The competition watchdog gets really serious

Any suggestion that the ACCC’s new chief would be a “friend of big business” may turn out to be wishful thinking.

When Graeme Samuel was appointed chairman of the Australian Competition and Consumer Commission (at first in an acting capacity and later with South Australia's "consent" on a permanent basis) there were many who felt that his appointment would not serve the small business community and consumers all that well.

Samuel was seen as being too closely aligned to big business. After all he had a strong business background and was a director of a number of companies before his appointment. However, those who had followed his career as president of the National Competition Council would have indicated quite clearly to the doubters that Graeme Samuel would be unyielding in pursuing the aims of the Trade Practices Act – the protection of the competitive process in Australia for the benefit of all Australians.

While many felt that the ACCC would be softer in dealing with mergers than under the previous chairman, others felt that he would at least find ways of facilitating important mergers that might raise competition concerns. Because of my close involvement with him over many years, I was not concerned at the criticism.

The ACCC's decision to "block" two important mergers or joint venture arrangements, (i) the sale of the Loy Yang power station in Victoria to a consortium led by the Australian Gas Light Company, and (ii) the joint venture between Qantas and Air New Zealand (which has its major impact in relation to Australia-New Zealand travel but also has an impact elsewhere) clearly indicates that Graeme Samuel will be tough.

The ACCC has taken what some may regard as a very hard line in relation to both matters and as a result we are likely to see two very important court cases which will deal with aspects of the Trade Practices Act that have not been tested for some time in the courts.

Qantas and Air New Zealand have indicated that they will seek a reconsideration of the ACCC's decision in relation to their joint venture arrangements from the Australian Competition Tribunal. The tribunal is headed by a Federal Court judge but will also have two "lay" members. This is a situation where the tribunal will have to review the particular transaction afresh. It will have to consider whether, notwithstanding the fact that there may be anti-competitive elements in the arrangements between Qantas and Air New Zealand, that the benefits that flow from the arrangements are sufficient to outweigh those anti-competitive detriments. In this particular process the ACCC will have to act as amicus tribunal – that is will have to assist the tribunal in carrying out its work.

In that context, while it can clearly put forward the views that it believes have justified its decision not to authorise the transaction, it will have to gather information and evidence and provide it to the tribunal. Others will also be able to make submissions and the tribunal will decide the matter on the basis of all of the information before it. It should not be swayed particularly by the views of the ACCC (although of course if they are well argued they will be very relevant). One can be certain that this will be a very hard-fought matter.

It is important to note, in relation to the Qantas-Air New Zealand transaction that the New Zealand Commerce Commission (the equivalent body to the ACCC) has yet to make its determination. By announcing the Australian decision some weeks earlier than had originally been anticipated Graeme Samuel has clearly signalled his desire to adopt an independent stance in relation to such matters.

The sale of Loy Yang is being tested in the court but in a different way. AGL and the consortium it leads have indicated preparedness to complete the deal. This meant that if the sale went ahead the ACCC would either have to seek an injunction from the Federal Court preventing the sale going ahead or alternatively the ACCC could wait for the deal to be completed and then seek divestiture – that is a break-up of the agreement. Instead AGL has sought a declaration from the Federal Court that the relevant merger does not breach the TPA. This is a fairly unique process for testing the question the merger is anti-competitive. The hearing is like to take place in mid-November.

At the same time as the ACCC has taken a stance in these two merger matters it has submitted to the Senate Inquiry into sections 46 and 51AC of the legislation (dealing with misuse of market power and unconscionable conduct) that the law is inadequate to protect small business and the competitive process and it should be changed. It had been thought that the ACCC might not have sought any significant changes to the legislation allowing the courts more time to develop through court cases great understanding of these provisions. There have been a number of leading cases – the Boral case (Law Reporter, November 1999) and the Safeway and the Universal cases (May, 2002).

However, the political pressure brought to bear on both by the ACCC and on the Government by opposition parties and small business in particular, has led to a "rethink" on the part of the ACCC as to the stance it should take on these provisions. Accordingly, the ACCC's submission to the Senate inquiry is quite "interesting" seeking changes both to section 46 and to section 51AC.

The ACCC's suggested changes to section 46 are more technical in nature, suggesting that the legislation be rephrased to make it clear that more than one company can have market power in a particular market. In my view that position is already the law and the only reason that we have had no ruling on this particular issue is because there has been no case that has actually been run in the courts alleging such matters.

Litigation against Qantas, currently before the Federal Court, may well lead to a different perception as to what the section means. Furthermore, the ACCC wants to make it easier to establish a breach of the legislation where predatory pricing (below cost pricing) occurs. The High Court in the Boral case held that Boral could not be effectively engaging in anti-competitive predatory pricing (or predatory pricing in breach of the legislation) because it had no market power. Again, what the ACCC seems to want in the legislation is a test that would make normal business behaviour – where competitors really attack each other vigorously trying to capture market share – subject to potential breaches of the legislation. This would be contrary to the rulings in a number of High Court cases and the purpose behind section 46.

The ACCC has also sought significant changes to the unconscionable conduct provisions of the Act as it affects small business – section 51AC. The ACCC proposes that the monetary benchmark, currently set at $3 million by the legislation, be removed. The ACCC also believes that the unconscionable conduct provisions of the legislation should apply to all types of business not just to small business.

It has also recommended that where contract clauses which are in effect "take it or leave it clauses" should also be subject to a prohibition under section 51AC. These submissions, as noted earlier, have gone to the relevant Senate committee. It will have to consider these in the context of other submissions being made by both big business and small business.

One suspects that the Federal Government may have to make a political decision on how it will compromise these different submissions if it wishes to progress through Parliament the recommendations of the Dawson Committee which reported to the Federal Government in February 2003 recommending some changes to the administration of the merger provisions of the Act, the imposition of a publicity code of conduct on the ACCC, and various other changes including the introduction of criminal penalties for price fixing and cartel behaviour.

Clearly we are in for a very interesting and uncertain times as far as the operation of the Trade Practices Act is concerned and the administration of it by the ACCC.

The suggestion that Graeme Samuel would be a "friend of big business" and would probably facilitate many more transactions than perhaps had been facilitated previously by the Commissioner may turn out to be wishful thinking.

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