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AustraliaCompetition and Consumer Amendment Bill (No.1) 2011

EXPOSURE DRAFT BILL

NOTE: No 'report' was been released following submissions made on this exposure draft bill. However, on 24 March 2011 the Government introduced the Competition and Consumer Amendment Bill (No.1) 2011 into Parliament. The modest changes made by the Government have added to the length and complexity of the bill and have not addressed many of the concerns raised in submissions.

With amendments, the bill passed both Houses of Parliament on 24 November 2011

Submissions closed 14 January 2011

The Exposure Draft Bill (PDF)
Released 12 December 2010

Explanatory Note (PDF)

Regulation Impact Statement
Published by the Department of Finance and Deregulation

About this Inquiry/Bill

The proposed bill is one of the reforms introduced by the Government as part of the
'Competitive and Sustainable Banking System Package'.

Public submissions were due by 14 January 2011.

 

Summary of the bill

The price signalling provisions would be contained in a new Division 1A of the Competition and Consumer Act 2010 (between the criminal and civil competition provisions).

Scope of the prohibitions

As noted above, s 44ZZT considerably narrows the scope of the Division by providing that it applies only to goods and services of the classes prescribed by regulation. Initially it is likely to apply only to banking services.

Note: This contrasts with the price signalling bill recently introduced by the opposition (view here) which would have broad application across all industries. On its face, it is not clear why banks should be singles out for special treatment; for example, there would appear to be a greater concern about tacit collusion amongst petrol companies than between banks.

The first prohibition (private disclosures)

There are two prohibitions contained within Division 1A.

Prohibition: The first prohibition relates to private disclosures to competitors and is contained in s 44ZZW (my guess is Australia would top the list for the most ridiculous numbering system of any competition law in the world). Section 44ZZW prohibits corporations making private disclosures of information to competitors if that 'information relates to a price for, or a discount, allowance, rebate or credit in relation to goods or services that they are likely to supply or acquire. There is no need to demonstrate anti-competitive purpose.

Definitions: Section 44ZZV defines 'private disclosure to competitors' as a disclosure 'to one or more competitors or potential competitors of the corporation in the market, and is not to any other person'. Section 44ZZV(2) contains an anti-avoidance provision, making clear that the definition of private disclosure cannot be avoided by disclosing to another person for the purpose of avoiding the prohibition in 44ZZW on price signalling to competitors. Section 44ZZV(3) makes clear that the fact that the information is otherwise available to competitors is not relevant for purpose of defining a 'private disclosure'.

Exemptions from s 44ZZW: section 44ZZZ provides that s 44ZZW does not apply to disclosure of information which relates to price etc of goods or services supplied by the corporation to the recipient for purposes of re-supply by the recipient or relates to price etc of goods or services acquired from the recipient for purpose of re-supply by the corporation. It also does not apply if the corporation did not know and could not be reasonably expected to have known that the person to whom information was disclosed was a competitor or potential competitor (s 44ZZZ(2)). In addition, it will not apply to information disclosed between participants in a joint venture where the disclosure is made for purposes of the joint venture (s 44ZZZ(3)) of information disclosed relating to a contract, arrangement or understanding (existing or proposed) providing for the acquisition of shares or assets by or from the corporation.

The second prohibition (general)

Prohibition The second prohibition is contained in s 44ZZX and applies generally to price communications having an anti-competitive purpose. It prohibits a corporation disclosing information relating to:

  • a price for, or a discount, allowance, rebate or credit in relation to goods or services to be supplied or acquired by the corporation or
  • capacity or likely capacity of the corporation to supply or acquire goods or services; or
  • any aspect of commercial strategy of the corporation relating to goods or services.

where that disclosure is made for the PURPOSE of substantially lessening competition in a market.

Interpretation provision: to ensure that purpose (for the purpose of this section) is broadly interpreted, s 44ZZX(2) provides that, in determining whether such a 'purpose' exists, the court may have regard to (amongst other things):

  • whether disclosure was a 'private disclosure' to competitions
  • degree of specificity of information
  • whether information relates to past, current or future activities
  • how readily available information is to the public
  • whether disclosure is part of a pattern of similar disclosures

Section 44ZZX(3) further makes clear that purpose may be established even if 'the existence of that purpose is ascertainable only be inference from the conduct of the corporation or of any other person or from other relevant circumstances'.

