What is the general attitude of business and the authorities to competition compliance?
Australia’s competition and consumer laws are contained in the Competition and Consumer Act 2010 (Cth) (the Act). The Act has a degree of extra-territorial application and may apply to conduct engaged in outside Australia by corporations that are incorporated in Australia, registered as a foreign company in Australia, or carry on business in Australia. In general, companies are keen to comply with the Act and many ensure that they have compliance programmes for this purpose. Large corporate entities in particular may have dedicated compliance officers.
The competition authority in Australia, the Australian Competition and Consumer Commission (ACCC), takes compliance very seriously. The ACCC prioritises investigations and enforcement actions in relation to cartel and other anticompetitive conduct. It is a strong advocate of compliance programmes and encourages voluntary compliance by individual businesses and industry sectors, including through charters and voluntary codes of conduct tailored for individual industries.
The ACCC has stated that compliance programmes must create both a credible threat of detection and a real prospect that the penalty for the businesses and individuals involved will outweigh any private gain from the anticompetitive conduct.
Compliance programmes are regularly used in the ACCC’s enforcement activities. In court proceedings, the ACCC routinely seeks orders requiring companies to implement compliance programmes, and the ACCC routinely seeks court orders in both competition and consumer law proceedings. In approximately 50 per cent of cases, orders were made to implement or strengthen compliance programmes. In other instances, which do not involve litigation but do involve an agreed administrative outcome with the ACCC, parties may undertake to implement or strengthen compliance programmes.
Following his annual speech to the Committee for Economic Development Australia, the ACCC’s chairman, Rod Sims, outlined the ACCC’s priorities for 2019.
The ACCC’s priorities for 2019 focus on five main categories:
- competition enforcement approach and objectives - the ACCC has announced it will commence in 2019 at least three more criminal cartel cases this year, one civil dominance case and one civil concerted practices case;
- consumer law enforcement priorities, including white goods;
- key product safety focus;
- the ACCC’s current market studies, including building insurance in northern Australia; natural gas, digital platforms and foreign currency conversion; and
- the ACCC’s current advocacy focus, including strengthening laws around unfair contractual terms and to ‘punish’ individual officers and employees involved in breaches of competition.
The ACCC’s newly established Financial Services Competition Branch will investigate anticompetitive conduct and support enforcement action in the financial services sector. By February 2019, the Financial Services Unit was working on inquiries into both residential mortgages and foreign currency conversion. The strong trend of increased market studies by the ACCC is expected to remain.
This, coupled with indications following a report conducted in March 2018 by the Organisation for Economic Co-operation and Development (OECD) that pecuniary penalties for competition law infringements in Australia are on average lower compared to comparable OECD jurisdictions, has meant that competition compliance in Australia is critical for all businesses.
Government compliance programmes
Is there a government-approved standard for compliance programmes in your jurisdiction?
No. However, the ACCC has published guidance and templates for compliance programme undertakings catering for micro-business and large corporate entities. These templates indicate what the ACCC considers advisable in voluntary programmes. The guidance and the templates are available at: www.accc.gov.au/business/business-rights-protection/implementing-a-compliance-programme.
The ACCC considers an effective compliance programme will:
- identify and reduce the risk of breaching the Act - in particular, in those areas of the law to which the company is most exposed;
- rapidly and effectively remedy any breach that may occur; and
- inculcate a culture of compliance such that playing by the rules becomes business as usual.
In Australia, there is widespread acceptance that an effective compliance programme should comprise five elements:
- measures to encourage or ensure a culture of compliance;
- compliance procedures that are clear, consistent and repeatable;
- training that is appropriate for the business and not overly complicated;
- management support systems to track progress, including in priority areas; and
- accountability and audit reports to assist the compliance programme to assume its important place in the competing priorities of business people.
Applicability of compliance programmes
Is the compliance guidance generally applicable or do best practice and obligations depend on company size and the sector of the economy in which it operates?
Best practice and obligations (and the expectations of the ACCC and courts) depend on a company’s size and the sector of the economy in which it operates. The ACCC prioritises enforcement action against large companies in preference to small ones because enforcement action against large companies attracts more publicity and has a greater educative value.
If the company has a competition compliance programme in place, does it have any effect on sanctions?
The ACCC and the Federal Court have recognised that an effective competition compliance programme may be a mitigating factor when assessing penalties for a breach of the Act. However, the mere existence of a compliance programme is not sufficient: it must be meaningfully incorporated into the company’s culture.
Introducing a compliance programme during the course of an ACCC investigation can operate to reduce the penalty imposed.
The extent of mitigation will depend on the circumstances of the case. For example, the Federal Court (and the ACCC in its administrative resolution of matters) may consider:
- the company’s prior history of compliance with the Act or prior contraventions;
- the existence and effectiveness of the compliance programme, including how recently it was implemented, how extensive it is and whether it is tailored to the company’s operations;
- the company’s culture of compliance;
- the extent to which employees involved in a contravention deviated from the company’s compliance programme; and
- whether senior management were aware of the employees’ actions, and what actions they may have taken if they had been aware.
In approximately 60 per cent of cases brought by the ACCC since 2006, the court has considered the existence (or lack) of a compliance programme as a relevant factor in determining penalties.
Where a company has an inadequate or no compliance programme, the ACCC may seek, and the court may order, that the company implement an adequate compliance programme or update its existing compliance programme. Absence of a compliance programme (or evidence of complacency or carelessness in regards to compliance) is not viewed favourably by the ACCC or the court.
Implementing a competition compliance programme
Commitment to competition compliance
How does a company demonstrate its commitment to competition compliance?
A company may demonstrate its commitment to competition compliance by having a comprehensive and tailored compliance programme, which is endorsed by representatives of the company’s most senior management. The ACCC has identified four principles that it considers underpin successful compliance programmes: commitment, implementation, monitoring and reporting, and continual improvement.
