial or otherwise) to a party if it were to be applied or relied on;
  • new civil pecuniary penalties up to $1.1 million for corporations and $220,000 for individuals have been introduced for unconscionable conduct and most consumer protection provisions (except misleading and deceptive conduct); and
  • new enforcement powers for the ACCC and ASIC, including the power to issue public warning notices, substantiation notices and infringement notices.

The new enforcement provisions came into effect on 14 April 2010. The unfair contract terms regime came into effect on 1 July 2010.

The Trade Practices Amendment (Australian Consumer Law) Act (No. 2) 2010 will come into effect on 1 January 2011 (except as specifically stated below). It is the second and final phase of the ACL and will change the name of the Trade Practices Act 1974 to the Competition and Consumer Act 2010.

Part two of the ACL reforms include:

  • prohibitions against misleading or deceptive conduct and unconscionable conduct to apply to a 'person' rather than a 'corporation';
  • a single set of statutory consumer guarantees with remedies based on whether there is a major or minor defect to replace the existing system of statutorily implied conditions and warranties in the Trade Practices Act under state and territory laws;
  • new prohibitions on false and/or misleading representations relating to:
    • representations that are testimonials and representations about testimonials; and
    • representations concerning consumer guarantees;
  • regulations about making unsolicited offers face-to-face and in telephone marketing. The definition of an 'unsolicited consumer agreement' includes where contact information has been provided to a supplier for purposes other than soliciting goods or services, eg entering a competition; and
  • allowing the Federal Minister to prescribe safety standards and impose interim or permanent bans on consumer goods and product-related services. The new law incorporates the concept of reasonably foreseeable use or misuse as a factor that is relevant to imposing a ban or deciding to compel recall of consumer goods or issue a safety warning notice.

Access developments

This year has seen an unprecedented level of activity in the area of third-party access.

  • Queensland access regime: The Queensland Government's proposed privatisation of Queensland Rail (QR) has generated opposing applications to determine whether the state or national access regime will regulate access to QR's coal network in the future. The National Competition Council (NCC) has two applications before it that concern regulated access to the rail services offered on QR's Central Queensland Coal Network. One application, lodged by freight rail operator Pacific National, seeks to have services provided by certain of QR's coal railway facilities 'declared' under the national access regime. If successful, this would bring the services within the scope of the national access regime. The other application, lodged by the Queensland Government, is to have the state's existing access regime – which applies to QR's Central Queensland Coal Network – certified as an 'effective' regime. If successful, this would exclude the ability to have services covered by the state regime declared under the national regime, meaning Pacific National's applications would fail. Given the large amount of cross-over in the issues to be decided, the NCC indicated it will consider the applications together. The NCC is currently taking third-party submissions on the two applications, and its recommendations regarding declaration and certification will be released later this year. Allens Arthur Robinson is advising the Queensland Government on some of these issues.
  • Pilbara railway access decision: On 30 June, the Tribunal published its decisions in respect of the landmark disputes over regulated access to BHP Billiton (BHPB) and Rio Tinto Iron Ore's (RTIO) Pilbara railways. The matter originated in 2004, when Fortescue Metals Group (FMG) made an application for one of BHPB's railway lines to be declared under the national access regime, and was later expanded when FMG made similar applications for another of BHPB's lines and RTIO's lines in 2008. The Federal Treasurer had declared three of the railway lines for open access, and had failed to make a decision in time for the fourth, which was deemed to be a decision not to declare that line.

