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Our Competition & Regulation newsletter provides commentary on Australian competition (anti-trust) and regulatory law.
To email any of our lawyers please use firstname.lastname@minterellison.com
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> Beyond consumer contracts
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As the new national consumer law framework takes shape, the Australian Competition and Consumer Commission (ACCC) has gained further powers to enhance its enforcement armoury, with potentially wide implications for business representations in ordinary commercial conduct.
Current status
It is anticipated that the consumer law reforms will take full effect on 1 January 2011.
The first phase of the reforms, the Trade Practices Amendment (Australian Consumer Law) Bill (No.1) 2010 (Amending Bill), was passed on 17 March 2010. The new framework and the new national unfair contract terms law will commence on a date to be fixed by proclamation, but not before 1 July 2010. However, the new enforcement powers and remedies come into effect the day after the Amending Bill receives Royal Assent (pending at the time of writing).
The Ministerial Council on Consumer Affairs announced the agreed final form of the reforms in December 2009, with the second Bill to implement these changes being introduced in March 2010 (that is, the Trade Practices Amendment (Australian Consumer Law) Bill (No. 2) 2010 (ACL No.2 Bill)).
ACL No.2 Bill completes the structure of the single national consumer law (in which the Australian Government is lead legislator). The proposed reforms include the repeal and transition of the unconscionable conduct and consumer protection provisions (including section 52), and Parts VA and VC of the Trade Practices Act 1974 (Cth) (TPA) into the Australian Consumer Law, a new national product safety framework, and a new national consumer guarantees law. The TPA is to be renamed the Competition and Consumer Act 2010.
New enforcement powers
The enforcement powers of the ACCC have been progressively strengthened in recent years, including the commencement of the 'Dawson reforms' in January 2007 and the introduction of cartel reforms in July 2009.
The Amending Bill and ACL No. 2 Bill continue this trend with a focus on consumer protection and unconscionable conduct.
The Amending Bill amends the TPA (and corresponding amendments are to be made to the Australian Securities and Investments Commission Act 2001 (Cth)), by introducing power for the ACCC to issue (in summary and subject to exceptions):
- substantiation notices (compelling production of information and/or documents), which may be issued where a person (or a corporation) makes a claim or representation promoting (or apparently intended to promote) supply of goods or services by a corporation, sale or grant of an interest in land by a corporation, or employment that is to be (or may be) offered by a corporation
- infringement notices (requiring payment of a prescribed penalty), which may be issued where the ACCC has reasonable grounds to believe that a person has contravened the unconscionable conduct provisions, the unfair practices (excluding section 52 and a number of other sections) and pyramid selling provisions, certain product safety and product information standards provisions, or a substantiation notice
- public warning notices, which may be issued where (a) the ACCC has reasonable grounds to suspect that the conduct of a corporation may constitute a contravention of the unconscionable conduct provisions or the consumer protection provisions (Parts V and VC); (b) the ACCC is satisfied that one or more persons has or is likely to suffer detriment as a result of the conduct; and (c) that it is in the public interest to issue the notice. Alternatively, it may be issued where a person fails to respond to a substantiation notice and the ACCC is satisfied that it is in the public interest to issue a notice warning of this failure. (Product warnings can already be found on the consumer page of the ACCC's website).
In addition, under the Amending Bill civil pecuniary penalties (in some cases up to $1.1 million for corporations) and management disqualification orders will be available for certain contraventions, including unconscionable conduct, unfair practices (excluding section 52 of the TPA) and pyramid selling provisions. The ACCC may also seek orders to redress loss or damage suffered by persons who were not a party to the enforcement proceedings.
ACL No. 2 Bill will further expand the consumer law enforcement regime, including new search and seizure powers.
In relation to the unconscionable conduct provisions, which of course have been in the TPA for some time, the new powers and remedies have wide application because the business provisions are no longer limited to transactions having a value of $10 million or less (this threshold having been removed in November 2008). The ACL No. 2 Bill further proposes that in considering whether conduct is unconscionable, regard may be had to conduct in complying with the terms of a contract, and conduct connected with the commercial relationship of the parties after entering into a contract.
Substantiation notices
The substantiation notice is an information gathering power triggered by ordinary commercial conduct, that is, the making of a claim or representation. Unlike the ACCC's compulsory information gathering power under section 155 of the TPA, or the power to search by consent or pursuant to a warrant under Part XID of the TPA, use of the power is not constrained by a requisite belief of the ACCC or magistrate relating to a contravention of the TPA.
