On the 24 March 2011, the Australian Government introduced the Competition and Consumer Amendment Bill (No.1) 2011 (the Bill) which proposes to prohibit price signalling and other anti-competitive information exchanges. The Bill comes after fresh concerns were raised by the Australian competition watchdog (the ACCC) about the competitive impact of "public" statements made by banks in relation to interest rates.
The Australian Treasurer hailed the Bill as capturing "conspiratorial behaviour by the big banks which is not caught by our Australian competition laws". It is intended these measures will bring Australia up to speed with other major jurisdictions like the United States, the UK, and the EU. However, the Bill has left many commentators concerned that the prohibitions go too far by capturing unilateral communications which could include communications that are pro-competitive or competitively benign in nature.
The provisions will only apply to goods and services specified by Regulation. The Government has indicated that the prohibitions will initially only cover the 'banking sector'. The proposed Regulation has not been released, but should provide further detail on what goods and services are covered within the 'banking sector'. While the Government has initially limited the provisions scope to this sector, they have indicated that further regulations could be made to extend the prohibitions to other industries after "further detailed consideration".
The prohibitions are a direct response to the Government's and the ACCC's concerns that the scope of the cartel provisions in the Competition and Consumer Act (CCA) (formerly the Trade Practices Act 1974) are too narrow. Among other elements, these provisions require evidence that competitors entered into, or attempted to enter into, a "contract, arrangement or understanding" before liability for price signalling or information exchanges can attach.
These concerns gained momentum in the aftermath of cases brought against petrol retailers in 2005 and 2007. The Australian courts held that, in the case of some retailers, the ACCC failed to show sufficient evidence of a 'contract, arrangement or understanding', on the basis that there was no evidence of a 'commitment' or 'moral obligation' between the parties to act in a particular manner.
The Bill does away with the need to show any form of 'understanding' by making the prohibitions unilateral in nature. The prohibitions do not require a 'commitment', 'meeting of the minds', or any sense of 'moral obligation to comply' between competitors in order for liability to attach.
Scope of Prohibitions
The Bill introduces two prohibitions:
- Private disclosure prohibition: a per se prohibition against a corporation making a private disclosure of pricing information (including information relating to rebates, discounts, allowances or credits) to competitors in relation to specified goods/services that are, or are likely to be, supplied or acquired by the corporation; and
- General Disclosure Prohibition: a prohibition against a corporation disclosing information (whether private or public) for the purpose of substantially lessening competition, if the information relates to:
- price, rebate, discount, or credit in relation to specified goods/services that are, or are likely to be, supplied or acquired by the corporation; or
- capacity, or likely capacity, of the corporation to supply or acquire specified goods/services; or
- any aspect of the commercial strategy of the corporation in relation to specified goods/services.
Neither prohibition would attract criminal penalties (unlike Australia's cartel provision). Civil penalties apply being the greater of $10 million, 3 times the benefit of the contravention, or (where the benefits cannot be fully determined) 10% of the corporate group's annual turnover in the 12 month period when the breach occurred.
There are a number of exceptions including disclosures authorised by law, disclosures to other related companies in the group, and disclosures to contracting parties of a collective bargaining arrangement.
Additionally, there are exceptions that apply only to the Private Disclosure Prohibition, including disclosures of information to an acquirer or supplier of goods and services (notwithstanding that they may also be a competitor), to JV participants, and disclosures relating to an acquisition of shares or assets.
The Bill also provides that disclosures made in the course of conduct covered by an existing authorisation granted under the CCA will be afforded protection, as will private disclosures made under a valid notice previously provided to the ACCC by virtue of the notification regime in the CCA.
Unsurprisingly, it is the unilateral aspect of the prohibitions that has attracted the strongest criticism from Australian commentators. The concern is, that without the need to show any form of reciprocity, the Bill will deter companies from making many competitively benign, and, in fact, pro-competitive disclosures.
Where both prohibitions will only require a unilateral communication, particular concerns arise in light of the per se nature of the Private Disclosure Prohibition. Per se offences are usually reserved for conduct that is so obviously anticompetitive that an effects-based analysis would be redundant, however many information exchanges can be competitively neutral or pro-competitive even when made to competitors. By removing the necessity to undertake an effects-based evaluation of private communications, the fear is that the Bill simply casts the net too wide.
While the extension of the notification and authorisation regimes will give corporations the opportunity to obtain immunity for a disclosure, this process may impose significant regulatory burdens, expenses and uncertainty on businesses who are contemplating undertaking these processes. The result, in many cases, may be that businesses simply elect not to incur the expense and risk associated with these processes, thus keeping efficiency-enhancing and competitively-neutral information to themselves.
Implications for New Zealand companies
Given the prohibitions can be extended to other sectors by regulation, the Bill has the potential to affect all New Zealand companies with trans-Tasman operations. However, the immediate implications for New Zealand will be for companies operating in the banking sector on both sides of the Tasman. Allegations of conduct occurring in both Australia and New Zealand are already a feature of ACCC and Commerce Commission investigations of alleged cartel conduct. Once the Bill passes into law, relevant New Zealand companies involved in information exchange networks should review those arrangements to ensure they will not be caught by the new Bill. Clearly those arrangements which enable participants to indentify other participants' individual information will be at much greater risk.
Currently, communications as to price in New Zealand are captured by Section 30 of the Commerce Act. Essentially, the provision prohibits arrangements between competitors that have the purpose, effect or likely effect of interfering with the competitive determination of price (or any component of price). Section 27 also applies to any arrangements (not just those with competitors) that have as their purpose, effect or likely effect, a substantially lessening of competition (an SLC). As in Australia, an 'arrangement' requires some 'meeting of the minds' or expectation as to future conduct.
Therefore, the law as it stands in New Zealand is similar to Australia, in that without the necessary evidence of some sort of arrangement, a breach will not be made out.
While reform contemplated by the Bill does not appear to be on the radar in New Zealand as yet, given the international trend of clamping down on cartels, the increasing harmonisation of trans-Tasman business laws, and the level of interplay between businesses across the Tasman, it would appear at least a possibility that New Zealand could follow Australia's lead. With the Government currently considering the criminalisation of cartel conduct, they may see it as an opportune time to shake up the Commerce Act with further reforms to strike a double blow at the heart of collusive conduct. Our saving grace may be that the Australian political system appears to lend itself to a number of seemingly 'ad hoc' amendments to their trade practices legislation – most of which we have not adopted.
First published in NZ Lawyer, Issue 157, 8 April 2011.