House of Representatives

Explanatory Memorandum

Circulated By the Authority of the Assistant Treasurer and Minister for Competition Policy and Consumer Affairs, the Hon Chris Bowen Mp

Chapter 4 - Exceptions

Outline of chapter

4.1 This chapter outlines the exceptions to the cartel criminal offences and cartel civil penalty provisions.

Context of amendments

4.2 Immunity may presently be granted on a case-by-case basis to conduct or contracts, arrangements or understandings otherwise prohibited by Part IV of the Trade Practices Act 1974 ('the TP Act') through the authorisation or notification processes in Part VII. Immunity is granted or allowed to continue under these provisions either because the Australian Competition and Consumer Commission ('the ACCC') considers that the public benefits of the proposed conduct or contract, arrangement or understanding outweigh any detriment flowing from a lessening of competition or because the conduct or arrangement would result in such benefits to the public that immunity should be granted or allowed to continue.

4.3 Currently Part IV prevents specific conduct from being considered under the section 45 'per se' prohibitions if that conduct falls under other Part IV prohibitions subject to a substantial lessening of competition test, namely:

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covenants under section 45B;

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resale price maintenance under section 48;

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exclusive dealing under section 47;

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dual listed companies under section 49; and

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acquisition of shares in the capital of a body corporate or the assets of a person under section 50.

4.4 These provisions are colloquially referred to as 'anti-overlap provisions'.

4.5 Further, subsection 45A(1) (which deems certain price fixing arrangements to be illegal per se) does not apply to a provision of a contract, arrangement or understanding:

•

in relation to the price for goods or services to be collectively acquired (such as through buying co-operatives); and

•

for the joint advertising of the price for the re-supply of goods or services collectively acquired.

4.6 Cases falling within this exemption from subsection 45A(1) may still be prohibited by the TP Act if they have the purpose, effect or likely effect of substantially lessening competition.

4.7 Further, section 51 of the TP Act exempts anything specifically authorised by Commonwealth, State or Territory legislation or regulations. The existing prohibitions on making or giving effect to anticompetitive provisions in contracts, arrangements and understandings in sections 45 and 45A also contain exemptions.

For example, the prohibitions do not apply to contracts, arrangements and understandings between related entities and some joint venture arrangements.

4.8 Exceptions are included in the Bill to ensure that the prohibitions do not prohibit legitimate business activities that are beneficial to the economy or in the public interest. The exceptions reflect current 'anti-overlap provisions' contained in particular provisions of section 45, as well as exemptions for certain price fixing behaviour.

Summary of new law

4.9 Subdivision D of Division 1 covers a number of exceptions to the cartel civil penalty provisions and criminal offences:

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conduct notified;

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contracts subject to the grant of an authorisation that contain cartel provisions;

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contracts, arrangements or understandings between related bodies corporate; and

•

joint ventures;

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providing anti-overlap provisions; and

•

for provisions in relation to the price for goods or services to be collectively acquired, or for the joint advertising of the price for the re-supply of goods or services collectively acquired.

4.10 Even though the exceptions in many ways reflect existing exceptions in the TP Act, the principles of clarity and simplicity of drafting that are applied to the criminal offences and parallel civil penalty prohibitions are also applied to the exceptions.

Comparison of key features of new law and current law

Detailed explanation of new law

Conduct notified ( collective bargaining )

4.11 Current section 93AB enables a corporation to lodge a collective bargaining notice with the ACCC, where the corporation has made or proposes to make a contract that contains an exclusionary provision, a price fixing provision, or a provision that may substantially lessen competition. The Bill enables a corporation to lodge a collective bargaining notice setting out particulars of a contract or proposed contract that contains a provision relating to price fixing, restricting outputs or allocating customers, suppliers or territories. A collective bargaining notification may not be lodged in relation to bid rigging. [Schedule 1, item 71, subsection 93AB(1A)]

