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Competition and Market Regulation Update September 2007

11 September 2007

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In this month's Competition and Market Regulation Update we explore the following developments:

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High Court rules that Crown immunity does not extend to Baxter

On 29 August 2007 the High Court, by a majority of six to one, overruled the Full Federal Court, and determined that Crown immunity from the Trade Practices Act (TPA) did not extend to Baxter Healthcare.

This decision means that businesses that contract with governments will not be able to count on Crown immunity from prosecution under the TPA. When contracting with governments, businesses will have to remain vigilant and comply with competition laws.

First instance decision of the Federal Court

On 16 May 2005, Justice Allsop in the Federal Court considered the ACCC’s allegation that Baxter Healthcare entered into exclusive, anti-competitive contracts with various state health purchasing authorities. The contracts linked the supply of sterile fluids (an industry in which Baxter was found to have market power) to the supply of certain dialysis products (a competitive industry). The ACCC alleged that Baxter had misused its market power and engaged in prohibited exclusive dealing. Although the judge found that Baxter had engaged in anti-competitive conduct, he dismissed the ACCC’s application on the ground that Baxter was entitled to Crown immunity or derivative Crown immunity. (For further discussion of the decision at first instance, see the Competition Law Update July 2005.)

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.

The High Court decision

On appeal to the High Court, the majority held that Crown immunity does not extend to third parties (unless it is necessary to protect the Crown’s proprietary, contractual or legal rights). The majority (Chief Justices Gleeson, Gummow, Hayne, Heydon, and Justice Crennan) noted that:

The majority concluded that Baxter could be subject to pecuniary penalties if it violated the TPA. Whether any injunctive or declaratory relief is appropriate may be a matter for the court below.

The case now returns to the Full Federal Court for further consideration of remaining issues, including whether Baxter’s conduct contravened sections 46 and 47 of the TPA.

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US$600 million in fines for British Airways and Korean Air Lines, as Qantas also prepares for DOJ fines

British Airways and Korean Air Lines have agreed to plead guilty and pay large criminal fines after charges were brought against them by the US Department of Justice (DOJ) in the US District Court.

The plea agreement will see each airline pay $300 million fines as a result of a global cartel between a number of high profile international airlines. British Airways and Korean Air Lines admitted to having been involved in price fixing in both the passenger and cargo markets where fuel surcharges were fixed with other airlines. (In some instances the fixed prices amounted to ten times the pre-cartel price.)

These large fines were based on the maximum US fines for criminal contraventions of the Sherman Act which can equal US$100 million or twice the gain made by the contravening corporation or loss suffered by victims of the contravention.

The investigations are still being pursued by the DOJ against other potential defendants. The cartel was detected in 2006 when Lufthansa and Virgin Atlantic admitted their involvement, making use of the DOJ’s leniency program and has since been the subject of a number of investigations by regulators around the world including the ACCC. A number of civil actions for remedies have also been brought against airlines for the conduct, including a $200 million class action launched in the Australian Federal Court in March (discussed in our Competition and Market Regulation Update March 2007).

Qantas has prepared itself for an expected DOJ fine arising out of its alleged involvement in the cartel, making a $47 million provision in its 2006/07 financial results.

The DOJ acknowledged the role of the United Kingdom’s Office of Fair Trading in securing the plea agreement. This matter is an important reminder for companies of the increasing level of cooperation taking place between law enforcement agencies in securing fines and, where applicable, prosecutions for breaches of competition laws.

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ACCC institutes proceedings against stevedores for collusion

The ACCC continues its crackdown on ‘cartels’. On 24 August 2007, the ACCC instituted legal proceedings against some former Patrick companies (now owned by Asciano or Toll) and former P&O companies (now owned by DP World). The legal proceedings were also instituted against former senior executives of those companies, including Mr Chris Corrigan, the former CEO of Patrick Corporation.

