In March last year, the Australian Government commissioned an independent ‘root and branch’ review of Australia’s competition law and policy – the first review of its type in over 20 years.

The Review Panel’s Final Report was released on 31 March 2015. The Australian Government intends to respond to the Final Report in the second half of this year. We would not be surprised if it endorsed many of the suggested reforms.

The Final Report considers three broad areas:

competition law: substantive changes to Australia’s key piece of competition legislation, the Competition and Consumer Act 2010 (Cth) ( CCA );

); competition policy: reforms to regulatory frameworks to open up competition in a number of sectors, including taxis, pharmacies and human services; and

institutions: among other things, the Panel advocates removing all access and pricing functions from the Australian competition regulator, the Australian Competition and Consumer Commission (ACCC), and transferring them to a new access and pricing regulator.

The Panel made over 50 specific recommendations. Below, we explore some of the key recommendations for the CCA.

Merger review – a new formal process

Under Australian competition law, there is no mandatory notification regime for mergers.

The Panel has not recommended introducing a mandatory regime. But it has proposed several changes to the existing voluntary regimes.

Currently, there are three merger review processes available in Australia:

informal clearance: under this process, the ACCC provides merger parties with an informal view about whether a merger is likely to substantially lessen competition. Merger parties almost invariably rely on this process, because it is flexible in terms of the information to be provided to the ACCC and the timeframes for assessment;

formal clearance: under the CCA, merger parties may apply to the ACCC for formal clearance. The ACCC can grant formal clearance if it is satisfied that the acquisition would not have the effect or likely effect of substantially lessening competition. Since the formal clearance process was introduced in 2007, no one has elected to use it, in part because of the significant amount of information required to be provided to the ACCC upfront; and

authorisation: under the CCA, merger parties may apply to the Australian Competition Tribunal – a quasi-judicial body – for authorisation on the grounds that their merger will result in a net public benefit. This means that a merger may be allowed to proceed on public benefit grounds, even if it is likely to harm competition. Between 2007 (when the current process was introduced) and late 2013, no one applied for merger authorisation. But in recent years, there have been two applications – first by Murray Goulburn in relation to its proposed acquisition of Warrnambool Cheese & Butter, and then by AGL in relation to its proposed acquisition of Macquarie Generation’s electricity assets.

The Panel has made a number of important recommendations about these processes:

in relation to informal clearance: the Panel believes that the process should be retained, but that there should be further consultation between the ACCC and business to help improve the timeliness of the ACCC’s decisions; and

in relation to formal clearance and authorisation: the Panel has recommended combining these processes into a single formal regime which allows both competition and broader public interests to be considered. Under this process, applications would be made to the ACCC, with a right of review to the Tribunal. There would be strict timelines, and no prescriptive information requirements, although the ACCC would be empowered to require the production of business and market information from the parties involved.

While the Panel’s suggestion of a single formal regime should make the process more ‘user-friendly’, it will also mean that parties lose the ability to apply directly to the Tribunal for merger authorisation. The AGL case showed that the Tribunal can, after testing the evidence, come to a very different view from the ACCC on competition issues. Further, the current merger authorisation process is quick, with a time limit of three months (absent complex or special circumstances). The loss of this merger approval option is disappointing.

Cartel laws – to be simplified

International practitioners may be surprised by the length, complexity and reach of Australia’s current cartel laws, which pose serious challenges for both interpretation and application.

The Panel expressed a range of concerns about Australia’s existing cartel laws, several of which stemmed from a recent court case where the laws were found to apply to:

a tender for the sale of a Canadian corporation, which had business operations outside Australia, where the seller was based outside Australia, and where the tender was conducted outside Australia[1]; and

an arrangement between parties if there is ‘more than a remote possibility’ that the parties are, or would be, in competition with each other.

To address these concerns, the Panel has made recommendations about both the extraterritorial reach of the cartel laws and the level of competition needed in order for the laws to apply. In particular, the Panel recommended that the cartel laws only apply to:

conduct that affects trade or commerce within, to or from Australia; and

corporations who are actual competitors, or who are ‘more likely than not’ to be in competition with each other.

More broadly, the Panel believes that the existing cartel laws are overly complex, and has recommended that they be substantially simplified.

In our view, the Panel’s suggested changes should make it easier for commercial parties to identify and assess the risks associated with their conduct. They may also benefit the regulator in bringing criminal prosecutions, in part because the simplified concepts will be easier for juries to understand and apply.

Joint venture defence – to be simplified and expanded

The CCA recognises the economic value of joint venture arrangements and includes exemptions from cartel laws for these arrangements.

