BOARD POLICY
Title
Competition and Consumer Act 2010
Compliance Policy
Version
1
Policy No.
BP2013/03
Effective date
8 July 2013
1. OVERVIEW
This policy relates to the requirement for the Corporation and all its employees to comply with the
restrictive trade practices and consumer protection provisions contained in the Competition and
Consumer Act 2010.
2. BACKGROUND
In 2010 the Trade Practices Act (TPA) was amended and renamed the Competition and Consumer
Act 2010 (“the CCA”). The CCA for all intents and purposes is the same legislation as the TPA in
relation to provisions dealing with restrictive trade practices. The TPA’s consumer protection
provisions have been amended and placed in Schedule 2 to the CCA. The Schedule 2 provisions
comprise “the Australian Consumer Law” (ACL).
All government authorities that carry on a business, including State Owned Corporations like the
Forestry Corporation are subject to the CCA. Pecuniary penalties apply to breaches of the CCA.
The penalty for corporations and authorities of the State may exceed $10 million.
An individual employee can be liable for a pecuniary penalty for a breach of the CCA even where
the person is acting within the scope of his or her duties. The maximum penalty for individuals is
currently $500,000.
3. SCOPE
This policy applies to Forestry Corporation Board members, employees, contractors and/or any
other person conducting business on behalf of the Corporation.
4. POLICY
4.1. A review of restrictive trade practices and consumer protection provisions has shown
that the likelihood of Forestry Corporation being in breach of the CCA in the conduct of
its normal business is low (see attached discussion paper). Nevertheless, it is
imperative that staff are aware of these provisions and make every effort to ensure
compliance.
4.2. A copy of the CCA is available on the intranet together with this policy and the attached
discussion paper and all staff are required to familiarise themselves with the provisions
of the Act and ensure their actions do not represent or result in a breach of the Act.
4.3. Any observed breach or potential breach of the CCA is to be brought to the attention of
the relevant General Manager and/or Company Secretary immediately.
4.4. The Corporation will not provide financial assistance to and may take disciplinary action
against any individual who knowingly or by ignorance places the Corporation in breach
of the CCA.
4.5. Staff engaged in negotiating contracts and setting prices undertake appropriate
training.
Document title: Competition and Consumer Act 2010 Compliance Policy –
BP2013/03
Document ID (TRIM No.): D00146380
Version No. 1
P a g e |1
Issue Date: 8/07/2013
Review Date: 8/07/2016
5. RELATED LEGISLATION
ƒ
ƒ
Competition and Consumer Act 2010
Forestry Act 2012
6. RELATED POLICIES
ƒ
ƒ
ƒ
Code of Conduct
Board Charter
Forestry Corporation Constitution
7. RELATED DELEGATIONS
ƒ
NA
8. RELATED DOCUMENTS
ƒ
Discussion Paper: The Competition and Consumer Act 2010 (Attachment 1)
9. REVISION HISTORY
Version
1
Policy Number
BP2013/03
Date
08/07/2013
10. DATE OF NEXT REVIEW
July 2016
11. CONTACT OFFICER
Forestry Corporation’s General Counsel
Chief Executive Officer
Document title: Competition and Consumer Act 2010 Compliance Policy –
BP2013/03
Document ID (TRIM No.): D00146380
Version No. 1
P a g e |2
Issue Date: 8/07/2013
Review Date: 8/07/2016
Attachment 1
DISCUSSION PAPER:
THE COMPETITION AND CONSUMER ACT 2010
TABLE OF CONTENTS
1.
INTRODUCTION..............................................................................................................................4
1.1
1.2
1.3
1.4
1.5
1.6
1.
PURPOSE OF THIS PAPER ....................................................................................................4
BACKGROUND.....................................................................................................................4
KEY ELEMENTS OF THE RESTRICTIVE TRADE PRACTICES PROVISIONS ..................................4
PROHIBITED AND CONDITIONALLY PROHIBITED CONDUCT .....................................................4
MISUSE OF MARKET POWER................................................................................................4
CONSUMER PROTECTION PROVISIONS ..................................................................................4
POTENTIAL APPLICATION OF THE CCA TO THE FORESTRY CORPORATION AND PENALTIES
5
2.1 THE FORESTRY CORPORATION ...................................................................................................5
1.2 FORESTRY CORPORATION EMPLOYEES .......................................................................................5
2.
