What about competition and antitrust matters?
Before commencing business in the Australian market, it is important to be familiar with Australia’s competition laws, which restrict certain activities by businesses in Australia.
The Competition Act and the Australian Competition and Consumer Commission
Australia’s competition and consumer laws are contained in the Competition and Consumer Act 2010 (Cth) (Competition Act). The Competition Act has a degree of extra-territorial application and may apply to conduct engaged in outside of Australia by corporations that are incorporated in Australia, registered as a foreign company in Australia, or which carry on business in Australia.
The competition authority in Australia, the Australian Competition and Consumer Commission (ACCC), takes compliance very seriously. The ACCC has a range of investigatory powers, including powers to compel the production of information and documents and to examine individuals under oath and without privilege against self-incrimination.
The ACCC has established ties with foreign competition law agencies, governed by treaties, free trade agreements and bilateral and trilateral co-operation agreements.The ACCC is an active participant in the International Competition Network, a global forum for national competition law agencies designed to encourage international co-operation and the convergence of competition regulation on an international basis.
Merger and investment control
The Competition Act prohibits direct and indirect acquisitions of shares or assets, including of minority stakes, that would be likely to have the effect of substantially lessening competition in an Australian market.
Even though Australia’s merger control regime is, in a technical sense, neither mandatory nor suspensory, which means that parties are not indefinitely prevented from closing their deal until merger clearance is received, it is administered by the ACCC as if it is.
The ACCC’s policy is to further investigate acquisitions that would result in the acquirer having a market share of 20% or more in an Australian market, and where the products supplied by the seller and the buyer are substitutes or complements.
In cases where an investment in Australia would come within the ACCC’s policy for further investigation, it is advisable for the investor to apply to the ACCC to clear the investment and to include a condition precedent allowing for that in the transaction documents. Obtaining clearance from the ACCC usually takes at least 8 weeks and, in complex cases, considerably longer. The ACCC has powers to clear an investment conditional on the parties to the deal taking certain steps, including to divest shares or assets to a third party purchaser pre-approved by the ACCC.
In cases where an investment in Australia would not come within the ACCC’s policy, where the acquirer is a non-Australian entity and they are obliged to notify their proposed investment to FIRB under Australian foreign investments and takeovers legislation, FIRB will usually ask the ACCC if it has any competition concerns with the investment. FIRB will not complete its review until the ACCC has notified it in writing that it does not have any competition concerns with the proposed investment. This process of inter-governmental consultation between FIRB and the ACCC can result in the ACCC assessing many investments that do not come within its policy and may delay FIRB’s statutory timeframes.
In addition to its investigative powers, the ACCC may apply to the Federal Court of Australia for orders for divestiture, to void a transaction ab initio (from the outset), for orders for civil pecuniary penalties (against companies and individuals) and for orders against individuals banning them from being involved in the management of Australian companies.
In some foreign to foreign transactions, the ACCC may also apply to the Australian Competition Tribunal for an order that the Australian subsidiary of the seller ceases carrying on business in Australia.
The Competition Act prohibits cartels outright (price fixing, market sharing, output restrictions and bid rigging), irrespective of their effect on competition. The prohibitions can be civil or criminal.
The consequences of engaging in a cartel, or even attempting to do so, include fines of up to 10% of the Australian group’s annual turnover, follow-on actions for damages, including through class actions, and up to 10 years’ imprisonment and banning orders for individuals involved in the cartel.
The ACCC has an immunity policy for cartel conduct. It also has a co-operation policy for granting leniency for cartel conduct.
There are some complete defences and exceptions to the prohibitions on cartels, including for limited types of joint ventures and collective acquisitions. Defendants bear the evidentiary burden of proving that the complete defences or exceptions apply in their case.
Other forms of anti-competitive conduct
The Competition Act prohibits other types of anti-competitive conduct, including:
- vertical arrangements that have the purpose or likely effect of substantially lessening competition, vertical price fixing and certain types of tying conduct;
- abuses of dominance, where a company has a substantial degree of power in a market; and
- other arrangements that have the purpose or likely effect of substantially lessening competition in a market.
Standard form contracts
The Competition Act also contains provisions aimed at protecting smaller counterparties to contracts. They might impact the approach to entering into contracts in Australia, including where the investor has standard form contracts that they prefer to use in multiple countries. A standard form contract is one that has been prepared by one party to the contract and where the other party has little or no opportunity to negotiate the terms, traditionally offered on a ‘take it or leave it’ basis.
The Competition Act contains:
- an unfair contracts regime, designed primarily to protect small businesses and consumers from unfair terms in standard form contracts;
- a prohibition on unconscionable conduct, which applies to conduct that is very unfair or particularly harsh or oppressive. To be considered ‘unconscionable conduct’, the conduct in question must be more than simply unfair, it must be against conscience as judged against the norms of Australian society; and
- certain consumer guarantees, which automatically apply to products and services to the benefit of consumers and irrespective of any limitations in the contract of sale.
KWM’s InCompetition blog: www.incompetition.com.au