Report on Price Signalling bills now released

The House of Representatives Standing Committee on Economics has now released (three weeks late) the ‘Advisory Report on the Competition and Consumer (Price Signalling) Amendment Bill 2010 and the Competition and Consumer Amendment Bill (No. 1) 2011‘.

The (government) majority recommended that “The House of Representatives pass the Competition and Consumer Amendment Bill (No.1) 2011 and reject the Competition and Consumer (Price Signalling) Amendment Bill 2010.” A dissenting report was prepared by opposition members of the Committee.

The government bill is due to be debated in the House today.

More details on the inquiry and report are on my web site – here.  I will provide further commentary on the report on that site throughout today and tomorrow.  Briefly, it does not look particularly thorough or impressive.  Repeated reference to (perceived) deficiencies highlighted by the ‘Apco’ case are particularly odd, given the proposed limitation of the legislation to the banking industry – at least for the foreseeable future.

Swan announces Competitive and Sustainable Banking System Package

As promised, Deputy PM and Treasurer, Wayne Swan, has released the Government’s Competitive and Sustainable Banking System Package (see also Press Release, providing a dot-point summary of the proposals).

Most significantly for competition lawyers, it contains a proposal for price signalling laws.  The government has released an Exposure Draft ‘Competition and Consumer Amendment Bill (No 1) 2011‘ containing its price signalling proposal – submissions are due by 14 January 2011.

A summary of the Exposure Draft legislation and related information is available on my web site (it’s worth a look, if only for a laugh at the addition of some more bizarre numbering into the act – eg, ss 44ZZZ and 44ZZZA).  I will post separately some commentary on the content of the bill shortly.

In addition, the package will (as expected) ban exit fees outright on new home loans from 1 July 2011.  A raft of other measures are also proposed.

More to follow …

Price signalling bill introduced

Shadow Minister for Competition, Mr Bruce Billson, this morning presented the Competition and Consumer (Price Signalling) Amendment Bill 2010 at 10.26am. An explanatory memorandum was presented and statement made.  The Bill was read for a first time at 10.37am.

Although promoted as a response to concerns about banking competition, it is not limited to any particular sector of the economy. The explanatory memorandum states:

This Coalition Private Member’s Bill seeks to establish a new head of power under which the Australian Competition and Consumer Commission (ACCC) would be able to investigate and seek penalties for ‘price signalling’ that produces anti-competitive effects in the Australian market, to the detriment of consumers.

Price signalling is essentially defined in the bill as communication of price-related information to a competitor for purpose of encouraging the competitor to vary supply or acquisition prices in circumstances where that communication has, or is likely to have, the effect of substantially lessening competition.

The new provision would be contained in Division 2 of Part IV of the TPA and would not be subject to the new criminal regime applicable to some forms of cartel conduct.  The provision would be in the form of a new s 45A (filling the gap left by the repeal of the price fixing provision last year).  It would provide, in part:

Prohibition of price signalling

(1)    A corporation must not engage in price signalling.

(2)    For this section, a corporation engages in price signalling if:

(a)    it communicates price-related information to a competitor; and

(b)    it does so for the purpose of inducing or encouraging the competitor to vary the price at which it supplies or acquires, offers to supply or acquire, or proposes to supply or acquire, goods or services; and

(c)    the communication of that information has, or is likely to have, the effect of substantially lessening competition in the market for those goods or services, or in another market.

Establishing the purpose of a communication

(3)    Without in any way limiting the manner in which the purpose referred to in paragraph (2)(b) may be established, a corporation may be taken to have communicated price-related information to a competitor even if, after all of the evidence has been considered, the existence of that purpose is ascertainable only by inference from the conduct of the corporation, or of any other person, or from other relevant circumstances.

Several more sub-sections follow which define various terms. In particular, it captures public and private communications, including those made by way of public announcement. Importantly, however, transmissions or re-transmissions of price-related information that is already in the public domain is excluded, as are communications required by law.

The bill is more modest than had been feared by some.  Importantly, it applies only to price signalling when substantial lessening of competition flowing from that conduct can be established – this is not an easy threshold to meet – and requires a purpose of inducing a competitor to alter prices.  Although that purpose may be inferred, it must still be established in each case.  The exclusions noted above will also limit its scope.

