Dawson Report – preliminary response: criminal sanctions major step forward for competition policy

Sanctions

The Dawson Committee recommendation that criminal sanctions be introduced for hard core cartel activities was a major step forward for Australian trade practices law, Australian Competition and Consumer Commissioner Chairman, Professor Allan Fels, said today.

"Australia will now join our many trading partners in recognising that when individuals set out to deliberately and blatantly break the cartel laws (or anti-cartel laws), they should face criminal sanctions.

"The ACCC knows that criminal sanctions are necessary to combat hard-core cartels which the OECD has labelled the most 'egregious violations of competition laws' and which it has estimated affect many billions of dollars worth of commerce world wide each year.

"Those guilty of social security and tax fraud and those who manipulate stock markets or pollute the environment may face imprisonment. It is inconsistent that those found guilty of hard-core collusion may only be liable for a civil penalty. Such collusion is comparable to fraud and must be regarded as morally reprehensible.

"This change to the law will be of benefit to consumers, big and small business. Highly profitable cartels will now become much less attractive to potential law-breakers.

"The ACCC is confident that the proposed committee will be able to clarify remaining issues in relation to criminal sanctions.

"The ACCC welcomes the committee's acceptance of the ACCC proposal that the maximum penalty for corporations be raised to the greater of $10 million or three times the gain of the contravention or, in certain circumstance, 10 per cent of the body corporate, including associated companies. This is in line with international practice and should serve as an enhanced deterrent. The ACCC is pleased that the court will be given the option to exclude an implicated individual from being a corporation director or manager.

Section 46

"The ACCC is disappointed that the committee has not accepted the need for change to section 46 of the Act, dealing with misuse of market power.

"The simple fact is that there has only been one case since 1991 where misuse of market power has been found to have occurred (Warner Music and Universal) and that is on appeal. And cases take six to seven years to resolve. These poor results are despite active ACCC litigation under the Act and despite its history of success in other areas of litigation under the Act.

"It defies belief that there has only been one instance since 1990 where big business has used its market power to harm competition. So this part of the law works poorly and the committee has failed to come up with any useful suggestions for change.

"Following the recent High Court ruling on Boral, there is further ongoing uncertainty as to the effectiveness of this provision as the court has adopted a restrictive interpretation.

"A further debate will be necessary on what to do about Section 46. It is an important element of the Trade Practices Act which is not working well and the committee has not provided any answers.

Mergers

"The ACCC welcomes the committee's endorsement of the current mergers test.

"The committee has made recommendations aimed to improve the process of dealing with mergers. These fall into two categories. The first is a set of new processes intended to streamline the process and to make it more formal in some respects. These processes look to be complex and are likely to require more thought. For example, the current Qantas/Air New Zealand authorisation case involves a mixture of proposals involving (a) acquiring of a 22 per cent interest in Air New Zealand; and (b) price-fixing and other seemingly anticompetitive agreements. Under the committee's proposals these would be handled under different processes, different time lines and different appeal rights. There could be an appeal by consumers or competitors on the price-fixing but not the acquisition of shares, for example. It is perhaps too early for anyone to reach quick judgment on these proposals because the proposed processes raise complex issues.

"The ACCC is concerned with the second category that companies be allowed to bypass the ACCC and directly apply for merger authorisation to the Australian Competition Tribunal. It is unclear what role, if any, there would be for public or small business participation in public interest determinations under this proposal. The Tribunal is a legal body with firms represented by legal counsel. It is a poor venue for consumers and small businesses to use. The current open and transparent process for considering merger authorisations which facilitates participation in the process by all interested parties will cease. This is notwithstanding that this open and transparent process will continue to apply to other authorisation issues.

"The ACCC is also concerned that this recommendation will eliminate the opportunity for merits review. The right of parties materially affected by a merger, such as customers, suppliers and competitors to seek a merits review of a merger authorisation decision will be removed. The ACCC notes that one of the main proponents of this proposal, the Law Council of Australia, has previously been a staunch supporter and defender of the merits review system in relation to other areas of the law.

Review Board

"The ACCC welcomes that the committee agrees that ACCC is a highly accountable and independent authority. The recommendations of the committee confirm that the introduction of a further oversight Board, or Inspector General, was neither necessary nor appropriate.

"The ACCC notes the committee's call for a stronger consultative committee to assist the ACCC. This recommendation echoes the ACCC's own concerns. The ACCC welcomes the committee's suggestions and will move towards their implementation.

Small Business Collective Bargaining

"The committee has adopted the ACCC's suggestions to address issues raised by small business in relation to collective bargaining with big businesses.

"The ACCC's preferred option was modelled on the existing notification process whereby immunity from the competition provisions of the Act is available – where it is in the public interest – through a more streamlined and cost-effective process. This has been endorsed by the committee. While the ACCC welcomes this, there are still issues in the relationships between small and big business.

Media

"The ACCC welcomes the committee’s acknowledgment of the important and legitimate use of the media by the ACCC. For example the committee said it was appropriate and cost-effective for the ACCC to use the media to educate both business and consumers about their rights and obligations.

"The Media Code based on certain principles as recommended by the committee is essentially consistent with the ACCC's normal and preferred media policy and with the principles suggested by the ACCC.

Section 4D

"The committee has made recommendations to cut back the scope of Section 4D which concerns 'collective boycotts'. It would do so by various means including by the introduction of a defence that the boycott does not lessen competition. There may or may not be some merit in the recommendation.

"However the ACCC has serious concerns about the recommendation that only contracts whereby competitors seek to exclude other competitors will be automatically prohibited. This will have a serious impact on the ACCC's ability to combat agreements between competitors to rig bids, collude in tendering or share markets, all of which are directed at the buyer rather than competing suppliers".