GENERAL TRADE PRACTICES CONCEPTS ...............................................................................5
3.1
3.2
3.3
3.4
3.5
3.6
4.
CONDUCT THAT IS STRICTLY PROHIBITED ..............................................................................7
4.1
4.2
4.3
4.4
5.
Market ...............................................................................................................................5
Market Power....................................................................................................................5
Competition.......................................................................................................................6
Substantial Lessening of Competition ..............................................................................6
Contract, Arrangement or Understanding ........................................................................6
Purpose or Effect ..............................................................................................................6
EXCLUSIONARY PROVISIONS – SECTION 45(2)(A)(I) AND SECTION 4D ...................................7
PRICE FIXING – SECTION 45A .............................................................................................7
THIRD-LINE FORCING – SECTION 47(6) ................................................................................9
RESALE PRICE MAINTENANCE – SECTION 48 .......................................................................9
CONDUCT THAT IS CONDITIONALLY PROHIBITED ................................................................10
5.1
ANTI-COMPETITIVE CONTRACTS – SECTION 45 ..................................................................10
5.2
SECONDARY BOYCOTTS – SECTION 45D ...........................................................................10
5.3
EXCLUSIVE DEALING – SECTION 47 ...................................................................................10
5.4
MERGERS AND ACQUISITIONS – SECTION 50 ......................................................................10
5.5
GENERAL COMMENT ON THE RELEVANCE OF CONDITIONALLY PROHIBITED PRACTICES TO
FORESTRY CORPORATION ................................................................................................................11
6.
THE
MISUSE OF MARKET POWER ....................................................................................................11
6.1
MISUSE OF MARKET POWER – SECTION 46 ........................................................................11
6.2
Proscribed Purposes ......................................................................................................12
6.3
More than One Purpose .................................................................................................12
6.4
Market Power..................................................................................................................12
6.5
Take Advantage of Market Power ..................................................................................12
6.6
Legitimate Business Reasons ........................................................................................12
Relevance to the Forestry Corporation ..........................................................................................13
7.
MISLEADING OR DECEPTIVE CONDUCT UNDER THE ACL ...................................................13
7.1
7.2
7.3
7.4
7.5
8.
UNCONSCIONABLE CONDUCT UNDER THE ACL ...................................................................15
8.1
8.2
9.
BROAD DESCRIPTION ........................................................................................................13
IN TRADE OR COMMERCE ...................................................................................................13
NO EXCLUSION .................................................................................................................14
ENFORCEMENT AND REMEDIES ..........................................................................................14
RELEVANCE TO THE FORESTRY CORPORATION ..................................................................14
UNCONSCIONABLE CONDUCT UNDER THE UNWRITTEN LAW ..................................................15
UNCONSCIONABLE CONDUCT IN CONNECTION WITH GOODS AND SERVICES ...........................15
CONCLUSION ...............................................................................................................................16
Document title: Competition and Consumer Act 2010 Compliance Policy –
BP2013/03
Document ID (TRIM No.): D00146380
Version No. 1
P a g e |3
Issue Date: 8/07/2013
Review Date: 8/07/2016
1.
1.1
Introduction
PURPOSE OF THIS PAPER
The purpose of this paper is to provide background for a decision by the Senior Management Team and the
Board of the Forestry Corporation regarding the necessity to develop and implement a Competition and
Consumer Act 2010 compliance policy and program, and the scope of such a program.
1.2
BACKGROUND
In 1995 all States and Territories and the Commonwealth signed the Conduct Code Agreement and the
Competition Principles Agreement. As a result, from 21 July 1996, the restrictive trade practices provisions in
Part IV of the Trade Practices Act 1974 (Cth) (the TPA) applied to all areas of the NSW Government that
represent the Crown and that carry on a business, including the then Forestry Commission of NSW.
