- The Treasurer has introduced into Parliament a Bill to prohibit anti-competitive pricing signalling. The Bill is said to take into account submissions received in response to an Exposure Draft released in December 2010.
- The Bill maintains the approach proposed in the Exposure Draft, but comprises additional exceptions intended to limit the scope of the proposed law, including protection for conduct formally notified to the ACCC.
- If passed, the Bill will prohibit (subject to exceptions):
- private disclosure of price-related information to a competitor, and
- disclosure (whether public or private) of any relevant aspect of a corporation’s commercial strategy, where the disclosure aims to substantially lessen competition.
- The Bill retains the intended focus of the Exposure Draft—it will, at least initially, only cover the banking sector.
- Even with the additional exceptions and notification procedure, the proposed law would significantly increase the ACCC’s power to investigate suspected price signalling (initially in the banking sector and potentially in other sectors in due course).
- Targeted corporations would need to align their conduct with the new prohibitions quickly. Any breach would attract liability for the same civil consequences as for anti-competitive collusion, including cartels. Criminal sanctions would not apply.
On 24 March 2011, Treasurer Wayne Swan introduced into Federal Parliament the government’s Competition and Consumer Amendment Bill (No.1) 2011 (Bill). The Bill is intended to amend the Competition and Consumer Act 2010 (Cth) (CCA).
In preparing the Bill, the government has had access to 25 submissions1 made in response to its exposure draft legislation released on 12 December 2010 (Exposure Draft). The Exposure Draft was the subject of our previous alert entitled ‘Price Signalling “Take 2” – the government’s turn’.2
The Bill has many similarities to the Exposure Draft. Indeed, some commentators will likely argue that the Bill does not deal with key concerns raised with the government. However, a key difference in the Bill is the inclusion of several new exceptions designed to limit its scope and thereby improve business certainty. These exceptions are particularly important because the Bill retains a per se prohibition3 of private disclosures to competitors.
The Bill contains substantially the same two prohibitions as set out in the Exposure Draft. These are:
- Private Disclosure Prohibition: an outright prohibition against a corporation making a private disclosure to competitors of information relating to price, discounts, rebates or credits in relation to specified goods/services that are, or are likely to be, supplied or acquired by the corporation.
- General Disclosure Prohibition: a prohibition against a corporation disclosing information (not just in private) for the purpose of substantially lessening competition, if the information relates to:
- a price, discount, rebate or credit in relation to specified goods/services that are, or are likely to be, supplied or acquired by the corporation
- 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.
Scope of the prohibitions
The government intends to define by regulation the specific goods and services to which the Bill applies. However, draft regulations have not yet been released.
As expected, the Treasurer has confirmed that the Bill will initially target the banking sector. This is said to be based on ‘strong evidence’, according to the Australian Competition and Consumer Commission (ACCC), of ‘conspiratorial behaviour by the big banks’ including them ‘giving each other a “nod and a wink” that they would raise their rates together.’
The Bill may apply more broadly to goods and services in other sectors in due course. The ACCC has clearly expressed its preference for the price signalling legislation to apply across all sectors. However, the Bill’s Explanatory Memorandum (EM) states that the government ‘would only extend these laws to other sectors of the economy after further detailed consideration.’
In order to clarify the scope of the above prohibitions, the wording of the draft legislation has been tidied up since the Exposure Draft. For example, it is now clear that disclosures to an agent would generally be disregarded and that mere receipt of information would not constitute being ‘knowingly concerned’ for the purposes of section 76 of the CCA. In addition, the proposed joint venture exception now covers disclosure during negotiations for the joint venture, and the exception for disclosure to an acquirer or supplier of goods/services no longer requires that the goods/services be intended for re supply.
New exceptions and protections
A key point of difference between the Bill and the Exposure Draft is that the Bill now specifies further exceptions and protections, in addition to those previously set out in the Exposure Draft. The new carve-outs are designed to restrict the broad reach of the above prohibitions and improve the prohibitions’ workability.
Specifically, the carve-outs are limited to the following conduct formally protected through ACCC notification and compliance with continuous disclosure obligations.
- Disclosure covered by notification: This protection covers any private disclosure made under a valid notice previously provided to the ACCC pursuant to s 93 of the CCA. Under the notification regime, immunity is not secured until the expiry of 14 days, during which time the ACCC may prevent the notification taking force. Significantly, this notification option only applies to the Private Disclosure Prohibition and is not available for disclosures that would only be caught by the General Disclosure Prohibition. To the extent that notified private disclosures would also otherwise be caught by the General Disclosure Prohibition, a valid notice would provide immunity from the General Disclosure Prohibition. As a practical matter, the notification procedure may be thought to soften the impact of the per se Private Disclosure Prohibition. However, notification would not be available to provide corporations with certainty about the legality of intended disclosures to non-competitor(s).
