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Dissenting report
Introduction
As Opposition Members, we observe that government members on
the Committee have recommended that:
The House of Representatives pass the Competition and
Consumer Amendment Bill (No.1) 2011 and reject the Competition and Consumer
(Price Signalling) Amendment Bill 2010.
What is significant and of particular concern to
non-government members of the Committee is the lack of any independent evidence
presented to the Committee or relied upon in this report to support such an unequivocal
recommendation.
In fact, the Government’s Bill has been criticised as
failing to “resolve fundamental problems with the Exposure Draft” and assessed
as “highly unsatisfactory (that) should not be enacted”.[1]
The evidence presented clearly highlights concerns about
the Competition and Consumer Amendment Bill (No.1) 2011 (Government Bill). No
evidence has been received that endorses the Government Bill without
reservation and argues that it should simply be passed unamended as the
government member’s recommend.
A range of concerns about the Government’s Bill have been
detailed in considerable detail by those who were able to participate in the
truncated timetable for the inquiry and without the opportunity to appear
before the committee.
The considerable shortcomings and concerns about the
Government Bill include:
- Failure to base the government’s bill on sound competition policy
concepts
- Market-specific rather than economy-wide application
- Expanded application to be prescribed by regulation
- Lack of justification for the per se offence for private
disclosures
- Over-reach into disclosures with legitimate business
justification
- Lack of a competition effects test
- Scope of disclosure to be captured by the prohibitions
- Inadequate exemptions and defences for pro-competitive
disclosures
- Numerous technical drafting deficiencies
- Inability to canvass alternative approaches to anti-competitive
conduct
- Process inadequacies in the government’s consultative approach
- Practical difficulties with the notification and authorisation
processes
These concerns are legitimate, deserve examination by the
committee with key witnesses and warrant a considered response by the
government if the committee and parliament is to be adequately satisfied to
support the passage of the Government’s Bill.
A comparative analysis of the government Bill and
Competition and Consumer (Price Signalling) Amendment Bill 2010 (Coalition
Bill) lead to some to conclude that the Coalition Bill was superior.
In evidence to the one-day public hearing, the Caltex
Senior Corporate Counsel stated:
We believe that legislation in this area should apply across
all industries and not single out a particular industry. We think that it
should contain concepts and principles that are known and well understood
within competition law, business and the courts. We think that the
prohibitions—all the prohibitions—that are contained in the legislation should
be subject to a substantial lessening of competition test. It should only apply
to price information and not more broadly, as is the case in the government
bill, and it is our view that it should only apply to future prices. And we
believe that the legislation in this area should be subject to a legitimate
business justification test. It is clear, I think, from that that the
opposition bill does tick a number of those boxes, whereas the government bill
does not.[2]
We support introducing anti-competitive price signalling
laws to provide the ACCC with the tools to carry out its role ‘to promote
vigorous and lawful competition, to encourage fair business dealings and to
protect consumers from misleading and deceptive conduct’.[3]
Without genuinely addressing the numerous defects in the
government Bill, it is unfit to be passed by the parliament in its current
form.
The Government’s Bill, even with changes made from the
exposure draft, has been characterised as “international worst practice on
information exchanges between competitors” (Brent Fisse[4]) before listing 11
key reasons for this assessment and where the Bill failed to address
fundamental problems with the Exposure Draft.
By contrast, Mallesons’ April 20
bulletin concluded:
While the Coalition's draft Bill would need some revision and modification, it would appear to be the
preferable alternative on the basis that it would require demonstration of an
anti-competitive purpose and a substantial anti-competitive effect, rather than
simply imposing a blanket prohibition on disclosure.
The Coalition Bill is more sound in terms of its
competition policy foundation, its ability to better decipher conduct that is
genuinely anti-competitive and detrimental to consumers and conduct that is
pro-competitive, advantages consumers or at least not harmful to the economic wellbeing of Australia and quality of
life for all its citizens.
Some potential improvements have been identified that may
further enhance the Coalition Bill, but the committee process and
government-imposed timeframes for the inquiry provide no opportunity to examine
the utility of these proposals.
Stakeholders are understandably disappointed at the very
limited time in which submission could be prepared and submitted material to
the inquiry.
The inability of those who have made submissions to appear
before the committee and to have their input and proposals examined and tested
as evidence has greatly diminished the committee’s work and parliamentary role.
