The world is grappling with an unprecedented health and economic crisis. We are all adjusting to a new world order of social distancing, increased working from home, and sadly, in some cases serious illness.
This pandemic has also brought significant challenges for the global economy and may raise new issues for businesses in how to respond. In times such as these it may be easy to lose focus on our legal obligations. However, companies need to remain vigilant in complying with their competition law obligations as they respond to economic issues caused by the COVID-19 pandemic. Regulators such as the Australian Competition and Consumer Commission (ACCC) will be concerned to ensure that there is no reduction in competition beyond what is necessary to respond to the crisis.
Companies should also be aware, however, that the ACCC has demonstrated that it will expedite requests from business to grant temporary relief from some of these obligations provided it is satisfied that that any public detriment from the conduct will be less than the public benefit. The ACCC recognises that many businesses, particularly small business, are facing severe disruption and it will factor these circumstances into its consideration of competition law matters in the short term to assist businesses to remain viable and competitive in the long term.
The ACCC is re-focusing its enforcement priorities this year to those most relevant to competition and consumer law issues arising out of the impact of COVID-19.
The frequently asked questions (FAQs) below will help you respond to key competition law issues that may be relevant for your business in these difficult times.
Competition Law Frequently Asked Questions
Q: Can we talk with competitors and others in our industry about COVID–19?
A: You may want to know how others in your industry are responding to COVID-19, and potentially collaborate or coordinate with them in certain respects, such as ensuring or prioritising supply or implementing public health measures. While there may be avenues for permitted collaboration (which we discuss below), you must remain vigilant about complying with your competition law obligations if dealing with your competitors.
- You must not engage in cartel conduct by making an agreement, arrangement or understanding with a competitor (or potential competitor) that:
- maintains, controls or fixes prices, discounts, rebates or credits (price fixing)
- restricts acquisition or outputs in the production and supply chain (restricting output)
- allocates customers, suppliers or geographic areas (market sharing), or
- interferes with a competitive tender process, for example by agreeing on who will bid or what they will bid (bid rigging)
In addition, whether dealing with competitors or any other industry participants:
- You must not make any agreement, arrangement or understanding that has the purpose, effect or likely effect of substantially lessening competition.
- You must not engage in “concerted practices”, which include any form of cooperation (or conduct likely to lead to cooperation) that has the purpose, effect or likely effect of substantially lessening competition.
These are serious breaches of the competition law which may attract significant penalties, and in certain circumstances for cartel conduct criminal penalties including imprisonment can apply. If you are likely to engage in any of these activities you should carefully consider your competition law position and seek ACCC authorisation where appropriate.
Q: What can we do to reduce competition law risk when speaking to our competitors and others in our industry about how COVID-19 is impacting us and what we can do about it?
A: In many industries it is common to interact with competitors, whether through industry associations, joint ventures, or where your suppliers or customers will also be your competitors. Competition laws recognise that many of these interactions can be harmless or beneficial to competition, and do not prohibit them outright. However, there is a risk that when speaking with competitors you may engage in the conduct discussed above in breach of the competition law.
Generally, if you are speaking with your competitors (or potential competitors), you should apply the usual principles:
- Make sure that you do not share competitively sensitive information, or come to any agreement, arrangement or understanding (even a “wink or a nod”) about pricing, customers, suppliers, output, or territories, or anything that may reduce competition between you.
- Ensure that the discussion is for a clear and legitimate purpose, prepare an agenda (approved by your legal advisors) and take file notes or minutes. If you have concerns that information discussed could be competitively sensitive, raise the concern, and ask for your concern to be minuted (and leave the meeting if the discussion continues).
- Avoid speaking on behalf the “industry”, for example “if we stand together…” or “the industry view is…” particularly in relation to issues on which industry participants would ordinarily compete.
- Where industry coordination is contemplated, make it clear that nothing in the present discussions will constitute an agreement or understanding and that participants will continue to make independent decisions unless and until legal advice is obtained and any appropriate structure or regulatory approval for the coordination is secured.