Note: Although in other provisions of the Act it has been interpreted as meaning the 'subjective' purpose of the corporation, these are the type of factors routinely considered by the courts and the courts have been willing to infer purpose in the past, so it is not clear whether or how this will alter the existing approach to 'purpose'. The Government's 'Competitive and Sustainable Banking System Package' states that, in relation to purpose, 'the proposed law will be clear that a court can make up its own mind as to what it thinks the real purpose was, based on the surrounding circumstances - so there is no need for a 'smoking gun'.

Use of intermediaries

Section 44ZZU provides for disclosure made to or from intermediaries, apparently designed to ensure that the provisions cannot be evaded by selection of junior employees for communications. Accidental disclosure is exempted (s 44ZZU(3)) (the burden of proof as to the application of this exemption rests with the party seeking to rely on the provision: s 44ZZZA).

Exemptions applicable to both prohibitions

Disclosures authorised by law are exempted by s 44ZZY(1) and disclosures between related bodies corporate are exempted by s 44ZZY(2). The burden of proof as to the application of these exemptions rests with the party seeking to rely on the provision s 44ZZZA.

Authorisation

Authorisation is available (sections 88(6A)-(6C)) provided that the ACCC is satisfied that the proposed disclosure would result or be likely to result in a benefit to the public and that the benefit would 'outweigh the detriment to the public constituted by any lessening of competition that would result, or be likely to result, if the corporation so disclosed the information' (ss 90(5C)-(5D)).

 

Submissions

Submissions have now been published on the Inquiry's web site

In addition to business submissions there are a number of private/independent submissions, including:

  • Brent Fisse and Caron Beaton-Wells [from Brent Fisse Lawyers]
    Arguing that the proposed amendments are 'unsatisfactory and should not be enacted' (at 2.1): Highlights:
    • 1.3: 'Extreme care is needed in this difficult area of competition law and policy. ... The prohibitions in the Exposure Draft are novel. They depart radically from the law in other jurisdictions ...'
    • 1.4: 'neither the government nor the ACCC has adequately explained the selectivity of the approach proposed in the Exposure Draft as a matter of economic principle. ...'
    • 2.2:
      • 'The prohibitions are discriminatory. ...
      • 'The s 44ZZW prohibition against private disclosure of pricing information to competitors lacks a cogent rationale and would result in unjustified overreach. ... The economic literature makes it clear that laws regulating information sharing or disclosure between competitors must be sensitive to the nature of the information and circumstances of disclosure'.
      • 'The s 44ZZX prohibition against disclosure of pricing information or other specified information for the purpose of substantially lessening competition in a market also lacks a cogent rationale and suffers from unjustified overreach. Again, the focus should be on whether or not a competitor is acting strategically to coordinate market conduct with a competitor.'
      • 'Neither [the US or EU] has a free-standing prohibition against information disclosure of the kind contemplated in the Exposure Draft. ... the law in both of these jurisdictions recognises that the competition effects of information sharing between competitors are complex and may be ambiguous ... it is not correct to suggest that, upon enactment of the Exposure Draft, Australian law would be comparable with US and EU law in dealing with anti-competitive information disclosure' [emphasis added]
      • 'The s 44ZZX prohibition is unlikely to work effectively. ...'
      • 'The exceptions under ss 44ZZY and 44ZZZ are unjustifiably narrow in scope and limited in range ...'
      • 'Authorisation is not a satisfactory or practical solution to the problem of unjustified overreach. Authorisation is costly and inefficient ...'
      • 'The Exposure Draft would create a major loophole. The exception under s 44ZZY(1) would enable continuous disclosure to be used by public companies as an avenue for making anti-competitive disclosures.
    • 3: In section 3 several examples of 'unjustified overreach' are provided.
    • 4: Authors make a number of recommendations including the following
      • First that the draft requires 'extensive reconsideration' and neither ss 44ZZW or 44ZZX should be enacted (and if they are, 'they should be formulated quite differently' (suggestions are made in this respect).
      • The authors also recommend that any new prohibition apply to all goods and services and not be capable of extension by regulation.
      • The authors also suggest that 'to the extent current prohibitions are considered inadequate, possible ways of amending the concept of "understanding" under s 44ZZRD should be examined further. One possibility would be to replace the current element of commitment with a requirement of mutual expectation.'
  • Dr Rhonda Smith, Mr Arlen Duke and Prof David Round [from the Inquiry web site]

