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Trade Practices Amendment (Cartel Conduct and Other Measures) Bill 2009

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2008-2009

 

THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA

 

 

 

SENATE

 

 

 

 

 

SUPPLEMENTARY EXPLANATORY MEMORANDUM

AND

CORRECTION TO THE EXPLANATORY MEMORANDUM

Amendments Moved on Behalf of the Government

 

 

(Circulated by the authority of the

Assistant Treasurer and Minister for Competition Policy and Consumer Affairs, the Hon Chris Bowen MP)



T able of contents

Glossary.............................................................................................................. 1

General outline and financial impact............................................................ 3

Chapter 1            Detailed explanation of amendments............................. 5

 



The following abbreviations and acronyms are used throughout this supplementary explanatory memorandum.

Abbreviation

Definition

TP Act

Trade Practices Act 1974

Bill

Trade Practices Amendment (Cartel Conduct and Other Measures) Bill 2008

ACCC

Australian Competition and Consumer Commission

Committee

Senate Standing Committee on Economics



Outline of Amendments

The amendments to the joint venture exceptions contained in the Trade Practices Amendment (Cartel Conduct and Other Measures) Bill 2008 (‘the Bill’) amend Part IV of the Trade Practices Act 1974 (‘the TP Act’) to:

•        provide exceptions from the criminal offences and civil penalty prohibitions in the Bill for joint venture parties that intend and reasonably believe that a transaction was a contract within the scope of the joint venture exceptions created by the Bill, but as a matter of law failed to make a contract; and

•        insert explanatory notes into the Bill to clarify the inter-relationships between the joint venture exceptions and other provisions contained in the Bill.

Equivalent amendments are made to the joint venture exceptions that will be inserted by this Bill into the Schedule version of Part IV of the TP Act.

Date of effect The amendments commence at the same time as the other amendments in Schedule 1 of the Bill — that is, the 28 th day after the day on which the Bill receives Royal Assent.

Financial impact Nil.

Compliance cost impact Nil.

Do not remove section break.



C hapter 1     

Detailed explanation of amendments

General overview of joint venture exceptions

1.1                   A joint venture is an association of persons formed for the purpose of pursuing a particular business objective together, and may be undertaken through a partnership or some other form of unincorporated association or through an incorporated body.  It involves a level of integration between the participants which is less than would amount to a merger.  ‘Joint venture’ does not have a settled common law meaning in Australia, reflecting the fact that joint ventures can take various forms.  Current section 4J of the TP Act provides a broad definition of joint venture.

1.2                   Joint ventures have an important role to play in Australia’s economy, and can be pro-competitive, particularly when they are employed as a means of developing new products or services or producing existing products or services more efficiently.  However, a joint venture may have anti-competitive aspects, as it may affect competition between the joint venture and one or more of its participants, or between the participants themselves.

1.3                   The Trade Practices Amendment (Cartel Conduct and Other Measures) Bill 2008 (‘the Bill’) seeks to strike a balance between deterring and prohibiting harmful cartel behaviour, while providing sufficient flexibility to allow firms to enter into potentially beneficial strategic alliances, including through joint ventures. 

1.4                   The Bill does so by providing exceptions for joint ventures from the criminal offences and civil penalty prohibitions relating to serious cartel conduct.  These exceptions do not require the party seeking to rely on the exceptions to substantiate that a particular provision of a contract, arrangement or understanding does not substantially lessen competition.  This is because to require proof that certain arrangements did or did not substantially lessen competition before a jury would be extremely problematic, and potentially diminish the deterrent effect of the criminal and civil prohibitions in the Bill.  Instead, the exceptions employ other means of ensuring that conduct that, in the past has not generally raised anti-competitive concerns, is excepted from the scope of the offences and civil penalty provisions.  For example, the joint venture exceptions apply to a contract containing a cartel provision, if the cartel provision is for the purposes of the joint venture, and the joint venture is for the production and/or supply of goods or services, and the definition of a joint venture in section 4J is satisfied.

1.5                   On 4 December 2008, the Bill was referred to the Senate Standing Committee on Economics (‘the Committee’) for inquiry and report, which it provided on 26 February 2009.  The Committee recommended that the Bill be passed.  Submissions to the inquiry raised concerns regarding the joint venture exceptions in sections 44ZZRO and 44ZZRP of the Bill, including whether the scope of those exceptions that are stated specifically to apply to joint ventures would extend to cover acquisitions by joint ventures, and whether the joint venture exceptions covered various factual circumstances. 

1.6                   The Government considers that the Bill addresses the concerns raised in the submissions, either by operation of the joint venture exceptions themselves, or through the other exceptions provided in the Bill (notwithstanding that those other exceptions are not stated to specifically apply to joint ventures).  In any event, it will be open to joint ventures to seek authorisation from the Australian Competition and Consumer Commission (‘the ACCC’) of a cartel provision, in the event that the exceptions are not applicable.

