Competition Law

Australian Competition Law and Policy Discussion

Archive for February, 2009

Senate Cartel Report Released

Posted by Julie Clarke on 26 February 2009

The Senate has just released its Report into the Trade Practices Amendment (Cartel Conduct and Other Measures) Bill 2008.

The Committee expressed its views on three key areas of contention (unfortunately they were addressed briefly and other issues of concern – including other aspects of the drafting of the provisions – were not addressed):

1. Distinguishing criminal from civil cartel conduct

The Committee supported the decision to omit a ‘dishonesty’ requirement from the original exposure draft bill.  They also believed that ANY attempt to legislate what constitutes a ‘criminal cartel offence’ ‘risks restricting the judgment of the regulator’ (at 4.8)  and (at 4.9) recommended against ‘an attempt to delineate between civil and criminal cartel offences’.  Case by case judgments of the ACCC are important, they continue (at 4.8), because ‘they are contextual and weigh various factors, one against others.’  Instead of legislative change the Committee favoured ‘the release of detailed guidelines by the ACCC on passing of the legislation providing a non-exhaustive list of factors so that businesses could have an understanding of the kind of behaviour that would have the potential for prosecution.’ (para 4.9)

2. Joint Venture Exemptions

This has been one of the hottest issues of contention.  The Committee was not, however, convinced by any arguments presented in relation to the exemptions: ‘Chapter 3 noted the bill’s joint venture exceptions have attracted criticism from those who claim they are too narrow, while others fear that they are too generous and potentially often sanctuary for cartelists. The committee believes that the bill strikes an appropriate balance.’ (para 4.12)

3. ACCC Powers

While acknowledging that it would be important for the ACCC to produce Guidelines to assist business in determining what conduct is likely to be pursued criminally, they did not “agree with the concerns of many witnesses that the bill would allow the ACCC to pursue innocuous (and previously legal) activities” considering that the “claim that the bill would give the ACCC too much discretion in determining the pursuit of criminal cartel cases” was “overstated”. (para 4.18)

Finally, the Committee simply recommended that the Senate pass the bill. (para 4.19)

In his ‘additional comments’, Senator Xenophon also noted that the comprehensibility of the bill could be improved by inserting  the new provisions in “a way that avoided the need to refer to complicated sub-sub-sub-sections such as ‘subsection 44ZZRF’ and so on. …’ .  He also claimed there was a ‘need for a comprehensive, independent, review of the Act … to produce a simple act which promotes fair markets that operate in the interests of the whole community.’  Unfortunately, neither the numbering system nor the complicated drafting of the provisions themselves (s 45A was nice and simple) were discussed in the majority report.

It is a pity this review was so limited.  There were only 12 submissions, no doubt in part because less then a year earlier there had been a similar call for submissions into the Exposure Draft bill (30 submissions were received) ; no report on the Government’s consideration of those submissions was ever released and no substantive explanations for legislative changes (like the removal of the dishonesty element and increased prison terms) was given (save that it brought it into line with US penalties).

There’s nothing much to excite anyone in this report and there are some frightening inaccuracies.

Errors, inconsistencies and other oddities

1. Error: Summary of Part IV: in para 1.2, designed to give ‘background’ to the discussion in the report, ‘third line forcing’ and ‘resale price maintenance’ (RPM) are listed as two of “four prohibitions on anti-competitive behaviour considered to be anti-competitive in the context of a ‘contract, arrangement or understanding’ between competitors.’  This is certainly news to me.  Both of these forms of conduct are prohibited per se in Part IV, do not require a contract, arrangement or understanding (at least not of the kind being referred to by the Committee) and are generally not (and certainly not required to be) between competitors.

2. Oddity: In para 1.2 again, the other two forms of prohibitions referred to are exclusionary provisions and price fixing (leaving aside that  price fixing is not a separately prohibited but prohibited as a form of anti-competitive agreement and is aided by a deeming provision in s 45A), exclusionary provisions (which are per se prohibited) are lumped in together with s 45(2)’s general prohibition on contracts, arrangements or understandings which substantially lessen competition.  There is a very important distinction between the two for purposes of the proposed cartel offence.