Of course, we are in extraordinary circumstances, and there may be good reasons to work together in ways that wouldn’t usually be contemplated. See below for how to do that in a way that doesn’t give rise to competition law risk.
Q: How can we collaborate with our competitors to help our industry and customers through the pandemic, for example by agreeing how we will deal with customers or suppliers?
A: There are ways for competitors to collaborate on emergency responses to COVID-19, but to do so will require appropriate attention to competition law risk and careful management.
Collaborating with a competitor (or potential competitor) in relation to how you will deal with customers or suppliers risks breaching the cartel provisions of the competition law, entering into or giving effect to an anti-competitive agreement and/or engaging in concerted practices. This is particularly risky if the subject matter involves prices, where or to whom the product will be sold, or how much will be produced.
If you want to collaborate with your competitors (e.g. to consider how to coordinate supply recognising potential shortages, or how to provide relief to customers impacted by COVID-19), there is a risk of contravention unless you pursue one of the following options.
It may be possible to collaborate with competitors if you obtain authorisation from the ACCC. Authorisation provides protection from legal action for conduct that might otherwise breach the competition law. Broadly, the ACCC may authorise the conduct if it is satisfied that the benefit to the public from the conduct outweighs any public detriment, including from a lessening of competition.
An urgent interim authorisation may be available to avoid waiting for a final decision which may take 6 months or longer – which will be too late in many instances. The ACCC has said that it expects an increase in urgent interim authorisation applications to allow businesses to coordinate some conduct during the crisis. These applications will be an important priority for the ACCC during the crisis, and it has preparations in place to act on applications extremely expeditiously if necessary. Businesses should engage with the ACCC as early as they can if they expect they will submit an urgent application.
The ACCC has already granted interim authorisation of conduct addressing the impacts of the COVID-19 pandemic on an extremely timely basis. Interim authorisations granted include, for example:
- On 20 March 2020 the ACCC granted urgent interim authorisation to allow the Australian Banking Association (ABA) and its member banks to work together to implement a small business relief package, deferring loan repayments for small businesses impacted by the COVID-19 pandemic. Interim authorisation was granted less than 24 hours after the application was lodged.
- On 30 March 2020 it provided a second conditional interim authorisation to the ABA and its banks to cooperate to provide supplementary relief packages for individuals and businesses affected by COVID-19, and to ensure that customers can access services including counter services in a range of locations and times. Programs and arrangements must be notified to, and in some cases approved by, the ACCC.
- On 2 April 2020 the ACCC granted interim authorisation allowing insurance companies and brokers to work together to implement COVID-19 relief measures for small business customers, such as deferring premium payments in the case of hardship and refunding unused premiums without cancellation or administration fees where policies are cancelled as a result of the pandemic.
- On 8 April 2020 the ACCC granted interim authorisation allowing private health insurance companies to co-ordinate on providing financial relief to policy holders during the COVID-19 pandemic, and broadening insurance coverage to include COVID-19 treatment, tele-health and medical treatment provided at home. The insurers must notify the ACCC of any agreements reached, may not agree to increase premiums and any agreements must end when the authorisation ceases.
- On 8 April 2020 the ACCC granted interim authorisation for members of the securitisation industry to work together to help smaller lenders maintain liquidity and issue affordable loans to consumers and small businesses during the economic disruption caused by the COVID-19 pandemic, implementing the Commonwealth Government’s Structured Finance Support Fund.
- On 14 April 2020 the ACCC also granted urgent interim authorisation to life insurers to coordinate to ensure that frontline healthcare workers are not excluded from coverage due to potential or actual exposure to COVID-19. Insurers are agreeing not to decline coverage, charge higher premiums or apply risk exclusions on the basis of COVID-19 exposure to a wide range of healthcare workers including hospital and general practitioner staff, pharmacists, people working on COVID-19 vaccines, police, aged care workers and volunteers supporting people with COVID-19.
