Q&As

In conversation with Lisa Huett and Peta Stevenson, King & Wood Mallesons

Friday August 25, 2017

Lisa Huett

Lisa Huett is a Partner in the Competition Law Group within our Melbourne office of King & Wood Mallesons. She specialises in competition law, consumer protection, product liability and privacy law with a particular focus on the application and enforcement of Australia's cartel laws.

Peta Stevenson is a Partner in the Dispute Resolution team in our Sydney 

Peta Stevenson

office, where she specialises in competition litigation. Peta's practice covers a broad range of competition and dispute resolution matters, including advising a diverse mix of clients on the application of the anti-competitive conduct, consumer protection and access provisions of the Competition and Consumer Act 2010 (Cth) and related state legislation.

You can hear more from Peta Stevenson who is speaking at the  Competition and Consumer Law seminar, being held on Friday 15 September at Primus Hotel Sydney or Lisa Huett who is a speaking at the Competition and Consumer Law seminar, being held on Tuesday 12 September at Intercontinental Hotel Melbourne.

They joined Chris Sanchez of Legalwise Seminars to discuss issues about competition and consumer law.

You can find the full Q&A below.

What are some of the key trends and developments in competition and consumer law having an impact right now?

The ACCC is focussing its attention on pursuing larger businesses and running significant cases to test the law, even where the outcome may be uncertain.  As Rod Sims said in his 24 February 2017 address to CEDA, it is “part of our reason for being, to focus on the national landscape”.

We are seeing an emphasis by the ACCC on investigating conduct that has the potential for wide-ranging effects, using allegations of misleading consumers and unconscionable conduct, as well as an increased use of its mandatory powers to obtain information. Currently, the ACCC is conducting inquiries into the dairy industry, the price of residential mortgage products, electricity supply and prices, and the gas market. It is also conducting market studies into the cattle and beef market, communications, and new car retailing.

How will the reforms affect the Section 46 Misuse of Market Power prohibition?

Currently, under s 46 of the Competition and Consumer Act 2010 (Cth) (CCA), businesses with a substantial degree of market power are prohibited from taking advantage of that power for the purpose of:

  • eliminating or substantially damaging a competitor;
  • preventing the entry of a business into a market; or
  • deterring or preventing a business from engaging in competitive conduct.

The reforms introduced by the Competition and Consumer Amendment (Misuse of Market Power) Bill 2016 (CCA Reform) will change s 46 by:

  • removing the requirement that the business ‘take advantage’ of market power in an anti-competitive way; and
  • replacing the ‘purpose test’ with the requirement that the conduct in question have the purpose, effect or likely effect of substantially lessening competition.

What will be some of the ramifications of the Section 46 Misuse of Market Power reforms?

Under the current law, a business will only breach s 46 if it uses its market power for an anti-competitive purpose. Removing the need for a separate causal link between market power and anti-competitive purpose may have the effect of prohibiting some forms of unilateral commercial behavior that may not otherwise have been caught (such as heavy discounting, refusing to supply other businesses, or exercising legal rights to the disadvantage of other businesses).

In addition, by adding an ‘effects’ limb, some conduct which was previously outside the scope of the law (because it was clearly undertaken for legitimate commercial purposes) may be caught by the provision because of its likely competitive effects.

Could the Section 46 reforms create some uncertainties around the application of the 'effects' test?

The ‘effects’ test does introduce some uncertainty into how s 46 will be applied, as it may capture a broader range of commercial behavior, including conduct that may be justified by commercial objectives that would otherwise be considered legitimate.

Businesses are used to considering the effects of their conduct in the context of mergers and other ‘bilateral’ situations - contracts, arrangements or understandings. To some extent, the effects of unilateral conduct have also required consideration where it could constitute exclusive dealing, or more broadly unconscionable conduct. However the new s 46, when combined with the ACCC’s drive for these reforms indicate there will be a greater emphasis placed on regulating these forms of conduct.

How might the relationship between market power and conduct change after the reforms?

Following the reforms, it will no longer be technically necessary to establish a connection between a businesses’ conduct and its market power in order to establish a contravention of s 46, as the “taking advantage” element is removed. 

Until the new s 46 has been tested in Court, however, it is unclear the extent to which businesses will be affected by the changes to s 46. This will depend on the interpretation given by the Court, and the evidentiary requirements to establish a contravention.

How might the Section 46 reforms affect ACCC enforcement and priorities?

To date, the ACCC has a chequered record in s 46 cases.  A number of cases reliant on s 46 have either been unsuccessful or have been settled on other issues.

In 2014, the ACCC ran a case against Cement Australia Holdings Pty Ltd, in which it successfully argued a contravention of s 45 (anti-competitive agreement), but had its allegations of contraventions of s 46 dismissed. Similarly, in 2015, the ACCC ran a case against Visa Inc, in which it successfully maintained allegations of a contravention of s 47 (exclusive dealing), but withdrew its s 46 allegation as part of an agreed settlement.

The reforms will further empower the ACCC to focus on larger corporations, whose business practices have a more significant impact on competition in the market.

What are some things practitioners should be doing to prepare for the competition and consumer law reforms?

The CCA Reforms are the single most dramatic change to competition law in the last decade. Two changes which will most affect business are the changes to section 46 and the introduction of the new formal merger review process. Practitioners should seek to educate their commercial personnel on the implications of these changes, including when to seek additional legal advice.

The new s 46 requires businesses to engage in a more detailed assessment of the potential competitive consequences of their unilateral conduct. It also requires businesses to assess the competitive consequences of significant strategic and commercial decisions before they are made.

The CCA Reforms also significantly change the merger clearance processes, as business will now have to approach the ACCC both for informal clearance and for formal merger authorisation, where the benefit to the public outweighs the competitive detriment. These changes will affect commercial strategies when approaching the ACCC, as businesses will no longer have the option of seeking merger authorisation from the Australian Competition Tribunal and will have to go through the ACCC’s formal merger process before any right of appeal beyond the regulator is available.

Is there any aspect of the competition and consumer law reforms that you think some people may be underestimating or overlooking?

Greater attention should be placed on the new class exemptions laws that will enable the ACCC to create ‘safe harbours’ for particular kinds of conduct provided that the conduct would:

  • not have the likely effect of substantially lessening competition; or
  • be likely to result in a net public benefit.

The regime provides a “class order” form of authorisation that may benefit groups of market participants by providing safe harbors for conduct and therefore may provide significant benefits to businesses by creating certainty and reducing transaction costs. Whether one entity will however strike out alone to seek such an exemption – in effect self-selecting for ACCC attention – is something to watch with interest.

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