September 2004

Trade Practices Legislation Amendment Bill 2004

The Trade Practices Legislation Amendment Bill 2004 (the "Bill") makes major amendments to Part IV of the Trade Practices Act 1974 (Cth) (the "Act"), which regulates anti-competitive business conduct 1 . The Bill also brings Local Government business activities within the scope of the Act.

Business and Local Government need to be aware of the proposed amendments to the Act, and implement internal compliance programs to minimise the risk of contravention of the Act and severe penalties.

The proposed amendments increase penalties for contravention of Part IV of the Act to the greater of:

  • $10,000,000;
  • Three times the value of the benefit obtained from the anti-competitive conduct; or
  • 10% of the annual turnover of the body corporate and all of its interconnected bodies corporate, where the value of the benefit of the illegal conduct cannot be determined.

The Court is also given power to disqualify persons involved in the contravention of Part IV of the Act, being directors or persons involved in the management of a company.

Companies will also be prohibited from indemnifying their officers, employees or agents against civil penalties and legal costs incurred by them for contravention of Part IV of the Act.

Other amendments to the Act include:

  • A new formal clearance process in regard to mergers;
  • A new authorisation process for mergers;
  • The removal of third line forcing prohibition, where the activity does not lessen competition;
  • Restriction of the powers of the Australian Consumer and Competition Commission (ACCC) to undertake searches and seize material where it suspects a contravention of the Act.

Further details of these amendments are set out below.

New Merger Clearance Process

Currently, the Act does not allow a corporation or person to acquire shares in the capital of a body corporate or acquire any assets if it would substantially lessen competition in a market 2

The Act provides a non-exhaustive list of factors that must be taken into account in determining whether there would be a substantial lessening of competition, such as the level of concentration in a market and the effect an acquisition will have on prices, profit margins and the presence of competitors.

In practice, corporations or individuals proposing to acquire shares or assets usually approach the ACCC informally for its views on the proposed acquisition and whether it is likely to substantially lessen competition in a market.

The proposed amendments to the Act provide for a new voluntary formal clearance system that will allow successful applicants to undertake acquisitions without being in breach of the Act 3 . The features of this new clearance system are:

  • The system will operate alongside the informal clearance system already in place;
  • The ACCC will have the power to grant clearances;
  • The ACCC must make its decision whether to grant a clearance within 40 business days (which can be extended if the applicant agrees) or the application is deemed to be refused;
  • The ACCC must be satisfied that the acquisition would not substantially lessen competition in a market;
  • The ACCC must take into account submissions made to it by the applicant, the Commonwealth, a State, a Territory or by any other person;
  • A clearance cannot be granted for an acquisition that has already occurred;
  • The ACCC must notify the applicant in writing of its determination and give reasons;
  • Applicants can apply to the Australian Competition Tribunal ("the Tribunal") for review of the ACCC's decision.

Merger Authorisations

Another option in regards to mergers is to seek authorisation of an acquisition that would otherwise not be permitted under the Act. The ACCC cannot grant this type of authorisation unless it is satisfied that the acquisition should be permitted on public benefit grounds.

Under the Act, the ACCC must have regard to:

  • A significant increase in the real value of exports;
  • A significant substitution of domestic products for imported goods;
  • All other relevant matters that relate to the international competitiveness of any Australian industry.

The ACCC has a period of 30 days (45 in complicated matters) to consider an application, although this time limit can be extended. If a determination has not been made within this time, the authorisation is granted. An application for a review of the decision to the Tribunal is available.

A new merger authorisation process is included in the proposed amendment to the Act 4 , the main features of which are:

  • The Tribunal will directly consider authorisation applications;
  • The Tribunal has a time limit of 3 months to consider applications (this limit can be extended by the Tribunal in writing), or the authorisation will be deemed to be refused;
  • The Tribunal can consult any person that it considers reasonable and appropriate for the purpose of making its determination;
  • No appeal process is available under the Bill, other than to the Courts on legal points.

Third Line Forcing

'Third line forcing' is exclusive dealings conduct which involves a corporation:

  • Supplying or offering for supply goods or services; or
  • Giving or allowing a discount on a good or service

on the condition that another good or service is purchased from a third party. An example is where a financial institution lends money on the condition that the lender purchases an insurance policy from a particular insurer. 5

Third line forcing is currently prohibited under the Act. However, the ACCC may grant an authorisation for third line forcing if it is satisfied that there are public benefit grounds for the authorisation. A corporation can also gain protection for third line forcing by notifying the ACCC of present or intended third line forcing activities. The ACCC then determines whether the conduct should be permitted under public benefit grounds.

The proposed amendments to the Act allow third line forcing activity where it does not substantially lessen competition 6 . Furthermore, related companies will be treated as a single entity in regards to exclusive dealings conduct. This means that an arrangement between parties or body corporate that are related to each other will not be in breach of the Act.

Enforcement Powers of the ACCC

Currently under the Act , the ACCC has the power to authorise a member of staff to enter premises, inspect documents and make copies, or extracts where there is a suspected contravention of the Act. A search warrant is not needed.

The proposed amendments to the Act limit the search and seizure powers of the ACCC as follows: 7

  • The ACCC will be required to obtain consent of the occupier or a warrant from a Magistrate;
  • The officer executing the warrant can enter and search the premises, make copies of the kind of material specified in the warrant, such as equipment, tape, disk or any other storage device;
  • Officers can also seize other material not specified in the warrant where it is evidence of an offence;
  • Occupiers can observe the search, although they cannot if they impede the search.

© Stephens Lawyers & Consultants, September 2004


1 The Bill implements the Federal Government's response to the Dawson Committee Review, chaired by Sir Daryl Dawson, a former High Court judge. This Report was commissioned in May 2002 and considered the competition provisions under Part IV of the Act. Part IV of the Act aims to maintain competition in trade or commerce by regulating certain agreements and conduct. (Committee of Inquiry into the Competition Provisions of the Trade Practices Act 1974, Review of the competition provisions of the Trade Practices Act (Dawson Review) Commonwealth of Australia, Canberra, 2003.

2 Section 50 of the Act

3 Schedule 1, Trade Practices Legislation Amendment Bill 2004

4 Subdivision C of Schedule 1, Trade Practices Legislation Amendment Bill 2004

5Re:United Permanent Building Society Ltd (1976) 26 FLR 129

6 Schedule 7, Trade Practices Legislation Amendment Bill 2004

7 Section 8, Trade Practices Legislation Amendment Bill 2004

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