For larger companies, an effective programme typically includes:
- appointment of a suitably qualified director or senior manager to act as a compliance officer to ensure the compliance programme is effectively designed, implemented and maintained;
- appointment of a compliance adviser to conduct risk assessments and prepare a risk report;
- a company policy statement or manual for competition law compliance, which:
- states the company’s commitment to compliance;
- states how compliance will be achieved;
- requires staff to report compliance issues;
- provides whistle-blower protections;
- provides internal sanctions for employees who knowingly or recklessly contravene the Act; and
- is endorsed by senior management;
- a complaints handling system or processes to detect and escalate competition concerns;
- whistle-blower protections for employees to come forward with competition concerns;
- compliance training (eg, online modules and face-to-face) that is specific to the Act, is regularly ‘refreshed’ and delivered to employees (including directors, officers and agents) by a suitably qualified person with competition expertise at least once a year;
- mechanisms for regular reporting to the board or senior management on the programme’s effectiveness;
- regular (eg, annual) and independent reviews of the compliance programme, including compliance reports that identify material deficiencies and recommend steps to address these;
- mechanisms for the company to address issues identified in the compliance reports;
- legal approval processes, for example, before entering into arrangements involving competitors, or attending industry functions where competitors may be present, etc; and
- sanctions by the company for individuals for non-compliance with policy.
Companies should be able to demonstrate that the programme is actively maintained and that the company is not merely paying lip service to it.
What are the key features of a compliance programme regarding risk identification?
To properly identify competition risks, a compliance programme should be tailored to the company and the industry in which it operates. This may involve identifying the extent to which:
- employees have contact with competitors at industry events, socially or move between competing businesses or have relatives who are employed by a competitor (the latter factor may be managed by the company putting in place a conflicts of interest policy);
- customers of the company are its competitors;
- the company collaborates with its competitors (including through joint selling or procurement);
- the company has long-term exclusive contracts;
- the company shares with competitors, or receives from them, information about prices, business plans or other commercially sensitive information;
- the company has a substantial market share in any market; and
- the company imposes resale restrictions on resellers of its products.
To identify the risks, a compliance officer, the legal department or other personnel with appropriate competition expertise may interview or survey different personnel to understand their daily operations and determine which parts of the business face specific competition law risks.
What are the key features of a compliance programme regarding risk-assessment?
The ACCC emphasises that effective compliance programmes, particularly in global companies, should have specific regard to the Act. To assess the seriousness of the identified risks, companies may adopt a ‘traffic light’ system or classify the risks as low, medium or high. For example:
- procurement functions may be at higher risk of cartel conduct involving big rigging or allocating markets or customers (eg, when pitching for tenders);
- sales teams may be at higher risk of price fixing or anticompetitive information sharing, particularly if they have frequent contact with competitors, eg, at industry forums; and
- IT, administrative and other back-office functions generally may be low risk.
What are the key features of a compliance programme regarding risk-mitigation?
See question 5 for some of the key features for risk mitigation.
In relation to compliance training for employees in particular, this is likely to involve:
- focusing on the particular provisions in the Act that are likely to be most relevant to individuals within the company and the risks they may face in their specific roles;
- identifying and focusing on the individuals most at risk by reference to what they do within the company. For example, sales personnel, persons responsible for setting strategy or tactics, persons who represent the company at industry forums and persons involved in procurement are usually in the ‘at risk’ category;
- explaining inappropriate conduct to employees and officers, as well as the potential sanctions. In our experience, this is usually more effective if it involves ‘war stories’ and hypothetical examples directly linked to the company’s business and providing employees and officers with adequate opportunity to ask questions without feeling they are being judged;
- identifying the types of behaviour or commercial dealings that require legal advice or approval, dedicating a person within the company to provide the advice or approval and effectively communicating to the company’s employees and officers how to contact that person;
- having an effective complaints handling procedure for representatives of the company and customers and suppliers. In our experience, an effective complaints handling procedure (which deals with all complaints in a timely and transparent manner) can go a long way to reducing actual risk of prosecution because most prosecutions commence with a complaint that is not effectively managed through to resolution; and
- providing ‘dos and don’ts’ lists to employees and officers.
Compliance programme review
What are the key features of a compliance programme regarding review?
The ACCC encourages voluntary compliance programmes to include regular reviews to ensure the programme is effective and is continually improved.
Companies should undertake annual reviews of their compliance programmes and adjust them to take into account any changes to the Act and the way the company operates as well as to reflect any trends in complaints and any remedial steps required (including by the ACCC) where breaches or potential breaches have been identified.
In some cases, an independent review of the effectiveness of the compliance programme may be desirable. The review could be undertaken by external legal counsel who could provide a privileged report to the company’s General Counsel or Board recommending changes.
Dealing with competitors
Arrangements to avoid
What types of arrangements should the company avoid entering into with its competitors?
Companies should limit their dealings with their competitors to the absolute minimum necessary to carry out their businesses lawfully and successfully.
Some industries involve more collaboration with competitors than others. For example, the financial services, aviation, oil and gas, construction and defence industries often involve competitors collaborating.
Employees and officers who are likely to be involved in any dealings with competitors should be given written guidance on what they can and must not do. They should be encouraged to seek legal advice about what they can and must not do on a case-by-case basis to mitigate the risk that they will inadvertently cross the line from lawful collaboration to unlawful collaboration.
In general, companies must avoid entering into the following types of arrangements, even informally through ‘winks and nods’ with their competitors:
- arrangements that have the purpose or effect of fixing, controlling (including through agreed benchmarks), or maintaining a price or a component of a price such as a rebate, credit, discount or allowance;
- arrangements that harmonise any term of trade, including credit limits, payment terms, delivery times and places, liabilities and so on;
- arrangements to rig bids;
- arrangements to restrict output; and
- arrangements to share markets, customers or suppliers.
The Act does provide a limited number of exemptions for those types of arrangements. Legal advice should be sought on their applicability to each situation.