The ACCC alleges that the companies and senior executives contravened section 45 of the TPA by entering into agreements that had the purpose and likely effect of substantially lessening competition between the stevedoring companies in Sydney, Brisbane, Melbourne and Adelaide.

The agreements at issue include:

Former CEO of Patrick Corporation, Chris Corrigan has labelled the regulator’s allegations ‘outrageous’. He stated that the ACCC has known about AAT and its operation for six years. Further he expressed ‘absolute and total confidence’ that he in ‘no way engaged in improper conduct.’

Asciano, Toll and DP World were also named in the proceedings. Asciano has stated that the alleged conduct took place well before it became the owner of the Patrick businesses, and that it has been cooperating with the ACCC throughout the investigation.

The ACCC is seeking a range of remedies including injunctions, declarations, pecuniary penalties, and orders preventing the companies from continuing to give effect to the alleged agreements. The companies could be subject to pecuniary penalties of up to $10 million and the senior executives could be subject to penalties of up to $500,000 per contravention.

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ACCC and shareholders give Alinta acquisition tick of approval

On 13 August 2007, after accepting court-enforceable undertakings, the ACCC approved the acquisition of energy infrastructure owner Alinta by a consortium of Singapore Power International and Babcock and Brown listed funds (represented by Freehills). This cleared the way for one of the largest transactions in Australian corporate history.

According to ACCC Chairman Graeme Samuel, competition concerns arose in relation to:

These concerns were solved by the consortium giving structural and behavioural undertakings that require:

On 15 August, Alinta shareholders approved the scheme of arrangement, with 88 per cent of shareholders representing 97 per cent of the company endorsing the sale. The scheme became legally effective on 31 August 2007.

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Wesfarmers/Coles acquisition cleared!

The ACCC has decided not to intervene in the proposed takeover of the Coles Group by Wesfarmers Limited.

The ACCC determined that there would not be a substantial lessening of competition in any market, with particular regard to liquefied petroleum gas (LPG), hardware and related sectors:

This is a reminder that it is not the size of the deal that matters when seeking regulatory clearance; it is the level of competition and market dynamics.

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Divestitures secure ACCC approval of Healthscope-Symbion deal

The ACCC has decided not to oppose the acquisition of Symbion Health by Healthscope Limited, Ironbridge Capital and Archer Capital. The merger was found to be unlikely to substantially lessen competition under section 50 of the TPA, after certain undertakings were factored in.

We commented on the ACCC’s statement of issues in the Competition and Market Regulation Update July 2007 in which the regulator had raised concerns about key pathology markets in Victoria. In addressing these concerns, Healthscope has undertaken to divest pathology businesses currently operated by Symbion in the following areas: Gippsland, Benalla and Albury (New South Wales), as well as a Wangaratta pathology business operated by Healthscope.

The divestitures are to be made within a confidential timeframe and until the sales are finalised the businesses are to be managed by an independent manger in order to preserve their competitiveness. Without the undertakings, the ACCC was concerned that the merged entity would have been the sole or dominant service provider in the pathology services market in north-eastern Victoria and the Gippsland region.

The Symbion shareholder meeting to vote on the proposed merger is scheduled for 11 September 2007. The divestitures are widely regarded by analysts as not likely to significantly impact upon the financial benefits of the deal for Healthscope and its partners.

The ACCC’s decision ends regulatory uncertainty regarding the competition issues for a Healthscope-Symbion merger; however, it has not allayed uncertainty over the fate of Healthscope’s proposal. Rival Primary Healthcare has amassed a sizeable 19.99 per cent block holding in Symbion and has to date refused to provide further information regarding its intentions. Primary Healthcare has a number of options, including raising a rival bid. However, the market has speculated that Primary Healthcare is only interested in some of Symbion’s assets, most notably the New South Wales pathology business. Primary Healthcare may be using an approach taken by BlueScope Steel in the OneSteel-Smorgon merger, where it amassed a shareholding of 19 per cent of Smorgon and forced the two to the negotiating table. The tactic proved effective, with BlueScope securing a number of key assets.

