Explanatory Memorandum
Circulated By the Authority of the Assistant Treasurer and Minister for Competition Policy and Consumer Affairs, the Hon Chris Bowen MpChapter 1 - What is serious cartel conduct?
Outline of chapter
1.1 The Trade Practices Amendment (Cartel Conduct and Other Measures) Bill 2008 ('the Bill') amends the Trade Practices Act 1974 ('the TP Act'), the Telecommunications (Interception and Access) Act 1979 ('the TIA Act') and the Proceeds of Crime Act 2002 ('the POC Act') to introduce criminal penalties and parallel civil sanctions for serious cartel conduct. This chapter provides an overview of the respective changes to the TP Act, and addresses the threshold question of what is serious cartel conduct. Changes to the POC Act and the TIA Act are discussed in Chapter 5: Investigation Powers.
Context of amendments
1.2 Competition is the primary means of enabling consumers to get the best product or service for the lowest price possible. A cartel is an agreement between competitors not to compete, by manipulating prices, sharing a customer base, restricting supply, or rigging a tender process. Such conduct harms consumers, businesses and the economy by increasing prices (including input prices), reducing choice and distorting innovation processes. The total annual cost of such conduct in Australia is difficult to quantify because its effects are dispersed and often felt indirectly, but it is likely to exceed many millions of dollars. Conservatively, the worldwide cost of cartels exceeds many billions of dollars each year (Organisation for Economic Co-operation and Development, Report on the nature and impact of hard core cartels and sanctions against cartels under national competition laws , 9 April 2002).
1.3 On 25 March 1998, the Organisation for Economic Co-operation and Development ('the OECD') initiated an anti-cartel program with the adoption of the Recommendation of the Council concerning Effective Action Against Hard Core Cartels (25 March 1998 - C(98)35/FINAL) ('the OECD Recommendation'). The OECD Recommendation defined 'hard core' cartel conduct (referred to in this explanatory memorandum as 'serious cartel conduct') as 'an anticompetitive agreement, anticompetitive concerted practice, or anticompetitive arrangement by competitors to fix prices, make rigged bids (collusive tenders), establish output restrictions or quotas, or share or divide markets by allocating customers, suppliers, territories, or lines of commerce'. The OECD Recommendation condemned hard core cartels as the most egregious violations of competition law, and called upon OECD members to ensure that their laws adequately prohibit such cartels and that they provide for effective sanctions, enforcement procedures and investigative tools with which to combat them.
1.4 Serious cartel conduct is already prohibited under existing provisions of the TP Act, although criminal sanctions do not apply. The restrictive trade practices provisions in Part IV of the TP Act currently prohibit competitors from making or giving effect to provisions of contracts, arrangements or understandings between competitors, where those provisions relate to cartel-type conduct.
1.5 However, with the exception of price fixing, the current provisions do not specifically prohibit the behaviour to the extent proposed by the OECD, yet the courts have interpreted the provisions to apply to the conduct found to be so egregious by the OECD.
1.6 The current provisions prohibit a corporation from making or giving effect to a provision in a contract, arrangement or understanding with actual or potential competitors that is an 'exclusionary provision', or that has the purpose, effect or likely effect of substantially lessening competition. The courts have interpreted the 'exclusionary provision' prohibition to prohibit three or the four types of conduct condemned by the OECD (output restrictions, market sharing and bid rigging). In relation to the second type of prohibition, which provides a 'default' competition rule for conduct in Australia, certain types of price fixing behaviour are deemed to be so damaging to economic welfare that they are prohibited 'per se' (that is, without need to demonstrate that they had the purpose, effect or likely effect of substantially lessening competition).
1.7 The four key types of conduct proscribed by the OECD are presently prohibited (although not explicitly) under a civil penalty regime, the object of which is to deter the parties from engaging in the conduct, including via the application of substantial penalties for a party found to have breached the prohibitions.
1.8 On 9 October 2007, the Labor Party committed that, if elected to office in November 2007, it would introduce legislation within the first 12 months of coming to office to give effect to the OECD Recommendation.
1.9 A number of arrangements supplement the criminal and parallel civil prohibitions of serious cartel conduct in this Bill, including:
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- proposed amendments to the Federal Court of Australia Act 1976 and other legislation to provide for committals, bail, practice and procedure, juries, sentencing and appeal processes within the Federal Court in relation to the indictable offences established by this Bill;
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- leniency arrangements in respect of serious cartel conduct, to be available for criminal cartel offences (from the Commonwealth Director of Public Prosecutions ('the CDPP')) and the parallel civil prohibitions (from the Australian Competition and Consumer Commission ('the ACCC')); and
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- that the CDPP and the ACCC will enter into a formal, publicly available Memorandum of Understanding ('the MOU'), which will establish procedures for the investigation of the cartel offences and the circumstances in which the ACCC will refer a case to the CDPP for prosecution.