Failure to comply (or providing false or misleading information) may result in the issue of an infringement notice to pay a prescribed fine or, if proceedings issue, an order to pay civil pecuniary penalties (the penalty amounts vary; for example, for a body corporate which provides false or misleading information, the maximum penalty is $27,500). Of course, use of this power may reveal a breach of the TPA which the ACCC may then seek to resolve by issuing an infringement notice or taking other enforcement action, including proceedings.
In certain areas the ACCC has often stressed the importance of substantiating claims made, for example in the context of 'green' and 'carbon' related marketing. This power to issue a substantiation notice gives the ACCC the ability to readily compel production of information or documents to substantiate, for example, claims of biodegradability.
This power should heighten business focus on being able to substantiate or support all claims made in promoting goods or services.
For further information please contact:
Katrina Alidenes, Senior Associate
T:+61 8 9429 7618
katrina.alidenes@minterellison.com |
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> The ACCC's Immunity Policy – five years on
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In 2005, the ACCC introduced its Immunity Policy, offering immunity from prosecution to the first eligible cartel participant to fulfil the Policy's conditions. Almost five years later, general awareness of, and experience with, the workings of the Policy have been relatively slow to develop. This has been largely due to the secrecy and confidentiality surrounding the process of applying for, and the granting of, immunity.
The Immunity Policy
The ACCC grants immunity from civil prosecution in accordance with the Immunity Policy for Cartel Conduct and associated Interpretation Guidelines. The Policy states that immunity may be granted to a corporation (and derivatively to its directors, officers and employees) or to a specific individual whistle-blower. In practice, the ACCC will consider expanding the reach of the immunity, but not so as to extend immunity to two corporations who were participants in the cartel at the same time.
The ACCC will grant immunity to a corporation or individual only when it is satisfied that the immunity applicant:
- is the first person to apply for immunity in respect of the cartel
- has not coerced others to participate in the cartel and has not been the ringleader
- has ceased its involvement in the cartel or has indicated to the ACCC that it will cease its involvement, and
- undertakes to provide full disclosure and cooperation to the ACCC.
It is important to note that the grant of immunity is conditional until the ACCC's prosecution of the other cartel participants is finalised; until then the immunity applicant will need to continue to satisfy these requirements. The DPP will separately determine whether immunity applicants will also be granted immunity from criminal prosecution.
The application process
An immunity application is by necessity a time critical and secretive process, brought about by the fact that the applicant must be the first cartel participant to apply for immunity in order for it to be available. Urgency typically requires conditional immunity to be granted quite quickly, according to the following process:
- step one: contact is made with the ACCC and a first-in 'marker' is granted if no other cartel participants have contacted the ACCC (typically, the ACCC is contacted on a hypothetical basis prior to a marker being sought to determine whether a marker is in fact available). The marker has the effect of preserving the applicant's status as the first person to apply to the ACCC for immunity in respect of the cartel until it is determined whether conditional immunity will be granted
- step two: the marker remains in place for 28 days, although it is possible to seek an extension. During this time, the applicant usually undertakes further investigations and prepares information to be provided with the ACCC. In addition, this period allows an opportunity for the immunity applicant to co-ordinate any immunity applications being made in other jurisdictions
- step three: the marker is perfected by way of the provision of information to the ACCC to satisfy the conditions for the grant of conditional immunity
- step four: the ACCC will determine whether the applicant satisfies the conditions for conditional immunity to be granted.
Ongoing cooperation
As set out above, one of the conditions for ongoing immunity is that the applicant must continue to cooperate with and assist the ACCC in its ongoing investigation of the cartel (and any prosecution of other cartel participants).
This may be in the form of providing additional information, documents, interviews with ACCC staff (and/or their lawyers), and/or the provision of witness statements. The level of cooperation required by the ACCC can be extensive and often comes as a surprise to applicants. A failure to provide the cooperation sought by the ACCC could result in an applicant's immunity being revoked. Although in practical terms, the ACCC will be reluctant to revoke immunity in circumstances where further assistance is needed from the immunity applicant, and to ensure the Policy continues to operate in a way that encourages applications for immunity to be made.
