Home Page / Legislation / Competition and Consumer Act 2010 / s 50

Competition and Consumer Act 2010 (Cth)

Section 50
Prohibition of acquisitions that would result in a substantial lessening of competition

 

The provision

(1) A corporation must not directly or indirectly:

(a)acquire shares in the capital of a body corporate; or

(b)acquire any assets of a person;

if the acquisition would have the effect, or be likely to have the effect, of substantially lessening competition in any market.

Note:The corporation will not be prevented from making the acquisition if the corporation is granted a clearance or an authorisation for the acquisition under Division 3 of Part VII: see subsections 95AC(2) and 95AT(2).

(2) A person must not directly or indirectly:

(a) acquire shares in the capital of a corporation; or

(b) acquire any assets of a corporation;

if the acquisition would have the effect, or be likely to have the effect, of substantially lessening competition in a market.

Note:The person will not be prevented from making the acquisition if the person is granted a clearance or an authorisation for the acquisition under Division 3 of Part VII: see subsections 95AC(2) and 95AT(2).

(3) Without limiting the matters that may be taken into account for the purposes of subsections (1) and (2) in determining whether the acquisition would have the effect, or be likely to have the effect, of substantially lessening competition in a market, the following matters must

(a) the actual and potential level of import competition in the market;

(b) the height of barriers to entry to the market;

(c) the level of concentration in the market;

(d) the degree of countervailing power in the market;

(e) the likelihood that the acquisition would result in the acquirer being able to significantly and sustainably increase prices or profit margins;

(f) the extent to which substitutes are available in the market or are likely to be available in the market;

(g) the dynamic characteristics of the market, including growth, innovation and product differentiation;

(h) the likelihood that the acquisition would result in the removal from the market of a vigorous and effective competitor;

(i) the nature and extent of vertical integration in the market.

(4) Where:

(a) a person has entered into a contract to acquire shares in the capital of a body corporate or assets of a person;

(b) the contract is subject to a condition that the provisions of the contract relating to the acquisition will not come into force unless and until the person has been granted a clearance or an authorization to acquire the shares or assets; and

(c) the person applied for the grant of such a clearance or an authorization before the expiration of 14 days after the contract was entered into;

the acquisition of the shares or assets shall not be regarded for the purposes of this Act as having taken place in pursuance of the contract before:

(d) the application for the clearance or authorization is disposed of; or

(e) the contract ceases to be subject to the condition;

whichever first happens.

(5) For the purposes of subsection (4), an

(a) in a case to which paragraph (b) of this subsection does not apply—at the expiration of 14 days after the period in which an application may be made to the Tribunal for a review of the determination by the Commission of the application for the clearance; or

(b) if an application is made to the Tribunal for a review of the determination by the Commission of the application for the clearance—at the expiration of 14 days after the date of the making by the Tribunal of a determination on the review.

(5A) For the purposes of subsection (4), an application for an authorisation is taken to be disposed of 14 days after the

(6) In this section:

market means a market for goods or services in:

(a) Australia; or

(b) a State; or

(c) a Territory; or

(d) a region of Australia.

 


Legislative history

 


Commentary

Overview

In Australia mergers are prohibited if it can be demonstrated that they will have the effect or likely effect of substantially lessening competition in a market (section 50 CCA). It is possible to obtain clearance (formal or informal) or authorisation for proposed mergers, but there is no mandatory notification process. Clearance will be granted only if the ACCC does not believe the merger will SLC (s 95AN). Authorisation, on the other hand, may be granted by the Australian Competition Tribunal even where the merger will SLC if it can be demonstrated that the merger would lead to such a benefit to the public that it should be allowed to occur (s 95AZH).

Section 50A deals with mergers occurring outside Australia.

History

The original Trade Practices Act 1974 applied a substantial lessening of competition test - specifically, it prohibited the acquisition of assets and shares, which resulted in a substantial lessening of competition in a market for goods or services.

In 1977 the substantial lessening of competition test was replaced with a market dominance test by the Trade Practices Legislation Amendment Act 1977. As a result, acquisitions were only prohibited where they resulted in or substantially strengthened a ‘position to control or dominate a market’. This was (generally) considered a higher threshold so that less mergers were captured.

In 1989, the House of Representative Standing Committee on Legal and Constitutional Affairs (the Griffiths Committee) recommended retaining the dominance test in its report ‘Mergers, Takeovers and Monopolies: Profiting From Competition?’.

