Skip to content.

Home

Allens

Focus: Cabcharge receives record fine for misusing its market power

29 September 2010

In brief: The Federal Court has imposed the highest ever penalty for misuse of market power, after Cabcharge Australia Ltd settled with the Australian Competition and Consumer Commission and was fined $14 million for contravening section 46 of the Trade Practices Act. Partner Kon Stellios (view CV), Senior Associate Helen Anness and Lawyer Jess O'Brien report.

How does it affect you?

  • This case demonstrates the Australian Competition and Consumer Commission's (the ACCC) determination to seek higher penalties for breaches of the Trade Practices Act 1974 (Cth) (the TPA), including section 46. The ACCC's determination will no doubt be bolstered by the Federal Court's decision to accept a penalty of $14 million as appropriate in the circumstances.
  • Recent amendments to s46, coupled with the substantially higher civil penalties now available for breaches of the TPA, are likely to reinvigorate the ACCC in pursuing s46 claims arising out of unilateral conduct. In this respect, the ACCC will be buoyed by Cabcharge's preparedness to settle the Federal Court proceedings.
  • Companies with a significant position in any market must ensure that internal procedures are in place to minimise the risk of the company being found to have used its market power for an anti-competitive purpose.

The misuse of market power provisions in the TPA

In June 2009, the ACCC commenced proceedings in the Federal Court against Cabcharge, alleging that Cabcharge misused its market power in breach of s46 and also entered into an agreement with the purpose or effect of substantially lessening competition in breach of s45 of the TPA. Cabcharge provides payment facilities for taxi operators and drivers to manage non-cash taxi fares. Cabcharge holds a very significant position in the market, supplying 96 per cent of Australian taxis with its electronic payment system. The proceedings related to Cabcharge's conduct at various times during the period from 2005 to 2008 in:

  • refusing to deal with competing suppliers to allow Cabcharge payments to be processed through rival EFTPOS terminals; and
  • supplying taxi meters and fare schedule updates below cost or free of charge.

To contravene s46(1) of the TPA, a corporation must have taken advantage of its substantial market power for the purpose of:

  • eliminating or substantially damaging a competitor;
  • preventing the entry of a person into that or any other market; or
  • deterring or preventing a person from engaging in competitive conduct in that or any other market.

Section 46 has been amended a number of times since September 2007 to strengthen the ACCC's ability to successfully bring proceedings for alleged contraventions of the TPA. For example, in September 2007, the TPA was amended by introducing s46(1AA), which prohibits a corporation with substantial market share from engaging in predatory pricing. Predatory pricing occurs when a company sets its prices below relevant cost for a sustained period for one of the anti-competitive purposes referred to above.1 In November 2008, the TPA was further amended to 'clarify' the circumstances in which a corporation would be found to have 'taken advantage' of its market power. This amendment was intended to overcome the evidentiary difficulties the ACCC experienced in establishing this element in earlier s46 cases. Relevantly, a company will now be considered to have taken advantage of its market power where:

  • its conduct was materially facilitated by its substantial degree of market power;
  • the conduct was carried out in reliance upon its substantial degree of market power;
  • the conduct would not have occurred without its substantial degree of market power; or
  • the conduct is otherwise related to its substantial degree of market power.2

Since January 2007, the courts have also had the power to impose a civil penalty for each act or omission giving rise to a contravention of the TPA of up to the greater of $10 million, three times the value of the benefit obtained from the misconduct, or 10 per cent of the annual Australian turnover of the company involved. These higher penalties apply to conduct occurring on or after 1 January 2007. The penalty for conduct occurring before that date is capped at $10 million for each act or omission.

Return to top

The settlement between the ACCC and Cabcharge

On 24 September 2010, Justice Finkelstein of the Federal Court approved the settlement between Cabcharge and the ACCC by declaring that Cabcharge had, in breach of s46(1), taken advantage of its substantial degree of power in the domestic markets for the supply of:

  • services to enable the manual and electronic acceptance, by non-cash means, of payments for taxi fares and charges by taxi passengers; and
  • non-cash instruments that could be used only for the payment of taxi fares and charges,

by:

  • between 1 February and 28 July 2005, and then between 1 and 29 July 2008, refusing requests by Travel Tab Australia Pty Ltd to agree to commercial terms to allow Cabcharge payment instruments to be processed electronically by Travel Tab's system; and
  • between September 2004 and November 2007, supplying 6178 taxi meters either free of charge or at a price of $100, both of which were below Cabcharge's direct cost of acquisition of $250 per unit. Cabcharge also provided free schedule updates for taxi fare rate changes for taxis using a Cabcharge meter.

Cabcharge was ordered to pay a pecuniary penalty of $14 million, calculated as follows:

  • $2 million for Cabcharge's refusal to deal with Travel Tab in 2005;
  • $9 million for its refusal to deal with Travel Tab in 2008, with this higher penalty most likely a consequence of the new TPA penalty thresholds applying to post-2007 conduct; and
  • $3 million for supplying taxi meters and fare schedule updates below cost between 2004 and 2007.

Written reasons for the judgment are not yet available and will be released shortly.

Return to top

Implications for Cabcharge

To settle the proceedings, Cabcharge admitted to three contraventions of s46 of the TPA and consented to declarations, compliance orders, civil penalties of $14 million and costs of $1 million. Although the ACCC alleged a further eight contraventions by Cabcharge of the TPA,3 Cabcharge did not admit to those contraventions and the ACCC is no longer pursuing the allegations.

The settlement avoids what was likely to have been a lengthy trial, in which the ACCC and Cabcharge proposed to call 52 and 25 witnesses respectively.4 However, this is not likely to be the end of the process for Cabcharge. Cabcharge now faces the prospect of third parties bringing legal actions for damages, no doubt encouraged by Cabcharge's preparedness to admit contraventions as part of the settlement. If this occurs, there may be further adverse financial consequences for Cabcharge.

Return to top

Conclusion

The Cabcharge decision is the highest penalty ever imposed for misuse of market power and a major indicator of the ACCC's determination to pursue higher penalties. It is likely that the ACCC will increasingly be prepared to commence proceedings for contraventions of s46 of the TPA, no doubt buoyed by recent amendments to the TPA, the availability of higher civil penalties and the Federal Court's willingness to award those higher penalties.

Footnotes
  1. The prohibition applies to conduct occurring on or after 25 September 2007.
  2. TPA s46(6A).
  3. This included an allegation that Cabcharge breached s45 of the TPA by entering into an agreement with Townsville Taxis to buy the taxi payment system and business in use in its taxis, for an anti-competitive purpose of replacing this rival system with the Cabcharge system.
  4. See ACCC v Cabcharge Australia Ltd [2010] FCA 731; ACCC v Cabcharge Australia Ltd (No 2) [2010] FCA 837.

For further information, please contact:

Return to top

Share with

What are these?

 

 

Recent Competition Law publications