Recent Developments in Trade Practices

Business needs to be aware of recent developments in trade practices law and the priorities of the government agencies responsible for regulating and enforcing them.

Failure to implement adequate compliance programs exposes companies, directors, employees and others involved in the contravention to significant penalties of up to $10 million, for a company and $500,000, for an individual. In addition, these companies and individuals may be exposed to claims for compensation and other remedies.

The Role of the ACCC

The Australian Competition and Consumer Commission (ACCC) is the independent Commonwealth statutory body responsible for regulating and enforcing the competition and consumer protection provisions of the Trade Practices Act 1974 (Cth) (TPA).

The ACCC has a fundamental role in detecting possible contraventions of the TPA and may utilise either administrative or litigious procedures to address the contravention and encourage wider compliance throughout the industry. The ACCC will act in the public interest and is not necessarily concerned with the commercial interests of individual parties.

The ACCC may require enforceable undertakings for compensation, corrective advertising and the implementation of compliance programs. If given, an enforceable undertaking must be complied with otherwise a court order may be sought. Ignoring a court order would then constitute contempt of court.

Alternatively, the ACCC may litigate by commencing court proceedings seeking penalties, damages, injunctions, refunds and corrective advertising by a company and or a person involved in the contravention such as the directors of a company.

If a company engages in conduct contravening the TPA there is a risk that the ACCC will take an interest and investigate the matter. This may result in significant costs being incurred in defending any action taken by the ACCC, complying with any enforceable undertaking or court order, and dealing with the publication of damaging allegations made against the company by the ACCC.

Also, the ACCC has made it clear in a number of recent media statements [1] in late 2006 that they will pursue offenders to bankruptcy and liquidation if they don't have the money to pay penalties and or damages.

Recent Cases involving the ACCC

Consumer Protection

In Australian Competition and Consumer Commission (ACCC) v Global Prepaid Communications Pty Ltd (In liq) [2] the ACCC acted on behalf of 23 small businesses in a misleading and deceptive conduct action against Global Prepaid Communications.

It was alleged that the company and several of its officers had provided franchisees with misleading information about the profitability and operations of pre-paid phone card and vending machine franchises.

The court found that the revenue and profitability of their franchising operations were misrepresented, constituting misleading and deceptive conduct in contravention of the TPA [3] . The court ordered the company and its representatives, including the company's director, pay a total of $3.5 million in compensation.

Competition

In Australian Competition and Consumer Commission (ACCC) v Liquorland (Aust) Pty Ltd [4] the ACCC acted on behalf of several packaged liquor takeaway businesses.

In return for Liquorland not objecting to five operators being granted liquor licences the company entered into restrictive agreements with the five newly licensed liquor outlets. The agreements limited the operation of the liquor outlets, preventing their supply of packaged takeaway liquor to customers. The ACCC alleged Liquorland's conduct contravened the exclusionary (primary boycott) provisions of the TPA [5] .

The Court found the purpose of the restrictive agreements was to limit or prevent supply and to substantially lessen competition in the packaged takeaway liquor market. The contravening agreements had sought to stop liquor outlets supplying packaged take-away liquor to customers. Liquorland was ordered to pay $4.75 million in penalties for this anti-competitive behaviour.

Recent Amendments to the TPA

A number of important amendments were made to the TPA in 2006 [6] in relation to the promotion of competition and consumer protection.

Third Line Forcing

Third line forcing involves a company supplying goods or services, offering a discount or entering a lease with a person on the condition that they acquire goods or service from a third party. [7]

It is now accepted [8] that third line forcing is often beneficial and pro-competitive in a market. Accordingly, the amendments to the TPA now provide that to constitute a contravention third line forcing must also have the purpose, effect or likely effect of substantially lessening competition in a market [9] .

It would be prudent that notification be given to the ACCC of third line forcing where a company's activity may have the purpose, effect or likely effect of substantially lessening competition in a market.

