2. Overview of Competitive
Conduct Rules
Every modem market economy provides a set of rules intended to

ensure the competitive process is not undermined by the anticompetitive behaviour of firms. Typically, these rules prohibit
agreements or arrangements that increase the market power of firms and prohibit firms which possess substantial market power in their

own right from using that power in an anti-competitive way. In
Australia, these rules are contained in Part W of the Commonwealth
Trade Practices Act 1974 (TPA).

This Part considers the content, scope of application and enforcement

of competitive conduct rules proposed for general application to business transactions throughout the economy. There are a number of markets where there is a case for these rules to be supplemented to ensure effective competition, and the additional measures proposed
for these markets are discussed in Part II.

This Chapter presents a brief overview of the key issues raised in developing a regime of competitive conduct rules intended to be of
general application.

Section A considers the possible objectives of the regime and
concludes that the appropriate role for these rules is the protection of

the competitive process, rather than conferring benefits upon
particular sectors of society.

Section B outlines the types of market conduct addressed by
competitive conduct rules, including agreements between parties and unilateral conduct.

Section C reviews the main types of rules which may be used to address anti-competitive conduct, including outright prohibition, prohibition based on competitive effect or purpose, and prohibition dependent on an assessment of the public interest. The section also discusses proposals for simplification of the existing competitive
conduct rules.

25

2— Overview of Competitive Conduct Rules

Section P considers the range of mechanisms under which it is

currently possible to obtain exemption from conduct ruies.
Section E discusses the regime for enforcing conduct rules.

A. THE OBJECTIVES OF COMPETITIVE CONDUCT RULES
In broad terms, competitive conduct rules could have two possible objectives. First, they could be designed to protect the competitive process per se. In such a regime, the effective functioning of the competitive process, and hence economic efficiency and the welfare of

the community as a whole, is the primary objective. Consumers and competitors benefit from such rules to the extent that their interests coincide with the interests of the community as a whole.
Secondly, such rules might be cast so as to confer special benefits on a

particular sector of the community, whether that be consumers or a particular class of competitors, such as small businesses. Under a regime of this kind, the benefits to the community as a whole are subordinated to the interests of a particular category of beneficiaries.
The Committee unhesitatingly embraces the objective of protecting the competitive prdcess as that most appropriate for the competitive conduct rules of a national competition policy. The rules themselves should not be aimed at favouring particular sectors of society. if such objectives are to be achieved it should be through accommodations to

the rules according to the principles and exemption mechanisms
discussed in Chapters Five and Six. To the extent that protecting the

competitive process does not promote economic efficiency itt a
particular market, or where other policy goals conflict with economic efficiency and require some trade-off to be made, exemptions from

the general rules should also be granted through those exemption
mechanisms, such as authorisation.
B.

TYPES OF MARKET CONDUCT ADDRESSED

While there are probably no limits to the kinds of behaviour a firm

might conceive as a means of subverting the competitive process; conduct involving agreements between firms can be distinguished
from other forms of conduct.

26

2— Overview of Competitive Conduct Rules Agreements between firms at the same level of the business chain,

such as between suppliers or between consumers, are referred to as "horizontal agreements". These agreements may relate to price or to other matters, and it is useful to distinguish these two categories for

the impact of the former on competition is usually quite clear.
Agreements between firms at different levels of the business chain, such as between suppliers and customers, are referred to as "vertical agreements". Again, the distinction between agreements on price and agreements on other matters will usually be important. The rules

addressing horizontal and vertical agreements are discussed in
Chapter Three, where it is argued that the rules contained in the TPA are generally appropriate but warrant some fine-tuning.

Other forms of conduct are of concern from a competition
perspective. These include instances where a single firm misuses its

market power, certain mergers and acquisitions, and in some circumstances price discrimination. Conduct of these kinds will
generally involve agreements between firms but, as in the case of refusals to deal or hostile takeovers of listed companies, need not always do so. The rules for addressing these kinds of conduct are discussed in Chapter Four, which argues that the current rule against
price discrimination should be repealed but that the other rules in this

category are appropriate for inclusion in a national competition
policy.

In reviewing the current rules the Committee has been mindful that unnecessary tinkering could create uncertainty for business and delay extending the application of the rules, which is seen as the more pressing policy objective. Accordingly, the Committee has adopted a deliberate policy of limiting proposed. changes to those areas where

the current rules were found to be clearly deficient from the
standpoint of a national competition policy.
C.

TYPES OF COMPETITIVE CONDUCT RULES

Because

of the wide range of competitive and efficiency consequences

of different forms of business conduct,. different types of rules are
appropriate for different types of conduct,

27

2— Overview of Competitive Conduct Rules

Per Se Prohibition

anti-competitive impact of some kinds of conduct may be so unambiguous that they should be prohibited outright without having to demonstrate their impact in each particular case. Where this
The

conduct can be defined with sufficient certainty, prohibition of it per se will often be warranted. Per se prohibitions remove the need to prove effects on competition, and thus provide savings in enforcement costs, and greater certainty for finns seeking to comply with the law. This is

the approach taken, for example, to price-fixing agreements by the
TPA.

Competition Test
Other forms of behaviour, such as certain cooperative arrangements

between firms, are more ambiguous in their impact on competition. In these circumstances a per se prohibition would be inappropriate,

for it might prevent behaviour that is potentially socially useful.
Accordingly, conduct of this kind will generally only be prohibited if it is shown to have a particularly adverse impact on competition. This is the approach taken by the majority of competitive conduct rules of the WA, where the proscribed impact on competition is a "substantial lessening of competition in a market".

When assessing the effect on competition of particular conduct, it is

necessary to define the markets which may be affected by it. A "market" is an area of close competition or rivalry in which one
product or source of supply may be substituted for another in response to changing prices. Markets have product, geographic, temporal and

functional dimensions. Appraisals of market limits have important implications for levels of competition or market power, for narrowly defined markets are more likely to support findings of adverse effects
on competition.1

Some submissions received by the Inquiry expressed dissatisfaction with judicial interpretations of markets in some cases.2 While
"Market" is defined in s.4E to mean a market in Australia, and to include goods or services which are substitutes for products in the market. In assessing competition in a market, regard should be had to import competition (s.4 definition of "competition"), either actual or potential (Queensland Wire Industries (1989) 83 ALR 577 at 588). This approach has recently been
reinforced in relation to the mergers provision (see new s.5O(3)).

Australian Institute of Petroleum Ltd (Sub 22); Unilever (Sub 28); Coopers & Lybrand (sub 42); Mr R Copp (Sub 107); NSW Govt (Sub 117).
2

28

2— Overview of Competitive Conduct Rules

acknowledging the difficulties in this area, the Committee is not

convinced that they are so great as to warrant a fundamental

departure from the existing methodology. The principles of market

definition set out in landmark decisions such as QCMA3 and
Queensland Wire4 accord with sound economic principles, and some dissatisfaction with particular decisions is inevitable in an adversarial context, particularly when the key concepts are not subject to exact

proofs.5 Opportunities to improve the court's access to and use of
economic material are considered in Chapter Seven.
-

Authorisation and Notification
Where conduct breaches the competition rules, under either a per se

prohibition or a competition test, there may nevertheless be offsetting public benefits which indicate that the conduct should be permitted. For example, there may be cases in which conduct which adversely affects competition nevertheless promotes economic efficiency and community welfare.

An authorisation or notification scheme provides a mechanism for
consistent and cost-effective resolution of these conflicts on a case-bycase basis. The existing authorisation scheme permits an independent body, the Trade Practices Commission (TPC), to "authorise" certain conduct where the public benefit of the reviewed conduct exceeds the

anti-competitive detriment. Notification is a similar procedure,
which confers automatic immunity from the competitive conduct rules

upon notification of particular conduct to the TPC, with that

immunity continuing until such time as the Commission revokes the

notification on public benefit grounds. Appeals from the TPC's authorisation and notification decisions can be made to the Trade
Practices Tribunal (TPT).

Administrative authorisation is the most direct mechanism for resolving possible conflicts between protecting the competitive process and achieving other policy goals, and is examined in
Chapter Five. It provides a flexible and transparent means of dealing with possible new issues posed by extending market conduct rules to a
3

(1976)25 ALR 169. Industries (1989) 83 ALR 577. Qum,sland For a discussion of the principles of market definition see Norman N, "Markets and Competitioit A Note on Economic concepts Imported from Economic Analysis" Australian Trade
4

Practica Reporter 12-5(X).

29

2— Overview of Competitive Conduct Rules

wider range of market participants. Nevertheless, some forms of

conduct may be so inherently anti-competitive and contrary to
economic efficiency that administrative authorisation should not be permitted. In such circumstances, accommodation of conflicting
instruments such as specific legislation.

policy goals should be achieved through alternative policy
Simplifying Principles

The

TIC has proposed that the competitive conduct rules could be more simply expressed by a single provision that "all conduct which substantially lessens competition is prohibited unless authorised."6

While seeing some merit in the idea behind this proposal, the
Committee has come to the view that such a sweeping simplification would not be appropriate.7 The competitive consequences of different types of conduct warrant different types of rules, and it is not always

appropriate to permit authorisation. The proposal would also
present significant problems in the area of unilateral conduct.8

International experience with "simple" statements of competition
rules, such as in the United States (US) and the European Community

(EC), suggests that a considerable body of case law or regulations inevitably develops to interpret the simple propositions and their application to specific types of conduct, so that legal complexities are
not eliminated. Despite proposing some minor modifications to the existing rules, the Committee has concluded that the operation of the existing rules has been largely satisfactory, with the principal concern relating to their

scope of application. In these circumstances, the Committee sees benefit in preserving existing approaches where possible to avoid any unnecessary uncertainty for those to whom the rules do and will
apply.

Cooperation between the Commonwealth and the States in
extending the application of competitive conduct rules to currently exempt areas presents opportunities to simplify the drafting of the
6
7

TIC (Sub 69). See also Trade Practices Committee of the LCA (Sub 65). 8 See discussion in chapter Four relating to proposals for an "effects test" under a misuse of market power pmvision.

30

2— Overview of Competitive Conduct Rules

legislation.9 For example, currently complex drafting to tie the

operation of each rule to the Commonwealth's heads of legislative power could be removed if there were a referral of powers from the States. Apart from simplification in this respect the Committee does not propose any drafting changes other than those necessary to give
effect to its recommendations.

D. EXEMPTIONS FROM COMPETITIVE CONDUCT RULES
There

are a range of exemptions from the current TPA of both a

general and a specific nature.

Adniinistrative authorisation and notification procedures provide one

general source of exemption. Other general exemptions arise through constitutional constraints on Commonwealth power; the legal doctrine of "shield of the Crown"; exemption by regulation

made under the Act or by specific authorisation by other

Commonwealth, State or Territory laws or regulations. The TPA also includes a number of specific exemptions, including certain standards, intellectual property matters and overseas shipping. Chapter Five reviews these exemptions and concludes that a national
competition policy should rely on a narrower range Of more rigorous

and transparent exemption processes. Chapter Six considers the
set out in the Act itself.

application of the Committee's recommendations to a range of
individual sectors and activities and reviews the specific exemptions

The Committee's work uncovered two major misconceptions about
the TPA, which ultimately proved pivotal to its recommendations.

The first is the extent to which particular entities or activities are exempt from the Act. While the Committee found that many of the
current exemptions from the Act are not justified on considered policy

grounds, there are no general exemptions favouring government
businesses, the professions or agricultural marketing authorities, and many of these groups are already subject to the Act to some degree or
in some circumstances.

9

See Trade Practices Committee of the LCA (Sub

65);

Centre for Plain Legal Language

(Sub 138).

31

2— Overview of Competitive Conduct Rules
The second misconception relates to the impact of applying the Act to

currently excluded sectors. Application of the WA would have only limited impact on many sectors that are partially excluded from its reach. Important as it is in protecting competition, the Act only

prohibits certain kinds of voluntary conduct that may restrict

competition, and will generally have little or no impact on matters such as market structure or restrictions imposed by laws or other government policies. Some of the complexities in this area are
illustrated by the discussion in Box While the Act's prohibitions of anti-competitive conduct are an important part of competition policy, their inability to address the full

range of conduct and market structures of concern from a national competition policy perspective prompted the Committee to propose
the additional policy elements discussed in Part H of the Report.

E. ENFORCEMENT REGIME
The Committee proposes that, leaving aside questions of what bodies

should perform what functions the enforcement regime for
competitive conduct rules should be substantially based upon the
existing enforcement regime under the WA. Chapter Seven explores various elements of an enforcement regime: remedies; public versus
capacity to deal with economic issues are discussed.

private enforcement; and the processes by which judicial deteTminations are made. Some opportunities to improve courts'

10

See Executive Overview

32

3.

Anti-Competitive Agreements
which restrict firms from competing are among the

Agreements

central concerns ofcompetition law.1

"Horizontal" agreements are those between competing firms. They will be of concern where competitors agree to refrain from particular forms of competitive conduct, such as agreeing not to charge below a specified price. The Trade Practices Act 2974 (TPA) distinguishes between different forms of horizontal agreements. They are here discussed as price fixing agreements, boycotts and other horizontal agreements. In general the Committee is satisfied that the existing provisions operate effectively, but proposes some minor amendments
in relation to price fixing agreements.

"Vertical" agreements are those between firms at different levels of the

chain of production such as, for example, wholesalers and retailers. Vertical agreements are of concern where a firm at one level (eg, a retailer) agrees to restrictions on competitive conduct imposed by a operating at another level (eg, a wholesaler). The TPA distinguishes between non-price vertical agreements and resale price maintenance. Again, the Committee is generally satisfied with the operation of these provisions, but proposes some minor amendments in relation to certain non-price vertical agreements and resale price maintenance.
A.

PRICE AGREEMENTS BETWEEN COMPETITORS (ss.45A & 45C)

Committee strongly supports the Act's per se prohibition of
agreements between competitors which fix, control or maintain prices.

Pricing decisions lie at the heart of the competitive process, and the

At present, administrative authorisation is available for price fixing agreements for services but not for goods. Because of the central
The term "agreement" is used here to describe inkrrnal arrangements and understandings as well as legally binding agreements: see the discussion of the expression "contract, arrangement

or understanding" in Pengilley W, "Anti-competitive Agreements" Australian
Reporter ¶3-280.

Trade Practices

33•.

3— Anti-Competitive Agreements

importance of price competition, and to remove any ambiguity over

the undesirability of price-fixing, the Committee proposes that the treatment of goods and services be brought into line by removing the
potential for authorisation for price-fixing agreements for services.

While the Committee supports the current provision for certain recommended price agreements to be authorised, such agreements
should no longer be specifically excluded from the per se prohibition.

Background
Seeking the profits of a single-firm monopoly, competitors may agree

to refrain from competing against each other, and instead collude to raise prices and thus restrict output. Such cartels must please most members to maintain their allegiance, and typically perform even less efficiently than single-firm monopolies because they fail to minimise

the costs of production. With less external pressures on firms,
technical and organisational inefficiency can also emerge. Situations in which cartels are likely to be effective are fairly rare, but they are more likely to succeed in industries with relatively few competitors and significant barriers to entry. Most cartels break down because of organisational difficulties in obtaining and maintaining agreement, cheating by cartel members or because high profits attract new entry.

Nevertheless, while cartels survive they are likely to impose
substantial costs upon the community, and some may survive for
extended periods.

Unlike other horizontal agreements, price agreements are generally unambiguously detrimental to economic efficiency. Further, removing price agreements is unlikely to undermine the internal efficiency or organisational integrity of the cooperating firms, so that there is generally no case against prohibiting price agreements. There are thus sound reasons for prohibiting price fixing agreements per se,
without any inquiry into the competitive effects of such agreements.
Current Approach
Agreements2 and covenants3 between competitors which have the

purpose or effect of fixing, maintaining or controlling prices are per se
2
3

sections 45, 45A(1). Sections 458, 45Ct1), 45C(2).

34

3—Anti-Competitive Agreements

illegal under the Act. Joint venture pricing,4 price recommendation

agreements between SOor more persons5 and buying groups' pricing6 are exceptions to the — sé prohibition; but will be prohibited if they

substantially lessen competition. Authorisation is not available for
price fixing in relation to goods but is available in relation to services

and the three forms of price agreements excepted from the per se
prohibition.7

Overseas Approaches
International experience indicates strong support for a per se prohibition of price fixing agreements. In the countries where per se prohibitions are not a general part of competition law, a strong line is nevertheless taken against such agreements.

In the United States, all agreements to fix prices are illegal per se,8

unless ancillary to the achievement of another pro-competitive purpose in which caSe they are subject to a 'rule of reason' which
balances the opposing competitive detriments and benefits.9
In New Zealand, price fixing agreements are illegal per se,10 but can be authorised. The per se prohibition does not apply in respect of inputs to joint ventures,11 price recommendations by groups of 50 or more12 or joint buying promotional arrangements.13

In the United Kingdom, although not legally. subject to absolute
prohibition,14 no price fixing agreements have been permitted by the Restrictive Practices Court since 1966, and earlier decisions have been criticised. Price recommendations by trade associations are treated in the same way as explicit agreements as to price.15
4
5 6

Sections 4J, 45A(2).

section 45A(3). Section 45A(4).

-

.

7

Sections 88(2), 88(2), 88(5). Authorisation is generally unlikely to be granted in relation to

price fixing of services: Heydon JO, Trade Practices Law [4.900144.920). 8 section 1 Sheiman Act (US), [ISv Socony-Vacuwn Oil Co 310 US 150(1940). of chicago v t1S246 US 231 (1918). Eg Board of Trade of
IL) 11

12 13

14

Sections 27,30,34 Commerce Act (NZ).. Section 31 Commerce Act (NZ). Section 32 Commerce Act (NZ). Section 33 Commerce Act (NZ). Sections 6(1)(a), 11(2)(a) Restrictive Trade Practices Act (UK).
.

.

Sections 8(2),8(3),16(3), 16(4) Restrictive Trade Practices Act (UK).

35

— Anti-Competitive Agreements

In the EC, price fixing agreements are prohibited to the extent that they affect trade between Member States.16 The prohibition extends to recommended price agreements.'7 There are no per se rules in EC

competition law. Exemptions may be granted by the Commission where certain conditions are demonstrated, although few exemptions
have been granted in relation to price fixing agreements.18

In Canada, agreements which unreasonably enhance prices, which prevent, lessen or otherwise restrain or injure competition unduly are prohibited.19 Bid rigging is prohibited per se.20 Agreements between banks on, amongst other things, interest rates or loan terms, are
prohibited per se.21 There is no provision for authorisation.

Submissions

to the Inquiry indicate no major concerns with the current provisions. There were suggestions that authorisation be
Submissions

available for all price agreements;22 that a clearance or notification procedure be introduced in respect of the three excepted classes of price agreements;23 that recommended pricing should be available to groups of less than 50 parties;24 and that the operation of the joint
venture exception be clarified.25

Consideration
Per Se Prohibition vs Competition Test

The current per se prohibition of price fixing is warranted on the basis

that the occurrence of efficiency-enhancing price fixing agreements is

rare, that the benefits of identifying and permitting efficiencyenhancing price fixing agreements in a court setting are outweighed
16
17

Article 85(1), Treaty of Rome (EC).
Cemcnthandelaren v Commission (Case 8/72)11972) ECR 977, [1973) CMLR 7.

Article 85(3) Tinily of Rome (Ec). Van Bael I & Bells J-F, Competition Law of the EEC (1987)

at 231.
19 20
21

section 45 Competition Ad (Canada). Section 47 Competition Ad (Canada).

23
24

Section 49 Competition Act (Canada). TPC (Sub 69); NFF (Sub 90); Assn of Consulting Engineers Aust (Sub 127). Small Business Coalition (Sub 12).
IC (Sub 6); NFF (Sub 90); SCA (Sub 93).

BliP (Sub 133).

36

3— Anti-Competitive Agreements

by the enforcement and judicial costs of a competition test and the

benefit from the certainty induced by such dear rules.

Per se prohibition or a competition test are not the only possible approaches to price fixing. Following a recent review of the
Commerce Act, the New Zealand Government has decided to replace the provision deeming price fixing agreements to substantially lessen

competition with a rebuttable presumption: agreements to fix,
maintain or control prices would be presumed to substantially lessen

competition unless the defendant could show otherwise.26

The argument against such a test is that it may involve a wasteful analysis

of evidence which is ultimately unlikely to rebut the presumption, thus increasing enforcement costs. It also signals to firms that putting
resources and effort into price fixing may be rewarding behaviour.
Authorisation
The

per se prohibition against price fixing is qualified by the

availability of authorisation for price fixing agreements involving services (as well as the three exemptions from the per se prohibition:
joint venture pricing; recommended pricing for groups of 50 or more; buying groups' pricing). There seems to be no reason in principle for the distinction between goods and services: price fixing in relation to services is no less capable of diminishing economic efficiency than price fixing in relation to goods.
Options for dealing with this inconsistency are: (i) removing authorisation in relation to services; (ii) permitting authorisation in relation to goods; or (iii) maintaining the status quo.

The Committee strongly favours the first option.

Removing authorisation in relation to services would provide a clear and simple message that price fixing is not acceptable business behaviour.

Although some authorisations have been granted for price-related

agreements concerning services, most of these have involved
agreements which did not require compliance with the relevant price. The most significant line of authorisations has been in road transport, involving agreements between owner-drivers to coUectively negotiate
26

The Hon Philip Burdon, New Zealand Minister of Commerce, "Review of the Commerce

Act", Press Statement 16 Februaiy 1993.

37.

3— Anti-Competitive Agreements
rates

of remuneration with freight owners, and in this area the Trade

Practices Commission (TPC) now seems less likely to grant
authorisation.27

Permitting authorisation in relation to goods is the course urged in some submissions. It could be argued that firms wishing to
demonstrate the public benefits of their price fixing agreements should

at least have the opportunity to do so. Against this, it would be wasteful of resources to provide such opportunities where the ultimate result should almost always be a refusal of authorisation. Further, the availability of authorisation would undermine the
normative effect of the legislative prohibition, encouraging firms to
think that price fixing may be acceptable in some circumstances.

The status quo is inconsistent in the treatment of goods and services, is not supported in principle, sends conflicting messages to businesses about the acceptability of price fixing and unnecessarily increases the complexity of the law.
Price Recommendations
Recommended

pricing by groups of 50 or more competitors is

currently exempt from the provision of the Act that deems pricing

agreements to substantially lessen competition28 and can be
authorised. The Committee proposes removal of the exemption but continuing the availability of authorisation.

'

Per Se Prohibition vs Competition Test

Price "recommendations" may be a cloak for underlying price fixing

agreements, and may in reality have the effect of "fixing" price. With a large group, maintaining adherence to underlying agreements will be difficult, so that an agreed price is more likely to be a "genuine" recommendation. Nevertheless, even genuine recommendations may

have the effect of encouraging greater price uniformity, that is,
controlling or maintaining price, if a price recommendation does have the effect of "fixing, controlling or maintaining" price there seems little reason to treat it differently from other price fixing agreements. if the price recommendation does not have this effect, the per se prohibition does not apply in any event.
27
28

See Re Lamont (1990) ATPR ¶141-035. see s.45A(3).

38

3— Anti-Competitive Agreements

Removing the exemption from the per se prohibition will not render

illegal price recommendations which do not have the purpose, the effect or the likely effect of fixing, controlling or maintaining price. Nor will it prohibit many information sharing arrangements, such as information on the most recent trades, or recommended pricing in a vertical relationship, such as where a manufacturer recommends a price to retailers. It will, however, underline the message that price competition is central to effective competition and will prohibit
agreements, however described and comprising however many firms, which have an adverse effect on price competition.
•

Authorisation

The

most common arguments in favour of permitting price

recommendations to be authorised are that in some cases the task of grocery retailers with a wide setting prices can be complex (eg, range of products), and in some cases the market price can be unclear (eg, primary produce may be subject to fluctuating world prices). The argument that setting prices is too complex for some businesses seems weak: at the very simplest, retailers can unilaterally adopt a cost plus

mark-up pricing policy. The argument that market prices for commodities are unclear may have had greater strength in bygone
days, but seems weak today in light of developments in information and communications technology.
In the case of genuine price recommendations, however, it may not be immediately apparent whether the agreement has the effect of fixing,

controlling or maintaining price. In such cases, business certainty might be enhanced by the availability of authorisation. But to permit authorisation for a 'recommended' price agreement between a small

number of parties might allow firms to use the cloak of price
"recommendations" to seek authorisation for price fixing agreements. As already observed, for a large number of parties it seems likely that an agreement would be a genuine price recommendation, and it is only in such circumstances that authorisation should be permissible:
-

While 50 is perhaps an arbitrary number, it represents a fair
assessment of the minimum number of parties required to ensure that a recommended price is no more than that.29 Thus the Committee
It is not possible to simply add otherwise uninvolved paities to an agreement, to achieve the desired 50 persons. Section 45A(3) relates to the parties to an agreement, being an agreement which falls within s.45A(1) (the deeming provision). Section 45M1) deals with price agreements
29

39

3— Anti-Competitive Agreements

supports retention of the current provision which permits authorisation for recommended price agreements between 50 or more competitors.
Joint Ventures
Joint venture pricing is exempt from the provision of the Act that

deems pricing agreements to substantially lessen competition.3° Joint

demonstrated. The Committee considers that the operation of the joint venture pricing exemption should be clarified, but otherwise
proposes no change to the provision.
Joint ventures are an emerging legal concept, and may take the form of a separate company formed for the purpose of a common enterprise, a

venture pricing remains subject to the competition test, but authorisation is available where net public benefit can be

partnership or an unincorporated joint venture which is not a
partnership.31 In trade practices cases, joint ventures have generally involved the development and marketing of natural resources,32 but this is not the only recognised area of joint ventures.33 Joint ventures are frequently used where there is difficulty in a single firm raising the necessary capital, or bearing all the risk, associated with a particular business venture. In the absence of joint venture agreements some projects simply would not occur.

The joint sale of joint venture products could constitute a price
agreement between competitors, technically falling within the terms of

s.45A(1), but it is simply a natural extension of the joint venture process and should thus not be prohibited per se. Nevertheless, scrutiny under the substantial lessening. of competition test is
appropriate for such agreements, given the anti-competitive potential of all price agreements between competitors. The potential benefits of
between competitors. Thus, parties to a recommended price agreement would need to be competitors, competing within a particular market.
See s.45A(2).
31

See s.4J; Brian fly Ltd v United Dominion Corporation Ltd (1985) 60 ALR 741; and

Chetwin MC, "Joint ventures — A Branch of Partnership Law?" (1990)16 Uni of Qunnsland Law
Journal 256. 32 See, eg, the TPC's authorisation decisions in West Australian Petroleum & West Australian Natural Gas Ply Ltd (1979); Woodside Petroleum Development Ply Ltd — North West Shelf Venture (1977); Santos Ltd (1988) ATPR (Corn) ¶50-074; Bridge 011 LimIted (1988) ATPR (Corn) ¶50.073; Delhi Petrolewn Ply Ltd and Santcs Ltd (1988) ATPR (Corn) ¶50.076. 33 see, eg, the TIC's authorisation decisions in Bankcard Scheme: Interbank Agreement (1980); Electric Lamp Manufacturers (Australia) Ply Ltd (1982) ATPR (Corn) ¶50-033.

40

3— Anti-Competitive Agreements

joint venture arrangements suggest that authorisation should be available where net public benefit can be demonstrated. There have been suggestions that the joint venture pricing exemption does not operate in respect of a price agreement relating to the joint venture's product where not all of the joint venture parties are parties to the price agreement.34 It would be a simple matter of legislative drafting to resolve this uncertainty, and the Committee considers that the existing provision should be redrafted to make clear that not all the joint venture parties need to be parties to a pricing agreement to qualify for the exemption.
Joint Buying Groups

with joint ventures, joint buying groups are exempt from the provision which deems price agreements between competitors to
As

substantially lessen competition.35 Joint buying groups remain subject

to the substantial lessening of competition test, and authorisation is available where net public benefit can be demonstrated.

Joint buying arrangements can permit small businesses to take advantage of economies of scale or scope in purchasing and advertising, while continuing to compete at the retail level. The
exemption from the deeming provision relates to the purchasing and

advertising activities of such groups and is warranted, given the
potential benefits of such arrangements.

Conclusion
The Committee is satisfied that the provision which deems price fixing

agreements to substantially lessen competition is warranted, and should be incorporated into the competitive conduct rules of a
national competition policy.

The Committee supports retention of the exemptions from the
deeming provision of joint venture and joint buying groups but not that for recommended pricing agreements. The operation of the joint
venture exemption should be clarified.

BlIP (Sub 133).

See s.45A(4).

41

3— Anti-Competitive Agreements
Subject

to appropriate transitional arrangements,36 the Committee

supports the removal of administrative authorisation for price
agreements for goods and services, with the only exceptions being the

existing ones for joint ventures, joint buying groups and
exception to groups of less than 50 parties.
B.

recommended pricing agreements with 50 or more parties. The Committee does not support extending the recommended pricing

BOYCOTTS (ss.4D, 45D & 45E)

Boycotts are agreements between competitors aimed at restricting the

ability of a target firm to either buy or sell in a market. A number of

countries have adopted stringent approaches to boycotts.

The operation of the secondary boycott provisions is currently the subject

of a Senate Inquiry. On the basis of submissions received by this
Inquiry, the Committee has not been persuaded of the need to amend the current provisions dealing with boycotts.

Background
A primary boycott occurs when a group of people agree not to deal with (either sell to or buy from) a target person, or class of persons.

A secondary boycott occurs when a group of people who may not

themselves deal with the target person persuade an otherwise uninvolved party (such as a supplier) not to deal with the target person. A secondary boycott could occur because a group of
competitors wished to discipline or eliminate a competitor. In the Australian context, the most common secondary boycotts involve

industrial action by unions and union members with no direct
complaint against the target employer.
Current Approach
Primary boycotts are prohibited per se,37 but can be authorised.38

Secondary boycotts which have the purpose and effect of causing substantial loss or damage to the business of a target corporation, or
SeeChapteriS.
See s.41) and s.45. Note also s.45D(IA).
38

Section 88(1).

42.

3— Anti-Competitive Agreements

substantial lessening competition in a market in which the target

operates, are prohibited by s.45D(1).39 Section 45D(1A) prohibits two or more people from engaging together in conduct with the purpose

and effect of preventing or substanti ally hindering a target from
engaging in inter-State or overseas trade.

An exemption from both these provisions applies if the the dominant

purpose of the relevant conduct is substantially related to
remuneration, conditions of employment, hours of work, working conditions, or termination of employment.40 While it is possible for
the employees of one employer to pursue similar claims to those made by other employees against another employer, a boycott pursued for purposes related to the remuneration, employment conditions, etc of

another group of employees would not generally satisfy the
requirements for exemption41

Where a union attempts to persuade a person not to deal with a target,

the person is also prohibited from agreeing to the union demands
unless the target is a party to the agreement, consents in writing to it,
or the TPC authorises it.42

The Australian Industrial Relations Commission has jurisdiction
under Part VI, Division 7 of the Industrial Relations Act to conciliate in ss.45D and 45E disputes where there is an application in the Federal

Court for an injunction to restrain a boycott. No other provisions of the Industrial Relations Act deal with such behaviour.

Authorisation is available for conduct which contravenes the
secondary boycott provisions.43

Overseas Approaches
International experience indicates support for prohibiting boycotts through competition or industrial relations policy.
39
40
41

Additional requirements apply if the target is not a corporation.

section 45D(3). Union of Australia (1987) Concrete Constructions Ply Ltd v Plumbers and Gas Fitters 115 1CR 31 at 57-58; ATPR 140-766 at 48-309. see also Meat & Allied Trada Federation of Australia (Qid Branch) (1989) ATPR (Qid Div) Union q' Employers v Australian Meat Industry Union

¶40-986 at 50,750 and 50,755; Ascot Cartage Contractors Ply Ltd v Transport Workers' Union of
Australia (1978)32 FLR 148 at 154; ATPR ¶40-766 at 48,309. 42 Section 45E. 43 Sections 88(7), 88(8).