The authors argue urge the government not to rush through the laws and makes two key points: (1) if introduced (and the authors do not endorse any such proposed law) they should include a competition requirement - that is, the conduct must be required to have the effect, or likely effect of substantially lessening competition (para 1.2) - this is because of the potential for signalling to have both positive and negative effects on competition and (2) that the government "has given insufficient consideration to whether this problem is better dealt with by amending the current prohibitions against anti-competitive agreements" - in particular, they note that the government has still not responded to the 'Meaning of Understanding' discussion paper released in 2009.

This submission is well reasoned and well worth reading.

 

Government policy

The government policy on price signalling was outlined in the 'Competitive and Sustainable Banking System Package, Stream One'. The Government states:

'These reforms will capture anti-competitive behaviours in specific sectors like banking where there is strong evidence they exist, without creating unintended consequences for other sectors of our economy. ...

The new laws will give the ACCC the power to take action against businesses in specified sectors like banking who signal their prices to their competitors in order to undermine competition. These tough new reforms will apply initially to banks, with the capacity for other sectors to be specified in future after further review and detailed consideration. ...

Anti-competitive price signalling technically falls short of collusion because it does not involve a commitment to act in a certain way — but it can be just as harmful to competition as a price cartel. Laws prohibiting these 'facilitating' or 'concerted' practices already exist in the US, the UK and in Europe — and now the ACCC's new powers will close a gap in the Trade Practices Act, which is used by businesses like banks to avoid the full impact of genuine competition.'

The Treasurer and Parliamentary Secretary to the Treasurer have given several interviews on the subject:

  • 13 December - Treasurer Wayne Swan MP: Interview with Lyndal Curtil, ABC Radio, AM Program
    Relevant portion:

    CURTIS: You also will have the ACCC look at the question of banks signalling to each other what they think about price, about rate rises. You say the courts won't need a smoking gun, but isn't a smoking gun generally what's regarded as evidence?

    TREASURER: Well the purpose of this legislation which we will put out there for consultation with the sector over the next few weeks is to identify price signalling because what price signalling can do is dramatically reduce competition and what we have to do is deal with it. ... This package will deliver that power to [the ACCC], to crack down on price signalling. The content of the legislation will be subject to consultation with the industry but where statements are made which have the purpose of lessening competition in the sector, the ACCC will have the power to deal with that.

    CURTIS: But it's a very fine line isn't it, between what one may regard as price signalling and another. So a bank might regard as giving information to its shareholders and its customers — isn't the impact likely to be that banks will be less free with their information?

    TREASURER: Look I don't believe so. I believe that other countries in the world have put in place price signalling legislation. It is common in other developed economies, [note: the type of legislation actually proposed is not actually common elsewhere] we don't have that power here. I believe the ACCC has the maturity and the technical capacity to operate this law. We will put it out for consultation because we are absolutely determined to crack down on those who will use price signalling to rip off their customers.

    CURTIS: So what's the ACCC going to do — it's both signalling public and private, are they going to follow bankers around to cocktail parties?

    TREASURER: Well what the ACCC will do will be administer the law, which we will put out for consultation in the next few weeks.

  • 13 December - Treasurer, Wayne Swan MP, Interview with Kieran Gilbert, Sky News Channel: Competitive and Sustainable Banking Package

    GILBERT: On the issue of price signalling, isn't there the risk that if the ACCC is tasked with cracking down on this that the banks will say – okay we won't try and explain the reasons for our rate rise.