Summary of new law
1.10 The key amendments in this Bill:
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- establish criminal penalties for serious cartel conduct, with maximum criminal penalties for individuals, of a 10-year jail term and/or a fine of $220,000 and for corporations, of fines mirroring the existing maximum pecuniary penalties for breaches of the civil penalty provisions (the greater of $10 million, or three times the benefit obtained if this can be determined, or otherwise 10 per cent of annual turnover);
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- provide parallel civil provisions for serious cartel conduct;
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- provide exemptions from the criminal and parallel civil prohibitions on cartel conduct, including if a cartel provision in a contract is for the purposes of a joint venture, and the joint venture is for the production and/or supply of goods or services;
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- enable individuals to be held directly liable for criminal and civil prohibitions in relation to cartel conduct through amendments to the ancillary liability provisions, as well as under mirror offences and civil penalties contained in the Schedule version of Part IV of the TP Act;
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- incorporate statutory bars in the TP Act to protect against double jeopardy;
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- modify existing investigatory powers and remedies to apply them to the criminal offences and parallel civil penalty prohibitions;
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- enable telecommunications interception to be used in addition to other tools to investigate breaches of the cartel offences;
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- ensure that the relevant Commonwealth, State and Territory courts are given jurisdiction as appropriate under the new arrangements;
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- provide for the protection of cartel information provided by whistleblowers to the ACCC under the ACCC's leniency and immunity policies; and
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- make miscellaneous minor and technical amendments to the TP Act.
1.11 Serious cartel conduct will be addressed through both criminal offences and civil sanctions. In consequence, various terms are defined that apply to both the criminal and civil prohibitions, even though the criminal and parallel civil provisions are created under separate subdivisions. The term 'cartel provision' contains various tests that, when met, define the parameters of 'serious cartel conduct' (in combination with the elements of the criminal offences and civil prohibitions).
1.12 For a provision of a contract, arrangement or understanding to be a 'cartel provision', it must satisfy one of two alternative tests (the purpose/effect condition or the purpose condition) as well as threshold requirements regarding the requisite level of competition. These tests reflect existing tests that apply under the current Part IV prohibitions.
Comparison of key features of new law and current law
New law | Current law |
Part IV of the TP Act contains two Divisions. Division 1 specifically targets cartel conduct. Division 2 contains the existing prohibitions on anticompetitive conduct. | Part IV of the TP Act contains prohibitions on anticompetitive conduct. Civil penalties only apply to a corporation found to have breached those provisions. |
Division 1 of Part IV includes four subdivisions. | Part IV of the TP Act contains a range of prohibited trade practices, which the courts have interpreted as prohibiting parties from engaging in cartel conduct. Civil penalties for a breach of such prohibitions. |
Subdivision A contains interpretive provisions that apply to both the criminal offences and civil prohibitions, including the concept of a 'cartel provision'. | Interpretive provisions applying to the prohibitions are generally contained in Part IV (or in Part 1 of the TP Act). |
Subdivision B contains two criminal offences prohibiting corporations from making or giving effect to a contract, arrangement or understanding containing a cartel provision (discussed in Chapter 2). | No direct equivalent, although the criminal offences are based on current civil prohibitions. |
Subdivision C contains two parallel civil provisions prohibiting corporations from making or giving effect to a contract, arrangement or understanding containing a cartel provision (discussed in Chapter 3). | The parallel civil prohibitions are based on current civil prohibitions. |
Subdivision D contains exemptions from the criminal and civil prohibitions (discussed in Chapter 4) | Various exemptions and defences are included in the TP Act. |
A corporation commits an indictable offence or a civil prohibition if the corporation makes a contract or arrangement, or arrives at an understanding, and the contract, arrangement or understanding contains a cartel provision. | A corporation shall not make a contract or arrangement, or arrive at an understanding, if the proposed contract, arrangement or understanding contains an exclusionary provision (an agreement between competitors which has the purpose of excluding or limiting dealings with particular suppliers or customers), or if a provision of the proposed contract, arrangement or understanding has the purpose, or would have or be likely to have the effect, of substantially lessening competition. |
A corporation commits an indictable offence or a civil prohibition if a contract, arrangement or understanding contains a cartel provision, and the corporation gives effect to the cartel provision. | A corporation shall not give effect to a provision of a contract, arrangement or understanding, if that provision is an exclusionary provision, or if it has the purpose, or has or is likely to have the effect, of substantially lessening competition. |
A provision of a contract, arrangement or understanding is a cartel provision if the purpose/effect condition (in relation to price fixing) or the purpose condition (in relation to output restrictions, market sharing or bid rigging) and the competition condition are satisfied in relation to the provision. | The current TP Act provides a test of purpose, effect or likely effect in relation to price fixing, and purpose in relation to exclusionary provisions. |
The purpose/effect condition is satisfied if the provision has the purpose, or has or is likely to have the effect, of directly or indirectly doing certain actions that the OECD considered to be hard core cartel conduct (in short, price fixing conduct). | A provision of a contract, arrangement or understanding made by competitors which had the purpose or effect of controlling or maintaining prices is deemed to substantially lessen competition. Civil penalties apply. |
The purpose condition is satisfied if the provision has the purpose of directly or indirectly doing certain actions that the OECD considered to be hard core cartel conduct (in short, output restricting, market sharing or bid rigging conduct) | A corporation is prohibited from entering into a contract, arrangement or understanding with a competitor if a provision of the contract, arrangement or understanding had the purpose of preventing, restricting or limiting the supply of goods or services to, or the acquisition of goods or services from, particular persons or classes of persons (or in particular circumstances or on particular conditions) by all or any of the parties to the contract, arrangement or understanding. |
The competition condition is satisfied if at least two of the parties to the contract, arrangement or understanding are or would otherwise be, in competition with each other in relation to the conduct in question. | For the purposes of the current exclusionary conduct prohibition, a person is deemed to be competitive with another person if the person (or a related body corporate) is, or is likely to be, or but for the provision of the contract, arrangement or understanding, would be, or would be likely to be, in competition with the other person (or related body corporate) in relation to the supply or acquisition of goods or services the subject of the relevant provision of the contract, arrangement or understanding. |
The maximum penalty for breach of the criminal offences is, for corporations, a fine of the greater of $10 million or three times the benefit obtained) and for individuals, a 10-year jail term and/or a fine of $220,000. | No criminal penalties apply to Part IV. |
Detailed explanation of new law
Revised structure of Part IV of the TP Act
1.13 Part IV of the TP Act contains a series of prohibitions aimed at protecting and enhancing competition. The Bill establishes two separate Divisions within Part IV.
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- Division 1 is inserted immediately before section 45. This Division includes the criminal and civil prohibitions on serious cartel conduct. [Schedule 1, item 19, sections 44ZZRA to 44ZZRP]
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- Division 2 includes the existing restrictive trade practices prohibitions, from section 45 to section 51AAA.
1.14 Division 1 of Part IV comprises four subdivisions.
1.15 Subdivision A (Introduction), discussed in Chapter 2, includes:
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- a simplified outline of the prohibitions on cartel conduct, clarifying that there are parallel criminal and civil prohibitions; [Schedule 1, item 19, section 44ZZRA]
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- defined terms relevant to both the criminal and parallel civil prohibitions on serious cartel conduct; [Schedule 1, item 19, sections 44ZZRB to 44ZZRD]
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- a provision that prevents the interpretations of terms used in Division 1 of Part IV from applying to similar terms found elsewhere in the TP Act. [Schedule 1, item 19, section 44ZZRE]
1.16 Subdivision B (Offences etc.), discussed in Chapter 3, includes the two indictable cartel offences, and provisions specific to those offences, such as the powers of a court in a prosecution for a cartel offence. Chapter 3 also discusses provisions contained in the Bill that are relevant to the offences (but that are not necessarily located in Division 1 of Part IV).
1.17 Subdivision C (Civil penalty provisions), discussed in Chapter 4, contains the parallel civil penalty provisions that apply to serious cartel conduct. Chapter 4 also discusses provisions in the Bill relevant to the parallel civil penalty prohibitions.
1.18 Subdivision D (Exceptions), discussed in Chapter 5, creates exceptions to the cartel offences and parallel civil penalty prohibitions.
1.19 A number of terms are defined for the purpose of Division 1 of Part IV, even though some of the terms are also found elsewhere in the TP Act. The Bill specifically provides that in determining a meaning of an expression used or a provision of the TP Act (other than Division 1, subsection 6(2C), paragraph 76(1A)(aa) or subsection 93AB(1A), Division 1 is to be disregarded. In effect, this 'immunises' the remainder of the TP Act from the meaning of terms used in Division 1 of Part IV. [Schedule 1, item 19, section 44ZZRE]
1.20 Chapters 5 to 8 set out other amendments in the Bill, including amendments in relation to remedies, investigation powers, provisions creating a scheme for the protection of cartel information, and miscellaneous minor and technical amendments.
Cartel provision
1.21 As the concept of a cartel provision is central to both the criminal offences and parallel civil penalties, it is defined separately from those prohibitions. [Schedule 1, item 3, subsection 4(1), item 19, section 44ZZRD]
1.22 In order for a provision of a contract, arrangement or understanding to be a cartel provision , the provision must satisfy:
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- either the purpose/effect condition, or the purpose condition, depending upon the characterisation of the conduct considered in relation to the condition [Schedule 1, item 19, subsections 44ZZRD(2) and (3)] ; and
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- the competition condition [Schedule 1, item 19, subsection 44ZZRD(4)] .
1.23 These conditions form the building blocks for determining whether a corporation has committed a criminal offence or breached a civil penalty prohibition. [Schedule 1, item 19, subsection 44ZZRD(1)]
1.24 Provision is relevant to existing sections 4D and 45 of the TP Act (which have been interpreted to currently prohibit the matters condemned by the OECD). However, the TP Act currently provides a definition only in relation to an understanding (to mean any matter forming part of the understanding). In spite of this, the majority judgment in Visy Paper Pty Ltd v ACCC [2003] HCA 59; (2003) 77 ALJR 1893; 201 ALR 414, at paragraphs 7, 32 to 33 (Gleeson CJ, McHugh, Gummow and Hayne JJ) confirmed that its use in the TP Act, and in relation to existing sections 4D and 45, was intended to have a comprehensive meaning. To apply a narrow or technical interpretation would be to unduly restrict the operation of the existing prohibitions on cartel conduct. It is intended that a similar interpretation apply to the criminal offences and civil penalty prohibitions in this Bill.
Purpose/effect condition
Price fixing
1.25 For a suspected breach comprising price fixing activity, the relevant test is that a provision must have had the purpose, effect or likely effect, of directly or indirectly fixing, controlling or maintaining or providing for the fixing, controlling or maintaining of, the price of goods or services supplied or acquired by any one of the parties to the contract, arrangement or understanding. This will apply both to situations where the price of particular goods or services are directly fixed, as well as where a price is fixed indirectly, for example by reference to some other price or measure. It is not intended to extend to situations where a price is incidentally affected, where the price is otherwise established independently.
Company A, having a shortage of inputs for its manufacture of a good, seeks to source the inputs from Company B, a competitor in the market for the good. B agrees to produce the additional inputs and to provide them to A, at an agreed price.
Provided there is no agreement between A and B regarding the price at which A sells the good concerned, the purpose/effect condition would not be met merely because of the reflection of the input price in the price of the good.
1.26 The wording of the purpose/effect condition largely uses the wording from current section 45A of the TP Act. As a consequence, section 45A (the price fixing prohibition, when combined with section 45) and the related defence in section 76D are deleted. [Schedule 1, items 19, 21 and 29]
Other components of the purpose / effect condition
1.27 Current section 4F of the TP Act provides that a provision of a contract, arrangement or understanding shall be deemed to have had, or to have, a particular purpose if that provision was included in the contract, arrangement or understanding and the purpose was or is a substantial purpose. In News Limited v South Sydney District Rugby League Football Club [2003] HCA 45 the majority judgment of the High Court said that purpose meant the effect which is sought to be achieved or 'the end in view' and agreed that it is the subjective purpose of the parties to the contract, arrangement or understanding that is relevant.
1.28 Consistent with current subsection 45A(6) of the TP Act, a provision of a contract, arrangement or understanding shall not be taken to have the requisite purpose, effect or likely effect of fixing prices simply because the provision recommends, or provides for the recommending of, such a price, if it did not have the purpose, effect or likely effect of fixing a price. [Schedule 1. item 19, subsection 44ZZRD(6)]
1.29 Consistent with current subsections 45(4) and 45A(5) of the TP Act, an aggregation principle applies to demonstrate that a provision of a contract, arrangement or understanding meets the purpose/effect test. That is, a provision may be aggregated with other provisions of a contract, arrangement or understanding, or with provisions of another contract, arrangement or understanding, provided there is at least one common party to both contracts, arrangements or understandings in question. [Schedule 1, item 19, subsection 44ZZRD(8)]
1.30 The criminal offences and parallel civil penalty provisions apply to the substance of a contract, arrangement or understanding or a provision of a contract, arrangement or understanding, regardless of the form or description provided. To that end, a court is prevented from looking solely at the form or description of a provision of a contract, arrangement or understanding or of the contract, arrangement or understanding itself when determining whether or not such a provision breaches the purpose/effect condition [Schedule 1, item 19, subsection 44ZZRD(10)] . This is consistent with current subsection 45A of the TP Act, and the majority of the High Court in Visy Paper Pty Ltd v ACCC [2003] HCA 59; (2003) 77 ALJR 1893; 201 ALR 414.
