Home Page / Legislation / Competition and Consumer Act 2010 / s 45

Competition and Consumer Act 2010 (Cth)

Section 45
Contracts, arrangements or understandings that restrict dealings or affect competition

 

Note: On 27 October 2017 the Competition and Consumer Amendment (Competition Policy Review) Act 2017 received Royal Assent. That Act repeals certain parts of s 45 and replaces it with new prohibitions. This includes rmoving the current separate prohibition on exclusionary provisions and adding a prohibition on concerted practices. The relevant provisions commenced on 6 November 2017.

 

The provision

(1) A corporation must not:

(a) make a contract or arrangement, or arrive at an understanding, if a provision of the proposed contract, arrangement or understanding has the purpose, or would have or be likely to have the effect, of substantially lessening competition; or

(b) give effect to a provision of a contract, arrangement or understanding, if that provision has the purpose, or has or is likely to have the effect, of substantially lessening competition; or

(c) engage 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.

(2) Paragraph (1)(b) applies in relation to contracts or arrangements made, or understandings arrived at, before or after the commencement of this section.

(3) For the purposes of this section, competition means:

(a) in relation to a provision of a contract, arrangement or understanding or of a proposed contract, arrangement or understanding—competition in any market in which:

(i) a corporation that is a party to the contract, arrangement or understanding, or would be a party to the proposed contract, arrangement or understanding; or

(ii) any body corporate related to such a corporation;

supplies or acquires, or is likely to supply or acquire, goods or services or would, but for the provision, supply or acquire, or be likely to supply or acquire, goods or services; or

(b) in relation to a concerted practice—competition in any market in which:

(i) a corporation that is a party to the practice; or

(ii) any body corporate related to such a corporation;

supplies or acquires, or is likely to supply or acquire, goods or services or would, but for the practice, supply or acquire, or be likely to supply or acquire, goods or services.

(4) For the purposes of the application of this section in relation to a particular corporation, a provision of a contract, arrangement or understanding or of a proposed contract, arrangement or understanding shall be deemed to have or to be likely to have the effect of substantially lessening competition if that provision and any one or more of the following provisions, namely:

(a) the other provisions of that contract, arrangement or understanding or proposed contract, arrangement or understanding; and

(b) the provisions of any other contract, arrangement or understanding or proposed contract, arrangement or understanding to which the corporation or a body corporate related to the corporation is or would be a party;

together have or are likely to have that effect.

(5) This section does not apply to or in relation to a provision of a contract, arrangement or understanding or of a proposed contract, arrangement or understanding, or to or in relation to a concerted practice, in so far as the provision or practice relates to:

(a) conduct that contravenes section 48; or

(b) conduct that would contravene section 48 if subsection 48(2) did not apply; or

(c) conduct that would contravene section 48 if it were not authorised under section 88; or

(d) conduct that would contravene section 48 if this Act defined the acts constituting the practice of

resale price maintenance by reference to the maximum price at which goods or services are to be sold or supplied or are to be advertised, displayed or offered for sale or supply.

(5A) The making of a contract, arrangement or understanding does not constitute a contravention of this section because the contract, arrangement or understanding contains a provision the giving effect to which would, or would apart from subsection 47(10) or section 88 or 93, constitute a contravention of section 47.

(6) This section does not apply to or in relation to the giving effect to a provision of a contract, arrangement or understanding, or to or in relation to engaging in a concerted practice, by way of:

(a) engaging in conduct that contravenes, or would but for the operation of subsection 47(10) or 88 or 93 contravene, section 47; or

(b) doing an act by reason of a breach or threatened breach of a condition referred to in subsection 47(2), (4), (6) or (8), being an act done by a person at a time when:

(i) an authorization under subsection 88 is in force in relation to conduct engaged in by that person on that condition; or

(ii) by reason of subsection 93(7) conduct engaged in by that person on that condition is not to be taken to have the effect of substantially lessening competition within the meaning of section 47; or

(iii) a notice under subsection 93(1) is in force in relation to conduct engaged in by that person on that condition.

