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The Federal Court has served an expensive warning of the potential penalties faced by would-be contraveners of the resale price maintenance provisions in the Trade Practices Act (TPA).
The breaches
Four Jurlique International companies, and founder Dr Jurgen Klein, were ordered to pay a record-breaking $3.4 million in penalties following breaches of the prohibition on resale price maintenance (RPM). RPM involves conduct in which a supplier induces a retailer not to sell below a minimum price. Jurlique’s contraventions included attempting to induce retailers not to discount Jurlique products, entering contracts with retailers that they would not sell below specified prices, withholding supply because retailers discounted prices, and using product statements likely to be understood as the minimum resale prices.
The penalties
In implementing the agreed penalties submitted by the parties, the court placed emphasis on the fact that Jurlique’s conduct had been deliberate and implemented at the most senior level of the company.
Jurlique’s founder, Dr Klein, was personally found in breach of the law, having been knowingly concerned in the RPM. He was ordered to pay a penalty of $200,000 and a further $20,000 in costs.
Implications
Companies need to be conscious that the costs of breaching competition laws are becoming increasingly more onerous, particularly when senior levels at an organisation implement or condone the conduct.
While RPM is currently prohibited as a per se offence under the TPA, it is interesting to note that the United States may in the coming months reverse its similar long established absolute prohibition. Because of the potential benefits to interbrand competition, the United States may instead judge RPM under its ‘rule of reason’, a case by case test requiring proof of anti-competitive effect.
Qantas and several other airlines, including Air New Zealand, Lufthansa, Singapore Airlines, Cathay Pacific, Japan Airlines and British Airways, have been served with a $200 million class action. If the action is successful, Qantas is expected to be hit the hardest since it has the biggest portion of the market.
The main plaintiff, Auskay International, alleges that the airline carriers made agreements seven years ago to fix fuel, security and war-risk surcharges and thus fix, control or maintain the price of international air freight services. The airlines had attributed the surcharge increases to higher fuel costs and increased security costs.
The plaintiffs currently included in the class action are ‘any party which spent more than $20,000, on air freight into or out of Australia between January 2000 and January 2007’. This class action does not yet include passengers who were also charged surcharges, but if the suit succeeds it may be that another will be brought on behalf of passengers.
The proceedings launched in the Federal Court follow prosecutions and class actions filed in the United States and Canada in relation to the same alleged cartel. Lufthansa reached a settlement in the United States for US$85 million as direct compensation for purchasers of air freight services. It is estimated that the remaining claim against more than 15 other airlines in the United States is worth $1 billion. The United States and the European Union Departments of Justice are still continuing their investigations into the global cartel.
Acquisition of Qantas
The Australian Competition and Consumer Commission (ACCC) announced on 1 March that it will not intervene in the proposed acquisition of Qantas Airways Ltd by the consortium represented by Airline Partners Australia (APA) Ltd. In making its decision the ACCC looked at the links between Macquarie Bank (one of the investors in APA) and Sydney Airport. The ACCC considered whether Sydney Airport would have increased incentives to act in favour of Qantas.
Immediately following ACCC approval, the Federal Government also cleared the proposed takeover but imposed conditions that require APA to seek to retain local aircraft engineering jobs and regional air services. The bid was also subject to undertakings designed to ensure the airline’s new owners deliver on capital investment plans and limit foreign ownership to 49 per cent.
Sydney Airport refused special leave
The Australian Competition Tribunal (ACT) ruled in 2005 that Sydney Airport’s domestic airside services should be ‘declared’ under Part IIIA of the Trade Practices Act. Sydney Airport sought judicial review of the decision in the Full Federal Court.
Whilst agreeing that the ACT had applied an incorrect test in making the declaration, the Full Federal Court applied a different test and reached the same conclusion. On 2 March the High Court refused special leave to appeal the Full Federal Court decision. The High Court noted that in refusing leave, it was not to be taken as preferring either the Tribunal or Full Federal Court test.
There has been a frenzy of energy merger activity so far in 2007. The following are just a few of the many examples:
- AGL and TRUenergy: On 2 February 2007, AGL Energy (AGL) and TRUenergy submitted a proposal to the Australian Competition and Consumer Commission (ACCC) where they would swap certain South Australian electricity assets. AGL would acquire TRUenergy’s 1280 MW Torrens Island gas-fired power station, while TRUenergy would acquire AGL’s Hallet 180MW gas-fired peaking plant.
- AGL and Powerdirect: AGL was the successful bidder for Powerdirect Australia, with a price around $1.2 billion. This sale process is part of the Queensland Government’s privatisation of the energy retail sector as it moves to full retail contestability later this year.
- AGL and Origin: Media speculation continues to surround a possible AGL and Origin Energy merger, with Origin Energy having rejected what it describes as a nil-premium merger of equals. If the merger proposal proceeds, an integral part of the deal is likely to be an ACCC solution.