1.7                   However, the Government considers that Examples 1.1 to 1.4 below will provide further clarity in relation to the issues raised in some submissions.  Ultimately, the parties concerned would need to consider whether or not the criminal offences and civil penalty prohibitions provided in the Bill would apply to their particular factual circumstances.

1.8                   In addition, in the course of considering the joint venture exceptions in the Bill, the Government determined that amendments are desirable to ensure that the joint venture exceptions will be available where joint venturers can prove that they intended and reasonably believed that they were a party to a valid joint venture contract.  These amendments are detailed below.

Examples

Joint venture exceptions

1.9                   Example 1.1 demonstrates that the joint venture exceptions themselves provide scope for particular types of joint ventures to make acquisitions without breaching the criminal offences or civil penalty prohibitions in the Bill. 

Example 1.1  

If an acquisition by a joint venture is provided for in a joint venture contract, and the acquisition is for the purposes of that joint venture, and the joint venture is for the production and/or supply of goods or services, then such acquisitions would fall within the scope of sections 44ZZRO or 44ZZRP.  The exceptions cover acquisitions in the form of inputs that are for the purposes of that joint venture, as long as the other joint venture exception prerequisites are met (for example, that the acquisition is provided in a joint venture contract).

Acquisitions of shares or assets exception

1.10               Example 1.2 demonstrates that section 44ZZRU (while not specifically stated to apply to joint ventures) may also apply to enable a joint venture to make particular types of acquisitions (of shares in the capital of a body corporate, or the assets of a person) without breaching the criminal offences or civil penalty prohibitions in the Bill.  Unlike the joint venture exceptions, the exception provided under section 44ZZRU is not limited to joint ventures established under a contract only.

Example 1.2

Section 44ZZRU provides that the criminal offences and civil penalty prohibitions introduced by the Bill do not apply to a contract, arrangement or understanding, in so far as the cartel provision provides directly or indirectly for the acquisition of any shares in the capital of a body corporate, or any assets of a person.  The exception is stated to apply to a contract, arrangement or understanding containing a cartel provision, and does not exclude its application to joint ventures.  However, if a joint venture sought to rely on this exception, the joint venture could expose itself to liability under the current section 50 civil prohibition in the TP Act (which contains a substantial lessening of competition test).

Collective acquisition of goods or services and re-supply exception

1.11               Example 1.3 demonstrates that section 44ZZRV (while also not specifically stated to apply to joint ventures) may also apply to enable a joint venture to make acquisitions without breaching the criminal offences or civil penalty prohibitions in the Bill.  Unlike the joint venture exceptions, the exception provided under section 44ZZRV is not limited to joint ventures established under a contract only, but alternative prerequisites regarding the scope of the exception apply.

Example 1.3

The exception in section 44ZZRV provides that the criminal offences and civil penalty prohibitions in the Bill do not apply to a contract, arrangement or understanding containing a cartel provision, in so far as the cartel provision has the purpose, effect or likely effect of fixing prices (broadly speaking), and either the cartel provision relates to the price of goods or services to be collectively acquired, whether directly or indirectly, to the parties to the contract, arrangement or understanding, or the cartel provision is for the joint advertising of the price for the re-supply of goods or services so acquired.  That is, the exception does not exclude its application to joint ventures, and could be relied upon by joint ventures engaged in marketing activities regarding goods or services collectively acquired. 

Making and giving effect to a cartel provision in joint venture contract exception

1.12               In certain circumstances a joint venture may be concerned that day-to-day decisions made by a management board, comprising representatives of members of the joint venture, may be found to be arrangements or understandings which contain cartel provisions that do not have the benefit of the joint venture exceptions.  In those circumstances, the joint venture parties would need to consider carefully whether the activities in relation to which they are concerned are cartel provisions according to the definition under section 44ZZRD, and if so, whether the particular activity is contemplated and regulated by an underlying joint venture contract.  If a board or committee is established under the joint venture contract to regulate or manage the joint venture and the activities of that board or committee are contemplated and regulated by the joint venture contract, then the exceptions would appear to apply in relation to those activities.

1.13               Example 1.4 demonstrates the interaction of the elements of the joint venture exceptions.

Example 1.4  

Two or more parties enter into a joint venture to own or develop a shopping centre, and have a contract containing clauses to the effect that a management committee comprising representatives of the joint venture parties will decide from time to time the rent and other charges within their shopping centre, and then later proceed to do so.  If the original contract that was made has a provision providing for the making of decisions as to rent and other charges by that management committee for the purposes of the joint venture, then the process of making and giving effect to those decisions would appear to be covered by the exception.

Amendments providing exceptions for transactions intended and reasonably believed to be contracts

1.14               Amendments 3 and 9 insert into Schedule 1, item 19 sections 44ZZRO and 44ZZRP of the Bill additional exceptions for joint ventures. 