(6A) The following conduct:

(a) the making of a dual listed company arrangement;

(b) the giving effect to a provision of a dual listed company arrangement;

does not contravene this section if the conduct would, or would apart from subsection 88, contravene section 49.

(7) This section does not apply to or in relation to:

(a) a contract, arrangement or understanding to the extent that the contract, arrangement or understanding directly or indirectly provides for; or

(b) a proposed contract, arrangement or understanding to the extent that the proposed contract, arrangement or understanding would directly or indirectly provide for; or

(c) a concerted practice to the extent that the practice directly involves;

the acquisition of any shares in the capital of a body corporate or any assets of a person.

(8) This section does not apply to or in relation to:

(a) a contract, arrangement or understanding, or

(b) a proposed contract, arrangement or understanding; or

(c) a concerted practice;

the only parties to which are or would be bodies corporate that are related to each other.

(8AA) This section does not apply to or in relation to a concerted practice if the only persons engaging in it are or would be:

(a) the Crown in right of the Commonwealth and one or more authorities of the Commonwealth; or

(b) the Crown in right of a State or Territory and one or more authorities of that State or Territory.

(8A) Subsection (1) does not apply to a corporation engaging in conduct described in that subsection if:

(a) the corporation has given the Commission a collective bargaining notice under subsection 93AB(1) describing the conduct; and

(b) the notice is in force under section 93AD.

(9) The making by a corporation of a contract that contains a provision in relation to which the corporation intends to apply for an authorisation under section 88 is not a contravention of subsection (1) of this section if:

(a) the contract is subject to a condition that the provision will not come into force unless and until the corporation is granted an authorization to give effect to the provision; and

(b) the corporation applies for the grant of such an authorization within 14 days after the contract is made;

but nothing in this subsection prevents the giving effect by a corporation to such a provision from constituting a contravention of subsection (1).

 

Provision immediately before commencement of Harper Reforms on 6 Nov 2017

(1) If a provision of a contract made before the commencement of the Trade Practices Amendment Act 1977:

(a) is an exclusionary provision; or

(b) has the purpose, or has or is likely to have the effect, of substantially lessening competition;

that provision is unenforceable in so far as it confers rights or benefits or imposes duties or obligations on a corporation.

(2) A corporation shall not:

(a) make a contract or arrangement, or arrive at an understanding, if:

(i) the proposed contract, arrangement or understanding contains an exclusionary provision; or

(ii) a provision of the proposed contract, arrangement or understanding has the purpose, or would have or be likely to have the effect, of substantially lessening competition; or

(b) give effect to a provision of a contract, arrangement or understanding, whether the contract or arrangement was made, or the understanding was arrived at, before or after the commencement of this section, if that provision:

(i) is an exclusionary provision; or

(ii) has the purpose, or has or is likely to have the effect, of substantially lessening competition.

(3) For the purposes of this section, competition, in relation to a provision of a contract, arrangement or understanding or of a proposed contract, arrangement or understanding, means competition in any market in which a corporation that is a party to the contract, arrangement or understanding or would be a party to the proposed contract, arrangement or understanding, or any body corporate related to such a corporation, supplies or acquires, or is likely to supply or acquire, goods or services or would, but for the provision, supply or acquire, or be likely to supply or acquire, goods or services.

(4) For the purposes of the application of this section in relation to a particular corporation, a provision of a contract, arrangement or understanding or of a proposed contract, arrangement or understanding shall be deemed to have or to be likely to have the effect of substantially lessening competition if that provision and any one or more of the following provisions, namely:

(a) the other provisions of that contract, arrangement or understanding or proposed contract, arrangement or understanding; and

(b) the provisions of any other contract, arrangement or understanding or proposed contract, arrangement or understanding to which the corporation or a body corporate related to the corporation is or would be a party;

together have or are likely to have that effect.