43

3— Anti-Competitive Agreements

In the US, boycotts are prohibited per se.44 While the anti-trust laws

operate subject to a labour exception, secondary boycotts in an
industrial context would usually be caught under specific industrial
legislation.45

In New Zealand, primary boycotts are prohibited per se and are
authorisable. There is no specific legislative provision equivalent to

ss.45D and 45E, but secondary boycotts fall under the general
industrial legislation.46

prohibition against agreements which substantially lessen
competition. Industrial secondary boycotts may be challenged under

In the UK, boycotts may, depending on the form of the relevant
agreement, be registrable under the Restrictive Trade Practices Act 1976,

although not where the boycott relates to certain matters of
employment. Common law economic torts may have application to
boycotts in an industrial context.47 Canada's Competition Act 1986 does not deal specifically with boycotts,

although some boycotts may breath the general prohibition against conspiracies, agreements and arrangements that lessen competition unduly.
Submissions
The current provisions dealing with primary boycotts received little

attention. One submission suggested that they should be subject to

the substantial lessening of competition test, rather than per se
prohibition.48

Recognising that the secondary boycott provisions were not a major

focus for this Inquiry, the arguments for reform were not fully canvassed in submissions to this Committee. Nevertheless, some
proposals were advanced, including support for the current regime,49 a proposal that boycott laws should only prohibit arrangements where
44
45

Kloys Inc v Broadway Hale Stows Inc (1959) 359 US 207.

National Labour Relations Ad (US).

46 47
48

See ss.63 and 64 of the Employment Contracts Ad (N?). Section 224 Trade Union and Labour Relations (Consolidation) Ad (UK).

NSWCovt(Subll7).
Trade Pract ices Committee, LCA (Sub 65); Small Business Coalition (Sub 100).

49

44

3— Anti-Competitive Agreements
a

group of competitors restrict or limit dealings with other potential or

actual competitors,5° and a proposal that unions should be exempt
from ss.45D and 45E.51

Consideration
Prohibitions on primary and secondary boycotts were inserted in 1977,

following recommendations of the Swanson Committee.

Section 45D had its origins in a recommendation of the Swanson Committee that "the law provide an effective avenue of recourse for
the trader directly affected, by allowing him access to an independent

deliberative body."52 The Committee pointed to the examples of boycotts by bread delivery drivers• against retail outlets which were selling cut-price bread and boycotts by petrol tanker drivers against
service stations advertising cut-price petrol. The Swanson Committee made no recommendation as to whether secondary boycotts should be dealt with in trade practices or industrial relations legislation.53
Section 45E arose out of a dispute in 1980 when a union placed a black

ban on an oil company from supplying petrol to a company. The oil company, to keep its depots open, agreed to the union's demands that the target firm not be supplied. The Government felt that companies
should not succumb to such pressure, and enacted s.45E in response.54

The major field of operation for ss.45D and 45E has been in industrial

disputes, but there have also been a number of purely commercial
disputes involving the secondary boycott provisions.55 The operation of these provisions is currently the subject of an inquiry by the Senate Standing Committee on Employment, Education and Training, which is to report by the end of September 1993.
50

DrWrengilley(Subll).
Trade Practices Act Review committee, Report to the Minister for Business and Consumer

ACrLJ (Sub 113). Note that unions are not directly affected by s45E, but that they could conceivably be prosecuted for aiding and abetting a contravention of s 45E.
52

Affiths, (1976), recommendation 10.19 at 86. 53 Ibid, pan 10.20, at 86. See Debate, 15 May 1980, Mansard, H of R, p.2827 et seq. (1983) ATPR ¶40-429; Jewel Food Stores v I-tall and Eg IMzite lndustTia v JO Trammeil and On (1991) ATPR ¶41-098; Traztand fly Ltd v Bousafield & On (1984)6 ATPR ¶40-454 and ¶40-497; Jiamburg-Suedamerckanisse v I Fenick and On (1984) (unreported); and Refrigerated Express Linac (A'Asia) fly Ltd v Australian Meat & Livestock Corporation & On (1980-81)3 ATPR 140.137 and ¶40-

45

3— Anti-Competitive Agreements

Per Se Prohibition vs Competition Test
Both primary and secondary boycotts are subject
se

prohibition.

Secondary boycotts have an alternative competition test, which is
frequently irrelevant given the existence of the other most commonly applied test of damage to the business of the target corporation. The Committee was not presented with compelling evidence that would suggest an alternative approach to primary or secondary boycotts.
Authorisation

Primary and secondary boycotts are authorisable. No evidence was

presented to the Committee of practical problems which have arisen
as a result of this facility.

Conclusion
Committee did not receive any compelling evidence supporting reform of the primary or secondary boycott provisions, which appear broadly consistent with overseas practice. In these circumstances, the
The

Committee does not propose any amendment to the current
provisions.

The secondary boycott provisions have been controversial in Australia, largely because of their industrial relations role. The
provisions are currently the subject of a separate review by the Senate Standing Committee on Employment, Education and Training, and

may be reconsidered in the context of reforms to the industrial
relations system.

C. OTHER HORIZONTAL AGREEMENTS (ss.45, 45B)
The Committee has found the current treatment of other agreements

between competitors to be soundly based in policy. In these
circumstances no changes are recommended to these provisions.

Background
In a cartel's pursuit of monopoly profits, price agreements and output

restrictions are two sides of the same coin, and the observations made

above in relation to price agreements can also apply to agreements
46

3— Anti-Competitive Agreements
between competitors to restrict output. Some agreements between

firms which do not compete can also adversely affect competition.

But there are many reasons why different firms, including competing firms, might enter into agreements that contain restrictions but are not intended to have and do not have any substantially adverse impact on competition. For example, agreements on procedures for resolving consumer complaints might have no discernible affect on competition.

Equally, however, agreements on matters other than price can facilitate tacit price collusion, as well as providing constraints on product differentiation and technological improvement. Even restrictions that limit important elements of competition, such as
advertising, might be argued to have offsetting public benefits in some circumstances.

Trade or industry associations can provide a useful forum for
exchange of information which may enhance technical efficiency. For example, monitoring and reporting on cost information between firms

may facilitate moves towards international best practice and
encourage "yardstick competition" between firms.
Information exchanges may also serve to lessen competition, however, particularly where the information relates to prices. Market sharing by territorial restrictions or allocation of customers and products can create local monopolies.
Current Approach
Agreements and covenants which have the purpose or likely effect of

substantially lessening competition are prohibited by sections 45 and 456 respectively.56 Such agreements or covenants can be authorised.57

Overseas Approaches
International experience strongly supports a competition analysis of non-price horizontal agreements, rather than a per se prohibition.58 Of

the countries examined, the only divergence from this approach is in the US, where some types of agreements seeking indirectly to limit
56

Vertical agreements and mergers are excluded from the operation of these provisions:

ss.45(5),(6) and (7). 57 section 88(1).

section i Shennan Ad (US); sa27, 28 commerce Act (NZ); Article 85 Treaty s.45 competition Act (Canada).

Rome (Ec);

47

3— Anti-Competitive Agreements price competition, such as agreements to restrict output, or to divide

markets territorially, are subject to per se prohibition.

As such

agreements may fall within the per se prohibition of price-fixing under the Australian Act, the US approach is only a limited divergence.

Submissions
Submissions

generally supported the current approach to these

agreements.59 One subntission60 suggested that efficiency should act as the general test in cases of horizontal agreements, while argued that s.45 currently prohibits economically efficient conduct which would not be authorised but gave no examples of its concerns. A technical amendment to s.45(6) was also proposed.62

Consideration
Per So Prohibition vs Competition Test

A per se prohibition of all agreements between competitors would catch much economically efficient conduct. A case-by-case analysis of the impact on competition of horizontal agreements, other than pricefixing and boycotts, is clearly appropriate.
Authorisation

Committee was not presented with evidence that economically efficient conduct would not be authorised. The current authorisation scheme operates effectively to ensure that conduct which lessens competition but nevertheless enhances economic efficiency can be permitted, and the Committee's proposed amendments to the scheme,
The

discussed in Chapter Five, should reinforce the primary role of
efficiency considerations.

59
61

Eg, National institute of Accountants (Sub $8); Small Business coalition (Sub 1W). Metal Trades Industry Association of Australia (Sub 59). NSW Govt (Sub 117). It was argued that s.45(6) does not recognise that s.6 of the Act might prevent intrastate

conduct by an unincorporated entity from infringing s.47 whilst not preventing conduct being
covered by s.4D. It was therefore proposed that s.45(6) should also specify "conduct that would, but for the operation of s.6(2), infringe L4r: Mr P Argy (Sub 60). This point has been referred to the Treasury for consideration.

48

3— Anti-Competitive AgreementS

Conclusion

Committee considéis that no need has been demonstrated for amendments affecting the rules contained in ss.45 and 45B, and believes that these rules should be incorporated into a national
The

competition policy.
D.

NON-PRICE VERTICAL AGREEMENTS (5.47)

There is a wide range of vertical agreements under which firms at one

stage in the production process impose restrictions, other than price

restrictions, on the conduct of firms at another stage. Economic analysis provides no simple rules for the treatment of vertical
restraints, including such tying arrangements as "third-line forcing". As a consequence a test which enquires into the effects of individual agreements on competition is required. The Committee thus proposes

that the provisions relating to third-line forcing should be made
consistent with the other provisions dealing with vertical agreements, by replacing the per se prohibition with a competition test, and permitting notification.

Background
Vertical restraints are restrictions a firm at one stage in the production

process imposes upon the conduct• of firms at another stage. For example, a manufacturer may impose various restrictions on retailers
of its products.63

Vertical restraints may reduce or eliminate intra-brand competition,

that is, competition among dealers in the product of a particular
manufacturer. And if all manufacturers in an industry adopt similar practices, inter-brand price competition (among sellers of different
brands) may also be affected.

In a "tying arrangement', the sales of two or more products are tied: the seller will only sell unrelated products as a bundled package, or offers one product only on the condition that the buyer also purchases one or more other products. In "full-line forcing", a seller requires a buyer to purchase an entire line of products in order to acquire any
For a discussion of the economics of vertical restraints see Scherer F M & Ross I), Industrial
Market Struciwe and Economic Pefonnance (1990) Chapter 15.

3— Anti-Competitive Agreements
(eg,

a car manufacturer might require dealers to carry all of its

models). "Third-line forcing" involves a requirement that a third

party's product be bought in conjunction with the seller's product. Tying arrangements may enable firms to extend market power from one market with low elasticity of demand into an unrelated market;

may permit price discrimination which would otherwise be
impossible; may be used to raise entry barrierst4 or may facilitate avoidance of price regulations on one good. There is a broad

spectrum of tying arrangements, with many having a positive
implication for economic welfare. For example, a supplier may be able

to achieve production or distribution efficiencies or technical
superiority by tying together two or more particular products.

Territorial restrictions or restrictions as to the types of customers which may be served can be used to restrict competition. For example, a manufacturer might grant exclusive territories to its
retailers, resulting in increased profits for those retailers at the expense of, consumers. In some circumstances, however, the grant of an

exclusive territory might be warranted to encourage retailers to
provide an appropriate level of services, such as where there are freerider issues.65 A case-by-case approach is necessary to determine the

effects on competition and efficiency of territorial or customer
restrictions.

Exclusive dealing entails a requirement by one firm that another firm it supplies, or from whom it purchases, not deal with its competitors.66 The potential anti-competitive element in exclusive dealing is market foreclosure, removing distribution outlets or supply sources from use

by potential competitors.

Exclusive dealing may also enhance

efficiency where, for example, a manufacturer finds it less costly to

deal with a relatively small number of dedicated distributors, or
where distributors will not promote a new product unless they have the security of knowing that the product of their promotional efforts will not be reaped by others.
64

Eg, a computer manufacturer requires that it provide all maintenance, thus forestalling the entry of rival service organisations. 65 A free-rider problem can arise where, for example, one retailer provides considerable advice to customers, while another provides no such service and can thus sell at a lower price. Customers

can obtain the advice from one retailer and then buy from the lower priced retailer. For a discussion of free-rider problems in vertical relationships see flanks F & Williams P L, 9'he
Treatment of Vertical Restraints Under the Australian Trade Practices Act", (1987) ABLR Note that the Act calls all vertical restraints "exclusive dealing".
147.

50

3— Anti-Competitive Agreements
Current Approach
Section 47 prohibits thitd-lirte forcing per se67 and other forms of tying,

territorial restrictions and exclusive dealing if they substantially lessen competition.68 Authorisation is available for conduct which would Notification, which provides immediate otherwise contravene and automatic immunity from legal proceedings, is available for all conduct covered by s.47 except third-line forcing.

Overseas Approaches
International experience supports a competition analysis of vertical arrangements, as opposed to a per se prohibition.

New Zealand, the EC and Canada prohibit vertical agreements only
where an adverse effect on competition can be proved.70 New Zealand

and the EC have mechanisms for obtaining exemptions from these
prohibitions.71

The UK permits a balancing of costs and benefits of vertical agreements,72 either by the Restrictive Practices Court or by
administrative investigation.73

In the US, certain forms of tying arrangements, including third-line forcing, are illegal per se but otherwise non-price vertical restraints are judged according to their competitive effect on the market, which at least requires a weighing of effects on intra-brand and inter-brand competition.74 None of the countries examined singled out third-line forcing in the manner adopted by Australia.

67 69 70

Sections 47(6), 47(7), 47(8)(c), 47(93(d).

Section 47. Section 88(8).

Sections 27,28 Comnwrve Act (P.2); Article 85(1) Treaty of Rome (EC); s27 Competition Act (Canada). 71 In New Zealand authorisation is available, under &58 Commerce Act In tic EC exemptions, including Thlock exemptions" for classes of agreements, are available under Article 85(3) Treaty of
Rome(EC). 72 Sections 10,19,21 Restrictive Trade Practices Act (UK).
73 74

Anti-competitive practices: ss 2-10 Competition Act (UK); monopoly references and general references: Pts I, Wand s.78 Fair Trading Act (UK).

Sectionsl,3ShennanAct(US). 51

3— Anti-Competitive Agreements
Submissions

Very few submissions raised difficulties with the operation of the

current provisions relating to vertical agreements. The main issue was whether third-line forcing should be made subject to the substantial lessening of competition test, rather than per se prohibition. Some

submissions supported this proposal,75 while one submission
supported retaining per se prohibition for third-line forcing.76 One submission suggested that provisions dealing with the re-supply of goods should be extended to the re-supply of services?7

Consideration
Per Se Prohibition vs Competition Test

As noted in the background discussion, the effects on competition and

economic efficiency of vertical agreements need to be examined on a case-by-case basis.78 The US has per se prohibitions against tying arrangements, but these rules have come under increasing scrutiny and criticism.79 The Australian rules applying to vertical agreements generally adopt a competition test, and thus accord with economic principles. The basis for a distinction between third-line forcing and other forms of tying is not clear. Per se prohibitions are appropriate where conduct

has such strongly anti-competitive effects that it is almost always likely to lessen competition. Third-line forcing does not fall into this category. For example, the practice of building societies requiring borrowers to take out property or life insurance with a nominated

insurer provides insurers with large captive markets and less
incentives to compete.8° However, where borrowers are permitted to

choose from a list of insurers who are prepared to enter into
concession agreements with the lenders, and who are operating with
K
76

(Sub 6); Trade Practices Committee, LcA (Sub 65); NSW Covt (Sub 117).

TPC(Sub69).
Mr P
(Sub 60).

see Tirole J, The Theory of Industrial Organization (1982) at 186; Waterson M, "Vertical
Integration and Vertical Restraints" (Summer 1993)9 Oxford Review of Economic Policy 41. 79 "Chicago School" theorists have stressed the situations in which vertical restraints can enhance economic efficiency. The most extrenc of these positions is that of Boric, who maintains that 'eveiy vertical restraint should be completely lawful" The Antitrust Paradox (1978) at 288. 80 See United Pennanent Building Society Ltd and Others (Tl'C determination, 30 June 1976).
The TPC found a tendency for tied insurance rates to exceed market rates.

52

3— Anti-Competitive Agreements
the authority of the Insurance Commissioner, competition is unlikely

to be substantially lessened.81

In some cases third-line forcing will be less restrictive than full-line forcing conduct. It is anomalous that a supplier tying in favour of a wholly owned subsidiary, or related company, is subject to a per se prohibition, but a supplier tying in favour of one of its divisions is subject only to a competition test. The per se prohibition may catch

some arrangements whereby a group arranges discounts for its
members from specified suppliers. Further, there is an artificiality about distinguishing between the forcing of a third party's products
and the sale of a package of goods or services.82

The variety of problems and anomalies arising from the divergent
treatment of third-line forcing and other forms of tying suggests that a more consistent approach would be appropriate. Accordingly, third-

line forcing should only be prohibited if it substantially lessens
competition.
Authorisation/Notification

Authorisation is currently available for all forms of vertical restraints,

including third-line forcing. Notification is available for vertical restraints other than third-line forcing. Notification effectively places
the onus on the TPC to establish that particular vertical agreements are against the public interest. As there appears to be no significant policy

rationale for distinguishing between third-line forcing and other vertical agreements, notification should be extended to third-line
forcing.

Goods vs Services

Some of the provisions of the current s.47 are directed at restrictions imposed upon one party concerning the re-supply of goods.83 To come within these provisions, the goods which are initially sold to retailers would need to be the very goods which are re-supplied. The personal nature of many services means that they cannot be resold, and issues of re-supply do not arise. There are other cases in which in
81

See Association of Co-operative Building Societies of New South Wales Ltd and Others;
See, eg, Castlnnaine Tooheys Ltd v Williams & Hod gson Transport Pty Ltd (1986) 162 CLR 395. See ss.47(2)(e)Xf); 47(3)(e)Af); 47(8Xa)(ii); and 47(9)(b).

ffPC determination, 8 June 1977).
82 83

53

3— Anti-Competitive Agreements
a

loose sense re-supply of services seems to occur, but it may often be

the case that the bundle of legal rights which is transferred from wholesalers to retailers is different from the bundle of legal rights
which is transferred from retailers to consumers. In such cases, it may not be the same service which is passed on, and there may be no "re-

supply" to be addressed. Bearing in mind the wide definition of services in s.4, there may be other cases in which the re-supply of services is possible. For example, the rights to intellectual property
might be capable of being re-supplied.

Whether in a legal sense the same service is passed on,it is possible to impose vertical conditions on the re-supply of services. There is no

reason in principle why such conduct should not be treated in the
same manner as vertical conditions on the re-supply of goods.

Conclusion
The

Committee does not believe that third-line forcing is so

significantly anti-competitive as to warrant treatment which differs from other forms of tying and recommends that third-line forcing be
subject to a competition test and notification.

The Committee considers that the provisions dealing with vertical restrictions on the re-supply of goods should be extended to cover the situation where one person supplying services to a second person imposes conditions on the re-supply of those services, or on the
supply of services provided in connection with those services.

Otherwise, the Committee considers that the TPA's treatment of nonprice vertical restraints should be incorporated into the competitive conduct rules of a national competition policy.
E.

RESALE PRICE MAINTENANCE (s.48, Part VIII)

Resale

price maintenance (RPM) is the practice whereby a supplier

requires retailers to sell at or above a minimum price. RPM has
historically been associated with collusive retailing practices, and the

raising of consumer prices. Modern economic thinking, however,
recognises that in some circumstances RPM could enhance economic efficiency. For example, a producer who guarantees minimum retail prices may in some situations be promoting economic efficiency by
54

3— Anti-Competitive Agreements
encouraging the distributors to increase the level of their pre- or post-

sales services in relation to the product.

The Committee proposes that the current per se prohibition be
maintained, and extended to cover practices solely involving services, but that authorisation be made available.

Background
While it is not generally in a proflt-maximising manufacturer's interest

to raise dealers' margins above the competitive level, there are a number of possible reasons for the imposition of minimum resale
prices.

Dealers' market power may permit a colluding group to fix the resale

price and require the manufacturer to enforce it on their behalf;
Alternatively, a group of competing manufacturers may use RPM to facilitate collusive or tacit price-fixing arrangements. Such
occurrences of RPM are generally recognised as efficiency-reducing.

Other situations in which firms have an incentive to engage in RPM

may give rise to efficiency-enhancing behaviour. An efficiencyenhancing role for RPM occurs where it enables producers to improve sales by enhancing customer services or product quality. Where there

are problems with "free-riding" on provision of services, RPM can

encourage all retailers to provide desirable services which may
increase the desirability of manufacturers' products. Manufacturers

might adopt RPM to attract dealers or to maintain their loyalty,
particularly where dealers are easily able to change allegiance. RPM

can be used to enhance a reputati on for product quality, at least during the initial period of the product's life cycle. Manufacturers with reputations for high quality and value may adopt RPM to
prevent loss leader sales because such sales detract from the product's

reputation and lessen incentives for other retailers to carry the
product.
Current Approach
Specification of minimum resale prices is prohibited per se in relation

to goods, or services sold in connection with goods, but not in relation to services alone.84 The prohibition does not apply where RPM is used
sections 48, 96-1('), 4C(b), 4C(c).

55

3— Anti-Competitive Agreements

in response to loss leader selling.85 Authorisation is not available for
RPM.

Overseas Approaches
International treatment of RPM generally supports per se prohibition.

New Zealand and Canada, have each recently reviewed their
legislation, and prohibit RPM per se,86 although New Zealand now permits authorisation. In the UK, resale price agreements which come

within the proscribed forms are illegal although exemption
mechanisms are available in relation to resale price restrictions
imposed by a firm acting unilaterally.87

In the EC, while RPM is subject to a general competition test,88 the practical approach has been fairly stringent. RPM has been considered illegal in cases where groups of suppliers agree to impose resale prices on their purchasers and in cases where a single supplier agrees with its resellers that they will not resupply a product below a certain price.

In the US, resale price maintenance agreements in a vertical
relationship, as between a manufacturer and a retailer, are illegal
per se.
89

Submissions
Several

submissions argued that the current prohibition on RPM

should be relaxed, either by subjecting it to a competition test90 or by

permitting authorisation9' or notification.92 Other submissions
suggested that the prohibition be extended to services.93
85

Section 98(2). Sections 37-42 Commerce Act (NZ); s.61 Competition Act (Canada).

87

See sal and 9 Resale Prices Act (UK). Classes of goods can be exempted by the Restrictive Practices Court where public interest criteria are satisfied. These exemptions are not available in relation to collective agreements to enforce the maintenance of resale prices.

Article 85 Treaty of Rome (EC). Medical Co v John D Pan & Sons Co 220 US 373 (1911); Section 1 Sherman Act (US), Dr Monsanto Co v Spmy-Rite Service Corp, 465 US 752. It is not illegal, however, ftr a manufacturer
89

acting unilaterally to announce in advance its resale prices and refuse to do business with noncomplying customers: United States v Colgate & Co 250 US 3(X) (1919).
IC (Sub 6); Pacific Dunlop (Sub 112).
91

IC (Sub 6); Trade Practices Committee of the LCA (Sub 65); TPC (Sub 69); Pacific Dunlop

(Sub 112). Mr P Argy (Sub 60). 93 DOTAC (Sub 58); Mr P Argy (Sub 60); TPC (Sub 69).

56

3— Anti-Competitive Agreements

Consideration
Per So Prohibition vs Competition Test
Economic theory indicates that there are circumstances in which RPM

could enhance economic efficiency. For example, it may be that consumers will buy more of a certain good if there are associated pre-

sales services, such as explanation of certain technical matters.
Retailers who do not offer those services may operate at lower cost, and thus offer lower prices. Customers may be able to obtain the services from the high cost retailer and buy the goods from the low price retailer. In such situations competition among retailers could result in less than optimal provision of pre-sale services, and thus less than optimal total sales of the manufacturer's product. To increase sales, the manufacturer may wish to encourage all retailers to provide increased services. This might be achieved by RPM because if retailers are unable to compete on price they will be forced to compete in other ways, such as the level of services provided.
There are disputes about the frequency of efficiency-enhancing RPM, both as a matter of theory94 and as a matter of empirical observation,95

and it is not clear what sorts of practices would emerge with a
modified legislative approach to RPM. Historically RPM in Australia was frequently linked with horizontal agreements to fix prices, either by suppliers or retailers, and this link helped to foster a strong policy

stance against RPM.
prohibited.

It is clear that such practices should be

The uncertainty surrounding the effects of RPM presents a choice between per se prohibition and a competition test. The current
provision has helped to eliminate many inefficient trade practices, has

simplified the task of enforcing the prohibition against such
undesirable activities and does not prevent recommended retail prices. The Committee has not been presented with convincing
evidence that efficiency-enhancing RPM occurs with such frequency that the per se prohibition should be relaxed.

Scherer FM & Ross 1), Industrial Market Stnicture & Eccnwmk Pe4onnanct (1990) at 550 - 558. Wang Y & Davison M, 'Resale Price Maintenance: is the Per Sc Prohibition Justified?", (1992) 14 Add LR 35; FlanksF & Williams P L, "The Treatnwnt of Vertical Restraints Under the Australian Trade Practices Act", (1987) ABLR 147.
95

57

3— Anti-Competitive Agreements
Authorisation/Notification
The economic theory associated with RPM does, however, present a

convincing argument that RPM can, in certain circumstances, enhance economic efficiency. These arguments are highly technical, and could

appropriately be examined in an authorisation context. Permitting
applicants to argue their case before an expert authorising body would

permit a better assessment of the practical extent of efficiency
enhancing RPM. The empirical evidence of the, frequency of such instances of efficiency enhancing RPM is not considered sufficient to
warrant the introduction of a notification system, however.

Goods vs Services

The RPM provisions as currently drafted refer to resale of goods, but not to resale of services. As with other vertical restrictions noted in relation to s.47, it is possible for manufacturers to impose vertical pricing restraints where services are sold, even if in a legal sense it is not precisely the same service which is resold. There is no reason in principle why services should be treated differently from goods.

Conclusion
The Committee considers that a per se prohibition of RPM should be

included in the competitive conduct rules of a national competition law, and that authorisation should be available to permit firms to

argue their case if they believe that their proposed RPM would
enhance economic efficiency or provide other net public benefits.

The Committee further considers that the provisions dealing with
RPM should cover the situation where one person selling services to a second person requires the second person to re-sell those services at or above a specified price; or where one person selling goods or services to a second person requires the second person to sell other services,

provided in connection with the resale of the original goods or
services, at or above a specified price.

58

3— Anti-Competitive Agreements
F.

RECOMMENDATIONS

The Committee recommends that:
3.1

The provisions of the Trade Practices Act ("the Act") dealing with non-price horizontal agreements (ie, ss.4D, 45, 45B, 45D and 45E) provide the basis of provisions dealing with such

agreements as part of the competitive conduct rules of a
national competition policy.
3.2

Sections 45A and 45C of the Act provide the basis for the
competitive conduct rules governing price—fixing agreements

between competitors under a national competition policy,
subject to the following amendments: subject to appropriate transitional arrangements, authorisation not be permitted for price fixing agreements covering services; — recommended price agreements with 50 or more members
-

—

be removed as an exemption from the deeming provision of s.45A; and
—

the

operation of the joint venture exemption from the

deeming provision of s.45A be clarified.
3.3

Section 47 of the Act provide the basis for the competitive
conduct rules governing non-price vertical agreements under a

national competition policy, subject to the following
—

amendments: third-line forcing be made subject to a substantial lessening of competition test and be capable of notification; and provisions dealing with vertical restrictions on the re-

supply of goo4s be extended to transactions involving
services.
3.4

Section 48 and Part Vifi of the Act provide the basis for the competitive conduct rules governing resale price maintenance under a national competition policy, subject to the following
amendments:
—
—

authorisation be available; and
the provision be extended to the resale of services.

59

4.

Misuse of Market Power, Mergers & Other Rules

well as agreements by which firms accept restrictions on their competitive conduct, competition law is concerned with unilateral conduct which adversely affects the level of competition in markets,
As

and with mergers and acquisitions.

Unilateral conduct includes misuse of market power and price
discrimination. Misuse of market power embraces a wide range of forms of conduct, and the Committee has come to the conclusion that

the existing provision dealing with such conduct should be
maintained.

Price discrimination involves the charging of different prices to different customers. The Committee considers that the existing provision, which prohibits price discrimination in certain circumstances is not warranted and should not form part of the
competitive conduct rules of a national competition policy.

Mergers and acquisitions are a means whereby the conduct of
individual firms affects the structure of the market. The provisions dealing with mergers and acquisitions have recently been amended

and the Committee considers that any further review of these
provisions should await further experience with the new provisions.
A.

MISUSE OF MARKET POWER (SS.46 & 46A)
The

difficulty in detennining what conduct constitutes taking advantage of market

power and what conduct does not, stems inevitably from the need to distinguish

between monopolistic practices, which are prohibited, and vigorous competition, which is not. Both here and in the United States the search continues for a satisfactory basis upon which to make the distinction. For the most part, all that emerges are synonyms which are not particularly helpful. Words such as "normal methods of industrial development", "honestly industrial", "anti-competitive", "predatorj' or "exclusionarg conduct" merely beg the question.1

Queensland Wire Industries Ply Ltd v
ATPR ¶50,010, per Dawson 1.

Broken

Hill Proprietary Company Ltd & Ancr (1989)

61

4— Misuse of Market Power, Mergers & Other Rules
The

role of a provision dealing with misuse of market power is to

distinguish between vigorous competitive activity, which is desirable,

and economically inefficient, monopolistic practices, which are undesirable. The difficult task facing legislatures attempting to
address misuse of market power is to develop a process which will make the appropriate distinctions while providing businesses with the necessary certainty as to the limits of legal conduct. In one specific

area, that of refusals to permit access to facilities of national significance, the Committee sees a case for special processes
(discussed in Chapter 11), but in the general case the Committee favours maintaining the form of the current rule so as to avoid dampening desirable competitive vigour and to avoid further
uncertainty in an extremely difficult area.

Background It is the essence of competition that firms should attempt to outperform competitors in a manner which, if successful, could have adverse consequences for those competitors. For example, the introduction of a new and better product might put competitors at a disadvantage or in extreme cases even put them out of business, but is
not the sort of conduct which should be prohibited.

Firms with market power may be able to engage in conduct which
exceeds the limits of vigorous competition, and thereby entrench their

market positions to the detriment of the competitive process. For
example, in the Queensland Wire Industries case, the High Court found that BHP used its market power to deter or prevent Queensland Wire

from engaging in competitive activity in the rural fencing products market, by refusing to supply Queensland Wire with 1-bar, an input for the manufacture of star pickets.
A central difficulty for competition policy, in Australia and elsewhere, lies in distinguishing between vigorous competitive activity by firms

with market power, and conduct by such firms which in some way

oversteps the mark and prevents the competitive process from
continuing to operate effectively. The challenges are to define conduct which is "excessive" in a policy sense, and to develop a mechanism which can identify practical instances of such "excessive" conduct. In

addressing these challenges, the need to deter egregious behaviour
must be balanced against the need to encourage competitive activity.

62

4—Misuse of Market Power, Mergers & Other Rules
There are considerable difficulties in identifying precise categories of

conduct which are to be viewed as "excessive." "Predatory pricing" provides an example of these difficulties: Where a firm has greater financial staying power than actual or potential rivals, and there are high bathers to market entry, it may be feasible to temporarily sell below cost, driving competitors out of the market. The firm can then recoup its losses through unconstrained monopoly pricing which may continue for an extended period or even indefinitely. Such predatory pricing is a risky strategy, given that the losses from cutting prices are

certain but the gains are dependent upon the uncertain ability to
successfully drive competitors out and keep them out of the market.

Predatory pricing provides consumers with lower prices in the short run, but may lead to higher prices in the long term. Predatory pricing

is difficult to distinguish from strong competitive behaviour.
Industrial organisation theory has not provided a clear definition of what is meant by selling "below cost". There is significant dispute as to whether measures such as marginal cost, average variable cost or average total cost are appropriate or practical, and to what extent long run or short run costs should be emphasised. It seems that no test invariably allows one to predict which particular conduct, when applied to realistic market situations, will lead to higher social welfare
in the long run.2

Another area of difficulty is that of refusals to deal. The refusal by a firm with market power to deal with others can exclude or eliminate them from markets, or at least raise their costs. Firms with market power may have a number of incentives to refuse to deal with others, particularly where they control essential facilities. Possible reasons for refusing to deal could include restriction of output linked to monopoly

pricing;3 elimination of competitors in downstream markets who

undermine the ability to price discriminate in the downstream
markets;4 or avoidance of price regulation.5 On the other hand, there
2

Ordover JA & Saloner C, 'Predation, Monopolisation & Antitrust" in Schmalensee R &

Wilhig R, Handbook of industrial Organization Vol L (1990) at 590.

