Key Points:

The ACCC/ANZ case is of interest for companies operating in multi-channel distribution and possibly for principal/agency relationships from a competition law perspective.

After a long battle in the Federal Court, ANZ has successfully defended itself against price-fixing allegations brought by the ACCC in relation to mortgage broking services.

This case involved circumstances in which a lender sought to limit the amount of the discount or rebate of commission that a mortgage broker could offer to borrowers. The Court considered whether the bank and its brokers were competitors in relation to loan arrangement services and whether a limitation on rebating commissions imposed by the bank on brokers amounted to price fixing.

The ACCC alleged that in 2004 ANZ had engaged in price fixing by limiting to $600 the refund that Mortgage Refunds Pty Ltd, an intermediary representative of mortgage brokers, could pay to customers of its brokers commission. This arrangement allowed ANZ branches to effectively match the size of rebate if they waived their loan approval fee to intending borrowers who otherwise might have used the brokers services.

Were ANZ and Mortgage Refunds competitors?

In order for the ACCC to succeed it needed to prove that ANZ and Mortgage Refunds and/or its brokers were competitors in the market pleaded. This required the Court to view the various distribution channels for the loans (branches, franchisees and brokers) as separate entities separate from ANZ Mortgage Group.

The ultimate question which the Court had to determine was whether ANZ competed with the Mortgage Refund brokers in supplying "loan arrangement services". It was common ground that brokers are not lenders in their own right and therefore did not compete as lenders against ANZ (their principal).

The core lesson in the case is a reminder that collusion or any cartel-type conduct requires proof that the parties compete with each other in relation to the arrangement which is challenged – here, the arrangement to cap rebates applied to a service for which ANZ was found not to compete with the brokers.

The strict requirements of the Competition and Consumer 2010 (Cth) for price fixing were therefore not established.

ANZ markets its loan products

ANZ provided loan products through a variety of distribution channels – "in house" distribution channels (such as ANZ branches), by "tied channels" (through Mortgage Solutions which used franchisees to distribute ANZ products on a commission basis) and external channels (independent brokers not associated with ANZ and which also offered products by other lenders).

In 2001, ANZ appointed Australian Financial Group Ltd (AFG) to market certain ANZ loan products. AFG then entered into an arrangement with Mortgage Refunds in which brokers nominated by Mortgage Refunds would be accredited for the purpose of receiving and processing applications to ANZ for its loan products.

Mortgage Refunds advertised and promoted a "mortgage refund" offer involving the rebate to the customer of part or all of the commission paid to the brokers by ANZ. In March 2004, ANZ wrote to AFG and cancelled the accreditation of brokers forming part of the Mortgage Refund group on the basis that the agreement between AFG and ANZ required that any inducements be pre-approved by ANZ.

However, following negotiations, ANZ reinstated the arrangement and reaccredited the brokers on condition that the refunds offered by Mortgage Refunds would be no greater than $600 (the amount of the loan approval fee determined by ANZ). This allowed ANZ branches to match the deal if they waived their loan approval fee.

The ACCC alleged that this conduct amounted to price fixing behaviour as it was conduct that had the purpose, effect, or likely effect, of fixing, controlling or maintaining of a discount, allowance, rebate or credit in relation to the supply of services by Mortgage Refund and/or its brokers.

Brokers were found to provide loan arrangement services, however after a thorough examination of the evidence, Justice Dowsett was not satisfied that the ANZ branches or franchisees supplied loan arrangement services; rather, they supplied sales services to ANZ Mortgage Group and/or to ANZ.

Justice Dowsett could find no justification for splitting a loan transaction into parts – loan product and loan arrangement services – or distinguishing between ANZ Mortgage Group and the branches as separate suppliers of those parts. He concluded that the better view was that branches provided services on behalf of ANZ Mortgage Group.

Justice Dowsett found that brokers performed a different function and that "while the branches and franchisees were performing functions on behalf of ANZ or ANZ Mortgage Group, and only incidentally providing benefits to potential borrowers, the brokers were holding themselves out as offering advice and information concerning a wide range of products, supplied by a wide range of lenders, as well as assistance in preparing and submitting loan applications". He found that the brokers provided services to potential borrowers and competed with other brokers in doing so.

Additionally, he noted "if the brokers were in competition with the in-house and tied channels, one might have expected to see evidence of apparently rivalrous conduct". He found very little evidence of this and indeed struggled to reconcile the lenders' provision of training and accreditation to the brokers with the existence of such competition.

Justice Dowsett's refusal to find that the ANZ branches and franchisees provided "loan arrangement services" logically led to the conclusion that ANZ was not, in any relevant sense, in competition with Mortgage Refunds.

Key findings

In many respects, this case turned on its facts and was focused on the way in which the case was pleaded by the ACCC and the particular markets that were pleaded. However, the case provides useful guidance for companies operating in multi-channel distribution and had the potential to reconsider the structuring of principal/agency relationships from a competition law perspective.

It remains to be seen how the proceedings brought by the ACCC against Flight Centre in 2012 will be resolved. That case concerns alleged arrangements between players in different distribution channels offering competing prices for flights.