Competition & Market Regulation Update November 2009

Update: infrastructure access regime reform
ACCC gives final tick for Gorgon joint marketing
Woolworths’ foray into home improvement business – subject to undertaking
Size, ignorance no excuse for cartel conduct
Book import restrictions to stay
Singapore coach operators fined for price fixing
ACCC and coordinated behaviour

Update: infrastructure access regime reform

In the May edition of the Competition & Market Regulation Update,¹ we foreshadowed a package of proposed reforms designed to streamline regulatory processes and provide infrastructure owners with greater certainty under the National Access Regime in Part IIIA of the Trade Practices Act 1974 (Cth) (TPA) (Access Regime).

The Bill providing for those reforms, the Trade Practices Amendment (Infrastructure Access) Bill 2009 (Bill), was introduced into Parliament on 29 October 2009 and has been referred to the Senate Economics Legislation Committee for inquiry and report by 9 March 2010.

Regulating third party access to significant infrastructure and facilities such as railways and airports is important for effective competition in the associated markets. The Access Regime provides a mechanism for business operators to seek access to privately held infrastructure. Under the Access Regime, a third party can seek to have a service ‘declared’ by the relevant Minister. The party must apply to the National Competition Council (NCC) which makes a recommendation to the Minister, who then makes the ultimate declaration decision. Declaration provides access seekers with a right to binding arbitration if commercial negotiations for access to infrastructure cannot be successfully concluded.

A key complaint about the current Access Regime is delays in decision-making. The reforms proposed by the Bill aim to make decisions and arbitration faster, streamline administrative arrangements and provide infrastructure owners with greater certainty, in line with recommendations made by the Council of Australia Governments in 2008.

If passed in its current form the Bill would, amongst other things:

• Impose time limits – for certain Part IIIA regulatory decisions and recommendations of the NCC, the ACCC and the Australian Competition Tribunal (ACT), these bodies will now be required to do so within an expected period (of generally 180 days). In some cases, there are ‘clock stoppers’ which will extend the time period for the making of such decisions or recommendations. Where the NCC, ACCC or ACT do not make decisions within the relevant time period (as extended by clock stoppers or otherwise), they will be deemed to have made certain decisions.
  
  A designated Minister would also be expected to make an application decision within 60 days of receiving an NCC recommendation. Where the Minister does not make a decision he or she is deemed to have agreed with the NCC’s recommendation.
  
• Limited merits review – merits reviews by the ACT would be limited to the information submitted to the original decision maker. Currently, reviews of Part IIIA decisions are a complete rehearing of the matter and new information may be submitted to the Tribunal. The Bill provides that where the original information requires clarification, the ACT will be able to seek additional information from the parties for clarification purposes only, or from the ACCC or NCC in their role of assisting the ACT.
  
• Access holidays – proponents of new infrastructure projects will be able to seek an upfront decision on whether a service to be provided by the proposed facility would satisfy the test for declaration. Such an application would need to be made before construction of the proposed facility commences. The period for which a service is ineligible must be at least 20 years.
  
• Access undertakings – allow the ACCC to accept access undertakings setting out terms and conditions for access that a service provider is willing to offer or negotiate with access seekers and containing fixed principles to apply to any subsequent undertakings for that service for the duration of the fixed principles.

Finally, the Bill proposes that the ACCC will be able to suggest amendments to access undertakings and that the NCC will be empowered to make decisions on the papers without having to call meetings for unanimous declaration decisions.

The Senate Committee has stated that submissions should be received by 18 December 2009.

ACCC gives final tick for Gorgon joint marketing

On 5 November 2009, the ACCC authorised the joint marketing of natural gas from the Gorgon Gas Project (Gorgon Project). This followed its draft decision to do so earlier this year (as reported in the September edition of the Competition & Market Regulation Update).²

ACCC authorisation provides immunity in respect of conduct that might otherwise raise concerns under the competition provisions of the TPA. Broadly, the ACCC may grant an authorisation when it is satisfied that the public benefit from the conduct outweighs any public detriment.

The Gorgon Project is a large liquefied natural gas (LNG) and domestic gas development off the north west coast of Australia involving joint venturers including Chevron Australia, Mobil Australia and Shell. It is forecast to commence domestic gas production in the second half of 2015 and is regarded as the largest project of its kind in Australian history.