Although it is suggested that there may be better or more effective methods of capturing anti-competitive communications between competitors (if such a law is required – and there is some argument that it is following the narrow interpretation of the word ‘understanding’ in the petrol cases – then addressing that issue directly rather than creating yet another untested provision would seem to be the preferred course of action), for a law directed toward “price signalling”, the proposed bill would seem to strike the balance appropriately between identifying that conduct likely to cause genuine anti-competitive concern and be an appropriate focus for legislative intervention, and avoiding casting the net too wide and thereby risking a series of unintended consequences (for example, a per se ban would have stifled even pro-competitive public price communications).

That said, if passed, the bill is unlikely to have an earth-shattering impact – proof of anti-competitive effect will be very difficult.

ACCC v Bridgestone Corporation

The full text of the Judgment of Justice Finkelstein in ACCC v Bridgestone Corporation is now available and worth a look. These are the reasons for his Honour’s order, made on 14 April 2010, accepting orders proposed by the parties following an agreed statement of facts and admissions.

In the course of his reasons for judgment, Justice Finkelstein observed that the principal object of imposing a penalty is deterrence and that, in relation to cartels, as a result of the difficulty of detection, ‘a particularly high penalty is justified’. He noted that courts will give effect to agreed penalties, provided they are within the ‘permissible range’ and set out relevant factors, noting that one of the most important factors will be the effect of the conduct in markets. He accepted that the agreed penalties of $8.235million were within the permissible range, observing that at the time of the contravention the maximum penalty in Australia was $10million.

His Honour went on to compare penalties in other jurisdictions, looking particularly at the process adopted by the European Commission for imposing cartel penalties (although he concluded that the principles adopted there and different limitation periods meant they could not be used for comparison when awarding damages in Australia).  His Honour observed, however, that ‘Australian penalties are very much on the low side’ and that they are ‘still something of a light touch notwithstanding the new penalty regime that was introduced in 2006’.  He also noted that when setting a penalty the court should not ‘lose sight of the maximum aggregate penalty that can be imposed in a particular case’, observing that there must ‘be some relationship between the maximum penalty and the penalty that is imposed’

His Honour concluded that the agreed penalties were reasonable ‘having regard to the constraints imposed upon a judge in going beyond what the parties have suggested’.

New Zealand: New discussion paper on criminal cartels

On 27 January the NZ Minister of Commerce, Simon Power, released a discussion document on the introduction of criminal penalties for cartels.

• View Simon Power Press Release
• View  summary of the discussion paper by DLA Phillips Fox.
• View NZ Herald Editorial: Why Corporate Cheats Need Threat of Jail

See also article by Caron Beaton-Wells and Brent Fisse (Uni of Melbourne Legal Studies Research Paper No 413, June 2009), ‘The Australian Criminal Cartel Regime: A Model for New Zealand’.

Submissions close on 31 March 2010.

C7 … again

Channel Seven believe that a number of media companies conspired to kill it’s pay-TV arm, C7, in contravention of sections 45 and 46 of the TPA.  In 2007 Justice Sackville delivered judgment against Seven, rejecting their conspiracy theory and observing that “Seven was the author of its own misfortune.”  Seven appealed the decision and last week the Full Federal Court delivered judgment rejecting that appeal.  It appears they have decided against further appealing the matter to the High Court, although officially it is still considering its options.

In dismissing the appeal, the majority of the Full Court (Justices Dowsett and Lander) disagreed with the primary judge, Justice Sackville, on two important points.  Both related to the requirement of ‘purpose’.

The first point related to who must have the requisite purpose to establish a contravention. Justice Sackville held that all parties responsible for including the provision must share the requisite anti-competitive purpose.  Justices Dowsett and Lander held that there was no such requirement for a shared purpose – it will suffice if any party to the agreement, responsible for including the provision, had the requisite purpose.

The second point of difference related to the effect of a purpose being ‘impossible to achieve’.  Justice Sackville concluded that for a breach to occur the purpose must be capable of being achieved.  The majority disagreed, holding that the ‘purpose’ element could be established even if that purpose could not, in fact, be achieved.

The c7 case has been a litigator’s dream.  Proceedings commenced in 2002 and trial judgment was delivered in 2007.  The trial lasted 120 days (one of the longest in Australian history), produced 85,654 documents comprising 589,392 pages (only 12849 of which were admitted into evidence), produced 1,028 pages of pleadings, 1,613 statements from lay witnesses, 2,041 pages of expert reports (plus appendices), 2,368 pages of written closing submissions by Seven and 2,594 pages of written closing submission from the Respondents (naturally supplemented by outlines, notes and summaries), a trial transcript running to 9,530 pages and resulted in a 1,200+ page judgment at a cost of more than $200m in legal fees (about the same amount as the claimed damages).  This was all described by Justice Sackville as “extraordinarily wasteful” and “bordering on the scandalous” and led him to caution against appealing the decision (see summary of trial judgment).  During the course of the trial it also led Justice Sackville to worry about the implications of his own mortality – the following passage from day 104 of the trial, is one of the most amusing I’ve seen yet (reproduced in LawyersWeekly):

Noel Hutley for News Ltd had said: “The worst thing that can happen in this case is that the timetable breaks down.”