However, restriction of customers might permit some degree of countervailing power. An alternative strategy would be simply to deal with all corners, but only at the monopoly price.

Eg, a monopolist would like to extract maximum prices from each of its customers, by charging high prices to customers who place a high value on the product and low prices to other customers. The ability to do so is constrained by the existence of competitors who offer lower

prices to the high value customers. In response the monopolist may refuse to provide its
competitors in the downstream market with an input, driving the competitors out of the market or to the point where there is only competition for the high value customers. raising their

63

4— Misuse of Market Power, Mergers & Other Rules

may be circumstances where refusals to deal can be justified on

efficiency grounds, such as where vertical integration is the most
efficient means of operation.

Associated with both refusals to deal and predatory pricing are "price squeezes" by vertically integrated firms who supply competitors. By

temporarily raising the price at which it sells to competitors, and lowering the price at which it sells to final customers, such a firm
could eliminate its competitors, leaving it free to monopoly price. It may be, however, that the lower price to customers is the result of greater efficiency in the downstream market.
Firms with market power may be able to engage more readily in other

restrictive practices, such as exclusive dealing.6 Exclusive dealing

arrangements can raise the barriers to entry because potential
competitors must establish their own distribution networks rather than benefiting from the existing one. Other forms of vertical restraints may also be induced by firms with market power. As with vertical restraints generally, there may or may not be a lessening of
efficiency as a consequence of such conduct.

Firms with substantial market power may be able to charge
monopolistic prices. Such pricing policies are not usually the subject of generally applicable market conduct rules, although they may raise competition policy concerns in some situations. Possible means of addressing these concerns are discussed in Chapter 12.
Current Approach
The current Australian approach to identifying "excessive" conduct

focuses on the purpose of that conduct. Section 46 of the Trade
Practices Act 1974 (TPA) prohibits taking advantage of a substantial degree of power in a market for the purpose of:
(a) eliminating or substantially damaging a competitor; (b) preventing the entry of a person into a market; or

5

Eg, where a vertically integrated monopolist is regulated in its monopoly market, but not in to the downstream market so that it reaps its downstream market, it may deny competitors monopoly profits in the unregulated market. See also, the discussion of the "essential facilities problem In Chapter 11. 6 see discussion of Vertical Agreements in Chapter Three.

64

4—Misuse of Market Power, Mergers & Other Rules
(c)

deterring or preventing a person from engaging in competitive conduct in a market.7

Purpose may be ascertained by inference from the conduct of the firm with market power or of any other person, or from any other relevant circumstances.8 Misuse of market power cannot be authorised, but where particular conduct, such as exclusive dealing, is authorised or notified it will not be taken to contravene s.46.9

Overseas Approaches
A consideration of international experience indicates that there is no universally accepted method of dealing with misuse of market power, although many nations have adopted a purpose-based approach.

The history of the United States (US) prohibition of "monopolisation"1° is illustrative of the difficulties in this area. The offence has traditionally required the possession of monopoly power and the intention to acquire or maintain that power, but over the past century different courts have been more or less willing to infer the

necessary purpose from objective circumstances.

At times

interpretation of the law has come dose to prohibiting the possession of monopoly power per se.11 In more recent years there has been a greater tendency to focus upon the effects of particular conduct,12

although the purpose element remains a basis of liability.
intervention in the enforcement processes. While the prohibition may

Jurisprudential development has been influenced by political
have discouraged particularly rapacious conduct it may also have deterred desirable competitive activity, and does not appear to be a
suitable model for providing business certainty.

New Zealand has adopted a purpose-based approach which is very similar to the Australian approach. The use of a dominant position in
See also s.46A which provides essentially the same prohibition in relation to trans-Tasman markets. Note also that following a recommendation of the Cooney Committee, ss.46 and 46A were amended in 1992 to provide that references to 'a competitor' or 'a person' include references to competitors or persons generally or particular classes of competitors or persons (ss.46(JA,

7

46A(2A)). This amendment merely confimied existing interpretation of s.46.
S

Section 46(7). Section 46(6).

10
12

Section2ShermanAct(US)
Eg, UnitS States v Aiwniniwn cc (America) (1945) 148 F 2d 416. v American Telephone & Telegraph Cc (1983) 708 F 2d 1081. Eg, MCI communications

65

4— Misuse of Market Power, Mergers & Other Rules
a

competitive conduct or eliminating a person from a market is
prohibited.'3 Authorisation is not available.

market for the purpose of restricting entry, preventing or deterring

•

The Canadian approach provides a non-exhaustive list of proscribed conduct, but retains a purposive element in all the listed examples (see Box 4.1). Anti-competitive acts, which include the listed forms of conduct, may be prohibited if they substantially lessen competition.14 Predatory pricing is the subject of a special prohibition addressed at selling at different prices in different areas of Canada with the effect or purpose of substantially lessening competition, or "selling products at prices unreasonably low".'5

The European Community's (EC) prohibition against the abuse of a dominant position'6 has very wide scope, which it seems has not yet been fully explored. Under this prohibition a number of different • types of anti-competitive conduct have been identified by the Commission and the Court, including mergers, price discrimination, tying arrangements and refusal to supply. To distinguish abusive behaviour from legitimate behaviour the Court and Commission have developed a concept of "objective justification". A non-exhaustive list of proscribed conduct is provided.'7
•

The United Kingdom (UK) has not defined the circumstances which

might constitute a misuse of market power. Conduct may be
investigated administratively,'8 and these investigations can lead to orders being made by the Secretary of State for Trade and Industry, prohibiting the conduct. There is some dissatisfaction with this approach, with the Government having recently canvassed various

options for an improved approach, including introducing a

14
15

16

section 36 Commerce Act (NZ). Section 79 Competition Act (Canada). Competition Act s.5O((b),(c). Article 86,

The list includes matters such as unfair prices; limiting produthon, markets or technical development to the prejudice of consumers; applying dissimilar conditions to equivalent transactions placing other firms at a competitive disadvantage; and imposing contractual
conditions which by their nature or according to commercial usage have no connection with the subject of the conflad. 18 Anti-competitive practices: s.2-1O competition Act (UK); monopoly situations or general
reference: Pb I, IV,
s.78

Fair Trading Act (UK).

66

4— Misuse of Market Power, Mergers & Other Rules

prohibition against abuse of market power such as the EC's prohibition.'9
Box 4.1: Abuse of a Dominant Position in Canadian Law Section 79 of Canada's Competition Act provides that where a person
substantially or completely controls a "class or species" of business, and has

engaged in or is engaging in a practice of "anti-competitive acts" and the
practice has the effect of preventing or lessening competition substantially in

a market, the Competition Tribunal may make an order prohibiting the
practice.

Section 78 defines "anti-competitive act" to include any of the following:
(a) squeezing, by a vertically integrated supplier, of the margin available to an unintegrated customer who competes with the supplier, for the purpose of

impeding or preventing the customers entry into, or expansion in, a market; (b) acquisition by a supplier of a customer who would otherwise be available to a competitor of the supplier, or acquisition by a customer of a supplier who would otherwise be available to a competitor of the customer, for the purpose

of impeding or preventing the competitors entry into, or eliminating the
competitor from, a market;

freight equalisation on the plant of a competitor for the purpose of impeding or preventing the competitor's entry into, or eliminating the
Cc)

competitor from, a market;

Cd) use of fighting brands introduced selectively on a temporary basis to
discipline or eliminate a competitor;
(e) pre-emption of scarce facilities or resources required by a competitor for

the operation of a business, with the object of withholding the facilities or
resources from a market;
(f)

buying up of products to prevent the erosion of existing price levels;

(g) adoption of product specifications that are incompatible with products produced by any other person and are designed to prevent his entry into, or
to eliminate him from, a market;

requiring or inducing a supplier to sell only or primarily to certain customers, or to refrain from selling to a competitor, with the object of
(h)

preventing a competitors entry into, or expansion in, a market; and
selling articles at a price lower than the acquisition cost for the purpose of disciplining or eliminating a competitor.
Ci)

19

See UK Department of Trade & Industry. Abuse of Market Pazxr: A Consultative Document on

Possthle Legislative C3'tions (Nov 3992).

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4— Misuse of Market Power, Mergers & Other Rules

Submissions

Although several submissions supported Australia's current approach to this issue,20 there were several proposals for new approaches.

One submission proposed an administrative regime which would
investigate the economic efficiency of particular conduct, as opposed to a legal prohibition.21 Other submissions supported retention of the prohibition approach, but suggested possible amendments.
A proposal to extend the prohibition to effects on competition, as well

as purpose, was supported by some submissions,22 but was
specifically opposed by others.23

Several submissions supported the purpose-based prohibition but proposed some variation. Proposals included: minor amendments to
the existing proscribed purposes to clarify that the provision protects

competition rather than individual firms;24 the introduction of a rebuttable presumption of intent in defined circumstances;25 the addition of a requirement that the proscribed conduct be conduct which a firm in a competitive market would not have engaged in
without economic loss to itself;26 and provision for authorisation of
misuse of market power.27

Some submissions saw difficulties in principle in the application of the current provision in cases of refusal to deal, proposing special regimes to deal with such problems.28 Others saw practical difficulties in the provision of pricing remedies in misuse of market power cases.29

20
21
23 24

Eg, ic (sub 6); Treasury
PSA (Sub 97).

(Sub 76); National Institute of Accountants (Sub 88); BCA (Sub 93);

BHP (Sub 133).

Prof R Baxt (Sub 18); TIC (Sub 69); Mrc Sweeney (Sub 119). ic (Sub 6); Trade Practices Committee of the LCA (Sub 65); Treasury (Sub 76); BHP
Prof R Baxt (Sub 18); ISA (Sub 97); NSW Govt (Sub 117); Mr C Sweeney (Sub 119). IC (Sub 6).

(Sub 113).

26
27
28 29

Mrcsweeney

(Sub 119).

Trade Practkts committee of the LcA (Sub 65). D0TAC (Sub 58); Dr S Corones (Sub 86). Ic (Sub 6); Dr W Pengilley (Sub 11); Mr M Corrigan (Sub 72); Dr S Corones (Sub 86); PSA

(Sub 97); NSW Govt (Sub 117).

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4— Misuse of Market Power, Mergers & Other Rules

Consideration
The central conundrum in addressing the problem of misuse of market

power is that the problem is not well defined nor apparently amenable to clear definition. There is considerable debate about what sorts of conduct should be prohibited. Even if particular types of conduct can

be named it does not seem possible to define them, or the

circumstances in which they should be treated as objectionable, with any great precision. For example, it may be possible to say that "predatory pricing" is undesirable, but it does not seem possible to give a clear definition of what will amount to predatory pricing in all
circumstances.

Faced with this problem, but recognising that there are clearly some cases which do go beyond the limits of vigorous competitive conduct

and extend into the realm of conduct by which firms damage the competitive process, the challenge is to provide a system which can

distinguish between desirable and undesirable activity while
providing an acceptable level of business certainty. In this respect it is

important to stress that uncertainty over the bounds of legally acceptable behaviour may deter efficient and socially useful
competitive behaviour.

In addressing this challenge, the Committee starts from the position that there is already in place a regime which provides a basis for

making the appropriate distinctions, that the regime is broadly
consistent with approaches in comparable overseas jurisdictions, and that it has been sufficiently interpreted by the High Court to provide a reasonable degree of business certainty as to the limits of acceptable conduct. Moreover, none of the submissions presented to the Inquiry

gave practical examples of any particular behaviour that was not proscribed by the current law and yet was dearly unacceptable. The
Committee thus considers that proposals for alternative mechanisms for dealing with misuse of market power should offer a demonstrable improvement over the current regime to justify introducing further uncertainty itt this difficult area.
Prohibition Approach vs Administrative Approach
Perhaps the boldest proposal for dealing with misuse of market power

was that administrative investigation should replace legal prohibition.

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4— Misuse of Market Power, Mergers & Other Ru(es

The approach of prohibiting misuse of market power has been
adopted by, inter alia, Australia, New Zealand, the US, the EC and Canada. An administrative approach has been adopted in the UK, whereby misuse of market power is investigated and undertakings are sought to restrain future conduct contrary to the public interest. The disadvantages of the UK scheme have been seen as relatively weak deterrence flowing from the absence of a prohibition; the absence of third party rights, leaving affected parties without remedies such as damages or injunctions; and reliance on potentially slow government inquiries.30 A body with wide investigatory powers also has the potential to be highly intrusive. Australian courts have a strong reputation for consistency and fairness, and the notion of judicial precedent enhances business certainty. Overall, the Committee was not satisfied that any deficiencies in the current law warranted so bold a departure in approach.
Purpose Test vs Effects Test
The TPC proposed that unilateral conduct should be prohibited if it

has the effect of substantially lessening competition.31 Such a test would not, in the Committee's view, constitute an improvement on the current test. It does not address the central issue of how to distinguish between socially detrimental and socially beneficial
conduct.

As the High Court has observed, the very essence of the competitive process is conduct which is aimed at injuring competitors. A firm that

succeeds in aggressive competitive conduct may drive other firms

from the market and achieve a position of pre-eminence for an
extended period. It does not necessarily follow, however, that the

competitive process will be damaged by the conduct or that the
potential for competition will be diminished, even if the immediate manifestations of the successful competitive conduct may suggest it.

Firms should be encouraged to compete aggressively by taking advantage of new and superior products, greater efficiency and
irmovation. There is a serious risk of deterring such conduct by too broad a prohibition of unilateral conduct. The Committee takes the view that an effects test is too broad in this regard. The courts might develop a gloss upon an effects test to ensure that it did not prohibit
See UK Department of Trade & Industry, Abuse ofMarket Pours: A Consultative Document on
Possible Legislative Options (Nov 1992). 31 TPC (Sub 69). Also note Mr c Sweeney

(Sub 119).

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4— Misuse of Market Power, Mergers & Other Rules

economically efficient conduct, but it is not clear that the final result

would differ from the existing interpretation of s.46, or that any such difference would constitute an improvement. Section 46 has been interpreted by the High Court in a manner which accords with the policy intention of distinguishing between a misuse

of market power and aggressive competitive behaviour. In an oftcited passage, Mason CJ and Wilson J noted that:
Competition by its very nature is deliberate and ruthless. Competitors jockey for sales, the more effective competitors injuring the less effective by taking sales away. Competitors almost always try to "injure" each other in this way. This competition has never been a tort and these injuries are the inevitable consequence of the competition section 46 is designed to foster.32

The courts have indicated that they are alert to the distinctions which

the legislature has attempted to make. There is a growing body of case law dealing with misuse of market power, and over time the
limits of the existing provision will be explored. The current provision has the advantages over an effects test of an appropriate interpretation and a greater level of certainty for businesses.
Modifications of Current Purpose-Based Approach
One submission suggested that there may be specific circumstances in

which the burden of proof should be reversed by a rebuttable
presumption of proscribed purpose. The difficulty is determining what those circumstances might be. For example, the Industry

Commission suggested that where price discrimination which substantially lessens competition has been demonstrated, the
presumption could operate.33 Given the difficulties associated with proving that price discrimination substantially lessens competition, this might not greatly advance an applicant's cause.34 To simply reverse the onus of proof when price discrimination is proven would threaten much efficient behaviour.
It was suggested that, although the High Court's interpretation of s.46 as protecting the competitive process, rather than competitors, was
32

Quentsland Wire Industries Pty Ltd v Broken Hu1 Proprietary company Ltd & Anoy (1989)

ATPR
33

IC (sub 6). The IC's pmposal was based on the assumption that s.49 would be repealed. See tic discussion of price discrimination below.

71

4— Misuse of Market Power, Mergers & Other Rules

appropriate, it would be desirable to amend the words of s.46 to

confirm that interpretation. The Committee was not convinced that such an amendment would enhance the operation of s.46, and could serve to increase, rather than decrease, uncertainty in this area.
Another proposal was to introduce an additional criterion of liability, that the conduct in question be conduct which a firm in a competitive market would not have engaged in without economic loss to itself.35

The Committee was not persuaded that this proposal would add
much to the existing interpretation of the phase "take advantage of" market power,36 but it could increase uncertainty over the operation of the provision.

Finally, there have been suggestions that s.46 might be amended to include a non-exhaustive list of proscribed purposes, which would include more closely defined practices such as predatory pricing. This is the approach adopted in Canada and outlined in Box 4.1. Such an approach could suggest a greater degree of precision concerning proscribed practices than is warranted. To take predatory pricing, for example, there is considerable controversy over the appropriate level of price below which pricing should be regarded as "predatory". Greater precision in the language of the prohibition might intimate a non-existent nexus between particular conduct and purpose. Explicit specification of particular purposes could lead to the exclusion of conduct which should be caught, either because litigants are less likely

to bring actions or because courts are more reluctant to find a contravention where the relevant conduct does not occur in the
proscribed list. As with other proposals for change in this area, the

proposal would undermine existing certainty, without putting
forward a regime which would be any more certain in its operation.
Authorisation

It has been suggested that there should be the capacity to authorise conduct which would contravene s.46, particularly if there were to be an "effects" test. However, the potential for authorisation would not

resolve the difficulties with that test. The outcome would be to
require consultation with the competition authority for a wide range
Mr c Sweeney (Sub 119).
36

The High Court in Queensland Wire indicated that taking advantage of market power required the use of that power in a manner made possible only by the absence of competitive

conditions.

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4 — Misuse of Market Power, Mergers & Other Rules

of normal business activities, such as the decision to introduce a new

and better product or to embark on an aggressive marketing
campaign. Such regulatory intrusion into daily business activities goes well beyond the purpose of a prohibition on misuse of market
power.

More generally, the Committee was not persuaded of the need for or desirability of authorisation in misuse of market power situations. Conduct which contravenes other provisions can be authorised, and

while such an authorisation remains in place, will not be taken to
contravene s.46.37

Refusals to Deal
There have been a number of cases under s.46 involving refusals to

deal. Although there have been criticisms of courts' ability to provide

remedies in such situations, the Committee is not convinced that alternative proposals for a generally applicable duty to deal are
capable of being sufficiently specific in their application to ensure they

would not themselves lead to inefficient results. Nor has the Committee been satisfied that these alternatives would avoid the
difficulties inherent in this area, or lead to "better" outcomes.

In the US, an "essential facilities" doctrine has developed in the
interpretation of the Sherman Act. Under this doctrine, a person who

controls an "essential facility" is obliged to provide access to the
facility to competitors.38 To illustrate the limits of the US law, courts have found football and basketball stadiums to be essential facilities,39 and a small photographic company has argued (albeit unsuctessfully)

that it should have access to the products of Kodak's research to
enable it to compete with Kodak.40 The limits of the US doctrine are

not yet clear, and it has been observed that "the doctrine has not
developed with clarity, coherence or consistency, let alone with strong economic foundations".41 The Committee is not satisfied that the
See

a46(6).

The most concise definition of the doctrine is given in MCI Communications v American
Telephone & Telegraph Co (1983) 708 F 2d 1081; cert denied 464 US 891; but this definition has never

been adopted by the Supreme Court.
tIecht v Pm-Football, mc, 570 F 2d 982 (DC Cit 1977), cert denied 436 US 956 (1978); Fis?vnan v Estate Wirtz, 807 F 2d 520(7th Cir 1986). 40 cert denied 444 US 1090 (1980). Berkey Photo v Eastman Kodak Co 603 F2d 263 (2d cir 41 Doctrine (1990) at 65. See also Areeda P. "Essential See Vautier 1CM, The "Essential Facilities: An Epithet in Need of Limiting Principles" (1990)58 Antitrust Law Journal 841.

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4 — Misuse of Market Power, Mergers & Other Rules

doctrine has sufficiently developed to provide a suitable model for

Australian law.

Nevertheless, the national importance of some industries may require circumscribed circumstances. The Committee's proposals in this area are detailed in Chapter 11.
Pricing issues

that a positive duty to deal be created, albeit in carefully

A number of submissions noted that there were difficulties with pricing remedies under s.46, particularly in relation to refusals to deal. These issues are considered in Chapter Seven.

Conclusion

Committee sees a need to strike a balance between deterring undesirable unilateral conduct, encouraging business certainty and minimising the regulatory interference in daily business decisions. The Committee is not satisfied that any perceived difficulties with the current operation of s.46 are sufficient to warrant an amendment that
The

would create additional uncertainty and thus potentially deter
vigorous competitive activity. The Committee recommends that the current misuse of market power provision should be included in the conduct rules of a national competition policy.
B.

PRICE DISCRIMINATION (s.49)

The

goods to different persons at different prices, where such
discrimination substantially lessens competition. The provision is contrary to the objective of economic efficiency and has not been of

prohibition against price discrimination prevents the sale of like

assistance to small businesses. The Committee does not believe that it is the role of the competitive conduct rules to protect any particular

sector of society, and does not believe that the competition rules
should be used to achieve objectives contrary to economic efficiency.

Background
Price discrimination is the sale or purchase of different units of a good

or service at price differentials not directly corresponding to

74

4— Misuse of Market Power, Mergers & Other Rules
differences in supply cost.42 In general, sellers can only profitably

engage in systematic price discrimination where they have some degree of market power, are able to segregate their customers into distinct groups, and the opportunities for resale from low priced
customers to high priced customers ("arbitrage") are limited.

Price discrimination can enhance competition by encouraging price experimentation43 or by helping to undermine an oligopolistic pricing discipline.44 Certain forms of systematic price discrimination, such as

Ramsey pricing,45 can enhance economic efficiency in some
circumstances.

On the other hand, price discrimination can be anti-competitive where• it enables a firm to entrench its position of market power by creating

strong buyer-seller ties and thus raising barriers to the entry of new competitors. Extreme forms of price discrimination can amount to
predatory pricing.46

Current Approach
Price discrimination is prohibited by s.49 where a firm discriminates

between purchasers of like grade and quality in relation to the prices charged for the goods, or discounts or other matters in relation hi the supply of the goods; and the discrimination is of such magnitude or

of such a recurring or systematic character that it is likely to
substantially lessen competition.

There are two defences to s.49. The first is where the discrimination

makes only reasonable allowance for differences in the cost of
manufacture, sale or delivery resulting from the different places to
Scherer FM & Ross D, Industrial Market Structure & Economic Performance (1990) at 489. A firm might not wish to jeopardise its profits, or provoke adverse competitor or rival

reactions by cutting price across its whole market, but might be willing to experiment with the
effects of a price cut if it can lower price in respect of a small test area. 44 Where it becomes known that one of the oligopolists has been granting seat discounts to a few aggressive buyers, other firms may try to match or undeitut the discounts, price concessions spread and tbe prices to all buyers are eventually reduced. In general, an economically efficient outcome will be achieved if a firm sets price equal to marginal cost Where a finn faces increasing returns to scale over a large range (usually associated

with substantial fixed costs) to do so would ensure that the firm makes a loss. Ramsey pricing whereby firms remain profitable, but price relatively efficiently. It relies on provides a being able to discriminate between different classes of customers each of which has different demand characteristics. Predatory pricing was discussed in relation to misuse of market power.

75

4— Misuse of Market Power, Mergers & Other Rules

which, methods by which or quantities in which the goods are

supplied to the purchasers. The second is where the discrimination
occurs in good faith, to meet a price or benefit offered by a competitor.

Instances of anti-competitive price discrimination might also
contravene s.45 (agreements which substantially lessen competition) or s.46 (misuse of market power).
Industry-specific provisions dealing with price discrimination exist in

relation to outwards liner cargo shipping,47 petroleum retail
franchising48 and telecommunications.49

Overseas Approaches
New Zealand has no provision equivalent to s 49. Charging different

prices to different customers will only be illegal if it contravenes the general prohibition against agreements which substantially lessen competition, or amounts to a misuse of market power. In the UK, price discrimination could be investigated administratively,50 but there is no prohibition against unilateral price discrimination.

In the EC, Article 85(1)(d) prohibits agreements which "apply
dissimilar conditions to equivalent transactions with other trading
parties, thereby placing them at a competitive disadvantage".

In Canada, price discrimination between competitors who purchase similar volumes of a product is prohibited.5' The supplier must know

that the purchasers are in competition and make a practice of
discrimination for this to be an offence.

In the US, price discrimination is prohibited by the Robinson-Pat man Act 1914. The US law differs from the Australian law in that conduct may be prohibited where adverse effects on particular competitors are

47 48
49

50

Section 10.05. Section 20 Pet rolewn Retail Franchising Ad 1980 (Oh). Part 9 Division 4 Tel ecomnunications Ad 1991 (Oh). Under the Fair Trading Act 1973 (UK) or the Competition Act 1980 (UK).

Section 50 Competition Act (Canada).

76

4— Misuse of Market Power, Mergers & Other Rules

proven. There has been considerable criticism of this law over a number years.52

Submissions
Several submissions called for the repeal of section 49, suggesting that

anti-competitive price discrimination can be dealt with under other The Small Business Coalition provisions, particularly s.46.53
requirement to show damage to competition in a market$

suggested that the provision be amended to prohibit price discrimination that disadvantages individuals without the
There were opposing views on the extension of the provision to
services. Some engaged in service industries argued that the provision
goods and services differently in this respect.56 Consideration
There are considerable practical difficulties with s.49. It is not clear

should not be extended to them.55 Others suggested that if the provision were to be retained there was no logical basis for treating
-

what degree of similarity is required for goods to be regarded as being

"of like grade and quality"; it is not clear what might constitute a "reasonable" allowance for differences in cost; and it is not clear whether, when meeting a competitor's price, the goods must bear the same degree of similarity to the competitor's goods as is required by the phrase "of like grade and quality". The cost defence does not necessarily correspond with those factors which firms would monitor
or consider significant.

52

Professor George Stigler has been quoted as saying: "if all economists in favour of [the US price discrimination law) were put into a Volkswagen, you'd still have room for a portly
chauffeur": (1984)53 The Antitrust Law Journal at MS.
53

Dr W Pengilley (Sub II); Trade Practic2s Committee of the LCA (Sub 65); Treasury (Sub 76); SCA (Sub 93); PSA (Sub 97); TPC (Sub 69); NSW Govt (Sub 117); BHP (Sub 133). Small Business Coalition (Sub ICE).
55

56

National Institute of Accountants (Sub 88). DOTAC (Sub 58); TPC (Sub 69); Australian Federation of Travel Agents Limited (Sub 96);

SrnaU Business Coalition (Sub 1(X)).

7-'

4— Misuse of Mathet Power, Mergers & Other Rules

More importantly, there are concerns that the prohibition on price discrimination may discourage pro-competitive conduct. As Corones57 has observed:
If prices must be equal, suppliers will be prevented from granting discounts to purchasers with large requirements such as grocery chains in the absence of a cost justification. The public generally will be denied the lower retail price the purchaser with large requirements would have been able to offer its

customers, and prices may tend to go up to the level of the corner store
rather than down to the level of the chain store.

In 1976 the Swanson Committee gave similar reasoning for
recommending the repeal of s.49. It observed:58
In the Australian context the conduct of a large buyer who is endeavouring to secure price cutting in its favour, whether it be discriminatory or not, may be more pro-competitive than anti-competitive. Indeed such price cuts as a large buyer is able to obtain can trigger off competition from rival suppliers or can trigger off competition in a market, where other forces are unlikely to produce active competition.

[Tihe prohibition on price discrimination has, in our view, operated substantially to limit price flexibility. The Committee believes that in the Australian context, s.49 has produced such price inflexibility that the detriment to the economy as a whole outweighs assistance which small
business may have derived from it. It is price flexibility which is at the heart of competitive behaviour.

As indicated by the Swanson Committee, there may be perceptions that s.49 offers particular protection to small businesses. In the US, the

Robinson-Patman Act was initially enacted, at least in part, in
response to concerns that the discounts for large volumes which chain stores obtained from manufacturers were threatening the existence of local corner stores and independent operators. In a 1977 review of the Robinson-Patman Act, the US Department of Justice condemned the Ad as having failed to achieve any of its aims, and as having actually

harmed competition by imposing rigid pricing in oligopolistic

57

Cannes 5 G,

Law and Policy in Australia (1990) at

291, sununarising the reasoning

in O'Bnen

Glass v Cool & Sons (1983) ATPR 40-376.

Trade Practices Act Review Committee (Swanson Committee), Report to the Minister for
Business and Conswner Affairs (1976) at 45-46.

78

4—Misuse of Market Power, Mergers & Other Rules
markets, where firms have used the law to prevent competitors from

engaging in price-cutting.59

The Australian provision is more limited than the US provision.
Section 49 only applies where there is an adverse effect on competition

in a market, while the US law applies where there is a probable
adverse effect on particular competitors; and there are other aspects of burden of proof and level of required probability which provide s.49 with a more limited operation than its US counterpart. Where the US provisions have been ineffective it seems likely that the more limited

operation of s.49 would similarly offer little comfort to small
businesses. Indeed, in 1979 the Blunt Committee recommended repeal of s.49, notwithstanding that it was required by its terms of reference

to explore avenues for the improvement of the market position of
small business.W

It has been suggested that if s.49 were not repealed it might require amendment to permit Ramsey pricittg or the price discrimination relied on by some government businesses to deliver community service obligations. Although it seems unlikely that Ramsey pricing or

the delivery of community service obligations would cause a
substantial lessening of competition in a market, repeal of the section

would have the added advantage of overcoming any remaining
concerns of this nature. This may be particularly important given the

imperative to ensure the competitive conduct rules of a national
competition policy receive full application, particularly to currently excluded government businesses.

Conclusion
The Committee considers that price discrimination generally enhances economic efficiency, except in cases which may be dealt with by s.45 (anti-competitive agreements) or s.46 (misuse of market power). To

the extent that s.49 has had any effect it seems to have been to
diminish price competition. The Committee does not consider that
competition policy should be distorted to provide special protection to any interest group, including small business, particularly where this is

potentially to the detriment of the welfare of the community as a
Cited in Trade Practices Consultative committee (Blunt Committee) Small Business and the Trade Practica Act (1979) at Vol I,
60 Trade Practices Consultative Committee (Blunt Committee), Small Business and the Trade Practica Act (1979).

79

4— Misuse of Market Power, Mergers & Other Rules

whole.

Sectoral assistance policy of this sort is generally most

efficiently implemented by more open and direct assistance, including

budgetary and taxation measures of various kinds. In any event, it seems clear that small businesses have not achieved any significant
benefit from the presence of s.49.

Concerns about the implications of the current provision for some
currently excluded sections — particularly government businesses — make the case for repeal overwhelming. The Committee recommends

that a provision such as s.49 should form no part of a national
competition policy, and that the existing provision should be repealed.
C.

MERGERS AND ACQUISITIONS (SS.50 & 50A)

The role of a merger provision is to distinguish between welfare enhancing and welfare reducing mergers and acquisitions. The
current provisions dealing with mergers are the result of considerable public consultation and the Committee proposes that they form the basis of the merger provisions of a national competition policy.

Background
Mergers

between firms can be an effective way of developing

competitive advantage, optimising the benefits of complementary strengths and taking advantage of economies of scale and scope. Mergers can also operate as an important discipline upon poorly
performing management. Merger activity can thus improve efficiency to the benefit of consumers and the community generally.

At the same time, mergers, by definition, result in a reduction in the number of participants in an industry, at least in the short term. In some cases, and particularly where there are significant barriers to market entry, mergers can lead to increased industry concentration

and possibly increased market power which may be against the
community interest. For this reason, most modern western economies

include in their competition law a mechanism for distinguishing
between welfare enhancing and welfare diminishing mergers.
Current Approach
Section 50 of the TPA was amended in late 1992 to prohibit mergers or

acquisitions which have, or are likely to have, the effect of
80

4—Misuse of Market Power, Mergers & Other Rules

substantially lessening competition unless authorised. Interpretation

of the merger test has been buttressed by the inclusion of a set of nonexhaustive factors.61 Between 1977 and the 1992 amendments, the relevant test was "market dominance".

The test for authorisation is currently administered by the TPC and requires the showing of a net public benefit. A significant increase in the real value of exports, or a significant substitution of domestic products for imported goods, is to be regarded as a public benefit and consideration must also be given to any other relevant matter relating
to the international competitiveness of any Australian industry.62

The Government has announced plans to introduce a pre-merger
notification scheme.

Overseas Approaches
Of the countries examined, international treatment of mergers was

evenly divided between a "substantial lessening of competition" test and a "dominance" test.