Alternative approaches to addressing anti-competitive
price signalling and broader concerted or facilitating practices in ways more
comprehensive way akin to the European approach remain ‘on the table’ with no parliamentary
mechanism to consider their merit.
This missed opportunity devalues the considerable effort
and expertise brought forward to assist the committee despite the
government–imposed timetable making a proper evaluation and considered response
assessment impossible.
In our view, the government should abandon its
substantially flawed Bill and permit a proper consideration of proposals to
recalibrate specific provisions of the superior Coalition Bill that have been
identified as potential improvements.
Scope of ‘Price Signalling’ Prohibitions
Non-government committee members noted quite an array of
views about the scope of the Government and Coalition Bills.
A number of submissions contested the need for additional
laws to tackle anti-competitive price signalling and drew attention to
international experience that might provide useful guidance.
The ACCC observed:
…in Europe there is what we call a per se prohibition on
competitors exchanging information about their future conduct. In that sense
the bill does not go as far as the European legislation. Also, the European
legislation applies not only to prices but also to other behaviour by firms. We
would say that the (Coalition) bill is narrower than in the European situation.
I suppose that in that sense the bill perhaps goes a bit
further than the US, as the in the US you still need to have some measure of
agreement underpinning the price signalling. On the other hand of course, in
the US the prohibition is broader than just prices; it does cover other forms
of behaviour”.
Cassidy hearing p. 19 & 20
Evidence was received that suggested cautioned with simply
seeking to implant the EU’s principles-based approach or the evolving juris
prudence of the United States into Australia’s competition framework.
In its evidence to the public hearing, Caltex concluded
that:
…the concepts and principles that are evident in the
opposition bill are much more familiar to Australian competition law than are
the concepts evidenced in the government’s bill.
Jordan French, senior
Corporate Counsel, Caltex, Committee Hansard, 18 February 2011,
Canberra, p. 55.
Some submissions argue for the Bills to expand beyond
‘signalling’ prohibitions into the broader range of practices that facilitate
co-ordinated conduct.
Choice argued that ‘there needs to be a comprehensive and
considered approach to solving the issues surrounding price signalling and
other types of facilitating practices’ . Lee hearing transcript p.1
The
possibility of formulating a prohibition that targets a broader range of
practices that facilitate coordination between competitors ‘not confined to
communications’ was encouraged by leading competition law academics.
Fisse
& C Beaton-Wells submission,
p. 5
Coverage
The
majority of submissions challenged the Government’s decision to target its Bill
on only one broadly defined sector of the economy – the banking sector.
In
contrast, the Coalition Bill’s general application across the economy was in
line with the majority of views conveyed to the Committee and consistent with
sound competition policy principles.
The Law Council advised that:
Any prohibition on price signalling should apply universally
and not just to selected business sectors. Selective application of the
proposed prohibitions undermines the general application of the Competition and
Consumer Act 2010 (Cth) (CCA) across all industries on an equal basis.
Law
Council submission p. 2 section 1.3
Even the ACCC, the regulator which would be enforcing the
proposed prohibitions under both the Government’s and Coalition bills stated
that:
…we would hope signalling laws would be of a general
application rather than focusing on a particular sector, because we do not see
that there is reason for signalling out one sector as opposed to another.
Cassidy
ACCC hearing p. 21
Under questioning at the inquiry hearing Treasury
officials choose not to defend the banking-specific initial application of the
Government’s, offering only the insight that ‘ultimately, the government and
the parliament decide which sectors or which bill you finally approve will
apply’.
Mr
Paine Treasury hearing p.22
Consumer advocacy group, Choice, applauded one aspect of
the Coalition’s bill in that it applies to all industries.
This is in comparison to, for example, the Australian
government’s exposure draft of the Competition and Consumer Amendment Bill
(No.1) 2011, which is, at least initially, only intended to apply to the
banking sector. So it is Choice’s submission that legislation should be, to
the extent possible, uniform in its approach to all industries across
Australia.
Ms Lee, hearing p 2
Despite being captured by the reach of the Coalition
Bill’s economy-wide approach, Caltex favoured this approach over the sector or
market-specific approach of the Government’s Bill:
“Our in-principle approach is that competition regulation
should apply generally, and I think that is the view shared by the ACCC”.
Jordan French, senior Corporate Counsel, Caltex, Committee
Hansard, 18 February 2011, Canberra, p. 50.