(5) This section does not apply to or in relation to:

(a) a provision of a contract where the provision constitutes a covenant to which section 45B applies or, but for subsection 45B(9), would apply;

(b) a provision of a proposed contract where the provision would constitute a covenant to which section 45B would apply or, but for subsection 45B(9), would apply; or

(c) a provision of a contract, arrangement or understanding or of a proposed contract, arrangement or understanding in so far as the provision relates to:

(i) conduct that contravenes section 48; or

(ii) conduct that would contravene section 48 but for the operation of subsection 88(8A); or

(iii) conduct that would contravene section 48 if this Act defined the acts constituting the practice of resale price maintenance by reference to the maximum price at which goods or services are to be sold or supplied or are to be advertised, displayed or offered for sale or supply.

(6) The making of a contract, arrangement or understanding does not constitute a contravention of this section by reason that the contract, arrangement or understanding contains a provision the giving effect to which would, or would but for the operation of subsection 47(10) or 88(8) or section 93, constitute a contravention of section 47 and this section does not apply to or in relation to the giving effect to a provision of a contract, arrangement or understanding by way of:

(a) engaging in conduct that contravenes, or would but for the operation of subsection 47(10) or 88(8) or section 93 contravene, section 47; or

(b)doing an act by reason of a breach or threatened breach of a condition referred to in subsection 47(2), (4), (6) or (8), being an act done by a person at a time when:

(i) an authorization under subsection 88(8) is in force in relation to conduct engaged in by that person on that condition; or

(ii) by reason of subsection 93(7) conduct engaged in by that person on that condition is not to be taken to have the effect of substantially lessening competition within the meaning of section 47; or

(iii) a notice under subsection 93(1) is in force in relation to conduct engaged in by that person on that condition.

(6A) The following conduct:

(a) the making of a dual listed company arrangement;

(b) the giving effect to a provision of a dual listed company arrangement;

does not contravene this section if the conduct would, or would apart from subsection 88(8B), contravene section 49.

(7) This section does not apply to or in relation to a contract, arrangement or understanding in so far as the contract, arrangement or understanding provides, or to or in relation to a proposed contract, arrangement or understanding in so far as the proposed contract, arrangement or understanding would provide, directly or indirectly for the acquisition of any shares in the capital of a body corporate or any assets of a person.

(8) This section does not apply to or in relation to a contract, arrangement or understanding, or a proposed contract, arrangement or understanding, the only parties to which are or would be bodies corporate that are related to each other.

(8A) Subsection (2) does not apply to a corporation engaging in conduct described in that subsection if:

(a) the corporation has given the Commission a collective bargaining notice under subsection 93AB(1) describing the conduct; and

(b) the notice is in force under section 93AD.

(9) The making by a corporation of a contract that contains a provision in relation to which subsection 88(1) applies is not a contravention of subsection (2) of this section if:

(a) the contract is subject to a condition that the provision will not come into force unless and until the corporation is granted an authorization to give effect to the provision; and

(b) the corporation applies for the grant of such an authorization within 14 days after the contract is made;

but nothing in this subsection prevents the giving effect by a corporation to such a provision from constituting a contravention of subsection (2).

 

Legislative history

Original version introduced 1974

Subs Trade Practices Amendment Act 1977 (Act 81 of 1977)

Amended Trade Practices Revision Act 1986 (Act 17 of 1986)

Amended Trade Practices Legislation Amendment Act 1992 (Act 222 of 1992)

Amended Competition Policy Reform Act 1995 (Act 88 of 1995)

Amended Trade Practices Legislation Amendment (No 1) Act 2006 (Act 131 of 2006)

Amended Competition and Consumer Amendment (Competition Policy Reform) Act 2017 (Act 114 of 2017)

Repeal subsections 45(1) to (3) and substitute:

(1) A corporation must not:

(a) make a contract or arrangement, or arrive at an understanding, if a provision of the proposed contract, arrangement or understanding has the purpose, or would have or be likely to have the effect, of substantially lessening competition; or

(b) give effect to a provision of a contract, arrangement or understanding, if that provision has the purpose, or has or is likely to have the effect, of substantially lessening competition; or

(c) engage 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.