4.12 The creation of this entitlement means that there will be two collective bargaining notification frameworks in section 93AB - one that applies to the cartel criminal offences and civil provisions (referred to as the per se provisions), and one that applies to the current provisions in Part IV (referred to as the competition provisions). However, the requirements of current subsections 93AB(2), (3) and (4) are common to both sets of provisions [Schedule 1, items 71 and 72, subsections 93AB(1A) and (1)] . The heading to subsection 93AB(1) is amended to reflect this change [Schedule 1, item 72, subsection 93AB(1)] . Notes are also inserted [Schedule 1, item 71, subsection 93AB(1A)] to assist the reader to locate the requirements in the TP Act relating to:

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the form required for a collective bargaining notice to be a valid notice; and

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when a collective bargaining notice comes into force.

4.13 As discussed in Chapter 1, separate tests apply to conduct within the scope of the definition of a cartel provision depending upon the characterisation of the conduct. Provisions of a contract, arrangement or understanding relating to price fixing are subject to a purpose/effect test [Schedule 1, item 19, subsection 44ZZRD(2)] , while provisions relating to output restrictions or the allocation of customers, suppliers or territories is subject to a purpose test [Schedule 1, item 19, subsection 44ZZRD(3)] . As the purpose or effect of the relevant provision is fundamental to the entitlement to lodge a collective bargaining notice in subsection 93AB(1A), the provision setting out that entitlement reflects the two different tests that apply [Schedule 1, item 71, paragraphs 93AB(1A)(a) to (d)] .

4.14 Interpretive provisions that apply to the purpose/effect condition and the purpose condition (contained in the definition of a cartel provision in section 44ZZRD) apply in the same way to the cartel collective bargaining notification provisions in subsection 93AB(1A). [Schedule 1, item 71, subsections 93AB(10B) and (10C)]

4.15 An exception to a contravention of the cartel offence and civil penalty provisions applies where a corporation has given the ACCC a collective bargaining notice under subsection 93AB(1A) in relation to a contract, arrangement or understanding containing a cartel provision that satisfies the purpose/effect condition in subsection 44ZZRD(2) or the purpose condition in subsection 44ZZRD(3) (other than paragraph (c) of that subsection), and the notice is in force under section 93AD. [Schedule 1, item 19, subsection 44ZZRL(1)]

4.16 A note clarifies that, consistent with subsection 13.3 of the Criminal Code, a defendant (in relation to the cartel offence provisions) bears an evidential burden in relation to establishing the exception. [Schedule 1, item 19, subsection 44ZZRL(1)]

4.17 A person wishing to rely on the exception in relation to a contravention of the cartel civil penalty provisions bears an evidential burden in relation to the matter [Schedule 1, item 19, subsection 44ZZRL(2)] . Section 22 of the Acts Interpretation Act 1901 clarifies that, subject to a contrary intention, use of the term 'person' includes a body corporate as well as an individual.

Contracts containing cartel provision subject to grant of authorisation

4.18 Current section 88 of the TP Act enables the ACCC to authorise a corporation to engage in conduct that would otherwise be considered to breach the prohibitions in Part IV, other than those relating to misuse of market power. The effect of the authorisation is to provide a corporation with immunity from action under the relevant provision.

4.19 The Bill enables the ACCC to authorise a corporation to make a contract, arrangement or understanding, or to give effect to a contract, arrangement or understanding, where it contains a cartel provision. A contract, arrangement or understanding can therefore lawfully be made between competitors that contains a provision to fix prices, restrict output, allocate customers, suppliers or territories or rig bids, so long as the parties to the contract, arrangement or understanding have demonstrated through the authorisation process in Division 1 of Part VII of the TP Act that it will generate a net public benefit, consistent with the tests applied by the ACCC in current section 90 of the TP Act. [Schedule 1, item 62, subsection 88(1A)]