In relation to coverage, competition law concepts, Caltex
representatives summarised that:
We believe that legislation in this area should apply across
all industries and not single out a particular industry. We think that it
should contain concepts and principles that are known and well understood
within competition law, business and the courts. We think that the
prohibitions—all the prohibitions—that are contained in the legislation should
be subject to a substantial lessening of competition test. It should only apply
to price information and not more broadly, as is the case in the government
bill, and it is our view that it should only apply to future prices.
Caltex, Ms Bennett, hearing p 49
Caltex representatives concluded:
I think the most serious aspects of the government’s exposure
draft are the per se offence and the application to selective industries—
obviously the banking industry has been targeted.
Caltex, Mr French hearing p52
Per se offences
Submissions to the inquiry conveyed considerable concern
about the introduction of per se offences in the Government’s Bill for private
information disclosures between competitors.
Competition lawyer experts caution:
Per se liability is warranted only where almost all of the
cases to which the prohibition applies will have anti-competitive effects or
likely effects. The section 44ZZW prohibition applies in many situations where
the conduct is not anticompetitive.
If per se liability is imposed, a requirement of collusion or
facilitated coordination serves the important function of screening out conduct
that is unlikely to be anti-competitive in most situations. The absence of any
requirement of collusion or facilitated coordination in s 44ZZW inevitably
results in overreach and in many instances the overreach is such as likely to
defy any attempt to draft workable exceptions”
Fisse & C Beaton-Wells submission on p.3
The Law Council went further to assert that :
No case is made out in the Explanatory Memorandum for why the
(Government’s) Bill needs to be drafted so as to prohibit the disclosure of
existing and past pricing on a per se basis.
Law Council submission p5 section 3.1
The Australian Bankers’ Association expressed a strong
opinion on the per se offence provisions of the Government’s bill.
There is a place for per se offences. They do exist in the
current act. They are for behaviour that in almost any conceivable circumstance
is inappropriate. The problem with a per se offence in a subjective area such
as price signalling is that I have no trouble in identifying a whole range of
perfectly legitimate commercial activities that fall foul of that per se
offence.
A per se offence means that if you do these things then you
are guilty of an offence. That is why, traditionally, per se offences have
applied to only the most egregious of behaviours.
Mr Munchenberg hearing p 37-38, 42.
The Committee of the Law Council that examined the
Government’s Bill concluded that:
…the strict liability scheme created by section 44ZZW is
unnecessary and should be narrowed so that it only applies to the private
disclosure of information about future pricing.
Law Council submission p 6 section 3.4
The Law Council Committee is also concerned that the
inadvertent passing on of genuinely public information between competitors
would be caught as a per se prohibited private disclosure within the meaning
given to that term by proposed section 44ZZV.
For example, the innocuous forwarding of a published rates
notice or press release by one competitor to another would fall within the
category of private disclosures proposed to be prohibited per se.
Law Council submission p 7 section 3.10
The Law Council submission suggested amendments to the
Government’s Bill to guard against innocuous and inadvertent on-forwarding of
information being captured by the per se prohibition.
This could be achieved by redrafting section 44ZZV(3) such
that a disclosure of information by a corporation will not be a private
disclosure to competitors or potential competitors if, at the time of
disclosure, the information is available generally to persons other than
competitors or potential competitors. This would bring the Bill closer into
line with the European approach. To address concerns over the potential for
such disclosures to be anti-competitive in nature, the overarching prohibition
on disclosures for the purpose of substantially lessening competition would
still apply.
Law Council sub p. 7 section 3.12
Purpose and Effect
The non-Government members of the Committee note the
discussion about the relative merits of applying and ‘purpose and/or effects’
to offend the provisions of the Government’s Bill compared to the ‘purpose and
effects’ test of the Coalition Bill.
The Australian Bankers’ Association saw considerable merit
in the approach of the Coalition’s Bill.
Price signalling is an intent driven offence, if you like. It
is not a strict liability sort of situation. It is about trying to understand,
as difficult as it can be in some circumstances, what was the corporation
attempting to do in this case and was it anti-competitive?
Mr Munchenberg hearing p 38
In a statement that amounts to an endorsement of the
Coalition approach, the ABA added that:
We need to be wary of the effects element of it, certainly
where the effect element stands on its own. The reason for that is we do not
want to create an offence were an individual or company behaves in a certain
way and whether or not they have committed an offence is determined by the
independent behaviour of a third party, which is what you have potentially if
you have just an effect element. Certainly the combination of the purpose or
intent behind the behaviour and its actual effect I think is important.
