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The Harper Reforms

Overview

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In 2017 significant reforms to the Competition and Consumer Act 2010 were introduced with the passage of two Acts:

Collectively, these Acts introduced many of the reforms recommended in the Harper Report (2015), with the changes commencing on 6 November 2017.

 

The key changes include:

  • Change timeMisuse of market power
    • introduction of an effects test to replace the existing purpose-based test
  • Concerted practices
    • introduction of a prohibition on anti-competitive concerted practices
  • Cartels and joint ventures
    • simplification of the cartel provisions and modification of the joint venture defence
  • Merger procedures
    • removes formal notification process and modifies authorisation criteria, allowing authorisation to be granted if a merger either will not substantially lessen competition or produces a public benefit outweighing any public detriment
    • gives ACCC power to grant merger authorisation, with possibility of review by the Tribunal
  • Third line forcing
    • Removes the per se prohibition on third line forcing
  • Resale price maintenance
    • Introduces 'notification' option for resale price maintenance
  • Authorisation and class exemptions
    • Simplifies the authorisation process.
      • For conduct other than cartel conduct, secondary boycotts and rpm (which are per se prohibited) authorisation may be granted if either the conduct would not substantially lessen competition or the conduct would result in a public benefit likely to outweigh the detriment that would be likely to result from the conduct.
      • For the per se prohibitions authorisation may be granted only if the conduct would result in a public benefit likely to outweigh the detriment that would be likely to result from the conduct.
    • Gives the ACCC new powers to create class exemptions where conduct of that 'kind' would not have the likely effect of substantially lessening competition or would result in a public benefit likely to outweigh the detriment that would be likely to result from the conduct.
  • Access
    • Amends various criteria, including replacing the private profitibility test in criterion (b) with a 'natural monopoly' test

Other changes have also been made, including

  • modification of the definition of competition
  • modification of s 155 to allow notices to be issued in relation to alleged contraventions of s 87B undertakings and the addition of a defence
  • repeal of the separate prohibition on exclusionary provisions and related modification of cartel laws to cover any remaining gap
  • modification of s 83 to allow admissions of fact to be used in other proceedings
  • removal of the requirement for private parties to obtain ministerial consent prior to bringin an action for breaches occurring overseas

 

Misuse of market power

BoxerThe prohibition on misuse of market power (section 46) has been repealed and replaced with a new provision.

The new provision prohibits a corporation with substantial market power is prohibited from engaging in conduct having the purpose, effect, or likely effect, of substantially lessening competition. This has been colloquially referred to as the 'effects test'.

This has the effect of removing the 'take advantage' element from the prohition and focussing on the purpose or effect of conduct on competition, rather than whether the firm involved had a specific prohibited purpose (typically directed at competitors).

The supplementary explanatory memorandum explained that the object of the new section 46 was to

... target anti-competitive behaviour by firms with substantial market power, while allowing legitimate pro-competitive behaviour even if this results in harm to inefficient competitors.

Consistently with this objective, the new section 46 continues to focus on harm to the competitive process, rather than individual competitors, and does not shield inefficient competitors from the natural effects of strong competition.

The ACCC has released interim guidelines explaining their approach to the new prohibition.

For a discussion of the background to this reform see

 

Concerted practices

Thinking alikeA new civil prohibition on 'concerted practices' has been introduced in addition to the existing prohibition on anti-competitive agreements. Section 45 now prohibits:

(1) making a contract or arrangement, or arriving at an understanding, which has the purpose, effect or likely effect of substantially lessening competition

(2) giving effect to a provision of a contract or arrangement or understanding, if that provision has the purpose, effect or likely effect of substantially lessening competition; and

(3) engaging with one or more persons in a concerted practice that has the purpose, or has or is likely to have the effect, of substantially lessening competition.

Although not defined in the Act, the explanatory memorandum defines the concept of concerted practice as ‘any form of cooperation between two or more firms (or people) or conduct that would be likely to establish such cooperation, where this conduct substitutes, or would be likely to substitute, cooperation in place of the uncertainty of competition’.

A new exception has been inserted where the only parties to a concerted practice are the Crown and one or more government authorities.

