Competition & Market Regulation Update January 2010

Unleaded petrol prices: ACCC issues second report
ACCC approves joint venture of Virgin Blue and Delta Air Lines
Air cargo class action: claims struck out
Merger laws: Senate Committee inquiry into latest proposed amendment
ACCC grants conditional authorisation to terminal operator AAT
C7 decision: meaning of ‘purpose’
Australian Consumer Law: Issues Paper on the law of unconscionable conduct
Regional update

Unleaded petrol prices: ACCC issues second report

On 18 December 2009, the Australian Competition and Consumer Commission (ACCC) released its second annual report on the prices, costs and profits of unleaded petrol in Australia. This report responds to a direction issued by the previous Assistant Treasurer and Minister for Competition Policy and Consumer Affairs, the Hon. Chris Bowen MP, in late 2008. The direction requires the ACCC to monitor the price, cost and profit of unleaded petrol in Australia for a period of three years and to report to the Minister by 17 December each year.

The 2009 report states two key findings:

1. Recent petrol prices reached a peak above 160 cents per litre (cpl) in July 2008, and then fell rapidly between October and December 2008 due to the global financial crisis. In January and February 2009, prices increased by around 20 cpl. Since then, prices have remained relatively stable.
2. During the period, the most important influences on retail petrol prices have been:
   • the international price of refined petroleum (Mogas 95)
   • the exchange rate of the Australian dollar against the US dollar, and
   • the well-established weekly retail petrol price cycles in the large capital cities which affect day-to-day pricing of petrol.

The ACCC also indicated in its report that it was concerned the regular weekly petrol price cycles exhibited coordinated effects. The ACCC believes that petrol markets in Australia are predisposed to coordinated conduct which may lead to less competitive outcomes. In that context, the ACCC referred to its review of Caltex Australia Limited’s (Caltex) proposed acquisition of Mobil Oil Australia’s retail assets. In that review, the ACCC concluded that the proposed acquisition would be likely to increase the ‘effectiveness of current market practices which act to limit competition in petrol retailing’.¹ The ACCC believes that the increase in Caltex’s market share that would result from the acquisition would increase the likelihood of stable price increases as compared to a counterfactual in which more sale sites are acquired by ‘more aggressive’ retailers.²

In its report the ACCC is also expressed its concern that the practices which facilitate coordinated conduct are not adequately addressed under the well-established judicial interpretation of section 45 of the Trade Practices Act 1974 (Cth) (TPA) (ie the regular exchange of price information via Informed Sources).

ACCC approves joint venture of Virgin Blue and Delta Air Lines

The ACCC has authorised a joint venture between Virgin Blue Group (Virgin) and Delta Air Lines, Inc. (Delta) in relation to flights between Australia and the USA. The joint venture consists of agreements to coordinate:

• schedules, capacity and routes flown
• passenger sales and marketing activities
• pricing and revenue management
• enhancement of frequent flyer and lounge program offerings, and
• purchasing and procurement.

Although this joint venture is similar to a previous proposal by Air New Zealand and Air Canada (which was rejected by the ACCC), the ACCC granted this authorisation on the basis of its view that the venture was unlikely to result in any significant lessening of competition, and would result in net benefit to the public.

Both Virgin and Delta only recently commenced providing non-stop services between Australia and the USA. The only other airlines offering direct flights on that route are Qantas and United Airlines, both of which are well-established operators on the trans-Pacific route.

The ACCC considered that the joint venture is likely to result in a number of public benefits, because it:

• would enable both airlines to compete more vigorously with the incumbent carriers, for example by providing a larger network of connections, more efficient routings between destinations and the introduction of new routes 
• would enable both airlines to access ‘behind-gateway traffic’, facilitating the more efficient and effective integration of each airline’s trans-Pacific services with existing domestic networks, including streamlined ticketing and baggage handling, and
• is unlikely to affect Virgin’s historical approach of offering innovative and highly competitive services.