4.20 Current subsection 88(10) provides that an authorisation may be granted to cover those who subsequently become parties to a contract, arrangement or understanding. This provision is extended to include the power to authorise conduct introduced by subsection 88(1A). [Schedule 1, item 65, subsection 88(10)]

4.21 Current section 90 sets out the operative provisions that apply to the power to authorise conduct. It includes, for example, the tests to be applied in determining whether or not to authorise conduct and grant immunity on a case by case basis. The power to authorise sets out separate arrangements according to whether the contract, arrangement or understanding is on foot or proposed. The exception (discussed below) in relation to the prohibition on making a contract containing a cartel provision is linked directly to these provisions. The application of that exception is contingent on the inclusion in the contract of a condition that the contract will not commence until authorisation is obtained.

4.22 The ACCC must not authorise a corporation to make a contract or arrangement, or arrive at an understanding, if a provision of the proposed contract, arrangement or understanding would or might be a cartel provision, unless it is satisfied that the provision would result in, or be likely to result in, a net public benefit. That is, the benefit must outweigh any detriment to the public constituted by any lessening of competition that would result, or be likely to result, if the conduct occurred. [Schedule 1, item 66, subsection 90(5A)]

4.23 Further, the ACCC must not authorise a corporation to give effect to a provision of an existing contract, arrangement or understanding that is or may be a cartel provision, unless it is satisfied that the provision has resulted in, or is likely to result in, a net public benefit. Again, the benefit must outweigh any detriment to the public constituted by any lessening of competition that would result, or be likely to result, if the conduct occurred. [Schedule 1, item 66, subsection 90(5B)]

4.24 As noted above, an exception in relation to the civil prohibition and criminal offence of making a contract containing a cartel provision applies where the contract is subject to a condition that the provision will not come into force unless and until the corporation is granted an authorisation to give effect to the provision. Further, the exception is not available unless the corporation applies for a grant of authorisation within 14 days after the contract is made. [Schedule 1, item 19, subsection 44ZZRM(1)]

4.25 Consistent with subsection 13.3 of the Criminal Code, a defendant bears an evidential burden of establishing this exception in a criminal prosecution [Schedule 1, item 19, subsection 44ZZRM(1)] . A person wishing to rely on the exception in relation to a contravention of the cartel civil penalty provision relating to making a contract also bears an evidential burden of establishing the exception. Section 22 of the Acts Interpretation Act 1901 clarifies that, subject to a contrary intention, use of the term 'person' includes a body corporate as well as an individual. [Schedule 1, item 19, subsection 44ZZRM(2)]

Contracts, arrangements or understandings between related bodies corporate

4.26 An exception applies in relation to a contravention of the cartel offence provisions and the civil penalty provisions if the only parties to the contract, arrangement or understanding are bodies corporate that are related to each other. This provision is based on current subsection 45(8), which provides that current section 45 does not apply to or in relation to a contract, arrangement or understanding, or a proposed contract, arrangement or understanding, the only parties to which are or would be bodies corporate that are related to each other. [Schedule 1, item 19, subsection 44ZZRN(1)]

4.27 Current subsection 4A(5) of the TP Act defines the circumstances in which corporations will be deemed to be related - where the body corporate is a holding company or a subsidiary of the other, or where two bodies are both subsidiaries of the same holding company.

4.28 Consistent with subsection 13.3 of the Criminal Code, a defendant bears an evidential burden in relation to establishing this exception in a criminal prosecution [Schedule 1, item 19, subsection 44ZZRN(1)] A person wishing to rely on the exception in relation to a contravention of the cartel civil penalty provisions also bears an evidential burden of establishing the exception. Section 22 of the Acts Interpretation Act 1901 clarifies that, subject to a contrary intention, use of the term 'person' includes a body corporate as well as an individual. [Schedule 1, item 19, subsection 44ZZRN(2)]

Joint venture - prosecution

4.29 An exception for joint ventures applies in a prosecution for a breach of the cartel criminal offence provisions in relation to a contract containing a cartel provision. [Schedule 1, item 19, subsection 44ZZRO(1)]

4.30 The exception comprises the following elements:

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the cartel provision is contained in a contract;

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the cartel provision is for the purposes of a joint venture;

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the joint venture is for the production and/or supply of goods or services; and

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the joint venture is carried on jointly by the parties to the contract, or by means of joint ownership or control of a body corporate formed by the parties to carry on the activity of the joint venture.