In the US, mergers which substantially lessen competition are
prohibited.63

In New Zealand, mergers which result in or strengthen a dominant
position are prohibited, unless authorised.TM

In the UK, mergers are dealt with administratively and may be
prohibited where found to be contrary to the public interest, having regard to matters such as competition, consumer interests, efficiency,
regional employment and export growth.65

In the EC, the Merger Control Regulation provides that mergers with a

Community dimension (assessed by reference .to turnover ofthe
merging firms) are assessed by the Commission to determine whether

they are compatible with the common market. A merger which creates or strengthens a dominant position as a result of which
61

Section 50(3).

64

Section 90(M). Section 7 clayton Act (US). Act (NZ). Sections 47, 50,66.69, Sections 5777,84 Fair Trading Act (UK).

81

4— Misuse of Market Power, Mergers & Other Rules

effective competition would be significantly impeded in the common

market, or in a substantial part of it, will be declared incompatible
with the common market.

In Canada, mergers may be prohibited if they are likely to prevent or lessen competition substantially, but will not be prohibited if they are likely to bring about efficiency gains which outweigh any lessening of
competition.66

Pre-merger notification exists in various forms in the US, the EC and

Canada.67 New Zealand abandoned its pre-merger notification
requirements in 1990.

Submissions

A number of submissions indicated opposition to the new "substantial lessening of competition" test,68 while others indicated

Consideration
The

evidence concerning the benefits or detriments of mergers is

equivocal.70 Studies which have examined share market values have indicated that target firms' shareholders benefit, while bidding firms' shareholders are likely to at least break even. Studies which have examined returns on investment have found returns to be negative, on average, in the two years after merger, and declines in profitability have been observed following mergers. A study in 1990 by the Bureau of Industry Economics found only modest benefits from the studied mergers, and that the benefits were much less than had been expected

prior to the merger. These studies have obviously not included

analysis of mergers which have not proceeded because they contravened competition laws. It could be expected that the

competitive detriments of mergers would be greater in cases which create or enhance market power, or have significant adverse effects upon the level of competition, although these detriments might be offset by increased returns to shareholders.
Sections 91-100 Competition Act (Canada).
67

Hart Scott Rodino Antitrust Improvements Ad (US); Article 4 Merger Control Regulation

(EC); Part DC Competition Ad (Canada). 68 Prof R Baxt (Sub 18); Caltex Aust (Sub 27); Carlton & United Breweries (Sub 34); MTLA (Sub 59); Pioneer International (Sub 81); BCA (Sub 93). IC (sub 6); TPC (Sub 69). 70 See EPAC (Sub 126) for a survey of recent studies.

82

4—Misuse of Market Power, Mergers & Other Rules

Debate concerning the appropriate test for mergers has focused on the alternatives of "dominance" or "substantial lessening of competition".

Relevant factors include the regulatory and compliance costs of different tests, the need to encourage industry efficiency and scale
economies, the desirability of consistency in tests between the mergers

provisions and other provisions in the Act, the need for business
certainty and the benefits or detriments flowing from mergers which are not caught by one or the other of the tests.

The issue of the appropriate merger test has been canvassed
extensively in recent years, and was the subject of detailed inquiry by the Griffiths Committee in 1989 and the Cooney Committee in 1991.

The amendments flowing from the Cooney Committee
Committee is satisfied that any review of the merger provisions should await more practical experience with the operation of the
amended provisions.

recommendations only commenced in late 1992, and have yet to be subject to judicial consideration. Against this background, the

Details of the Government's proposed pre-merger notification scheme

have not been released. The benefit of such a scheme is that it will ensure that the competition authority is always given sufficient notice of mergers to examine them and take appropriate action before their consummation. The potential detriment of such a scheme is that it

may impose substantial burdens upon businesses, through
information requirements and through delays to mergers while
notifications are considered. The Committee would be concerned if the benefit of the scheme were outweighed by the burdens imposed

upon businesses. An essential criterion in the evaluation of the scheme will be whether it is administratively simple and imposes
minimal reporting obligations on businesses.

Conclusion
The

Committee considers that a form of merger regulation is an

important part of a national competition policy. It is also satisfied that any more detailed review of the merger provision of the TPA could best be undertaken with the benefit of more practical experience with the amended provisions.

83

4 — Misuse of Market Power, Mergers & Other Rules
D.

RECOMMENDATIONS

The Committee recommends that
4.1

The provisions in the Trade Practices Act relating to misuse of market power and mergers provide the bases for provisions on

these matters in a national competition policy; and
4.2

A specific prohibition on price discrimination not be induded

in a national competition policy, and s.49 of the Act be
repealed.

84

5. Scope of Application: Principles & Issues
There are compelling efficiency and equity arguments for ensuring

that competitive conduct rules of the kind proposed in this Part are applied uniformly and universally throughout the economy, with exemptions or special treatment accorded only on demonstrated public interest grounds, Despite this, the conduct rules of the Trade Practices Act 1974 (WA) are subject to a number of significant gaps
and limitations, some of which are not so justified.

The operation of these limiting exceptions is complex, with some sectors of the economy potentially subject to more than one possible exception. This Chapter examines each of the current exemption mechanisms and concludes that only four of the existing seven mechanisms should be retained, and that the remaining three be limited in important respects. The following Chapter reviews the impact of the current exceptions and the Committee's findings on
particular sectors of the economy.

Section A of this Chapter explores the rationale for universal
application of competitive conduct rules and the bases for permitting exceptions in some circumstances, and presents an overview of the extent of current exceptions.

Section B examines the current exception mechanisms on a case-by-

case basis, considering their conformity with principles already agreed by Heads of Australian Government, overseas approaches
and submissions, and presents the Committee's conclusions on each.

Section C presents the Committee's recommendations.
A.

UNIVERSAL APPLICATION & POSSIBLE LIMITS

This

Section outlines the rationales for universal and uniform

national application of market conduct rules; considers possible rationales for limiting the application of those rules in some cases;
and provides a brief overview of the exceptions to the current Act.

85

5— Scope of Application: Principles and Issues
1.

Rationales for Universal & Uniform Application

The two main rationaies for the universal and uniform application of

competitive conduct rules of the kind proposed in this Part are
efficiency and equity.

First, the competitive conduct rules are aimed at protecting the
competitive process and thereby avoiding misallocation of resources

and inefficiency which adversely affects community welfare.
Exemption of particular businesses, sectors of business or kinds of conduct has the potential to induce inefficiency and disadvantage
consumers.

Second, exemption from market conduct rules can be inequitable as between businesses; As the Swanson Committee observed:1
We believe it to be extremely important that the Trade Practices Act should start from a position of universal application to all business activity, whether public sector or private sector, corporate or otherwise.
Only in this way will the law be fair, be seen to be fair, and avoid giving a privileged position to those not bound to adhere to its standards.

The efficiency rationale has never been more important. Australia is under increasing pressure to improve its international competitiveness so as to maintain and improve living standards.

this environment, pleas for special treatment warrant the closest scrutiny. This is particularly so in respect of many of the current
exemptions from the TPA — including some government-provided services such as electricity and port services and private professional services — which are largely sheltered from international competition, yet provide key inputs to businesses that must contend with domestic and international competition.

Several of the sectors currently excluded from the T1'A are being
exposed to competition to various degrees to improve their efficiency.

Individual enterprises are being given increasing autonomy over
pricing, marketing and other business decisions. In this environment, it is important to ensure that anti-competitive habits acquired while

under a regulated regime are not perpetuated after deregulation
through anti-competitive practices by individual firms. For example,
Trade Practices Act Review Committee, Report to the Minister frr
Affairs (1976) at 84.
and

86

5— Scope of Application: Pflnciples and Issues

the

expected benefits of introducing competition to electricity

generation, and of deregi,xlating agricultural production, would be lost if producers remained free to collude to fix prices, use their market power to limit consumer choice, or to engage in other anticompetitive activity.

The equity rationale is also attracting increasing attention, particularly in relation to the continuing exemption of some
government businesses, which are becoming increasingly commercial

and now often compete directly with firms that must comply with competitive conduct rules. Submissions received by this Inquiry
indicate that this has become a major concern across the community.2

These considerations have already been recognised by the Heads of

Australian Governments, who agreed in 1992 that a national
competition policy should, as far as possible, apply universal and
uniformly applied rules of market conduct to all market participants.

The Committee thus approaches its task with a strong presumption favouring universal and uniform coverage of the market cànduct rules proposed in this Part. Moreover, consistent with the principles
agreed to by the Heads of Governments,3 it will be seeking to ensure:
•

that any exceptions from such universal coverage are only
pennitted on public interest grounds;

•
•

that claims of public interest are assessed by an appropriate
transparent assessment process, with provision for review; and

that reforms in this area are consistent with the development of an open, integrated domestic market for goods and services and, in recognition of the increasingly national operation of markets, reduce complexity and eliminate administrative duplication.

2.

PossIble Grounds For Providing Exemptions or Special Treatment

In view of the efficiency and equity objectives considered above, it is clear that any exemptions from the application of competitive conduct
Some wider issues associated with competitive neutrality" in these settings are discussed in Chapter 13. The principles are set out in the Terms of Reference (Annex A) and later in this Chapter.
2

87

5— Scope of Application: Principles and Issues
rules should only be justified on the showing of a clear public interest.

In broad terms, possible "public interest" grounds can be seen as
falling within two main categories.

First, some markets or economic activities may have special features which suggest that competitive market conduct will not maximise economic efficiency. Possible examples of such "market failure"

relevant to market conduct rules include cases where there are

unusual information problems in the market and, in limited
circumstances, where the existence of monopoly power on one side of

a commercial transaction warrants permitting the formation of
countervailing market power.

"Market failure" cases are usually capable of expert adjudication to determine whether the alleged market failure exists, and what degree of departure from competitive conduct norms is required to respond to the identified failure. Thus, not all restrictions on the competitive

conduct of professionals may be justified because of information
difficulties, and the circumstances in which rural producers should be permitted to increase their market power to countervail the power of their customers on market failure grounds are quite rare.4

Second, there are some situations where competitive market conduct may achieve economic efficiency, but at the cost of other valued social objectives. For example, providing special benefits to particular sectors of society, on equity or other grounds, might lessen economic

efficiency, but nevertheless accord with community values. The values which determine these alternative social objectives are not
immutable, and vary over time.

Determination of instances where economic efficiency should give

way to alternative social objectives may involve more difficult
judgments. However, consistent with the principles agreed between

Heads of Government, all claims to special treatment on such
grounds should be assessed in an open and transparent manner, with the costs and benefits of particular anti-competitive behaviour subject
to public scrutiny.

In both categories, it is also important to recognise that there will usually be a host of policy instruments by which governments can
4

Eg, see IC (Sub 6); TIC (Sub 69) at 113-115; and ABARE (Sub 95).

88

5— Scope of Application: Principles and Issues

pursue their particular economic or social objectives. Permitting

particular market participants to engage in anti-competitive activity is usually only one option, and will not always be the most efficient. For example, if a government chose to favour a particular sector or activity for strategic, social or political reasons, it will generally be more efficient to provide direct budgetary assistance. While subsidies of this kind may impact on competition between subsidised and nonsubsidised sectors or activities,: the efficiency losses will often be less than those associated with permitting anti-competitive behaviour.

Moreover, the transparency of the assistance will ensure that the
desirability of that special treatment is subject to regular scrutiny.

3. Overview of Current Exceptions
of the current limitations on the application of the TPA are only loosely related to the evaluation of public interest arguments of the kind discussed above. Constitutional limitations and the shield of the
Some

Crown doctrine, in particular, provide blanket exemptions for
important parts of the economy without any conscious evaluation of the costs and benefits involved. The other exceptions do involve a

more conscious attempt to deal with the trade-offs involved,
although the mechanisms vary in their transparency, flexibility and in the extent to which they reflect a national perspective.

The seven kinds of exemption mechanisms under the current Act can be considered within two main categories — those which are, and those which are not, based on an assessment of the circumstances in which exemption is granted.
(a) Exemptions Based on an Assessment of Particular Circumstances

exemptions operate by specifically exempting or authorising conduct that might otherwise offend the TPA. There are five main processes, with the main differences being the identity of the decisionmaker and the transparency of the assessment process.
These

Specific Authorisation by an Independent Body
Under the WA, some conduct that would otherwise contravene

the Act can be subject to authorisation by the Trade Practices
Commission (TPC) on the showing of a net public benefit. Some types of agreements can receive exemption from the Act by simple
89

5— Scope of Appilcation: Principles and Issues

notification to the Commission, but this exemption can be

revoked when such agreements lack sufficient public benefit. Exemptions of these kinds have been granted to a wide range of market participants, including the professions and agricultural marketing arrangements.5
Exemption by Specific Provision in the Act Itself
The TPA provides special treatment to aspects of arrangements

governing employment conditions,6 standards,7 restrictive
covenants,8 export contracts,9 consumer boycotts,1° licensing or assignment of intellectual property rights11 and arrangements governing international liner cargo shipping.12
•

Exemption by Regulation Made under the Act

TPA makes provision for regulation-based exemptions in relation to primary product marketing arrangements; prescribed conduct of the Commonwealth or its agencies; and certain arrangements made pursuant to international arrangements.13 These provisions have not been used in recent years, however, and all previous exemptions under this regulation-making power have expired.
The
•

Specific Exemption by Other Commonwealth Act or Regulation
The TPA provides that other Commonwealth Acts (other than an

Act relating to patents, trademarks, designs or copyright), or regulations made under those Acts, can specifically approve or
authorise conduct that would otherwise offend the Act.14

5

6
7 9

See examples noted in Chapter See s.51(2)(a).
See s.51(2)(c). See s.51(2)(bXAd) & (e). See s.51(2)(g). See s.51(2A). See s.51(3).

Six.

10
12 13 14

SeePartXoftheAct.
See s.172(2). See s.51(1)(a).

90

5— Scope of Application: Principles and issues
Specific Exemption by State or Territory Act or Regulation
The

TPA provides that State and Territory statutes and

regulations can specifically authorise or approve conduct that would otherwise offend the Act, although the Commonwealth
can over-ride such exemptions by regulation.15

In considering the last two categories, it is important to emphasise that not all Commonwealth, State or Territory legislation that has anti-competitive effects is relevant to the operation of these provisions. Competitive conduct rules of the kind contained in the TPA are directed to voluntary conduct of market participants, acting either individually or collectively, and do not affect anti-competitive arrangements that are imposed by legislation. Thus, for example, legislation may provide for statutory monopolies, impose licensing regimes, vest the ownership of a commodity in a marketing body,

regulate prices or restrict other competitive conduct without
involving conduct of the kind prohibited by the Act. Some of the
subtleties that can arise in this area are outlined in Box 2.16 Although regulations of this kind are a critical part of competition policy, they

are unaffected by the prohibitions contained in the Act and are
discussed separately in Chapter Nine.
(b) Exemptions that arise without evaluation of particular circumstances

This category comprises two main limiting principles that operate

independently of any assessment of particular costs or benefits.
•

Constitutional Limitations
The

Commonwealth's legislative power in the competition law area is not unlimited. As the TPA is currently drafted,17 it applies to trading and financial corporations and to persons engaging in

interstate or overseas trade or commerce, operating in a

See s.51(1)6') and (d).
16
17

See Executive Overview.

As discussed in Chapter 15, it seems like!y that some of these limitations could be overcome by greater reliance by the Commonwealth on its existing heads of constitutional

authority.

91

5— Scope of Application: Principles and Issues

Territory or supplying the Commonwealth.18 There are also

constitutional limitations on the Commonwealth's capacity to

regulate state banking and state insurance.19 The effect of
constitutional limitations can be seen in relation to three main areas: some government owned businesses; some professions; and other unincorporated businesses.
•

Shield of the Crown

Under the legal doctrine of "shield of the Crown", the Crown

and its instrumentalities are not bound by a statute without express words or necessary implication. Express words have
been provided in the TI'A in relation to the Crown in right of the

Commonwealth, so that Commonwealth instrumentalities are bound by the Act to the extent they engage in a business.20 The
WA has been interpreted as not being intended to bind the Crown in right of the States21 and the Territories.22 Whether or not a

particular entity is entitled to the shield of the Crown is
frequently a matter of considerable uncertainty, requiring a close

examination of the legislation establishing the entity and the
activities undertaken pursuant to it.

The operation of all these various limitations or exception
mechanisms can be very complex and uncertain, particularly where more than one is applicable to a single sector or economic activity. For example, a single State government-owned business may be able

to rely on the shield of the Crown doctrine, the constitutional
limitation (if it is not a trading or financial corporation or engaged in

interstate or overseas trade) and State legislation specifically approving particular conduct. The relevant activity may also be
capable of authorisation by the TPC, although the other grounds for

exclusion will generally obviate the need for such a transparent
evaluation of the costs and benefits associated with anti-competitive behaviour. Box 5.1 provides an overview of the applicability of these various exceptions.

The TM is drafted to apply to corporations, and the extended operation, relying on various constitutional heads of power, is provided by s.6 of the Act. 19 see Constitution s.51(xili) & (xiv) and Bourke v State Bank 4 NSW (1990) 64 ALJR 486. 20 See s.2A of the Ad. 21 Bradken Consolidatd Ltd v BHP(1979) 145 cut 107. Burgundy Royale Investments Pty Ltd v Westpac Banking Corporation (1988) 18 FCR 212.

18

92

5— Scope of Application: Principles and Issues

Box 5.1: Exceptions by Primary Area of Significance
SECFOR/

Specific

Exempt
by Reg

ACflVITY

Auth.
byTPC

Exempt

in IPA Itself

Made Under
TPA

Exempt by Other

Exempt by State

/Terr.
Law

Constitutional Factors

Shield ct
Cmwn Doctrine

Cth
Laws

Cth Govt bosinases

x x
x x

x
x

State Govt
businesses

x

x x

Territory Govt
businesses

x x x

Professions

A gil Cu Itwa I

Marketing Overseas Shipping

x x x x x x
x

x

x

x

x

x

Intellectual Property
Labour
Standards

•x
x x

)(

x

x
. ,

Restrictive
Covenants
Export Contracts Boycotts

x

.

x

x x
)(

International
Agreements etc

x

The impact of the current exceptions and of the Committee's
Conclusions on particular sectors or activities is considered in the

following Chapter, while this Chapter concentrates on general
exemption mechanisms.

93

5— Scope of Application: Principles and Issues
B.

EVALUATION OF CURRENT EXEMPTION MECHANISMS

As

part of the lead up to the current inquiry the Prime Minister,

Premiers and Chief Ministers agreed to a set of principles to which a national competition policy should give effect. These principles comprise an important part of the inquiry's terms of reference and are
set out in Box 5.2:

Box 5.2 : The Agreed Principles
(a)

no participant in the market should be able to engage in anticompetitive conduct against the public interest;

(b)

far as possible, universal and uniform!y applied niles of market conduct should apply to all market participants regardless of the form of business ownership;
as

(c)

conduct with anti-competitive potential said to be in the public
interest should be assessed by an appropriate transparent assessment process, with provision for review, to demonstrate the nature and incidence of the public costs and benefits claimed;

(d)

any changes to the coverage or nature of competition policy should be consistent with, and support, the general thrust of reforms:
(1)

to develop an open, integrated domestic market for goods and

services by removing unnecessary barriers
competition; and

to

trade and

(ii)

in recognition of the increasingly national operation of markets, to reduce complexity and eliminate administrative duplication.

This Section reviews each of the current exemption mechanisms against the agreed principles, submissions and other considerations relevant to the implementation of a national competition policy and
concludes that a number of amendments are required.
1.

Authorisation by an Independent Body

Conduct which would otherwise contravene the TPA may be exempted from the its prohibitions through approval by the TPC.

94

5— Scope of Application: Principles and Issues

The TPC can authorise many types of conduct that would otherwise

contravene the Act, if it is satisfied that there is a net "public
benefit".23 The conduct is prohibited until the Commission grants an authorisation. At present, authorisation can be granted for most horizontal and vertical agreements but not for unilateral conduct such

as a misuse of market power. In Chapter Three the Committee
recommended that the scope for authorisation be extended to resale price maintenance, but be removed from price fixing agreements for services after an appropriate transitional period.
In addition to authorisation, a limited class of vertical agreements24 may be given exemption under the notification procedure. Persons

wishing to make such an agreement can notify the TPC, and the

agreement will gain automatic immunity from the time of
notification.25 The immunity can be revoked by the Commission on "public benefit" grounds. The types of conduct for which notification is available, such as the appointment of a sole distributor in a country town, may be differentiated from other forms of conduct prohibited under the Act, on the basis that while these vertical agreements have an adverse effect on competition, the adverse effect is often-offset by economic efficiency or other public benefits. Notification avoids the

potential delays associated with the authorisation process for this limited class of anti-competitive conduct. In Chapter Three the Committee recommended that notification be extended to third-line
forcing.

comprise both economic efficiency and a range of other

"Public benefit" is not defined in the Act26 and has been interpreted to

considerations. In Re ACI Operations Pty Ltd the TPC listed examples including economic development; fostering business efficiency; supply of better information to consumers and businesses to permit informed choices in their dealings; growth in export markets; expansion of employment in efficient industries; and steps to protect the environment.27 However, the achievement of economic
goals of efficiency and progress will commonly be paramount.28
23 24

seesso.
See chapter Three for a discussion of vertical agreements.
See s.93.

26 27 28

Although note s.90(9A) in relation to merger authorisations.
(1991) ATPR (Corn) 50-108. See Re Rural Traders Co-Operatiuc (WA) Ltd (1979) 37 FLR 244 at 262.

95

5— Scope of Appilcation: Principles and Issues

The

current authorisation and notification processes permit the

Commission to consider submissions from any interested person, and

the Commission presents applicants and other persons with the
opportunity to discuss a draft determination at a conference before a final decision is made.29 An appeal is available to the Trade Practices
Tribunal.30
Conformity With Agreed Principles

exemption mechanism has the benefit of independent adjudication and the flexibility to address concerns specific to
This

individual industries or activities on a case-by-case basis.

As

authorisations can be limited as to time, conditional or granted on the basis of specific enforceable undertakings, it is possible to ensure that

the costs and benefits of anti-competitive conduct are reviewed in light of changing circumstances without the need for legislative amendments. Similarly, notifications can be revoked in the public interest.
The authorisation and notification processes are consistent with the agreed principles. Specifically:
•

the public benefit test ensures exceptions are limited to public interest considerations (principle a);

•

that public interest is assessed by a transparent assessment process to demonstrate the nature and incidence of the public
costs and benefits claimed (principle c);

•

the assessment process includes provision for review
(principle c);

•

as it is administered through a national process, it is consistent

with the goals of developing an open, integrated domestic market for goods and services, reducing complexity and
eliminating administrative duplication (principle d).

29
30

See ss.90, 90A, 93 and 93A of the Act. In light of the tight time constraints in merger authorisation cases, there is no requirement to provide a draft determination in such cases.

SeePartD(oftheAct
96

5— Scope of Application: Principles and Issues Overseas Experience

New Zealand has an authorisation process along the lines of the Australian scheme.31

Submissions
Submissions

which addressed the authorisation and notification

processes uniformly supported their retention.

Some submissions argued that efficiency should be the sole objective

for the Act,32 which has implications for the scope of the "public
benefit" test.

One submission argued that the Commission's practice of limiting authorisations as to time was onerous on business arid involved the
Commission becoming a de facto regulator for particular industries.33

Other submissions were also critical of the time and resources involved for business in the TPC's review of previous
authorisations.34 Consideration
The

current authorisation and notification procedures are an

important feature of the current Act, conform to each of the agreed
principles arid appear to enjoy general support in the community.35

Although the Committee had some sympathy with those submissions urging that public benefit considerations should be limited to matters of economic efficiency, it did not feel that parties should be denied the opportunity to demonstrate other dimensions of community welfare.

Nevertheless, the Act should be amended to confirm that primary
emphasis should be placed on economic efficiency considerations.

31
32

See Part v of the Commerce Act 1986. Eg, IC (Sub 6); MTIA (sub 59); DITAC (sub 101).

33

DrWPengilley(Subll).
Eg, REIA (Sub 68).

Eg, Australian Dairy Fanner's Fedn (Sub 10); Trade Practices Committee of the Law
council of Australia (sub 65); REM (Sub 68); TPC (Sub 69); Treasury (Sub 76); National Inst of Accountants (Sub 88); NFF (Sub 90); BCA (Sub 93); DITAC (sub 101); QId Govt (Sub 104).

97

5— Scope of Application: Principles and Issues
The

Committee does not support time-limited authorisations being

used as a means of imposing unjustified regulation or other
compliance costs on business. At the same time, it accepts that this more flexible approach may be necessary to manage transition to less

restrictive trading arrangements or to keep the anti-competitive consequences of authorised conduct under review in appropriate circumstances, particularly where the alternative to a time-limit might be failure to allow authorisation at all.36 Whether any particular time-limit or subsequent review is justified on public
interest grounds is properly a matter for the Commission, however, and the Trade Practices Tribunal provides a review mechanism if a particular time-limit is considered unjustified.
The TPC suggested that the Committee consider the need for greater flexibility in revoking or re-examining past authorisations.37 The Committee considers that the current criteria relating to a change in material circumstances in an industry are adequate, particularly when

the resource costs for both business and the TPC in conducting
reviews of past authorisations is taken into account. The Committee does not propose any changes in this area.

The Government has recently announced the introduction of userfees for authorisation and notification proceedings.38 While the
Committee supports the general principle of user-pays, it is concerned that the new regime does not appear to include provision for fees to be waived in exceptional circumstances, such as where an applicant could reasonably claim financial hardship and the public benefits of

the conduct far outweighed any anti-competitive detriment. The
Committee recommends that this matter be considered further by the Government.
Conclusions

Committee recommends that a national competition policy should include authorisation and notification processes along the lines of those under the TPA. As noted above, however, the
The
36

The TPC (Sub 69) notes that time-limited authorisations have been particularly useful in industries undergoing rapid economic change or deregulation (such as the rural and aviation
sectors). 37 TIC (sub 69).

R.28 Trade Practices Regulations. The fees are: notifications $2,500; authorisations $15,(XX); other authorisations $7,500.

merger

98

5— Scope of Application: Principles and Issues

Committee recommends that the legislation be amended to confirm

that, in determining questions of "public benefit", primary emphasis

should be placed on economic efficiency considerations. The application of the new "user pays" regime also warrants further
consideration.

As discussed in Chapter 14, the Committee recommends that the authorisation process under the competitive conduct rules of a national competition policy be administered by a new body — the
Australian Competition Commission.

2.

SpecIfic Exemption In the Act itself

A number of matters are subject to specific exemption or special

treatment in the TPA itself, including aspects of arrangements governing employment conditions,39 standards,40 restrictive
covenants,41 export contracts,42 consumer boycotts,43 licensing or

assignment of intellectual property rights44 and arrangements
governing international liner cargo shipping.45
Conformity With Agreed Principles
Legislated exceptions of this kind conform to the agreed principles. Specifically:
•

any exceptions are limited to public interest considerations, as

determined by the elected (and accountable) Parliament
(principle a);
•

the means of assessing that public interest —
(principle c);

the legislative

process — is transparent and allows the nature and incidence of

the public costs and benefits involved to be demonstrated

40
41

43

See s.51(2)(a). See e.51(2)(c). See s.51(2)(b),(d) & (e). See s.51(2)(g). See s.51(2A). see s.51(3).

SeePartXoftheAct.
99

5— Scope of Appilcation: Principles and Issues
•

the assessment process includes some provision for review, including through the role of the Senate and any subsequent
inquiries (principle c); and

•

the national reach and focus of the Commonwealth legislative process is consistent with the development of an open, integrated
domestic market for goods and services, the increasingly national

operation of markets, the reduction of complexity, and the
elimination of administrative duplication (principle d). Submissions & Overseas Experience
Most systems appear to have the capacity for specific legislated

exemptions in the competition statute itself. The detail of specific
exceptions, and relevant submissions, are considered in Chapter Six.
Consideration

There may be some cases where governments believe that the grounds for providing special treatment to a particular sector or
activity are sufficiently clear-cut, or politically sensitive, that they would rather stipulate that special treatment in the Act itself, rather
than require each individual case to be subject to adjudication through

the authorisation process. This approach has the advantage of
maximising certainty for business, although it does so at the expense of the flexibility of an assessment on a case-by-case basis.
Legislatively based exceptions may also not be as amenable to regular review according to changing circumstances — for example, many of the exceptions contained in the current Act have not been subject to review since the Swanson Committee reported in 1976.46
Conclusions

The Committee supports the principle of legislated exemptions but considers that they should be subject to regular review to ensure they remain justified on public interest grounds. The Committee's conclusions on the contemporary justification of each of the existing legislated exemptions are set out in Chapter Six.
See Trade Practices Act Review Committee, Report to the Minister for Business and

46

Consumer Affairs, (1976), especially Chapter Ten.

100

5— Scope of Application: Principles and Issues

3.

ExemptIon by Regulations Made Under the Act

The current Act makes provision for regulatiOn-based exemptions in

relation to primary product marketing arrangements; prescribed

conduct of the Commonwealth or its agencies; and certain arrangements made pursuant to international arrangements.47
Significantly, no new exemptions under this provision have been
made for some time, and all previous exemptions have expired.
Conformity With Agreed Principles
Regulation-based exceptions conform to the agreed principles to a

reasonable degree. Specifically:
•

exceptions are limited to public interest considerations, as
determined by the Parliament in the first instance (in prescribing the scope for such exemptions) and thereafter by the Executive, subject to supervision by the Parliament (principle a);

•

the evaluation of the costs and benefits of particular exceptions are evaluated within the Executive branch of government, and
authorisation (principle c);

will often be less transparent than either legislation or
•

the assessment process includes some provision for review,
including through administrative law and the supervisory role of the Parliament (principle c); and

•

the national focus of the Commonwealth Executive is consistent with the goal of developing an open, integrated domestic market

for goods and services, the increasingly national operation of markets, reducing complexity, and eliminating administrative
duplication (principle d).

Overseas Experience
The US, Canada and New Zealand do not have a special provision permitting exceptions by subordinate legislation made under the

competition statute, although New Zealand permits exceptions made under other statutes.48
47

See s.172(2).
See s.43 of the Commerce Act 7986.

101

5— Scope of Application: Principles and issues

Submissions

submissions proposed that regulated exemptions be given an expanded role in a national competition policy.49 Other submissions
Some

proposed that the current provision be wider in terms of subject
matter but limited to the transitional period in a market.5°
Consideration
Exemptions under regulations can be seen as a compromise between

the flexibility of case-by-case determinations under the authorisation process and the certainty and direct political accountability provided by legislated exceptions. Subject to any conditions on the scope for possible regulations in the legislation itself, the decision on whether or not to allow an exception ultimately depends on policy judgments by governments. The regulation-making process is not necessarily as

open and transparent as either the legislative or authorisation
processes, although there is scrutiny by the legislature and decisions may be reviewed through administrative law processes or by direct appeal to the political process.

The Committee noted that no regulations had been made under this

provision for some time, and that all previous regulations have expired. As discussed in the following Chapter, the Committee's
review of the current areas for exemption by regulation suggest no compelling case for retaining the provisions. In these circumstances,

the Committee was inclined to recommend the repeal of the
provision, leaving all such matters to be left to legislation or the
authorisation process.

However, it is conceivable that some matters may arise — such as those relating to inter-governmental agreements currently covered by the existing provision51 — which the Government considers are not appropriate for the authorisation process but for which the passage of relevant legislation may be delayed. To deal with situations such as this, the Committee considered it might be appropriate to replace the current regulation-making power with one that is unlimited as to
49 TPC (Sub 69); NEF (Sub 9W; DITAC (Sub 101).

Eg. Treasury (Sub 76). See s.172(2)(b) and discussion in chapter Six.