Also, given the existing level of competition in the market, the ACCC considered it likely that any cost savings achieved by the airlines would be passed on to consumers in the form of reduced ticket prices.

Air cargo class action: claims struck out

In December 2009, the Federal Court struck out Auskay International Manufacturing & Trade Pty Ltd’s statement of claim in representative proceedings brought on behalf of persons who had paid for freight services provided by Qantas and other air freight carriers (the respondents).³ There have been numerous other proceedings brought by the ACCC in relation to the ‘air cargo cartel’, including proceedings against Qantas which led to a $20 million settlement in 2008 (see Freehills’ March and November 2009 Competition and Market Regulation Updates for more information).⁴

The proceedings allege that the respondents were members of a cartel which agreed to fix, did fix, and concealed the fixing of, charges for international air freight moving into and out of Australia in contravention of sections 45(2)(a)(ii) and (b)(ii) of the TPA.

Qantas and the other respondents sought orders that Auskay’s pleading be struck out on the basis that it disclosed no reasonable cause of action or had a tendency to cause embarrassment or delay. Specifically, the respondents contended that Auskay had failed to allege material facts identifying the relevant Australian markets, and that this caused further deficiencies in its pleading. The respondents also argued that the pleaded definition of the group on whose behalf the proceedings were brought was inadequate.

Justice Tracey granted the orders sought by the respondents and stated that the deficiencies in the pleadings were so fundamental that it was not possible to selectively strike out parts of the document and leave a coherent pleading. In particular:

• On market definition, his Honour stated that the respondents were entitled to know in which Australian market(s), and with whom, they were alleged to have engaged in anti-competitive conduct contrary to the TPA. The statement of claim did not provide this information. 
• On group definition, his Honour stated that a party which commences representative proceedings must clearly identify the group members to whom the proceedings relate so that persons falling within the group who do not wish to be bound by the outcome of the proceedings have the opportunity to opt out.

This decision demonstrates the importance of adequately identifying both a ‘market’ in which anti-competitive conduct has taken place for the purposes of alleging price-fixing and the relevant group members to whom proceedings relate.

The decision follows Justice Tracey’s previous decision in Auskay International Manufacturing & Trade Pty Ltd v Qantas Airways Ltd⁵ where Auskay’s second amended statement of claim was struck out on similar grounds (see Freehills’ March 2007 Competition and Market Regulation Update).⁶

Merger laws: Senate Committee inquiry into latest proposed amendment

On 26 November 2009, Senator Xenophon introduced into Parliament the Trade Practices Amendment (Material Lessening of Competition – Richmond Amendment) Bill 2009 (Cth) (Bill), which proposes two key changes to section 50 of the TPA.

Currently, section 50(1) of the TPA prohibits acquisitions of shares or assets that would have the effect of substantially lessen competition in a market. The two key changes are:

• replacing the word ‘substantially’ in section 50(1) with the word ‘materially’, and 
• inserting a new subsection into section 50 to prevent a corporation with a ‘substantial share of a market’ from acquiring shares or assets if the acquisition would have the effect of ‘lessening competition in a market’.

The first amendment aims to lower the threshold for blocking a merger or acquisition. The second aims to address the problem of ‘creeping acquisitions’, a term used to refer to a number of small acquisitions that do not raise competition concerns when considered individually, but may do so when considered collectively.

The Bill has been referred to the Senate Economics Legislation Committee (Committee) for inquiry and report by 18 March 2010. While there has been some support for the Bill, a number of interested parties who provided submissions to the Committee are opposed to the Bill. Arguments against the amendments include:

• in the context of section 50, ‘substantially’ and ‘materially’ are likely to have the same or similar meanings, and
• an analysis of market share does not, in isolation, provide a good indication of relevant competitive dynamics.

Some interested parties also submitted that the current test for assessing mergers is sufficiently flexible to allow the ACCC and the courts to properly assess both large and small scale acquisitions. This is not the view of the Rudd Government, who announced on 22 January 2010 that it intends to amend the TPA to deal with creeping acquisitions by allowing the ACCC to block mergers that would substantially lessen competition in any local, regional or national market. The government will also ensure that the ACCC can examine the acquisition of ‘greenfield’ sites, and not just existing businesses.