Implications for information provided
It is an important consideration in applying for immunity to note that once information and/or documents are provided to the ACCC by the immunity applicant in the course of cooperating with the ACCC, the information and/or documents may be provided to third parties or otherwise become publicly available. Those circumstances in which information may be released by the ACCC include:
- overseas regulators: the Guidelines provide that the ACCC will not share confidential information provided by the immunity applicant, or the identity of the applicant with regulators in other jurisdictions without the applicant's consent. The ACCC does, however, seek such consent as a matter of course and is permitted to share the information in its possession with overseas regulators pursuant to s155AAA of the TPA. A request by the ACCC for consent may be difficult to resist given the obligation of cooperation once immunity applications in other jurisdictions have been finalised
- court processes: unlike in other jurisdictions, the ACCC does not have the power to determine breaches of the Trade Practices Act (TPA) or issue fines – these matters can only be determined by a court. Accordingly, as part of any proceedings the ACCC brings against the other cartel participants, the information and/or documents provided by the immunity applicant may be used as evidence in such proceedings and thereby become publicly available. This raises the risk of such information being obtained by third parties for the purpose of private damages claims, including class actions
- private litigants: the Interpretation Guidelines indicate that the ACCC will use its best endeavours to protect any confidential information provided by applicants for immunity. It has in most cases resisted attempts by third parties to obtain the information and documents provided by immunity applicants. But this has not always been successful and the courts have held that immunity applicants do not have a reasonable expectation of confidentiality in respect of such information. Recent amendments to the TPA have given the ACCC greater power to resist such attempts by third parties.
For further information please contact:
Jackie Mortensen, Senior Associate
T:+61 2 9921 8610
jackie.mortensen@minterellison.com
Tova Gordon, Lawyer
T:+61 2 9921 4393
tova.gordon@minterellison.com |
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> Don't bank on it – financial services and banking mergers
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The Statement of Issues released recently by Australian Competition and Consumer Commission (ACCC) relating to the proposed acquisition of AXA Asia Pacific Holdings Limited (AXA) by two separate potential bidders, AMP Limited (AMP) and the National Australia Bank Limited (NAB), confirms a recent hardening of attitude for the competition regulator regarding acquisitions in the financial services and banking sector.
In recent years, and throughout the global financial crisis, the ACCC has examined and allowed a raft of transactions in this sector, reflecting a growing trend of consolidation and the effects of a worldwide 'credit crisis'. Transactions which have come under the scrutiny of the ACCC included acquisitions by the 'four pillars' of 'regional' banks. The ACCC's reviews of the acquisition by Westpac Banking Corporation (Westpac) of St George Bank Limited (St George), and the acquisition by Commonwealth Bank of Australia (CBA) of the Bank of Western Australia Ltd (BankWest) and St Andrew's Australia (St Andrews), largely focused on the competitive effects of the particular transactions in personal and business banking.
One interesting (and more unusual) feature of the ACCC's reviews of these transactions was the approach it adopted towards the market inquiries process. In the CBA/Bank West/St Andrews acquisition, the ACCC issued an 'open letter' to personal banking customers in Western Australia seeking their views on the degree to which they considered Bank West to be a vigorous competitor in terms of price and/or service. The ACCC reported that it received some 50 responses. In the Westpac/St George transaction, the ACCC conducted 'confidential consumer' surveys for personal banking customers and business banking customers. In that case, the ACCC reported that it received some 245 responses to the personal banking survey and 25 responses to the business banking survey. In its public competition assessment, however, the ACCC was keen to point out that the 'survey results were not treated as necessarily reflective of the banking habits or concerns of the general population but were used as a starting point for the ACCC's further inquiries.'
While these transactions were ultimately given the green light by the ACCC, subsequent public statements by Graeme Samuel, ACCC Chairman, suggest that the ACCC has drawn a line in the sand with respect to future acquisitions in the banking industry. In December 2009, for example, Mr Samuel stated it would 'be a difficult ask to see any more of the regional banks moving into the fold of the major trading banks' and cast doubt as to whether the ACCC's view on the acquisition of St George by Westpac would have been the same if the acquisition had occurred then rather than in the lead up to the global financial crisis.
