The Commonwealth parliament is in the process of passing a law in relation to concerted practices, largely following the Harper Review recommendations on that topic. Was that wise?

In June 2012, the “price signalling” provisions were introduced into the Competition and Consumer Act 2010 (Cth) (Act) in response to ACCC recommendations made to Government in the wake of the 2007 ACCC National Petrol Inquiry.[i] At that time, there was a significant concern following a detailed inquiry into the retail petrol market, that signalling of retail prices between competitors through both public and private communications of pricing information, was enabling coordinated and manipulative movements in retail petrol pricing to the detriment of consumers.[ii]

Interestingly, the impetus for the initial Bill, introduced into Parliament in November 2010,[iii] appears to have been the European “concerted practices” jurisprudence[iv] which broadly targets collusive behaviour between competitors of a kind which, in Australia, may not be caught by either s 45 of the Act or the cartel provisions[v] but involves sufficient cooperative or coordinated conduct (usually in the form of sharing of information) to evidence an intention by the participants to knowingly substitute cooperation for competition.

In their final form, the price signalling provisions targeted two forms of disclosure: private disclosures to competitors which were made per se illegal; and public disclosures of key information (price, supply, strategy, etc) where the disclosure had an anti-competitive purpose. The requirement, in the case of public disclosures, for an anti-competitive purpose, tempered the reach of the provision which was otherwise potentially wide enough to catch innocent conduct (e.g. parallel pricing). The per se illegality for private disclosures could be explained by the seriousness of the conduct and the likelihood that any private communication between competitors had an anti-competitive purpose and effect.

Some controversy attended the introduction of these provisions and when finally introduced in 2012, their application was limited to the banking sector. In its 2015 report, the Harper Review committee (committee) noted that the price signalling provisions “…do not enjoy wide supportare complex and create an additional compliance burden for business.” The committee recommended their removal.

In their place, and to address the price signalling issue between competitors, the committee recommended (through an amendment to s 45) a ban on any “concerted practice” which it described as “a regular and deliberate activity undertaken by two or more firms (which would include the regular disclosure of price information) if the practice had “the effect or likely effect of lessening competition.”[vi] If this description proves correct, it would not be necessary to establish any prohibited intention nor to establish that the participants had reached any level of understanding to substitute cooperation for competition.[vii]

The Harper Review recommendations to repeal Division 1A, Part IV (price signalling) and to amend s 45,[viii] have been broadly accepted by the Commonwealth Government and are currently under consideration in the 2016 Exposure Draft.[ix]

There are a number of problems with this approach.

First, whilst simplicity is to be commended,[x] dropping the distinction between private disclosures (per se illegal under the old price signalling provisions) and public disclosures (which required a prohibited intention) in favour of a competition test, neither simplifies nor clarifies the operation of the law. On the contrary, it introduces complexity. Whilst the competition test may be a familiar one to the ACCC, from an evidential perspective, it is a notoriously cumbersome, expensive and time-consuming test to debate and prove in a court. The competition test also depends on the identification of the relevant “market” and, with that, a complicated assessment (including with/without analysis) of competition in that market, again notoriously time consuming and expensive to resolve.

Secondly, whilst s 45 does not require a prohibitive intention in respect of contracts, arrangements and understandings that lessen competition, jettisoning the requirement for a prohibited purpose and/or any proof of an understanding in the case of a “concerted practice”,[xi] creates a tension between the descriptor and the conduct prohibited. Contracts, arrangements and understandings are legal edifices. A “concerted practice”, whether characterised as a form of cartel conduct or something different, involves by definition, coordinated conduct intended by the participants to produce an outcome or to have an effect. The notion of coordinated conduct can be described in this context as conduct having the object of substituting cooperation for competition (i.e. anti-competitive collusion). At the heart of this form of collusion is some intention to engage in anti-competitive conduct and some understanding, usually to cooperate. This explains why, in the case of public disclosures, establishing a prohibitive purpose was a requirement in the price signalling provisions in Division 1A of Part IV.[xii]

If intention is at the heart of the notion of “concerted practice” then jettisoning the requirement for it in the manner envisaged is problematic conceptually. It is like trying to divorce intention from the broader concept of market manipulation in s 1041A of the Corporations Act 2001 (Cth). As history and case law have shown, it is simply not possible, even where the legislative provision would appear to have been redrafted to achieve this outcome.[xiii] Ironically, if this is correct, then using the term “concerted practice” in the legislation without greater specificity, runs the risk that judicial interpretation will add to the provision a requirement for some form of understanding and/or some prohibitive intention – which would defeat the purpose of the simplification.

Thirdly, jettisoning a requirement for a prohibited purpose is likely to broaden significantly the potentially impugned conduct, trapping potentially innocent conduct such as parallel pricing or other coordinated practices engaged in for innocuous purposes. No doubt with an eye to the potential for over-reach, the committee noted that the expression “concerted practice” “conveys that the impugned practice is neither unilateral conduct nor mere parallel conduct by market participants.” But would this be the way a court would interpret the expression? The potential for confusion and overreach is real.

Finally, introducing an effects-based test is likely to introduce the potential for frequent regulator reliance on an assessment of “likely effect” of the consequences of the concerted practice.[xiv] In competition law, the notion of “likely” has, as is well known, a particular and somewhat unsatisfactory meaning. Logical reference to what might be “more probable than not” is discarded in favour of a wider concept of real chance or possibility.[xv] This broadens significantly the reach of the provision but solves none of the evidential issues associated with such vague notions.

It appears that the committee may have taken the view that it was sensible to remove a requirement of prohibitive intention in the concerted practice provision because intention is difficult to prove and in any event, it could be assumed in the case of coordinated conduct between competitors, particularly in the case of private communications. But the proposed provisions do not discriminate between private and public communications and at least in the case of public communications, the assumption may not be a safe one. Moreover, proof of intention can be enhanced by the inclusion of a sub-section permitting the court to more easily draw an inference as to necessary intent. This was the way it had been approached in the case of public disclosure of pricing information in Division 1A of Part IV. [xvi]