Submissions to the Panel emphasised the importance of ensuring that Australia’s competition laws do not frustrate the formation of pro-competitive joint ventures, and that they are drafted appropriately to differentiate between legitimate joint ventures and anti-competitive agreements ‘dressed up’ as joint ventures.

The Panel has recommended a simpler and broader exemption for joint venture activities that do not have the purpose or effect of substantially lessening competition. The joint venture defence proposed by the Panel:

removes the requirement for a joint venture contract, instead recommending that the defence be extended to apply to less formal joint venture arrangements;

removes the requirement for a production and/or supply joint venture, instead recommending that the defence be broadened to apply to any joint venture for the production, supply, acquisition or marketing of goods or services; and

includes a requirement that the relevant cartel provision under consideration:

be for the purpose of the joint venture (this is an existing requirement);

relate to goods or services acquired, produced, supplied or marketed by or for the purpose of the joint venture; or

be reasonably necessary for undertaking the joint venture.

This third suggestion seeks to ensure that the relevant conduct is sufficiently linked to the joint venture so that only genuine joint venture conduct will benefit from the defence. While that link is clearly important, there has been no judicial consideration of the phrases recommended by the Panel, and they remain open to a number of possible interpretations. In particular, it is still unclear whether a provision that is not strictly necessary for the operation of a joint venture, but furthers its objective or enables it to operate more efficiently, comes within the scope of the defence.

Overall though, the Panel’s suggestions are to be welcomed. They address many of the concerns of joint venture parties, particularly those in the energy and resources sectors, where collaborative activities are common.

Price signalling – to be replaced with a prohibition on ‘concerted practices’

In 2011, the CCA was amended to include prohibitions against price signalling – the anti-competitive disclosure of information. They currently apply only to the banking sector.

The prohibitions have been heavily criticised, and the Panel has recommended they be repealed.

In their place, it has recommended dealing with anti-competitive information exchanges by extending the general prohibition against anti-competitive contracts, arrangements and understandings to include ‘concerted practices’. It has defined a concerted practice as ‘a regular and deliberate activity undertaken by two or more firms. It would include the regular disclosure or exchange of price information between two firms, whether or not it is possible to show that the firms had reached an understanding about the disclosure or exchange’.

While the term ‘concerted practices’ is not currently used in the CCA, it is a familiar concept in Europe. It will be interesting to see whether Australian courts adopt the European approach to ‘concerted practices’, or develop their own approach as cases are brought before them.

Unilateral conduct – introducing an ‘effects’ test

The current Australian prohibition regulating the conduct of firms with substantial market power considers the purpose of the relevant conduct rather than its effect. It also requires that there be a causal connection between the market power and the conduct (i.e. the market power must be ‘used’).

Perhaps the most controversial of the Panel’s recommendations is the introduction of an ‘effects’ test to this prohibition. More specifically, the Panel recommends that the section be re-framed to prohibit:

a corporation that has a substantial degree of power in a market

from engaging in conduct that has the purpose, effect or likely effect of substantially lessening competition.

This formulation – ‘purpose, effect or likely effect of substantially lessening competition’ – already exists in other sections of the CCA that apply to collective conduct. However, if the Panel’s recommendation is adopted, it will for the first time apply to unilateral conduct by a corporation with substantial market power.

The re-framed section also appears to remove the causal link between substantial market power on the one hand, and conduct on the other.

Many commentators have expressed serious concerns about this recommendation, arguing that it will create uncertainty and may chill legitimate competitive conduct. In addition, the case law regarding the existing prohibition, which has developed over many years, will, in essence, be abandoned.

While the Panel has acknowledged that re-framing this prohibition will lead to a period of uncertainty, in our view it has probably underestimated both the period of uncertainty and the consequences of that uncertainty on the conduct of firms with market power.

Next steps

The Australian Government has been consulting on the Panel’s recommendations, with submissions on the Final Report due by late May. It intends to formulate its response to the Final Report in the second half of this year.

[1] The cartel laws were found to apply because the relevant conduct was engaged in by parties incorporated in Australia and/or carrying on business in Australia.

Bio Patrick Gay Partner at at Herbert Smith Freehills Email: [email protected]

Tel: +61 2 9322 4378



Patrick is a Partner in the Competition, Regulation and Trade group based in Sydney. His practice focusses on competition and consumer law issues. Patrick has advised clients in a variety of industries in relation to merger clearances, and ACCC investigation and enforcement matters. He also provides competition law advice in respect of issues arising in contract negotiations, including distribution arrangements and joint venture agreements. Patrick is a contributor to a recent publication on Australian joint venture law entitled ‘Before you tie the knot: Contemporary issues in joint venture law’.