- AGL and Queensland Gas Company: Santos, Société Générale Asset Management and AGL submitted competing bids to take over QGC. More than 75 per cent of Queensland Gas shareholders approved AGL’s purchase of a stake in the gas producer for $324 million. As part of this sale process, the ACCC expressed concerns regarding Santos’ bids. Santos attempted to resolve ACCC concerns with a revised proposal that involved a NewCo spin off. However, the ACCC announced on 20 February 2007 that it would oppose this revised proposal. AGL’s alternative bid had already received ACCC approval.
- Alinta up for sale: Several bidders (including a management buyout proposal) are likely to be keen to acquire the assets of energy infrastructure company Alinta, with a price tag to be expected well in excess of $10 billion. Resolving ongoing ACCC concerns that arose out of the earlier Alinta-AGL arrangements will be an important issue.
- Origin Energy’s gas infrastructure assets: On 7 February 2007, SP AusNet submitted a proposal to the ACCC to acquire Origin Energy’s gas infrastructure assets. The Australian Pipeline Trust already has ACCC approval for its bid for these assets.
In addition to these mergers, on 28 February 2007 the Productivity Commission (commission) released a report on the National Reform Agenda (NRA). The commission stated that the NRA has the ability to substantially raise national output and incomes. According to the commission, although there have been significant reforms to the electricity sector over the past decade, the changes have not gone far enough, and more must be done to increase competition between power stations (Australian Financial Review, 1 March 2007).
The Australian Competition and Consumer Commission (ACCC) has brought an unconventional action against two surgeons alleged to have misused market power in the South Australian market for cardiothoracic surgery.
In its statement of claim, the ACCC alleges the surgeons worked in a market with significant barriers to entry. Both surgeons had strong reputations and working relationships with cardiologists, enabling them to gain a high portion of referrals.
High barriers to entry were said to be related to onerous requirements for accreditation and gaining fellowship to the Royal Australasian College of Surgeons (RACS).
Conduct hindering rival surgeons
The claims centre on the surgeons’ alleged attempts to prevent competition by:
- making representations to colleagues and hospital management that rivals were unsuited and under-trained to provide cardiothoracic surgical services
- not providing references for rival surgeons seeking extension of accreditation
- attempting to induce rivals to enter non-compete agreements, and
- refusing to backup rival surgeons and their patients
Breaches
The ACCC alleges breach of section 46 for taking advantage of market power and section 45 for agreeing to refuse support services to rivals and agreeing not to provide services at Ashford Hospital if the hospital supplied rivals.
The surgeons are also alleged to have acted in concert to prevent Ashford Hospital from supplying services to rival surgeons (breaching section 45D) and acted in concert to cause damage to the surgeons’ business (breaching section 45DA).
Surgical services scrutiny
As noted in the October 2006 Competition Law Update, the market for surgical services has come under increased scrutiny from the ACCC. The claim highlights the ACCC’s resolve to ensure that competition and market entry is not restricted.
The High Court has granted special leave for the Australian Competition and Consumer Commission (ACCC) to appeal the Full Federal Court’s findings that Baxter Healthcare enjoyed Crown immunity from the Trade Practices Act (TPA).
The first instance decision of the Federal Court
On 16 May 2005, Justice Allsop in the Federal Court considered the ACCC’s allegation that Baxter entered into exclusive, bundled contracts which tied the supply of sterile fluids to the supply of certain dialysis products with various state health purchasing authorities. The judge dismissed the ACCC’s application on the ground that Baxter was entitled to Crown immunity or derivative Crown immunity (see July 2005 Competition Law Update). The ACCC appealed to the Full Federal Court.
The decision of the Full Federal Court
On 24 August 2006, the Full Federal Court dismissed the ACCC’s appeal, finding that Baxter would benefit from ‘derivative’ Crown immunity when dealing with state health purchasing authorities.
Implications
If the court rejects the ACCC’s appeal, it is likely to advocate that the TPA should be amended to level the playing field for government and non-governmental entities.
The Treasurer has announced the government’s intention to introduce further amendments to the Trade Practices Act (TPA) designed to allow better enforcement of the secondary boycott provisions.
The amendments will alter section 87 of the TPA to give scope to the Australian Competition and Consumer Commission (ACCC) to bring representative action against offenders of sections 45D and 45E secondary boycott provisions. Secondary boycotting involves circumstances in which two or more people act in concert so as to engage in conduct that hinders or prevents a person from dealing with the target entity.
The Treasurer has outlined the purpose of the reform as primarily being to assist small businesses that would otherwise be unable to recoup losses suffered from such conduct.
The Productivity Commission is conducting an inquiry into Australia’s consumer policy framework. Among other items, it will report on:
- ways to improve consumer policy so as to assist and empower consumers
- methods to better harmonise and coordinate consumer policy across jurisdictions, and
- any areas of consumer regulation that are unlikely to provide net benefits.
Public hearings will be held in March or early April 2007, and the latest date for initial submissions is 11 May 2007.
More information
For information regarding possible implications for your business, contact a member of the Competition & Market Regulation team.