4.31 The defendant bears an evidential burden of proof of establishing the elements of this exception. [Schedule 1, item 19, subsection 44ZZRO(1)]

4.32 The exception is limited to circumstances involving contractual relations. 'Contract' has its ordinary meaning of an agreement binding or enforceable at law. It can apply to a range of agreements, both written and oral, provided they meet the common law criteria for a contract. In the context of the TP Act, the term refers to agreements that are distinct from those covered by 'arrangements' or 'understandings', which apply to agreements that may not give rise to legally enforceable rights.

4.33 A person is not entitled to rely on the exception unless they have provided the prosecutor with certain information within 28 days after the day on which the person is committed for trial. Specifically, the person must provide a written notice of the facts on which the person proposes to rely, the names and address of any witnesses to be called, and certified copies of any documents which the person proposes to use, for the purpose of discharging the evidential burden in relation to the elements in subsection (1). [Schedule 1, item 19, subsection 44ZZRO(2)]

4.34 A court may either exempt the person from compliance with these requirements, or extend the time within which they are required to comply. This ensures that there is no interference with normal judicial processes. [Schedule 1, item 19, subsection 44ZZRO(3)]

Joint ventures - civil penalty proceedings

4.35 An exception for joint ventures applies in a proceeding for a contravention of the cartel civil penalty provisions in relation to a contract containing a cartel provision. [Schedule 1, item 19, subsection 44ZZRP(1)]

4.36 The exception comprises the following elements:

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the cartel provision is contained in a contract;

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the cartel provision is for the purposes of a joint venture;

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the joint venture is for the production and/or supply of goods or services; and

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the joint venture is carried on jointly by the parties to the contract, or by means of joint ownership or control of a body corporate formed by the parties to carry on the activity of the joint venture.

4.37 A person wishing to rely on the exception bears an evidential burden of proof of establishing the elements of this exception. [Schedule 1, item 19, subsection 44ZZRP(2)]

4.38 The exception is limited to circumstances involving contractual relations. 'Contract' has its ordinary meaning of an agreement binding or enforceable at law (see paragraph 4.32, above).

4.39 Prior to this Bill, price fixing was a per se breach of the TP Act unless an authorisation was granted under section 88. Section 76D of the TP Act provided a defence if the respondent established that the price fixing agreement is for the purposes of a joint venture and that it does not have the purpose, effect or likely effect of substantially lessening competition in any market. With the inclusion of the joint venture exceptions in sections 44ZZRO and 44ZZRP, section 76D is repealed. [Schedule 1, item 29]

Anti - overlap provisions

4.40 Current subsections 45(5) to (7) prevent overlaps between conduct that may be captured under section 45 and certain other prohibitions in Part IV of the TP Act. These provisions are colloquially referred to as 'anti-overlap' provisions.

4.41 Exceptions apply to the cartel criminal offences and civil penalty prohibitions to reflect the existing anti-overlap provisions [Schedule 1, item 19, sections 44ZZRQ to 44ZZRU] . As section 44ZZRE, in effect, quarantines expressions used in Division 1 of Part IV from applying to the rest of the TP Act, the language used in the exceptions has been simplified to the extent possible.

For example, current subsection 45(7) provides that section 45 'does not apply to or in relation to a contract, arrangement or understanding in so far as the contract, arrangement or understanding provides, or to or in relation to a proposed contract, arrangement or understanding in so far as the proposed contract, arrangement or understanding would provide, directly or indirectly for the acquisition of any shares in the capital of a body corporate or assets of a person.

