On 19 October 2006, the Federal Parliament finally passed the
Trade Practices Legislation Amendment Bill (No.1) 2005 ("The Legislation”). The Legislation enacts many of the reforms recommended by the Dawson Review, an independent review of the Trade Practices Act 1975 (Cth) ("The TPA”) chaired by Sir Darryl Dawson. The amendments, which will come into force on 1 January 2007, represent some of the most significant changes to the TPA since its implementation.
The main changes to the TPA as a result of the passing of the Legislation are set out in this article. It is important that businesses are aware of these changes and the implications that these may have for them, and for directors and other individual members of their organisations.
Merger clearances and authorisations
In our articles in the June and August editions of Legal Talk, we outlined the Australian Competition and Consumer Commission’s ("the ACCC”) Merger Clearance and Authorisation System. The Legislation enacts changes to that system by introducing a new formal clearance option for companies who are merging with another company, or acquiring another company.
Under the present regime, companies in the process of a merger or acquisition which may raise competition concerns can take one of three paths:
(i) seek informal clearance of the merger or acquisition, which involves the ACCC giving an informal view that the transaction is not likely to breach the Trade Practices Act and/or that the ACCC will not oppose the merger or acquisition; or
(ii) apply for authorisation of the merger or acquisition on public benefit grounds; or
(iii) not approach the ACCC at all, and run the risk that the merger or acquisition may breach the TPA, or that the ACCC may challenge the merger or acquisition.
The new formal merger clearance system provides an additional alternative, allowing parties to a merger or acquisition to seek a formal clearance of the transaction from the ACCC. If clearance is granted, the parties to the merger or acquisition will be immune from legal action initiated by the ACCC or any third party in relation to the merger or acquisition. Under the formal clearance procedures, the ACCC must decide whether it is going to oppose the merger or acquisition within 40 business days of the request for clearance (although this may be extended to 60 days in certain circumstances). In addition, the new system provides a right of appeal to the Australian Competition Tribunal ("the Tribunal”), if the ACCC says it will oppose the proposed transaction.
In addition, applications for authorisation of a proposed merger or acquisition on public benefit grounds will now be made to the Tribunal, rather than the ACCC.
Non merger authorisations
The Legislation has streamlined the process for companies wishing to apply for authorisation of conduct which would otherwise be in breach of the Trade Practices Act (apart from Merger Authorisations). The ACCC must now make a decision about an application for authorisation within 6 months (although this can be extended with the consent of the applicant).
Joint ventures and exclusionary provisions
From 1 January 2007, the TPA will provide a new defence for Joint venture companies in relation to price fixing and exclusionary provisions (boycotts). Joint venture companies will not breach the TPA if the company proves that the price fixing or exclusionary provision is for the purposes of the joint venture, and does not have the effect of substantially lessening competition in the relevant market.
New rules for dual listed companies
The Legislation changes the way in which dual listed companies are treated. The amendments allow a dual listed company to treat intra-party transactions on the same basis as related party transactions within a group of companies. In addition, the aggregate size of a dual listed company can be taken into account for the purposes of assessing market power.
Perhaps more importantly, the formation of dual listed companies will be prohibited where it would substantially lessen competition in the market (subject to ACCC authorisation).
Collective bargaining for small businesses
The amendments to the TPA will bring in a new notification process under which small business can bargain collectively with large businesses without breaching the prohibitions on price fixing, exclusionary provisions and anti-competitive behaviour, if the total price of goods or services to be supplied is expected to be under $3million in any 12 month period. There is also a provision to allow a higher transaction limit to be set by regulations, and the Government has already indicated that businesses with a high turnover, but small profit margins (such as motor vehicle dealers, petrol station owners and farm equipment retailers) may be suitable for a higher transaction limit.
Under the notification process, small businesses must notify the ACCC of the proposed collective bargaining and, if the ACCC does not object within 14 days of the notification, the business which has notified the ACCC receives immunity from legal action in respect of collective bargaining for three years.
Third line forcing
The Legislation amends the third line forcing provisions, so that related companies will be treated as a single entity for the purposes of third line forcing. This means that a company which supplies goods or services on condition that a good or service is also purchased from another company will not be in breach of the TPA if the other company from whom the good or service is to be purchased is a body corporate related to the initial supplier.
However, apart from this, the general prohibition on Third Line Forcing remains.
Increase in penalties for companies
From 1 January 2007, there are significant increases to the penalties for breaches of the competition law provisions contained in Part IV of the TPA. The penalty for a company found to be in breach will now be the greatest of:
- 3 times the value of the benefit that the body corporate has obtained directly or indirectly as a result of the breach, as determined by a Court. If the Court cannot determine the value of the benefit, it can instead calculate10 per cent of the annual turnover of the body corporate and all its related companies during the 12 months prior to the breach.
Prevention of indemnities for corporate officers
Under the amended TPA, companies will not be able to indemnify officers for liability for breaches of Part IV of the TPA. This means that company officers who are ordered to pay a penalty under Part IV will not be able to have the penalty, or any costs incurred in defending the proceedings, paid by the company for which they work. A corporation can, however, indemnify an officer who wins the proceedings, and indemnify lower level employees and agents who are not officers.
Further, the Courts will be able to disqualify a person from managing a corporation if the person has contravened, or attempted to contravene, or has been involved in a contravention of Part IV of the TPA, and the Court thinks that disqualification is justified.
Enforcement
The Amended TPA has increased the search powers of the ACCC. Where previously, the ACCC had the power to enter premises and inspect documents, the amended TPA will provide the ACCC with the ability to search premises and seize documents, and conduct dawn raids. However, this is balanced by a new provision which requires the ACCC to obtain the consent of the occupier to enter the premises, or a warrant from a magistrate before carrying out the search and seizure.
If the occupier consents to the ACCC entering the premises, the ACCC may only do so if it has reasonable grounds for suspecting that there may be relevant material on the premises. On entering the premises, the ACCC may search the premises and make hard or electronic copies of material, or remove copies. However, it may only remove originals with the occupier’s consent.
If the ACCC enters the premises with a search warrant, it can search the premises and make copies of, or seize, material. It can also operate electronic equipment on the premises to locate material.
Conclusion
These changes are significant and will assist businesses by allowing them greater latitude in relation to some of the technical offences, and offering them greater certainty in relation to mergers and acquisitions. However, the changes also increase the consequences of breaching the TPA for companies and individuals.
The Government has indicated that, following the entry into force of the amendments on 1 January 2007, it will proceed with introducing Bills to enact the remainder of its proposed trade practices reforms, including introducing criminal penalties for cartel behaviour, and changing the prohibitions on misuse of market power and unconscionable conduct. We will review any such reforms as they are passed.