Mr Munchenberg hearing p 38
The view was re-enforced by the evidence provided to the
committee by Caltex that ‘the combination of purpose and effect in this bill
gives us some comfort’
Mr French, Caltex . Hearing p. 54
Non-government members believe that the application of
both a purpose and effects test helps to guard against potentially
pro-competitive and pro-consumer impacts of information sharing being stymied
by the poor drafting of the Government’s Bill.
Caltex went further to suggest that some refinement of the
‘purpose’ provisions could occur by requiring that the intent be the ‘principle
purpose’ rather than a ‘substantial purpose’ as both the Government and
Coalition bills provide.
On a substantial purpose test the threshold is too low in
that an interpretation of purpose, which is at the end of the day a subjective
assessment, may result in a prosecution with respect to a purpose that the initiator
never had in mind. So essentially the point is to raise that threshold to
ensure that, on the face of this legislation, there is clear intent about the
principal purpose. That is what is going to get people caught. Mr French Caltex
hearing p 53
The ACCC advised the committee that under the Coalition’s
Bill:
…what you might call inadvertent behaviour or quite
legitimate behaviour in prices being passed from one competitor to another, it
is not simply adequate for it to be an offence for the information to pass. It
has to be established that that has posed a purpose and also had the effect of
substantially lessening competition. In our view, the burden of proof on us
would take out much of what you might call ‘inadvertent’ behaviour.
Mr Cassidy p. 9, Hearing
Over-reach and Unintended Consequences
Non-government members noted the particular concern of a
number of contributors to the inquiry about the risk of over-reach and
unintended consequences.
The Law Council drew attention to ‘the potential for some information exchanges and
disclosures to be pro-competitive, and the potential for unintended
consequences to arise in the context of a blanket prohibition’. Law
Council p4 section 2.8
Choice submitted that:
…any laws in relation to price signalling need to be carefully
constructed so that the provision of information to consumers is not
unnecessarily prevented or, alternatively, that any legislation brought in is
not perceived by corporations as preventing the provision of information to
consumers unnecessarily. Lee p. 2
As mentioned earlier, non-government members believe that
the application of both a ‘purpose and effects’ test places the need for the
conduct to have anti-competitive consequences at the heart of any prohibition
of information exchange between competitors.
The Law Council asserted that:
The blanket application of the Bill to prohibit disclosure of
past, historical pricing should be removed. The threat to competition from
disclosure to competitors of future or proposed pricing is, in most cases, the
"real mischief' (and only mischief) intended to be addressed.
Law Council p.2 section 1,5
The Law Council also cautioned against relying on ACCC
guidelines to overcome deficiencies in the drafting of the Government’s Bill:
Unforeseen consequences under the Bill cannot be resolved by
the ACCC publishing administrative guidelines explaining how the ACCC intends
to enforce the Bill. Such guidelines will not be binding on the Courts or the
ACCC. Moreover, the ACCC is not the only person which may seek to enforce the
Bill, once enacted - private parties may do so as well and, in some cases, the
private parties may seek the assistance of litigation funders, which are
becoming more involved in litigation of this kind.
The Committee does not agree with the notion that any doubts
over the proper interpretation of the Bill can or should be resolved by
administrative guidelines published by the ACCC.
ACCC guidelines are welcome as an educative tool and to
clarify how the ACCC intends to exercise its powers, but they are not a
solution to problems in the design of the Bill and they cannot oust the ACCC's
discretion. Rather, these issues must be resolved in framing the Bill itself”.
Law Council submission p 10 section 5.1 5.2
The Law Council concluded that the risk of over-reach,
unintended consequences and drafting errors cannot be cured by the ACCC ‘staying
its hand as to when it may choose to enforce the new Division’.
“The new Division will be capable of enforcement by others
for motives that have nothing to do with the competition objects of this reform”.
Law Council submission p 10 section 5.7
Market-specific application
Most submitters to the inquiry could not support the
Government’s market-specific approach to its Bill.
The Law Council’s Competition and Consumer Committee
argued that:
…it is completely inappropriate for the Signalling and
Private Disclosure Prohibitions to apply only to Prescribed Goods/Services.
If the prohibitions are sound as a matter of law and
economics, they ought, unless there is a principled basis for their selective
application, to apply generally or not at all.