102

5— Scope of Application: Principles and Issues
subject

matter but which is strictly limited in duration to (say) two

years.
Conclusion

Committee proposes that the current regulation-making power be replaced by one that is unlimited as to subject matter but strictly limited as to duration. The duration in question should be that time
The

sufficient to permit the Parliament to consider appropriate
legislation, or no more than two years. Regulations under this power should not be extended without a public inquiry.
The proposed Australian Competition Commission should be required

to monitor such regulations and publish a list as part of its annual report.
4.
ExemptIon by other Commonwealth Statute or Regulation

The TPA provides that any other Commonwealth Act (other than an

Act relating to patents, trademarks, designs or copyright) or
regulations made under such an Act, may specifically approve or authorise conduct that would otherwise offend the TPA.52 The provision appears to have been used only once, in relation to the special competition policy provisions established for the
telecommunications sector.53

As noted above, legislation of the kind relevant to this provision must

be distinguished from other legislation which, although involving
anti-competitive consequences, does so without involving conduct in

breach of the Act. Thus, for example, legislation could create a legislative monopoly54 or regulate prices55 without requiring a business to engage in conduct prohibited by the Act. The current
provision relates to business conduct that is voluntary and deliberate,

as opposed to mandated, but which is specifically approved by
another Commonwealth Act or regulation.
See s.51(I)(a) of the TPA. The requirement for specificity is interpreted strictly: see In it Ku-ring-al Building SOciety (No.12) LId & Anor (1978) ATPR 40-094. 53 See Telecommunications Act 1991, Pt.8 & Pt.11. Eg, s.29 of the Australian Postal Corporation Act 1989 (Cth). Eg, s.140 of the Telecommunications Act 1991 sets out pricing principles to govern charging for access agreements relating to the interconnection network
52

103

5—Scope of Application: Principles and Issues
Conformity With Agreed Princip!es
The relevant strengths and weaknesses of this mechanism are akin to

those of legislative exceptions in the Act itself and regulations made under the Act. Specifically:
•

any exceptions are limited to public interest considerations, as

determined by the elected Parliament and/or Executive
(principle a);
•

the, transparency of the evaluation process, and the scope for
review, depends on whether legislation or regulation is involved. While the legislative process is more transparent, regulations are often subject to more regular review (principle c).

•

the national reach and focus of the Commonwealth Parliament and Executive is consistent with the development of an open,

integrated domestic market for goods and services, the
(principle d).

increasingly national operation of markets, the reduction of complexity, and the elimination of administrative duplication
Overseas Experience
New Zealand exempts conduct which is specifically authorised or approved by any Act or Order in Council.56

The United States relies on judicial mechanisms for resolution of conflicts of laws where the antitrust laws come into conflict with
other federal laws. Antitrust law defers to other laws where "conduct

seemingly within the reach of the antitrust laws is also at least arguably protected or prohibited by another regulatory statute
enacted by Congress."57

Canada also relies on judicial doctrine to resolve conflicts of laws.58

56 57

see s.43(1)

Act. Rica v Chicago Mercantile Exch. 409 US 289, 300 (1973). Jabour v Law Society e4' British Columbia (1982) 2 5CR 397.

104

5— Scope of Application: Principles and Issues
Submissions
Some

submissions proposed that the current provision be repealed,

and that primary emphasis be placed on authorisation by an
independent body.59 Others proposed that the provision be retained but that new and existing exemptions be subject to a more formal review process to aid transparency.6°
Consideration
The

current provision provides a useful means for Parliaments to

clarify that conduct required as part of some other regulatory regime
is immune from the TPA.

The Commonwealth Parliament cannot, under the principle of
sovereignty of Parliament, bind itself. In the absence of the current provision, difficult legal issues would arise as to whether subsequent Commonwealth laws were inconsistent with the Act, and which law should prevail. The current provision provides a mechanism to guide

statutory interpretation, indicating the circumstances in which subsequent laws will prevail over the Act. In doing so, it avoids uncertainty. In fact, the Commonwealth has only once enacted legislation which specifically authorises conduct which might
otherwise contravene the Act.6t

The rationale of providing guidance in statutory interpretation does not apply, however, in the case of subsequent regulations, which in the absence of the current provision would not over-ride the Act.

There are also a number of difficulties associated with placing
exemptions in statutes or regulations distinct from the Act.

First, an approach of this kind fragments the coherence of the competition policy regime to some degree, requiring a range of
legislation to be consulted. While this may be acceptable where statutes are involved, it may be difficult to uncover the extent of
regulations contained under different Acts.

Second, even where statutes are involved, there is no requirement for

the provision that purports to authorise conduct to state that it is
60
61

Eg, Prof It Baxt (Sub 18); TPC (Sub 69); DPIE (Sub 50); BCA (Sub 93). Eg, Trade Practices committee of the lEA (Sub 65); Mr M corrigan (Sub 72). See s.236 Telecommunications Act.

105

5— Scope of Appilcation: Principles and Issues

doing so for the purposes of exempting particular conduct from the

general conduct rules. This has two consequences. First, the
legislature may not be fully apprised of the consequences of its action when passing legislation containing a provision of this kind, which in turn weakens the transparency of the process. Second, the extent of exceptions from the general conduct rules may be difficult to uncover and, even when a possible provision is uncovered, its relationship vis-

a-vis the T1'A may be unclear. This may in turn add unnecessary
uncertainty and complication.

Finally, the dispersed and relatively non-transparent nature of such exemptions may inhibit regular scrutiny of the continued justification for the exemption.
Conclusions
Given the constitutional reality that it is not possible to prevent the

Commonwealth from passing laws which exempt particular conduct

from the Act, the Committee considers that the current provision plays a useful role in directing statutory interpretation, at least in respect of subsequent Commonwealth statutes. However, the

Committee recommends that the current provision should be
amended to improve the transparency of any exemptions in this area. In particular, it is recommended that any new exemptions should be required to be in statutes, rather than regulations, and to expressly

state that the authorisation or approval is for the purposes of the
relevant provision(s) of the competition statute.

As discussed below, the Committee considers that similar provisions

deferring to State and Territory statutes and regulations should be
repealed in their entirety. Although this conclusion is justified by the very different nature and operation of the exceptions in the two cases, the Committee is aware that this may give rise to concerns over a lack of symmetry in a federal system.

Leaving aside the question of whether symmetry should be a goal in its own right, the Committee considers that concerns in this area may be ameliorated if the Commonwealth Government agreed to consult State and Territory Governments before exercising this power in a way that had a significant impact on the their interests. Furthermore,

the Commonwealth should consider proposals from State or Territory Governments that the power be exercised to exempt
106

5— Scope of Application: Principles and Issues

particular conduct, where such proposals would not have adverse

national consequences and are in the public interest. To assist in resolving disputes on such matters, it may be appropriate to seek the
advice of the proposed National Competition Council.

In addition, the Australian Competition Commission should be
required to monitor such exemptions and publish a list as part of its

annual report.

The competition authority might also make

recommendations to the government proposing the repeal of such exemptions where it considers that the continuing exemption from
conduct rules is no longer justified in the public interest.

Existing exemptions that do not meet the new requirements should be deemed to have lapsed within three years.

5.
The

Exemption by State/Territory Statute or Regulation.

TPA currently provides that State or Territory statutes or

regulations may specifically authorise or approve conduct that would

otherwise offend the Act.62 The Commonwealth has the power to over-ride particular State-based exemptions by regulation, and has used this power once.63 The provision rests on considerations of
comity in a Federal system64 rather than any constitutional limitations on the Commonwealth.

As with Commonwealth legislation mentioned above, it is important

to distinguish State and Territory legislation relevant to this
provision from other legislation which, although anti-competitive in consequence, achieves its result in a way that does not involve

conduct in breach of the Act.

States may create statutory

monopolies,65 regulate prices or establish other anti-competitive
see s.51(lXb), (c) and (d). While the "specificity" requirement has been interpreted strictly (In it Ku-ring-al Building Society (Noi2) Ltd & Anor (1978) ATPR 40-094J, it has been held that the provision "should be construed generously in favour of the State" (Paul Dainty Corporation Ply Ltd v National Tennis Centre Trust (1990) ATPR 41-029 at 51,465). 63 see s51(lXb), and note s 51(1)(d) in relation to the ACT. The Commonwealth power to
override State exemptions was exercised in respect of third-line forcing of insurance by building societies approved under the Cooperation Act 1923 (NSW): see Trade Practices (Removal of

Exception) Regulations. 64 See Paid Dainty Corporation Ply Ltd v National Tennis Centre Trust (1990) ATPR 41-029 at
51,465. Not dissimilar approaches have developed by the courts in Canada (see A-C Canada v Law Society of British Columbia [1982) 2 SCR 307 and the US (see Parker v Brown 317 US 341 (1943) and Califonzia Retail Liquor Dealers Assn vMidcal Aluminium 445 US 97(1980)). 65 Eg, s.36 Electricity Act 1976-89 (QId)-

107

5— Scope of Application: Principles and Issues

arrangements without necessarily involving conduct that would

offend the Act. Some of the distinctions in this area are illustrated in
Box 2.66

The extent of State- and Territory-based derogations from the Act is

difficult to identify with certainty67 and in many cases it can be
questioned whether the conduct approved of would otherwise involve a contravention of the Act.68 However, purported derogations of this kind appear to be prevalent in relation to legislation authorising anti-

competitive conduct by professional associations,69 agricultural
marketing bodies70 and some State or Territory-owned businesses.71 As with the similar provision relating to Commonwealth statutes and regulations, there are currently no limits on the possible beneficiaries or rationales for States or Territories to rely on such provisions.72
Conformity With Agreed Principles
This provision reflects some of the advantages and disadvantages of

the provision for special treatment in Commonwealth Acts or regulations. There are additional disadvantages, however.
Specifically:
•

as the question of public interest is being determined by a regional rather than a national body, there is the question of whether the interest of a single State or Territory will always coincide with

66
67

See Executive Overview. In 1979 the Trade Practices consultative committee noted in relation to the agricultural sector that "It has not been possible to make a general assessment of the extent of exceptions because even an exhaustive analysis of the laws in force at both the commonwealth and State

level would not finally determine clearly whether conduct of a type prohibited by the Act is exempted" : Report to the Minister for Business & Consumer Affairs on the Operation of the Trade Practices Act in relation to Primary Production in Australia (1979) at 14. For example, the Victorian Arts Centre (Amendment) Act 1988 (Vic) was passed to specifically authorise the making of certain agreements that were found not to violate the Act
even without such protection. See Paul Dainty v National Tennis Centre (1990) ATPR 41-029. Eg, the Legal Profession Practice Act 1958 (Vic) enables members of the Law Institute of

victoria to reach agreement about restrictions on behaviour and, through the Law Institute council, have such rules approved by the chief Justice. It has been suggested that a rule restricting fee advertising has implications under the Act: see Law Reform Commission of Victoria, Competition Law The Introduction of Restrictive Trade Practices Legislation in
Victoria (1991) at 63. 70 Eg, Marketing of Primary Production Act 1983 (NSW), s.164. 71 Eg. Victorian Arts Centre (Amendment) Act 7988 (Vic). See also s.86 of the State Owned Enterprises Act 1992 (vic) Eg, the Industries Development Act 1941 (SA) provides a general regulation making power to exempt activity that is not confined to any particular class of market participants or conduct.

108

5— Scope of Application: Principles and Issues

national interest. Although the Commonwealth is empowered to over-ride State-based exemptions, it may be difficult to uncover offending exemptions when they are
the

embodied in diverse statutes and regulations in each of the States and Territories;
•

while the legislative and regulatory processes involved in
assessing the public interests involved in a particular exception are similar to like processes at the Commonwealth level in terms of transparency and capacity for review, the sub-national focus of these processes reduces the scrutiny of particular proposals, particuiarly where regulations rather than statutes are involved;

•

State- or Territory-based exemptions have the effect of
fragmenting the coverage of competitive conduct rules according

to sub-national borders, and are thus not consistent with the goals of developing an open, integrated domestic market for goods and services; the increasingly national operation of markets; reducing complexity; or eliminating administrative
duplication (principle d); and
•

State- or Territory-based exemptions in disparate State and

Territory statutes and regulations fragment the body of
competition law arid thus contribute to complexity. While there are some problems of fragmentation with Commonwealth statutes and regulations, in the case of the States and Territories this problem potentially is magnified ninefold (principle d).

Overseas Experience
The US courts developed a "state action" doctrine in the 1940s which

allows States to approve conduct that would otherwise offend
Federal competition law if the restraint is "one dearly articulated and actively expressed as state policy" and the State "actively supervises"

the conduct in question.73 The doctrine has been subject to

considerable criticism74 and there have been suggestions that it is likely to be reconsidered by the Supreme Court in the near future.75
See Parlcer v Brown 317 US 341 (1943) and California Retail Liquor Dealers Assn v Midcal
Aluminium 445 US 97 (1980). 74 Eg, Arueda FE & Hovenicamp H, Antitrust Law (1990 supp) at 126-129.

See Baker D 1, 'High court
(1 Feb 1993) at 21.

Sheds

Light on State Action", National Law Journal

109

5— Scope of Application: Principles and Issues

Significantly, the US does not have a process akin to authorisation by

an independent body.

The Canadian courts have developed a "regulated industries"
exemption which deals with potential conflicts between Provincial regulation and Federal competition law,76 although the breadth and rationale of the doctrine remain uncertainP Canada does not have a
process akin to authorisation by an independent body.

In the European Community, there is no provision for Member States to authorise conduct that offends the competition law provisions of
the Treaty of Rome.78

Submissions

of the provision was advocated by the TPC and a number of other submitters,79 with most emphasising the benefits of consulting
Repeal

with States and Territories and carefully reviewing existing exemptions prior to repeal. One submission argued that the
provision should be narrowed8° while others supported retention
exemptions.81

providing steps were taken to improve the transparency of
Consideration
From the perspective of a national competition policy, the current

provision has two main defects. First, there are the impacts of diverse State and Territory exemptions on the transparency and
cohesion of national law. Second, there are the potential commercial impacts of such exemptions on the efficient operation of an integrated national market.

76

See Jabour v Law Society of British Columbia (1982) 2 5CR 397.

See Kaiser CE & Nielsen-Jones 1, "Recent Developments in Canadian Law: Competition Law", Ottawa Law Review (1986) 18, 401-517.
78

EC law overrides law of the Member States to the extent of any inconsistency: Costa v

ENEL (1964) ECR 585.

TPC (Sub 69); Prof R Baxt (Sub 18); VLRC (Sub 2); Law Institute of Victoria (Sub 13); Treasury (Sub 76). 80 Unilever Australia Ltd (Sub 28). Trade Practices Committee of the Law Council of Aust (Sub 65); Mr M Corrigan (Sub 72).

110

5— Scope of Application: Principles and Issues
Transparency & Cohesion Concerns

transparency and cohesion concerns noted above inhibit the effective operation of a national policy, fragment its coverage and
The

obscure the appraisal of the costs and benefits of particular
exemptions suggested to be in the public interest.

One response to these concerns would be to qualify State- and Territory-based exemptions in the same way as it is proposed to
qualify Commonwealth exemptions. That is, the provision could be

amended to require new exemptions to be in statutes, rather than regulations, and to expressly state that the authorisation or approval is for the purposes of the relevant provision of the competition statute. In addition, the national competition authority could be required to monitor such exemptions, publish a list as part of its annual report, and undertake periodic reviews to determine whether the provision was justified and consistent with relevant national interests. Existing exemptions that did not meet the new
requirements within three years could be deemed to have lapsed.
•

Impacts on National Markets

exemptions also distort the operation of the national market. Apart from condoning inefficiencies that flow on to the national economy, State-based exemptions have the potential to impact directly on competition between industries or businesses
State-based

located in different States.
The Committee considered two possible responses to this concern.•

First, the scope of operation of the provision could be substantially narrowed. For example, it seems difficult to justify a State being able to exempt a merger from the Act, given that all mergers prohibited by

the Act must involve a substantial lessening of competition in a
substantial market in Australia, and would thus likely have national, not just local, implications. Similarly, it can be argued that conduct of the kind prohibited by the misuse of market power provision of the Act should not be capable of authorisation under State or Territory law. According to this approach, the scope for authorisation by State or Territory law would be limited to horizontal or vertical agreements of

the kind discussed in Chapter Three, perhaps with an added

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5— Scope of Application: Principles and Issues

requirement that the conduct does not have a significant spill-over effect to businesses or consumers in other jurisdictions.

A second approach would be to repeal the provision in its entirety, leaving businesses who sought immunity from national competition rules to apply for authorisation through the Commission in the usual way, or to achieve the intended policy objective by legislating for that

result directly, rather than approving the voluntary conduct of
particular businesses.

Although there were suggestions that repeal of the provision would of itself see a large range of anti-competitive regulations being over-

ridden, particularly in agricultural marketing and professional
regulation, this is not borne out by a close analysis of the State and Territory laws in question. The overwhelming majority of laws examined by the Committee in areas such as these were found to achieve their anti-competitive effect in a way that did not involve conduct that would otherwise have been in breath of the Act, making the current provision irrelevant to their future operation.
For example, a law requiring the owner of an electricity transmission

grid only to purchase electricity from particular generators might have the same effect in the marketplace as an exclusive dealing
agreement or a misuse of market power. But in these circumstances a refusal to deal with other generators would not fall within the TPA's

prohibitions, because the refusal would not occur pursuant to a contract, arrangement or understanding, and the purpose of the refusal would be compliance with legislative requirements rather than any proscribed purpose. The repeal of the provision which
permits States to specifically authorise or approve conduct would not affect such arrangements.
Conclusions
The

Committee favours repeal of the provision in its entirety. This

might be accomplished by preventing any new exemptions of this kind

and deeming any existing exemptions to have lapsed within three years, thus providing time to consider transitional or alternative authorisation arrangements.
If, contrary to the Committee's recommendation, a provision of this kind is to be retained, the Committee proposes that it be modified to
112

5—Scope of Application: Principles and Issues
increase

the transparency of exemptions by requiring that any

exemption be specified in legislation, rather than regulation, and that

the legislation expressly state that the authorisation or approval is for the purposes of the relevant provision of the competition statute. In addition, the Committee considers that State- or Territory-based exemptions should, at a minimum, be expressly limited to horizontal and vertical agreements of the kind currently proscribed by ss.45
and 47 of the TPA.
As noted above, the Committee has responded to possible concerns

over asymmetry between the Commonwealth on the one hand and

the States and Territories on the other by suggesting that the
Commonwealth consult with the States and Territories on certain
aspects related to the exercise of the its power.

6.
The

LimItations through Constitutional Factors

Commonwealth's legislative power in the competition law area is not unlimited. As currently drafted, the TPA draws primarily upon

the constitutional power to regulate corporations, although it also
applies to unincorporated businesses to the extent that they engage in interstate or overseas trade or commerce, operate in a Territory or in

so far as they supply the Commonwealth.82

Although the

Commonwealth could make greater use of its constitutional powers

to extend the coverage of the Act, it seems that some areas of
economic activity would remain beyond the scope of Commonwealth law. For example, there are express constitutional limitations on the Commonwealth's powers over State banking and State insurance.83

The effect of limitations derived from constitutional considerations can be seen in relation to three main areas: some government-owned businesses; some professions; and other unincorporated businesses.
Conformity With Agreed Principles

Limitations of this kind offend each of the agreed principles.
Specifically:
82

The Act is based primarily on the commonwealth's power in relation to "financial and trading corporations", but s.6 of the Ad extends the Act through use of other commonwealth Law (1993) 1052-1054; powers. For a fuller discussion of this issue see Heydon 3 D, Trade and Tonking A! & Alcock RJ, Australia,i Trade Practices Reporter (1993), 1j480. (1990)64 ALJR 406. 83 see Constitution s.5I(xiii) & (xiv) and Bourke v State Bank

113

5— Scope of
•

Principles and Issues

it is difficult to identify any obvious "public interest" rationale for

permitting such blanket exclusion from market conduct rules,

particularly when the factors relevant to the exception are arbitrary and unrelated to any criterion of contemporary
relevance (principle a);
•

to the extent that there might be a public interest rationale for exemption in some cases, the blanket exclusion means that it is

not subject to assessment by a transparent process to
demonstrate the nature and incidence of the public costs and benefits claimed; necessarily, there is no process for review
(principle c);
•

as the limitation operates to discriminate between corporate and

non-corporate forms of business, it specifically offends the
principle that the form of ownership of a business should not be relevant to the application of market conduct rules (principle b);
•

the limitation leads to differences in the application of conduct rules between the States and Territories, and between intrastate and interstate transactions, and is thus not consistent with the development of an open, integrated domestic market for goods and services (principle d); and

•

uncertainties over the precise boundaries of Commonwealth constitutional power lead to uncertainty over the scope of the
exception and thus conflict with the need to reduce complexity in increasingly national markets (principle d).

Overseas Experience
No other jurisdiction appears to discriminate between businesses depending on the legal form of ownership.

The reach of US antitrust laws does depend on some impact on interstate commerce. However, this requirement has
been said that:

114

5— Scope of Application: Principles and Issues
In the field of economic regulation, at any rate, the notion that the States

must be left with an area of exclusive power has been fully abandoned. While theoretically an effect on commerce might be regarded as too remote or not "substantial" enough to bring its control within power, it is difficult to imagine examples where such a finding would be made and
there are no recent cases that have so found.84

While the application of Canadian competition law was also
originally limited by constitutional requirements, the current law
operates without such fine distinctions. As it was said in one case: A scheme aimed at the regulation of competition is in my view an example of the genre of legislation that could not practically or
Canada is, for constitutionally be enacted by a provincial government economic purposes, a single huge marketplace. If competition is to be regulated at all it must be regulated federally.85

Submissions
The overwhelming majority of submissions received by the Inquiry —

including those from consumer, business and industry groups and

individual businesses, small and large86 — argued for the current gaps in coverage of market conduct rules to be filled. No submission

supported the continuation of the current exclusions based on
constitutional limitations.
Consideration
As discussed in the following Chapter, the current exclusion does not

correspond closely with any particular group, sector or public interest

rationale. Some professionals, farmers, small business people and government businesses benefit from the immunity while others do
Zines L, The High Court and the Constitution (3 ed, 1992) at 51. An equally liberal approach is taken to the construction of "interstate commerce" in the antitrust laws themselves. In Burke v Ford, 389 US 320 (1967) the Supreme court held that interstate commerce was adequately affected by an alleged intrastate territorial division among local wholesalers. The court recognised that a territorial allocation of liquor sales within Oklahoma would tend to
raise the price of liquor and would therefore tend to reduce the local demand for that product and thereby tend also to reduce the demand for liquor coming into the state. In McLain v Real Estate

Rd., 444 US 232 (1980) the Supreme Court was satisfied that price fixing among Louisiana
housing brokers would tend to increase house prices and thereby reduce the demand for interstate financing and title insurance. 85 A-C of Canada v Canadian National Transportation Ltd et a! (1984) 3 OLR (4th) 16, 79.
86

These submissions are considered in the following Chapter in relation to the particular

sectors benefiting from the current exclusion.

115

5— Scope of Application: Principles and Issues
not. The primary determinants are the legal form of the business and

the inter-state character of transactions.

The notion that a business should be entitled to engage in anticompetitive conduct with impunity because of factors such as these is impossible to defend on considered public policy grounds. If some businesses currently excluded from the TPA claim some particular public interest rationale for continued exclusion, those claims can and should be tested in the same way as the claims of any other business.
Conclusion

should be no room for limiting principles such as this in a national competition policy. The current gap should be filled as a matter of priority. Options for achieving this, and appropriate
There

transitional arrangements, considered in Chapter 15.

7.

Shield of the Crown Doctrine

According to ancient doctrine, the Crown and its instrumentalities will not be found to be bound by a statute except by express words or

necessary implication.87 As a result of recommendations by the
Swanson Committee, the TPA was amended in 1977 to clarify that the

Act was intended to apply to the Crown in right of the
Commonwealth and its instrumentalities to the extent it engages in a
business.88

Although the Swanson Committee also recommended action in
relation to the Crown in right of the States, no such action has been taken. In 1979 the High Court found that the TPA was not intended to bind the Crown in right of the States89 and this exemption has been held to also extend to the Territories.90 The scope of application of the doctrine is uncertain, however, for whether or not a particular entity is entitled to claim the protection of the doctrine requires a dose examination of the legislation establishing the entity and the activities
undertaken pursuant to it.91
87

For a review of the origins and significance of the doctrine see:
the Shield

Committee on Constitutional Legal Affairs, The Doctrine of
See s.2A of the Act and discussion in Chapter Six.
89 90
91

Senate standing the Crown(1992).

Consolidate4 Ltd v BHP(1979) 145 CLR 107. Burgundy Royale Investments Ply Ltd v Westpac Banking Corporation (1988) 18 FCR 212. For examples of the application of the doctrine see discussion in Chapter Six.
Bradken

116

5— Scope of Application: Principles and Issues

An important aspect of the doctrine is that it not only exempts the

agency entitled to the immunity, but also other persons engaged in
doing business with the agencyY2

While the High Court has recently expressed a more flexible approach to the application of the doctrine,93 it has also indicated that it did not

intend to overturn the settled construction of statutes passed before its decision.94 Accordingly, an amendment to the competition statute seems necessary to address this matter. Significantly, there is no

constitutional impediment to the Commonwealth doing this
Conformity With Agreed Principles

unilaterally.

In its current operation, the application of the doctrine offends each of

the principles already agreed between Heads of Australian
Governments. Specifically:
•

it is difficult to identify any obvious "public interest" rationale for

permitting such a blanket exception from conduct rules,
particularly in light of the increasingly commercial orientation of many government-owned businesses (principle a);

•

to the extent that there might be a public interest rationale for exemption in some cases, it is not assessed by a transparent process to demonstrate the nature and incidence of the public costs and benefits claimed; necessarily, there is no process for
review (principle c);

•

as the doctrine is applicable only to government-owned
businesses, it offends the principle that ownership of a business should not be relevant to the application of competitive conduct rules (principle b);

•

it is difficult to see how the continued operation of the principle, which will differ in its practical effect between similar businesses in different States, is consistent with the development of an open,
See Bradken Consolidated Ltd v BHP(1979) 145 CLR 107. See Bropho v State of Western Australia (1990) 171 CLR 1.

92 93

Ibidat22.

117

5— Scope of Application: Principles and Issues

integrated domestic market for goods and services (principle d);

and
•

uncertainties over the scope and application of the doctrine, which can be considerable, conflict with the need to reduce
complexity in increasingly national markets (principle d).

Overseas Experience
International competition laws do not generally provide exemptions

for government businesses.

The Crown is bound by competition law in New Zealand, in so far as

it engages in trade,95 and in Canada in respect of commercial
activities.96 US law limits the liability of local governments to treble

damages remedies97 but otherwise offers no special treatment for
public agencies.

The competition law of the EC binds government businesses of the Member States. Although there is a qualification that application of

the law should not obstruct the performance of particular tasks
assigned to undertakings entrusted with the operation of services of

general economic interest", the overarching principle is that "the
development of trade must not be affected to such an extent as would be contrary to the interests of the Community".98
Submissions
The extension of competitive conduct rules to all government-owned

businesses, Commonwealth, State or Territory was supported by the overwhelming majority of submissions that dealt with this issue.99
95 96 98

See s.5 of the commerce Ad. See s.2(1) of the Competition Act 1986 See Local Government Antitrust Act 1983. See Article 90 of the Treaty of Rome. Although the qualification extends to "undertakings

having the character of a revenue-producing monopoly", EC law, unlike the general rules proposed for an Australian national policy, extends to the charging of monopoly prices (see
Article 86). Eg, victorian Law Reform Commission (Sub 2); Industry Commission (Sub 6); Dr R Albon (Sub 8); Dr W Pengilley (Sub 11); Law Institute of Victoria (Sub 13); Mr A! Tonking (Sub 16); Prof R Baxt (Sub 18); Esso Mast (Sub 21); Aust Institute of Petroleum (Sub 22); AGL (Sub 24); Caltex

Aust (Sub 27); Unilever Aust (Sub 28); Shell (sub 30); Carlton & United Breweries (Sub 34); Spark & cannon (Sub 36); Aust Mining Industry Council (sub 39); Aust Information Industry Association (Sub 40); DPIE (Sub 50); MTIA (sub 59); Trade Practices Committee of the Law

118

5— Scope of Application: Principles and Issues
The

TPC argued that the application of conduct rules to the

commercial activities of Commonwealth Departments should be
clarified.'°°

Consideration
As discussed in more detail in Chapter Six, the blanket exclusion for

government-owned businesses is difficult to justify in light of the increasingly commercial operation of those businesses and their significance as suppliers of key inputs to other industries. The

practical uncertainty surrounding the question of whether a.

particular entity qualifies for protection under Shield of the Crown, and hence whether firms dealing with the entity can enjoy the benefits of that protection, also presents a strong case for the removal of this
source of exemption.

It would seem especially important to remove the exemption where government businesses compete with private businesses. Because

firms dealing with an emanation of the Crown can share in the
immunity granted to the Crown, there is scope for collusive activity between competitors. For example if the Crown in right of a State were engaged in electricity generation in competition with private

firms, a collusive agreement between the generators might be
inmulne from the competitive conduct rules. Concerns of competitive

neutrality, discussed in Chapter 13, also suggest that Crown
businesses should be subject to the same rights and obligations as their competitors.

The Crown in right of the Commonwealth and its authorities are
covered by the TPA "in so far as ... [itJ ... carries on a business", and "business" is defined to include a business not carried on for profit.101 Despite this provision, there are questions concerning the extent to

which the TPA applies to intra-governmental activities of a
commercial nature, including the case where one branch of the
Commonwealth supplies another branch, in competition with private suppliers. Although such transactions may have what is commonly
Council of Australia (Sub 63); TPC (Sub 69); National Bulk commodities Croup (sub 71); Mr M Corrigan (sub 72); Australian chamber of Manufactures (Sub. 73); Pioneer International (Sub 81); AMP Society (Sub 82); ABARE (Sub 95); PSA (Sub 97); Small Business coalition (Sub 100);
D1TARD (Sub 101); Australian Consumers' Association (Sub 131); 8W' (Sub 133). 1(X) TPC(Sub69). 101 See s.2A ands.4.

119

5— Scope of Application: Principles and Issues

understood to be a commercial nature, because the Crown is one

indivisible entity, intra-governmental transactions can be argued not to amount to "business" activities, which would require at least two parties. Thus, for example, the supply of leased vehicles by the

Commonwealth Department of Administrative Services to the Department of Defence may be argued not to be a business
transaction, even though the Department of Administrative Services

may be competing with private firms for the right to supply the
Department of Defence.

The Committee considers that such transactions should be subject to the competitive conduct rules, and supports the principle, reflected in Canadian law, that the Crown should cease to enjoy immunities to

the extent it is competing with private firms. In this regard, the notion of competition should include potential competition, so that

the legislation would cover situations where new firms could
establish competing businesses but for the anti-competitive conduct of incumbent government businesses.
Conclusions
The

Committee considers that the shield of the Crown doctrine

should have no place in the competitive conduct rules of a national competition policy. The provision by which the Crown in right of the Commonwealth is bound to comply with the competitive conduct rules should be extended to cover intra-governmental commercial transactions which occur in actual or potential competition with private firms. The Crown in right of the States and Territories should

be bound in the same manner as the Crown in right of the
Commonwealth.

C. RECOMMENDATIONS
The Committee recommends that:
5.1

An authorisation process of the kind currently administered by the TPC constitute the primary means of permitting exceptions

to the competitive conduct rules of a national competition
policy. However:

120

5— Scope of Application: Pñnciples and Issue.
(a)

the authorisation provisions should be amended to confirm that economic efficiency is the primary
consideration in assessing public benefits; and

(b)

permitting the waiver of recently introduced fees in
appropriate circumstances should be considered.

5.2

Specific exemptions in the competition statute may be
appropriate in certain circumstances; recommendations on individual exceptions in the current Act are contained in Chapter Six.

5.3

Provision for exceptions by regulation made under the Act be replaced by a regulation power unlimited as to subject matter, but strictly limited as to time. The Committee proposes two years as an appropriate period. The competition authority — the Australian Competition Commission — should be required

to monitor such exemptions and publish a list as part of its annual report.
5.4

Provision for the specific approval or authorisation of
particular conduct by other Commonwealth laws be subject to the requirements that the approval or authorisation: (a) be in statutes, rather than regulations; and
(b)

expressly state that the approval or authorisation is for
competition statute.

the purposes of the relevant provision(s) of the

In addition, the competition authority should be required to monitor such exemptions, publish a list as part of its annual report, and undertake periodic reviews to determine whether
such exemptions continue to be justified in the public interest.
5.5

Provision for the specific approval or authorisation of
particular conduct by State and Territory laws be repealed.

