The new prohibitions on price signalling in the Competition and Consumer Act 2010 (CCA) came into force on 6 June 2012. At this stage the prohibitions only apply to the banking sector when taking deposits or making advances or loans.
The prohibitions are part of a wider trend which sees competition authorities in a number of major jurisdictions scrutinising information exchange between competitors as well as seemingly unilateral announcements of commercial strategy:
- recent guidance from the European Commission contains a new and generally helpful chapter dedicated to information exchange but contains a potentially wide and therefore concerning statement about when seemingly unilateral conduct might be characterised as collusion with competitors;
- there is no shortage of enforcement against information exchange in the EU – especially in member states. The UK Office of Fair Trading recently fined the bank RBS GBP 28.5 million in respect of a one way and unsolicited passing of generic but competitively sensitive information. Interestingly, some newer antitrust jurisdictions, such as Malaysia, appear to favour the strict EU approach; and
- in the US, antitrust agencies have opposed a number of signalling practices in the past and recently appeared to curtail the coverage of an applicable 'safe harbour' for information exchange.
In this alert we provide an overview of the new prohibitions and consider how these prohibitions are likely to apply in practice, taking into account guidance recently released by the Australian Competition and Consumer Commission (ACCC). We also consider the future extension of these prohibitions.
Overview of the new prohibitions
The new provisions prohibit:
- private disclosures of pricing information between actual or potential competitors, regardless of the purpose of the disclosure or the effect that it is likely to have upon competition, unless they are made "in the ordinary course of business" (per se prohibition); and
- non-private disclosures of information relating to price, capacity to supply or any aspect of the commercial strategy of the corporation for the purpose of substantially lessening competition in a market (general prohibition).
A corporation will not be in breach of the per se prohibition if the disclosure is made to "any other person", although the CCA contains anti-avoidance measures to ensure that a corporation cannot make a disclosure to a competitor through an intermediary or to another person as well as the competitor for the purpose of avoiding the prohibition.
For the purposes of the general prohibition, in determining whether the conduct was for the purpose of substantially lessening competition a court may take into account a number of factors including:
- whether the disclosure was a private disclosure to a competitor;
- the degree of specificity of the information;
- whether the information relates to past, current or future activities;
- how readily available the information is to the public; and
- whether the disclosure is part of a pattern of similar disclosures. For the purpose of the CCA, offending behaviour by a director, an agent or employee of a corporation will be deemed to be behaviour of the corporation when they are acting within the scope of their authority.
There are a number of exceptions to these prohibitions and we provide an overview of these below.
How are the prohibitions likely to apply in practice?
In relation to the per se prohibition, the key question is when will private disclosures between competitors be in the ordinary course of business? The ACCC has indicated that they would consider the following disclosures not to be problematic under the new prohibition:
- A disclosure of fees and conditions by Bank B to Bank A for the purpose of Bank A seeking a loan from Bank B;
- A disclosure of current pricing by Bank A to a mortgage broker who acts as broker for a number of banks, to facilitate sales of its products by the broker; and
- A disclosure to an information service provider who offers a price comparison service to potential consumers for the purpose of generating business for their bank.
- However, a disclosure of pricing information by a bank employee to employees of competitor banks at a social function would raise concerns.
In relation to the general prohibition, the ACCC has stated that statements simply promoting products and expertise or describing general market conditions will not raise concerns. However, the ACCC has indicated that it would be concerned by signalling to facilitate coordinated conduct. In a recent speech ACCC Chairman Rod Sims stated:
"our attention would be attracted where, say, a bank offers its support for a change in pricing strategy, effectively tipping that strategy to competitors and testing how they might respond, without committing itself to action.
Further, of course, we would be concerned if, say, an Australian banking executive announced that he or she would be reluctant to lift rates beyond that of the Reserve Bank cash rate or introduce new fees, but they would follow if other banks did so".
The prohibitions will not have any effect on genuine advertising of prices to customers – but care will need to be taken to avoid disclosures that could be construed as being intended to test its competitors likely approach to changes in market conditions or to "tip off" competitors as to a proposed price or strategy change which could be caught by the new prohibitions.
The CCA contains a number of exceptions to the per se prohibition, which are designed to protect legitimate business activities from being caught by the prohibitions. Those include disclosures:
- relating to goods or services supplied or likely to be supplied to the recipient or acquired or likely to be acquired from the recipient;
- made to a competitor or potential competitor in circumstances where the corporation did not know, and could not reasonably be expected to have known that the recipient was a competitor or potential competitor;
- to participants or proposed participants in a joint venture and the disclosure is made for the purposes of the joint venture or in the course of negotiations for the joint venture;
- between two corporations if the information relates to loans or credit supplied or likely to be supplied to one borrower;
- between a credit provider and provider of credit services;
- in relation to a proposed or actual contract, arrangement or understanding for the acquisition of shares or assets by or from a corporation; and
- in the case of a loan, where the corporation has been notified of a borrower insolvency situation, for the purpose of considering whether to take measures to return the borrower to solvency, or to avoid or reduce the risk of a borrower being insolvent.
The CCA also sets out a number of general exceptions which include disclosures that are authorised by law, those authorised by the ACCC, made for the purpose of collective bargaining or made to a related body corporate (eg. a subsidiary).
The burden of proving that an exception applies lies with the corporation making the disclosure and so corporations should always seek legal advice if in any doubt as to whether disclosure is permitted.
A person will not be directly or indirectly knowingly a party to a contravention, merely because the person has received information that is disclosed in contravention of the CCA.
Corporations will also be able to lodge a notification or an application for authorisation to the ACCC, to seek protection against legal action for proposed disclosures that would result or be likely to result in a benefit to the public.
The penalties for breaching the new price signalling prohibitions are the same as those that apply to other breaches of the prohibitions on anti-competitive conduct in the CCA. For corporations this is pecuniary penalties of up to the greater of $10 million or three times the total value of the benefits derived from the conduct (or, if that cannot be determined, 10% of the annual turnover of the body corporate over 12 months) per contravention. For individuals involved in such a contravention the maximum penalties are $500,000 per breach.
Future extension of the prohibitions?
For the present time, the price signalling prohibitions apply only to the banking sector, but it remains to be seen whether and to what extent they will be given wider application in the future.
The prohibitions can be extended by an amendment to the classes of goods and services proscribed by the Regulations. The regulations require that "any consultation that is considered by the Minister to be appropriate and that is reasonably practicable to undertake, has been undertaken" and there is no requirement for a specific process to be followed.
The ACCC has called for the prohibitions to apply to all sectors of the economy and ACCC Chairman Rod Sims has recently described the banking sector specific focus as "unfortunate". This is particularly highlighted by the regulator's recent launch of an inquiry into the sharing of price information in the petrol industry. The ACCC has said that it is concerned that information sharing arrangements allows petrol retailers to quickly signal price movements, monitor competitors' responses, and react to them. Due to the limited application of the new prohibitions, these arrangements cannot presently be pursued under those prohibitions.
We consider it likely that it will be only a matter of time before the present restricted application of the prohibitions to the banking sector is widened.