3. Error: para – 1.3 – the Committee states that authorisation can be granted for RPM, third line forcing and exclusionary conduct based on a ‘test as to whether it has substantially lessened competition in a market’.  This is simply wrong.  There is no reference to SLC in the authorisation provisions (presumably because these forms of conduct are effectively deemed to SLC) – instead a pure public benefit test applies – would the conduct result in such a benefit to the public that it should be allowed to take place?  The Committee refers to the correct provision (s 90(8)), but apparently has not bothered to read it.

3. Inconsistency: para 1.6 states ‘The twin purpose of the bill is to deter and detect criminal cartel conduct’.  Skip along a few pages and para 2.1 states taht teh ‘principal purpose of this bill is to establish a definition of and a basis for penalising criminal cartel activity.’

4. Error: para 2.18 states that the ‘”anti-overlap provisions” are excpetions to the TPA’s “per se” provisions’.  No, they are not.  An anti-overlap provision preventing RPM being caught both by s 48 (per se) and 45(2) (even if we’re kind and assume s 45A would also apply and therefore effectively capture it per se under s 45) is not an exemption to the per se prohibition (the conduct is still per se prohibited under s 48), it simply favours the specific over the general prohibition to avoid duplication of penalty for the same conduct.  This is quite a simple concept; either the Committee couldn’t grasp it or didn’t try.

5. Oddity: para 3.6 – not really an error or even an oddity, but Committtee compares US system with ‘parallel civil and criminal prohibitions’ where it is up to regulators ‘to determine which way the case will go foarward’ and how successful that has been but do not discuss at all or acknowledge the extemely different administrative structure existing there that facilitate that.

6. Oddity/insoncistency: para’s 3.9 discuss prices and seem to confuse price fixing with supply restrictions.  The complaint they refer to focusses on the prohibition in the bill on ‘preventing, restricting or limiting … the supply … of goods or services …’ – but this seems to be discussed in the context of price fixing, the Committee (at para 3.11) referring to Assoc Prof Zumbo’s proposed definition of a price fixing offence – and then quoting from him discussing conduct involving output restrictions’.  It was certianly difficult to follow …

7. Para 3.39 states ‘As the bill is currently drafted, any businesses that enter into a contract, arrangement or unerstanding that restricts supply – even if the activity is innocent and regardless of its impact on price – will be subject to the criminal cartel offences’ and (at para 3.49) ‘Ordinary commercial activities, which inadvertently restrict the supply of goods or services, may attract a criminal penalty’.  First, the first statement is inaccurate as conduct must be between businesses in competition (or likely to be so etc).  Second, it is not clear what the Committee means by ‘even if the activity is innocent’ as, although there is now no dishonesty requirement, the Committee points out in para 3.16, quoting from Scott Rogers, that it will be necessary ‘for the prosecution to prove that the corporation knew or believed that the contract contained the cartel provision’ – thus, while the conduct need not necessarily be ‘dishonest’ in that it intended to rip off consumers or others, genuinely innocent conduct should not be caught.

8. para 3.39 – While the Committee believed that ‘innocent’ and harmless conduct could be caught by the criminal provisions, they were not terribly concerned by this, expressing confidence that the ACCC would exercise appropriate judgment in determining which cases it would refer to the DPP for criminal prosecution.

The analysis that followed all of this was very limited and did not address all of the concerns the Committee itself identified earlier in its report.  It is difficult not to form the view that the Committee Review was merely ticking a box and nothing would have convinced them to alter the legislation and possibly delay its passage through Parliament.

The bill passed through the lower house on 11 February – the Senate next sits on 10 March.  View bill progress.

Posted in Cartels, Criminal Penalties, Legislation | Tagged: , , | 1 Comment »

The Australian Competition and Consumer Act

Posted by Julie Clarke on 17 February 2009

In a speech delivered today (17 February) to the Monash Centre for Regulatory Studies entitled Australian Consumer Law – The Future Chris Bowen MP proposes – among other things – renaming the Trade Practices Act the ‘Australian Competition and Consumer Act’ (from TPA to ACCA????).

Do we really need the ‘Australian’ part?  Are a bit unclear about who we are?

Posted in Legislation (TPA/CCA) | 4 Comments »

%d bloggers like this: