In this month’s Competition and Market Regulation Update we explore the following developments:
In line with the Australian Labor Party’s (ALP) election promise to introduce legislation to criminalise cartel conduct, the Assistant Treasurer and Minister for Competition Policy and Consumer Affairs, Chris Bowen, has released an exposure draft of proposed amendments to both the Trade Practices Act 1974 (Cth) and the Proceeds of Crime Act 2002 (Cth).
Although the details of the proposal are likely to be the subject of much debate, the ALP’s prompt action on this issue has been welcomed by many stakeholders as pressure to impose criminal penalties for cartel conduct, escalated in October 2007 when the Federal Court imposed record fines on parties involved in the Visy/Amcor cartel.
For background on the Visy/Amcor matter and details of the fines, see our previous newsletters Competition and Market Regulation Update November 2007, Competition Law Update February 2006, Competition and Market Regulation Update February 2007 and Competition and Market Regulation Update April 2007.
If passed, this legislation will make it a criminal offence under Australian law to make or give effect to a contract, arrangement or understanding that contains a cartel provision, with the intention of dishonestly obtaining a benefit. The legislation provides for a maximum of five years imprisonment and/or fines of up to $220,000 for individuals and $10 million for corporations.
‘Dishonestly’ obtain a benefit
The inclusion of the requirement that the participant had the intention of ‘dishonestly’ obtaining a benefit is somewhat unique. While there are a number of jurisdictions in which cartel conduct is already a criminal offence, only the United Kingdom has included an element of dishonesty. Some suggest that this requirement will limit the likelihood of successful prosecution of cartel participants because ‘dishonesty’ can be difficult to prove.
As yet, the United Kingdom court’s approach to interpreting and applying the dishonesty element is unclear as it is only recently that any criminal charges have been laid under its cartel legislation. The details of these charges are discussed later in this update.
The progress of this matter in the United Kingdom courts, and the approach taken to the ‘dishonesty’ element, will no doubt inform the debate here in Australia.
Roles of the DPP and the ACCC
Along with the exposure draft of the proposed amendments, the government has released a Draft Memorandum of Understanding (Draft MoU) between the Commonwealth Director of Public Prosecutions (DPP) and the Australian Competition and Consumer Commission (ACCC). Under this Draft MoU the ACCC has responsibility for investigating cartel conduct, while the DPP is responsible for any subsequent prosecution.
It is the government’s intention that only serious cartel conduct will be subject to criminal prosecution. As such, the Draft MoU provides that the ACCC will consider such factors as the value of affected commerce, the detriment caused to the public and the duration of the cartel conduct in deciding whether to refer a matter to the DPP for possible prosecution.
Telephone interception powers
Under the proposed legislation the ACCC and the Australian Federal Police can apply for certain types of warrants under the existing Telecommunications (Interception and Access) Act 1979 (Cth) and the Surveillance Devices Act 2004 (Cth) to assist in the investigation of suspected cartel conduct.
Although the United Kingdom parliament introduced legislation criminalising cartel conduct in 2003 by enabling section 188 of the Enterprise Act 2002, the provision has not yet been tested in court. On 18 December 2007, in what took significant international cooperation, three United Kingdom executives were charged by the United Kingdom authorities for their alleged involvement in a cartel that allocated markets and customers, restricted supplies, fixed prices and rigged bids in the marine hose industry.
The three executives had already been arrested in May 2007 in the United States along with five other executives from around the globe. On 12 December 2007 the three pleaded guilty to antitrust offences under United States law and agreed to prison sentences of between 20 and 30 months each, as well as individual fines between US$75,000 and US$100,000. These are the longest prison sentences obtained to date by the Department of Justice under a plea agreement with a foreign national.
As part of their agreement with the Department of Justice, the executives returned to the United Kingdom where they agreed to cooperate with United Kingdom authorities. If convicted in the United Kingdom, the executives may be sentenced to up to five years imprisonment and/or fined. There is no statutory limit on the amount of any fine that the United Kingdom court may order.
The cartel is also under investigation by the European Commission.
This current matter demonstrates the potential for cross-jurisdictional cooperation in cartel matters.
Readers will recall from our Competition and Market Regulation Update April 2007 Mr Norris’ attempt to avoid extradition from the United Kingdom to the United States to face prosecution for alleged price fixing offences during his time as chief executive of Morgan Crucible. His appeal is currently being heard by the House of Lords in London.
The ACCC has concluded its inquiry into unleaded petrol prices and provided its final report to the government (for background information, see our previous newsletters Competition and Market Regulation Update July 2007 and Competition and Market Regulation Update October 2007).
After extensive investigation, the ACCC has concluded that the unleaded petrol industry in Australia is ‘fundamentally competitive‘ with no obvious evidence of price fixing or collusion between the major participants.
Nonetheless, the ACCC highlighted fundamental structural issues in the industry that are a cause for concern for future competitiveness because of their potential to limit competition at both the wholesale and retail level. In particular, the ACCC noted concern over:
- the high level concentration of the Australian refining industry with the major refiners, Shell, Mobil, Caltex and BP, controlling 98 percent of Australia’s fuel requirements
- the industry’s observance of the import parity pricing (IPP) policy whereby prices are assessed according to an imported equivalent product rather than the true cost of refining or importing, and
- the existence of significant barriers to entry by independent importers.
The government immediately responded by initiating a search for a petrol commissioner and giving the ACCC formal monitoring powers over petrol prices. Acting under these powers, the ACCC has written to the oil companies and the two major supermarket chains seeking an explanation after noting a divergence between Australian retail petrol prices and the international indicator benchmark price leading up to the Australia day long weekend.
The ACCC has also recommended amendments to section 45 of the Trade Practices Act 1974 (Cth) (Act) designed to clarify the meaning of the term ‘understanding’. The ACCC argues that the meaning of this term, as interpreted by the courts, has changed over time and that legislative amendment is necessary to provide certainty as to its meaning in the context of the Act. The government has not yet acted on this recommendation.
The Australian Energy Market Commission (AEMC), in consulting on a draft report to the Victorian Government and the Ministerial Council on Energy, recommended the removal of energy retail price regulation for residential customers following its findings that competition in both electricity and gas retailing in Victoria is effective.
The AEMC noted that the current market structures and entry conditions facilitate strong rivalry between energy retailers, and that there was evidence of active participation by Victorian consumers in these markets. AEMC’s Chairman, Dr John Tamblyn, stated that removing price regulation will enhance competition in the market by reducing retailers’ administrative and compliance costs, giving them greater flexibility in the range of price and service options they can offer.
Under the AEMC’s proposal, the protection offered to Victorian consumers by competition will be enhanced by a suite of specific measures to ensure residential consumers have equitable access to energy services and that there is transparency in pricing information.
The Federal Government has directed the Australian Competition and Consumer Commission (ACCC) to undertake a formal inquiry into grocery prices and to report back to the government by 31 July 2008.
The inquiry comes amid reports that food prices in Australia have risen by 43.6 per cent in the decade to 2006, a rate of increase significantly higher than the world average.
The scope of the inquiry extends to all aspects of the supply chain ‘from the farm gate to the check out counter’. The ACCC has been directed to consider the structure of the industry and nature of competition at each of the supply, wholesale and retail levels as well as the factors influencing the price of, or impeding the efficient pricing of, inputs to the supply chain.
While the government is making no promises that grocery prices will go down, the ACCC has welcomed the opportunity to pick apart the complex supply chains and discover why growers are getting so little and consumers are paying so much.
At the very least, the inquiry should enable a better understanding of the extent to which factors such as the drought, the increased cost of fuel and the rising global demand for agricultural exports have contributed to the costs of groceries in our domestic market.
Following a series of investigations into environmental marketing claims (discussed below), the ACCC has plans to release a guidance paper for businesses whose marketing promotes the environmental benefits of particular products. This paper reflects the ACCC’s concern that some marketing claims may in fact be misleading to consumers in contravention of the Trade Practices Act 1974 (Cth).
In an issues paper released this month seeking comment from interested parties, the ACCC has noted that claims that products are ‘carbon neutral’ may be misleading in a number of ways. For example, it has suggested that consumers may be misled where:
- the implementation of a promised carbon offset is inappropriate or incomplete
- the method of calculation of the carbon emission is inaccurate, or
- the environmental benefits are insufficiently explained or unable to be substantiated.
The ACCC has also released a consumer fact sheet outlining its role in relation to false or misleading claims on the environmental benefits of a product.
The ACCC has recently taken a keen interest in marketing claims made by businesses about the environmental benefits of their products.