Law Council Jan 21 submission p.17
The Law Council added that:
No principled justification has been offered to support the
selective application of the prohibitions. The Swanson, Hilmer and Dawson
committees took the view that, absent a principled justification for selective
application, competition law prohibitions should apply generally or not at all.
Their views ought not be ignored lightly.
It is also manifestly inappropriate, and severely undermines
the integrity of the proposed reforms, for the application of the proposed
prohibitions to be determined by regulation.
Law Council Jan 21 submission p.1
The possibility of the prohibitions being unilaterally applied
to specified goods or services by regulation is contrary to the principle of general
application, and risks introducing considerable uncertainty, not only for firms
whose primary business is dealing in the goods or services that are prescribed
by regulation, but also for customers of such businesses, and for businesses
dealing in goods or services that are at risk of being prescribed. Law Council
p. 2 section 1.3
The Committee maintains its position that selective
application of competition law is a fundamentally undesirable development under
the CCA. This undesirable feature of the Bill is exacerbated by permitting the
extension of Division lA by regulation. Law Council p.3 section 2.1
However, if the Bill is to have "sector
specific" application:
- goods or services to which the Bill applies will need
to be clearly and precisely defined to minimise the uncertainty that arises from
general descriptions such as the banking sector", which at the very least
should be narrowed to the "retail banking sector"; and
- there should be a prescribed process of proper review of
a proposal to apply the proposed new Division lA to a new sector of the economy by
way of regulation
Law council submission p. 2 section 1.4
Expanded Application by Regulation
Non-government members are concerned about the lack of
certainty and identified process governing the application of the Government
Bill to addition markets by way of a subordinate instrument.
Even the ACCC is unclear on how additional markets might
be added to subject to the prohibitions in the Government’s Bill, beyond its
initial banking target.
This is despite the ACCC chairman’s widely published
public statements made during the course of the inquiry that:
This (price signalling) is an issue that would affect a
variety of sectors, not just banking
Graeme Samuel, ‘Samuel urges wider net for laws on
price signals’, Sydney Morning Herald, 26 January 2011
Mr Samuel added:
We think there are a number of (other) industries that
immediately come to mind that could be subject to this form of regulation.
Graeme Samuel, ‘Banks remain top target for rate
collusion’, Courier Mail, 26 January 2011
The ACCC CEO reaffirmed the Chairman’s position but added
to the uncertainty surrounding the process for expanding the application of the
Government’s bill.
We would hope, as I think is flagged in some of the
explanatory material from Treasury in relation to the government’s draft bill,
that the coverage would be extended. But there are no actual criteria that you
could set up and say, ‘Well, it should be this sector and it should be that
sector.
Mr Cassidy hearing p. 21
In light of the concern about the unknown ‘declared
market’ process, the Law Council submitted that:
…if the Government is nonetheless determined to proceed in
this way, there should be in the Bill a prescribed process to allow for proper
review and Parliamentary oversight of any proposal to apply the proposed new
Division lA to a new sector of the economy by way of regulation.
Law council submission p.3 section 2.2
The Australian Bankers’ Association expressed reservations
about the ‘market declaration by regulation’ provisions of the Government’s
Bill:
The quite extensive reach of (the Government’s) legislation
can be extended to a whole range of other parts of the business community by
the mere making of a regulation and its subsequent tabling. While I am sure
that the parliament scrutinises those regulations intensely, it seems it is the
‘least’ process you can go through to change the extent and the effect of
legislation.
Mr Munchenberg hearing p.40
This concern has also been recognised by the Senate
Standing Committee for the Scrutiny of Bills:
The Committee therefore seeks the Treasurer's advice about
this approach and in particular whether consideration has been given to the
possibility of defining the scope of operation of the laws (such as the
intended areas of operation, guidance as to the types of industries to which it
will apply or relevant considerations that will be examined before a decision
is made) in the primary legislation.
Senate Standing Committee for the Scrutiny of Bills, Alert Digest No. 4 of 201l, p 19
Exemptions
Extensive commentary on the range, adequacy and
effectiveness of exemptions provide in both the government’s and Coalition’s
Bills.
The exemptions seek to ensure that routine commercial
conduct that represents no threat or mischief to competition and consumer
interest are not inadvertently capture by the proposed prohibitions.
Non-government member believe that the Coalition’s
approach requiring both a ‘purpose and effects’ test always place the need for
an anti-competitive consequence as a pre-condition to offend the prohibition.
In this light, the exemptions in the Coalition’s Bill ensure that there is no
question of risk for routine and legitimate commercial conduct.