The ACCC has released interim guidelines explaining their approach to the new prohibition.

The separate price signalling prohibitions, that were industry specific and had never been litigated, have been repealed.

The separate prohibition on exclusionary provisions that was previously contained in s 45 has also been removed.

 

Cartels and joint ventures

Shake handsThe Act simplifies the cartel provisions and modifies the joint venture exemption. In particular:

  • The cartel provisions are now restricted to conduct occurring in trade or commerce (limiting conduct that that affecting competition in Australian markets)
  • The joint venture exceptions have been:
    • expanded to capture contracts, arrangements or understandings (previously only JV contracts were covered)
    • expanded to include joint ventures for the acquisition of goods or services (previously it only covered JV's for production and/or supply)
    • restricted to apply only to JV's that are for the purposes of a JV and reasonably necessary for undertaking a JV (there was previously no need to demonstrate that they were reasonably necessary)
    • restricted so that they do not apply to JV's carried out for the purpose of substantially lessening competition
  • The output restriction purpose condition has expanded to capture acquisition restrictions (this was designed to address any relevant gap associated with removing the separate prohibition on exclusionary provisions from s 45)
  • Division 1 of Part IV (cartels) has been renumbered.  No longer does s 44ZZRD define cartel conduct - that provision now becomes 45AD. (NB, in most cases the ‘ZZR’ has been replaced with ‘A’ (eg, 44ZZRF becomes 45AF).  But that is not the case for all provisions - it only works until s 44ZZRP. For a list of modified provisions see below.

 

Mergers

MergerThe power to authorise mergers has reverted back to the ACCC at first instance, subject to merits review by the Tribunal.

The separate concept of formal clearance has now been removed (no application for formal clearance was ever made).

Authorisation can now be granted on broader grounds - it may be granted if

  • the conduct would not have the effect, or would not be likely to have the effect, of substantially lessening competition; or
  • the conduct would result, or be likely to result, in a benefit to the public which would outweigh the detriment to the public that would result, or be likely to result, from the conduct.

 

Third line forcing

The current per se prohibition on third line forcing in s 47 has been removed; third line forcing now subject to competition test, the same as all other forms of exclusive dealing covered in s 47.

The Harper Report recommended further simplification or repeal of s 47; that change has not been introduced.

 

Resale price maintenance

Pricing
The substantive ‘per se’ prohibition on RPM has been retained.

However, is is now, possible for parties to notify the ACCC of RPM conduct. Unlike authorisation, the notification will allow the conduct to occur after a 60 day waiting period unless the ACCC objects to the notification on the ground that it considers anti-competitive harm will outweigh any public benefit.

The Act has also been amended to expressly provide that actions between related bodies corporate do not constitute RPM.

 

Authorisation and class exemptions

Tick of approvalAuthorisation

The various different tests for authorisation have been replaced with a single test for all forms of conduct (including s 46 conduct which cannot currently be authorised).

The range of circumstances in which authorisation can be granted have also been expanded for conduct not otherwise per se prohibited. It will be possible for most conduct to the authorised if it can be demonstrated the conduct would not be likely to substantially lessen competition, even if no public benefit can be identified.

The new test allows the ACCC to grant authorisation (prospectively) if either:

  • the conduct would not substantially lessen competition; or
  • the conduct would result in a public benefit likely to outweigh the detriment that would be likely to result from the conduct

However, the first limb (the SLC limb) does not apply in relation to per se conduct. As a result, authorisation for cartels, secondary boycotts and resale price maintenance still requires demonstration that the conduct would produce a net public benefit.

Class exemption power

The ACCC has been given powers to create ‘class exemptions’ for particular types of conduct. Class exemptions can be granted where conduct of that ‘kind’ would not have the likely effect of substantially lessening competition or would result in a public benefit likely to outweigh the detriment that would be likely to result from the conduct.

 

Access regime

Aircraft landingVarious amendments to the access regime, relating to declaration criteria and the power of the Minister and ACCC, are made. In particular, the private profitability test is replaced by a ‘natural monopoly’ test in criterion (b).