The Competition and Consumer Amendment (Competition Policy Reform) Act 2017 (Cth) (Competition Policy Reform Act) introduced a new civil prohibition on companies engaging in ‘concerted practices’ that have the purpose, or have or are likely to have the effect, of substantially lessening competition in a market.
The term ‘concerted practice’, although not defined in the Act itself, is described in the Explanatory Memorandum to the Bill as ‘any form of cooperation between two or more firms (or people) or conduct that would be likely to establish such cooperation, where this conduct substitutes, or would be likely to substitute, cooperation in place of the uncertainty of competition’.
Parties to a concerted practice do not necessarily have to act in the same manner, be in the same market, or engage in conduct at the same time. Further, the concerted practice does not have to be expressly communicated between the parties, or expressly committed to, in order for it to exist. The new prohibition is designed to capture conduct that falls short of a contract, arrangement or understanding or an attempt to enter into one of those things. The ACCC is yet to bring a case involving a concerted practice. However, based on recent comments of its chairman, Rod Sims, the ACCC is likely to bring a concerted practice case in 2019 in the financial services sector.
What precautions can be taken to manage competition law risk when the company enters into an arrangement with a competitor?
Companies should ensure that all arrangements with competitors have a legitimate business rationale (purpose), have neither the purpose (object) nor effect of substantially lessening competition in any market and are subject to one of the express exemptions in the Act that prohibit outright arrangements with competitors. The arrangement should not be agreed until it has been signed off by a lawyer with knowledge of the Act.
In cases where a company is carrying on business in an industry where collaboration between competitors is common, the company may issue a protocol to those of its employees and officers who are directly responsible for negotiating, or signing off on, the arrangements with competitors. The protocol should clearly set out what may and what must not be agreed.
What form must behaviour take to constitute a cartel?
The definition of a ‘cartel provision’ under the Act includes ‘contracts, arrangements and understandings’. An understanding is a meeting of minds that results in a morally binding commitment to act in a certain way.
The Act prohibits attempts to engage in cartel conduct, including unsuccessful attempts. Mere preparation is not sufficient to amount to an attempt. An attempt requires an intention to bring about a result. That is, it requires an action undertaken with the intention of bringing about a cartel but it does not require an expectation that a cartel will result.
Under what circumstances can cartels be exempted from sanctions?
The Act contains a number of exemptions from the prohibitions and, separately, making or giving effect to a cartel provision that do not require notifying the ACCC.
The main exemptions relate to:
- any production, supply or acquisition of joint ventures;
- collective acquisitions by competitors;
- acquiring shares in the capital of a body corporate or assets of a person;
- if the cartel provision is also exclusive dealing conduct or involves vertical price fixing;
- restraints of trade in sale and purchase agreements solely for the protection of the goodwill to be acquired by the purchaser;
- things done in relation to the remuneration, conditions of employment, hours or work or working conditions of employees;
- certain provisions in contracts of service pursuant to which the service provider (who cannot be a company) agrees to accept specified restrictions; and
- provisions in contracts, arrangements or understandings that relate exclusively to the export of goods from Australia, or the supply of services outside Australia.
Parties can also seek authorisation from the ACCC for cartel conduct if the cartel conduct would be likely to give rise to a net public benefit, such as substantial efficiencies. Authorisation is a transparent statutory process, subject to a statutory time frame of six months, subject to extensions by agreement with the applicant.
Since the enactment of the Competition Policy Reform Act, the ACCC has the power to grant class exemptions. However, parties will need to self-assess whether their conduct would come within any such exemptions. As at April 2008, the ACCC had not yet granted any class exemptions.
The Competition Policy Reform Act also extended the exemption for joint ventures to joint acquisition ventures. However, the amending legislation also narrowed the exemption by requiring that the exempted cartel provision be reasonably necessary for undertaking the joint venture.
Can the company exchange information with its competitors?
Exchanges of confidential information about future prices or strategies between competitors run the risk of contravening the prohibition on entering into or giving effect to contracts, arrangements or understandings, or engaging in concerted practices, that have the purpose or likely effect of substantially lessening competition. It also runs the risk of contravening the prohibitions on cartel provisions.
Information that is non-aggregated, private and that relates to future sales or purchases is more likely to have anticompetitive impact if it is exchanged. Conversely, information that is aggregated, historic and publicly available is less likely to be have an anticompetitive impact if exchanged with one or more competitors.
In 2014, the ACCC commenced proceedings against a data services company called Informed Sources and five petrol retailers, alleging that information sharing arrangements between them had the effect of substantially lessening competition. The arrangements involved:
- petrol retailers providing pricing data to Informed Sources at frequent, regular intervals; and
- petrol retailers receiving from Informed Sources collated data from other petrol retailers and various reports containing pricing information across particular regions.
The ACCC alleged that the exchange of this information allowed retailers to monitor and respond to each other’s prices on a near real-time basis. The parties settled the proceedings and provided court enforceable undertakings to the ACCC not to enter into or give effect to a price information exchange service unless the information each received was made available to consumers and third-party organisations at the same time.
In 2018, the ACCC commenced civil proceedings against Cryosite Limited, a biotech company, for cartel conduct before completing a proposed merger with its only Australian competitor. It is Australia’s first gun-jumping case. The court found that the combination of a non-refundable deposit paid on signing and an agreement between Cryosite and Cell Care Australia Pty Ltd requiring Cryosite to refer all new customer enquiries to Cell Care and preventing Cell Care from dealing with Cryosite’s customers who had stored cord and blood tissue with Cryosite in the previous five years resulted in breaches of Australia’s civil cartel provisions. The parties did not complete their proposed merger.
Cartel leniency programmes
Is a leniency programme available to companies or individuals who participate in a cartel in your jurisdiction?
Yes, there are immunity and leniency programmes for companies. These are contained in the ACCC’s 2014 Immunity and Co-operation Policy for Cartel Conduct (the Immunity Policy).
All applications for civil and criminal immunity must be made to the ACCC.