1.31 While two of the paragraphs of the purpose/effect condition refer to 'persons or classes of persons' that must be identified, the way in which a class of person is to be identified has not been finally settled. In Rural Press Ltd v ACCC [2003] HCA 75, the High Court decided that all that is necessary is to be able to define the class of persons to whom the exclusionary conduct applied. Consequently, where the purpose/effect condition refers to a 'class of person', the Bill clarifies that it is not material to identify the persons falling within the class for the purpose/effect condition to be satisfied. [Schedule 1, item 19, subsection 44ZZRD(5)]
1.32 Further, in determining whether a provision of a contract, arrangement or understanding breaches the purpose/effect condition or the purpose condition, the Bill also clarifies that it is immaterial whether the prohibited activity occurs in particular circumstances or on particular conditions. [Schedule 1, item 19, subsection 44ZZRD(7)]
Purpose condition
1.33 For a suspected breach comprising output restrictions, market sharing or bid rigging activity, a different test applies, adapted from the test that applies under current sections 45 and 4D of the TP Act (which the courts have interpreted as prohibiting such conduct).
1.34 As noted above, current section 4F of the TP Act provides that a provision of a contract, arrangement or understanding shall be deemed to have had, or to have, a particular purpose if that provision was included in the contract, arrangement or understanding and the purpose was or is a substantial purpose. In News Limited v South Sydney District Rugby League Football Club [2003] HCA 45 the majority judgment of the High Court said that purpose meant the effect which is sought to be achieved or 'the end in view' and agreed that it is the subjective purpose of the parties to the contract, arrangement or understanding that is relevant.
Output restrictions
1.35 The relevant test in relation to output restriction activity is that a provision of a contract, arrangement or understanding had the purpose of directly or indirectly preventing, restricting or limiting:
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- the production or likely production, of goods [Schedule 1, item 19, subparagraph 44ZZRD(3)(a)(i)] ;
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- the capacity, or likely capacity, of particular parties to supply services [Schedule 1, item 19, subparagraph 44ZZRD(3)(a)(ii)] ; or
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- the supply, or likely supply, of goods or services to particular persons or classes of persons [Schedule 1, item 19, subparagraph 44ZZRD(3)(a)(iii)] .
1.36 Production appears in the purpose condition to the extent that the purpose condition relates to output restrictions. It is defined expansively to incorporate the whole range of processes involved in the production chain. Further, production , as it is used in subsection 6(2C), has the same meaning as in Division 1 of Part IV. [Schedule 1, item 14, subsection 6(2C), item 19, section 44ZZRB]
Allocating customers, suppliers or territories
1.37 The relevant test in relation to allocating customers, suppliers or territories is that a provision of a contract, arrangement or understanding had the purpose of directly or indirectly allocating between any or all of the parties to the contract, arrangement or understanding:
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- the persons or classes of persons who have acquired, or who are likely to acquire, goods or services from any or all of the parties to the contract, arrangement or understanding [Schedule 1, item 19, paragraph 44ZZRD(3)(b)(i)] ;
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- the persons or classes of persons who have supplied, or who are likely to supply, goods or services to any or all of the parties to the contract, arrangement or understanding [Schedule 1, item 19, paragraph 44ZZRD(3)(b)(ii)] ;
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- the geographical areas in which goods or services are or are likely to be acquired or supplied (as the case may be) by any or all of the parties to the contract, arrangement or understanding [Schedule 1, item 19, paragraphs 44ZZRD(3)(b)(iii) and (iv)] .
1.38 The OECD Recommendation referred to sharing or dividing markets by 'allocating customers, suppliers, territories or lines of commerce'. 'Market' is currently defined term in section 4E, which has been overlaid by an extensive body of case law. As a result, determining the relevant market for the purposes of the TP Act can be a highly technical exercise. The criminal offences and parallel civil prohibitions focus on the allocation of the constituent parts of a market (that is, customers, suppliers or territories) between competitors, rather than on the definition of a market in particular circumstances.
