ACCC Chairman, Rod Sims, yesterday delivered a speech at the annual Law Council of Australia’s Business Law Section Competition and Consumer Committee Workshop. He addressed three broad issues:
- the ACCC’s compliance and enforcement mix
- investment in the ACCC’s criminal cartel unit
- merger enforcement
He also made two key announcements:
- that the ACCC is commencing a new review of its cartel immunity and cooperation policy in light of recent experience with criminal cartel investigations; and
- that the ACCC will be taking a more document-heavy approach to its review of contentious mergers with the result that in those cases there would be more s 155 notices and some lengthening of ACCC timelines
Notwithstanding the buzz surrounding this week’s criminal cartel conviction, it was Sims’ remarks on merger enforcement that have, and will continue, to generate the most interest in the legal and business community.
The ACCC’s new approach to contentious mergers
The ACCC’s current approach to mergers
Most merger review in Australia takes place informally, with the ACCC examining mergers of potential concern and in some cases engaging in public review to determine whether they will or will not oppose a merger (or whether undertakings (‘remedies’) might alleviate competition concerns).
There is no requirement to notify mergers to the ACCC for clearance and there is no statutory prohibition on them concluding a merger even if the ACCC objects, although to do so would risk inevitable legal challenge from the ACCC (as in Metcash).
This informal process has worked well for most mergers, offering flexibility and a level and nature of engagement with the ACCC which would necessarily be more limited under a more formal statutory approach. Sims observes in his speech that in the past financial year:
‘288 mergers were assessed by the ACCC of which 88% were pre-assessed on the basis that the [substantial lessening of competition] risk was low. On the whole these have been dealt with expeditiously with 72% completed within 15 business days reflecting our objective to deal with non-contentious matters efficiently. …’
The remaining 33 mergers were subject to public review.
Nevertheless, for contentious mergers there have been some concerns about delays and in recent years three proposed mergers have bypassed the ACCC and proceeded directly to the Tribunal seeking authorisation, no doubt encouraged by the legislative maximum timelines that apply to authorisation applications as well as the ability for the Tribunal to consider more broadly any public benefits that may be associated with the merger (including efficiencies). All three such applications have been successful; most recently the Tabcorp/Tatts deal which was approved over objections from the ACCC.
The ACCC did not fare any better in the only recent merger decision to be contested in the Courts (Metcash).
Sims acknowledged that the ACCC’s ‘track record on opposing mergers in the Tribunal and Court has not been good’, with no mergers being blocked by either the Tribunal or the Court ‘for at least the last 20 years’.
What’s the problem?
Sims observed that one of the criticisms directed to the ACCC in relation to its approach to mergers in these marginal cases was that the ‘decisions to oppose were theoretical and lacking in commercial reality’. The result is that the ACCC’s
‘current approach to merger review and litigation preparation is not resulting in adequately probative and persuasive evidence for the Tribunal or Federal Court of the likely anti-competitive effects of the proposed acquisitions.’
What’s the solution?
Sims observed that a particular challenge was to ‘find and present evidence that tests the claimed commercial views presented by the merger parties’ executives at the time of the hearing’ and noted that the ACCC had turned to overseas agencies with a more successful track of merger litigation (in particular the US and Canada) for guidance on how to improve their approach.
The problem, Sims suggested, was that the ACCC’s ‘relatively light approach to document production’ meant that they relied heavily on witness statements as providing evidence of competitive harm.
This needed to change for the concerns to be addressed. In the future more evidence of company documents pre-dating the merger would assist the ACCC and, to facilitate this, ‘for a small number of contentious mergers’ the ACCC will be ‘gathering substantially more evidence’ so that if the matter comes before the Courts or Tribunal’s the ACCC will be in a position to better assist those bodies. More evidence will also assist in the ACCC’s decision making. Notably, Sims conceded that this is a ‘change from past practice’ and:
will result in an increase in the number of s155 notices, involving examinations under oath and significant document requests [and] definitely increases the burden on the merger parties and the ACCC.
This more document-heavy approach will also, Sims conceded, impact on timing, with the result that parties can expect to see some lengthening of ACCC timelines on contentious mergers. Sims did note, however that the ACCC would ’continue to have regard to commercial timing pressures’ and that the ACCC’s timelines are also likely to remain shorter than those of its overseas counterparts.
A strategic approach to achieving compliance
Sims also discussed the importance of taking an ‘integrated’ approach to changing industry behaviour. In particular, enforcement action is not effective in isolation and the ACCC also engages in education (through, for example, media announcements and direct industry engagement) and research to help to achieve broader compliance outcomes. The ACCC’s approach to ‘door to door’ energy sales tactics, private health insurance, domestic airlines’ use of pre-selection of optional extras, sales practices involving hearing aids and claims made by IVF clinics about success rates were put up as examples of the ACCC’s strategic approach to achieving industry compliance.
On this issue Sims observed that:
We are working hard to deliver an appropriate balance of a regulator willing and prepared to take strong enforcement action, and also a regulator that is willing to resolve or progress outcomes absent court action, but with the appropriate public reference that is necessary to deliver our compliance responsibilities.
Cartels: ‘our criminal cartel machine is now built’
Perhaps not surprisingly, given the cartel conviction and fine imposed on NYK on Thursday, Sims discussed the ACCC’s progress in relation to cartels.
Focusing on criminal cartels, Sims noted that over the last three years the ACCC had ‘built a substantial team of specialist criminal cartel investigators lead by Rob Ghali.’
Although this represented a ‘huge investment’ Sims noted that the ACCC now has ‘a strong capacity to conduct careful and thorough criminal investigations’ and that the ACCC has provided briefs to the CDPP ‘on a number of matters’.
In brief, he claimed:
our criminal cartel machine is now built, and running at its appropriate capacity. You will now see its continuing output.
Sims noted that most cartel investigations involve an immunity applicant, with the result that the ACCC’s ‘cartel immunity and cooperation policy is critical to the continuing success’ of its criminal enforcement program. Notwithstanding a (relatively) recent review of this policy, Sims announced a new review of the policy in light of recent experience with criminal cartel investigations.
Sims also took the opportunity to mention the ACCC’s recent successes in the High Court in the Air New Zealand and Flight Centre cartel cases.
Media and commentary
- ACCC, ‘Criminal cartel investment pays off’ (Media release, 5 August 2017)
- Rod Sims, Law Council of Australia Speech, 4 August 2017
- Michael Smith, ‘ACCC says mergers to take longer under document-heavy approach’ (AFR, 5 August 2017)
- Sarah-Jane Tasker, ‘ACCC gets more demanding in merger crackdown’ (The Australian, 5 August 2017)