His Honour: “The worst thing that can happen in this case is that the judge breaks down.”

Hutley: “Your Honour looks in glowing health. We check every morning.”

His Honour: “On January 1, 2006, Mr Hutley, when the temperature was 45 degrees, I climbed up on a ladder in order to clear the garage of our holiday home from leaves.”

Hutley: “You should have told us, your Honour, we would have done it.”

His Honour: “The bushfires were raging four or five kilometres away, so I did what every sensible home owner does, get up in the heat; and I fell and knocked myself unconscious and spent an evening in Gosford Hospital. I was unconscious for about 20 minutes and, when I came to my senses, the very first thought that crossed my mind was, ‘can I remember anything about the C7 case?’

“Unfortunately the answer was yes. It only goes to show, Mr Hutley the fragility of human existence.”

Seven did not heed Sackville’s warnings against appealing to its own detriment – more legal fees, more animosity between the parties and another long (about 350 pages) judgment to read.  The only winners were the lawyers.

I confess to having some interest in seeing the matter appealed to the High Court – the issue of the meaning of ‘purpose’ in the Trade Practices Act continues to fester and it would be useful to have some further clarity on the issue – particularly in light of the introduction of the new cartel laws.  But it is hard to imagine what Seven would gain from the litigation; I await their formal decision with interest.

Market definition in Australia

Earlier this month (on 2 October 2009) the Full Federal Court dismissed Singapore Airlines’ appeal against a decision of Justice Middleton which challenged ACCC investigation powers under s 155. A key issue was whether ‘routes between two points wholly outside Australia could be within a “market in Australia”.’ In rejecting the appeal, the Full Federal Court held that ‘prices fixed for legs of a journey which take place wholly outside Australia may ultimately affect competition in a market in Australia’. ACCC Chairman, Mr Graeme Samuel, noted that the decision was crucial in that it

‘confirms that the Act is able to reach cartels formed outside Australia affecting Australians. The Full Federal Court has also confirmed that the ACCC is fully able to investigate conduct occurring overseas. Here we are investigating a worldwide market for air cargo services.’  See ACCC Press Release.

The decision is a positive one. The definition of market in s 4E of the Trade Practices Act as one within Australia is artificial and distorting in cases where the reality is that the market is global or, at least, transnational.  It is not a problem that appears to arise in other jurisdictions which more sensibly focus on local effect on competition without the artificial market restriction.  Confirmation that a global market might be classified as a ‘market in Australia’, even where relevant conduct occurs entirely outside Australia is a positive step – and consistent with foreign approaches to the application of competition laws to conduct occurring abroad – but it is not a complete panacea for the problems generated by our restrictive market definition.

The last time this was officially reviewed was during the course of the Dawson Review of the competition law provisions of the Act which addressed it very briefly in the context of mergers (in which the definition of market is defined as a substantial market for goods or services in Australia, a State, a Territory or a Region of Australia: s 50(6)).  The Report concluded that this definition is not too restrictive and that it allows regard to be paid to foreign competition.  However it entirely glossed over the point that a market which is transnational cannot be.  I briefly discussed this in ‘The Dawson Report and Merger Regulation’ (2003) 8 Deakin Law Review (pages 59-61).   See also submission by Dr Maureen Brunt – ‘Market Definition in the Trade Practices Act: the Challenge of Globalization’.

The issue has arisen in a number of cases recently, with judges taking vastly different approaches to the meaning of market in the TPA.  The importance of defining market in a realistic, rather than artificial, way has increased with the globalisation of markets and will continue to do so as more conduct occurring outside our territorial shores impacts on our domestic competitive environment.  It is time to revisit the issue of market definition for purposes of the competition law provisions of the TPA.

ACCC alleges price fixing by Qld construction co’s

The ACCC has commenced proceedings alleging that three Queensland construction companies engaged in price fixing when tendering for Government construction projects between 2004 and 2007.

View ACCC Press Release.