ACCC grants conditional authorisation to terminal operator AAT

On 3 December 2009, the ACCC granted conditional authorisation to Australian Amalgamated Terminals Pty Ltd (AAT), P&O Wharf Management Pty Limited and Plzen Pty Limited to give effect to agreements reached in 2001 and 2002 which establish the AAT joint venture.

The joint venture involves the development and operation of motor vehicle and general cargo handling facilities (terminals) at various Australian ports. The joint venture partners, Patrick and P&O, used to compete in the operation of terminals but are no longer competitors following the joint venture.

AAT lodged its application for authorisation following the settlement of Federal Court proceedings launched by the ACCC in 2007. The proceedings related to alleged contraventions of the TPA arising out of the 2001 and 2002 agreements. The principal allegations were that Patrick and P&O colluded in tendering for the leases of terminals and engaged in price fixing in the automotive stevedoring services market (see Freehills’ September 2007 Competition and Market Regulation Update⁷).

The proceedings were settled by the parties with an agreed penalty, and in July 2009, the court ordered Asciano and DP World each to pay a $1.9 million penalty for entering into anti-competitive agreements in contravention of the TPA. AAT lodged its application for authorisation to obtain immunity from further contravention of the TPA.

The ACCC may grant an authorisation when it is satisfied that the public benefit from the conduct outweighs any public detriment. As the ACCC was concerned that there are limited public benefits and potentially significant detriments arising from the operation of AAT, the ACCC imposed conditions on the authorisation requiring AAT to:

• provide a mechanism for competing stevedores to seek access to AAT’s terminals 
• impose a process for independent review of AAT’s price increases to terminal end-users (importers and exporters), and 
• provide terminal end-users with a dispute resolution process for non-price disputes.

C7 decision: meaning of ‘purpose’

On 2 December 2009, the Full Court of the Federal Court of Australia handed down its decision in Seven Network Limited v News Limited, the appeal from the widely publicised ‘C7’ decision in 2007. One issue on the appeal was the construction of ‘purpose’ in the context of determining whether a contravention of section 45 of the TPA had occurred. Section 45 concerns whether a provision of a proposed contract, arrangement or understanding has the purpose, or would have or be likely to have the effect, of substantially lessening competition.

The TPA recognises that there may be multiple purposes behind including a contractual provision. A provision will be held to have been included for an anti-competitive purpose if that purpose was a ‘substantial purpose’ for including the provision.

Previous decisions of the Federal Court have decided that where only one of two parties to a contract is responsible for the insertion of a particular provision, the subjective purpose of the inserting party is determinative. The present case required the court to consider the situation of a multi-party contract where multiple parties (but not all the parties to the contract) are responsible for inserting the alleged anti-competitive provision. The question was whether all the parties responsible for including the provision must be proved to have shared the anti-competitive purpose.

In a majority decision, the court held that it is not necessary that all inserting parties share the anti-competitive purpose. Rather, it is enough that one party had the purpose of substantially lessening competition in a relevant market, provided that such purpose was a substantial purpose for its inclusion.

This decision places ‘innocent’ parties (ie. those who were not responsible for including the provision or those who sought to include it for purposes that were not anti-competitive) in a difficult position. The fact that a party’s own purposes are not anti-competitive does not prevent a contravention of section 45 of the TPA. These parties will still have contravened section 45 if the anti-competitive purpose was a ‘substantial purpose’ for the inclusion of that provision.

The upshot of the majority’s decision is that parties must be vigilant in their commercial dealings. In particular, parties should as far as practicable be aware of the purposes of other parties when they seek to include a contractual provision. According to the majority decision, this may require parties ‘to consider, and if necessary, enquire as to, other parties’ anti-competitive purposes.’