    TREASURER: No –

    GILBERT: Or the merits of a rate rise?

    TREASURER: No there is no risk of that, The ACCC have advised me that they have seen evidence of price signalling which has led to a lessening of competition. Now, this is a very, very serious matter. They've advised me they need some change to the laws to put in place their capacity to crack down on price signalling. That's what we're doing, but we will do it through draft legislation of which there will be consultation with the industry. But the industry should be absolutely certain that the Government is determined to crack down on uncompetitive behaviour in this area.

    [In relation to his attitude to the current Senate Inquiry into banking competition, Swan, while first noting he kept an open mind on these issues, went on to state that he would not be happy to change the Government's package in response to inquiry recommendations:]

    GILBERT: Acting Prime Minister I just want to ask you about one last area in this field and that's the inquiry that starts today: the Senate Committee Inquiry. The banks are due to appear over the next few days – NAB today. Are you open to any suggestions or improvements that this Senate inquiry might come up with?

    TREASURER: Look, I always keep an open mind on these matters. We've put in place over three years, a range of fundamental reforms to stabilise the system first. Then to increase competition, a further wave of reforms in this package, and I've always got a keen eye on doing anything we can to improve the competitive outlook.

    GILBERT: And improve this current package, this reform (inaudible)?

    TREASURER: No, to improve the competitive outlook. The most important thing here is you have to be methodical in the way in which you go about this. The Government has worked methodically, particularly in consultation with our regulators and with the industry to produce this package but as always –

    GILBERT: Are you happy to change the package if the inquiry says one thing or another?

    TREASURER: No, I'm bringing down a package of reforms that are important, if there are other good ideas around we will consider them on their merits at the time.

  • 13 December 2010 - Wayne Swan MP, Interview with Mark Aiston and Jane Reilly, Radio Fiveaa, Adelaide: Competitive and Sustainable Banking Package

    ANNOUNCER: Mr Swan, I also read that there's going to be pretty huge fines for this thing banks do between each other, a signalling when there is a potential interest rise. So how can you control that?

    TREASURER: Well that's the job of the ACCC, the responsible regulator, they've advised me that they believe that there have been examples of price signalling and of course what price signalling does is to lessen competition and keep rates higher than they otherwise would be. So I've taken on board that advice. We will give the ACCC the power to prosecute a financial institution if they engage in price signalling as determined by the law.

  • 13 December 2010 - Parliamentary Secretary to the Treasurer, David Bradbury MP, Interview with Stuart Bocking, 2UE Breakfast, Canberra: Banking reform

    No specifics - just talks generally about the package.

  • 12 December 2010 - Treasurer, Wayne Swan MP and Parliamentary Secretary to the Treasurer, David Bradbury MP, Press Conference, Canberra: Competitive and Sustainable Banking System Package

    TREASURER: ... I'm announcing today that we'll bring in tough new laws to prevent banks from engaging in anti-competitive price signalling - very important. The ACCC has advised me that they do believe there has been instances in banking of price signalling. In response to that advice, the only responsible thing to do is to move in this direction and give the ACCC the powers that it requires. We've worked with the ACCC on this methodically to avoid creating unintended consequences for other sectors of the economy. ...

    TREASURER: ... there's several pieces of legislation required and there will be some that will be presented for consultation forthwith. For example: the price signalling legislation. We want to move forward with that relatively quickly and of course we've got draft legislation done. We will now move into a consultation phase about draft legislation. We will receive industry response to that. We would hope to move that through as quickly as we possibly can. So that's one that stands out immediately.

 

Articles discussing the proposal

 

Media coverage

 

FOI Material

A Treasury Executive Minute was released pursuant to a Freedom of Information request. It sets out the Government's proposal and some documents which informed that proposal. Amongst them is an advice from Dr Jill Walker (prior to her appointment as Commissioner) in which Dr Walker recommends against per se prohibition of facilitating practices. View FOI documents.

 

Review recommendations

It is unclear whether any public report will be produced (there has been a tendency not to release formal responses to exposure draft consultations) - if recommendations or changes emerge following the conclusion of consultations in mid-January, they will be discussed here.