Under the Immunity Policy, a company will be eligible for, and may be granted, conditional civil immunity where:
- it is or was party to a cartel;
- it admits that its conduct in respect of the cartel may constitute a contravention of the Act;
- it is the first person to apply for immunity in respect of the cartel;
- it has not coerced others to participate in the cartel;
- it has ceased its involvement in the cartel or indicates to the ACCC that it will do so;
- its admissions are a truly corporate act (as opposed to isolated confessions of individual representatives);
- it undertakes to provide full disclosure and cooperation to the ACCC; and
- at the time of the immunity application, the ACCC has not received legal advice that it has sufficient evidence to commence proceedings in relation to a contravention of the Act arising from the cartel conduct.
The company must also provide ongoing full disclosure and cooperation to the ACCC for conditional civil immunity to remain and to be eligible for final civil immunity.
If the applicant meets the immunity criteria, the ACCC will grant final civil immunity after the resolution of any proceedings against cartel participants (or, at its discretion, at an earlier stage).
The Immunity Policy implicitly contemplates that a leader of a cartel may receive immunity and provides that the ACCC will, ‘as a matter of course’ (but subject to its discretion), require applicants for immunity or leniency to grant the ACCC a confidentiality waiver to facilitate the exchange of information regarding international cartel investigations with foreign competition regulators.
The ACCC may recommend that the Commonwealth Public Prosecutor (CDPP) grant criminal immunity. The Immunity Policy provides that the CDPP may grant applicants for civil immunity a ‘letter of comfort’ at the same time the ACCC offers conditional civil immunity.
However, the CDPP must independently decide whether to grant criminal immunity by applying the same criteria outlined in the Policy (set out above). If the CDPP grants criminal immunity, it will provide a written undertaking to the applicant that, subject to fulfilment of the applicant’s ongoing obligations, the applicant will not be prosecuted for the relevant cartel offence. The conditions for immunity will include that the applicant provide ongoing full cooperation during the investigations, and for individuals, that they will appear as a witness for the prosecution where requested in any proceedings against the other cartel participants and will give evidence truthfully, accurately and not withhold anything of relevance.
The ACCC may revoke the grant of conditional or final civil immunity if it decides, on reasonable grounds, that the applicant does not or did not satisfy the conditions for immunity.
Similarly, the CDPP may revoke immunity if the ACCC recommends that the CDPP do so and the CDPP believes, on reasonable grounds, that the applicant has provided false or misleading information or not fulfilled the conditions of its undertaking.
The Immunity Policy provides that civil leniency for applicants that are ineligible will be considered where the applicant:
- has approached the ACCC in a timely manner seeking leniency;
- has either ceased their involvement in the cartel or indicates to the ACCC that they will do so;
- has not coerced any other person or corporation to participate in the cartel;
- acts in good faith in its dealings with the ACCC;
- provides significant evidence regarding the cartel conduct;
- provides full, frank and truthful disclosure, and cooperates fully and expeditiously on a continuing basis through the ACCC’s investigation and any ensuing court proceedings; or
- (for an individual leniency applicant) agrees not to use the same legal representation as the corporation by which they are employed.
If leniency is offered, the ACCC’s practice is to agree to make a recommendation to the court regarding the reduction in civil sanctions, and the Immunity Policy provides that, in determining the reduction, the ACCC will consider:
- the nature and extent of cooperation with the ACCC;
- whether the contravention arose out of the conduct of senior management, or at a lower level;
- whether the corporation has a corporate culture conducive to compliance with the law;
- the nature and extent of the contravening conduct;
- whether the conduct has ceased;
- the amount of loss or damage caused;
- the circumstances in which the conduct took place;
- the size and power of the corporation; and
- whether the contravention was deliberate and the period over which it extended.
Criminal leniency will be considered by the CDPP in accordance with its own Prosecution Policy, having no regard to any recommendation made by the ACCC. Although the CDPP will acknowledge the cooperation of a defendant subject to leniency, the sanctions imposed will be ultimately determined by the court.
In August 2017, the ACCC announced a review of its immunity and cooperation policy, which will focus on maximising the benefits and incentives for parties to provide full and continuing cooperation in its investigations and enforcement cases. The outcome of this review is yet to be announced.
Can the company apply for leniency for itself and its individual officers and employees?
Yes. If a company qualifies for conditional civil immunity, all current and former directors, officers and employees of the company who admit their involvement in the cartel and provide full disclosure and cooperation to the ACCC will be eligible for civil immunity.
Similarly, if a company is granted conditional criminal immunity, all current and former directors, officers and employees who request immunity, admit their involvement in the conduct and undertake to provide full disclosure and cooperation will be eligible for criminal immunity.
Can the company reserve a place in line before a formal leniency application is ready?
Yes. A person who intends to make an immunity application can request a marker from the ACCC. To obtain a marker, the person must provide a description of the cartel conduct in sufficient detail to allow the ACCC to confirm that no other person has applied for immunity or obtained a marker for the same conduct and the ACCC has not received legal advice that it has sufficient evidence to commence proceedings in relation to the cartel. The person does not have to satisfy all the requirements for conditional immunity at the time of the request for a marker.
The ACCC will inform the person if a marker is available. If a marker is available, the ACCC and the person will discuss the time required by the person to complete their internal investigation and provide the ACCC with the information required to satisfy the requirements for conditional immunity. Generally, a marker will be valid for a maximum of 28 days.
Holding a marker means that no other cartel participants can take the person’s place in the immunity queue while the marker is valid. Applications can been made orally, but the ACCC will create its own records of all requests for markers, applications for immunity, discussions between the ACCC and the applicant about the conduct, and the applicant’s responses to the ACCC’s questions.
If the company blows the whistle on other cartels, can it get any benefit?
Yes, the ACCC’s Immunity Policy includes an ‘amnesty-plus regime’ for cartelists who are not eligible for immunity in a cartel already being investigated by the ACCC but who provide the ACCC with evidence of a second cartel of which the ACCC was not previously aware.