Supermarkets and shopping centres
- On 23 March 2020 the ACCC granted urgent interim authorisation to allow Australian supermarkets to engage in coordinated activities to ensure the supply and fair and equitable distribution of retail products during the COVID-19 pandemic, as recommended by the Supermarket Taskforce convened by the Commonwealth government. Interim authorisation was granted the next working day after the application was lodged. On 26 March 2020 the ACCC revoked its initial interim authorisation and replaced it with a new interim authorisation imposing conditions on additional grocery retailers who wish to participate in the authorised conduct.
- On 3 April 2020 the ACCC granted interim authorisation to allow shopping centre owners and managers to jointly develop plans to provide relief to their small business tenants, including deferring or reducing rents, waiving interest payments and extending leases. The authorisation is conditional on notifying the ACCC of the plans.
Medicines, medical equipment and hospitals
- On 25 March it granted urgent interim authorisation to the Medical Technological Association of Australia (the MTAA) to allow its members and other groups, such as suppliers or distributors of medical equipment, to share information between each other, co-ordinate orders and supply requests, prioritise requests, and jointly tender to supply COVID-19 medical equipment.
- On 31 March it granted interim authorisation to wholesalers of medicines to cooperate in the distribution of essential medication and pharmacy products. Wholesalers may coordinate the supply, inventory management, distribution, logistics and import of pharmaceuticals needed by consumers and hospitals.
- On 3 April it granted interim authorisation to inventors, manufacturers and suppliers of medicines and vaccines to work together to ensure the continued supply of essential medicines during the COVID‑19 pandemic, including by identifying and mitigating any shortages or supply chain problems at could impact availability in Australia. Authorisation is conditional on updating the ACCC of any material decisions and agreements in relation to this conduct.
- On 7 April the ACCC granted separate interim authorisations to private hospitals in each of Victoria and Queensland to cooperate with their state health agencies, public hospitals and each other. This will help state governments boost the capacity of their health systems by integrating the operations of public and private hospitals, including by discussing expected demand and available resources; sharing and jointly procuring equipment, medicines and other resources; allocating patients between hospitals; or sharing staff. The authorisations follow directions from the Commonwealth government to suspend most elective surgery and funding for private hospitals to work with. On 17 April the ACCC granted similar interim authorisations to private hospitals and health agencies in each of the Northern Territory and South Australia.
- On 26 March 2020, the ACCC granted interim authorisation to Regional Express (Rex) allowing it to coordinate flight schedules with Virgin Australia and Qantas Airways on ten important regional flight routes during the COVID-19 pandemic. The interim authorisation will also enable the airlines to share revenue from providing services on the routes. For example, the arrangements may include each carrier operating one daily service on a route and sharing revenue between them. The authorisation is conditional on airlines charging fares no higher than those in place on February 1, 2020, meaning the airlines will not be able to coordinate to raise prices.
- On 1 April 2020 the ACCC granted interim authorisation allowing NBN Co and five major retail service providers (RSPs) to work together to keep telecommunications networks operating effectively during the COVID-19 pandemic and support consumers and small businesses adversely impacted by the pandemic. The working group was formed at the request of the Minister for Communications and will share information, coordinate strategies and take other steps to manage congestion and take other steps to address significant demand changes caused by the COVID-19 pandemic and the large numbers of people now at home during the day. The ACCC will be an observer on the special working group and is able to review the interim authorisation at any time.
- On 3 April the ACCC granted urgent interim authorisation to the Australian Energy Market Operator Limited (AEMO) to allow gas and electricity industry participants to co-operate on measures to ensure secure and reliable energy supply and integrity of wholesale markets during the COVID-19 pandemic. The parties are immediately authorised to coordinate repairs and maintenance, share essential personnel and inputs, defer non-essential work and manage system stability for these purposes. They are not permitted to agree on wholesale or retail energy prices and cannot share confidential information, and agreements cannot last longer than the current crisis necessitates. On 17 April 2020 the ACCC replaced the initial interim authorisation with a new interim authorisation allowing a broader range of conduct, including the sharing of information about the operation of critical facilities and any risks to that operation, but excluding any conduct relating to gas availability – though this may be authorised if the ACCC considers it will provide a net public benefit at the time of its final determination.
