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Competition and Market Regulation Update April 2008

09 April 2008

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

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The ACCC’s grocery inquiry – an update

To date, the Australian Competition and Consumer Commission (ACCC) has received over 160 submissions to its grocery inquiry from supermarket chains (such as Coles, Woolworths, Aldi and Franklins), retailer associations, consumer representatives, manufacturers, primary producers’ associations, and private individuals. 

Key issues

The key issues raised in the submissions include:

ACCC Chairman Graeme Samuel has stated publicly that many of the submissions contradict each other, and that the ACCC intends to test the various claims made by 'cross-examining witnesses' and 'subpoenaing documents' in the course of a 'very rigorous inquiry'. 

Inquiry hearings to be conducted in April and May

Inquiry hearings will be conducted throughout April and May. The ACCC has emphasised that many attendees to the hearings will not be attending voluntarily. In particular, it has noted that it will summons all supplier companies, regardless of whether the company has offered to attend voluntarily. The ACCC will also use its powers to compulsorily acquire information if necessary.

Price monitoring system

The ACCC has also announced the introduction of a price monitoring system similar to that recently introduced in relation to retail petrol prices to allow consumers to identify the cheapest supermarket in their area.

The ACCC faces significant challenges in establishing an effective and fair price monitoring system. Issues include the identification of an appropriate basket of goods in respect of which to monitor prices, and how to avoid making misleading or unfair price comparisons (that is, ensuring that the prices of like products stocked by like retailers are compared). Unlike petrol retailers, grocery retailers stock a vast range of goods, which may differ from each other in respect of quantity and quality, and whether they are branded or unbranded. Grocery retailers themselves differ widely from each other in terms of the size of their stores, the extent of their product range, and their non-price offerings.

Further, the establishment and ongoing maintenance of a grocery price monitoring system will likely impose a significant burden on grocery retailers, who will be required to provide the necessary data.

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Federal Court decisions on disclosure of ACCC documents

Several recent Federal Court decisions clarify the circumstances in which a private litigant can obtain access to ACCC documents created in the course of an ACCC investigation into contraventions of the Trade Practices Act 1974 (Cth).

Korean Air Lines v ACCC

Background

In November 2007, as part of its ongoing investigation into price-fixing in the air cargo industry, the ACCC issued a section 155 notice requiring Korean Air Lines to provide information relating to fuel surcharges derived from air cargo in and out of Australia.  

Korean Air Lines challenged the validity of the notice in the Federal Court. In doing so, it sought access to documents created by senior officers of the ACCC prior to the date of the notice. The documents were internal documents relating to strategies being considered by the ACCC to commence proceedings against Korean Air Lines and/or settle the case with it and other airlines, as well as the officers’ reasons for recommending that the ACCC issue the section 155 notice.  

The arguments

Korean Air Lines argued that the notice was invalid because it was issued by the ACCC after it had decided to commence proceedings against Korean Air Lines (in which case information could only be obtained through discovery). It believed that the documents sought from the ACCC would demonstrate this. 

The ACCC argued that the documents sought were irrelevant. Alternately, it argued that even if the documents were relevant, it should not have to produce them because they were protected by legal professional privilege and/or public interest immunity.

The decision

Justice Jacobson held that the documents were not irrelevant but on inspection of the material he was satisfied that they should not be produced to Korean Air Lines. He found that the disclosure of such documents risked adversely affecting the ACCC’s ongoing investigation and the willingness of potential whistleblowers to provide information to the ACCC on cartel activity.

The decision turns on the facts

In our March newsletter we discussed the Cadbury Schweppes v Amcor decision in which it was held there was no public interest in keeping documents secret after the conclusion of an ACCC prosecution in which the documents were filed in court. The decision in Korean Air Lines v ACCC suggests that the situation is different where the investigation is ongoing and the documents are for internal use and are not intended to be relied on in court during the course of proceedings.

Cadbury Schweppes v Amcor – an update

In a previous decision discussed in our March newsletter, the Federal Court found that 111 documents created during the ACCC’s investigation/prosecution of Visy for price fixing were not protected by legal professional privilege and/or public interest immunity. 

At that time the court reserved its decision on whether an implied undertaking given by Visy to the court upon receipt of those documents prevented their disclosure to Cadbury Schweppes in its subsequent damages action against Amcor and Visy.
 
The court has now ordered that Cadbury Schweppes may access these documents. It held that the production of the documents is in the interests of justice and that any implied undertaking given to the court gave way to the subsequent discovery obligations of the parties to Cadbury Schweppes’ damages action.

The order has been stayed until 28 April 2008 so that the ACCC may apply for leave to appeal to the Full Court before the documents are produced.

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The ACCC blocks Sumitomo’s acquisition of Carter Holt Harvey’s Australian wood products businesses

The ACCC has opposed the acquisition by Sumitomo of part of Carter Holt Harvey’s Australian wood products business.

The ACCC provided its reasons for opposing the acquisition in a Public Competition Assessment (PCA). This is the first PCA released by the ACCC since the publication of its new Draft Merger Guidelines and it provides an insight into how the ACCC is likely to approach merger analysis once the draft guidelines are finalised.

