The ACCC has applied to the Federal Court for a judicial review of the Australian Competition Tribunal’s recent Tabcorp/Tatts merger authorisation decision.
I outlined the Tribunal’s Tabcorp decision in an earlier blog (Tribunal Clears Tabcorp/Tatts Merger (ACL Blog, 30 June 2017)) and provided some more detailed information and case extracts on my my Tabcorp case page).
Briefly the Tribunal has the power to authorise a proposed merger/acquisition (s 95AT) on public benefit grounds, provided satisfied that the ‘proposed acquisition would result, or be likely to result, in such a benefit to the public that the acquisition should be allowed to occur’. Once authorised the merger will not contravene the merger provision in the Competition and Consumer Act 2010 (s 50), which prohibits acquisitions which would have the effect (or likely effect) of substantially lessening competition in a market.
On 22 June 2017 the Tribunal announced it would grant authorisation to Tabcorp for its proposed acquisition of Tatts, subject to a condition that Tabcorp sell its Odyssey gaming monitoring operations. The public benefits justifying the merger were predominantly in the form of cost synergies and improved efficiencies; importantly, the Tribunal did not consider there would be a substantial lessening of competition in any market. It concluded:
The benefits to the public which the Tribunal has found to exist, and which it has taken into account, are substantial. There are no material detriments weighed in the balance which are of significance or likely to arise that outweigh the benefits (para 539)
ACCC alleges three reviewable errors
There is no appeal on the merits from a decision of the Tribunal in relation to a merger authorisation. The ACCC is, therefore, applying for judicial review of the Tribunal’s decision, alleging three reviewable errors (see ACCC Media Release, 10 July 2017):
1. the Tribunal’s ‘reasoning that it could only conclude that the proposed acquisition was likely to result in a detriment if the Tribunal concluded that there would be a substantial lessening of competition’. The ACCC claims this reasoning involves an incorrect application of the statutory test and is inconsistent with previous decisions (where any lessening of competition has been considered a detriment capable of being balanced against benefits). In this respect, the Tribunal (para 220 of the judgment) stated:
[para 220] … analysis of the counterfactual is only necessary if analysis shows that the merger is likely to result in a detriment; and we can only reach that point if the Tribunal concludes that there will be a substantial lessening of competition in the market for consumer wagering services. ..
2. the Tribunal’s ‘failure to compare the likely future state of competition both with and without the proposed acquisition’ which, the ACCC notes, the Tribunal considered unnecessary absent a finding of a substantial lessening of competition. The ACCC argues that without analysis of the ‘future with and without’ the merger: ‘it is impossible to isolate and assess the impact of a merger from other factors in the market that would occur absent the merger.’
3. that the Tribunal erred in the weight it gave to benefits ‘which would be retained by Tabcorp and not shared with consumers more broadly’, arguing that the ‘weight attributed to such private benefits [should] be discounted relative to benefits that flow to consumers’.
No merits based appeal … at the moment
As noted above, there is no appeal on the merits from a decision of the Tribunal in relation to a merger authorisation.
Dawson Report (2003) results in removal of merits based appeal
Th controversial removal of merits based appeal followed a recommendation from the Dawson Committee (rec 2.3.2 ‘there should be no review on the merits of the Tribunal’s decision’). The Dawson Committee also recommended that the power to grant merger authorisations be removed from the ACCC at first instance (whose decision was then capable of being appealed on the merits to the Tribunal) and be given to the Tribunal. This was largely on the basis that time taken by the ACCC and risk of third party intervention ‘by way of appeal to the Tribunal’ rendered the then existing authorisation process ‘commercially unrealistic’ in many cases. The Committee considered that the authorisation process çould be made more attractive to business by making it more timely and reducing uncertainty’ and this could be achieved by enabling parties to proceed directly to the Tribunal (Dawson Report page 69).
These recommendations were enacted as part of the Dawson reforms, with the Tribunal given first instance merger authorisation powers in 2007. Despite the Dawson Committee’s view that granting first instance power to the Tribunal would make the authorisation process for mergers more attractive, the first direct authorisation application was not made to the Tribunal until 2014. Since, then, however, the Tribunal has been called on to make three determinations in authorisation applications and has approved them all.
Harper Report (2015) and resulting legislation will restore merits based appeal
The Harper Panel recommended (rec 35) combining the current merger authorisation and formal clearance processes and restoring first instance decision making to the ACCC. The ACCC should, it recommended, be empowered to authorise a merger if satisfied either that it does not substantially lessen competition or that the merger would result in a benefit to the public that would outweigh any detriment. Merits appeal to the Tribunal should then be allowed.
The Competition and Consumer Amendment (Competition Policy Review) Bill 2017 will, if passed, give effect to this recommended change. Notably, the ACCC will once again become the decision maker at first instance and be subject to merits review by the Tribunal.
For news on the ACCC’s application for judicial review see:
- John Durie, ‘ACCC’s Tabcorp-Tatts merger appeal means all bets are still off’ (The Australian, 11 July 2017)
- John Dagge, ‘ACCC appeals over Australian Competition Tribunal ruling on Tabcorp-Tatts merger’ (Herald-Sun, 11 July 2017)
- John Durie, ‘ACCC appeals competition tribunal’s approval of Tabcorp-Tatts merger’ (The Australian, 10 July 2017)
- Max Mason and James Thomson, ‘ACCC appeals Tabcorp merger approval to get clarity on competition laws’ (AFR, 10 July 2017)
- James Thomson, ‘Plenty at stake for ACCC in Tatts-Tabcorp merger appeal’ (AFR, 10 July 2017)
- James Thomson, ‘ACCC to appeal Competition Tribunal approval of Tabcorp-Tatts Group merger‘ (AFR, 10 July 2017)
- Nick Toscano, ‘ACCC applies for Federal Court review of Tabcorp-Tatts merger’ (SMH, 20 July 2017)
For a discussion of the Dawson Reforms in relation to mergers see:
For discussion of the Harper Recommendations on mergers see
- Allens><Linklaters: Mergers – Learn More
- King & Wood Mallesons, ‘Draft legislation reflects Harper recommendation to streamline formal merger clearance process’ (5 September 2016)