More recently, the ACCC's focus in the financial services and banking sector has been increasingly on 'wealth management' – in particular the supply of retail investment platforms to institutions, dealer groups and financial adviser networks, and the supply of investments through such platforms to retail investors. Such platforms were considered by the ACCC in the Westpac/St George transaction and in ANZ's acquisition of IMG Australia Ltd, and are the subject (among other things) of the Statement of Issues released by the ACCC in relation to proposed acquisitions of AXA by each of AMP and the NAB.
These platforms, which can consist of 'wrap' or master trust platforms, are an administrative structure through which investment products (such as managed funds, superannuation and deposit products) can be channelled to retail investors, who typically access the platforms through their financial advisers. The ACCC has referred to such platforms as the 'gate keeper' of wealth management products and services. AXA, AMP and NAB each supply a range of investment products, provide retail investment platforms and have a network of affiliated financial advisers, and are thus considered by the ACCC to be 'vertically integrated' wealth management providers.
The ACCC's queries in the Statement of Issues focus on the increase in market concentration in the supply of retail investment platforms resulting from the proposed acquisitions, and the significance of barriers to entry for the supply of such platforms. As was the case in the Westpac/St George transaction, the ACCC's view in the Statement of Issues is that barriers to entry for the supply of retail investment platforms are high – requiring 'high capital costs, sophisticated technology and continued investment in IT systems and requisite minimum efficient scale to generate a reasonable return on investment'. The ACCC also raised potential concerns about the ability and incentive of the merged entity to increase platform administration fees and fees charged to suppliers of investment products, including because of difficulties associated with switching platforms. The ACCC has sought comments on these issues.
The Statement of Issues also considers whether competition concerns may arise in relation to the supply of investment products through retail platforms. As vertically integrated wealth management providers, the ACCC has sought comments on whether a merged AXA/NAB or merged AXA/AMP would have the incentive and ability to engage in foreclosure strategies in dealings with third party providers of investment products.
The ACCC will soon make a final decision on both proposed acquisitions of AXA, with its decision in relation to AMP due on 1 April 2010, and its decision in relation to NAB due on 22 April 2010. The ultimate position it reaches in relation to retail investment platforms will no doubt influence future potential acquisitions in the sector.
For further information please contact:
Miranda Noble, Senior Associate
T:+61 3 8608 2237
miranda.noble@minterellison.com |
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> Regulating export infrastructure – the challenges ahead
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Over much of the last decade it has been widely reported that Australia's export infrastructure is in a state of crisis. The focus of these concerns has been the supply chain serving the multi-billion dollar coal export industry. Lengthy ship queues became a symbol for a lack of planning and investment in rail and port infrastructure.
This issue lost much of its prominence as commodity prices tumbled and the demands on the supply chain eased. But prices are now rebounding and the ships are coming back. The concern then is whether effective steps have been taken to encourage the investment required to avoid a repeat of the conditions that prevailed in the middle of the decade.
Proposed reforms to the national access regime
Governments have not ignored this issue. In 2005 the Australian Government commissioned a review of Australia's export infrastructure led by Dr Brian Fisher. The following year, COAG produced the Competition and Infrastructure Reform Agreement which, among other things, endorsed objectives and pricing principles for access regimes, binding timeframes for regulatory decisions, and procedures to expedite merits reviews.
Several of these reforms are now before the Federal Parliament in the Trade Practices Amendment (Infrastructure Access) Bill. The Bill amends the national access regime in Part IIIA of the Trade Practices Act 1974 (TPA) to impose timeframes for regulatory decisions on the National Competition Council (NCC), the Australian Competition and Consumer Commission (ACCC), and the Australian Competition Tribunal (Tribunal).
The Bill will also allow access providers to submit an access undertaking to the ACCC containing 'fixed principles', locked in for a period that extends beyond the life of the access undertaking. While an access undertaking might operate for five years the ACCC could, for example, approve an asset valuation methodology for a much longer period, thereby enhancing certainty and lessening regulatory risk.
But perhaps the most significant changes are amendments to allow investors to seek a 20-year exemption from regulation for new infrastructure projects. This exemption would take the form of a determination stating that services to be provided by means of a proposed facility (ie. a facility on which construction has not yet commenced) are ineligible to be declared.
In many respects, an application for an exemption is similar to an application to have a service declared under Part IIIA. An application is made to the NCC, which must make a recommendation to the relevant State, Territory or Federal Minister. The Minister's decision is subject to merits review by the Tribunal. As with a declaration application, the NCC and the Minister must apply the declaration criteria, which can be found in section 44H of the TPA. These include whether access to the service would materially promote competition in an upstream or downstream market, whether it would be uneconomical for anyone to develop another facility to provide the service, and whether the facility is of national significance. As with a declaration application, the question is whether each criterion is satisfied.