(2) Paragraph (1)(b) applies in relation to contracts or arrangements made, or understandings arrived at, before or after the commencement of this section.

(3) For the purposes of this section, competition means:

(a) in relation to a provision of a contract, arrangement or understanding or of a proposed contract, arrangement or understanding—competition in any market in which:

(i) a corporation that is a party to the contract, arrangement or understanding, or would be a party to the proposed contract, arrangement or understanding; or

(ii) any body corporate related to such a corporation;

supplies or acquires, or is likely to supply or acquire, goods or services or would, but for the provision, supply or acquire, or be likely to supply or acquire, goods or services; or

(b) in relation to a concerted practice—competition in any market in which:

(i) a corporation that is a party to the practice; or

(ii) any body corporate related to such a corporation;

supplies or acquires, or is likely to supply or acquire, goods or services or would, but for the practice, supply or acquire, or be likely to supply or acquire, goods or services.

After subsection 45(5) insert:

(5A) The making of a contract, arrangement or understanding does not constitute a contravention of this section because the contract, arrangement or understanding contains a provision the giving effect to which would, or would apart from subsection 47(10) or section 88 or 93, constitute a contravention of section 47.

Subsection 45(6) omit all the words from and including “(6) The” to and including “by way of:”, substitute:

(6) This section does not apply to or in relation to the giving effect to a provision of a contract, arrangement or understanding, or to or in relation to engaging in a concerted practice, by way of:

Repeal subsections 45(7) and (8) and substitute:

(7) This section does not apply to or in relation to:

(a) a contract, arrangement or understanding to the extent that the contract, arrangement or understanding directly or indirectly provides for; or

(b) a proposed contract, arrangement or understanding to the extent that the proposed contract, arrangement or understanding would directly or indirectly provide for; or

(c) a concerted practice to the extent that the practice directly involves;

the acquisition of any shares in the capital of a body corporate or any assets of a person.

(8) This section does not apply to or in relation to:

(a) a contract, arrangement or understanding, or

(b) a proposed contract, arrangement or understanding; or

(c) a concerted practice;

the only parties to which are or would be bodies corporate that are related to each other.

(8AA) This section does not apply to or in relation to a concerted practice if the only persons engaging in it are or would be:

(a) the Crown in right of the Commonwealth and one or more authorities of the Commonwealth; or

(b) the Crown in right of a State or Territory and one or more authorities of that State or Territory.

Subsection 45(8A)

Omit “Subsection (2)”, substitute “Subsection (1)”.

Subsection 45(9)

Omit “subsection (2)” (wherever occurring), substitute “subsection (1)”.

 

Commentary

Until 24 July 2009 s 45A of the TPA deemed price fixing conduct to substantially lessen competition for purposes of s 45. Price fixing is now prohibited as a form of cartel conduct.

Following the Harper Report in 2015 legislation was passed to introduce a new concerted practices law and remove the now (largely redundant) exclusionary conduct prohibition from s 45. This change came into operation on 6 November 2017.

Concerted practices

Concert - concerted practicesThe new concerted practices prohibition came into operation on 7 November.

The ACCC has released interim guidance on the concept of concerted practices.

The explanatory memorandum ot the Competition and Consumer (Competition Policy Reform) Act 2017 states:

[Para 3.18] The concept of a ‘concerted practice’ under section 45 is to be distinguished from the concept of ‘acting in concert’ as it appears in section 45D. The concept of a ‘concerted practice’ is to be read and applied in the context of section 45 and with reference to the explanatory material that follows, and not in the context of section 45D or any case authority or explanatory material on section 45D. The following is intended to guide the interpretation of the term while retaining a flexible and principled application of the concept.

Characteristics of a concerted practice

[Para 3.19] A concerted practice is 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.