We believe that the per se prohibition and nature of the
general offence provisions requiring only a ‘purpose and/or effects’ as exists
in the Government’s Bill, place a greater burden on the Government to precisely
and comprehensively define the exemptions in its Bill.
Competition law academic experts capture the challenge the
Government’s Bill has inadequately address:
Focussing on information disclosure rather than collusion or
facilitated coordination of market conduct inevitably results in overreach and
forlorn attempts to avoid overreach by means of a thicket of exceptions.
Fisse & Beaton-Wells submission p. 2
The submissions provided detailed technical arguments on
the need to vary and refine the exemptions contained in the Bills considered by
the Committee.
Caltex suggested that:
If legislation is pursued, changes should be made, including
the clarification of the meaning of ‘already in the public domain’. In
addition, all historic data should be excluded from the prohibition of the
communication of prices so that only communications explicitly relating to future
prices would be covered and subject to a substantial lessening of competition
test. Under the legislation, the communication of pricing information to
Informed Sources would potentially be prohibited, even though it does not
relate to future prices. It is unlikely any retailer would continue to
participate in the Informed Sources service for fear of prosecution, even
though retailers see this service as pro-competitive because it facilitates
price discounting.
Ms Polly Bennett, manager, Government Affairs, Caltex, Committee
Hansard, 18 February 2011, Canberra, p. 48.
The Law Council cautioned that it:
…is aware of the indication in the Explanatory Memorandum
that a disclosure of pricing information for a proposed joint or syndicated
commercial lending arrangement to a potential borrower will be exempt under the
new Bill, as long as it is subject to the joint venture exception.
However, …not all syndicated lending arrangements will
satisfy the exception for joint ventures. Further, the disclosure of proposed
pricing and other information necessary to facilitate the formation of a
multi-lender syndicate frequently precedes any decision by any lender to join
the proposed syndicate.
Law Council submission p9 section 4.16
The Law Council identified a further deficiency in the way
of ‘block’ exemptions:
The Bill does not expressly address "block"
exemptions, i.e. notification of a class of conduct that is not necessarily
limited to a "one off' disclosure in particular circumstances. Permitting such
"block" exemptions in the notification process would go a long way to
alleviating some of the concerns of the unnecessary regulatory burden to
continuously notify benign, but at risk, conduct in respect of each
circumstance in which it is proposed.
Law Council submission p 12 section 6.10
The exemption definition of ‘joint venture’ also attracted
criticism, with the Law Council asserting that:
…if the Price Disclosure Prohibition is to be introduced,
there ought to be a joint venture exception to the prohibition. However the
Committee submits that the joint venture exception should be extended in three
important respects:- to include proposed joint ventures,
rather than solely joint ventures that have already been formed (this is the
approach taken in relation to contracts, arrangements and understandings for
the acquisition of shares or assets in s 44ZZZ(4));86
- to include joint ventures that are not
for the production or supply of goods or services (for example, joint ventures
engaged in research and development or acquisition activities); and
- to encompass other legitimate
collaborative arrangements, such as pro-competitive commercial alliances and
consortia.
The Committee has previously proposed, and now reiterates,
that ss 44ZZRO, 44ZZRP and s 76D of the CCA should be similarly extended”.
Defences
A number of submissions to the inquiry sought to introduce
the concept of ‘legitimate business justification’ as a defence to avoid a
range of problems identified with the scope and enforcement of the Government’s
Bill.
The Australian Bankers’ Association provided some
practical examples:
Given that this bill has been rushed into parliament, it is
no surprise that the bill as currently crafted would cause numerous problems
for business. The net is cast very widely and would appear to prohibit or make
considerably more difficult a range of legitimate business activities, such as
syndicated lending for large projects, work-outs for companies in difficulty
and the exchange of information to assist the mortgage-broking industry.
Mr Munchenberg, hearing p34
The Law Council advised the committee that:
The (Government’s) Bill has unintended implications for
everyday transactions that are beneficial and critical to the Australian
economy, including, for example, the formation of multi-lender transactions and
timely corporate workouts. These implications could potentially jeopardise the
ongoing operations of financially distressed companies and their ability to
refinance, possibly leading to insolvency and the employment of their employees
being put at risk.
Law Council submission p.3 section 1.8
The Law Council recommended that:
…legitimate business justifications can exist for such
exchanges between competitors. It is problematic to have created a situation
where individuals and businesses must demonstrate they fall within a specific
defence or have obtained a specific exemption before otherwise legitimate
business conduct is lawful.