Australian Consumer Law: Issues Paper on the law of unconscionable conduct

On 27 November 2009, the Federal Government published the Issues Paper ‘The nature and application of unconscionable conduct regulation. Can statutory unconscionable conduct be further clarified in practice?’. The proposals contained in the Issues Paper intend to clarify the meaning and scope of unconscionable conduct in the TPA, as well as in corresponding provisions for financial services in the Australian Securities and Investments Commission Act 2001 (Cth). The proposals are part of a package of reforms to create a new national ‘Australian Consumer Law’ as reported in Freehills’ June and September 2009 Competition and Market Regulation Updates.⁸

The Issues Paper proposes the following options:

• doing nothing in addition to the accepted amendment, which clarifies the circumstances in which the unconscionable conduct provisions apply
• implementing legislative measures such as inserting into the TPA a list of examples of conduct which are unconscionable or a statement of principles to direct the court’s attention to issues it must consider in making a finding of unconscionable conduct, or 
• pursuing non-legislative measures such as increased guidance by the ACCC, the Australian Securities and Investments Commission and other consumer regulators.

Submissions, which were due by 18 December 2009, will be considered by an expert panel that will report to the government by the end of January 2010. 48 submissions were received, including a submission by the Law Council of Australia (LCA). The LCA expressed the view that the existing provisions in the TPA in relation to unconscionable conduct are sufficiently broad and that the concept of unconscionable conduct should be developed on a case by case basis as the proposed legislative measures are likely to be overly restrictive.

Regional update

As a regular feature of our newsletters we will be noting regional developments of interest.

Singapore ticketing agent accused of abusing its dominant position

The Competition Commission of Singapore (CCS) has issued a Proposed Infringement Decision (PID) against Singapore’s largest ticketing service provider – SISTIC. The PID follows an initial investigation by the CCS and sets out the basis on which the CCS has formed the view that SISTIC has contravened Singapore’s Competition Act (Cap. 50B) (Competition Act).

According to the CCS, SISTIC currently handles the ticketing for more than 90 per cent of all events staged in Singapore, from pop concerts and theatre to sporting events. It is alleged that SISTIC has contravened section 47 of the Competition Act, which is Singapore’s equivalent to section 46 of the TPA. The section prohibits ‘any conduct…which amounts to the abuse of a dominant position in any market in Singapore’.

SISTIC is alleged to have abused its dominant position through agreements with two major venue operators and 17 separate events organisers. These agreements contain an explicit requirement that the venue operator or event organiser use SISTIC as its sole ticketing agent.

SISTIC has eight weeks to respond to the PID before the CCS makes its final decision. If the CCS finds that SISTIC has abused its dominant position in the ticketing services market it will be the first time since the Competition Act came into force that the CCS has found a business to have contravened this prohibition, and only the third time that the CCS has found a business to have contravened the Competition Act.

This update was prepared by Lydia McKenzie, Solicitor, Jennifer Sing Key, Solicitor, Sarah Chubb, Solicitor, Andrew Sudol, Solicitor, Fergus Rourke, Summer Clerk and Rosaline Yusman, Summer Clerk, Sydney and Gillian McKenzie, Solicitor, Singapore.

Endnotes

1. ‘ACCC to oppose the acquisition of Mobil retail assets by Caltex’, ACCC Media Release # NR 296/09, 2 December 2009.
2. ‘Monitoring of the Australian petroleum industry—report of the ACCC into the prices, costs and profits of unleaded petrol in Australia’, ACCC Report, December 2009.
3. See Auskay International Manufacturing & Trade Pty Ltd v Qantas Airways Ltd (No 5) [2009] FCA 1464.
4. Competition and Market Regulation Update March 2009.
5. Competition and Market Regulation Update November 2009.
6. (2008) 251 ALR 166.
7. Competition and Market Regulation Update March 2007.
8. Competition and Market Regulation Update September 2007. 
9. Competition and Market Regulation Update June 2009.
10. Competition and Market Regulation Update September 2009.

More information

For information regarding possible implications for your business, contact a member of the Competition & Market Regulation team.