UPDATE: On 6 November 2017, changes to the Competition and Consumer Act 2010 (Cth) took effect.
This month at Business Breakfast Club, we discussed changes to the Competition and Consumer Act 2010 (the Act) which change the notification regime and extend the type of prohibited conduct. The changes make it easier for small businesses to obtain legal protection from potential breaches of the competition laws which usually prohibit businesses from collectively bargaining with a customer or supplier. In particular, we focused on the illegal practices of “concerted practice”, “cartel conduct” and “collective bargaining”. BAL Legal Director, Mark Love shared some of his insights on the topic. Mark touched on:
Why do you need legal protection?
Competitors who engage in collective bargaining may be in breach of the Act. The most effective way for businesses to collectively bargain without risk of breaching the Act is to lodge a ‘notification’ with the Australian Competition and Consumer Commission (ACCC) which identifies the proposed bargaining group and the type of conduct they intend to engage in. The notification process has been available since 2007, but has historically been viewed by the business community as not providing a substantive practical benefit. This is because the notifications were interpreted narrowly by the ACCC so it was still possible to breach the Act. Now, notification can be given for a class of persons both in relation to the beneficiaries of the bargaining group and the targets (customers or suppliers). However, with the broadening of the notification regime comes a third basis for infringement: concerted practice.
Collective bargaining is an arrangement whereby two or more competitors come together to negotiate terms, conditions and prices with a supplier or a customer. Essentially, collective bargaining tends to benefit smaller businesses who do not have the volume (of sales or purchases) alone to give them bargaining power. Permission to collectively bargain can be obtained through the notification or authorisation procedures of the Act provided there is some “public interest” in allowing the conduct.
Cartel conduct encompasses agreements between competitors to fix prices, divide markets, rig bids, or restrict outputs thus restricting competition. To prove “cartel conduct” the ACCC is not required to prove that there has been a lessening of competition as a result of the conduct, rather the ACCC must demonstrate that:
- the persons concerned are in “competition” (whether for customers or suppliers);
- there is a relevant “purpose” to the arrangement or understanding; and
- there is a relevant contract, agreement or understanding to that effect.
The Court considered “cartel conduct” in ACCC v Australian Egg Corporation Limited  FCAFC 152. In that case, the ACCC alleged that Australian Egg Corporation Limited (AECL) and two egg producing companies, Ironside Management Services Pty Ltd (T/A Twelve Oak Poultry) and Farm Pride Foods Limited attempted to induce egg producers who were members of AECL ‘to enter into an arrangement to cull hens or otherwise dispose of eggs, for the purpose of reducing the amount of eggs available for supply to consumers and businesses in Australia’.
Virtually every aspect of the ACCC’s case against AECL was found by the presiding judge to be true and based on largely uncontested facts, specifically the conduct of the parties at an industry summit brought together urgently to address the very issue of the oversupply of eggs and the damage that was apt to do to egg producers and the Australian Egg industry. However, despite the findings of fact the Court found AECL was not in breach of the Act because the conduct was something “less than a binding contract or arrangement”.
As a result of the AECL decision, the Act now includes a third basis of infringement which is a hybrid of the cartel and collective bargaining provisions. Concerted practice is a form of coordination between competing businesses by which, without them having entered a contract, arrangement or understanding, practical cooperation between them is substituted for the risks of competition. There must be the purpose or likely effect of substantially lessening competition which has been held to be “whether the effect of the arrangement was substantial in the sense of being meaningful or relevant to the competitive process”.
Q. What are the risks associated with lodging a notification to the ACCC?
A. Lodging a notification to the ACCC requires businesses to disclose information regarding the proposed conduct in a sufficiently precise manner. The ACCC can then consult with interested parties and assess the notification. As part of the notification, it is important that you:
- outline the areas of competition likely to be affected by the proposed conduct;
- describe the likely public benefits from the proposed conduct; and
- specify the likely public detriments (including any adverse effect on competition).
Some businesses may be reluctant to disclose this information as it may prompt the ACCC to carefully scrutinise the conduct of the businesses engaged in exclusive dealing. Further, once notification is lodged with the ACCC, it is published on the ACCC’s public register. Businesses must determine whether the risks associated with notifying the ACCC of the proposed conduct (the publication of business information) outweighs the risks of not obtaining the ACCC’s “blessing” for the conduct. Remember, breaches of the cartel, collective bargaining (and now) concerted practice provisions can result in criminal prosecution.
The Business Breakfast Club is held on the second Friday of each month, the next one is on 11 May. If you would like to attend, please contact us to be added to the invite list.