    The Tribunal set aside the Treasurer's declaration of one of RTIO's railway lines, so it is not subject to the national access regime. On the other RTIO line, the Tribunal upheld the Treasurer's decision to declare it but reduced the period of declaration from 20 years to eight. It affirmed the Treasurer's declaration of one of BHPB's railway lines for 20 years, and upheld the Treasurer's effective decision in respect of BHPB's other railway line to not declare it. The Tribunal indicated that the difference in result between the various railway lines reflected the intensity of usage. The lines that it decided to declare carried less ore for the owners and third-party demand for the lines was less, which led the Tribunal to conclude that the costs of access on these lines would not outweigh the benefits of access. Allens advised RTIO in the proceedings.
  • Amendments to the national access regime: The national access regime (Part IIIA) was amended on 24 June. Most significantly, the changes:
    • impose 'expected periods' within which decision-makers are required to reach decisions in place of the current 'target' timelines;
    • limit the information the Tribunal can consider when it reviews decisions of the Minister/ACCC;
    • enable the Tribunal to award costs in review proceedings;
    • give the Tribunal a discretion as to whether or not to stay the Minister's declaration decision when parties seek a review of the decision; and
    • provide that a state/territory access regime will only be 'effective' (and thereby exclude the possibility of declaration under the national regime), if it has been formally certified.

The amendments also enable infrastructure owners of new facilities to obtain a ruling that the proposed facility cannot be declared for a particular period of time (at least 20 years).

Class actions

Currently, there are three class actions before the Australian courts relating to price fixing and market sharing arrangements. Recent developments in those class actions demonstrate both that the law in Australia concerning the availability of a 'pass through' defence in antitrust damages claims is in a state of flux, as well as the difficulties that arise in pleading damages claims that involve global cartels.

  • Australian corrugated fibreboard packaging class action: This action concerns an alleged cartel in the Australian corrugated fibreboard packaging industry. The applicant alleges that the group members suffered damage by overpaying for corrugated fibreboard packaging. The respondents have claimed that if there was an overcharge, the group members did not suffer any damage as they passed through the overcharge to their customers and were recently permitted to obtain discovery of documents from the applicant relating to whether the applicant passed through increases in costs to its customers. In the US, respondents are precluded from raising the 'pass through defence' in a claim for damages made by direct purchasers under Federal law. It is expected that this matter will clarify the law in Australia relating to the availability of a 'pass through' defence under the Trade Practices Act.
  • Air cargo and rubber chemicals class actions: These ongoing separate class actions relate to alleged cartels in the setting of fuel and security surcharges on international air cargo services, and in the rubber chemicals industry. In late 2009, the statement of claim in each proceeding was struck out by the court on the basis that it failed to adequately define the market, demonstrating the difficulties that arise in pleading damages claims that involve global cartels.

    To contravene the prohibitions relating to price fixing and market sharing arrangements in Australia, it is necessary for the parties to the arrangement (or some of them) to be in competition with each other in 'a market in Australia'. In the air cargo class action, the applicant pleaded a global market for the supply of international air freight services and an Australian market which formed part of the global market. Similarly, in the rubber chemicals class action, the applicant alleged the existence of both a global and an Australian market. In each proceeding, the respondents sought to strike out the statement of claim on the basis that it failed to adequately define the market.

    In both matters, the trial judge considered that a global market which included Australia may satisfy the requirement for the market to be a market in Australia. In the air cargo class action, the trial judge held that for there to be a market in Australia, it is necessary for 'competitive activity' to occur within Australia. The pleading in the air cargo case failed to specify that activity and was therefore struck out. In the rubber chemicals class action, the trial judge held that the pleading did not clearly specify whether the applicant was alleging a global market (which included Australia) or a separate Australian market, noting also that where it is alleged that a global cartel was implemented in Australia, it is necessary for the applicant to specify the material facts that support the allegation that the conduct in Australia was connected to the global cartel. Both interlocutory decisions have been appealed to the Full Federal Court, which heard the appeals in May 2010.

For further information, please contact:

Share or Save for later

What are these?

 

To save this publication on your smartphone or
tablet for off-line reading (eg on a plane flight),
we recommend Pocket.

 

 

You can leave a comment on this publication below. Please note, we are not able to provide specific legal advice in this forum.

HTML Comment Box is loading comments...