New issue of CCLJ

The latest Competition and Consumer Law Journal is out (Vol 17(1)) containing some interesting items on current developments in the law, including:

• In hope of convergence — A regional perspective on competition law (Chief Justice R S French)
• Signalling, collusion and s 45 of the Trade Practices Act (Rhonda L Smith, Arlen Duke and David K Round)
• The contract requirement for the joint venture exceptions under ss 44ZZRO and 44ZZRP of the Trade Practices Act (Brent Fisse)
• Cartel damages and the passing on defence: A comparative analysis (Graeme Edgerton)

For those interested in everything TPA related, there’s also an interesting article on the scope of s 51A (representations about the future) in the context of the current review of Australian Consumer Law.

• The 2009 review of Australian consumer law — An opportunity to reconsider and clarify the rationale and scope of s 51A of the Trade Practices Act (Aviva Freilich and Eileen Webb)

Criminal cartel laws now live in law, but not in print

Today marks the first day the long-awaited criminal cartel laws enter force in Australia.  The news laws create new civil and criminal offences for engaging in cartel conduct.  Cartel participants now risk up to 10 years jail for making or giving effect to cartel provisions, defined (in s 44ZZRD(2)!) to include price-fixing (this replaces s 45A which has been repealed), bid-rigging, restricting outputs and market division between competitors.  Despite the flaws in the drafting of the laws, it is appropriate to treat cartels as criminal and the law should be welcomed. It has been described by former ACCC Chairman as a ‘red letter day for competition law‘.

However, despite the very serious consequences now associated with the new law, Treasury has not produced a consolidated version of the Act – so nobody can clearly see how the new law operates without flicking between two different – and highly complex – documents.  This is unacceptable.  It is normal for legislative consolidations to lag behind new legislation where the amendments are trivial or incidental to amendments made to other acts.  But this is a monumental and complex change and it is not as if Treasury has been caught off guard.  The legislation passed on 16 June.  It received Royal Assent on 26 June.  Since then it has had 28 days for someone among its hundreds of staff to put together a consolidated Act prior to the criminal laws kicking in.  Nobody has bothered.  ComLaw did create a new consolidation on 1 July (AFTER the cartel act received assent) but it didn’t include the new law!

I did it in a few hours – I didn’t get much sleep on Tuesday night compiling the ‘unofficial’ consolidation, but it wasn’t a difficult task. Why?  I’m teaching the new law to my undergraduate students in a couple of weeks and wanted to see the new additions/amendments in context in order to ensure I was capturing the full raft of changes – and it was a useful exercise.  But the only consequence for me of not doing it would be to deliver a sub-standard lecture.  Although my students may consider this a particularly serious and undesirable outcome, for business and lawyers the consquences are clearly much more serious.  It is unacceptable that there is no ‘official’ means of viewing the new law, particularly given the serious – criminal – nature of the consequences for failing to adhere (for which ignorance of the law is no excuse).

This is not the only area in which Treasury has been lax in updating material for the public.  It took well over a week for the Treasury website to acknowledge Dr Craig Emerson MP as the new minister for Competition and Consumer Affairs (this change should take no more than a few minutes).  And his web site is still part of the ‘Ministers for Innovation, Industry, Science and Research’ website (Emerson is also Minister for Small Business, Independent Contractors and the Service Economy; Minister Assisting the Finance Minister on Deregulation‘) rather than Treasury Ministers portal (all the other Treasury Ministers have web sites hosted by Treasury and their quality is far superior).

At least the main page of the site now lists his various ministerial responsibilities – until recently nobody would have guessed from the web site that he had anything to do with Competition policy.  When I complained about this, Webhelp from the Department of Innovation, Industry, Science and Research, informed me (on 3 July) that the page reflecting Minister Emerson’s ministerial responsibilities had been updated (http://minister.innovation.gov.au/emerson/Pages/ministerialresponsibilities.aspx) and that the rest of the website was in the process of being updated and ‘should’ be completed shortly.  It’s not clear whether it has been ‘completed’ or whether they are still at work.  If it is ‘completed, then the reference to the Competition Ministry still remains in the shadows of a very large and overbearing ‘header’ which proclaims that this page is for Ministers of Innovation, Industry, Science and Research .  It is not terribly comforting for those hoping for a strong government focus on competition policy.

Treasury has been very keen to release reports, establish inquiries, enact complex new laws in relation to competition policy (for some of that, at least, they are to be commended) but needs to improve its act when it comes to dissemination of information about new laws and policy to the public – in particular, those subject to the new criminal laws have a right to be able to view consolidated legislation which clearly sets out their obligations.