By recognising that related companies should be treated as a single entity [10] the TPA has been amended to provide that the third line forcing provisions do not apply to related companies. [11]

Joint Ventures

Joint ventures can take up a number of forms encompassing a range of legal and commercial relationships. A joint venture is defined by the TPA to be when two or more entities carry on an activity jointly. [12] Joint ventures that may satisfy the requirements of the TPA include activities directed to research and development, the production of goods or supply of services and marketing. [13]

Joint ventures may have anti-competitive aspects. It has been recognised however that the public benefits of a joint venture may outweigh the detriment constituted by any lessening of competition. This is particularly the case where but for the joint venture, new products or services, or producing existing products or services more efficiently, would not have taken place at all. [14]

Because of the potentially pro-competitive effects of joint ventures the TPA has been amended to provide joint venture parties with a defence to the current price fixing and exclusionary provisions . [15] In order to raise this defence a company must prove on a balance of probabilities that the contract, agreement or understanding is for the purposes of a joint venture and does not have or is likely to have the effect of substantially lessening competition.

Small Business

Collective bargaining is usually considered anti-competitive, a form of collusion that can be used to set prices or limit supply of goods or services. However a blanket prohibition on collective bargaining can have a detrimental effect on the bargaining power of small businesses. Individually, small businesses may lack bargaining power and so, at times, seek to join together and bargain collectively to gain a degree of countervailing power when negotiating with big business. This activity may be anti-competitive but nonetheless in the public interest. [16]

The amendments to the TPA provide an alternative to the current process authorising collective bargaining [17] that would otherwise be a contravention of the TPA, by establishing a cost efficient notification scheme. Under this scheme, available to small businesses including independent contractors who meet the necessary requirements, businesses can notify the ACCC of a collective bargaining arrangement.

Once a party notifies the ACCC that a contract giving effect to a collective bargaining arrangement has been or may be entered into, the ACCC must decide if it does not, or is unlikely to benefit the public, or the benefit to the public will not outweigh the detriment. If notification is accepted the party will receive immunity for a period of three years. [18]

Company Mergers

The TPA continues to prohibit mergers that have the effect, or are likely to have the effect, of substantially lessening competition in a market. [19]

Merger clearance can be sought from the ACCC. Clearance is given, if the merger would not have the effect, or is likely to have the effect, of substantially lessening competition in a market. In addition to the present inexpensive and relatively speedy informal merger clearance system, currently provided for by the ACCC, the amendments to the TPA have created a formal system [20] . The new formal system will allow for a body of precedent to be established to ensure consistency, provide an opportunity for review of any decision made within the stipulated 40 day period [21] and increase the level of certainty for business.

All merger clearance and authorisation applications remain voluntary; there is still no obligation to notify the ACCC of a proposed merger.

Coming Attractions

There are a number of further legislative amendments to the TPA that may be made in 2007.

It is likely that legislation will be introduced into the Federal Parliament with respect to cartel conduct, which will provide for significant criminal penalties in addition to the remedies already available in the TPA. In the last year an increase in funding of $25.4 million over four years has been allocated to implement the introduction of criminal penalties for cartel conduct.

The second and less likely amendment to the TPA, having stalled with the government for the last two years, aims to strengthen the law limiting the misuse of market power, including changes to the predatory pricing provisions. This is an area of ongoing concern for small businesses that may yet be a long way from resolution.

© Stephens Lawyers & Consultants, March 2007

Julian Stephens , a principal of the Melbourne firm Stephens Lawyers & Consultants wishes to thank Nina McLaughlin for her research and assistance in preparing this article. Stephens Lawyers & Consultants

Level 3, 530 Lonsdale Street

Melbourne VIC 3000

Phone: (03) 8636 9100

Fax: (03) 8636 9199

Email: stephens@stephens.com.au

Website: www.stephens.com.au

All Correspondence to:

PO Box 13286

Melbourne Law Courts

Melbourne VIC 8010

To register for newsletter updates and to send your comments and feedback, please email stephens@stephens.com.au Disclaimer : This newsletter is not intended to be a substitute for obtaining legal advice.