5.6

Current limitations in the application of competitive conduct rules arising from constitutional factors be removed. Current limitations in the application of competitive conduct rules arising from the shield of the Crown doctrine be removed from the Crown in right of the Commonwealth, the States and

5.7

Territories in so far as the Crown in question carries on a
121

5— Scope of Application: Principles and Issues
business

or engages in commercial activity in competition

(actual or potential) with other businesses.

122

6. Scope of Application Review by Sectors & Activity
Chapter Five argued that an authorisation process administered by an independent body — the proposed Australian Competition Commission — should be the primary means of exempting conduct

from the competitive conduct rules of a national competition policy. In addition, however, some residual role was proposed for specific exemptions in the competition statute itself; for certain conduct that was specifically authorised by other Commonwealth statutes; and for
competition statute.

temporary exemptions through regulations made under the

The Committee's recommendations are to remove current
exemptions or limitations on the Trade Practices Act 1974 (TPA) arising from constitutional limitations; the shield of the Crown doctrine in so far as the Crown engages in business or engages in commercial activity in competition with private firms; specific authorisation by Commonwealth regulations made under other

statutes, or by State and Territory statutes or regulations; and removal of the current provision of the TPA permitting certain
categories of exemptions to be made by regulation. As a corollary to that discussion, Section A of this Chapter reviews the

impact of the current exclusions and the Committee's proposals on the twelve main sectors and activities currently subject to special treatment under the TPA. Section B presents the Committee's recommendations in relation to the current specific exemptions in the
TPA.

A.

SECTORS & ACTIVITIES SUBJECT TO SPECIAL TREATMENT

The

main sectors and areas of activity currently subject to special
1.

treatment under the TPA are:
2. 3.

Government-owned businesses Professions Other unincorporated businesses
123

6— Scope of Application: Review by Sectors & Activity

Agricultural marketing 5. Overseas shipping 6. Intellectual property 7. Labour 8. Approved standards 9. Export contracts 10. Restrictive covenants 11. Consumer boycotts
4.

12. Conduct or arrangements pursuant to international
agreements.

Each of these areas relies on one or more of the exemption
mechanisms discussed in Chapter Five. The result of the Committee's recommendations would be to limit the special treatment accorded a

number of these areas, particularly the first four. Each area is
discussed in turn.

1.
The

Government-Owned Businesses

substantially between the Commonwealth and the States and
Territories, and each category is considered separately below.
(a) The Commonwealth and Its Authorities
Current Exceptions

current exceptions for Government-owned businesses differ

Commonwealth-owned businesses are largely subject to the same competitive conduct rules as private businesses.1 Since 1977 the

Commonwealth and its authorities have been denied the protection of the shield of the Crown doctrine in so far as they carry on a business.2

While this covers a wide range of commercial activity, it may not cover the supply of goods or services from one Commonwealth
Department to another, even if in competition with other firms.3

A Commonwealth business, ACITC, was recently found liable for a breach of the misuse of

market power provision of the TPA: see General Newspapers Ply Ltd & Ors v Australian &
Overseas Telecommunications Corporation (1993) ATPR 1141-215. 2 MBusinesC is defined in the Ad to include business not carried on for profit This argument rests on the notion that the Crown is indivisible. Thus, two Departments of the Crown — including businesses conducted as tnsst accounts under a Department — would be treated as part of a single entity, or a single corporation for the purposes of s2A(2)(a).

124

6— Scope of Appilcation: Review by Sectors & Activity
There are no constitutional limitations on the application of the TPA

to Commonwealth businesses.4 There is provision to exclude particular conduct of the Commonwealth or its authorities by
regulation,5 although this has been used only once and the exemption has expired.6

The power to specifically authorise or approve conduct by other
Commonwealth statute or regulation7 has been used in relation to the special competition policy arrangements in the telecommunications

sector, where it is not limited to the Commonwealth-owned
business.8
•

Submissions

The

TPC argued that the application of conduct rules to the

commercial activities of Commonwealth Departments should be
clarified.9 Several submissions expressed concern over aspects of the business conduct of Commonwealth Departments)°
•

Consideration

The general inclusion of Commonwealth business activity within the

Act's coverage is consistent with the increasingly commercial
orientation of much governmental activity.

The concerns expressed in submissions over the possible advantages

Commonwealth-owned businesses enjoy when competing with
private firms extend beyond the application of competitive conduct rules, and are explored more fully itt Chapter 13. However, uncertainty over the application of conduct rules to situations where one Commonwealth department is supplying goods or services to another arm of the Commonwealth in competition with private firms
See s.2A(2), which deems the commonwealth and its instrumentalities to be corporations hr the purposes of the Act in so far as they engage in business. See s.172(2)(c). 6 The exception was made in 1988 for Commonwealth businesses in the telecommunications sector. see Trade Practices fTelecxnnmunications Exemptions) Regulations. See s.51(1)(a) of the Act. o See ss.236 & 237 of the Telecommunicalions Act 1991 (ctrn, which cover certain ads by both the Comirxrnwealth owned business (AOTC) and private finns.
4

lit (Sub 69).
10

Eg, Spark & Cannon Pty Ltd (sub 36); Australian Legal Reporting Group (sub 66); Assn of

Consulting Engineers Aust (Sub 127); Screen Production Assn of Aust (Sub 123).

125

6— Scope of Application: Review by Sectors & Activity

warrants attention. This issue is likely to be of increasing significance

as such markets are opened up to competition, a situation probably

not envisaged when the TPA was extended to Commonwealth
businesses in 1977.
°

Recommendations and Impact

The

national competition policy confirm that the rules apply to
commercial transactions between Commonwealth agencies when
those transactions are undertaken in (actual or potential) competition with private firms. This may require some Commonwealth entities to review their current business practices, but is not expected to involve any significant transitional arrangements.

Committee recommends that the general conduct rules of a

The Committee also recommends that the provision in the TPA
permitting certain activity of Commonwealth government businesses to be exempted by regulation be repealed.11 As this provision has not

been used for a number of years its repeal should not present any
transitional difficulties.
(b) State- and Territory- Owned Businesses

Current Exceptions

and Territory- owned businesses may be exempt from the TPA in three possible ways.
State-

Some State- and Territory-owned businesses may benefit from the shield of the Crown doctrine.12 The exact extent of this immunity is uncertain, and requires the legislation establishing the entity and the activities engaged in pursuant to that legislation to be analysed. Bodies found to benefit from the immunity include the Queensland Commissioner of Railways,13 the Government Insurance Office of New South Wales,14 the Northern Territory Loans Management
See chapter Five.
12

For the States see Bradken Consolidated Ltd v BHP(1979) 145 CLR 107. For the Territories see Burgisndy Royale Investments Pty Ltd v Westpac Banking Corporation (1988) 18 FCR 212. 13 See Bradken Consolidated Ltd v BHP(1979) 145 CLR 107, where the Queensland contmissioner of Railways was alleged to have offended ss.45 and 47 of the Act. 14 See State Government Insurance Corporation v Government Insurance C)ffice of NSW (1991) ATPR ¶41-110.

126

6— Scope of Application: Review by Sectors & Activity

Council15 and the Metropolitan Water, Sewerage and Drainage

Board.16 However, other bodies have been found not to come within the doctrine, for example, Royal Prince Alfred Hospital.'7

As the TPA is currently framed, State-owned businesses may also be

able to avoid the TPA if they are not trading or financial

corporations'8 and are not engaged in interstate or overseas trade or commerce. State banking has also been found to benefit from immunity under the Constitution,'9 and the same reasoning probably applies to State insurance.20 Territory-owned businesses are not
excluded from the TPA on constitutional grounds.2'

States and Territories may also specifically approve or authorise
particular conduct of their businesses (as well as conduct of any other

business) by statute or regulation,22 although the Commonwealth may over-ride such exemptions by regulation. As discussed in

Chapter Five, the extent to which State or Territory statutes or
regulations rely on this facility, as opposed to legislating to achieve particular anti-competitive outcomes in a way that does not involve

conduct prohibited by the TPA, is often difficult to uncover.
Moreover, some conduct that is expressly approved of in this way may not have involved a contravention even without such approval.23

15

16

Burgundy Royale Investments Pty Ltd v Westpac Banking Corporation (1988) 18 FCR 212. See F Sharkey & Co Ply Ltdv Fisher & On 11980133 ALR 173. E v Australian Red Cross Society (1991) ATPR ¶41-085.

The following state bodies have been held to be triding corporations within the meaning 18 of the Act: the Government Insurance Office of NSW (State Government Insurance Corporation v Government Insurance Office of NSW (1991) ATPR ¶41-110); Royal Prince Alfred Hospital (E V Australian Red Cross Society (1991) ATI'R ¶41-085) and the State Superannuation Board (State Superannuation Board v TPC (1982)60 FLR 165). The position of the Queensland Commissioner of Railways was not finally decided by the High court in Bradken (ibid). The Tasmanian Hydro-

Electric commission has also been found to be trading corporations for the purposes of
Commonwealth constitutional authority: see Cth v Tasmania (1983) 158 CLR 1. See Bourke v State Bank of NSW (1990) 64 ALJR 406 and Constitution, s.51(xiii). 19 See Constitution, s.51(xiv) and McLachlan J, "The Application of the Trade Practices Act 20 1974 (Cth) to State Government Instrumentalities" (1990) 64 AU 710-714 at 714.
21

The Commonwealth's authority over the Territories is established by s.122 of the

Constitution, and is reflected in the extended reach of the Act provided for in s.6 of the Ad. 22 See s.51(1)(b)&(c) of the Act. Examples of the application of this provision to State. owned business include s.86 of the State Owned Enterprises Act 7992 (Vic) and the Victorian Arts
Centre (Amendment) Act 1988 (Vic).
23
-

Eg, arrangements specifically approved by the Victorian Arts Centre (Amendment) Act 1988 (Vic) were found not to have involved a contravention of the Act even without such approval in Paul Dainty v National Tennis Centre Trust (1990) ATPR ¶41-029.

127

— Scope of Application: Review by Sectors & ActMty

Submissions
The

current exemptions of State and Territory-owned businesses from market conduct rules were raised as a mailer of concern by the large majority of submissions received by the Inquiry. Application of competitive conduct rules to government businesses was supported by consumer, business and industry groups, individual businesses and a

host of other submitters.24

The New South Wales Government supported application of
competitive conduct rules to government-owned businesses when they operated in competitive markets.25 The Australian Capital Territory and South Australian Governments expressed concern over the potential impact of conduct rules on revenue objectives and community service obligations.26 The Queensland Government argued that legislative extension of the conduct rules to cover State owned enterprises was unnecessary, at least in Queensland, because it already expressly provided for the application of the Act on a case
by case basis.27 Application of conduct rules was not opposed by some government businesses28 or their representatives29 but was resisted by

others.3°

Some submissions, including those from groups

representing government-owned businesses, emphasised the need to
remove uncertainties over the application of the TPA.31

victorian Law Reform commission (sub 2); Dr R Albon (Sub 8); Di W Pengilley 11); Mr A I Tonking (Sub 16); Prof R But (Sub 18); Esso Aust (sub 21); Aust Institute of Petroleum (Sub 22); AGL (Sub 24); Caltex Aust (Sub 27); Unilever Aust (Sub 28); Shell Co of Aust Ltd (Sub 30); Carlton & United Breweries (Sub 34); Spark & Cannon Pty Ltd (Sub 36); Mist Mining Industry Council (Sub 39); Aust Information Industry Assn (Sub 40); Aust Earthmovers &
24

(Sub

Road Contractors Federation (Sub 49); DPIE (Sub 50); MTIA (Sub 59); Mr P Argy (Sub 60); Trade

Practices Committee of the LCA (Sub 65); TPC (Sub 69); National Bulk Commodities Group
(Sub 71); Mr M Corrigan (Sub 72); Aust Chamber of Manufactures (Sub 73); Aust Road Transport

Federation (Sub 74); Treasury (Sub 76); Pioneer International Ltd (Sub 81); AMP Society
(Sub 82); NFF (Sub 90); BCA (Sub 93); Small Business Coalition (Sub 1(X)); Aust Consumers' Assn (Sub 131). NSW Govt (Sub 117). 26 SA Govt (Sub 98); ACT Govt (Sub 109). 27 QId Govt (Sub 104). Eg, Gas and Fuel Corporation of victoria (Sub 7). 28
29

Eg, ESAA (Sub 89).

30
31

Eg, Fremantle Port Authority (Sub 55).
ESAA (Sub 89); ACT Govt (Sub 109).

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6— Scope of Application: Review by Sectors & Activity

Consideration
Government-owned businesses constitute 10% of Australia's GDP.32

Rail, electricity, gas and water utilities alone account for nearly 5% of GDP.33 By any measure, they are a significant part of the economy.

As the reach of the present exceptions rests in large part on doctrines or principles of imprecise scope, it is difficult to judge what proportion

of State- or Territory-owned businesses are already subject to the
TPA. Certainly, as government businesses become more commercial in their operation they are less likely to be able to rely on the shield of the Crown, and corporatisation and related initiatives will see more

of these businesses falling within the TPA as trading or financial
corporations.
Historically, government-owned businesses have lagged behind their private sector counterparts in terms of efficiency. In the case of rail,

electricity, water and gas utilities, for example, the Industry
Commission has identified opportunities for increasing GDP by
over 2%, or $8 billion per

Inefficiencies of this kind can be attributed in part to regulatory arrangements or government policy decisions that shelter these
businesses from competition. Application of the conduct rules will not

serve to over-ride these arrangements: nothing in the competitive
conduct rules will over-ride regulatory restrictions on competition or oblige governments to permit competition where there is currently
none.35

Nevertheless, application of the rules would prevent the

protected enterprises from expanding the boundaries of their
mandated monopolies or restrictive regimes through private anticompetitive arrangements or the misuse of their market power. Such
conduct is not unknown in the government-business
32

See Clare R & Johnston K, Pro/liability & Productivity of Government Business
See Industry Commission: Rail Transport (1991): Energy Generation and Distribution
Resources

Enterprises, (1992). (1991); Water
34
35

and Waste Water Disposal (1992).

The removal of regulatory restrictions on competition is discussed further in Chapter Nine. The current exemptions and imn-iunities generally mean that particular allegations of anticompetitive conduct by government-owned businesses are never pmven in a court. However, such allegations have included anti-competitive agreements and exclusive dealing by the Queensland Commissioner of Railways (eg, Bradken Consolidated Ltd v 8HPC1979) 145 CLR 107) and pricefixing agreements between a City Council and a competitor in the crematorium business (see NSW
36

129

6— Scope of Application: Review by Sectors & Activity

As regulatory restrictions on competition are dismantled or relaxed,

the application of competitive conduct rules becomes increasingly important. The non-competitive habits developed through decades of

operation in a tightly regulated environment run the risk of being perpetuated though private arrangements. For example, many of the benefits of introducing competition into the electricity sector
would be lost if ostensibly competing generators were able to engage

in price-fixing or other collusive behaviour, or if a governmentowned transmission grid were able to engage in anti-competitive
conduct to limit competition in downstream markets.

More generally, government-owned businesses are increasingly competing directly with private firms in a range of activities. It is important on both efficiency and equity grounds that businesses

competing in the same market face the same rules governing competitive conduct. This holds true whether the government
business in question is a trading or financial corporation or is in some other form.

As the Swanson Committee observed: "The same standards of commercial conduct are clearly as appropriate for officers of the
government as for persons in a less protected position".37

Similar sentiments were reflected by the High Court when it observed that:
the historical considerations which give rise to a presumption that

the legislature would not have intended that a statute bind the
crown are largely inapplicable to conditions in this country where the activities of the executive government reach into almost all aspects of commercial, industrial and developmental endeavour and where it is common place for governmental, commercial, industrial and developmental instrumentalities and their servants and agents to compete and have commercial dealings on the same basis as
private enterprise.38

Regulatory Review Unit, Application of the
Wales State Government Instrumentalities (1988) at 2).

Trade Practices Act to New South

Trade Practices Act Review committee (Swanson Committee). Report to the Minister
and consumer Affairs (ACPS, Canberra, 1976) at 87.
38

Bropho v State of Western Australia (1990) 171 CLR I at 19.

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6— Scope of Application: Review by Sectors & Activity
The NSW Regulation Review Unit cited a number of expected benefits

from applying the TPA to State government instrumentalities,
including:
•

fostering a greater respect for Government by the business
community by forcing the State Government instrumentalities, in engaging in trade or commerce, to do so in accordance with the same ruies and regulations that apply to private companies; and

•

imposing a greater discipline upon each State Government
particular, ensuring that those decisions do not substantially
lessen competition or, if they do so, that the result is justifiable.39

instrumentality in making commercial decisions and, in

As noted in Chapter Five, the most important bases for exempting State- or Territory-owned business from the conduct rules — the shield of the Crown doctrine and constitutional limitations — do not
reflect any conscious judgment as to special claims or circumstance of those businesses. They specifically offend each of the principles already agreed by Heads of Government.

Removal of exemptions in this area would be consistent with the principles agreed between the Australian governments and the approaches adopted in other federal jurisdictions, including the United States4° and Canada,41 as well as in the European
Community!'2
•

Recommendations and Impact

In Chapter Five the Committee recommended that the shield of the Crown exception be removed from State and Territory businesses in

so far as they engage in business, including intra-governmental commercial transactions, in competition (actual or potential) with
NSW Regulation Review Unit, Application of the Commonwealth Trade Practices Act to New South Wales State Government Instrumentalities (1988) at 12-13.
39

40

The only exemption the US appears to extend to sub-national levels of government is a see Local Government Antitrust Act 1984 (FL 98-544).

limitation on the liability of local governments for treble damages:
41

Section 2.1 of canada's Competition Ad applies the Act to Federal and Provincial crown Corpontions in respect of commercial activities engaged in in competition, whether actual or potential, with other persons. Article 92 of the Treaty of Rome applies the Treaty's competition policy provisions to public undertakings of the Member States with minor qualifications not relevant to the
application of the conduct rules like those proposed by the Committee.

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6— Scope of Application: Review by Sectors & Activity

private businesses; that limitations based on constitutional considerations that protect unincorporated government businesses be

removed; and that the provision permitting State and Territory
Governments to specifically authorise or approve particular conduct be repealed.
Some governments expressed concern that application of competitive

conduct rules would affect their businesses' capacities to raise
revenue. However, nothing in the proposed general conduct rules
affects the creation of statutory monopolies, the charging of excessive

prices or other pricing arrangements determined by regulatory (as opposed to collusive or other anti-competitive) processes. To this
extent, the profitability of such businesses would be unaffected.

It is possible that some government businesses n-tight seek to increase

their profits by entering into price-fixing arrangements with their
competitors or seeking to increase their market power by engaging in anti-competitive behaviour such as exclusive dealing with a supplier

or customer. This behaviour would be prohibited by the proposed

conduct rules, as would similar activity by any other business.
However, it is doubtful if any additional revenue obtained by such behaviour would be significant in a budgetary sense, and permitting
such behaviour to continue seems difficult to justify.

Some governments expressed concern at the potential impact of applying conduct rules on their businesses' capacity to deliver
community service obligations (CSOs) or achieve other governmental objectives.43 However, nothing in the proposed general conduct rules affects the capacity of governments or their businesses to pursue non-

commercial objectives providing they do so without acting anticompetitively. For example, the proposed conduct rules do not
require a government business to place orders with the most efficient supplier or to charge all customers a uniform price. Nor do the rules

affect budgetary assistance provided to particular groups or to
arrangements that are required by State or Territory law.

The impact of applying the rules to State and Territory government businesses would be to require them to observe the same standards of competitive conduct as any other business. For example, they could not collude with competitors or engage in anti-competitive exclusive
SA Govt (Sub 98); ACT Govt (sub 109).

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6— Scope of Application: Review by Sectors & Activity

dealing unless that conduct were demonstrated to be in the public interest before an independent Commission. Nor would they be
permitted to misuse their market power for a proscribed purpose.

The Committee does not envisage that these changes would require substantial transitional arrangements, and considers that a two year period of adjustment would be ample. Transitional arrangements are discussed in more detail in Chapter 15.
2.

Professions

Current Exception

Contrary to some suggestions, there is currently no exemption from

the Act for the professions per

indeed, "work of a professional

nature" is specifically included in the definition of servicesM

However, as some professionals practice in partnerships or in other non-corporate forms they are excluded from the Act on constitutional grounds unless they are engaged in trade or commerce across State or national borders or within a Territory. Historically, professions were not regarded as being part of trade and commerce,45 although this
argument seems less likely to be accepted today.46

In some States and Territories, certain conduct by some professions is

exempted by being specifically approved or authorised by
legislation.47 However, this practice vari?s widely between States and Territories and between professions.

See s.4, TPA. For example, see R v Small Claims Tribunal; Lx Park Gibson (1973) Qd.R 490 at 491 and see McGrath T C, "Apocalypse Now: Lawyers and the Trade Practices Commission", Queensland Law Society Journal, (Feb 1992) 35-47 at 37.
44 45 46

A number of cases have held that certain professional services were offered in trade and

commerce for the purposes of Part V of the Act (eg, Bond v Thiess (1987) 14 FCR 215; Argy v Blunt (1990) ATPR 9140-015; and Wan v McDonald (1992) ATPR 9146-088). In 1-lelco v O'Haire (1991) 28

FCR 234) the Federal Court held that no professional activity should be excluded a priori from the likelihood of being conduct in trade or commerce. The distinction has been rejected by the United States Supreme Court in Goldfarb v Virginia State Bar 421 US 773 (1975). "i Eg. the Legal Profession Practice Act 1958 (Vic) enables members of the Law Institute of Victoria to reach agreement about restrictions on behaviour and, through the Law Institute Council, have such rules approved by the Chief Justice.

133

6— Scope of Application: Review by Sectors & Activity Submissions The

overwhelming, majority of submissions dealing with the

professions supported removal of existing exemptions. Proponents of

this view included the consumer, business and industry groups,
individual businesses, and a host of other submitters.48

State and Territory governments either supported application of competitive conduct rules49 or did not express opposition to this
result.50

Some professional associations supported application of competitive conduct rules.51 The Australian Council of Professions did not oppose application of the Act but argued that such application should not constrain professional associations from continuing to set and enforce

entry requirements and practice standards, other than relating to
fees.52 The Australian Medical Association argued that were the Act

to be applied to the, medical profession there was a need for
consultation over transitional arrangements.53 The Victorian Bar
Council argued that, as it did not engage in anti-competitive conduct, application of the Act was unnecessary.54
Consideration
There is no legal or universaily agreed definition of the professions,55

and statistics covering the field are generally poor. However, data
Eg, Law Reform Commission of Victoria (Sub 2); Dr W Pengiiley (Sub II); Prof R Baxt Caltex Aust (Sub 27); Unilever Mist Ltd (Sub 28); Shell Aust Ltd (Sub 30); Carlton & United Breweries (Sub 34); AMIC (Sub 39); Mist Earthmovers and Road Contractors Federation (Sub 49); DEfl' (Sub 57); MTIA (Sub 59); Mr P Argy (Sub 60); Trade Practices Committee of the
(Sub 18);

LCA (Sub 65); TPC (Sub 69); Aust Chamber of Manufactures (Sub 73); Treasury (Sub 76); Pioneer

Ltd (Sub 81); DHHCS (in relation to the health professions) (Sub 84); BCA (Sub 93); Small
Business Coalition (Sub 1(Y)); Aust Consumers' Association (Sub 131). P41 Govt (Sub 91); ACT Govt (Sub 109).

The P45W Govt agreed with the principle of universal coverage (Sub 117); SA Govt noted the need to have regard to the role of professional bodies in meeting public interests (Sub 98); and the QId Govt noted the impact of mutual recognition and increased incentives for incorporation on professions, and suggested that the removal of exemptions for architects and engineers might be considered by the review (Sub 104). Eg, the Law Institute of Victoria (Sub 13); National Institute of Accountants (Sub 88). 51 52 Australian Council of Professions (Sub 12). Aust Medical Assn (Sub 20). 53 Victorian Bar Council (Sub 33). 54 Australia Issun For Review (Discussion See TPC, Regulation of ProJ*sional Markets Paper, 1990). Note that the membership of the Australian Council of Professions comprises

Sc)

134

6— Scope of Application: Review by Sectors & Activity

for 1987-88 suggests that five occupational groups alone — lawyers,

accountants, engineers, architects and real estate agents — accounted

for nearly 2% of

The professions clearly comprise an

important sector of the economy, and their services are a significant cost to marty businesses which compete internationally.57 Whatever significance is attributed to the professions generally, it is important to emphasise that their partial exclusion from the Act is primarily due to a constitutional limitation which is unrelated to the status of professions. The scope of the exception depends largely on the legal form of the business, which varies widely across professions. Thus, for example, at the end of 1988 some 50% pf engineering firms and 22% of accounting firms were incorporated, compared with less than 2% of legal practices.58 Similarly, the constitutional limitation effectively discriminates between professions operating in States and in Territories, and between those firms that operate within a single State and those which operate nationally, as is increasingly the case with lawyers, accountants and engineering businesses. The overall resuJt is patchy and difficult to justify on public policy grounds. As discussed in Chapter Five, limitations of this kind offend each of the principles already agreed by Heads of Government.
Restrictive practices in the legal profession have also been a matter of

increasing concern to the community, as evidenced by the level of
recent scrutiny at State, Territory and Federal levels.59 Many of these issues could be addressed in a uniform national way by removing any gaps or uncertainty in the application of competitive conduct rules.

The recent agreement between governments on the mutual
recognition of occupational regulation should overcome much of the

fragmentation of professional regulation across States and
architects, engineers, dentists, veterinarians, chemists, lawyers, accountants, surveyors,

pharmacists, actuaries, quantity surveyors and physiotherapists. Based on ABS turnover figures, cited in Trade Practices Commission, Regulation of 56 Professional Markets in Australia: Issues for Review (1990). For example, businesses are the largest consumers of legal services, accounting for 70% of banisters' services and 61% of solicitors' services in 1987-88: see TPC, Legal Profession: Issues
Paper, (1992) at 11. See TPC, Regulation 4 Professional Markets in Australia : Issues For Review (1990) at 39. 58 See, eg, Victorian Law Reform Commission, Restrictions on Legal Practice (1992); Senate

standing Committee on Constitutional & Legal Affairs, Cost of Justice Inquiry (Various reports, 1992-93); NSW Attorney-General's Department, The Structure and Regulation of the Legal Profession (Issues Paper - Nov. 1992); TPC, Legal Profession (Issues Paper- July 1992) and The Legal Profession, Conveyancing & the Trade Practices Commission (Draft report - Nov 1992).

135

6— Scope of Application: Review by Sectors & Activity

Territories. Application of uniform competitive conduct rules would

be consistent with this approach, and need not offend the goal of
professional self-regulation.

Removing the special treatment enjoyed by some professions would also be consistent with the approach in several overseas jurisdictions,
including the US,W New Zealand61 and the EC.62

Recommendations and Impact
The Committee has recommended that the competitive conduct rules

be extended to indude all non-incorporated businesses and that the

provision permitting State and Territory laws to specifically
authorise or approve conduct be repealed.63

The impact of the Committee's recommendations on the professions

would depend on the nature of the restrictions on competition in
question.

Where anti-competitive restrictions on professional practice are imposed by Commonwealth, State or Territory law — such as
through a licensing regime of some kind — compliance with that law would not involve conduct in breach of the proposed market conduct rules. Arrangements of this kind, including statutory monopolies for some professions, would not be affected.

Where restrictions on professional practice are imposed through the rules of professional associations, rather than law, rules that had the purpose or effect of substantially lessening competition would be prohibited unless authorised by the Commission on the showing of a net public benefit.M Arrangements involving architects,65 doctors and solicitors66 and pharmacists,67 have already been authorised by the
TPC.
See Goldfarb v. Virginia State Bar 421 US 773 (1975). Commerce Act (NZ). Note that a special provision for professional fee scales was removed from the Act in 1986: see Van Roy '1, Guidebook To New Zealand Competition Laws (1991). 62 Articles 85 & 86 of the Treaty Rome (EC) apply to "undertakingC, which is interpreted widely to include any commercial activity.
60
61

64
65

66
67

See Chapter Five. See a45 of the WA and the discussion of horizontal agreements in Chapter Three. Royal Australian Institute of Architects, Code of Conduct (Auth App No.A58)(1984). Law Society (ACF) & Australian Medical Association (ACT), Agreement on Charges

(Auth App No.A90406)(1985). Pharmacy Guild of Australia (Qid) 'Pharma Care' Group (Auth App No.A256.3)(1983).

136

6— Scope of Application: Review by Sectors & Activity

A third category of restrictions is those that are imposedby the rules

of professional associations, and the making of those rules or arrangements has been specifically approved or authorised by
Commonwealth, State or Territory law. The Committee proposes that legislative exemption at the sub-national level be no longer possible. Professional rules that offend the conduct rules would have

to modified, authorised by the Commission or exempted by the
Commonwealth Parliament.
Application of the competitive conduct rules would not undermine the self-regulation of the professions. In conformity with relevant State or Territory law, professional bodies can continue to determine and enforce ethical and other standards for their respective professions. However, self-regulation could not be used to restrict competition in a way that was not justified in the public interest.

The Committee's examination of transitional issues is contained in Chapter 15. That Chapter recommends that legislation removing constitutional exemptions be passed as soon as possible, but not come into force until two years later. Exemptions currently provided by specific State or Territory statutes or regulations would be deemed to lapse three years after the new competition legislation is passed.
3.

Other Unincorporated Businesses

Current Exception•
There is no specific exception in the Act for unincorporated businesses.

However, the constitutional limitations on the reach of the Act have this effect unless the business in question is engaged in interstate or overseas trade or commerce, operates in a Territory, or supplies the Commonwealth.
Submissions
No submissions supported this exemption. A number of submissions,

including that of the Small Business Coalition,68 specifically

Small Business Coalition (Sub 1w).

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6— Scope of Application: Review by Sectors & Activity

mentioned unincorporated businesses when arguing for extended application of the Act.69

Consideration
As

offends each of the principles already agreed by Heads of Governments. In the case of unincorporated businesses, this
limitation is particularly arbitrary, arid permits businesses to evade

noted in Chapter Five, exemption on constitutional grounds

regulation through the expedient of non-incorporation. The operation of the limitation may distort competition between corporate and non-corporate businesses, and between
unincorporated firms situated in States and Territories.

It is sometimes assumed that unincorporated businesses are "small businesses", and worthy of special consideration on this basis. This is not necessarily the case, as partnerships may comprise up to 400

members7° and a proprietary company can have as few as two
members.71 Rather, the choice of legal form as between companies, partnerships, sole proprietorships or the like will be influenced by a range of considerations induding tax treatment and the desire to limit liability and financing requirements: In any event, this Committee, like previous Committees in 1976 and 1979,fl considers that there is no reason for creating a general exemption for small business, however defined.
Application of competitive conduct rules to businesses irrespective of

their legal form would be consistent with comparable overseas
countries.

69

Eg, Dr W Pengilley (Sub 11); Unilever Aust Ltd (Sub 28); Aust Earthmovers & Road
Govt (Sub 109); Aust
Assn (Sal, 131).

Contractors Federation (sub 49); Mr P Argy (Sub 60); NT Govt (Sub 91);
70

See Application Order No I of 1990 under the Corporations Law (Cth), specifying that partnerships for lawyers and accountants can be of up to 400 members before being required to incorporate. See s.114 of the Corporations Law (cth). 71
72

See Trade Practices Act Review Committee, Report to the Minister for Business and

Consumer Affairs (1976) at 88-91 and Trade Practices Consultative Committee, Small Business and the Trade Practices Act (1979) at 36.

138

6— Scope of Application: Review by Sectors & Activity

Recommendations and Impact
The Committee has recommended that the competitive conduct rules

be extended to include all unincorporated businessesP Although no substantial transitional difficulties are anticipated, any concerns could be met by appropriate transitional arrangements. In Chapter 15 it is

proposed that unincorporated businesses be afforded a two year
transitional period to modify their conduct or seek authorisation.

4.

Agricultural Marketing

Current Exception
There is provision in the TPA for regulations to be made exempting

conduct engaged in by specified primary commodity marketing
organisations.74 While this provision was used quite extensively until recently,75 all such regulations have now expired.

Some agricultural producers may not operate in corporate form or engage in interstate or overseas trade or commerce, and may escape the reach of the Act on this basis.76 It is possible that some statutory
marketing authorities may be excluded from the. TPA under the shield of the Crown doctrine.