Bid rigging
1.39 The relevant test in relation to bid rigging activity is that a provision of a contract, arrangement or understanding had the purpose of directly or indirectly ensuring that in the event of a request for bids in relation to the supply or acquisition of goods or services, either:
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- one or more parties bid to the contract, arrangement or understanding bid, but one or more do not [Schedule 1, item 19, subparagraph 44ZZRD(3)(c)(i)] ;
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- two or more parties bid, but at least two parties do so on the basis that one of the two bids is more likely to be successful [Schedule 1, item 19, subparagraph 44ZZRD(3)(c)(ii)] ;
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- two or more parties bid, but not all of the parties proceed the full way through the bidding process [Schedule 1, item 19, subparagraph 44ZZRD(3)(c)(iii)] ;
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- two or more parties bid, but at least two parties do so on the basis that one of the two bids is more likely to be successful [Schedule 1, item 19, subparagraph 44ZZRD(3)(c)(iv)] ;
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- two or more parties bid, but a material component of at least one of the bids is worked out in accordance with the contract, arrangement or understanding [Schedule 1, item 19, subparagraph 44ZZRD(3)(c)(v)] .
1.40 That is, the test addresses whether the provision has the purpose of seeking a reduction in competition in the bidding process for the supply or acquisition of goods or services.
1.41 To avoid any doubt, bid is defined to include a tender, and the taking, by a potential bidder or tenderer, of a preliminary step in a bidding or tendering process. This enables the prohibitions on cartel conduct to target preliminary activity leading up to the actual or attempted rigging of bids or tenders. [Schedule 1, item 19, section 44ZZRB]
1.42 The bid rigging prohibition is unlikely to apply in the circumstance of 'dummy bidding' by vendors at auctions for real property because such bids generally do not involve an agreement between competitors. The inclusion of anti-overlap, joint venture, and authorisation exceptions (see Chapter 4), as well as the continued application and validity of pre-commencement authorisations (also Chapter 4), will ensure that bidding arrangements that currently comprise legitimate commercial activity can continue to be permitted where appropriate.
In relation to consortium biddings arrangements, the cartel provisions are not intended to catch legitimate joint bids. Joint bid arrangements between competitors that avoid restrictions on an individual participants' ability to compete for business are less likely to raise concerns.
The joint venture exceptions will also, in many cases, facilitate genuine arrangements to jointly supply under a common bid. Authorisation may also be available in appropriate circumstances.
Other components of the purpose condition
1.43 Consistent with current subsection 45(4) of the TP Act, an aggregation principle also applies to the purpose condition. A provision of a contract, arrangement or understanding may be aggregated with other provisions of the same contract, arrangement or understanding, or with provisions of another contract, arrangement or understanding (provided there is at least one common party to both contracts, arrangements or understandings in question), to demonstrate that the purpose test has been satisfied. [Schedule 1, item 19, subsection 44ZZRD(9)]
1.44 The criminal offences and parallel civil penalty provisions apply to the substance of a contract, arrangement or understanding or a provision of a contract, arrangement or understanding, regardless of the form or description provided. To that end, a court is prevented from looking solely at the form or description of a provision, or of a contract, arrangement or understanding itself when determining whether or not such a provision breaches the purpose condition [Schedule 1, item 19, subsection 44ZZRD(11)] . This is consistent with the majority of the High Court in Visy Paper Pty Ltd v ACCC [2003] HCA 59; (2003) 77 ALJR 1893; 201 ALR 414.
1.45 While three of the subparagraphs of the purpose condition refer to 'persons or classes of persons' that must be identified, the way in which a class of person is to be identified has not been finally settled. In Rural Press Ltd v ACCC [2003] HCA 75, the High Court decided that all that is necessary is to be able to define the class of persons to whom the exclusionary conduct applied. Consequently, where the purpose condition refers to a 'class of person' (in subparagraphs 44ZZRD(3)(a)(iii), (b)(i) and (ii)), the Bill clarifies that it is not material to identify the persons falling within the class for the purpose condition to be satisfied. [Schedule 1, item 19, subsection 44ZZRD(5)]
1.46 Further, in determining whether a provision of a contract, arrangement or understanding breaches the purpose/effect condition or the purpose condition, the Bill also clarifies that it is immaterial whether the prohibited activity occurs in particular circumstances or on particular conditions. [Schedule 1, item 19, subsection 44ZZRD(7)]
Competition condition and the definition of a party
1.47 The competition condition restricts the criminal and civil prohibitions to 'horizontal' conduct in relation to the production of the relevant goods or the supply or acquisition of the relevant goods or services. The condition is satisfied if at least two of the parties to the contract, arrangement or understanding are or are likely to be, or but for the collusive conduct, would be or would be likely to be, in competition with each other within the circumstances set out. This performs a similar role to the requirement in subsection 189(1) of the Enterprise Act 2002 (UK), that supply by one party to the proscribed arrangement be 'at a level in the supply chain at which the product or service would at the same time be supplied by [the other party to the agreement]'.
