The document discusses common competition law issues that arise in Australia, focusing on four key areas: acquisitions of assets and shares, restraints and exclusivity, joint ventures and coordinated conduct, and misuse of market power. It provides examples of each type of issue in the resources sector and outlines practical solutions such as voluntary pre-notification of mergers to the ACCC, ensuring restraints of trade are reasonable, and using the joint venture defense for collaborations between competitors. The document aims to help businesses and their advisors navigate potential competition concerns.
The greatest Australian competition reforms in 20 years?
A Practical Approach to Australian Competition Issues
1. FINANCIAL INSTITUTIONS
ENERGY
INFRASTRUCTURE, MINING AND COMMODITIES
TRANSPORT
A Practical Approach to Competition Issues
TECHNOLOGY AND INNOVATION
PHARMACEUTICALS AND LIFE SCIENCES
Dr Martyn Taylor
Partner, Norton Rose
March 2013
2. Overview
A. What are the most common issues?
1. Acquisitions of assets and shares
2. Restraints and exclusivity
3. Joint ventures and co-ordinated conduct
Dr Martyn Taylor
4. Misuse of market power Partner
+61 2 9330 8056
martyn.taylor@nortonrose.com
B. Interacting with the ACCC
1. The role of the ACCC
2. Responding to ACCC approaches
3. Proactive approaches to the ACCC
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4. Competition law – what is it ?
• Australian competition law is principally contained in the
Competition and Consumer Act 2010 (Cth).
• The Competition and Consumer Act:
• relevantly, has the objective of enhancing the welfare of
Australians through the promotion of competition;
• applies on a generic basis to all markets in Australia;
• gives effect to National Competition Policy; and
• is administered and enforced by the Australian
Competition and Consumer Commission (ACCC).
• Competition law is underpinned by economic theory:
competition is a necessary condition for the efficient operation
of markets so that markets can allocate society’s resources
optimally to their most valued uses.
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5. Structure of competition law…
Single party • Misuse of market power
conduct • National access regime
• Restraints of trade
Vertical • Exclusive dealing
Competition Multi-party • Exclusionary provisions (boycotts)
regulation conduct
Horizontal • Anti-competitive agreements
• Cartel conduct
Mergers and
• Anti-competitive acquisitions
acquisitions
‘Per se’ prohibition ‘Rule of reason’ prohibition
Conduct is considered so harmful it is Conduct is considered harmful only if it
deemed to be anti-competitive has an anti-competitive effect
Example: price fixing by cartel Example: acquisition of an asset
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6. Example – resources sector
Single party Multi-party Mergers and
conduct conduct acquisitions
• Long-running litigation over rail • ACCC authorisation of joint gas • ACCC clearance of APA’s
access in the Pilbara region marketing by North West Shelf acquisition of Hastings Fund
between Fortescue Mining, Gas Project producers. (gas transmission pipelines).
BHP Billiton and Rio Tinto.
• Collective bargaining approval for • ACCC clearance for Arrow
• 15 year ‘no coverage’ Surat coal producers for Surat Energy acquisition of Bow
application for Australia Pacific Basin rail links. (wholesale gas for LNG).
LNG Gladstone Pipeline.
• Collective bargaining approval for • Caltex acquisition of Mobile
• Access regulation of Roma to Bowen/Galilee coal producers for assets at Port of Gladstone
Brisbane gas pipeline. Hay and Abbot Point rail links. (fuel terminal infrastructure).
• Access regulation for Amadeus • Authorisation of Hunter Valley rail • Proposed iron ore joint venture
gas pipeline. network and export coal chain. between BHP Billiton and Rio
Tinto in Western Australia.
• Certification of Dalrymple Bay • Collective bargaining approval for
Coal Terminal access regime. Wiggin Island coal producers for • Chinalco acquisition of various
Gladstone Port rail links. assets of Rio Tinto.
