On 24 March 2011, the Commonwealth Government introduced a bill to reform private information disclosures of pricing practices between competitors. That bill is the Competition and Consumer Amendment Bill (No. 1) 2011 (Bill). It was a response to the perceived weaknesses of the Competition and Consumer Act 2010 (CCA), in dealing with issues relating to anti-competitive price signalling and information disclosures. We review in this article the current position at law, assess how the Bill will operate should it be approved unamended, and consider the potential ramifications that the proposed changes may have on Australian franchises.
The current position
Anti-competitive price signalling and information disclosure occur when competitors communicate in order to facilitate prices that are higher than what would be seen on the open market.
The example that has been grabbing headlines and been seen to be the impetus for the Bill, has been the alleged collusion in the banking sector in relation to increasing interest rates.
The CommonwealthTreasurer in the Second Reading of the Bill stated that, ‘there is strong evidence of banks signaling their pricing intentions to each other in order to undermine competition’.
Such behaviour is thought to negatively impact consumers by artificially driving the price of goods higher which, in turn, is thought to hamper the Australian economy.
Currently the CCA deals with price signalling through its restrictive trade practices provisions, which includes cartel conduct. Cartel conduct is defined to include behaviour that fixes prices, allocates customers or suppliers, or restricts outputs, or has the effect of substantially lessening competition.
On the face of it, it would appear that anti-competitive price signalling and information disclosures fell under these provisions.
However, it has been held in a number of recent cases, that an element of cartel conduct is that it possesses an element of occurring within ‘a contract, arrangement or understanding’. It has been concluded by the courts that this requirement can be lacking in anti-competitive price signalling and information disclosures and, as such, these practices do not fall within the ambit of the existing provisions.
How does the Bill operate?
The Bill proposes to insert a new division into the CCA specifically dealing with ‘anti-competitive disclosure of pricing and other information’. The new division will have two limbs.
First, the Australian Consumer and Competition Commission (ACCC) will be empowered to take action against any business that signal its pricing intentions to a competitor for the purpose of substantially lessening competition in a market (proposed section 44ZZX).
Second, the Bill will legislate that businesses are prevented from privately discussing their pricing policies with competitors (proposed section 44ZZW). These changes will only apply to businesses that provide goods or services that are prescribed by regulations, and exceptions to the prohibitions are proposed to be provided as necessary.
The proposed exceptions will apply generally to disclosures including those that are:
- authorised by law;
- made between related bodies corporate;
- made for collective bargaining;
- covered by a notification that has been issued by ASIC;
- made to comply with the continuous disclosure requirements under the Corporations Act 2001 (Cth).
Private disclosures may be allowable if they:
- occur between competitors in supplier/customer relationship;
- are made to an unknown competitor;
- are made to participants in a joint venture; or
- relate to an acquisition of shares or assets.
Impact of the amendments
In theory, these changes will facilitate more open pricing practices, increase competition and, as such, lead to savings for consumers.
Whilst the Treasurer has indicated that the banking sector will be the first to be targeted by the new laws and be prescribed by regulation, the door was left open for the changes to be applied to across the board following ‘further detailed consideration’. The amendments, therefore, have the potential to be felt by many franchise businesses and not just the banking sector.
As a result the Bill has attracted criticism. First, it is argued that the list of exceptions is limited and, consequently, legitimate business activities will be subjected to the proposed amendments.
Examples cited include:
- pricing information (for example, discussions about information in the public domain would still be subject to the amendments);
- collaborative commercial arrangements (that do not constitute a joint venture, like a common procurement arrangement) will be captured; and
- preliminary merger and acquisition discussions (which are not yet at the stage of have an actual or proposed contract or agreement) also appear to be captured.
Second, should a business wish to make a disclosure that is subject to the amendments then it will require approval from the ACCC, which can be time consuming and restrict responsiveness of franchise businesses to changing economic conditions.
Time will tell whether these modifications to the CCA will have the impact that the Treasurer envisioned when introducing the Bill.
Importantly, should the Bill be extended to other sectors of the economy, apart from the financial sector, there is the distinct potential to be a hindrance on business efficiency and responsiveness to markets. Franchises need to watch this space and be prepared to either amend business practices or seek authorisation if the Bill is enacted and regulations proscribe that their businesses will be affected..