In 2010 the TPA was amended and renamed the Competition and Consumer Act 2010 (“the CCA”). The
CCA for all intents and purposes is the same legislation as the TPA in relation to provisions dealing with
restrictive trade practices. The TPA’s consumer protection provisions have been amended and placed in
Schedule 2 to the CCA. The Schedule 2 provisions comprise “the Australian Consumer Law” (the ACL).
This paper gives a general explanation of the restrictive trade practices provisions of the CCA and the
consumer protection provisions of the ACL with commentary on their potential application to the Forestry
Corporation’s business activities.
1.3
KEY ELEMENTS OF THE RESTRICTIVE TRADE PRACTICES PROVISIONS
To fully understand, interpret and apply the provisions of Part IV of the CCA (which deal with anticompetitive
or restrictive trade practices) it is important to examine the following five key elements:
•
market;
•
competition;
•
substantial lessening of competition;
•
contract, arrangement or understanding; and
•
purpose or effect.
There is considerable case law on these concepts. In a broad review such as this paper discussion of these
concepts is necessarily limited.
1.4
PROHIBITED AND CONDITIONALLY PROHIBITED CONDUCT
Some restrictive trade practice conduct is considered to be so serious that it is illegal no matter what its
effect on competition. In this paper, this conduct is called strictly prohibited conduct.
Other restrictive trade practice conduct is illegal only if it has the purpose, effect or likely effect of
substantially lessening competition in the relevant market. In this paper, this conduct is called conduct that
is conditionally prohibited.
1.5
MISUSE OF MARKET POWER
Misuse of market power is a separate category of conduct that does not come within either of the categories
referred to in paragraph 1.4 and is discussed separately.
1.6
CONSUMER PROTECTION PROVISIONS
The consumer protection provisions of the ACL are unrelated to competition and include the prohibition
against misleading and deceptive conduct formerly section 52 of the TPA.
Document title: Competition and Consumer Act 2010 Compliance Policy –
BP2013/03
Document ID (TRIM No.): D00146380
Version No. 1
P a g e |4
Issue Date: 8/07/2013
Review Date: 8/07/2016
POTENTIAL APPLICATION OF THE CCA TO THE Forestry Corporation AND PENALTIES
2.1 THE FORESTRY CORPORATION
The CCA expressly provides that a State Government will not be liable to a pecuniary penalty under the Act.
But this protection does not apply to an authority of the State such as the Forestry Corporation.
The restrictive trade practices provisions of the CCA apply to the State, when it or an authority of the State
such as the Forestry Corporation is “carrying on a business” (see s2B(1)).
However, as a statutory State owned corporation the Forestry Corporation does not represent the State (see
s20F State Owned Corporations Act 1989). Therefore, it is not necessary that the Forestry Corporation is
carrying on a business before it is subject to Part IV of the CCA. In any event, it is clear that the Forestry
Corporation is, in the conduct of its core activities of managing native forests and plantations and harvesting
and selling the timber on them, is carrying on a business. This can be demonstrated by reference to NT
Power Generation Pty Ltd v. Power and Water Authority [2004] H.C.A 4 where it was held that the
generation and selling of electricity and the ownership and use of infrastructure by a Northern Territory
government authority was carrying on a business.
The Forestry Corporation will be liable for damages for a breach of the CCA if it is knowingly concerned in, or
a party to, a contravention of the provisions of Part IV of the CCA and a person suffers a loss because of that
breach. The Forestry Corporation may be liable as the employer of a person who participates in or assents
to the contravention.
An injunction prohibiting any further breach of the CCA may also be obtained against the the Forestry
Corporation.
The penalty for corporations and authorities of the State may exceed $10 million. The underlying motivation
for penalties under Part IV, is to compensate society for the damage inflicted on the competitive process
(and hence on consumer welfare) by the breach.
FORESTRY CORPORATION EMPLOYEES
The CCA provides that pecuniary penalties may be imposed on any person who has, among other things:
•
attempted to breach a restrictive trade practices provision;
•
aided, abetted, counselled or procured a person to contravene such a provision;
•
induced, or attempted to induce, a person, whether by threats or promises or otherwise, to contravene
such a provision;
•
has been in any way, directly or indirectly, knowingly concerned in, or party to, the contravention by a
person of such a provision; or
•
has conspired with others to contravene such a provision.
