Competition changes on the horizon

23 September 2011 | By Richard Flitcroft (Partner)

In the October sittings, Parliament will likely pass two pieces of legislation that will have varying impacts on the competition landscape in Australia.

One touches mergers - driven to deal with "creeping acquisitions" - the concern that small accretions of assets in smaller regional markets (usually in the area of supermarkets) may not trip the competition test in Australia, and thus nevertheless proceed with an anticompetitive effect. The impetus for this change was politically driven.

The solution has been to narrow the scope of the market against which the acquisition is assessed. Now it is sufficient to block a merger if it will lead to a substantial lessening of competition in any market in Australia - previously the market had to be a "substantial market in Australia". In truth this is probably not much more than window dressing, as it reflects ACCC merger practice. However, it removes the potential for anyone to challenge a blocked merger on the basis of the ACCC practice.

ACCC Chairman Rod Sims recently stated that “the ACCC will also increase its scrutiny of mergers in local markets”.  For many mergers, this will be of little relevance, but the new legislation combined with a regulatory willingness to take a more granular approach to market effects may warrant closer attention, and may require divestment remedies which would not have been previously considered necessary.  These changes were first introduced in June 2010, but lapsed with the dissolution of Parliament.

The second change is more novel and its impact uncertain and of potentially wider scope. Again, it has a partially political genesis – and is focussed on “price signalling” and public and private information exchanges.

Its initial application will be focussed on the banking sector – in ways that we are yet to see, which will be set out in regulations. The legislation has been “finessed” with the pragmatic concerns of the banking sector in mind – but it has scope to apply to the wider economy through extension by regulation.  A decision to extend the application of the prohibition is likely to be based on political considerations regarding perceptions of collusion in an industry and evidence gathered by regulators such as the ACCC that supports these concerns. The effect of the passage of the legislation will therefore be that the appearance of collusion in an industry could lead to significant regulatory tightening for that industry.  For regulated industries, the legislation brings about prohibitions on unilateral conduct which go beyond those seen in the EU and US.  A unilateral disclosure of the relevant information, with the relevant purpose, is all that is required for the prohibition to be contravened.

History shows that these changes had their genesis in a string of several cases where the ACCC was unable to demonstrate that information exchanges between competitors had not been characterised as a prohibited ‘understanding” to fix prices as the element of commitment was missing, yet the effect on competition was the same.  Yet only a few weeks ago, the ACCC succeeded in such a case (ACCC v TF Wollam & Son Pty Ltd), where the court was willing to infer an anti-competitive understanding between the parties to cover price, also stating that mutual commitment is not a necessary precondition to such an understanding. 

Sometimes the long term view on the development of jurisprudence is to be preferred over piecemeal amendments to deal with perceived shortfalls. Compared to other jurisdictions, there has been limited jurisprudence in Australia covering these provisions, and the tendency has been to amend legislation, rather than let the case law develop to provide clarity.

The recent comments by Rod Sims that the ACCC will take on more cases where its prospects of success are less certain, but which will result in the law being tested are welcomed. This will result in a body of considered jurisprudence, and less reactionary legislation. The approach the ACCC has taken in the Metcash matter is but one example of this – there is real importance in having an appeal court determining what is the appropriate level of certainty that must attach to a counterfactual before it can be taken into consideration. Even if, as the trial judge found, the ACCC would have failed on the less stringent test it proposed, the merger review process will benefit from the certainty of an appeal court decision on the point.

The content of this publication is for reference purposes only. It is current at the date of publication. This content does not constitute legal advice and should not be relied upon as such. Legal advice about your specific circumstances should always be obtained before taking any action based on this publication.

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Richard Flitcroft

Partner. Sydney
+61 2 9210 6435