1.15               Amendment 3 inserts into section 44ZZRO (the joint venture exception for criminal proceedings) two additional exceptions for joint ventures — one that operates in respect of criminal proceedings under section 44ZZRF regarding making a contract containing a cartel provision (subsection 44ZZRO(1A)), and the other that operates in respect of criminal proceedings under section 44ZZRG regarding giving effect to a cartel provision in a contract (subsection 44ZZRO(1B)). 

1.16               These amendments clarify that, if the parties to a joint venture sought to make a contract, or the parties intended to give effect to a cartel provision in a contract, and at the relevant time all of the parties intended and reasonably believed that the transaction in question was a contract, then such a transaction would qualify for the purposes of establishing a joint venture exception applicable to a contract.

1.17               In each case, Amendment 3 inserts explanatory notes into the joint venture exceptions to clarify that the party seeking to rely on the relevant exception would bear an evidential burden of establishing the matters contained in the exception.

1.18               Amendments 4, 5, 6 and 7 amend subsection 44ZZRO(2) to insert references to subsections 44ZZRO(1A) and (1B).  The effect of this is to apply the ‘Notice to prosecutor’ obligation in subsection 44ZZRO(2) to subsections 44ZZRO(1A) and (1B), in addition to subsection (1).

1.19               Amendment 9 inserts into section 44ZZRP (the joint venture exception for civil proceedings) two additional exceptions for joint ventures — one that operates in respect of civil proceedings under section 44ZZRJ regarding making a contract containing a cartel provision (subsection 44ZZRP(1A)), and the other that operates in respect of criminal proceedings under section 44ZZRK regarding giving effect to a cartel provision in a contract (subsection 44ZZRP(1B)). 

1.20               Again, these amendments clarify that, if the parties to a joint venture sought to make a contract, or the parties intended to give effect to a cartel provision in a contract, and at the relevant time all of the parties intended and reasonably believed that the transaction in question was a contract, then such a transaction would qualify for the purposes of establishing a joint venture exception applicable to a contract.

1.21               Amendment 10 amends subsection 44ZZRP(2) to clarify that the party seeking to rely on the relevant exception would bear an evidential burden of establishing the matters contained in the exception.

1.22               Amendments 12 and 19 insert into Schedule 1 item 126 sections 44ZZRO and 44ZZRP of the Bill additional exceptions for joint ventures.  These amendments are equivalent to Amendments 3 and 9 referred to above, except that Amendments 3 and 9 apply to provisions to be inserted into Part IV of the TP Act, whereas Amendments 12 and 19 apply to provisions to be inserted in the Schedule version of Part IV of the TP Act. 

1.23               Amendment 13 amends the Schedule version of Part IV subsection 44ZZRO(2) to clarify that the party seeking to rely on the relevant exception would bear an evidential burden of establishing the matters contained in the exception.

1.24               Amendments 14 to 17 amend the Schedule version of Part IV subsection 44ZZRO(2) to insert references to the Schedule version of Part IV subsections 44ZZRO(1A) and (1B).  The effect of this is to apply the ‘Notice to prosecutor’ obligation in the Schedule version of Part IV subsection 44ZZRO(2) to the Schedule version of Part IV subsections 44ZZRO(1A) and (1B), in addition to subsection (1).

1.25               Amendment 20 amends the Schedule version of Part IV subsection 44ZZRP(2) to clarify that the party seeking to rely on the relevant exception would bear an evidential burden of establishing the matters contained in the exception. 

Amendments inserting explanatory examples regarding research and development joint ventures

1.26               Amendments 2, 3, 8, 9, 11, 12, 18 and 19 insert an explanatory note into the existing joint venture exceptions in the Bill, and into the joint venture exceptions inserted by these Government amendments, to clarify that, to the extent that a research and development joint venture is formed and proceeds to produce and supply the fruits of the relevant research and development to the parties to the joint venture, it may be producing a ‘service’ as defined under section 4 of the TP Act, and therefore qualify under the relevant joint venture exception.

1.27               This is because ‘services’ is defined broadly to include (but is not limited to) any rights, including rights in relation to, and interests in, real or personal property.  Research and development could therefore produce or develop intangible rights.

1.28               Amendments 2, 3, 8 and 9 insert the explanatory note referred to above into the joint venture exceptions in Part IV of the TP Act.  Amendment 1 is made consequential to Amendment 2, to renumber the existing note in section 44ZZRO of Part IV of the TP Act.

1.29               Amendments 11, 12, 18 and 19 insert the same explanatory note into the joint venture exceptions in the Schedule version of Part IV of the TP Act.

Correction to the Explanatory Memorandum

1.30               Amend clause 8.15 (Privilege against self incrimination or exposure to a penalty) as follows:

Fourth and fifth line — omit “current section 154R in the TP Act”, substitute “section 154R in the TP Act as proposed to be amended by item 30 of Schedule 2”.