Section 45 of the Act prohibits contracts, arrangements or understandings that would be likely to substantially lessen competition in a market. To arrive at this decision, a number of factors must be considered:
is there an 'agreement' caught by the Act?
what is the market?
does the conduct lessen competition?
is the lessening substantial?
The aim of this section is to prohibit conduct that damages competition in a market—even if that conduct does not meet the stricter standards of the strict prohibitions contained in other sections (such as ss. 44ZZRF, 44ZZRG, 44ZZRJ and 44ZZRK, which deal with price fixing).
Serious penalties apply for breaching this section of the Act.
Agreements: contracts, arrangements and understandings
Under the Act, these three forms of agreement possess similar meanings. Essentially they involve the development of a plan of action between two or more people that may not be enforceable at law but they have every intention of following.
In relation to ‘arrangement’, the court has said:
... when each of two or more parties intentionally arouses in the others an expectation that he will act in a certain way, it seems to me that he incurs at least a moral obligation to do so. An arrangement as so defined is therefore something whereby the parties to it accept mutual rights and obligations.
TPC v Nicholas Enterprises Pty Ltd (No 2) (1979) FLR 83
As to ‘understanding’:
An understanding must involve the meeting of two or more minds. Where the minds of the parties are at one that a proposed transaction between them proceeds on the basis of the maintenance of a particular state of affairs or the adoption of a particular course of conduct, it would seem that there would be an understanding ...
Top Performance Motors Ltd v Ira Berk (Qld) Pty Ltd (1975) 24 FLR 286
To arrive at an understanding or to make an arrangement it is not necessary for anything to be written down. In fact, such agreements are often not put into writing. Nothing need even be expressed—a ‘nod and wink’ is sufficient. The court will, if necessary, infer the requisite meeting of minds from circumstantial evidence such as evidence of joint action, similar pricing structures, etc.—even from evidence of opportunities the parties had to reach an understanding.
Thus it is important to consider both what is actually said and what each party understands to be the position.
What is the market?
To determine whether conduct has any effect in a market, you need to determine what the market is. One widely-accepted judicial definition is the following:
A market is the area of close competition between firms or ... the field of rivalry between them. ... Within the bounds of a market there is substitution—substitution between one product and another, and between one source of supply and another, in response to changing prices. ... In determining the outer boundaries of the market we ask a quite simple but fundamental question: if the firm were to ‘give less and charge more’ would there be, to put the matter colloquially, much of a reaction.
Queensland Cooperative Milling Association Ltd/Defiance Holdings Ltd, re proposed merger with Barnes Milling Ltd (1976) ATPR 40-012
A market has four important elements.
Product
The range of goods or services (including substitutes for them) that will satisfy customer requirements. Customer response to price changes is an important clue to whether products are in the same market.
Geography
The geographic area within which a product is traded—for example, the Sydney metropolitan newspaper market, the south-east Queensland gas market.
Level of function
The particular market level at which a company operates—for example, manufacturing, wholesale, retail.
Time
The period of time over which substitution possibilities are considered. Generally, substitution possibilities are considered for the period of the foreseeable future such that substitutes will constrain the exercise of significant market power by the merged entities.
Each of these items must be examined in coming to a conclusion regarding the relevant market.
What is ‘substantial’?
In various cases ‘substantial’ has been defined as large, weighty, big, real or of substance or not insubstantial. It is not straightforward; its meaning depends on the context.
It is an important concept in competition and consumer law because it arises in so many provisions. Many sections of the Act will only be breached where the effect or likely effect of the conduct will be to ‘substantially lessen competition in a market’. The term ‘substantial’ is used elsewhere in the Act, for example:
deciding whether a merger would result in a substantial lessening of competition in a substantial market
in determining whether a corporation has misused its market power, it must first be established that the corporation has a substantial degree of power in the relevant market
in determining whether goods are a product of Australia, whether they have been substantially transformed.
Basically, the term must be understood in a relative sense—whether the effect in question is important or weighty in relation to the size of the particular market.
In Stirling Harbour Services Pty Ltd v Bunbury Port Authority [2000] FCA 38; (2000) ATPR 41-752, Justice French said that to work out whether competition is being substantially lessened ‘there [must] be a purpose, effect or likely effect of the impugned conduct on competition which is substantial in the sense of meaningful or relevant to the competitive process’.