We await with interest to see how the events unfold.

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In brief

Alinta Asset Management v Essential Services Commission: On 22 August 2007, the Victorian Supreme Court held that Alinta Asset Management must hold a gas distribution licence to operate the Multinet Gas distribution network, and must comply with the requirements of the National Third Party Access Code for Natural Gas Pipelines systems.

Union appeal against Trade Practices Act breach dismissed: The Full Federal Court in Melbourne dismissed an appeal by the Communications, Electrical, Electronic, Energy, Information, Postal, Plumbing and Allied Services Union of Australia (CEPU) against a Federal Court decision that CEPU had procured and induced a power station operator to contravene the TPA. The Full Federal Court also rejected the CEPU’s argument that the $125,000 penalty was manifestly excessive. For further discussion, see the February 2007 and April 2007 Competition and Market Regulation Updates.

Comments sought on Fairfax acquisition of Riverina: On 2 May 2007, Fairfax Media Limited (which has subsequently acquired Rural Press) acquired Riverina Media Group. Having only become aware of the acquisition after the company’s public announcement of the acquisition’s completion, the ACCC is now reviewing the acquisition taking into account Fairfax’s subsequent acquisition of Rural Press. The central issue arising out of the Statement of Issues is the aggregation of The Rural with The Southern Weekly Magazine and The Land Southern Extra (both formerly owned by Rural Press), all of which have a Southern New South Wales agricultural focus. The ACCC has used the opportunity to strongly encourage acquirers to approach the ACCC before a merger is completed.

Book printing joint venture opposed by the ACCC: The ACCC has decided to oppose a joint venture proposed by Griffin Press (a subsidiary of PMP Ltd) and McPherson’s Ltd. The proposal involved the creation of a new entity which would hold the combined assets of Griffin Press and McPherson’s Printing Division, where both PMP and McPherson’s would retain a 50 per cent stake in the entity. It was determined that the joint venture was likely to substantially lessen competition for the supply of mono (black and white) offset book printing. Griffin Press and McPherson’s represent the bulk of domestic mono book printing. Imports were deemed to be unlikely to sufficiently constrain the joint venture, and the two were found to have competed vigorously in supplying publishers.

For more information please contact



Name : Donald Robertson
Title : Partner
Office : Sydney
Phone : +61 2 9225 5523
Fax : +61 2 9322 4000
Email : donald.robertson@freehills.com
Bob Baxt
Name : Bob Baxt
Title : Partner
Office : Melbourne
Phone : +61 3 9288 1628
Fax : +61 3 9288 1567
Email : bob.baxt@freehills.com
Name : Paul D Evans
Title : Partner
Office : Perth
Phone : +61 8 9211 7712
Fax : +61 8 9211 7878
Email : pauld.evans@freehills.com
Name : Michael Gray
Title : Partner
Office : Sydney
Phone : +61 2 9225 5286
Fax : +61 2 9322 4000
Email : michael.gray@freehills.com
Name : Paul Hughes
Title : Partner
Office : Sydney
Phone : +61 2 9225 5697
Fax : +61 2 9322 4000
Email : paul.hughes@freehills.com
Name : Chris Jose
Title : Partner
Office : Melbourne
Phone : +61 3 9288 1416
Fax : +61 3 9288 1567
Email : chris.jose@freehills.com
Name : Michael Pryse
Title : Partner
Office : Melbourne
Phone : +61 3 9288 1636
Fax : +61 3 9288 1567
Email : michael.pryse@freehills.com
Name : Mark Darwin
Title : Partner
Office : Brisbane
Phone : +61 7 3258 6632
Fax : +61 7 3258 6444
Email : mark.darwin@freehills.com

This article provides a summary only of the subject matter covered, without the assumption of a duty of care by Freehills or Freehills Patent & Trade Mark Attorneys. The summary is not intended to be nor should it be relied upon as a substitute for legal or other professional advice.

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