Metcash update - ACCC injunction hangs in the balance
16 September 2011
Yesterday (15 September 2011), the ACCC sought to restrain Metcash from undertaking the proposed acquisition of Franklins until further order.
Justice Jacobson (one of the Federal Court’s judges in its specialist Competition docket) reserved judgment until Monday or Tuesday of next week.
The ACCC argued that there was a serious question to be tried in that Justice Emmett, in his original decision had made several “serious errors” in his judgement which included:
- Incorrectly defining the market – by incorrectly identifying or applying the hypothetical monopolist test. The ACCC argued that a SSNIP test needed to be based on wholesale margin rather than retail price and that Emmett J failed to consider the extent to which non-price factors (including the provision of premium products) influence retailers as to how they compete on price.
- Applying an incorrect test to the counterfactual – by incorrectly applying a past focused ‘balance of probabilities’ test rather than the future focused ‘real chance or possibility’ test in establishing the counterfactual. The ACCC argued that counterfactuals look at the likelihood of some event occurring which depends on human actions, and to talk about this in terms of a ‘balance of probabilities’ produces a peculiar result.
- Inconsistencies within the judgment – leading to irreconcilable findings. These included finding on one hand that there was a strong independent constraint in the need for IGA and other independent retailers to compete with Woolworths and Coles, but then also finding that there was limited competition between Woolworths and Coles and independent retailers, as independent retailers tended to operate in local markets where the major chains did not.
The ACCC argued that balance of convenience favoured the grant of the injunction as it would be too difficult to unscramble commercial arrangements once the transaction had completed, in the event that the ACCC succeeded in its appeal.
Metcash and Pick n Pay argued that the ACCC failed to give enough weight to the detail and substance of Justice Emmett’s judgment, and in particular that:
- There were no prospects of success – in that the ACCC so comprehensively failed at first instance on the basis of complex and detailed factual findings, there were no prospects of success for any appeal and therefore no serious question to be tried.
- The SSNIP test would not determine findings in relation to market definition – as Justice Emmett’s findings were so detailed and comprehensive in relation to Woolworths and Coles providing greater competition to Metcash than Franklins, then the SSNIP test became irrelevant.
- Lowering the test for the counterfactual would produce the same result – in that Justice Emmett clearly articulated that even if the ACCC’s posited lower test of a ‘real chance’ was applied, the ACCC would have also failed in establishing its counterfactual.
Metcash and Pick n Pay argued that the balance of convenience lay with the transaction proceeding given that the parties had been successful at first instance, Justice Emmett had found the transaction would be pro-competitive, it was not possible to preserve the status quo, the ACCC had no prospects of blocking the transaction (such that the appeal would concern only matters of principle for future merger reviews) and the ACCC had other remedies at its disposal such as divestiture and penalties.
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