Some agricultural marketing arrangements that involve voluntary conduct that would otherwise offend the Act may be specifically

authorised or approved by Commonwealth, State or Territory
legislation.7? These arrangements must be contrasted with those, where conduct is required by law, however, which would not involve contraventions of the TPA.

See chapter Five.
See s.172(2)(a). Regulations had been made covering products including mushrooms, oysters, citrus, dried fruit, bananas, apples, cherries, raw cotton, vegetables, macadamia nuts. See Trade Practices (Primary Products Exemptions) Regulalions.
76

A 1979 review of the application of the TPA to primary production noted that a

"significant number" of primary producers were excluded from the Act on this basis: Trade
Practices Consultative Committee, Report to the Minister for Business & Consumer Affairs on the Operation of the Trade Practices Act in Relation to Primary Production in Australia (1979) at 16. Eg, Marketing of Primary Production Act 7983 (NSW) s.164.

139

6— Scope of Application: Review by Sectors & Activity
Submissions

Although a number of submissions raised concerns about competition in the agricultural marketing sector, many of these did not distinguish between mandated arrangements — which are not affected by

application of general conduct rules — and voluntary arrangements
— where

fuller application of conduct rules might have more

significant results.

The National Farmers' Federation agreed on the need for reform to agricultural marketing arrangements, particularly at the State level, and supported application of the TPA.78 Producer groups generally

supported existing arrangements for milk79 while there was
difference of opinion on the detail of appropriate arrangements for
sugar.8°

Industry groups81 and Federal agencies82 supported universal application of the TPA and emphasised the benefits of reform of
statutory marketing arrangements.

The Northern Territory Government supported application of the TPA to statutory marketing arrangements.83 The New South Wales

Government argued that, in line with the broad principle that
nationally uniform ruies of market conduct should apply equally to all

sectors, the establishment of statutory marketing authorities be preceded by a public benefit assessment through an authorisation
process.

Consideration

Agricultural marketing in Australia has long been dominated by statutory schemes of various forms, with rationales including price

support to growers, price stabilisation, and the provision of

countervailing market power to producers. Schemes vary between products and jurisdictions, but can include anti-competitive practices

78 79

NP? (Sub 90).

Eg. Aust Dairy Farmers' Federation (Sub 10); United Dairyfarmers of Vic (Sub 52); Aust Dairy Industry Council (Sub 53); Eg, Canegmwers (Sub 67); QId Sugar Corp (Sub 51); Mackay Sugar Co-op Assn Ltd (Sub 70). 80 Eg, Food Industry Council of Aust (Sub 79); MTIA (Sub 59); BCA (Sub 93). 81 Eg, DPIE (Sub 50); ABARE (Sub 95); prrARr) (Sub 101); Treasury (Sub 76). 82 NT Govt (Sub 91). 83

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6— Scope of Application: Review by Sectors & Activity

ranging from production controls and compulsory acquisition of

product to price fixing and monopoly marketing arrangements.
Arrangements of this kind are often grossly inefficient, and effectively

tax users and consumers. According to the Industry Commission, such arrangements effectively taxed users and consumers by $550
million in
million per annumft5

Benefits to these groups from reform of the milk,

sugar and egg industries alone are estimated to total some $346
The chief executive of one of Australia's major food processors has

remarked that only about 20% of Australia's growers were as competitive as their off-shore counterparts, with the remainder falling behind in large part due to the operation of statutOry
marketing arrangements.86 As he observed:
SMAS seek price and income stability for all growers and in pursuing such objectives increase the price to allow less efficient operators to continue production. The cost to Australia, unfortunately, is the loss of world competitiveness, higher domestic prices and less consumer
choice.

As well as the impact on consumer prices, price and quality effects of these arrangements flow on to Australia's food processing industry,

and can impede the development of internationally-competitive
value-added industries in Australia.87 In recent years, there has been an increasing appreciation of the costs of such arrangements to the economy, and Australian governments have undertaken important
reforms.88

84
85
86

IC, Statutory Marketing Arrangements for Primary Products (1991).

mid. Brass F, "Driving with a Destination: The Need for a National vision", Business Council

Bulletin, (May 1993) at 78. 87 See Minister for Industry, Technology & Commerce and Minister for Primary Industries & Energy, Australian Agri-Food Industries, (Joint Statement, July 1992)

For example, NSW has deregulated its egg industry and reformed its agricultural
marketing arrangements more generally; Queensland has undertaken reforms in the dairy; bread, meat, and peanut industries; victoria has commenced reform in the daizy and egg industries; Western Australia has undertaken a range of agricultural reforms, as have South Australia and Tasmania. The commonwealth has undertaken a range of reforms, including in wheat and wool.

141

6— Scope of Appilcatiori: Review by Sectors & Activity
The effect of the current exemptions from competitive conduct rules

depends on whether the marketing scheme operates by government mandate or through voluntary arrangements between growers.
Where the scheme operates by government mandate — such as where a law provides for compulsory acquisition, vests monopoly marketing powers in a single body, or stipulates the prices at which goods are to be sold — application of competitive conduct rules will not of itself

upset these arrangements, for they achieve their anti-competitive
effect without requiring conduct of the kind prohibited by the conduct rules. Nevertheless, application of conduct rules to marketing

authorities will prevent them from engaging in anti-competitive conduct not required by their legislation, such as by misusing their
often considerable market power.

As mandatory schemes are deregulated it is likely that the number of voluntary arrangements will increase. Application of competitive

conduct rules is particularly important in these circumstances to ensure that the anti-competitive habits which may have developed under a mandatory regime are not perpetuated through private arrangements. Application of such rules may also assist in deregulating these sectors, allowing anti-competitive arrangements
that are in the public interest to continue, while phasing out those that are not.

Exemptions that rest on constitutional limitations or shield of the Crown offend each of the principles agreed between governments.

Exemptions that rely on private behaviour being specifically authorised or approved by State or Territory law fragment the
operation of national markets. As exemptions in this area often exist

under regulations, rather than statutes, and are scattered across scores of legislation in most jurisdictions, there is typically little
scrutiny over the continuing public interest rationale for continuing preferential treatment.
Benefits of reform include lower prices for consumers and improved prospects for developing internationally-competitive domestic food processing industries.

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6— Scope of Application: Review by Sectors & Activity

Recommendations and Impact
The

Committee recommends repeal of the special provision

permitting agricultural marketing arrangements to be authorised by regulation made under the TPA. As this provision has not been used in recent years, no special transitional considerations are required.

The Committee also recommends removal of the constitutional
limitation and shield of the Crown exemptions. The Committee does

not anticipate any special transitional issues for the agricultural
sector from these reforms. It proposes removal of these exemptions forthwith, but not commencing the relevant parts of the legislation for a period of two years, during which time existing arrangements can be modified or authorised by the Commission.

The Committee also recommends repeal of the provision permitting conduct to be specifically approved or authorised by State or Territory law or regulation. In line with laws relating to other sectors, the

Committee proposes that three years be permitted before current
exemptions under State and Territory laws are deemed to lapse. This

should provide ample opportunity to review existing statutory
arrangements in this area.

As with other sectors of the economy, conduct in the agricultural sector can be áuthorised by the Commission on the showing of a net public benefit, and authorisations have been made for arrangements
dealing with products including oysters,89 macadamia nuts,90 apples and pears,91 milk92 and wine grapes.93 The arrangement authorised for wine grapes is explicitly structured in both form and duration to

allow transition from a regulated to a deregulated market: The Committee envisages that authorisations would continue to be granted by the proposed Australian Competition Commission as
appropriate.

In this regard it should be noted that the TPA generally does not permit authorisation of price-fixing agreements. The Committee proposes a further tightening of the rules in this area, including by
89
90

91

92 93

Council LEd (1991) ATPR ¶50.1%. See Re Tasmanian Oyster Re Macadamia Processing Co and Suncoast Gold Pty Ltd (1991) ATPR ¶50.109. Re Ardnwna Fruit Products Co-op Ltd (1987) ATPR (corn) ¶504)65. Re Southern Farmers Co-operative Ltd (1986) ATPR (Corn) ¶50.102.
See TPC (Sub 69).

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6— Scope of Application: Review by Sectors & Activity

removing the current exemption from the per se prohibition for

recommended price agreements involving 50 or more persons. These arrangements will continue to be able to be authorised, however.94 As a special measure to facilitate transition to the new regime, the

Committee also recommends in Chapter 15 that price fixing

arrangements of currently exempt firms be capable of authorisation by the Commission, on the demonstration of net public benefits, with any such authorisations lapsing no more than four years after the passage of the new competition law.

Given the export orientation of much of Australia's agricultural
sector, it should also be noted that the Committee proposes to retain
the special exception in the TPA for certain export contracts.95

Finally, the Committee notes that, notwithstanding some encouraging progress, there appears to be a substantial agenda of

important potential reforms in relation to the many regulatory restrictions operating in the agricultural marketing area. As application of competitive conduct rules is not itself sufficient to
athieve reform in this area, the Committee proposes in Chapter Nine

a new mechanism aimed at removing regulatory restrictions on
competition that cannot be justified in the public interest.

5.

Overseas Shipping

Current Exception

Outward cargo (liner) shipping services operated by cartels (known

as conferences) are regulated in Part X of the Ad. Liner shipping
services operate over specific routes and on regular schedules.

Practices of outwards conference operators that are currently exempt

from the general conduct rules are the fixing of freight rates; the pooling or apportionment of business; the imposition of cargo
restrictions; decisions on conference membership; loyalty agreements with shippers; and practices essential to the conference service and of overall benefit to exporters.96 Shipping lines are exempt only if they lodge their conference agreements on a public register and negotiate

freight rates and service arrangements whenever requested by a
95 See

Three. s.51(2)(g), discussed below.

96

SeeDivision5ofPartX.

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6— Scope of Appication: Review by Sectors & Activity
designated peak shipper body (currently the Australian Peak Shippers'

Association).97 However, the contents of registered agreements may be made confidential at the request of conference members if certain

conditions are met, including no disadvantage to Australian
exporters.98

Practices of inwards conference operators are provided with automatic immunity from aspects of the general conduct rules
without the obligations imposed on outbound operators subject to Australian law. This difference reflects the difficulties in regulating

inwards operations differently from the approach taken by
originating countries.
Submissions

A number of submissions recommended that Part X be repealed, allowing anti-competitive conduct alleged to be in the public benefit to

be subject to administrative authorisation.99 The Department of Industry, Technology and Commerce also expressed concern that

shipping costs be established in competitive markets.100 No
submissions supported retention of the current exemption.
Consideration
Ocean

freight rates are the largest single cost component in

transporting imports and exports and rates are influenced by the restrictive agreements operated by shipping conferences. On
average, conferences transport 55% by volume and 60% by value of outbound and inbound liner cargo, with this share declining markedly over the last two years.'°1 The conference shipping sector, largely exempt from competition law, carries in excess of $25 billion in freight annually.
The stated objective of Part X has been to ensure Australian exporters and importers have access to internationally competitive liner cargo services of satisfactory frequency, reliability and port coverage. The

former Managing Director of ANL, Australia's only conference
98
11XJ

See ss.10.03 & 10.41; See ss.10.34 to 10.37 of the TPA. AMIC (sub 39); TPC (Sub 69); NFF (Sub 90); NT Govt (Sub 91); PSA (Sub 97). DITARI) (Sub 101).

101

ABS, Foreign Trade: Australian International cargo (Cat No 5440.0).

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6— Scope of Application: Review by Sectors & Activity

operator, recently noted that there was "an increasingly blurred

distinction in shippers' minds between conference and nonconference" operators.102 If this is the case, it seems increasingly

difficult to justify giving some operators special immunity from
competition law.

The Committee's attention was drawn to a number of undesirable
aspects of the current arrangements, including:
•

the industry-wide centralised approach promoted by Part X has encouraged average (pan Australian) freight rates and industrywide solutions rather than competitive resolution of freight rate issues (including inter-port competition) and greater regional specialisation. Moreover, the pooling and averaging of revenues

and costs within conferences have reduced normal market
incentives for increased effidency;
•

conferences effectively set benchmark port service and other ancillary charges which are then uniformly charged throughout
the industry;

•

many of the industry's commercial problems result from the cartel structure which has encouraged the provision of excess capacity103 and inhibited desirable rationalisation of shipping services. Liner shipping is not a unique industry and other industries with similar characteristics do not receive similar
immunity from competition law;

•

price fixing is inherently anti-competitive with negligible, if any, offsetting public benefits and should no more be permitted in liner shipping than in other sectors. Ship operators would still be able to trade slots, and higher quality services wouid be available, for a premium, in a competitive market. Anti-competitive practices

which enhance the quality of services would be authorisable
under the general competition rules in any event, where there are net benefits; and

1U2

Bicknell .1. Speech to Australian Peak Shippers' Association Seminar (May 1992) at 15. I'SA, Inquiry into Land Based Charges in Australian Ports by Ocean Carriers and Confrrences, (1992) at 35.
103

146

6— Scope of Application: Review by Sectors & Activity
the provision of assistance to ANL, which is publicly owned and a

high cost operator, though the granting of special status for

conferences is inefficient and impairs the international competitiveness of our traded goods sector. It is unlikely that ANL's participation in conferences significantly enhances its value, and there is little evidence that "protection" of ANL is yielding benefits for the Commonwealth budget or national
economy.

The Committee considers that there is substantial evidence that the current Part X arrangements are a source of inefficiency and have

contributed to the difficulty exporters and importers have
gains in waterfront efficiency. On this basis, the case for special treatment of the anti-competitive behaviour in this sector should be
viewed with scepticism.

experienced in realising the benefits that should be flowing from the

increasing scrutiny of the. special arrangements covering
international shipping conferences,104 and any case for continuing special treatment of this industry is diminishing rapidly as greater efficiency is required of the domestic and international economy, and conferences lose market share to non-conference operators.

The Committee notes that this scepticism is evident internationally in

No compelling arguments for the retention of Part X were made to the Committee, and both the material presented to the Committee and the importance of this sector to the Australian economy suggest that the onus must rest with proponents of a continuing exemption to demonstrate that this would yield net public benefits. Overseas cargo shipping was first exempted from Australian competition law in the 1930s, primarily to protect services to a wide range of ports. This

reasoning is clearly not relevant to Australia's contemporary circumstances, and pan-Australian freight rates and lack of

transparency are inhibiting the development of inter-port
competition.

Part X was to have been reviewed in 1994, but this review has been brought forward following the recent Prices Surveillance Authority

Report.105 The Commonwealth Government has established a
104
105

Eg. Report cf the US Advisory Commission on Conferences in Ocean Shipping (1992).

PSA,supra,n 102.

147

6— Scope of Application: RSew by Sectors & Activity
separate 1993.

review of Part X, which is to be completed by November

Recommendations
In view of the decision to establish a separate review of Part X, this

Committee refrains from making comprehensive recommendations on this issue. However, submissions received by the Committee suggest that claims for continuing the current exemption will need to be assessed critically to ensure any restraints on competition are in the public interest. Moreover, consistent with the Committee's views on exemption from the conduct rules, any decision to continue special treatment should be reviewed regularly to ensure that the alleged

benefits of anti-competitive activity exceed the costs of such
behaviour, and that liner shipping policy objectives are being pursued in a way that is least injurious to competition.

It is not clear that the ability to fix prices is essential for conferences to provide the public benefits which are claimed to justify their existence.

Indeed, there are understood to be conferences operating in other
parts of the world which do not involve price fixing. Accordingly, any

proposal to continue price fixing arrangements should be viewed with great care. Removal of the special exemption for liner shipping conferences would raise the question of the scope for authorising price-related

arrangements under the general rules, and the means for
implementing any associated obligations on conference members considered appropriate. Although the. Committee has recommended that, after an appropriate transitional period, price fixing for services no longer be authorisable, it may be that conference arrangements could still qualify for authorisation under the exemption for joint ventures.106 Such authorisations could be conditional, or subject to
undertakings imposing obligations on conference participants to limit their anti-competitive conduct.

If authorisation were not available under the joint venture exemption

and some additional transitional period for conferences was
considered desirable, this could be accommodated by an appropriate
amendment to s.45A of the TPA limited to conferences.
W6
See a45A(2)(a), discussed in Chapter Three.

148

6— Scope of Application: Review by Sectors & Activity

6.

Intellectual Property

Current Exception
The

Act provides a specific and limited exemption for conditions

contained in licences or assignments of intellectual property rights.'07

The scope of the exception varies somewhat between forms of intellectual property. The most important requirement for each is
that the condition being imposed or enforced in such a licence must

"relate to" the subject matter of the intellectual property
maintenance.
Submissions

(ie,

invention, design). Moreover, the exemption does not extend to

prohibitions on the misuse of market power or resale price

Retention of the existing provision was supported by the Australian

Industrial Property Organisation, the Australian Information Industry Association and the Institute of Patent Attorneys of
Australia.108 The Commonwealth Department of Primary Industries and Energy supported the existing treatment of plant variety rights in
the Act.109

One submission'1° argued that the interface between intellectual property licensing and competition policy required reconsideration.
Although citing no practical problems with the current regime, it was

suggested that the current exemption should be replaced by a new
provision that is more certain in ambit and provides that any exercise of an intellectual property right that extends it in time, in scope or in strength would be subject to the WA, but not otherwise.

The TPC proposed that this exemption be repealed, with intellectual property licensing matters addressed in the authorisation process)'1

107 Section 51(3) sets out the exemptions from the Act provided for patents, trademarks, Act 1987. designs, topyright and circuit layouts. Note also s.51(lXa) and the Plant 108 Aust Information Industry Assn (Sub 40); Inst of Patent Attorneys of Aust (Sub 43);

AJPO (Sub 77). 109 DPIE (Sub 50).
110
111

MrSStern(Sub64). TPC(Sub69).

149

6— Scope of Application: Review by Sectors & Activity

Consideration

limited exemption is intended to allow the owner of certain intellectual property rights to assign or license those rights in ways that enhance the owner's control of the exercise of those rights. But
The

for a provision of this kind, some licensing or assignment restrictions might be prohibited by the WA unless authorised.

The true scope and hence significance of the provision remains uncertain because the important "relates to" requirement has not
been subject to any definitive judicial interpretation. However, it has

been suggested that exclusive grants, territorial, price and quota
restrictions and minimum royalty/quantity requirements sufficiently relate to the product licensed to fall within the exception. Full or third-line forcing and many "non-competition" clauses, on the other hand, arguably relate to matters collateral to the product itself and
would thus fall outside the exception.112

The difficulties of determining the proper balance between the

exercise of intellectual property rights and the promotion of
competition poses particular difficulties in this area. On the one
hand, licensing of intellectual property rights benefits the competitive process by encouraging rapid commercial application of innovations,

helping competitors to capture their rewards, and increases the
incentive to innovate. At the same time, licensing agreements can be

used to cartelise an industry or to increase the market power of a
single licensor.

Although no submissions pointed to practical problems with the current provisions, the Committee has concerns about a number of aspects of the regime. The Committee was not presented with any persuasive arguments as to why intellectual property rights should receive protection beyond that available under the authorisation process. In this regard it notes that in 1984 the Stonier Committee recommended that particular arrangements in relation to patent
licences and assignments be vetted on a case-by-case basis under the authorisation process.'13

112

see

Application of the Trade Practices Act to Intellectual Property (1991).

113

See Industrial Property Advisory Committee, Patents, Innovation & Competition in

Australia (1984).

150

6— Scope of Application: Review by Sectors & Activity

assuming that some special exemption is warranted, it is not apparent that the current exemption meets the relevant policy goal, particularly given the uncertainty over its scope. The current provisions also treat differently the various forms of intellectual property right. While each intellectual property regime no doubt reflects a different balance of relevant policy interests, it is not clear
Even

that different treatment as to the application of the competitive
conduct rules is warranted.
Recommendations and Impact
The

Committee saw force in arguments to reform the current arrangements, including the possible removal of the current

exemption and allowing all such matters to be scrutinised through the authorisation process.

Nevertheless, it was not in a position to make expert recommendations on the matter and recommends that the current exemption be examined by relevant officials, in consultation with
interested groups. The examination should assess whether the policy

reflected by the exemption is appropriate and, if so, whether it is expressed with sufficient precision and consistency regarding the
range of intellectual property rights affected or potentially affected.

7.

Labour

Current Exception
The TPA currently excludes from consideration any act done, or any

provision of, a contract, arrangement or understanding, to the extent that it relates to the remuneration, conditions of employment, hours

of work or working conditions of employment. The exception is available to employers and employees, and does not extend to the
secondary boycott or resale price maintenance provisions.114

Submissions

-

The Business Council of Australia115 proposed that the provision be

repealed and reliance placed instead on the authorisation provisions
Section &1(2)(a). Note that while this exception does not apply in relation to secondary
boycotts, s.45D(3) provides for similar considerations to operate as a defence.

BCA(Sub93).

151

6— Scope of Appilcation: Review by Sectors & Activity

of the TPA.

The Small Business Coalition suggested that the

provision be reviewed to ensure consistency with relevant industrial legislation.116 Two other submissions raised the general issue of
coverage of trade unions.117
The current exemption was supported by the Australian Council of

Trade Unions and State Public Services Federationi18 Consideration
But

for a provision of this kind, collective agreements between

employees (or employers) on employment related matters could be found to be agreements that substantially lessen competition in the labour market, and thus prohibited by the TPA unless authorised by the Commission. Where the agreement extended to remuneration,

the agreement could constitute a price-fixing agreement that is
prohibited per se by the Act and, if the Committee's recommendations were adopted, could not be authorised.

As well as agreements of this kind, the exception extends to any "act done" in relation to employment conditions and the like. It has been

held that the relationship between the act and the employment
conditions etc, must be direct and immediate.119

The special treatment of labour relations is a common feature of
competition law in most comparable countries, and exemptions of this kind appear to exist in the US,120 Canada,12' the United Kingdom122

and New Zealand.123 As has been said in relation to a comparable New Zealand provision:

116

117
118 119

Small Business Coalition (Sub 100). Mr WJ Rourke, AO (sub 4); Prof R Baxt (Sub 18). State Public Services Federation (Sub 108); ACFU (Sub 113).

See Ausfield Pty Ltd v Leyland Motor Corp of Australia Lid (1977) ATPR ¶40-025

at

17,350. 120 See s.6 of the Clayton Ad (US) and Connell Constructions Co v Plumbers & Steamfitters

Local 100, 421 US 616,635(1975). 121 See s.4 of the Competition Ad (Canada). 122 See s.9(6) of the Restrictive Trade Practices Ad (UK). 123 of the Commerce Act (NZ).

152

6— Scope of Appication: Review by Sectors & Activity

Although labour relations is part of economic policy, it is based on collective action and regulation rather than individual action and
competition. The social-issues arising under labour law differ markedly from those relating to the conduct of firms in other markets.124

While recent developments in Australian industrial relations may place a greater emphasis on individual action and responsibility, collective agreements between groups of employees appear likely to remain important. Except for such a provision many labour agreements could infringe the competitive conduct rules. Such an

outcome might infringe Australia's obligations under relevant International Labour Organisation Conventions which allow
employees' freedom to organise and form trade unions.125

Recommendation
The Committee proposes no change to the current provision.

8.

Approved Standards

Current Exception

The

TPA specifically exempts any provision of a contract,

arrangement or understanding obliging a person to comply with, or

apply, standards of dimension, design, quality or performance
prepared by-or approved by the Standards Association of Australia or by any prescribed association or body.'26 To date the only prescribed
body is the Australian Gas Association.127
Submissions
-

Standards Association of Australia supported the current exemption, and the Australian Gas Association proposed that it
The

continue to be an approved body for the purposes of the provision.128
124

Van Roy Y, Guidebook To New Zealand Competition Laws (1991) at 28.

The International Covenant on civil and Political Rights provides that "everyone shall have the right to freedom of association with others, including the zight to form and join trade unions for the protection of his (sic) interests". The International Covenant on Economic Social and Cultural Rights provides that parties to the Covenant will ensure "the right of everyone to form trade union and join the trade union of his (sic) choice" and "the right of trade unions to function freely".
125
-

126 127

128

Section 51(2)(c). See reg.8 of the Trade Practices Regulations. Australian Gas Assn (sub 17); Standards Assn of Aust (Sub 1(t).
-

153

6— Scope of Application: Review by Sectors & Activity

submissions expressed concerns about services providing for the certification of compliance with standards129 and about standards
Some

imposed by regulations,13° although neither are affected by the
current exemption.
Consideration
But for a provision of this kind, arrangements requiring compliance with some standards might possibly constitute a breach of s.45 of the TPA unless authorised. Even if a breath of the TPA were unlikely, it has been argued that an exemption encourages the use of standards by providing a useful assurance that litigation will not result from the imposition of suth requirements.13'

Comparable provisions exist in the UK132 and New Zealand.133

Standardising products and systems may substantially enhance efficiency, increase competition by making products more readily substitutable, facilitate development of service industries for

standardised goods and assist consumers and businesses in
evaluating products.134
important to business operations for these reasons.

Standards are becoming increasingly

However, there is a risk that standards may be used as a barrier to market entry, particuiarly where they are mandatory and supported by regulation. Examples could include a standard that advantaged

one product or producer over a rival on other than objectively
technologies or systems rather than performance outcomes.

reasonable, public interest grounds, or mandated particular
The Committee noted that this provision is broadly drafted, which is appropriate given the benefits of encouraging the use of appropriate

standards.
129 130

However, should any evidence come to light that

Aust Electrical & Electronic Manufacturers' Assn (Sub 118). DITARD (Sub 101). 131 Eg. Van Roy Y, Guidebook to New Zealand Competition Laws (1991) at 27. 132 See as.9(5) of the Restrictive Trade Practices Act (UK), which exempts arrangements requiring compliance with standards approved by either the British Standards Institution or the Secretary of State for Trade and Industry. 133 See s.44(1)(e) of the Commerce Act (NZ), which exempts standards approved by the
Standards Association of New Zealand or any other prescribed body.
134

Heydon J D, Trade Practica Law (1993)

at 2296.

154

6— Scope of Application: Review by Sectors & Activity
standards and the protection afforded by this provision are being used

to stifle innovation and competition, the provision should be reviewed. No such evidence was brought to the Committee's
attention during the Inquiry.

Standards and certification arrangements established by government

regulation raise more difficult issues but are not addressed by
application of competitive conduct rules. Means of addressing these issues are discussed in Chapter Nine.
Recommendation
The Committee supports retention of the current exemption.

9.

Export Contracts

Current Exception
The TPA specifically exempts provisions of contracts (not conduct)

that relate exclusively to the export of goods from Australia or to the

supply of services outside Australia, provided full particulars are registered with the TPC before 14 days from the making of the contract.135 The provision does not extend to contracts, arrangements or understandings for the export of goods by sea,
which are governed by Part X of the Act.136

There were no submissions commenting on this exception.

Consideration
A provision of this kind allows certain export contracts to be made

which, if they related to domestic commerce, would offend
competitive conduct rules. However, provisions of this kind may still be subject to scrutiny under the competition laws of other countries. It has been said that this exemption rests on the belief that Australian businesses operating on wOrld markets will be more competitive if

permitted to behave in anti-competitive ways which would be
135
136

Section 51(2Rg).

See Refrigerate4 Express Lines (A'Asia) Pty Ltd v Australian Meat and Livestock Corporation & Ors (1980) ATPR 40-156 and the discussion in Tonking A I & Alcock R J (eds) Australian Trade Practices Reporter at 8,631.

155

6— Scope of Application: Review by Sectors & Activity

prohibited in Australia.137 For example, a group of exporters may need to combine their efforts to take advantage of economies of scale

in exporting, or to improve their bargaining power when dealing in world markets.
The Committee notes this provision relates exclusively to exports so that any impact on competition in Australia is likely to be at most

indirect, that exempt agreements must be registered with the
competition authority, and that a provision of this kind is far from unique to Australia. For example, similar exemptions exist in New
Zealand,138 Canada139 the IJK,140 and the US.141

Recommendation

In the absence of persuasive argument for removing or modifying the

provision, the Committee supports continuation of the current
exemption.

10. Restrictive Covenants
Current Exceptions

Restrictive covenants are provisions included in agreements that

restrict the liberty of one party from engaging in a rival business.
They can be inserted in employment contacts, partnership agreements

or on the sale of goodwill in a business.

Historically, the

enforceability of such conditions has been governed by the restraint of

trade doctrine of the common law, where the reasonableness of the restraint is the primary consideration.
The WA specifically excludes three kinds of restrictive covenant from the Act so that their validity will continue to be determined according to the common law doctrine.142 These are:

137 138
139

Heydon J D, Trade Practices Law (1993) at 1667. See s.44(1)(h) of the Commerce Act (NZ).
See s.45(5)

of the Competition Act (Canada).
Also note s 1O(1Rf)) and

140

See Anti-Competitive Practices (Exclusion) Order 1980 (UK).

19(1)(f) Restrictive Trade Practices Ad (UK).
141

142

See the Webb-Pomerone Act, 15 USC 58. 61-65.0982). section 4M provides that the TPA does not affect the operation of, inter alia, the law

relating to the restraint of trade in so far as that law is capable of operating concurrently with the Act.
156

6— Scope of Application: Review by Sectors & Activity

provisions of a contract under which a person (not being a body

corporate) agrees to accept restrictions as to the work he or she may engage in during or after the termination of the contract
(Section 51(2)(bfl;
•

provisions of a contract, arrangement or understanding between

partners (none of whom being a body corporate) concerning
restrictions on competition between the partners during or after the termination of the partnership (Section 51(2)(d)); and
•

provisions of a contract solely for the protection of the purchaser

of the goodwill of a business. These will usually involve
restrictions on the vendor's ability to compete with his former
business. (Section 51(2)(e)).

There were no submissions commenting on this exception.

Consideration
Contractual provisions of the kinds referred to in these exceptions are

unlikely to substantially lessen competition in a market as distinct

from lessening competition between individual competitors or potential competitors. In any event, the courts will strike down
restrictions under the common law doctrine to the extent that they are
unreasonably wide. 143

aim of these exceptions is to avoid further regulation of such contractual provisions by the TPA, arid thus avoid introduction of a conflicting basis on which to regulate them.144 There are obvious benefits in having this area of law subject to the degree of certainty
The

and consistency provided by judicial precedents on such matters.

Similar provisions exist in New Zealand,145 and a provision akin to
s.51(2)(e) exists in the UK.146

143 144 145 146

lii NSW the common law on this subject is modified by the Restraints of Trade Act (NSW).

Tonking AT & Alcock RJ (eds), Australian Trade Practices Reporter at 8,611. see ss.44CIXa),(c) and (d) of the Commerce Act (NZ). See Restrictive Trade Practices (Sale and Purchase & Share Subscription AgreementsXcoods) Order 1989 SI 1989/1082 and Restrictive Trade Practices (Services) (Amen4ment) Order 1989 SI 1989/1082.

157

6— Scope of Application: Review by Sectors & Activity

Recommendation

In the absence of submissions arguing the contrary, the Committee supports retention of these provisions in their current form.

11. Consumer Boycotts
Current Exception
The Act specifically exempts consumer boycotts against the suppliers

of goods or services, providing they are carried out otherwise than in the course of trade and comnerce.147 The exemption dates from 1977 and does not extend to the resale price maintenance provisions of the TPA
There were no submissions commenting on this exception.

Consideration
But for this provision, consumers who combined to exert pressure on

a supplier could be liable under competitive conduct rules. It has been observed that, in contrast to some places overseas, consumer lobbying A similar groups have not been particularly active in provision exists in New Zealand.149

Recommendations
While the Committee questioned whether this exemption was a

significant one in practice, in the absence of submissions on the underlying policy rationales it was prepared to support retention of
the current provision.

12. Conduct or Arrangements Pursuant to International
Agreements
Current Exception

TPA allows regulations to be made that exclude from the Act contracts or conduct made or engaged in, in pursuance of or for the purposes of a specified agreement, arrangement or understanding
The
147
148 149

Section 51(2A). Tonking Al & Alcock RJ, Australian Trade Practica Reporter, (1990) at 14-315. See s.44(1)(h) of the Commerce Act (NZ).

158

6— Scope of Application: Review by Sectors & Activity

between

the Government of Australia and the Government of

another country.'5°
There were no submissions commenting on this exception. Consideration
No regulations have ever been made under this provision. rationale for a special provision of this kind remains obscure.