The ACCC has authorised the joint venture partners, until 31 December 2015, to:

• jointly discuss and negotiate the terms and conditions (including price) on which they offer the natural gas produced for sale to customers in Western Australia (domgas)
• make and give effect to agreements containing common terms and conditions, (including price and price arbitrations/determinations) for the sale of domgas, and
• continue to give effect to the provisions of domgas sales agreements entered during the period of authorisation for up to 25 years from the first gas from the project.

The authorisation is conditional on ‘ring fencing’ arrangements that are designed to prevent commercially sensitive information that will be obtained by the Gorgon joint venture from being transferred to competing gas producing projects.

Woolworths’ foray into home improvement business – subject to undertaking

After initially raising concerns, the ACCC has cleared the proposed acquisition of hardware wholesaler Danks Holdings Limited (Danks) by a joint venture (JV) comprising Woolworths Limited and United States home improvement retailer, Lowe's Companies Incorporated (Lowe’s). The ACCC cleared the merger after accepting court enforceable undertakings from Woolworths and the JV (under section 87B of the TPA).

The acquisition was proposed by the JV as part of a plan to enter the hardware sector by developing a network of 'big box' home improvement stores to compete with other retailers including hardware powerhouse, Bunnings. Danks is a wholesale distributor of hardware products and related services to independent retailers.

The ACCC had raised concerns related to the effect of the proposed acquisition on competition in certain local markets for the supply of hardware and home improvement products by hardware retailers.

In particular, the ACCC was concerned that the JV could discriminate against some of its wholesale customers, namely hardware retailers supplied by Danks, who would also be its retail competitors. Another concern related to the potential for retailers supplied by Danks which are located in close proximity to JV big box stores being treated less favourably than other stores.

The ACCC decision to clear the merger came after it accepted a court enforceable undertaking from Woolworths and the JV, focused on ensuring non-discriminatory conduct for 10 years. In essence, the undertaking imposes ‘no less favourable supply terms’ obligations for stores within a five kilometre radius of a JV store (with a costs related exception) and also requires the appointment of an ACCC approved, independent auditor to assess compliance.

The ACCC’s decision is interesting in light of its general caution about accepting behavioural undertakings. According to the ACCC’s own 2008 Merger Guidelines, behavioural type remedies designed to modify or constrain the behaviour of the merged firms are considered ‘rarely appropriate on their own to address competition concerns’. As such, behavioural undertakings are usually seen as appropriate, ‘on occasion’ as an adjunct to the preferred ‘structural’ undertaking (for example, divestitures).

A copy of the undertaking is available from the ACCC website, and the ACCC is expected to issue its Public Competition Assessment explaining the reasons for its decision in the near future.

Size, ignorance no excuse for cartel conduct

The ACCC has again shown that it is committed to acting against cartel conduct, large or small, with two recent cases showing that neither the size of an organisation nor its ignorance of the law will be seen to excuse this kind of conduct.

On 6 November 2009, the ACCC obtained orders in the Federal Court (by consent) against the Australian Karting Association (AKA), two of its officers and a number of kart clubs in regional New South Wales for:

• fixing the minimum prices for the hiring of kart circuits by non-AKA members, and
• requiring all negotiations regarding the hiring of kart circuits from AKA members to be conducted by the AKA.

The AKA was also ordered to pay a pecuniary penalty of $10,000. The court accepted that the ‘[e]ngagement in the conduct was innocent’.

The Federal Court has also recently imposed penalties of over $1 million against two Queensland truck retailers and three sales managers found to have engaged in price fixing and market sharing in relation to the sale of light and medium trucks in South-East Queensland. Again, it was accepted that the individuals involved did not understand the relevant law or the legal consequences of their actions.

Book import restrictions to stay

It was also revealed this month that the government has decided not to change the existing regulatory regime for importing books, notwithstanding the Productivity Commission’s recommendation in June this year that the parallel importation restrictions (PIR) on books be repealed.