• Investigation of Santos
regarding access to oil storage • ACCC authorisation of joint gas • ACCC opposition to Santos’
facility at Port of Brisbane. marketing by Gorgon Gas Project proposed acquisition of QGC.
producers.
7. …and the most common practical issues
1. Acquisitions of assets and shares
• merger clearances
2. Exclusionary and exclusive conduct
• exclusive dealing
• restraints of trade
• third line forcing
3. Joint ventures and co-ordinated conduct
• cartel and exclusionary provisions
• joint venture defence
4. Misuse of market power
• refusals to supply
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9. The prohibition in section 50
Policy mischief:
• Firms with substantial market power (SMP) can raise prices
and reduce output to extract value from consumers.
• Firms can achieve SMP by acquiring their competitors (or by
vertically integrating across markets).
Section 50 of the Competition & Consumer Act 2010 (Cth):
Statutory elements:
• A corporation/person must not directly or indirectly acquire:
1. Acquisition of shares or
• shares in the capital of a body corporate/corporation; or:
assets
• any assets of any corporation/person,
2. Actual or likely effect on
• if the acquisition would: an Australian market
• have the effect; or
3. Substantial lessening of
• be likely to have the effect, competition in market
• of substantially lessening competition in a market.
10. Voluntary pre-notification to the ACCC
• Notifying a merger to the ACCC is voluntary in Australia, although
most countries operate mandatory pre-notification regimes.
• ACCC expects to be notified in any of the following circumstances:
• merger would result in the Acquirer achieving an Australian An Australian market
market share, by any measure, of 20% or more; share of 20% is the
‘notification
• merger would result in a substantial conglomerate effect; threshold’.
• merger would result in significant increase in vertical
integration;
• complaints to the ACCC by third parties are likely; or
• ACCC has previously notified the parties, or the industry
generally, that the ACCC expects to be notified.
• All Foreign Investment Review Board (FIRB) submissions are
automatically notified to the ACCC by FIRB.
• The ACCC may also self-initiate a review if it becomes aware of a
merger that is likely to raise concerns.
11. Informal clearance by the ACCC
If clearance is granted, the Acquirer obtains a non-binding “letter of
Three types of reviews:
comfort” from the ACCC that it will not oppose the acquisition but
reserves the right to do so should new information come to light Confidential review
takes 2-4 weeks, results
Informal clearance provides significant procedural flexibility: in a highly qualified view.
Becomes a basic review
• The procedure is documented in the ACCC’s Merger Review once the merger enters
the public domain.
Process Guidelines but has no formal statutory basis
Basic review
• Application involves Acquirer providing the ACCC with a takes 2-6 weeks, results
detailed written submission. Vendor normally comments on in a letter of comfort or a
the draft. statement of issues.
• For more difficult submissions, executives of Acquirer and Vendor Comprehensive review
and their lawyers may meet with the ACCC to answer questions. takes as long as is
necessary and may
involve negotiation of
• If ACCC has concerns, greater scope for parties to make undertakings, but results
submissions and negotiate undertakings to resolve concerns. in a letter of comfort or
an expression of ACCC
• No appeal rights from ACCC’s decision, so a decision is opposition to merger.
normally swift (compared to other jurisdictions) and is final.
12. How many acquisitions raise concerns?
Of the 377 acquisitions considered for compliance by the ACCC in 2010-11, only 3 were publicly opposed.
14. Restraint of trade
• The common law doctrine of restraint of trade continues to apply to
contracts in Australia, notwithstanding the existence of the CCA.
• The doctrine requires that any restraint on trade must be justifiable,
reasonable and proportionate to the commercial interests to be
protected. The key issues are therefore:
– What commercial interests are protected ?
– Is the scope and duration of the restraint reasonable and
proportionate to those interests ?
• Severance clauses are important where a restraint of trade is
included, including ‘ladder clauses’ that cover different permutations.