The declaration criteria to be considered by Council and the Minister are now contained in a single section (s 44C):

  • Criterion (a) has been changed to require the decision maker to consider whether access (or increased) access on reasonable terms and conditions, as a result of a declaration of service would promote a material increase in competition in at least one market other than the market for the service (the italicised portion is new)
  • Criterion (b) has been changed to require the decision maker to consider whether the service used to provide the service could 'meet the total foreseeable demand in the market' over the period for which the service would be declared 'at the least cost compared to any 2 or more facilities' ('the natural monopoly test'). The previous test (the 'private profitability test') required consideration of whether it would be uneconomical for anyone to develop another facility to provide the service.
  • Criterion (d) has been changed to require the decision maker to consider whether access as a result of declaration would 'promote the public interest'. Previously the decision maker was required to consider whether it access 'would not be contrary to the public interest'.

PortConsideration of whether the service is already subject to an effective access regime is no longer considered as part of the declaration criteria; instead it has become a threshold question (s 44(F)(1)).

In addition to changes to the declaration criteria, the Minister has been given new power to revoke certification on recommendation by the Council (s 44NBA) if the regime ceases to be effective (s 44NBC).

The default declaration decision provision has been amended so that instead of a Minister being taken not to have made a decision if they have not published a decision within 30 days the Minister will instead be taken to have accepted the Council's recommendation (s 44H).

 

Definition of competition

The definition of competition in section 4 of the Act has been amended to clarify that competition includes competition from goods and services that are capable of being imported, in addition to those actually imported.

 

Section 155

Section 155 noticeSection 155 notices may now be issued in relation to alleged contraventions of court-enforceable undertakings given under s 87B.

A defence is also introduced so a person not aware of the requested documents after undertaking a ‘reasonable’ search is taken not to have contravened the provision.

Penalties for non-compliance have been substantially increased.

 

Exclusionary provisions

The separate prohibition repealed (change to output restriction purpose condition to address any resulting gap)

 

Admissions of fact may be used in evidence

Section 83 has been extended so that certain admissions of fact as well as findings of fact can be used in other proceedings.

This is particularly important in relation to private cartel actions that follow admitted contraventions.

 

Removal of requirement for ministerial consent

The Act removes the requirement for private litigants to seek ministerial consent prior to bringing an action for breaches occurring overseas.

 

Re-numbered cartel provisions

Numbers on race trackThe provisions in Division 1 (Cartel conduct) are renumbered as follows:

Renumbering Division 1 of Part IV
Current section number New section number
44ZZRA 45AA
44ZZRB 45AB
44ZZRC 45AC
44ZZRD 45AD
44ZZRE 45AE
44ZZRF 45AF
44ZZRG 45AG
44ZZRH 45AH
44ZZRI 45AI
44ZZRJ 45AJ
44ZZRK 45AK
44ZZRL 45AL
44ZZRM 45AM
44ZZRN 45AN
44ZZRO 45AO
44ZZRP 45AP
44ZZRR 45AQ
44ZZRS 45AR
44ZZRT 45AS
44ZZRU 45AT
44ZZRV 45AU

 

Those highlighted in yellow simply replace the '4ZZR' portion of the old provision with the number 5 and letter A. The remaining section numbers are out of sequence (so 44ZZRD becomes 45AD)

Sub-sections are also re-numbered. The amending Act provides:

(3) The subsections of each section of Division 1 that has more than one subsection are renumbered so that they bear consecutive Arabic numerals enclosed in parentheses starting with “(1)”.

(4) The paragraphs of each section or subsection, or of each definition, of Division 1 are relettered so that they bear lower-case letters in alphabetical order enclosed in parentheses starting with “(a)”.

(5) The subparagraphs of each paragraph of each section or subsection, or of each paragraph of each definition, of Division 1 are renumbered so that they bear consecutive lower-case Roman numerals enclosed in parentheses starting with “(i)”.

(6) Subject to subitem (7), each provision of the Competition and Consumer Act 2010 that refers to a provision that has been renumbered or relettered under this item is amended by omitting the reference and substituting a reference to the last-mentioned provision as renumbered or relettered.

(7) Subitem (6) does not apply to a reference that is expressed as a reference to a provision as in force at a time that is before the commencement of this item.

 

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