- Disclosure in the course of authorised conduct: This protection covers any disclosure made in the course of conduct covered by a valid authorisation under section 88 of the CCA. For an authorisation (or notification) applicant to be successful, the applicant must show that the relevant conduct has a net public benefit.
- Disclosure for collective bargaining: This protection covers any disclosure made under a contract subject to a valid collective bargaining notice submitted to the ACCC under section 93AB of the CCA, provided the disclosure is made only to other contracting party/ies.
- Compliance with continuous disclosure requirements of Chapter 6CA of the Corporations Act 2001 (Cth): With this new exception, the Treasurer considers that ‘all banks will be able to fully comply with any continuous disclosure obligations they have, such as discussing their funding costs.’ However, listed corporations are not only subject to disclosure expectations by virtue of Chapter 6CA of the Corporations Act. The Australian Securities Exchange (ASX) and Australian Securities and Investments Commission have developed broader disclosure guidelines. In particular, corporations are expected to comply with the ASX Corporate Governance Principles and Recommendations – and face potential regulatory action for non-compliance. It would therefore be appropriate to broaden the wording of the Bill’s continuous disclosure exception, in order to capture the wider practical disclosure expectations on corporations. We note that the Bill maintains the Exposure Draft’s related exception for disclosures authorised by law.
As a matter of policy, there remains a question mark over whether the Bill in its current form is apt and proportionate to the potential economic detriment from price signalling. In particular, it is not clear that the Bill responds fully to the extensive submissions made about the Exposure Draft.
The government considers that the above prohibitions are required because price signalling is not adequately caught by the CCA. Moreover, the Treasurer believes the Bill ‘strike[s] an appropriate balance between allowing legitimate or pro-competitive conduct, and cracking down on anti-competitive price signalling which harms consumers.’ As further stated by the Treasurer:
It’s inherently damaging to consumers for any bank to essentially say to its competitors ‘don’t worry – if you raise your mortgage rates then I won’t undercut you and take your customers’. … This anti-competitive behaviour is an unambiguously bad result for Australian families and small businesses.
This view is controversial, as pointed out by numerous submissions concerning the Exposure Draft. In particular, the following concerns remain.
- The existence of a gap in our competition law with respect to price signalling is questionable. For example, illegitimate price signalling may be caught by the existing CCA (eg, where there is a demonstrable understanding to share competitively sensitive information or an attempt to form such an understanding). Moreover, other leading jurisdictions do not explicitly prohibit price signalling, nor is it clear that price signalling would always be regarded as automatically illegal in such jurisdictions.
- It is unclear that legislation is required to specifically target price signalling, especially given the potential consumer benefits of legitimate information disclosure. Indeed, the EM clearly states that ‘[i]nformation disclosure plays a vital role in any economy and is to be encouraged… As a general rule, such communications are perfectly legitimate, pro-competitive and efficiency-enhancing.’
- The drafting of the Bill is problematic. For example, it is surprising that the draft legislation continues to focus on mere information disclosure rather than effects (if any) on competition. In addition, the EM affirms that ‘[d]isclosure is defined as a unilateral communication; no degree of reciprocity or mutuality is required for there to be a disclosure.’ This departs from the regulatory approach taken by existing relevant CCA provisions containing the expression ‘contract, arrangement or understanding’. Each word in that expression comprises an element of consensual contact, however subtle. By focusing on unilateral communication, the Bill also departs from the approach taken in other jurisdictions including the EU.
There remains broad political support for passing price signalling legislation in some form. However, given the above discussion, we expect to see further debate and calls for the Bill to be refined into a more appropriate and workable format. It is possible that the Bill may be referred to a Parliamentary Committee for further scrutiny, although the Senate Selection of Bills Committee will not meet again to consider any such referral before the week beginning 9 May 2011.
The Bill was introduced on Parliament’s last sitting day in the Autumn session. Parliament will resume for the Winter session on 10 May 2011. The House of Representatives’ Standing Committee on Economics is not due to report on the Opposition’s price signalling bill (introduced into Parliament in November 2010) until 30 May 2011. The Inquiry into Competition within the Australian Banking Sector is due to report by 31 March 2011.
In the above circumstances, there will likely be a limited period of time to make any further representations to the government in respect of the Bill.