Australia: Amendments to the Trade Practices Act Now In Effect

Recent amendments to the Trade Practices Act (TPA) in effect from 1 January 2007 change the application of significant competition law provisions in the TPA and some ACCC procedures. This Update identifies the key changes and discusses their impact.

1. Mergers and acquisitions:

• New formal clearance system introduced (in addition to the informal clearance system).

• Direct access to the Australian Competition Tribunal (ACT) for authorisation of a merger.

2. Authorisations

• Statutorily enforceable six month time limit for decisions.

3. Collective bargaining

• New notification process that could benefit SMEs.

4. Joint Ventures

• New price fixing and primary boycott exceptions.

5. Dual listed companies

• Intra party transactions now treated as intra group transactions between related companies.

6. Third line forcing

• Related bodies corporate exception.

7. Enforcement

• New ACCC search warrant powers.

8. Penalties

• Significant increases, and new ways to calculate penalties.

• Prohibition on indemnifying officers for penalties and legal costs arising out of Part IV proceedings.

• New power to disqualify directors.

9. Local government bodies

• Increased protection from TPA.

From 1 January 2007 your options are:

• Existing informal clearance procedure seeking a non binding ACCC 'no action' letter

• NEW: a voluntary formal and binding clearance procedure with statutory time frames and a right of appeal to the Australian Competition Tribunal.

• NEW: Authorisation procedure straight to the ACT, without the need to go through the ACCC first.

Further details on the changes to the merger approval process and authorisations can be found in our Merger Monitor publication for December 2006. This publication can be downloaded at http://www. dlaphillipsfox.com/publications/RecentPublications.asp.

Non-merger authorisation applications must now be determined by the ACCC within 6 months of the application being received. If no determination is made by the ACCC within that time, the ACCC is taken to have granted the application.

This notification will allow competitors in an industry coming together to do such things as negotiate the terms and conditions and exempts certain collective bargaining arrangements from section 45 of the TPA. While authorisations will still be available for such arrangements, the notification procedure is intended to be less time consuming and so less costly for small business applicants. It is meant to cover arrangements where two or more competitors come together to negotiate terms and conditions, including price, with a supplier or customer.

When a collective bargaining notification is lodged, the ACCC will only object to, or revoke, the notification if it is of the view that the public detriment would outweigh the public benefits. There is a relatively short time frame in which the ACCC’s consideration must occur.

There are limitations on who can apply. Each party named the notice as a member of the group must reasonably expect that the value of the transaction it will conduct with the ‘target’ under the arrangement will not exceed $3 million in any 12 month period.

The notification will only stand for 3 years.

Provisions in the TPA relating to price fixing had defences for persons involved in joint ventures. These have been amended so that they are now in line with the new exemption for primary boycotts in which a joint venture may be engaged.

To use the defence, joint venture parties need to show that the price fixing and/or primary boycott:

• is for the sole purpose of the joint venture, and

• does not have the purpose, effect or likely effect of substantially lessening competition.

A dual listed company (DLC) structure involves two companies agreeing to operate their businesses as if they were one enterprise, even though they retain their separate legal identities and existing stock exchange listings. They usually have a common board of directors who govern both companies as if they were a single entity. For example, BHP Billiton Limited in Australia used a dual listed company structure with BHP Billiton PLC in the UK to facilitate their international expansion.

However, from a competition law perspective, DLCs have not been considered to be a single economic entity. Therefore, agreements between two companies to form and run a DLC can contravene prohibitions against primary boycotts, price fixing and anti-competitive agreements.

The amendments provide that intra-party transactions in DLCs will be regarded as transactions between related companies. This means that DLCs will be able to utilise exemptions that exist in the TPA for related companies. However, the formation of a DLC can still be prohibited if it has the purpose, effect or likely effect of substantially lessening competition, unless it is authorised by the ACCC on public benefit grounds.

This is a form of exclusive dealing, in which the supply of goods or services is offered or supplied on the condition that the buyer acquires other goods or services from another person. For example, it can include a bank offering to make home loans on condition that borrowers take out building insurance with a particular insurance group nominated by the bank.

However, a requirement that a buyer acquire other goods or services from a company related to the supplier is no longer regarded as third line forcing. For example, a requirement that an importer acquire road freight services from a liner shipper’s wholly owned subsidiary will not be regarded as third line forcing.

The ACCC must now obtain a search warrant from a Federal Court Magistrate before searching premises and seizing documents if the occupier of the premises does not consent to entry.

During the execution of the search warrant, the ACCC may require a person at the premises to answer questions or produce evidential material to which the warrant relates. While the person is not excused from answering a question or producing evidential material on the grounds of self-incrimination, the answers or material so provided are not generally admissible as evidence against the person in either criminal proceedings or civil penalty proceedings.

(a) Amounts

The maximum penalty is now the greater of:

• $10 million

• Three times the 'value' of the contravention to a corporation (and related bodies corporate) or

• 10% of the turnover of the body corporate (and related bodies corporate) if the court is not able to calculate the value of the contravention.

(b) Prohibitions on indemnification

It is now a criminal offence for corporations, or related corporations, to indemnify a person against:

• A liability to pay a pecuniary penalty for contravening Part IV of the TPA incurred as an officer of the corporation; or

• Legal costs incurred in defending or resisting proceedings in which a person is found to have such a liability.

(c) New disqualification power

The Court may, on application by the ACCC, make an order disqualifying a person from managing corporations for an ‘appropriate’ period if the Court is satisfied that the person has contravened Part IV of the TPA and that the disqualification is justified.

In determining whether the disqualification is justified, the Court may have regard to the person’s conduct in relation to the management, business or property of any corporation.

The TPA will now only apply to local government bodies to the extent that the local government body carries on a business. Carrying on a business may involve a local government body doing so directly or through a company. This amendment makes the application of the TPA to local government bodies consistent with its application to state and federal bodies.

Phillips Fox has changed its name to DLA Phillips Fox because the firm entered into an exclusive alliance with DLA Piper, one of the largest legal services organisations in the world. We will retain our offices in every major commercial centre in Australia and New Zealand, with no operational change to your relationship with the firm. DLA Phillips Fox can now take your business one step further − by connecting you to a global network of legal experience, talent and knowledge.

This publication is intended as a first point of reference and should not be relied on as a substitute for professional advice. Specialist legal advice should always be sought in relation to any particular circumstances and no liability will be accepted for any losses incurred by those relying solely on this publication.