Under the ‘amnesty plus regime’, if the person reports a second cartel that is independent and unrelated to the first cartel, they will gain immunity from prosecution for the second cartel, and the ACCC will recommend to the court that any penalty in civil proceedings be further reduced in relation to the first cartel. If the first cartel is being pursued as a criminal matter, the CDPP will advise the court of the full extent of the cooperation provided.
Dealing with commercial partners (suppliers and customers)
What types of vertical arrangements between the company and its suppliers or customers are subject to competition enforcement?
The primary provisions of the Act that apply to vertical arrangements are a prohibition on exclusive dealing that has the purpose or likely effect of substantially lessening competition and a per se prohibition on minimum resale price maintenance. The Act provides for exemptions for these prohibitions. The exemptions are based on net public benefits and involve filing public applications with the ACCC.
In this context, the Act does not expressly preserve the common law position on agency (as it does in relation to other common law concepts, such as restraints of trade and breaches of confidence). However, the High Court of Australia’s decision in ACCC v Flight Centre Travel Group Ltd in December 2016 may have implications for principal-agent relationships. The High Court found that, where an agent is free to act in its own interests (for example, where it has discretion to set its prices), it may be in competition with its principal. In these circumstances, a principal and agent may be prohibited from entering into certain arrangements with each other, including in relation to price, capacity, customer and territorial allocations, even if the agreement is predominantly vertical in nature. In April 2018, the Full Federal Court ordered Flight Centre to pay A$12.5 million in penalties.
The general prohibitions on contracts, arrangements or understandings, and unilateral conduct by a person with substantial market power, which has the purpose or likely effect of substantially lessening competition, may also be relevant to vertical arrangements.
Would the regulatory authority consider the above vertical arrangements per se illegal? If not, how do they analyse and decide on these arrangements?
Exclusive dealing conduct (including third-line forcing) will not contravene the Act unless the conduct has the purpose, effect or likely effect of substantially lessening competition. In September 2018, Oakmoore Pty Ltd, trading as EGR, and its director Mr Horwill, were ordered to pay A$6.35 million in penalties for being knowingly concerned in exclusive dealing conduct with the purpose of substantially lessening competition. The Federal Court had recently imposed penalties of A$3.5 million against Palram Australia and A$2.1 million against Ampelite Australia and one of its directors in respect of the same matter, bringing the total penalties to A$11.95 million. The ACCC chairman, Rod Sims, commented on this matter, stating that ‘[t]he penalties ordered by the court show that exclusive dealing conduct is serious illegal behaviour’.
Third-line forcing, which is where goods or services (including credits, discounts, allowances and rebates) are offered on the condition that the purchaser also acquires goods or services from a third party, was previously prohibited per se. However, the Competition Policy Review Act removed the per se nature of the civil prohibition on third-line forcing as of 6 November 2017.
Supplying goods or services on the condition that the purchaser will not resupply the goods or services below a price specified by the supplier (ie, resale price maintenance) is a per se contravention of the Act. However, after the Competition Policy Review Act took effect on 6 November 2017, resale price maintenance between related companies will not breach the prohibition.
Under what circumstances can vertical arrangements be exempted from sanctions?
Exclusive dealing conduct that may contravene the Act may be notified to the ACCC. A notifying party is provided with immunity in relation to the notified conduct from the date the notice is lodged with the ACCC until the ACCC revokes the immunity. The notification must describe the proposed exclusive dealing conduct and why it would be likely to give rise to a net public benefit. Immunity cannot be granted retrospectively.
The ACCC can also authorise exclusive dealing conduct and minimum resale price maintenance in circumstances where it would be likely to result in a net benefit to the public.
How to behave as a market dominant player
Determining dominant market player
Which factors does your jurisdiction apply to determine if the company holds a dominant market position?
The test in Australia is whether a company has a substantial degree of power in a market.
The factors taken into account include the extent to which the company is constrained by its competitors, suppliers and customers, the height of barriers to entry and exit in the market, the company’s market share, the structure of the market, whether the market is dynamic and innovative (including the nature and likelihood of any disruption) and whether, as a whole, the company and its related companies have substantial market power.
The Act also specifies that courts may take into account any market power that results from any contracts, arrangements or understandings that the company has with another party.
The court has a residual discretion to take into account any other matter for determining whether a company has a substantial degree of market power. This could include statutory rights and the ability to tacitly coordinate with other companies to create substantial market power.
Abuse of dominance
If the company holds a dominant market position, what forms of behaviour constitute abuse of market dominance? Describe any recent cases.
The Act prohibits a corporation that has a substantial degree of market power from engaging in conduct that has the purpose, or has or is likely to have the effect, of substantially lessening competition in that or any other market (known as ‘misuse of market power’).
As a result of amendments contained in the Competition and Consumer Amendment (Misuse of Market Power) Act 2017 (Cth) (Misuse of Market Power Act), which took effect on 6 November 2017, the following changes have been made to the prohibition on misuse of market power:
- there is no longer a requirement for a causal connection between the substantial market power and ‘taking advantage of’ that market power, which means that the prohibition may now extend to a broader range of commercial behaviour by the corporation;
- a corporation with market power could also be found to have contravened the prohibition on misuse of market power because of the effect of its conduct on competition, notwithstanding that the conduct can be explained by commercial objectives that would otherwise be considered legitimate; and
- the specific prohibition on ‘predatory pricing’ was removed. However, it is still possible for below-cost selling to breach the prohibition on misuse of market power if a corporation has substantial market power and engaged in that conduct with a purpose or the likely effect of substantially lessening competition.
Although the ACCC is yet to bring proceedings under the amended prohibition on misuse of market power, based on the recent comments of its chairman, Rod Sims, the ACCC is likely to bring a case in 2019 under the new misuse of market power provisions (see question 1).