Law Council submission p. 3 section 1.8
The Explanatory Memorandum to the Government’s Bill contemplates
ACCC guidelines to address concerns over the reach and interpretation of the Bill.
The Law Council is not convinced that ‘doubts over
the proper interpretation of the (Government’s) Bill can and should not be
resolved by administrative guidelines published by the ACCC’.
Such guidelines are not a solution to any problems in the
design of the Bill itself; guidelines are just guidelines and do not have the
force of law. Further, whether in fact there is a contravention of the law is
ultimately a question for the Courts. The consequences of a finding that there
has been a civil contravention are serious, and may threaten the enforceability
of security or other loan arrangements made by the relevant parties. Legal
drafting issues should therefore be resolved in the legislation itself.
Law Council submission p2. Section 1.6
Notification and Authorisation
The Bill provides for notification under section 93 as a
means of addressing concerns that the Government’s Bill ‘will apply to
everyday
commonplace transactions that are beneficial and
critical to the Australian economy, some of which may require a disclosure to
be made as a matter of urgency to meet the timing requirements of a
transaction’.
Law Council p. 2 section 1.7
The Law Council has advised the Committee that:
The confidentiality and assessment process currently used
under section 93 by the ACCC needs a considerable overhaul to address the very
different issues raised by the notification of disclosures which otherwise will
be caught by the prohibitions”
Law Council p. 2 section 1.7
Two examples provide by the Law Council of routine
transactions which it asserts do not warrant review under section 93 are the formation
of corporate "workout" scenarios and multi0lender transactions.
The Bill provides no specific solution for these commonplace
transactions, other than to point to the ability to file a notification under
section 93 of the CCA.
Law Council submission p 7 section 4.1
Another concern raised the Law Council is the mechanics of
the notification process.
One major difficulty is that, under section 93, assuming no
ACCC objection is raised to any notification which is lodged, there is
necessarily a delay during the period of assessment, which may be l4 days or
longer after notice is given to the ACCC, before the lenders can proceed to
hold these discussions.
Further, the notification process would place Australia out
of step with all other jurisdictions in which multiple lenders finance projects
and where corporate workouts occur. It is only likely to make Australia a less
attractive place in which to conduct these important transactions, undermining
Australia's potential to be a banking and business hub for emerging Asian
markets.
The Law Council expresses further concern about the
practical timeframes for the notification process will disadvantage distressed
businesses, impose unnecessary costs and delays.
In urgent matters, a delay in commencing a workout plan could
also cause significant problems for borrowers in distress, and the relevant
borrower's employees, customers and suppliers.
Law Council submission, p. 8, section 4.9
The Law Council further warns that:
…the section 93 process does not allow for any
retrospectivity - the complete defence that is gained from the notification
process only applies from the end of a prescribed statutory period, which is
currently 14 days or more from the date on which the section 93 notice is lodged
with the ACCC.
Law Council submission, p. 8, section 4.10
The Law Council also identified a number of procedural and
administrative considerations that apply under section 93 for exclusive dealing
notifications that are not readily suited to the kind of transactions and
conduct addressed by the Government’s Bill.
A number of amendments have been proposed by the Law
Council to deal with private price disclosures that should not be prohibited by
section 44ZZW as they amount to ordinary commercial transactions.
Concerns were also raised about the protection of
confidentiality as part of the Disclosure Notification process for what is
determined to be private communications.
The Law Council proposed the exclusion of Disclosure
Notifications from the Public Register and careful consideration of how public
consultation processes may impact what may well be matter of significant
commercial sensitivity.
The Law Council concluded that:
There is no good reason known to the Committee why the Bill
needs to extend to these scenarios or to impose an unwieldy notification
process. The laws of "facilitating" and "concerted"
practices in Europe and the UK and United States do not prohibit, or require
case by case exemptions to be obtained for, disclosures of information about
lending facilities in any circumstances.
Fundamentally, the Bill is overly inclusive if, every time
financiers wish to enter into a multilender facility or to participate in a
workout, they will need to resort to a formal notification process. The
increase in cost, legal fees and administrative time for the ACCC receiving such
notices will be disproportionate to any real concerns that arise in relation to
the disclosure of pricing for a particular financing arrangement. This overly
inclusive aspect of the Bill should be directly overcome in drafting rather
than by requiring that affected parties resort to notification.