The

Recommendations and Impact

The Committee proposes repeal of this and other narrowly focussed

regulated exemptions under the TPA, preferring instead a more general regulation power that is limited in duration.'51 If the Commonwealth sought to have such conduct or arrangements

exempted from the Act it could seek authorisation from the

Commission, pass legislation specifically authorising or approving that conduct or rely on a more general but temporary regulatory authorisation of the kind proposed by the Committee.

B. RECOMMENDATIONS
In addition to the recommendations made in Chapter Five in relation

to particular exemption principles and mechanisms, the Committee makes the following recommendations in respect of matters currently
subject to specific statutory exemption under the Trade Practices Act:

The Committee recommends that:
6.1

The following statutory exemptions contained in the Act be continued tinder the competitive conduct rules of a national
competition policy: (a) a provision dealing with labour along the lines of s.51(2)(a) of the Act
(b)
(c)

a provision dealing with standards along the lines of
s.51(2)(c) of the Ad;

a provision dealing with export contracts along the, lines
of s.51(2)(g) of the Act;

150
151

Section 172(2)0,).

See Chapter Five.

159

6— Scope of Application: Review by Sectors & Activity
(d)
Ce)

provisions dealing with restrictive covenants along the
lines of s.51(2)(b), (d) & (e) of the Ad; and

a provision dealing with consumer boycotts along the lines
of s.51A of the Act.

6.2

The provision exempting certain intellectual property matters be reviewed by relevant officials, in consultation with industry

and other interested persons, to determine whether the
current exemption is warranted; and if so, whether the current legislative formula meets the intended policy objective, and whether current inconsistencies between various intellectual property rights are justified.

160

7.

Enforcement

Compliance with the competitive conduct rules is encouraged by

The determination of issues under prohibition-based rules is inherently a matter for judicial decision-making. This Chapter examines three key questions concerning the design of such a regime:
•

the provision of an effective enforcement regime.

What remedies should be available
contraventions of the rules?

to redress

•

Who should be able to bring an action to enforce the ruies?; and

•

What processes should be available to assist courts in
making decisions?

A.

REMEDIES

The basic objectives of a system of remedies are to deter people from

contravening the law and to compensate injured parties. The
current competitive conduct rules of the Trade Practices Act 1 974 (TPA) can, in appropriate circumstances, attract pecuniary penalties,

injunctions, divestiture, damages, declarations and other
compensatory orders. The adequacy of remedies under the Act is
Commission (ALRC), although the primary focus of that Inquiry is the consumer protection provisions of the Act.
Review of Current and Potential RemedIes
In respect of the competitive conduct rules, the Committee is

currently being considered by the Australian Law Reform

generally satisfied that the current remedies provide an appropriate level of deterrence and compensation, and is not convinced of the need for additional remedies.
1.

Penalties (s.76)

Penalties

provide the most direct form of deterrence for
161

contraventions of the competitive conduct rules. To the extent that

7— Enforcement
the

system provides appropriate deterrence, there will be fewer

occasions when parties are injured and may require compensation.

To provide a suitable deterrent, penalties should be set at levels
which reflect the significant profits that might be gained from anticompetitive conduct in contravention of the WA, the costs to society

of that conduct and the probability of detection. The economic
objective of deterrence should be balanced against the legal system's

concern with justice. Thus it will also be appropriate to examine matters such as the deliberateness of the contravention, whether the firm has shown a disposition to cooperate with the enforcement authorities, and the level of involvement of senior management. In assessing penalty levels, the courts take into account these various
factors.1

Until recently the maximum level of penalties under the WA was

set at $250,000, which was clearly inadequate to achieve the
deterrence objective. As one judge said:
one can only suspect that the penalties have not been taken very seriously. Their deterrent effect has been insufficient, it appears, to counter-balance the profit apparently derived.2

In late 1992, the level of penalties was substantially increased to a maximum of $10 million.3 Bearing in mind the principles courts apply in assessing penalties in particular cases, it can be expected that the maximum penalties will be applied only in extreme cases. The recent amendments have re-established penalties as a credible deterrent. The Committee considers that the current level of penalties, applied in accordance with current judicial principles, would be appropriate in a national competition policy.

see eg, TPc v Stihl chain Saws (Aust) Pty Ltd (1978) ATFR ¶40-091 at 17,896; TPC v CSR Ltd (1991) ATI'R ¶41-076 at 52,152. 2 v Sony (Aust) Pty LimitS & On (1990) ATPR ¶41-053 at 51,691, Pincus J. 3 see a76. Maximum penalties for contraventions of the competition provisions, other than the secondary boycott provisions, are $10 million in the case of a body corporate and $250,(XX) in the case of a natural person. For secondary boycotts the maximum penalty is for a body corporate; penalties are not applied against natural persons.
162

7— Enforcement
2.

Injunctions (s.80)

Under the TPA, courts may order injunctions to restrain firms from

engaging in current or future conduct, or to compel them to engage in a particular form of conduct. The exercise of this power in cases involving the setting of prices has been the subject of some criticism,

which is discussed below. Otherwise, the power is largely
uncontroversial, and the Committee accepts it as a necessary and
desirable mechanism for enforcing competitive conduct rules.
3.

Divestiture (s.81)

An order for divestiture requires a firm to sell particular assets or particular parts of its business. The Committee considers that divestiture is appropriate in merger cases, but is not persuaded that the many disadvantages of providing a general divestiture power are outweighed by the possible advantages.
Under the current regime, divestiture is only available as a remedy in cases of mergers or acquisitions to undo the transaction. Some

submissions to the Inquiry argued that divestiture should be available as a remedy in cases involving the misuse of market
power, arguing that dismembering the firm removes the source of the problem.4 The proposal was opposed by a number of other
submissions.5

Arguments in favour of divestiture as a more generally available

remedy are that it provides a structural remedy to a structural problem, rather than attempting to merely redress particular conduct; that it provides a strong deterrent to firms; and that it
provides a strong negotiation tool in the hands of regulators seeking non-judicial dispute resolution.

Against this, a general divestiture remedy would give rise to a
number of difficulties. It will often be arbitrary since it will not be

clear what parts of a firm should be divested (contrast the case of mergers, where it is clearly the acquired assets or shares which should be divested). To break up a firm may eliminate economies of
4
5

Mr R Copp (Sub 107); Mr CA Sweeney (Sub 119).

IC (Sub 6); Treasury (Sub 7); Trade Practices Committee of the LCA (Sub 65); BCA (Sub 93); Qid Govt (Sub 104); BHP Ltd (Sub 133).
163

7— Enforcement
scale

and/or scope or generally decrease economic efficiency.

Divestiture could involve reshaping an entire industry with
consequent disruption to all who deal with it. It would involve the courts in a process with inevitable political implications, something more appropriate for decision by governments than by the courts.

The severity of the remedy is such that firms facing divestiture

proceedings could be expected to strenuously oppose the

proceedings using every legal means to impede the enforcement agency and try to obtain a political settlement or abandonment of proceedings. In a long case the market situation can undergo fundamental changes and the original reason for bringing the case may become irrelevant.6 The process of divestiture could also be
expensive to administer.
There have been no cases in Australia of persistent misuse of market power and there is no demonstrated need for such a remedy. With increased penalties it is difficult to argue that divestiture is needed as a deterrent. The argument that divestiture provides a negotiation

tool for regulators is simply a reiteration of the deterrent effect of divestiture.

The Griffiths and Cooney Committees both considered allowing divestiture as a remedy in cases of persistent misuse of market power, but recommended against such a proposal. A significant factor influencing these recommendations was that, in contrast to most other remedies, structurally separating a corporation will not

have a predictable result. Indeed, as noted by the Cooney Committee, as a result of divestiture "the resulting parts of the
corporation may be made less productive, less efficient, perhaps
unprofitable, perhaps even non-viable."7

To some degree, pressures to restructure government monopolies

have influenced debate on whether a more general divestiture
power should be included in the Ad. As discussed in Chapter Ten,

Eg, the IBM case in the Us ran for 14 years before being abandoned by the US Department of Justice. While the legal baffle proceeded there were fundamental changes in the sthacture of the market, including the development of two new generations of computers. 7 Senate Standing Committee on Legal and Constitutional Affairs, Mergers Monopolic and Acquisitions - Adequacy of E.xisting Legislative Controls (1991) at 98. 164

6

7— Enforcement
the

Committee does not favour court-ordered divestiture as a
Damages (s.82)
a

mechanism for restructuring public enterprises.
4.

person who suffers loss or damage as a result of a contravention may recover the amount of the loss or damage from any person involved in the contravention. The Committee considers that the existing provision for damages is a suitable model for a national competition law.
Under the WA,

The prospect of orders for damages may provide an element of

compensation to parties injured by contraventions of the
enforcement agencies.

deterrence, but the essential role of damages is to provide monetary

competitive conduct rules. Damages also provide an incentive for

private enforcement of the rules, easing the burden on public
In the United States, successful plaintiffs can receive awards for treble damages, that is, a sum of money which is three times the damage actually suffered. Although this approach enhances the deterrent value of damages and provides a greater incentive for private enforcement, the Committee notes that it also results in
windfall gains to successful plaintiffs and may lead to speculative or vexatious litigation. The Committee considers that the advantages of a multiple damages scheme are outweighed by the disadvantages.
5.

Declaration (s.163A)

There are occasions on which parties to a dispute wish simply to

have a court clarify the nature of existing legal rights and
obligations, without seeking to have the court provide a substantive remedy. The Committee considers that a power to grant
national competition policy.

declarations should be included in the enforcement regime of a The TPA permits parties to seek a declaration in relation to the operation of the competition rules, or the validity of any proposed or actual conduct. Before the court will exercise its discretion to
grant a declaration it must be satisfied that the question before it is
165

7— Enforcement
real and not theoretical; that the person raising the question has a real interest; and that there is someone whose interests are opposed

to the declaration sought. The existing provision is uncontroversial,

and would provide a suitable model for incorporation into
nationally applicable laws.
6.

Other Court Orders (s.87)

The

TPA permits the court to make a wide range of orders to

compensate damaged parties or reduce loss or damage which has occurred or may occur. A non-exhaustive list of orders is provided in section 87, which includes voiding contracts, varying contracts, and requiring the supply of specified services. The Committee considers that the wide range of orders which the court can make under s.87 provides a powerful and flexible tool for achieving justice between the parties, and that such a power should be included in a system of national competitive conduct rules.
7.

Remedies Involving Prices

Misuse of market power situations, particularly refusal to deal

cases, may involve courts in ordering one party to deal with another

at a particular price, or at a price calculated using a particular
formula. Some submissions have observed that courts are reluctant to be involved in setting prices and lack expertise in such matters,

and have suggested that pricing remedies should be settled by a
specialist economic body, such as the PSA.8 Such proposals include

the possibility of having courts refer such matters to a specialist
body for advice, with the final determination of remedies remaining for the courts. Underlying these criticisms of the current regime is a

belief that a specialist economic body could provide pricing remedies which are in some way "better" than those currently
provided by the courts.

Pricing remedies under the current Act may take the form of mandatory injunctions or other orders.9 Generally, however,
Australian courts are "slow to impose upon the parties a regime
Trade Practices committee of the LCA (Sub 65); Dr 5 Corones (Sub 86); PSA(Sub 97); Matilda Fuel Supplies (sub 120).
S

9

Seess.80&87.
166

7— Enforcement

which could not represent a bargain they would have struck

between them."1° Thus courts have proven more willing to order that dealing occur at a patticular price in cases where there has been a previous course of dealings.11 In principle, courts could also order

firms to deal on a non-discriminatory basis, or fix prices by
reference to the market price for a comparable product.

What is more difficult is the issue of setting prices where there is no

reference price. An important policy decision in such cases is
whether firms with market power should be permitted to set high, monopolistic prices or whether they should be compelled to deal at low "as if competition" prices. Low prices would reduce economic profits and hence reduce the signals attracting the entry of new

firms into the market. Such remedies might thus extend the
duration of market power problems. Since charging high prices is not of itself a contravention of the competitive conduct rules there is an argument that where firms with market power are compelled to deal with others it should be on the basis of a high price. But to. enshrine such a principle in the procedures for dealing with misuse of market power would undermine the bargaining power of persons seeking to deal with firms with market power.

Quite apart from the techxiical difficulties associated with price setting, there is no clear policy basis for the setting of prices where there is no reference price.12 In such circumstances improving the
technical expertise of courts, or referring pricing matters to specialist

bodies, would not improve upon the existing regime, and for this

reason the Committee does not propose to make any special
provision for pricing remedies.

As barriers to imports are removed and the economy becomes more competitive, the likelihood of refusals to deal occurring diminishes.

The courts may be prepared to grapple with the difficult policy
judgments involved in setting prices in circumstances where there is.

no clear reference price. The possibility remains, however, that
10

ASiC Operations Pty Ltd v Pont Data Mist Pty Ltd (1991) ATPR ¶41-109. Maclean v Shell Chemical (Aust) Pty Ltd (1984) ATPR ¶40-462; O'Ke4C Nominns fly Ltd v

HP Australia Ltd (1990) ATPR ¶41-057; ASiC Operations Pty Ltd v Pont Data Australia (1991)
ATPR ¶41.109.
12
See

chapter 11 for a discussion of some of the competing policy considerations involved

in the setting of prices.

167

7—Enforcement
some cases of refusals of supply in breath of s.46 may arise in which

the court may not be prepared to specify a price so as to frame an

appropriate order for supply. Where parties find the remedies
available through the existing regime to be unsatisfactory they may

in appropriate circumstances find relief through declaration for
prices oversight purposes,'3 or through the system of special market access rules proposed in Chapter 11. The Committee has not been

prepared to provide more prescriptive remedies in this area
considering the drcunistances in which they could be used might be
considerable adverse effects on incentives for investment.
8.

relatively rare, 'but that their mere existence might have
Other Remedies

Committee also considered the possible merits of other remedies, such as administratively-applied cease and desist
The

orders.14 Cease and desist orders effectively reverse the onus of proof, which could be particularly harsh where complex economic matters are involved, as is often the case in competition cases. In

instances where there is an urgent need to prevent particular
conduct, the competition authority may seek interim injunctions to

preserve the status quo pending a full hearing. Overall, the
Committee is not satisfied of the need for such additional remedies.

Conclusion
The

Committee is satisfied that the current range of remedies

available under the Act is suitable for inclusion in the competitive conduct rules of a national competition policy.

13
14

See chapter 12 for a discussion of the prices oversight mechanism proposed for a
A cease and desist order would be Issued by the competition authority when it had

national competition policy.

reason to believe that a contravention of the Act had occurred. The recipient of the order would then be obliged to refrain from engaging in the conduct specified in the notice, unless it could be shown that the conduct did not contravene the Act. See, eg, aS Federal Trade commission
Act (US).

168

7— Enforcement
B.

PRIVATE vs PUBLIC ENFORCEMENT

The

current enforcementt arrangementh pdrmit both private and

public enforcement activities and, in the Committee's view, provide a suitable model for a national competition law.

ConsIderation
arguments for private enforcement are simple. It provides a direct mechanism for injured parties to obtain compensation, and
The

lessens the public burden of ensuring compliance with the
competitive conduct rules.

There are a number of rationales for a system in which a public enforcement agency is charged with the responsibility, of bringing
actions in the courts against firms it considers have contravened the competitive conduct rules. The desirability of pecuniary penalties as a deterrence mechanism suggests a need for public enforcement. Private litigants would generally not have an incentive to request

that pecuniary penalties be imposed and are not appropriate
persons to assess the public interest in arguing for a particular level of penalty. In many restrictive practices cases the social costs of contraventions may be significant in total but be dispersed among many individuals. In such cases the costs of litigation militate again suggesting a role for public against specialist enforcement agency may have greater enforcement.
resources for, and expertise in, investigating suspected conduct than private litigants;rand may be entrusted with information gathering

powers which it would be inappropriate to entrust to private
litigants.16 The mere existence of such an agency may enhance the deterrent value Of The competitive condubt rules.

The current apj,rOach provides for both public and private
enforcement of the provisions of the Act in most cases. Private

15

Class action rules,1recently ihtroduced in the Federal Court, may, however, encourage

private actions in such cases. 16 Eg, the recipients of a notice from the TPC under s.155 of the Act are required to provide the requested information, notwithstanding that it may establish a contravention of the Act.

169

7— Enforcement
parties may not institute proceedings to obtain pecuniary penalties17

or to obtain an injunction to prevent a merger.18

One submission has suggested that a private right of injunctive relief should be available in merger cases.1 The right to obtain a private injunction to prevent a merger which contravenes the
merger test was removed in 1977, on the basis that opponents of a merger could use the injunction process for purposes unrelated to

competition, particularly in cases involving listed companies attempting to resist hostile takeovers. The Griffiths Committee recommended that the right be re-introduced but that takeover
targets and associated persons should be excluded from the right. The Cooney Committee disagreed, concerned that it would not be possible to adequately protect against abuse by takeover targets and
associated persons.

One argument in favour of a private right is that a public
enforcement agency may not have full information, and that private

litigants may be better placed to bring an action. But if such

litigants wished to bring an action they could inform the
enforcement agency.

Conclusion
Committee has not been presented with evidence of practical difficulties caused by the absence of a private injunctive relief in merger cases, and on this basis has no difficulties with maintaining
The

the current balance between public and private enforcement in
therger cases.
C.
-

COURTS' USE OF ECONOMIC MATERIAL

The competitive conduct rules require a number of judgments to be

made about various economic facts, such as market definition, levels of market-power, and the extent to which particular conduct lessens competition. Submissions to the Inquiry suggest a degree of dissatisfaction with the current court procedures for the utilisation
17 18
19

Section 77. Section 80(IA).

MrPArgy(SubóO).

170

7— Enforcement
of economic material in the process of making such judgments.2° In

part, expressions of dissatisfaction with existing procedures may be. the product of dissatisfádiOn with decisiôhs in particular cases. In this respect, there will always be scope for disagreement, given the adversarial nature of a prohibition-based system.

Possible Reforms

submissions raised a number of constructive proposals to improve current processes, many of which were not confined in their impact to competition matters but had implications for the
The

justice system more generally. The Committee was not satisfied that

any perceived difficulties peculiar to competition law and law

enforcement were of sufficient magnitude to warrant major
departures from current practices and procedures. Some of the

proposals may warrant follow-up in the context of ongoing
refinements of the justice system. The Committee outlines the six main proposals below.
1.

Delegated Role for Trade Practices Tribunal

A number of submissions proposed an enhanced role for the Trade Practices Tribunal (TPT).2' The Tribunal is not a court, is not bound

by the rules of evidence, and has mixed membership of a presiding judge and appropriately qualified lay members. It is well regarded

for its expertise and competence in handling complex economic
issues.

The Griffiths' Committee recommended that consideration be given

to enabling the Federal Court to refer economic issues to the
overcoming some of the perceived deficiencies of the court system.

Tribunal, more fully utilising the Tribunal's expertise and
There are a number of potential difficulties with this proposal.
Referring matters to the Tribunal may have the effect of increasing

the time and cost of proceedings. There are constitutional
difficulties with performance of judicial functions by non-judicial
20

Eg. IC (Sub 6); Prof R Baxt (Sub 18); Mr P Argy (Sub 60); TPC (Sub 69); Treasury (Sub 76); National Institute of Accountants (sub 88); Small Business Coalition (Sub 100); Mr CA Sweeney (Sub 119); Mr R Copp (Sub 107). For a discussion of many of the issues raised by

these submissions see Yeung K, "The Court Room Economist in Australian Anti-Trust
21

Litigatiorn An Under Utilised Resource?" (1992)20 Australian Business Law Review 461. IC (Sub 6); Mr? Argy (Sub 60); Mr R Copp (Sub 107); Mr C A Sweeney (Sub 119).

171

7— Enforcement

bodies,

and there are sound reasons for upholding this
is

constitutional distinction: in matters with potential penalties of up

to $10 million, or remedies as extreme as divestiture, it
making of final decisions should lie with a judicial body.
2.

appropriate that the assessment and balancing of evidence and the
Specialist Division of the Federal Court

One

proposal for improving the expertise of judges involved in

trade practices cases is to establish a special division of the Federal
Court.22

In addition to the existing Industrial and General

Divisions, there might be a Competition or an Economic Division. Permitting judges to specialise in this particular area might have the advantage of enhancing expertise, but judges might become too specialised and, particularly with a Competition Division, may not have a sustainable case load.

Despite the difficulties associated with this proposal there may be

merit in exploring this and other options for increasing the
specialisation of judges involved in competition mailers.
3.

Assessors

submissions proposed the use of assessors, particularly referring to New Zealand experience.23 Assessors, qualified by
Some

particular knowledge, skill or experience, sit with the bench during

judicial proceedings to assist in the understanding of evidence.
Assessors act as a source of information on matters concerning their special kitowledge or skill. Judges need not indicate the nature or extent of reliance on assessors.

In New Zealand, the Administrative Division of the High Court is required to have at least one member qualified by knowledge or experience in industry, commerce, economics, law or accountancy

when hearing appeals from decisions of the Commerce

Commission.24 The model appears to be successful. The NZ Court of Appeal has commented:

24

Treasury (Sub 76). Mr P Argy (Sub 60); Ti'c (Sub 69). Section 77(9) Commerce Act (NZ).

172

7—Enforcement
In providing for the appointment of lay members in appropriate cases the

legislation recognises that in this complex area the knowledge and
experience in a partitular field or fields of.a member of the court is likely to contribute to the just resolution of proceedings. It is not surprising that

in the present case where, as it transpired, the parties placed great
emphasis on the evidence of economists and on the impact of competition

and the inhibition of competition in this industry it was considered
desirable to appoint to the court a lay member with special expertise in commerce and economics ... In these circumstances we consider that the High Court, constituted as it was, was in a particularly good position to compare and assess the competing views and that its condusions as to the acceptability and weight-worthiness of the expert opinion are entitled to
great weight.25

Assessors in New Zealand participate in the decision-making
process. This would present constitutional difficulties in Australia,

where the Constitution provides that only judges may exercise
judicial power. One method of addressing this problem might be to appoint as judges persons qualified by reason of their economic pr business expertise. A less problematic method for the introduction. of assessors would be to restrict them to a purely advisory role. One. difficulty with this option is that parties are denied the opportunity

to test assessors' advice to the court, although the judges might
overcome this difficulty by adopting a practice of disclosing to the parties the nature of the issues raised and views expressed by the assessor, to give the parties a fair opportunity of dealing with them.
4.

Court Experts

Greater

utilisition of court experts was another proposal
-

assisting judges in their handling of economic issues.26

The Federal Court Rules permit the Court on the application oi any

party, to appoint an expert to inquire into and report on questions
which arise in the proceedings.27 The Court may:
(a) appoint an expert as court expert to inquire into and report

upon the question;

25 26 27

TnsTone Ltd v F&ivaI Records Retail

L14 1198812 NZLR 352 at 357.

MrRCopp (Sub 107). Order 34, Federal Court Rules.

173.

7—Enforcement
(b)

authorise the court expert to inquire into and report upon any facts relevant to his inquiry and report on the

question;

direct the court expert to make a further or supplemental report or inquiry and report; and (d) give such instructions as the court thinks fit relating to any inquiry or report of the court expert.
(c)

This option has rarely been used in practice. It may increase the costs of litigation, judges may have concerns that the choice of a

court expert may be perceived as compromising the judges'
impartiality, and litigants may be unlikely to seek the appointment of a neutral expert because they do not have control over this aspect of the litigation. There seems to be little scope for improvements in the use of court experts — the existing legislation has provided opportunities for the use of court experts, but parties cannot be forced to take advantage of those opportunities.
5.

Expert Witnesses

One submission suggested that existing procedures did not provide

adequate latitude for parties to call their own expert witnesses.28

There seems little doubt that expert witnesses can enhance the court's understanding of economic issues. While making an
evaluation of evidence presented to the court is inherently a matter for judges there are other areas in which expert economic evidence
can be useful.

Some reforms may be desirable in the area of admissibility of expert

evidence.29 In particular, the desirability of the "basis rule" (the inadmissibility of opinion evidence based on material not. already admitted) and the "ultimate issue rule" (the inadmissibility of evidence as to the ultimate issues in a case) could usefully be
ic (sub 6).
See Veung K, 4The court Room Economist in Australian Anti-Trust Utigatiort An Under Utilised Resource?" (1992) 20 Australian Business Law Review 461; Blunt C, Shafron P &
Case Kenneally B, From Ansotts to QIW: A Study of Expert and Survey Evidence in Trade (paper presented at the Trade Practices Workshop, presented by the Business Law Section of the LcA, canberra, July 1993).

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7— Enforcement
examined. The basis rule can pose problems in competition cases

where, for example, an expert economist discuéses the principles by which market boundaries are established before the facts to which those principles relate are established. The ultimate issue rule can pose difficulties where, for example, it prevents expert economists

from providing their opinions on the boundaries of a particular
market, or whether conduct will substantially lessen competition.

Under these rules experts may be called to explain the economic theory underlying the process of market definition, but may not
express an opinion on what the actual market is:
Economists are able to assist the court in relation to economic principles. But once the relevant principles are expounded, their application to the facts of the case is a matter for the court. The proper definition of a market

is entirely a matter of fact, the determination of which ought not to be made more protracted and expensive by the adduction of unnecessary
expert evidence.30

In the US, expert opinion evidence is not objectionable on the ground that it embraces an ultimate issue, and there is no direct
equivalent of the basis rule.31

The Federal Court Rules permit the relaxation of the rules of
evidence in certain circumstances, but these may not be sufficiently broad to cover all cases in which expert evidence could usefully be admitted. The ALRC considered the question of expert evidence in its reports

on evidence.32 Most of the recommendations of the final report were given effect in the Evidence Bill 1991, which was introduced into the Commonwealth Parliament but lapsed with the calling of the 1993 Federal election. If enacted the Bill would have resolved many of the current difficulties with expert opinion evidence, by modifying the "basis rule" and abolishing the "ultimate issue"
rule.33

TPC v Ausfralia Meat Holdings (1988) ¶ATPR 40-876, per Wilcox I.

There is no requirement that the evidence which forms the basis of an expert's opinion be admissiblein evidence, and the evidence need not be disclosed prior to the hearing.
31

32

ALRC, Evidence (Interim) (1985); Evidence (1987).

See clauses 66,85 and 86.

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7— Enforcement

Bill codified the opinion rule, confirming that evidence of an opinion is not admissible to prove the existence of a fact about the existence of which the opinion was expressed.34 However it also provided that the opinion rule would not apply to expert opinion
The

wholly or substantially based on specialised knowledge gained
through training, study or experience.35 The basis rule would have

been modified by allowing courts to admit evidence, including
expert evidence, provisionally, where the relevance of the evidence is dependent on some other finding (in the case of expert Opinion evidence, that the factual basis is as the expert asserts).36

The proposed amendments would have overcome many of the practical difficulties currently faced in competition cases. The
Committee supports the Bill's treatment of these issues.
6.

Evidence

One

submission suggested that court procedures for dealing with

survey evidence were inadequate.37

Survey evidence may assist in defining market boundaries and in

determining the state of competition within the market.

By

ávoidirtg the need to prepare considerable numbers of affidavits or to call witnesses, accurate and reliable surveys have the potential for significant time savings, in both the preparation for, and conduct of, court proceedings.

Historically there have been difficulties in admitting survey
evidence because it has been seen as conflicting with the rule against

hearsay38 evidence, but this objection appears now to have been overcome. In the Arnotts' cas&9 the trial judge was prepared to exercise his discretion to dispense with compliance with the rules of

•

Seeclause82.
See clause 85. see clause 66. ic (Sub 6). Hearsay evidence is evidence given by one rrson of what another person has been

35

36

37

heard to say, as opposed to the direct evidence of that other person. 39 Arnotts Ltd v TPC (1990)97 ALR 555.

176

7—Enforcement
evidence

"where such compliance might occasion or involve

unnecessary or unreasonable expense or delay".40

On appeal, the FUJI Court did not think it was "very profitable" to spend time in determining whether a particular survey was hearsay, reasoning that market survey techniques had now been refined to

the point where they were capable of providing answers which
were highly likely to be accurate (subject.to a small sampling error)

provided they were undertaken by experienced, professional
people. In the event that a survey is hearsay, the Court felt use of the discretion was appropriate. Of course, such evidence would still only be one element in the overall picture, its importance varying
from case to case.

The Full Federal Court adopted the following criteria for the
adoption of survey evidence and noted that a survey which did itt comply with the criteria, if admitted, should be given little weight:
The offerer has the burden of establishing that a preferred poll was
conducted in accordance with accepted principles of survey research, ie

that the proper universe was examined, that a representative sample was

drawn from that universe,, and that the mode of questioning the the persos interviewees was correct. He shouid be required to show
conducting the survey were recognised experts; the data gathered was

accurately reported; the sample design, the questionnaire and- the
of interviewing were in accordance with generally accepted objective procedure and statistics in the field of such surveys; the sample design and the interviews were conducted independently of the attorneys;

and the interviewers, trained in this field, had no knowledge of the
litigation or the purposes for which the survey was to be used. Normally

this showing will be made through the testimony of the persons
responsible for the various parts of the survey.41

Although these criteria appear to be reasonable, there may be merit in a more detailed appraisal of them. The suggestion has been made that the Federal Court should develop a practice note which would usually apply in relati on to survey evidence.42 Representatives of the Federal Court and the Law Council of Australia have conducted

4°
41

Order33,nzle3Fedeml Court Rules.
Arnotts Ltd v TPC (1990)97 ALIt 555, at 602.609. Intertego AG v Croner Trading PEy LimitS (1991) ATPR ¶41-125, per Sheppard J.

1.77

7—Enforcement
discussions

with a view to preparing such a practice note. The

Committee fully supports this initiative.

Apart from survey evidence, proof in accordance with the rules of evidence of all the fads necessary to define "markets" and to assess the competitive effects of conduct in those markets will frequently be cumbersome, time consuming and expensive. In this regard, the

rules of evidence can at times appear to be unnecessarily
obstructive, and options for avoiding the more restrictive effects of the rules have attracted some attention. That relaxation of the rules need not detract from the efficacy of the decision-making processes

is illustrated by the TPT, which is not bound by the rules of
evidence,43 and the New Zealand High Court, which may receive in evidence any information which would assist it to deal effectively

with the case, except in pecuniary penalty and criminal
proceedings.44

The Federal Court Rules permit the court to dispense with the rules of evidence in certain circumstances, but it will usually hesitate to do so unless the parties agree or it is clear that none of the parties will be prejudiced. This is understandable as findings in trade practices cases may result in severe penalties and other sanctions.
It may, nevertheless, be desirable to give the court a clearer mandate

to waive the rules of evidence. Proposals made by the ALRC and reflected in the Evidence Bill 1991 would provide a wide power to waive the rules of evidence in civil matters not genuinely in dispute

or if unnecessary expense or delay would be caused.45 An
alternative approach might be to adopt the TPT or New Zealand High Court models and waive the rules of evidence in cases other
than those involving pecuniary penalties.

Conclusion
The Committee considers that of the main proposals for refinement

of court processes, three are especially worthy of further
consideration: arrangements for increasing the specialisation of judges involved in competition mailers; the use of assessors; and
43
44

Section 103(1)(c),TP14. Section 79, Commerce Act (NZ).

Seeciausesl77andl88. 178

7— Enforcement
relaxation of the rules of evidence. The Committee suggests that an

appropriate consultative process be established to consider these proposals. One possible mechanism might be a working group of officials and members of the legal profession, with consultation,

where appropriate, with members of the Federal Court.

Examination of these proposals should not, however, warrant delay in the implementation of the Committee's other recommendations.
D.

RECOMMENDATIONS

The Committee recommends that:
7.1

The remedies for the competitive conduct rules of a national

competition policy be based on those currently available
under the Trade Practices Act.
7.2

The arrangements for private and public enforcement of the competitive conduct rules of a national competition policy be based on those currently available under the Act.

7.3

The processes for assisting courts to make judgments on
economic questions under the competitive conduct rules of a

national competition policy be based on those currently available under the Act. However, without delaying the implementation of other recommendations, an appropriate

consultative process could be established to consider proposals for refinement of current court procedures,
including:

(a) arrangements for increasing the specialisation of judges involved in competition matters;
(b) the use of assessors; and (c) relaxation of the rules of evidence.

179