- On 3 April the ACCC also granted interim authorisation to major oil refiners and their industry association to discuss and put in place measures to ensure the availability of fuel supplies during and after the pandemic and economic shutdown where fuel demand may be reduced. These measures may include arrangements with suppliers of crude oil and refined fuels, importers, suppliers of storage facilities and trucking or delivery services and wholesalers, and may include the coordination of refining and storage capacity to keep refineries operating. It must not include the coordination of prices, and the ACCC will continue to monitor retail petrol prices in Australia.
- On 9 April 2020 the Australian Constructors Association applied for urgent interim authorisation for members of the construction industry to coordinate their response to the COVID-19 pandemic, including providing governments with information, assistance or advice and implementing government decisions and best practice procedures in relation to social distancing and other health and safety measures.
- On 23 April 2020 the Minerals Council of Australia, together with other mining industry associations applied for authorisation for themselves, their full members and others to enter into or give effect to any contract, arrangement or understanding that has the purpose of collaborating to share inventories of, or rationalising demand for, critical mining supplies and services; coordinating scheduling and supply chain activities of those supplies and services; or sharing details of potential suppliers of PPE. Interim authorisation was granted the following day on the condition that the Minerals Council of Australia report material arrangements to the ACCC and provide any further information the ACCC requests, and the Applicants to provide regular updates more generally.
ACCC Chair Rod Sims has said that the ACCC is ready to act quickly on urgent interim authorisations and “has a team ready and raring to go on this. We’re being flexible and very fast … This is a crisis and we’re all in it together.” Mr Sims has said that the ACCC has received applications from most sectors of the economy and is in many cases approving them within 1–2 days.
The ACCC also has the power to grant class exemptions that provide businesses with a “safe harbour” to conduct specified activities without fear of breaching the competition laws. An exemption may be granted if the activities are unlikely to substantially lessen competition or are likely to result in a net public benefit. All businesses that engage in the specified conduct will be protected by the class exemption without the need to seek individual authorisations, if within the scope of the exemption.
While there are no class exemptions currently in place, two are currently under consideration. Relevantly, one would enable small business to collectively bargain with customers or suppliers over common issues.
A class exemption is a disallowable legislative instrument and the ACCC is not bound to follow any particular statutory process before granting one. However, it appears that at present the ACCC is seeking to deal with the exigencies of the COVID-19 pandemic through urgent interim authorisations rather than class exemptions.
Q: What statements can we make in public about how we are planning to respond to COVID‑19?
A: It is fine to publicise your response to COVID-19 at a high level, and it is important that your customers, employees and other stakeholders are well-informed.
However, in publicly sharing information about your business’s response to COVID-19 or any other matter, you must be careful not to share any commercially or competitively sensitive information, which may risk breaching the competition law prohibitions against concerted practices and even cartel conduct. This information could include how you anticipate your pricing or output to change in the future, or strategic decisions that impact your competitiveness – unless you have authorisation or an exemption.
You should also be careful not to overstate or misrepresent your response to COVID-19, as this could breach the Australian Consumer Law.
You may of course, be required to disclose certain information, for example under your continuous disclosure obligations under the Corporations Act 2001 (Cth). Read our recent publication here for guidance on this.
Q: Our industry will need some form of consolidation if it is to survive the pandemic and economic downturn. Will this be possible under competition law?
A: Consolidation may take a number of forms, for example a production joint venture that rationalises production capacity to increase economies of scale while the joint venture parties continue to compete in the sale of end-products, through to a merger between competitors.
Production joint ventures and mergers can help businesses respond to changing industry conditions while avoiding the risk of cartel conduct (which is prohibited regardless of its effect on competition and can attract criminal charges for both companies and individuals). However, in some circumstances they may give rise to other contraventions of the competition law, for example where they are likely to substantially lessen competition in any market.