Law council submission p 9 section 4.14-4.15
Caltex added that:
there is a reasonable degree of uncertainty in the
authorisation process given the role the regulator has in the authorisation
process.
Mr Street, Caltex Hearing p 54
Consultative Process
Non-Government member share the concerns of a number of
contributors to the inquiry about the Government’s and ‘lack of transparency in
the process that accompanies the government’s bill’.
“We are not in a discussion with anybody about how that
future regulation might arise in connection with our industry”. French, Caltex
hearing p. 53
Even on questions about what is meant by the Government
when it refers to the ‘banking sector’ remain unresolved from the consultation
over the Government’s Bill.
“That process should include bringing greater clarity over
the definition of the proposed sector, including initially over what is meant
by "the banking sector".
ln order to ensure that the application of the prohibitions
in Division lA does not have any unintended consequences within the banking
industry, the Committee believes there would be benefit in a consultative
process with the banking industry in relation to the terms and limitations of
any draft regulation proposed”.
Law Council submission p.3 section 2.2
The Law Council submitted that the "banking
sector" should not include wholesale or institutional banking services.”
Improved consultation and process steps were advocated by
the Law Council ‘if the Government maintains the policy of providing for sector
by sector extension by regulation’.
“The process for extension of the CCA should be subject to
wider consultation with the sector concerned before any regulation is issued.
This process should be set out in the Bill … (and) include
(at a minimum):
- criteria relating to the features of a product market
that warrant it being brought under the Bill should be developed and stated in
the Bill;
- publication by the Minister of a draft proposal to
include a sector or market under the new Division, with appropriate definition
of the market or sector and the basis for the inclusion;
- a review and public consultation period should apply to
all proposed new regulations; and
- publication by the Minister of reasons for proceeding
with the regulation, after taking into account the submissions received”.
Law Council p4 section 2.7
The Law Council, in the view of non-government members,
rightly criticises the indecent haste with which the Government has sought to
advance its Bill.
The Law Council observed that:
“The fact that:
- the proposed prohibitions are intended to apply only to
the banking sector in the first instance;
- the Exposure Draft has been released in the context of
the Banking Reforms;
- the government has not led a public discussion about the
application of the proposed prohibitions in any other context;
- the government hopes to "move through" the
public consultation on the Exposure Draft "as quickly as we possibly
can"; and
- the public consultation period is limited to less than
five weeks, including the Christmas and New Year period,
means that the proposed prohibitions are unlikely to benefit
from the depth and breadth of public input that such significant legal reforms
warrant, to the detriment of Australian competition law, and ultimately to the
Australian economy”.
Law Council p4 section 2.7
Conclusion
Non-government members of the Committee believe that it is
particularly important to have thoughtful and well-informed input into the
development both the Government and Coalition Bills.
The submissions to the inquiry provide example after example
of deficiencies in the Government’s Bill that the Government is either
unwilling or unable to address.
The Government’s Bill is simply underdone and far to flawed
to support in its current form.
Competition law academic experts concur with this assessment
of the Government’s Bill. Alternative approaches and substantive amendments
have been proposed by contributors to the inquiry but no meaningful examination
of this input has occurred.
We recommend that the (Government’s) CCA Bill not be enacted.
The policy objective of prohibiting practices that facilitate anti-competitive
coordination between competitors is achievable by amendments that would avoid
the complexity, overreach and impracticality of the provisions in the (Government’s)
Bill.
Fisse & Beaton-Wells submission, p.18
In the absence of any preparedness
by the Government to genuinely address the many legitimate concerns about its
Bill, the non-government member of the Committee believe the parliament and
Australian would be best served by considering the passage of the Coalition’s
Bill.
As leading law firm Mallesons
concluded and convey in its 20 April 2011 bulletin :
While the
Coalition's draft Bill would need some revision and modification, it would appear
to be the preferable alternative on the basis that it would require
demonstration of an anti-competitive purpose and a substantial anti-competitive
effect, rather than simply imposing a blanket prohibition on disclosure”.
Recommendation
That the House of
Representatives pass the Competition and Consumer (Price Signalling) Amendment
Bill 2010 and reject the Competition and Consumer Amendment Bill (No. 1) 2011.
Mr Steven Ciobo MP The
Hon Bruce Billson MP
Deputy Chair
Mr Scott Buchholz MP Ms
Kelly O’Dwyer MP
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