[Para 3.20] It is not necessary that any (or all) of the parties to a concerted practice should act:

  • in the same manner;
  • in the same market; or
  • at the same time.

[Para 3.21] It is intended that the concept of a ‘concerted practice’ should capture conduct that falls short of a contract, arrangement or understanding as the courts have interpreted each of those terms in section 45.

[Para 3.22] A concerted practice does not require, but may involve:

  • the formality or legally enforceable obligations characteristic of a contract;
  • the express communication characteristic of an arrangement. A concerted practice may be established in the absence of any direct contact between the firms, for example where firms communicate indirectly through an intermediary such as a peak industry body; or
  • the commitment characteristic of an understanding. A concerted practice may exist even if none of the parties is obliged, either legally or morally, to act in any particular way.

Example 3.1 – Concerted practice

In a small country town, there are three petrol stations: X, Y and Z. Immediately before adjusting its prices, X sends an email to Y and Z with a price. After several emails, it becomes clear to Y and Z that immediately after sending the email with the price, X changes its price to match the email. Y and Z join in, and each emails their own proposed price adjustments to the other two. A practice develops so that, with a few exceptions, where one petrol station emails their prices, the three stations all change their prices to match the price in the email.

At no point do any of them expressly or implicitly agree to reciprocate the communication or to change their prices accordingly. On some occasions after one of the stations announces a price rise, one of the other stations chooses not to match the price, and thereby gains extra customers on that occasion by increasing their price by less than the other two stations and having the lowest price. There are no consequences of this occasional divergence from the usual practice.

X, Y and Z are each likely to have contravened section 45 by engaging in a concerted practice with the purpose, effect or likely effect of substantially lessening competition. Even though none of the parties committed to communicate or change their prices, and even though there were some occasions where a petrol station did not change its prices in accordance with the email, the effect of the overall practice was that the petrol stations could increase their prices safe in the knowledge that this would be unlikely to result in a loss of customers as the others would most likely reciprocate. This practice has substantially reduced price competition for petrol in the town.

[Para 3.23] A concerted practice may exist in addition to, or ancillary to, a contract, arrangement or understanding.

[Para 3.24] It is not necessary that a concerted practice have an anti-competitive ‘provision’, as it is the practice itself which has the anti-competitive purpose, effect or likely effect.

[Para 3.25] The concept of a concerted practice is not intended to capture mere innocent parallel conduct, for example where two firms who are determining their prices independently happen to charge similar prices for the same product (see Example 3.4).

[Para 3.26] Similarly, it is not intended to capture conduct such as the public disclosure of pricing information which facilitates price comparison by consumers, as this conduct will increase rather than substantially lessen competition.

[Para 3.27] The following examples illustrate that a concerted practice:

  • does not necessarily involve regular or repeated conduct - a single instance of conduct may constitute a concerted practice (Example 3.2);
  • will typically, but not necessarily, involve the communication of commercial information either by one party to another, or between the parties, generally to reduce or eliminate uncertainty as to the future conduct of the firm making the communication; and
  • does not require that any (or all) of the parties to the practice reciprocate the actions of the first party or in any way change their conduct as a result of the first party’s actions – the actions of the first party will be sufficient to establish the concerted practice, and the culpability of each other party to the concerted practice will depend on the nature of their involvement and their subsequent action.

[Para 3.28] Once conduct has been found to be a concerted practice, the central issue, and the determinant of whether the relevant conduct is prohibited under section 45, is whether the concerted practice has the purpose, effect or likely effect of substantially lessening competition.

Example 3.2 – Concerted practice as a single instance of conduct

Salmon fishers in a small geographic region form an industry association that meets regularly, usually to discuss general industry issues. At one meeting, one fisher (X) states that they will restrict their output to a certain quantity for the next three months, in order to increase the price of salmon in the region. X shares this information in the hope that the other fishers will similarly restrict their output, so that X can adopt the strategy without fearing it will lose customers to the other fishers.