There have, however, been a number of cases brought under the misuse of market power prohibition prior to its amendment:
- in May 2017, the ACCC commenced proceedings against Ramsay Health Care for threatening to reduce the rights of visiting doctors if they associated themselves with a new entrant in the private hospital sector. These proceedings are still ongoing;
- in 2017, Cement Australia was ordered to pay A$20.6 million for its misuse of market power;
- in February 2015, a case brought by the ACCC against Pfizer Australia failed in part on the finding that steps taken by Pfizer in preparation for the expiry of a key patent were taken for legitimate commercial purposes, and not the proscribed purposes required for a breach. The ACCC appealed the outcome in March 2015, which was heard by the court in November 2015. On 19 October 2018, the ACCC was refused special leave to appeal to the High Court. Ultimately, the court found that Pfizer did not misuse its market power;
- in 2011, in ACCC v Ticketek, the court fined Ticketek A$2.5 million for the misuse of its market power based on refusals to deal;
- in 2011, the court’s findings in ACCC v Universal Music were based on a threatened refusal to deal;
- in 2010, the decision in ACCC v Cabcharge was based on supplying goods for free;
- in 2005, the court in ACCC v Safeway based its findings on a decision by a supermarket to reduce the amount of goods that were purchased due to the supplier’s dealings with a rival supermarket;
- in 2004, the court’s decision in NT Power Generation v Power and Water Authority was also based on refusals to deal; and
- in 2003, in ACCC v Boral, it was held that supplying goods below cost in the face of new competition was not a misuse of substantial market power.
Under what circumstances can abusing market dominance be exempted from sanctions or excluded from enforcement?
Conduct that would be in breach of the prohibitions on anticompetitive agreements or anticompetitive concerted practices; collective boycotts; exclusive dealing; and anticompetitive mergers, but that which has been authorised or cleared in accordance with the competition law, is carved out of the misuse of market power provisions.
Competition compliance in mergers and acquisitions
Competition authority approval
Does the company need to obtain approval from the competition authority for mergers and acquisitions? Is it mandatory or voluntary to obtain approval before completion?
In Australia, an acquirer of shares or assets may notify the ACCC to seek informal clearance (ie, a letter from the ACCC stating that it will not seek to intervene in relation to the acquisition) or formal merger authorisation (ie, statutory protection). To gain informal clearance, the acquirer must convince the ACCC that the proposed acquisition will not have the effect and will not be likely (in the future) to have the effect of substantially lessening competition in a market.
An acquirer of shares or assets may also apply to the ACCC for a merger authorisation if the proposed acquisition will not have the effect and will not be likely (in the future) to have an effect of substantially lessening competition, or would be likely to give rise to a net public benefit.
The regime in Australia is neither mandatory nor suspensory. Accordingly, there are no asset or turnover-based thresholds that trigger merger filing requirements in Australia.
The ACCC ‘encourages’ parties (under its Merger Guidelines) to notify it of proposals to acquire shares or assets where the parties supply products that are either substitutes or complements and they will together have a share of 20 per cent or greater in a market in Australia after closing.
Importantly, if an acquisition of shares or assets is notifiable to Australia’s Foreign Investment Review Board (FIRB) under the Foreign Acquisitions and Takeovers Act 1975 (Cth), FIRB consults with the ACCC as a matter of course. FIRB will not make a recommendation to the Australian Federal Treasurer to issue a notice of no objection in respect of the acquisition unless and until the ACCC informs FIRB that it has no competition concerns.
The practical effect of this interaction between FIRB and the ACCC is that for those acquisitions where it is mandatory for the acquirer to notify FIRB and obtain a notice of no objection from the Australia Federal Treasurer, filing with the ACCC is quasi-mandatory and suspensory.
The onus is on the acquiring party to gain approval.
Notwithstanding the voluntary nature of the regime, it is common for an acquirer to seek informal clearance for a transaction to obtain greater certainty if the market in which the transaction occurs is relatively concentrated or if they are operating in a sector that is one of the ACCC’s enforcement priorities. This is because the ACCC can review an acquisition regardless of whether or not it is notified by the acquirer and, if it has any concerns, the ACCC can apply to the Federal Court of Australia for an injunction to prevent closing (at least of the Australian limb of the acquisition), or apply to the Federal Court of Australia for other remedies (including penalties, orders for divestment and banning orders) if the transaction has already closed (see question 28).
How long does it normally take to obtain approval?
Informal merger clearance
‘Informal clearance’ from the ACCC is a non-statutory process that does not provide formal immunity for an acquisition. It involves only confirmation that the ACCC will not seek to intervene in relation to the acquisition.
Applications for informal clearance may be made confidentially.
For simple cases, it may be possible for the acquirer to obtain informal clearance through ‘pre-assessment’ of the transaction, which is a ‘fast track’ process. Under this process, the ACCC may be able to informally clear the transaction without conducting public market inquiries or by only conducting limited, targeted inquiries. According to the ACCC’s Merger Process Guidelines, pre-assessment takes between two to four weeks of notification by the acquirer. However, in our experience, the process is likely to take between two to six weeks (in one of our recent cases, it has taken 14 weeks and could take longer).
For acquisitions that require public market inquiries, the transaction and the ACCC’s review will have to be announced. The ACCC will conduct two to five weeks of market inquiries where it will actively canvass information from competitors, suppliers and customers of the parties, as well as other interested persons. Usually within six to 12 weeks of announcement, the ACCC will either decide not to oppose the proposed acquisition, or will make public a statement of issues (SOI) outlining the issues it has identified.
If an SOI is published, the ACCC will conduct another round of market inquiries. In such cases, the clearance process may take an additional six to 12 weeks or longer.
The ACCC may extend its indicative timelines for considering an acquisition if it identifies potential issues, experiences delays in obtaining information, or the acquirer negotiates remedies.
In our experience, if the acquirer is required to offer a remedy (which will be in the form of a court-enforceable undertaking) before the ACCC is willing to clear the transaction, it could extend the review timeline for about six months or longer.
