Competition and Market Regulation Update December 2006: Year end review
19 December 20062006 at a glance
This months Competition Law Update examines the following key competition law developments of 2006 that will be of considerable importance during the coming year:
- new formal merger clearance—a new formal merger review procedure will be introduced from 1 January 2007
- penalties and sanctions—increased sanctions for individuals and companies together with the extension of the protection of joint venture collaborative activities (also from 1 January 2007)
- cartels and class actions—damages claims for competition law breaches.
New formal merger clearance
The key development for merger parties in the coming year is the introduction of a formal merger clearance procedure (a comprehensive summary is available here).
From 1 January 2007, parties proposing to merge will have the option of seeking formal merger clearance from the Australian Competition and Consumer Commission (ACCC). This process will sit alongside the existing options of informal ‘clearance’ and formal ‘authorisation’.
Formal clearance, if granted, will confer immunity from legal action for contravention of section 50 of the Trade Practices Act 1974 (TPA)—the provision prohibiting anti-competitive merger conduct. While the current ‘authorisation’ option confers immunity, informal ‘clearance’ does not.
The ACCC has recently released draft guidelines relating to the new formal merger clearance process and is seeking comments. Final guidelines will be published before the new process begins. The main features of the new merger process are:
- The acquiring party will be required to submit an application to the ACCC (in a form to be set out in the regulations), accompanied by an undertaking not to complete the acquisition while it is being considered by the ACCC. The draft guidelines suggest that the information required to complete the application is comprehensive.
- The ACCC must issue a determination within 40 business days of receiving a valid application.
- If the ACCC refuses formal clearance, or does not make a decision, the applicant may seek a review by the Australian Competition Tribunal (ACT). Third parties cannot apply for a review of clearances granted. The ACT has 30 business days to make its decision.
- Generally, all information formally submitted to the ACCC will be available publicly on the ACCC’s website. Although a merger party may request that the ACCC treat particular information as confidential, the ACCC may refuse or grant confidentiality at its discretion.
The new formal process will involve much stricter requirements than the existing informal process. Whether the formal process will be appropriate in a particular merger will depend on the complexity of the matter as well as commercial and strategic considerations. Overall, we expect that the majority of applicants will continue to use the informal process.
Competition law reform
Apart from the merger reforms, the most significant additional reforms for competition law cover:
- increased penalties—higher maximum penalties for anti-competitive conduct, being the greater of A$10 million or three times the gain from the contravention or, if the gain cannot be ascertained, 10 per cent of the Australian turnover of the company and all its related bodies corporate
- officers—an individual found to have contravened the Trade Practices Act 1974 (TPA) may be disqualified from being a director of a company or otherwise being involved in its management. Also, it will be an offence for a company to indemnify company officers for any fines or legal costs relating to contraventions of the TPA, and
- joint ventures—a new defence for joint ventures in relation to allegations of collaborative activity.
Disappointingly, third line forcing continues to be per se illegal—although the amendments do exclude from the per se prohibition the conduct of companies ‘forcing’ buyers to deal with related bodies corporate.
Cartels and class actions
While immunity obtained through the Australian Competition and Consumer Commission’s (ACCC) immunity policy will protect a party from proceedings brought by the ACCC, it will not protect parties from civil liability arising from harm caused to third parties.
Involvement in cartels could expose participants not only to significant financial penalties under the Trade Practices Act 1974, but also to considerable damages arising from private claims brought as class actions.
Class actions are significant in the United States and are likely to grow in importance in Australia in the coming year and beyond.
On class actions:
- A $200 million class action has been brought against Amcor by customers seeking compensation for losses arising from Amcor’s involvement in the alleged cartel (May edition of the Competition Law Update). The ACCC’s proceedings against Visy were instituted after Amcor ‘blew the whistle’ about an alleged cartel in an effort to secure immunity under the ACCC’s immunity policy. The way in which this matter develops could have a major impact on the ACCC’s immunity policy and the future of class actions in Australia. Also, Cadbury Schweppes lodged proceedings against Amcor on 15 December 2006. Cadbury is suing Amcor for $120 million for price fixing in the context of the alleged cartel behaviour.
- On 27 October 2006, the Federal Court approved a settlement for A$30.5 million after a class action was brought against three multinational pharmaceutical companies (August edition of Competition Law Update). The class action related to a worldwide cartel to fix the price for vitamin products. This settlement may encourage others to bring class actions in the future.
- In the case of Campbell’s Cash & Carry v Fostif the High Court indicated that it did not regard certain long standing criticisms of litigation funding as being contrary to public policy (September edition of the Competition Law Update). The court’s comments are likely to be influential and could pave the way for increased third party funding of class actions, including trade practices cases.
For more information please contact
Title : Partner
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Email : donald.robertson@freehills.com
Title : Partner
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Email : bob.baxt@freehills.com
Title : Partner
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Email : pauld.evans@freehills.com
Title : Partner
Office : Sydney
Phone : +61 2 9225 5286
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Email : michael.gray@freehills.com
Title : Partner
Office : Sydney
Phone : +61 2 9225 5697
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Email : paul.hughes@freehills.com
Title : Partner
Office : Melbourne
Phone : +61 3 9288 1416
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Email : chris.jose@freehills.com