X has shared commercially sensitive information which reduces uncertainty as to X’s likely output over the next three months. X is likely to have contravened section 45, by engaging in a concerted practice with the purpose or likely effect of substantially lessening competition, even if X was unable to convince all of the other salmon fishers to adopt a similar strategy and even some or all of the others did not adopt such a strategy (that is, even if the ultimate effect was not a substantial lessening of competition).

Example 3.3 – Concerted practice as communication of commercial information, reciprocity not required

Bank X and Bank Y are two competing banks. A week before banks are expected to announce their respective interest rates for the next quarter, X sends Y a document setting out the interest rate it will announce the following week. Y did not ask for this information, and does not act on this information by either reciprocating with information about its own intended interest rate or changing its strategy to match X’s interest rate.

The different actions of X and Y will have different implications under section 45.

X is likely to have contravened section 45, by engaging in a concerted practice with the purpose or likely effect of substantially lessening competition, even if this was not the actual effect because Y did not act on the information.

X’s communication to Y has made Y a party to a concerted practice. However, Y is not likely to have contravened section 45, as Y did not use the information to inform a decision or change strategy, and this conduct did not have the purpose, effect or likely effect of substantially lessening competition. Y could further ensure it did not breach section 45 by expressly rejecting X’s approaches and requesting that X not communicate any further information of this nature.

Example 3.4 – Mere parallel conduct

Company X manufactures and distributes the most popular budget television, which is stocked by all major television retailers and two smaller retailers. X supplies the televisions to large retailers for $300 each, and charges the smaller retailers $320 each due to the lower quantity ordered.

The major retailers are able to sell the televisions for $320 and make a commercial profit. However, the two smaller retailers independently determine that they cannot sell the televisions for any less than $340 and still make a commercial profit.

The conduct of the two smaller retailers is unlikely to constitute a concerted practice. The two smaller retailers have a similar cost base, and have taken this cost base into account in independently determining the prices they will charge for the television. This is merely innocent parallel conduct, which the concerted practices prohibition in section 45 is not intended to capture.

Articles

Key cases

On the meaning of competitors

ACCC v Flight Centre Limited (No 2) [2016] HCA 49
Section 45/45A: Attempted price fixing - inducement - competitors - market definition - vertical supply arrangement (focus on whether Flight Centre was acting of agent of airlines and whether this prevented them being competitors; majority held it did not prevent them being competitors)

On the meaning of competitors

Air New Zealand Ltd v ACCC; PT Garuda Indonesia Ltd v ACCC [2017] HCA 21
Price fixing; 'market in Australia'; s 4E

On the meaning of contract, arrangement or understanding

Re British Basic Slag Ltd’s Agreements [1963] 2 All ER 807
Agreement

R v Associated Northern Collieries (1911) 14 CLR 387
Establishing collusion

TPC v David Jones (Australia) Pty Ltd (1986) 13 FCR 446
Establishing collusion; price fixing

TPC v Email Ltd (1980) 43 FLR 383
Establishing collusion; price fixing

TPC v Nicholas Enterprises (1979) 40 FLR 83
Contract, arrangement or understanding

TPC v Service Station Association Ltd (1993) 44 FCR 206
Contract, arrangement or understanding

On the meaning of substantial lessening of competition

ASX Operations Pty Ltd v Pont Data Australia Pty Ltd (No. 1) (1990) 27 FCR 460

Dowling v Dalgety Australia Ltd (1992) 34 FCR 109
Substantial lessening of competition; purpose

AW Tyree Transformers Pty Ltd and Wilson Transformer Co Pty Ltd (1997) ATPR (Com) 50–247
Substantial lessening of competition

Gallagher v Pioneer Concrete (NSW) Pty Ltd (1993) 113 ALR 159
Substantial lessening of competition

Stationers Supply Pty Ltd v Victorian Authorised Newsagents Associated Ltd (1993) 44 FCR 35
Purpose of substantially lessening competition; exclusive dealing