By comparison, the comparable exception in subsection 44ZZRU removes references to proposed contracts, arrangements or understandings, as well as other redundant language, and inserts paragraphs to enhance clarity.

4.42 Where the anti-overlap provisions apply as exceptions to the criminal offences, the provisions insert notes specifying that a defendant bears an evidential burden of proof of establishing the matters contained in the exceptions. [Schedule 1, item 19, subsections 44ZZRQ(1), 44ZZRR(1), 44ZZRS(1), 44ZZRT(1), 44ZZRU(2)]

4.43 Where the anti-overlap provisions apply as exceptions to the civil prohibitions, the provisions include subsections specifying that a person wishing to rely on the exception in relation to a contravention bears an evidential burden of proof of establishing the matters contained in the exception. [Schedule 1, item 19, subsections 44ZZRQ(2), 44ZZRR(2), 44ZZRS(3), 44ZZRT(1) and (2) and 44ZZRU(1)]

4.44 Similar exceptions are also included in the Schedule version. These exceptions do not refer to the evidential burden on the defence in relation to criminal prosecutions, because the Schedule version operates independently of the Criminal Code. [Schedule 1, item 126, sections 44ZZRQ to 44ZZRW]

Price of goods or services collectively acquired ; or joint advertising of price for re - supply of goods or services collectively acquired

4.45 Current subsection 45A(4) provides that current subsection 45A(1) does not apply to a provision of a contract, arrangement or understanding in relation to the price for goods or services to be collectively acquired, or for the joint advertising of the price for the re-supply of goods or services collectively acquired. In each case, if a relevant is exempted from subsection 45A(1), it may still be prohibited by the TP Act if the provision has the purpose, effect or likely effect of substantially lessening competition.

4.46 As noted earlier in this explanatory memorandum, section 45A is deleted by the Bill. [Schedule 1, item 21]

4.47 Exceptions apply to the cartel criminal offences and civil penalty prohibitions to reflect the existing exemption in current subsection 45A(4) [Schedule 1, item 19, section 44ZZRV] . As section 44ZZRE, in effect, quarantines expressions used in Division 1 of Part IV from applying to the rest of the TP Act, the language used in the exception has been simplified to the extent possible.

4.48 The exception applies in relation to a contract, arrangement or understanding containing a cartel provision if the cartel provision meets the purpose/effect test, and the cartel provision relates to the price for goods or services to be collectively acquired, whether directly or indirectly, by the parties to the contract, arrangement or understanding, or the cartel provision is for the joint advertising of the price for the re-supply of goods or services collectively acquired.

4.49 Where the exception applies to the criminal offences, a note is inserted specifying that a defendant bears an evidential burden of proof of establishing the matters contained in the exception. [Schedule 1, item 19, subsection 44ZZRV(1)]

4.50 Where the exception applies to the civil prohibitions, a subsection specifies that a person wishing to rely on the exception in relation to a contravention bears an evidential burden of proof of establishing the matters contained in the exception. [Schedule 1, item 19, subsection 44ZZRV(2)]

4.51 Similar exceptions are also included in the Schedule version. These exceptions do not refer to the evidential burden on the defence in relation to criminal prosecutions, because the Schedule version operates independently of the Criminal Code. [Schedule 1, item 126, section 44ZZRV]

Application and transitional provisions

Conduct notified ( collective bargaining )

4.52 Application, savings and transitional provisions operate in relation to the notification provisions in the TP Act. Paragraphs 93AB(1A)(c) and (d) apply to a contract or arrangement made, or an understanding arrived at, before, at or after the commencement time. Paragraphs 93AB(1A)(c) and (d) enable a corporation to lodge a collective bargaining notice with the ACCC, where the corporation proposes to give effect to a provision of a contract containing a cartel provision. [Schedule 1, item 125, section 175]