An acquisition of shares or assets, including a merger or an incorporated joint venture, can be approved by the ACCC through the informal clearance process on the basis that it will not substantially lessen competition, or through the formal authorisation process if it would provide a benefit to the public that outweighs any anti-competitive detriment.
An unincorporated joint venture can be authorised by the ACCC on the basis that it provides a net public benefit. Without approval, there is a risk that the ACCC will intervene on the basis that the arrangement has the purpose or likely effect of substantially lessening competition. While some international regulators such as the New Zealand Commerce Commission have signalled a more permissive approach to collaboration in the public interest during the COVID-19 epidemic, the ACCC’s current position appears to be that parties should seek urgent interim authorisation.
In making these decisions the ACCC or a court will compare the likely state of competition in the relevant market following the proposed arrangement against the likely state of competition if the arrangement did not proceed, generally looking up to five years into the future.
The ACCC may be prepared to let struggling companies fail and exit the market if they consider that to be a more competitive outcome in the longer term, for example by freeing up assets or customers that can provide an opportunity for new entrants in the future. They may also be reluctant to approve an arrangement that they see as a long-term structural change in response to a short-term disruption, even a very serious one. In relation to the COVID-19 pandemic, the ACCC has said that it expects additional merger proposals arising from concerns and uncertainty about the ongoing financial health of some businesses. It will assess each proposal on a case-by-case basis, taking into account not only the present situation but also the longer term impact on competition of any change in the structure of markets, in an assessment that looks beyond the immediate impact of the crisis on the profits and share value of the merger parties.
ACCC Chair Rod Sims has said that that businesses should not expect a different or more lenient approach to merger assessments as a result of COVID‑19. However, the longer-term impacts of the pandemic will naturally be a factor in competition assessments. For example, in approving the acquisition of Adelaide Tools by Bunnings Group, the ACCC acknowledged that the planned entry of an interstate competitor could be considerably delayed or hindered by the COVID-19 pandemic, the full impact of which on the economy and market participants is not yet known.
You should seek legal advice at the earliest opportunity if you are considering any consolidation to understand the options and give them the best chance of success. You should be particularly careful to ensure that any consideration of these options cannot be interpreted as an opportunity for coordination between individual competitors.
Q: How will the COVID-19 pandemic affect our dealings with the ACCC?
A: Regulators as well as businesses around the world are adapting to COVID-19 and government responses to help control the pandemic. The ACCC has provided the following advice in relation to the operations of its Merger and Authorisation Review Division:
- The ACCC is continuing to assess the matters before it and accepting new requests for clearance, authorisation applications and notifications. However, like many businesses it is implementing measures to protect staff and external parties and to allocate resources to ensure that it meets its objectives of protecting competition.
- These measures include cancelling non-essential meetings with external parties and travel, transitioning to a larger proportion of staff working remotely and prioritising internal and external communication by phone and Skype.
- While these measures are aimed to ensure that the ACCC is able to make decisions within its usual guidance, it expects that some timeframes may need to be extended in order to complete the necessary inquiries with merger parties and market participants. This will include applications with statutory timeframes such as authorisations. The ACCC will discuss any proposed extensions with the relevant parties.
- The ACCC is not asking parties to delay applications for authorisation or merger clearance, but is encouraging parties to consider whether some of these applications could more appropriately be postponed, for example where they are not urgent or at an early stage.
- The ACCC is asking merger parties to update the ACCC on a regular basis regarding any changes in the commercial timing or prospects of mergers under consideration. For example, where a merger is dependent on obtaining funding which is now unlikely to be obtained, or when the parties have decided to go-slow on a transaction.
- The ACCC may need to prioritise matters further if the situation worsens, and will seek the assistance of parties and their advisers in meeting this challenge.
As discussed above, the ACCC expects the current market environment to result in additional merger proposals and urgent interim authorisation applications. It will act extremely expeditiously to assess urgent interim applications, but notes that its assessment will take into account not only the present situation but also the longer term competitive impact of any change in market structure.