As of 6 November 2017, the ACCC became the first-instance decision-maker for all merger authorisation applications. The ACCC may authorise acquisitions of shares or assets where it is satisfied that the transaction will not have the effect and will not be likely (in the future) to have an effect of substantially lessening competition in Australia, or would be likely to result in a net public benefit.
The merger authorisation process is subject to a 90-day statutory clock, which may be extended with consent. If authorisation is granted, it will confer immunity from suit for the merger provided the merger is completed within 12 months of the decision to formally authorise it. Parties have a right to apply to the Australian Competition Tribunal (Tribunal) for limited merits review of the ACCC’s decision and a right to apply to the Federal Court of Australia for judicial review of the ACCC’s decision.
Between 2007 and 6 November 2017, the ACCC was not the first-instance decision maker for formal merger authorisations - the Tribunal had the power to formally authorise a merger that would provide a net public benefit (and the ACCC’s role in this process was amicus curiae to the Tribunal).
The Tribunal’s formal merger authorisation process between 2007 and 6 November 2017 was used very infrequently. Acquirers applied to the Tribunal for authorisation of transactions that have been objected to by the ACCC.
In June 2014, the Tribunal authorised AGL’s acquisition of Macquarie Generation.
In July 2016, Sea Swift received authorisation from the Tribunal for its acquisition of certain Toll Marine assets after the ACCC opposed the deal under an informal merger clearance application.
On 13 March 2017, Tabcorp withdrew its application for informal clearance by the ACCC and applied to the Tribunal for authorisation of its proposal to merge with Tatts, after the ACCC published an SOI in relation to the transaction. In June 2017, the Tribunal granted merger authorisation for Tabcorp to acquire Tatts, a decision the ACCC sought to review before the Federal Court. In September 2017, the Federal Court upheld the application for review, setting aside the original decision of the Tribunal to grant authorisation and remitting the matter back to the Tribunal for reconsideration. In November 2017, the Tribunal granted merger authorisation for Tabcorp to acquire Tatts.
If the company obtains approval, does it mean the authority has confirmed the terms in the documents will be considered compliant with competition law?
No. The comfort from an informal clearance or statutory protection from a formal clearance or authorisation is only afforded for the acquisition and not any ancillary restraints included in any agreements between the parties.
Failure to file
What are the consequences for failure to file, delay in filing and incomplete filing? Have there been any recent cases?
As the merger control regime in voluntary, there is no penalty for not filing.
The risks of not filing arise from the ACCC’s ability to bring proceedings to seek a range of orders from the Federal Court if parties implement a transaction that is found to have the effect or likely effect of substantially lessening competition in a market.
These orders are as follows:
- If the ACCC considers that an acquisition will substantially lessen competition in a market in Australia, it can, prior to closing, seek an injunction from the Federal Court to prevent the transaction from closing.
- If the merger parties proceed to close a transaction (which is subsequently found to contravene the mergers test), the ACCC can seek from the Federal Court:
- an order to divest the shares or assets acquired;
- a declaration that an acquisition is void;
- a court-enforceable undertaking from the parties to dispose of other shares or assets owned by the parties; or
- pecuniary penalties against the corporation and its officers.
In the case of a corporation, penalties can be up to the greater of:
- A$10 million;
- three times the value of the benefit to the parties that is reasonably attributable to the contravention; or
- 10 per cent of the parties’ annual Australian turnover of each body corporate and related bodies corporate.
Third parties can also seek a declaration that the acquisition will substantially lessen competition in a market, divestment orders, and monetary compensation for any loss they have suffered as a result.
Investigation and settlement
Under which circumstances would the company and officers or employees need separate legal representation? Do the authorities require separate legal representation during certain types of investigations?
In cartel investigations, the interests of a company and its officers may not be aligned. Accordingly, it is common for some companies and their officers and employees to have separate legal representation to ensure that their respective interests are protected. For example, where an officer of a company has played a key role in a cartel, they would require separate representation to the company. In some cases, the ACCC insists on companies and certain of their officers or employees having separate representation.
For what types of infringement would the regulatory authority launch a dawn raid? Are there any specific procedural rules for dawn raids?
The ACCC has the ability to search and seize information, documents and other materials from premises if it has first obtained a search and seizure warrant from the Federal Court of Australia.
Dawn raids are typically used for the ACCC’s cartel investigations, particularly since its criminalisation in 2009. However, dawn raids do not occur frequently in Australia compared to other jurisdictions.
The last reported instance an ACCC dawn raid was in July 2016 when 20 ACCC officers executed a search and seizure warrant at the premises of Construction, Mining, Forestry and Energy Union as part of an investigation into allegations of price-fixing. In Australia, the more commonly used power is the ACCC’s broad information gathering powers under section 155 of the Act. Under this statutory power, the ACCC may issue a notice to compel the production of information, documents or summons individuals to provide information under oath.
What are the company’s rights and obligations during a dawn raid?
The company is entitled to and should have legal representation present at its premise during the dawn raid. The legal representative should ensure that the ACCC officers do not go beyond the scope of the warrant.
During a dawn raid by the ACCC, the company has the right to:
- ask to see a copy of the search and seizure warrant and take a copy;
- ask to see the ACCC officer’s identity card and take a copy;
- refuse entry if the ACCC cannot produce either;
- ask the ACCC to wait until the company’s senior management and legal representative arrive at the premises; and
- monitor the ACCC’s search and take notes of all materials accessed or seized by the ACCC during the process.
Companies are not required to produce documents that are subject to legal professional privilege. If the staff on the premises cannot verify whether particular documents are subject to legal professional privilege, but consider they may be, staff should expressly reserve the company’s right to continue to claim privilege. In such circumstances, the staff should take a copy or make a note of such documents and ask that the documents be stored separately from the other documents seized and not be reviewed by the ACCC until the privilege issue is resolved.
Is there any mechanism to settle, or to make commitments to regulators, during an investigation?
Parties can offer court enforceable undertakings that they will take certain steps, or refrain from certain actions, in order to address the ACCC’s competition law concerns.