Shortly thereafter, however, the Senate Committee on Legal and Constitutional Affairs (the Cooney Committee). It recommended that the test in s 50 be lowered to prohibit acquisitions or mergers that substantially lessen competition in a market. This change was introduced by the Trade Practices Legislation Amendment Act 1992 which also introduced a provision for the substantial lessening of competition test in relation to trans-Tasman mergers and introduced a non-exhaustive list of matters to be considered by the Courts when determining if a merger substantially lessened competition (s 50(3))

In 2002, numerous submissions were made to the Dawson Committee recommending that the substantive test for mergers change back to one of dominance, incorporate an ‘efficiency’ test or incorporate a public benefit test. The Dawson Committee recommended that the substantive test of ‘substantial lessening of competition’ be retained.  This was accepted by the government and no legislative change has been made to the substance of the prohibition.

The Dawson Committee did, however, make recommendations relating to merger clearance and authorisation processes that were introduced by the Trade Practices Legislation Amendment Act (No 1) 2006. For more details on the Committee's discussion of mergers and the submissions made to the Committee relating to mergers see:   Julie Clarke, 'The Dawson Report and Merger Regulation' (2003) 8(2) Deakin Law Review 245

From the mid 2000's to early 2010's there was a current push for the introduction of provisions to deal with creeping acquisitions. This resulted in the introduction of a bill (the Competition and Consumer Legislation Amendment Bill 2010) proposing two changes to s 50. The first was the removal of the requirement, in s 50(6) that a market be a 'substantial' market. The second was to replace the words ‘a market’ in section 50(1) with ‘any market’. It is widely assumed these changes would simply give legislative effect to existing practice. The bill lapsed following the calling of a federal election in 2010 but on 15 June 2011, but was revived in the form of the Competition and Consumer Legislation Amendment Bill 2011 which became the Competition and Consumer Legislation Amendment Act 2011 and entered into force in February 2012.

The Harper Panel considered the Report in 2014-2015 and made no recommendation for substantive change to s 50.

Acquisition of shares or assets

Note that s 4(4) provides that

"In this Act:

(a) a reference to the acquisition of shares in the capital of a body corporate shall be construed as a reference to an acquisition, whether alone or jointly with another person, of any legal or equitable interest in such shares; and

(b) a reference to the acquisition of assets of a person shall be construed as a reference to an acquisition, whether alone or jointly with another person, of any legal or equitable interest in such assets but does not include a reference to an acquisition by way of charge only or an acquisition in the ordinary course of business.

 

Cases relating to mergers

See also merger cases page

Court cases applying current law

Australian Gas Light Company v ACCC (No 3) [2003] FCA 1525

ACCC v Metcash Trading Limited [2011] FCA 967 (25 August 2011); [2001] FCAFC 151 (30 November 2011)
Merger - held merger not likely to SLC. ACCC appeal failed.

Cases applying dominance test

TPC v Australia Meat Holdings Pty Ltd (1988) 83 ALR 299
Focus on market definition

QIW Retailers Ltd v Davids Holdings (1993) ATPR 41-226
Mergers; Trade Practices Economics

Davids Holdings v Attorney-General (1994) 49 FCR 211
The unsuccessful appeal from QIW v Davids

External linkArnotts Limited v TPC (1990) ATPR para 41-061; (1990) 97 ALR 555; (1990) 24 FCR 313
Merger - market definition (different types of biscuits)

 

Articles relating to s 50

For more articles relating to merger law and policy generally, see the mergers page.

Julie Brebner, ‘The Relevance of Import Competition to Merger Assessment in Australia’
(2002) 10(2) Competition and Consumer Law Journal 119-143

Morelle Bull and Danielle Wood, 'The fairest of them all? Rival bidder counterfactuals in Australian merger clearance' (2012) 19 CCLJ 231

Julie Clarke, 'The Dawson Report and Merger Regulation' (2003) 8(2) Deakin Law Review 245

Stephen Corones, 'Will there be a change in the review of mergers by the Australian Competition and Consumer Commission after the Metcash Decision' (2012) 40 Australian Business Law Review 55

A I Tonking, 'Section 50 - Controlling Mergers into the Future' (1992) 20 Australian Business Law Review 285

Cento Veljanovski, "Metcash, Market Power, and Counterfactuals - The standard of proof in Australian and New Zealand merger and competition laws" (paper given at the 20th Competition Law Conference, 5th May 2012, Sydney, Australia)

 

Reports relating to s 50

Dawson Committee Report - Chapter on Mergers (2003)

Cooney Committee Report
(1991)
Mergers, Monopolies & Acquisitions

Griffiths Committee Report (1989)
Mergers, Takeovers and Monopolies: Profiting from Competition?
Report of the House of Representatives Standing Committee on Legal and Constitutional Affairs

See further merger reports page

 

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