An individual employee can be liable for a pecuniary penalty for a breach of the CCA even where the person
is acting within the scope of his or her duties. The maximum penalty for individuals is currently $500,000.
GENERAL TRADE PRACTICES CONCEPTS
3.1
Market
A market is a market for goods or services. It has been defined as the “area of close competition between
firms”. Within a market there is substitution between products and services and between sources of supply
in response to changes in prices. See: Queensland Co-operative Milling Association Ltd/Defiance Holdings,
re proposed merger with Barnes Milling Ltd (1976) A.R.P.R. 40-012. The CCA reinforces this definition by
examining goods or services that are substitutable with other goods or services. See: section 4E of the
CCA.
3.2
Market Power
Market power is the ability of an organization to insulate itself from competition without adverse effects. In
determining market power it is important to determine the extent of the market in question. One way to
determine market power is to look at the ability of a corporation to raise prices above product cost without
rivals taking away customers.
Document title: Competition and Consumer Act 2010 Compliance Policy –
BP2013/03
Document ID (TRIM No.): D00146380
Version No. 1
P a g e |5
Issue Date: 8/07/2013
Review Date: 8/07/2016
3.3
C
ompetition
“Competition” must be analysed in terms of the market in which the competition is occurring. In theory,
perfect competition exists when consumers obtain the “best deal”, all firms maximise their profits, there is no
collusion, products are homogenous, there is no market leader to influence price and there are no barriers to
entering the market.
The aim of the CCA is to achieve “workable” competition, rather than “perfect” competition. By overcoming
the anti-competitive behaviour of firms in the market, the CCA attempts to achieve a “level playing field” for
all market participants.
Competition may take the form of competition as to price, product or service. To determine whether there is
competition an examination can be made of prices. If a seller raises the price for goods or services, without
altering anything else, and the seller sells less of the good or service, there is most likely competition in the
market.
3.4 Substantial Lessening of Competition
The word "substantial" may mean "large or weighty", "considerable or big", "real or of substance" or not
"insubstantial or nominal". The CCA also provides that substantial lessening of competition also includes
preventing or hindering competition.
In assessing whether conduct has the effect of substantially lessening competition, the following factors can
be relevant:
•
the number, size and distribution of competitors and the degree of market competition;
•
the width of the market definition - the wider the defined market, the less likely it will be that conduct
will result in a substantial lessening of competition;
•
the nature of any formal, stable and fundamental arrangements between market participants that
restrict their ability to function as independent entities;
•
the ease with which new participants can enter the market;
•
the extent to which products in the same market are differentiated, whether by sales promotions or
otherwise;
•
the character of vertical relationships and the extent of vertical integration – that is, the relationships
between manufacturers, retailers and customers;
•
whether competitors rely on others to produce the product so as to reduce their capability to function
independently; and
•
the term of any relevant contract - the longer the term the more likely the contract may involve a
substantial lessening of competition.
The analysis of whether conduct results in a substantial lessening of competition is largely an economic one
that involves the definition of the relevant market, an examination of competition and the effect of conduct on
that competition.
3.5 Contract, Arrangement or Understanding
Contracts, arrangements or understandings need not be in writing, nor be legally enforceable. All there need
be is communication with another person from which each person has an expectation of how the other will
act.
An arrangement or understanding involves a meeting of the minds between parties. Examples include
parallel conduct, collusion, similar pricing, evidence of opportunities for parties to arrive at an understanding
or evidence that parties are acting according to a plan.
3.6
Purpose or Effect
The purpose need not be a sole purpose but must be a substantial purpose which can be inferred from the
nature of the arrangement, the circumstances in which it was made and its likely effect.