• Restraints are commonly encountered in the following
circumstances:
– restraining vendors in a business sale and purchase contract;
– restraining key employees or consultants, particularly where they
have contributed critical knowledge or intellectual property.
15. Example… restraints in Sale & Purchase contracts
• Two issues with restraints in Sale and Purchase contracts:
1. must fall within exemption in Act; and
2. must comply with doctrine of restraint of trade.
• CCA, s51(2)(e) - “regard shall not be had…in the case of a
contract for the sale of a business or of shares…to any provision
of that contract that is solely for the protection of the
Example of restraint:
purchaser in respect of the goodwill of the business”.
Vendor agrees not to
• Common law doctrine requires restraints to be reasonable and compete with
proportionate to their purpose. Requires some thought as to the Purchaser for a
appropriate breadth of the restraint to protect the goodwill of the period of 3 years
business (e.g., what is area of competition, geographic extent, throughout Australia
and appropriate duration). in markets X, Y, Z.
Is this reasonable to
• Ladder and severability clauses are used frequently to mitigate protect the goodwill
the risk that the breadth of the restraint could be unreasonable. of the business
being acquired ?
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16. Exclusive dealing (vertical restraints)
• Section 47 regulates vertical exclusivity under
various supply and acquisition permutations. Exclusive dealing occurs in a
supplier-customer (vertical)
• Practical solutions: relationship when one entity
• Most permutations are only anti-competitive if they imposes some restrictions on
substantially lessen competition (SLC). the other’s freedom to choose
with whom, in what, or where
• Concerns arise if the exclusion is for a significant they deal.
time period (>2 years) and the competition
affected is material to the market.
Supplier
TERRITORIAL EXCLUSIVITY: PRODUCT EXCLUSIVITY:
CUSTOMER EXCLUSIVITY:
Supplier restricted from Supplier restricted from
supplying in certain territories. Customer restricted from supplying to another customer.
resupplying to its customers.
Customer restricted from Customer restricted from to
supplying in certain territories. acquiring from another supplier.
Customer
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17. Third line forcing (bundling across companies)
• “Third line forcing” (3LF) is frequently 3LF occurs whenever a supplier
encountered and can be problematic. requires a customer to acquire
another good or service from an
• Occurs whenever a customer is forced to unrelated third party supplier.
acquire a good or service from a third party
(including conditional discounts and prices).
• 3LF is prohibited regardless of the effect on
competition. This is unique to Australia.
Third party
Supplier
• supplier
Example: You buy a new TV from Myer at
a discount. A condition of the discount is
that you must pay using a VISA card.
Supply (or Forced to
discount) on acquire
• Practical solutions: condition
• Redraft the arrangement to remove the
forcing (i.e., customer retains choice). Customer
• Submit a notification to the ACCC.
Immunity arises if the ACCC does not
reject the notification within 14 days.
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19. Cartel provisions • Can result in imprisonment for up
to 10 years for individuals.
Contract, • Issues arise for:
arrangement or
understanding • any interactions or sharing
(CAU) between of information with
Competitor competitors Competitor
competitors;
• joint venture and
shareholder agreements.
Does any provision in the CAU have…
• Practical solutions:
Fixing prices Reducing supply
…the purpose or effect of …the purpose of • compliance training for
fixing or controlling preventing, restricting or anyone interacting with a
prices, discounts, rebates limiting production, competitor;
and credits ? capacity or supply ?
• joint venture defence;
Rigging bids Dividing markets • restructure as a vertical
…the purpose of …the purpose of restraint if possible
affecting bids by either allocating customers, (exclusive dealing);
party in a competitive suppliers or territories
bidding scenario ? between the parties ? • whistle-blowing (immunity).
20. Exclusionary provisions • Not a criminal offence, but
overlaps with cartel provisions
Contract,
arrangement or • Issues (again) arise for:
understanding
(CAU) between • any interactions or sharing
Competitor competitors Competitor
of information with
competitors;
• joint venture and
Does any provision in the CAU have… shareholder agreements.