However, the difference is to be found in the end result of this analysis. In the case of a declaration application, a service is to be declared if each criterion is satisfied. By contrast, an exemption is to be granted if it is found that at least one of the criteria is not satisfied.
The objective of these amendments is described in the Explanatory Memorandum in the following terms:
'The ability to seek an upfront decision on whether a service would satisfy the test for declaration will enhance regulatory certainty for potential investors in major new infrastructure facilities.'
Regulatory certainty and encouraging new investment
Any reforms that enhance regulatory certainty and facilitate new investment are to be welcomed. As far back as 2001, the Productivity Commission, in its review of the national access regime, recommended changes to Part IIIA to enable investors to seek a binding ruling that their facilities could not be declared. This was seen by the Productivity Commission as a way of facilitating new investment by reducing regulatory risk. The need for a similar regime was identified in the 2002 COAG Energy Market Review and introduced into the gas pipelines access regime in 2006.
However, with the proposed amendments to Part IIIA of the TPA there is a catch - investors who seek an exemption must demonstrate that their project does not satisfy the criteria for regulation under Part IIIA. Put another way, an investor will only get an exemption from regulation if they can show their project would not qualify for regulation in the first place. This means investors take a risk if they seek an exemption. If their application is refused there will be a decision, on the public record, which says their project will satisfy the test to be regulated. Investors who are unsure if their project will qualify for an exemption may prefer not to seek one, and instead scale their project to meet the demands of their existing customers, with only limited capacity for future growth.
There may be other ways to create more powerful incentives by recognising the value of new infrastructure investment and lowering the bar for protection from regulation. For example, when the Productivity Commission first recommended the creation of an exemption regime in its 2001 review of the national access regime, it also canvassed the possibility of providing 'access holidays' for new infrastructure which satisfied a lower threshold of being 'contestable'. Alternatively, an exemption regime could be modelled on the ACCC's authorisation process under Part VII of the TPA. When the ACCC is asked to grant authorisation, the issue is not whether the conduct would contravene a provision of Part IV of the TPA, but whether there is a net public benefit that would justify the grant of an authorisation. Similarly, Part IIIA of the TPA could be amended to allow for an access holiday to be granted for new infrastructure if the development would produce a net benefit to the public.
One of the most difficult challenges in regulation is to guard against monopoly behaviour while still creating the conditions where investors are willing to develop new infrastructure capable of not just meeting the needs of existing users, but accommodating future growth. The lead times involved in developing new infrastructure mean that industry will continue to play catch up if new infrastructure investments are only made once demand has materialised.
The best way to cater for future demand for infrastructure is to encourage investors to build this additional capacity up front. The Australian Government is proposing to amend the national access regime in an attempt to facilitate this sort of investment, while still ensuring there is access to essential 'bottleneck' facilities. Only time will tell if it has succeeded.
For further information please contact:
Justin Oliver, Special Counsel
T:+61 7 3119 6332
justin.oliver@minterellison.com |
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Adelaide:
Neil Gordon
Partner
| T: | +61 8 8233 5425 |
| F: | +61 8 8233 5556 |
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Josh Simons
Partner
| T: | +61 8 8233 5428 |
| F: | +61 8 8233 5556 |
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Brisbane:
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Canberra:
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Darwin:
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Gold Coast:
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Hong Kong:
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London:
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Melbourne:
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Perth:
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Shanghai:
Yi Yi Wu
Partner and Chief Representative
| T: | +86 21 6288 2171 |
| F: | +86 21 6288 2172 |
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Sydney:
Russell Miller
Partner
| T: | +61 2 9921 4135 | +61 2 6225 3297 |
| F: | +61 2 9921 8353 | +61 2 6225 1244 |
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Paul Schoff
Partner
| T: | +61 2 9921 4599 | M: 0401 145 015 |
| F: | +61 2 9921 8336 |
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Kate Watts
Special Counsel
| T: | +61 2 9921 4704 |
| F: | +61 2 9921 8306 |
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John Weber
Chief Executive Partner
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| F: | +61 2 9921 8117 |
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