Conduct that is conditionally prohibited is only prohibited if it has the “purpose, effect or likely effect” of
substantially lessening competition in the relevant market. These words are very wide and cover situations
where an entity:
•
intends to substantially lessen competition and succeeds;
•
intends to substantially lessen competition and fails; or
Document title: Competition and Consumer Act 2010 Compliance Policy –
BP2013/03
Document ID (TRIM No.): D00146380
Version No. 1
P a g e |6
Issue Date: 8/07/2013
Review Date: 8/07/2016
•
does not intend to substantially lessen competition but its actions have that effect.
An entity’s conduct might consist of more than one purpose and only one purpose might be anti-competitive.
The CCA will be breached if the anti-competitive purpose is a substantial one.
4.
CONDUCT THAT IS STRICTLY PROHIBITED
The CCA strictly prohibits the following conduct:
•
exclusionary provisions or primary boycotts (section 45(2)(a)(i) and section 4D);
•
price fixing (section 45A);
•
third-line forcing (section 47(6)); and
•
resale price maintenance (section 48).
These types of conduct are prohibited regardless of the effect the conduct has on competition.
4.1
EXCLUSIONARY PROVISIONS – SECTION 45(2)(A)(I) AND SECTION 4D
Exclusionary provisions are also known as primary boycotts and occur when competitors agree not to supply
(or buy) goods or services to a particular person or class of persons, or when competitors agree to prevent or
hinder the acquisition of goods or services from a particular person or class of persons.
Example – Exclusionary Provisions
If, for example, a SOC agrees to share information about defaulting trade debtors with
several of its competitors and the competitors agree not to supply those debtors, this
would be an exclusionary provision.
If competitors agree to keep their own customers within a particular area and not attempt
to take customers from each other, this is a form of exclusionary agreement.
Relevance to the Forestry Corporation activities Firstly it should be noted that it is seldom that the Forestry Corporation has any form of agreement with a
competitor.
In relation to native forests in most circumstances the Forestry Corporation’s competitors are private
landowners with whom the Forestry Corporation has no business relationship and tend to be involved in the
market on a one off basis. In interstate border regions the Forestry Corporation could be said to be in
competition with its interstate counterparts but there is no common source of goods or services and as
available resource is predominantly committed to long term wood supply agreements, competition on a day
to day basis is limited.
In plantations the Forestry Corporation does have business relationships with a competitor (i.e. a plantation
grower who is located in the same vicinity) but only to supplement its own log supply where potentially it may
be unable to meet its contractual obligations to supply customers under a long term wood supply. There
may be a common source of harvesting or haulage services for the Forestry Corporation and a competitor
but it is difficult to conceive a scenario where the Forestry Corporation could derive any commercial benefit in
a boycott of such service providers.
However, the Forestry Corporation and its competitors do have customers in common and it is conceivable
that the Forestry Corporation could derive a commercial benefit if it and its competitors agreed not to supply
a defaulting customer. Another exclusionary provision may result if Forestry Corporation and a customer
negotiated terms which excluded sales from a competing forest grower.
4.2
PRICE FIXING – SECTION 45A
A contract, arrangement or understanding with a competitor that has the purpose or the effect, or the likely
effect, of fixing, controlling or maintaining prices, discount levels, allowances, rebates or credits in relation to
goods or services is strictly prohibited.
Document title: Competition and Consumer Act 2010 Compliance Policy –
BP2013/03
Document ID (TRIM No.): D00146380
Version No. 1
P a g e |7
Issue Date: 8/07/2013
Review Date: 8/07/2016
The “arrangement” does not need to be a formal contract. It can be an informal understanding. For
example, if you raise the expectation in the mind of the other party that you will act in a particular way and
there is a “meeting of minds”, you have formed an arrangement or understanding.
Examples - Price Fixing
•
One leading case on price fixing arose out of a lunchtime meeting of Adelaide
publicans. The conversation turned to the level of discounting in the market place.
The practice in Adelaide was to sell up to 16 bottles of beer for the price of a dozen.
One publican announced that he was going to start selling only 14 bottles of beer
for the price of a dozen.