1.48 The term party appears in the purpose/effect condition, the purpose condition and the competition condition. Current subsection 4A(5) defines the circumstances in which bodies corporate are said to be related for the purposes of the TP Act. Further, current subsection 4D(2) of the TP Act deems people to be competitive with each other only if they or related bodies corporate are or are likely to be competitive with each other (or would be or would be likely to be competitive with each other but for the contract, arrangement or understanding) in relation to the supply or acquisition of all or any of the goods or services to which the relevant provision relates. Section 44ZZRC provides an extended meaning of party for the purposes of Division 1 of Part IV, to deem each body corporate that is related to a body corporate that is a party to a contract, arrangement or understanding to also be a party to such a contract, arrangement or understanding [Schedule 1, item 19, sections 44ZZRB and 44ZZRC] .
1.49 However, this does not deem a party to have breached the criminal or parallel civil prohibitions regarding making or giving effect to a contract, arrangement or understanding containing a cartel provision.
1.50 Section 23 of the Acts Interpretation Act 1901 provides that, unless the contrary intention appears, words in the singular number include the plural and words in the plural number include the singular. Therefore, unless a provision of the Bill demonstrates a contrary intention, use of the term party includes 'parties', and references to 'parties' include 'a party'.
' Likely'
1.51 The term likely appears in the purpose/effect condition, the purpose condition and the competition condition. It enables a court to look not only at what has been established on the facts, but also to infer, from those facts, the likely consequences of the provision of the contract, arrangement or understanding. The term is also used in other provisions of the Bill in so far as they relate to those conditions. Likely is defined to include a possibility that is not remote, in relation to four fact situations: a supply of goods or services, an acquisition of goods or services, the production of goods, or the capacity to supply services. This clarifies the position following judicial observations made in the case law in relation to the term (for example, in Tillmans Butcheries Pty Ltd v Australasian Meat Industry Employees' Union (1979) 42 FLR 331, 27 ALR 367, by Bowen CJ at 339 and by Deane J at 346). Further, likely , as it is used in subsection 6(2C), has the same meaning as in Division 1 of Part IV. [Schedule 1, item 14, subsection 6(2C), item 19, section 44ZZRB]
Extraterritoriality
1.52 Current subsection 5(1) provides that various parts of the TP Act extend to the engaging in conduct outside of Australia, provided that the relevant body corporate is incorporated or carries on business within Australia, or the relevant person is an Australian citizen or ordinarily resident within Australia.
1.53 Subsection 5(1) is extended to conduct that occurs outside Australia that contravenes the criminal and/or the civil cartel prohibitions. The amendments clarify that the remaining provisions of the TP Act (to the extent to which they relate to any of the provisions that already have extraterritorial effect, or the new criminal and civil cartel prohibitions) have extraterritorial effect. [Schedule 1, item 4, subsection 5(1)]
1.54 Section 5 also establishes a process for gaining ministerial consent for a person to rely on extraterritorial conduct to establish a claim for orders under subsections 87(1) or (1A). The Bill empowers the Commonwealth Director of Public Prosecutions ('the CDPP') to seek certain orders under section 87 (thereby placing the CDPP on a similar footing with the Australian Competition and Consumer Commission ('the ACCC')) [Schedule 1, items 59 to 62, subsections 87(1), 87(1BA), paragraphs 87(1A)(b) and (ba)] . References in section 5 to the process for gaining ministerial consent are therefore amended to refer to the CDPP [Schedule 1, item 5, subsection 5(4)] .
Commonwealth power to make laws applying to individuals and corporations
1.55 Part IV is currently predicated on the assumption that the corporations power in section 51(xx) of the Constitution provides the primary power for the Commonwealth Government to make such laws. However, current subsection 6(2) of the TP Act provides alternative sources of Commonwealth power, should the corporations power be found to provide an insufficient source of power for a particular provision. This is consistent with the view that the Parliament intended the TP Act to have the widest application possible, consistent with the limitations on the Commonwealth's constitutional powers.