The ACCC opposed the acquisition on the basis that it was likely to: 

The key concerns expressed by the ACCC in relation to the merger were:

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Telstra loses High Court case

The High Court of Australia has rejected a submission from Telstra relating to the application of the telecommunications access regime established by Part XIC of the Trade Practices Act 1974 (Cth) (Act).

Telstra had argued that the application of the key access provisions in the Act to the local loop was beyond the legislative competence of the Parliament by virtue of section 51(xxxi) of the Constitution, which enables the Commonwealth to legislate for the acquisition of property ‘on just terms’. 

The provisions

Section 152AL(3) of the Act allows the ACCC to ‘declare’ a service for the purpose of the access provisions. Once a service is declared, the owner of the facility becomes subject to the ‘standard access obligations’ set out in section 152AR, which grant other service providers access to the facility in direct competition with the owner. 

The threshold for the constitutional claim

Telstra submitted that the access arrangements were an ‘acquisition of property’ attracting the operation of section 51(xxxi) of the Constitution because the local loops need to be physically disconnected from Telstra’s equipment in order to be connected to a competitor’s equipment.

In response, several of the defendants suggested an acquisition did not occur as a competitor could not be said to take ‘possession’ of the loops when they were made available by Telstra pursuant to its access obligations.

The decision

The court rejected Telstra’s arguments.

In essence, the court held that the legislative steps which led to Telstra’s ownership of the public switched telephone network were ‘accompanied by measures which gave competitors of Telstra access to the use of the assets of the network.’ The ‘bundle of rights’ vested in Telstra was never absolute but rather subject to the access rights of its competitors. The impugned provisions did not alter these rights or represent an acquisition of these rights in any way.

Given the court’s finding that there was no ‘acquisition of property’, it was not necessary to determine whether the terms of the access arrangements were ‘just’ because section 51(xxxi) had no application.

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United States Government fails in its bid to extradite Mr Norris on price fixing charges

A recent decision of the House of Lords relating to the common law offence of ‘conspiracy to defraud’ for price fixing arrangements is of interest to the Australian debate on whether ‘dishonesty’ should form part of the proposed cartel offence.

The narrow approach taken by the House of Lords in this case suggests that cartels are not, in their very constitution, dishonest and criminal. The implications of this decision is likely to influence the Australian Government in its consideration of submissions made in response to its Exposure Draft of the proposed cartel offence.

The House of Lords’ decision

The House of Lords has denied the United States of America’s application for Mr Norris’ extradition to face criminal charges for price fixing during his employment as the CEO of Morgan Crucible.

The United Kingdom’s Extradition Act 2003 allows extradition only if the alleged conduct is criminal in both the United Kingdom and the country requesting extradition. The Australian Extradition Act 1988 (Cth) contains a similar requirement.

The first count of the charge against Mr Norris in the United States was a statutory offence of participation in a cartel, an offence which does not require a finding of dishonesty. The House of Lords held that in the United Kingdom participation in a cartel was not an offence under the common law unless it was accompanied by aggravating conduct such as fraud, misrepresentation, violence, intimidation or inducement of a breach of contract.

In essence, the United States Government’s application was denied because its extradition request did not allege any aggravating features—that is, it did not allege Mr Norris had acted dishonestly. The House of Lords held that in determining whether the requirements of the Extradition Act 2003 are satisfied, it is the conduct that is alleged that matters, not the specific elements of the offence charged by the government making the request.

It is still possible that Mr Norris may be extradited on the basis of other counts of the indictment, which allege that he engaged in various forms of obstruction of justice.  After finding that these are indictable offences, the House of Lords remitted the matter to the district judge to decide whether extradition on these counts is incompatible with Mr Norris’ rights under the United Kingdom’s Human Rights Act 1998.

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In brief

Therapist jailed for failure to comply with section 155 notice

The Federal Court has sentenced Mr Paul Rana to six months imprisonment for his failure to comply with a section 155 notice issued by the ACCC during its 2007 investigation into conduct of the NuEra Wellness Centre Pty Ltd.  In addition, NuEra was fined $6000 and Mr Rana’s son was given a suspended sentence for his involvement.

Mr Rana’s sentence represents the first conviction for a refusal or failure to provide information/documents to the ACCC in response to a section 155 notice.

Draft legislation to address component pricing

The Commonwealth Government has released a draft Bill for public comment which would prohibit advertising to consumers that does not disclose the full price to be paid for products and services offered. The Bill is aimed at ensuring consumers are able readily to identify the total price they will pay and thus are better equipped to compare the price of like products.

The single figure price that must be advertised under the Bill is that which is quantifiable at the time that the representation is made. This qualification may limit the effectiveness of the Bill in circumstances where a component of the overall price to the consumer may be subject to change up to the date of the actual purchase.

Western Australian residents win right to bet on Betfair

A betting exchange in Tasmania and a punter in Western Australia joined forces to successfully challenge an amendment to the Western Australian Betting Control Act 1954. The disputed amendments made it an offence for people located in Western Australia to use Betfair’s service or for Betfair to publish the Western Australian race field on its internet site. 

The High Court found that the amendments were invalid as they were in effect a ‘discriminatory burden of a protectionist kind’ contrary to the requirement of section 92 of the Constitution that trade among the states be ‘absolutely free’. 

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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