4.53 Commencement time means the commencement of Division 1 of Part IV. [Schedule 1, item 125, section 174]

4.54 Any existing notifications granted by the ACCC to corporations to engage in relevant conduct that were in force immediately before the commencement time are preserved. Section 178 also gives effect to any such administrative decisions made prior to the commencement of the relevant provisions of this Bill. [Schedule 1, item 125, section 178]

Contracts containing cartel provision subject to grant of authorisation

4.55 Application, savings and transitional provisions operate in relation to the authorisation provisions in the TP Act. An application provision provides that paragraph 88(1A)(b) applies to a contract made, or an understanding arrived at, before, at or after the commencement time. Paragraph 88(1A)(b) provides that the ACCC may authorise a corporation to make a contract, arrangement or understanding, or to give effect to a contract, arrangement or understanding, where the contract, arrangement or understanding contains a cartel provision. [Schedule 1, item 125, section 175]

4.56 Any pre-commencement authorisations granted by the ACCC to corporations to engage in relevant conduct that were in force immediately before the commencement time are preserved. Section 177 also gives effect to any such administrative decisions made prior to the commencement of the relevant provisions of this Bill. [Schedule 1, item 125, section 177]

Joint ventures

4.57 The joint venture defence in current section 76D of the TP Act continues to apply in relation to proceedings against a person in relation to a contravention of subparagraphs 45(2)(a)(ii) or (b)(ii) in relation to a provision of the kind referred to in subsection 45A(1) of the TP Act, whether or not the proceedings were instituted before or after the commencement time, as if section 76D had not been repealed. [Schedule 1, item 125, section 176]

Consequential amendments

4.58 Various amendments are required as a consequence of extending the ACCC's power to authorise inclusion in an existing or proposed contract, arrangement or understanding a cartel provision. The effect of these consequential amendments is to insert into various provisions references to subsections 90(5A) and (5B). [Schedule 1, items 67, 68, 69, 86 and 87, subsections 91A(4), 91B(5), 91C(7), 101(1A), 101(2)]

4.59 Currently collective bargaining notice mean a notice under subsection 93AB(1). Consequential to item 71, the definition is amended to mean a notice under subsection 93AB(1A) or (1). [Schedule 1, item 70, section 93AA]

4.60 With the extension of the collective bargaining regime in the TP Act to contracts that include cartel provisions, consequential amendments enable a corporation to lodge two different types of collective bargaining notices - those containing a cartel provision, and those containing an exclusionary provision or a provision that may substantially lessen competition. [Schedule 1, items 74, 75, 76 and 77, subsection 93AC(1)]

4.61 Current subsection 93AC(2) of the TP Act is amended to clarify that the ACCC's powers to issue an objection notice under this subsection relates to a collective bargaining notice under subsection 93AB(1). [Schedule 1, items 79 and 80]

4.62 As the Bill repeals section 45A, various provisions that refer to price fixing or section 45A are also repealed. This includes paragraph 93AC(1)(b) and subsection 93AC(6). [Schedule 1, items 78 and 81]

4.63 Current section 93AF prevents the repeated lodgment of a collective bargaining notice in particular circumstances. A similar provision is inserted to prevent the repeated lodgment of collective bargaining notices containing a cartel provision, where the notice has been withdrawn or the ACCC has objected to it. The provision applies to 'any person' in relation to the same contract or proposed contract or in relation to a contract or proposed contract to the like effect. [Schedule 1, item 82, section 93AEA]

4.64 Current section 93AF is amended to clarify that those provisions apply to the collective bargaining notification process established under current subsection 93AB(1). [Schedule 1, items 83 and 84, section 93AF]

4.65 Section 93A sets out the procedure applying to pre-decision conferences in notification matters. The ACCC may currently treat two or more collective bargaining notices as if they constituted a single notice, and to issue one draft notice and hold one conference on that draft notice, if certain conditions are met. Amendments clarify that this power extends to a collective bargaining notice relating to a contract, arrangement or understanding that contains a cartel provision. [Schedule 1, item 85, subsection 93A(12)]