1.56 Consequently, the current civil prohibitions in Part IV apply to a 'corporation', presently defined in subsection 4(1) to mean (a) a foreign corporation, (b) a trading corporation formed within the limits of the Commonwealth, (c) a corporation formed in a territory, or (d) a holding company for the three preceding types of corporations listed.
1.57 The 1993 Hilmer Review recommended that competition law apply to all businesses in Australia, rather than limiting the application of the law to those matters that fell within the Commonwealth's constitutional power. On 11 April 1995, the Council of Australian Governments ('COAG') agreed to the principles of competition policy contained in the report of the National Competition Policy Review . This included agreement to achieve and maintain consistent and complementary competition laws and policies that would apply to all businesses in Australia regardless of ownership. This was achieved through various means, including the enactment of a cooperative scheme to enable the competition law (as embodied in Part IV of the TP Act) to apply to all businesses within Australia.
1.58 In brief, the cooperative scheme operates through the creation, in Part XIA of the TP Act, of a Competition Code, and that Code being applied as a law of each State, the Northern Territory and the Australian Capital Territory, through mirror versions of the Competition Policy Reform (New South Wales) Act 1995 ('the CPR Act'). Under section 150C of the TP Act and section 4 of each CPR Act, the Competition Code consists of:
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- the Schedule version of Part IV of the TP Act;
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- the remaining provisions of the TP Act in so far as they would relate to the Schedule version if it were substituted for Part IV; and
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- the regulations under the TP Act in so far as they relate to other components of the Competition Code.
1.59 The Competition Code is applied to all persons in each respective State and Territory and to the Crown in right of the State or Territory.
1.60 Consistent with the 1995 Conduct Code Agreement, the Bill makes provision for the cartel offences and parallel civil prohibitions to apply to corporations and 'persons', because simply applying the offences to corporations may not achieve the desired deterrent effect.
1.61 This occurs in the following ways.
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- First, corporations can be found guilty of committing a criminal offence or parallel civil prohibition contained in Division 1 of Part IV.
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- Second, individuals can be an accessory to the commission by a corporation of a Part IV criminal offence (under section 79) or a parallel civil prohibition (under section 76).
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- Third, individuals and bodies corporate can be held liable for committing a 'mirror' criminal offence or parallel civil penalty in the Schedule of the TP Act. These offences and civil prohibitions apply to a 'person'. The mirror offences form part of the Competition Code and are applied by the CPR Act of each State or Territory as a law of each of those jurisdictions.
1.62 The provisions of the TP Act currently apply:
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- according to its terms, in reliance upon the Commonwealth's powers to make laws with respect to corporations;
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- to persons other than corporations while engaged in interstate or overseas trade or commerce, trade or commerce between territories, or with a territory, or in the supply of goods or services to the Commonwealth or an authority or instrumentality of the Commonwealth;
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- to engaging in conduct to the extent to which the conduct involves use of a postal, telegraphic, telephonic or other like service.
1.63 Reflecting the view that the Parliament intended the TP Act to have the widest application possible subject to Constitutional limitations, amendments provide for alternative Constitutional sources of power in relation to conduct identified in the cartel provision definition in section 44ZZRD and in the offences and civil prohibitions. [Schedule 1, items 6 to 15, section 6] .
Consequential amendments
Removal of price fixing specific provisions
1.64 As a result of creating specific provisions targeting cartel conduct, certain existing provisions of the TP Act have been deleted, including section 45A (which provides that certain types of price fixing conduct are to be treated as a per se prohibition) and section 76D (which provides a defence in relation to that per se prohibition). [Schedule 1, items 20, 21 and 29, subsection 45(3), sections 45A and 76D]
Consequential references to Parts X and XIB of the TP Act
1.65 Consequential amendments to Parts X (International liner cargo shipping) and XIB (The telecommunications industry) of the TP Act ensure that those Parts refer to the criminal and civil cartel provisions. [Schedule 1, items 88 to 102, sections 10.01A, paragraphs 10.08(1)(aa) and (ab), subsections 10.08(1), 10.17(1) and (2), 10.17A(1) to (4), 10.19(1) and (2), 10.24(1) and (2), 10.24A(1) to (3), and paragraph 10.45(3)(a), items 103 to 111, section 151AJ and paragraph 151AY(1)(b)]