Under the Copyright Act 1968 (Cth), copyright owners are able to prevent the importation into Australia of books that have been lawfully published in another country. To qualify for protection, an Australian copyright holder (commonly a publisher or author) must publish a book for which they hold copyright within 30 days of its overseas release and (subject to some exceptions) maintain a capacity for resupply within 90 days. Once a rights holder is protected, booksellers cannot import and sell the same title in commercial quantities.

As part of the COAG competition reform agenda, in November 2008 the Productivity Commission was asked to assess the effects of these restrictions on the community and to determine whether they should be retained, modified or repealed. In July this year, the Productivity Commission released its report, recommending (amongst other things) that the PIR on books be repealed.

The government stated that its decision not to remove the import restrictions was made in light of the ‘strong competitive pressure’ from international online retailers such as Amazon.com and the diffusion of e-books such as Amazon.com’s ‘Kindle’. The government took the view that this competition meant that the abolition of PIRs would not have ‘any material effect on the availability of books in Australia’.

Previous reviews have been conducted by the ACCC (and its predecessor) and other review committees in 1995, 1999, 2000 and 2001, with each of these reviews also recommending removal of PIR on books. Restrictions on parallel importing for recorded music and computer software were lifted in 1998 and in 2003, respectively.

Singapore coach operators fined for price fixing

The Competition Commission of Singapore (CCS) recently fined 16 coach operators and their trade association, Express Bus Agencies Association (EBAA), a total of S$1.69 million (approximately A$1.34 million) for breaching the Competition Act (Cap 50B) (Act) by agreeing to fix the price of bus fares from Singapore to various destinations in Malaysia.

The Act essentially prohibits agreements between, or collusive conduct by, businesses which have the object or effect of preventing, restricting or distorting competition within Singapore.

The 16 coach operators and the EBAA were found to have breached this prohibition by:

1. agreeing minimum selling prices for bus fares to specific destinations in Malaysia, and
2. agreeing to impose, and increase, fuel and insurance charges.

This is only the second infringement decision issued by the CCS since it was established in 2005. It therefore provides important practical guidance to the CCS’ approach to the application of competition law in Singapore.

In particular, it confirms the CCS’ position that it is not necessary for parties to expressly commit to a course of action for an infringement to be found. Rather, it will be sufficient that a party participates (even if not actively) in the discussion leading to the price fixing agreement and does not actively distance itself from the proceedings of those meetings.

Second, the CCS, which can only impose a financial penalty if it has found that the infringement was committed intentionally or negligently, rejected arguments by several of the parties that they should not be fined because they were unaware that the conduct was prohibited or, in the case of the EBAA, the law was unclear in relation to price recommendations. In relation to the coach operators, the CCS’ view was that ‘price fixing arrangements, as in this case, are serious infringements…which have as their object the restriction of competition, and are likely to have been, by their very nature, committed intentionally.’

Third, the case is a timely reminder of the need for businesses to review business practices in light of the Act. The CCS found that the conduct in question started as early as 2005, prior to the relevant provisions of the Act coming into effect, but continued through to 2008, when the CCS commenced its investigations. As the conduct continued well beyond the transitional period applying after the Act was introduced, this was reflected in the quantum of fine imposed on the parties.

ACCC and coordinated behaviour

Readers will know that the ACCC has for some time now advocated legislation to address the ongoing issue surrounding the meaning of ‘understanding’ in Part IV of the Act.³ Recently reported comments of the ACCC Chairman Graeme Samuel have added fuel to this debate with his use of the phrase ‘coordinated behaviour’ in the context of the petrol industry. As a result of the ACCC’s recent work focused on the petrol industry, Minister for Competition Policy and Consumer Affairs Dr Emerson wrote to the ACCC on 2 December 2009 requesting it to investigate possible anti-competitive behaviour in the setting of petrol prices in the weekly price cycle. The government has asked for initial advice to be provided before Christmas. We will accordingly report on any developments in this space in early 2010.

The partners and staff of Freehills’ Competition and Market Regulation group would like to take this opportunity to wish all of our clients and readers the best for the festive season.

Endnotes

1. ‘Access regime reform’, Competition & Market Regulation Update May 2009
2. Competition & Market Regulation Update September 2009
3. ‘The ACCC reports on the petrol industry’, Competition & Market Regulation Update February 2008 

More information

For information regarding possible implications for your business, contact a member of the Competition & Market Regulation team.