The ACCC is not obliged to accept an undertaking, but if the parties offer undertakings and the ACCC accepts the undertakings, the ACCC may cease the investigation. The undertakings are published on the ACCC’s public register and become statutory instruments.
In these undertakings, companies or individuals generally agree to:
- remedy the harm caused by the conduct;
- accept responsibility for their actions; and
- establish or review and improve their competition law compliance programme and culture.
What weight will the authorities place on companies implementing or amending a compliance programme in settlement negotiations?
In general, the weight attributed by the ACCC or a court to a company undertaking to implement or review and amend their compliance programme to address competition law concerns will depend on the particular circumstances (see question 4).
Are corporate monitorships used in your jurisdiction?
As part of the undertaking accepted by the ACCC, the company usually undertakes to appoint an independent auditor to monitor the company’s compliance with an undertaking and report periodically to the ACCC in that regard.
The undertaking itself will specify:
- the powers of the independent auditor and the company’s obligations to cooperate with the auditor; and
- when the independent auditor is discharged from its monitoring function (typically, this will be when the obligations of the company under the undertaking have expired).
Statements of facts
Are agreed statements of facts in a settlement with the authorities automatically admissible as evidence in actions for private damages, including class-actions or representative claims?
The ACCC and a party being investigated can agree on statements of fact and penalties, which can be submitted to the Federal Court for consent to settle the allegations against the party.
However, the court retains discretion as to whether the penalties proposed by the ACCC and the party are appropriate in the circumstances. For example, in one case where the ACCC and the other party to the proceedings agreed on a penalty between A$1 - 1.5 million, the Federal Court thought that A$3.5 million was more appropriate (ACCC v FFE Building Services Ltd). The court generally will not depart from the agreed penalties if they are within the ‘permissible range’ (ACCC v Netti Atom Pty Ltd).
Invoking legal privilege
Can the company or an individual invoke legal privilege or privilege against self-incrimination in an investigation?
Companies and individuals may claim legal professional privilege over documents requested by the ACCC on a voluntary basis or compelled by the ACCC under a compulsory statutory notice and, during a dawn raid, companies are not required to produce documents that are subject to legal professional privilege (see question 31).
The privilege against self-incrimination does not entitle a person to refuse to comply with a statutory notice requiring them to appear before the ACCC for examination under oath. Answers given by individuals during examinations pursuant to a notice cannot be used as evidence in criminal proceedings against the individual other than proceedings for an offence under Part XII of the Act (ie, the part containing section 155) or the offence of providing false or misleading information, false or misleading documents or obstruction of Commonwealth public officials under the Criminal Code.
However, documents produced to the ACCC under a section 155 notice can be used in evidence against the individual in criminal proceedings.
What confidentiality protection is afforded to the company and/or individual involved in competition investigations?
In general, the ACCC conducts its investigations confidentially and does not comment publicly on matters it may or may not be investigating. However, the ACCC may make a public statement about the investigation where it is already in the public domain and the ACCC considers it would be in the public interest to do so.
The Act provides some protections for information given to the ACCC in confidence. ACCC officials cannot disclose the information except to perform the duties or functions of the ACCC or where required by law.
The Act provides further protections for information provided to the ACCC in relation to cartel investigations, known as ‘protected cartel information’. For example, the ACCC is not required to disclose to a court or tribunal a document containing protected cartel information without leave of the court or tribunal.
Refusal to cooperate
What are the penalties for refusing to cooperate with the authorities in an investigation?
It is a criminal offence not to comply with a compulsory notice issued under section 155. If an individual fails to comply with a compulsory section 155 notice issued by the ACCC, the ACCC can commence proceedings in the Federal Court for the breach.
Currently, a person is liable for a fine of up to a maximum of A$21,000 or imprisonment for two years if they:
- refuse or fail to comply with a section 155 notice if they are capable of complying with it; or
- knowingly provide information or give evidence to the ACCC that is false or misleading.
If a company fails to comply with a section 155 notice, they may receive a fine of up to A$105,000.
Previous penalties on individuals have included a fine of A$3,500 (ACCC v Boyle), a fine of A$2,160 along with 200 hours of community service (ACCC v Neville) and imprisonment for six months (ACCC v Rana).
Refusal to answer questions or to produce evidential material in relation to a dawn raid that is being validly conducted by the ACCC under a warrant can result in a fine of A$6,300 and/or 12 months imprisonment. Failure to provide reasonable facilities and assistance in relation to a valid dawn raid may also result in a fine of A$6,300.
Is there a duty to notify the regulator of competition infringements?
No. However, it may be the interest of a party to a cartel arrangement to do so in order to have the benefit of immunity or leniency (see question 15).
What are the limitation periods for competition infringements?
The statutory limitation period on the ACCC seeking civil pecuniary penalties for a breach of the Act is within six years after the contravention. However, the ACCC can seek other remedies (such as a declaration of breach by the Federal Court) even after six years has passed since the contravention. There is no statutory limitation period for criminal offences.
Are there any other regulated anticompetitive practices not mentioned above? Provide details.
In addition to being subject to the general statutory test relating to companies with a substantial degree of market power, there is a specific prohibition on companies with a substantial degree of market power in a telecommunications market from taking advantage of that market power with the effect, or likely effect, of substantially lessening competition in a telecommunications market. There was debate as to whether the specific prohibition for companies with substantial degree of market power in telecommunications markets should be repealed at the same time as the general prohibition on misuse of market power was being amended (see question 23). However, the Misuse of Market Power Act ultimately did not abolish the specific prohibition in the Act.
Are there any proposals for competition law reform in your jurisdiction? If yes, what effects will it have on the company’s compliance?
No. Australia’s competition policy framework recently underwent a wide ranging review, which ultimately resulted in the passing of the Competition Policy Review Act and Misuse of Market Power Act, which took effect on 6 November 2017. Some of changes implemented by these enactments are discussed in questions 10, 13, 20, 23 and 26.