Supplier boycott Customer boycott • Practical solutions:
…the purpose of …the purpose of
• compliance training for
preventing, restricting or preventing, restricting or
limiting acquisition by one limiting supply by one of anyone interacting with a
of the competitors? the competitors? competitor;
• joint venture defence;
…in the same market …in the same market
where they are competing where they are competing • restructure as a vertical
to acquire the goods or to supply the goods or restraint if possible
services services
(exclusive dealing).
21. What are the potential areas of risk ?
Potential high risk activity: Examples:
• Competitors agreeing to ‘black list’ a • A pricing manager at an airline is
common supplier unless better prices concerned by increases in the price of
are offered. aviation fuel, so sends an email to his
counterparts at other airlines
• Competitors agreeing not to poach each proposing an interim fuel surcharge.
other’s customers or not to supply to a
particular customer.
• A sales manager is concerned he
• Competitors meeting in any can’t meet his sales targets and
circumstances (including over lunch or suggests to his friend at another
in industry associations) and discussing company that they target different
aspects of pricing or discount structures. customers.
• Giving pricing information to
• Two competing construction
competitors.
companies form a joint venture to bid
• Arrangements to determine prices or for construction projects.
supply in the context of joint ventures
and shareholder agreements.
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22. Practical solution - joint venture defence
Has the corporation Is the provision in a contract? Yes
made or given effect to Yes
a cartel provision? Is the provision for the
purposes of the relevant JV? Yes
Even if the JV defence Is the relevant JV for the
applies, the conduct must production and/or supply of
still not substantially lessen the goods or services? Yes
competition. This can be
problematic if supply by the Is the relevant JV carried on
JV constitutes a substantial jointly, either by the parties The joint venture defence
proportion of the market. or the incorporated JV Yes applies
entity?
• Whether the same volume/timing/price of product would be
Often a conceptually tricky
economically and technically feasible in the absence of the JV;
issue for marketing JVs: is
the provision “for the • Whether the provision is reasonably necessary and
purposes of” the relevant proportionate to the needs of the relevant JV;
production and/or supply JV?
• Whether less restrictive alternatives could realise the
volume/timing/price of the product in order to meet demand.
23. Other practical solutions…
Restructuring arrangements: Authorisation:
– If the commercial objective it not itself – If an arrangement has net public benefits
problematic, it is often possible to and not possible to restructure, then an
restructure the arrangements to comply authorisation application to the ACCC may
with the Act. be a solution.
– Example: restructuring a restraint as – Can be expensive, so generally reserved
exclusive dealing to avoid creating an for important or exceptional scenarios.
exclusionary provision
Immunity or leniency:
Compliance training:
– The ACCC has a ‘whistle-blower’ policy
– Can be bespoke and run informally as a where the first through the door can obtain
workshop to discuss key issues immunity (and others can benefit from
leniency).
– If an employee contravenes the Act, the
fact of compliance training may reduce – Where cartel conduct is uncovered, there
the liability of their employer. may be a race for the door of the ACCC.
– Contrary to popular belief, they can – Requires full disclosure and co-operation
actually be fun… with the ACCC.
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25. What is a misuse of market power ?
• A prohibition against the misuse of market power is
contained in section 46:
• a firm that has a substantial degree of market power
• must not take advantage of that market power
• for the purpose of harming competitors or deterring
competitive conduct
Example – pricing below cost Example – refusal to supply
• A new entrant may enter the market and • A company is vertically-integrated. It may
offer substantial discounts. be a manufacturer, distributor and retailer.
• The existing firm may decide to undercut • A competing retailer wishes to acquire
the prices of the new entrant to retain product from the company and the
customers, even through that involves company refuses to supply the product.
supplying below cost for a period of time.
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26. What are the areas of risk and practical solutions ?