After the regulator raised concerns about representations made on EnergyAustralia’s website and in its promotional material for CleanAir and GreenFuture electricity products, EnergyAustralia agreed to provide an administrative undertaking to address the ACCC’s concerns. Concerns about Origin Energy’s representation that switching to its GreenPower product would be the same as not driving your car for two years were similarly resolved by agreement between Origin Energy and the ACCC.
The ACCC has now instituted proceedings against GM Holden in the Federal Court over advertisements claiming that the Saab motor vehicle range is ‘Grrrrrreen’ and that carbon emissions are neutral across the entire Saab range.
These matters highlight the need for businesses to act with caution when making environmental claims about products and services offered.
The Australian Competition and Consumer Commission (ACCC) has issued a final objection notice to a collective bargaining notification lodged by the Australian Medical Association (Vic) Pty Ltd (AMA Victoria) on 17 September 2007. AMA Victoria lodged the notification on behalf of 39 medical practitioners for whom it proposed to collectively negotiate in relation to their engagement as visiting medical officers at the Latrobe Regional Hospital.
Although the proposed arrangement was voluntary, the ACCC noted that the group represented a significant proportion of the practitioners that could provide services to the hospital, and thus had the potential to result in anti-competitive outcomes.
In finding that there was insufficient public interest justification for the proposal, the ACCC considered that hospital workforce shortages and the hospital’s need to engage specialists to provide the full range of medical services meant that the doctors are already in a reasonable bargaining position vis-à-vis the hospital. While the ACCC noted that collective bargaining may assist in the negotiation of conditions common to all the practitioners, it found that the diversity of specialist areas in the group limits the number of common issues between them.
The ACCC has released a Guide to Collective Bargaining Notifications. The guide provides information for businesses about collective bargaining, the notification process and how the ACCC assesses notifications it receives.
Readers can access the Guide to Collective Bargaining Notifications on the ACCC website.
Newcastle coal industry seeks to resolve queues at port
In an interesting matter involving three competing applications for authorisation under the Trade Practices Act 1974 (Cth), the ACCC granted interim authorisation to applications from Newcastle Port Corporation and Donaldson Coal Pty Limited for a capacity balancing system at the Port of Newcastle, while rejecting an application for interim authorisation (subsequently withdrawn) by the port operator Port Waratah Coal Service and the rail providers at the port at Newcastle.
Both systems were intended to reduce the queue of ships waiting to be loaded at the Port of Newcastle by addressing the imbalance between the demand for coal loading services and the capacity of the Hunter Valley coal chain. However, the ACCC decided against granting interim authorisation to the port operator’s proposal on the basis that it was not appropriate to do so in circumstances in which there were significant industry concerns about the proposal that it had not had sufficient time to fully assess.
The matter is now in the hands of the former New South Wales Premier, Mr Nick Greiner, who has been appointed to mediate a longer term solution to the capacity constraints at the port.
Crazy John’s to face court over ‘free’ handset offer
The ACCC has commenced proceedings in the Federal Court against mobile phone retailer Crazy John’s, alleging that advertising promising ‘free’ handsets with some mobile phone plans is misleading.
The ACCC contends that consumers are effectively paying for the handset through call rates which are higher than those on plans not including a handset. Crazy John’s has advised that the advertisements in question related to less than 10 per cent of its mobile plans and that it is no longer running these advertisements.
Federal Court supports ACCC’s decision on pay TV undertaking
In March 2007 the ACCC accepted a special access undertaking from Foxtel allowing independent providers of digital content channels to offer their services to Foxtel customers via Foxtel's digital set top units.
The Federal Court has upheld the ACCC’s decision, refusing an application from the Seven network to have it overturned.
Airlines defend pricing structure
The government’s announcement of plans to amend legislation to force retailers to advertise the final cost of products inclusive of any fees, taxes or delivery charges has been met with a mixed response.
Travel agents have welcomed the announcements claiming that advertisements for airlines quoting prices excluding the fuel surcharge misleads the public as to the true cost of flights. However, Qantas has defended its pricing structure, arguing that treating fuel levies separately ensures greater transparency of that component of its overall price and allows it flexibility to adjust the levy according to fluctuations in the fuel market.
The necessity for the amendment has been questioned given that both the Trade Practices Act 1974 (Cth) and its state equivalents already prohibit misleading or deceptive conduct in the course of trade and commerce.
More information
For information regarding possible implications for your business, contact a member of the Competition & Market Regulation team.