Potential high risk activity: Practical solutions:
In markets where the firm has market • Where a ‘refusal to supply’ situation
power (eg high market share): arises, consider whether the firm has
• Refusing to supply to, or imposing substantial market power.
unreasonable supply terms on,
customers that are also competitors. • Maximise use of legal privilege by
involving legal team in decision-
• Price discriminating in a manner that making for risky areas.
adversely affects customers that are
also competitors. • Ensure that decisions are made for
legitimate business reasons, not anti-
• Price squeezing (i.e., overcharging at
competitive reasons.
wholesale where the customer is also
competing at retail).
• Ensure that external and internal
• Pricing below cost for a sustained period correspondence does not evidence
of time. any anti-competitive purpose.
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28. What is the ACCC’s role ?
• The Australian Competition & Consumer Commission (ACCC) is responsible for
administration of the Competition and Consumer Act (as well as other legislation
containing competition obligations).
• ACCC promotes competition to benefit consumers, business and the community.
ACCC also regulates national infrastructure.
• Specifically, its performance plan requires it to promote “lawful competition,
consumer protection, and regulate national infrastructure markets and
services through regulation”
• The ACCC’s role includes investigation, enforcement, industry and consumer
education, price monitoring and determining the terms of access to
infrastructure services.
• The ACCC also have an important role in screening and authorising certain
conduct that may be anti-competitive.
• The ACCC also provides advice and assistance to parliamentary inquiries and
government agencies for the development of competition policy and legislation.
29. How does the ACCC operate ?
• The ACCC comprises an independent statutory Commission of
seven full-time Members and four Associate Members.
• Budget of roughly $150 million, roughly half of which is spent
on employee costs. The ACCC has a $25 million legal budget.
• Within ‘Treasury’ portfolio in the Commonwealth Government.
Commission
• ACCC decisions are made through formal Commission meetings: Full
Commission
• Various Sub-Committees exist with delegated powers to make
decisions on matters that are less significant.
Sub-
• Only the Full Commission itself can decide to start court action, Committee
approve or oppose a major merger proposal, or authorise anti-
competitive behaviour where there is sufficient public benefit.
Staff
• The Commission is supported by around 800 staff structured into a Relevant
number of Divisions and Groups. Division within
ACCC
• The staff are responsible for investigating conduct and making
recommendations to the Commission via a ‘staff paper’.
30. ACCC investigative powers
• Possible breaches of competition law come to the ACCC’s
attention through complaints and information from members of
the public, the media, ACCC staff and other agencies.
• ACCC’s Infocentre provides the initial response for all inquiries
and complaints. In 2011, it received 145,000 calls, 42,000
emails and 2,200 letters. Most of these were retail and
consumer oriented.
• If a matter is sufficiently serious, the case is referred to the
relevant ACCC staff for investigation.
• The ACCC staff have formal powers under section 155 of the
Act to:
• require persons to answer written questions and provide
documents (e.g., emails, board papers); and
• require persons to appear and provide evidence.
• The ACCC also has powers to raid premises and seize evidence
pursuant to a search warrant.
31. Section 155 information gathering notices
• ACCC may require any person who it reasonably believes is
capable of providing documents, information or evidence in
relation to a suspected contravention to provide such
documents, information or evidence.
• Compliance with a s155 notice is compulsory and it is an
offence not to comply with a s155 notice. There is no right to
remain silent.
• Testimony of an employee can be used against that individual
and their employer in civil proceedings but not in criminal
proceedings.
• ACCC cannot use section 155 to require production of legally
privileged material
• In the last financial year, the ACCC issued around 270 ‘s155’
notices. The compliance burden for recipients can be very
substantial indeed, including identifying any privileged
documents.
31 Australian cartel regulation
32. How do you respond to a section 155 notice?
1. Is it actually a section 155 notice… it will say that it is. ACCC may make
voluntary requests for
information, before
2. Call external counsel – they often have relationships with the
issuing a s155 notice.
ACCC that may assist.
Compliance may
avoid a s155 notice,
3. Section 155 notices are normally difficult to challenge, so
but confidentiality
compliance is required in almost all circumstances. obligations to third
parties may preclude
4. Identify the scope of the notice and whether there is scope to disclosure.
informally negotiate any aspects with the ACCC:
• Sometimes the ACCC may not appreciate the volume of
information covered by its notice.
• Notice may be ambiguous, leading to interpretation issues
5. Put in place a project plan to locate and review documentation:
• Documents should be reviewed for relevance and privilege.
• Identify how to deal with documents that are partially in
scope or that contain privileged information.
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33. How do you respond to a ‘dawn raid’ ?
1. Ensure staff have clear instructions that if the ACCC does not have a Very rare in
search warrant they are not authorised to give consent on behalf of the Australia. May be
company for the ACCC to enter the premises. used for major
2. Check the officials’ search warrant and establish the subject matter and investigations,
purpose (scope) of the investigation such as cartel
conduct
3. Do co-operate with the investigators but ensure they do not exceed their
authority, and do not volunteer information.
4. Notify senior management and immediately alert lawyers – the officials
may delay their investigation – usually up to an hour – to allow lawyers to
arrive; however there is no obligation to wait.
5. Keep a copy of documents that have been seized.
6. Be prepared to assert claims of legal privilege over documents.
1. Do not obstruct entry where a valid search warrant is held.
2. Do not under any circumstances destroy or tamper with any documents
– including deleting emails, and the contents of any electronic devices
such as Blackberries and PDAs.
3. Do not issue any press public statement about a dawn raid, which has
not been discussed with Head Office and settled by legal advisers.
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34. ACCC enforcement powers
• ACCC may take enforcement action in the Federal Court seeking injunctions, court orders
and pecuniary penalties:
– The ACCC applies its compliance and enforcement policy.
– Criminal prosecutions are undertaken by the Director of Public Prosecutions
• Statutory remedies:
– Imprisonment for up to 10 years for individuals engaging in cartel conduct
– Substantial pecuniary penalties (firms and individuals) per contravention
– Disqualification orders against officers and directors
– Provisions of contracts may be unenforceable and must be severed from the contract
(which may affect the application of remainder of the contract)
• Other concerns
– Distraction of senior management
– Damage to reputation
– Private and class actions by injured parties for damages or other remedies
– Forfeiture of proceeds from criminal conduct under Proceeds of Crime Act
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35. Proactive approaches to the ACCC…
• If a firm is subjected to anti-competitive conduct, it may wish to
make a formal complaint to the ACCC.
• The ACCC has priority areas for enforcement, so is more likely to
be interested in conduct that falls within those priority areas.
• Generally, the more evidence that can be provided, the greater
the likelihood of the ACCC commencing an investigation. Steps
may include:
– Providing presentations and briefings to ACCC investigators
– Providing documents to the ACCC, including pursuant to
‘friendly’ section 155 notices where confidentiality issues arise.
– Providing written submissions and potentially affidavits.
– Offering support in any enforcement activity undertaken.
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37. Our international practice
Disclaimer
The purpose of this presentation is to provide information as to developments in the law. It does not contain a full analysis of the law nor does it constitute an opinion of Norton Rose Australia on the points of
law discussed. No individual who is a member, partner, shareholder, director, employee or consultant of, in or to any constituent part of Norton Rose Group (whether or not such individual is described as a
“partner”) accepts or assumes responsibility, or has any liability, to any person in respect of this presentation. Any reference to a partner or director is to a member, employee or consultant with equivalent
standing and qualifications of, as the case may be, Norton Rose LLP or Norton Rose Australia or Norton Rose Canada LLP or Norton Rose South Africa (incorporated as Deneys Reitz Inc) or of one of their
respective affiliates.
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