The publican did not demand that everyone else do the same thing. He did not say
that he would not do it unless everyone else did. He did not even get much of a
reaction from the publicans present. Nevertheless, the Court found that it was
enough that he clearly raised in the minds of the other publicans that he was going
to reduce his discount, and the reason that he announced it was to encourage the
other publicans to do the same. See: Trade Practices Commission v. Nicholas
Enterprises (No.2) (1979) 40 F.L.R. 83; Morphett Arms Hotel Pty Ltd v. Trade
Practices Commission (1980) 30 A.L.R. 80.
•
Another case concerned the three major suppliers of motor vehicle replacement
windscreens in Australia. Between them they shared approximately 90% of the
market Australia wide. There was regular contact between these suppliers
concerning the price of windscreens. Within Australia they identified one separate
market for windscreens as being Southern Queensland (from Mackay to Tweed
Heads) and another as the State of Victoria.
Over a period of 18 months, representatives of each supplier met on six occasions
and made separate pricing arrangements to fix the level of discounts in 1984 and
1985 for replacement windscreens in the Southern Queensland and Victorian
markets. In 1988, the Federal Court imposed penalties on the suppliers totalling
$195,000.00. See: Trade Practices Commission v. Australian Autoglass Pty Ltd
(1988) A.T.P.R. 40-881.
Relevance to the Forestry Corporation’s activities Apart from a limited number of one off parcel sales, the Forestry Corporation supplies its native forest and
plantation timber under multiyear agreements.
Its native forest timber prices are publicly available under the GIPA Act as are often those of its interstate
counterparts under similar legislation.
Further as:
•
the Forestry Corporation’s customers are committed to take under long term timber supply
agreement;
•
prices are set in accordance with contractual mechanisms;
there are no pressures on the Forestry Corporation to reach agreement with “competitors” on fixed pricing. The Forestry Corporation’s plantation softwood timber primarily sold under long term timber supply
agreements. Those agreements typically provide a commencement price, routine (annual) price reviews
determined by application of objective formulas and major 4 or 5 yearly negotiated price reviews that must
take into account specified factors. There is, in such a regime, no scope for price fixing between
competitors.
Further as the Forestry Corporation is the principal supplier to most of its long term timber supply agreement
holders and the customer is committed to take under the agreement (except for any latitude in the take or
pay provisions of the agreement) the Forestry Corporation is rarely concerned with losing market share to
competitors with lower prices and there is no commercial incentive in the Forestry Corporation participating
in price fixing with a competitor.
Document title: Competition and Consumer Act 2010 Compliance Policy –
BP2013/03
Document ID (TRIM No.): D00146380
Version No. 1
P a g e |8
Issue Date: 8/07/2013
Review Date: 8/07/2016
4.3 THIRD-LINE FORCING – SECTION 47(6)
Requiring a customer to acquire goods or services from another person as a condition of the supply of your
goods or services to that customer is prohibited, regardless of the effect on competition. Similarly, refusing
to supply because the customer has not accepted the condition to acquire goods or services from another if
also prohibited.
It is also illegal to set your prices according to whether a customer has acquired goods or services from
another person.
The forcing condition need not be express, it can be inferred from the circumstances.
Example – Third-Line Forcing
A common example of third-line forcing is a lender requiring that, as a condition of its
lending money, the borrower must take out insurance with the lender’s nominated
insurer.
Relevance to the Forestry Corporation’s activities Again it is difficult to conceive circumstances where the Forestry Corporation has any incentive to promote
the business interest of a 3rd party to such a degree third line forcing could be an issue.
4.4 RESALE PRICE MAINTENANCE – SECTION 48
The law gives resellers the freedom to sell and to advertise products at any price and prohibits insisting that
resellers sell or advertise at minimum prices.
Resale price maintenance involves a supplier setting a minimum price below which resellers must not resell
goods. It is permissible to set a maximum resale price, but not a minimum.
A contract that expressly provides that a product cannot be resold except at or above a minimum price is
prohibited. Other less obvious conduct which may constitutes resale price maintenance can be:
•
refusing to supply resellers who will not adopt your pricing policy (or making that threat known);
•
requiring that the resale price is linked to something else, for example, what a competitor’s resellers
are charging;
•
using a formula to work out a minimum resale price; or
•
prohibiting the advertising of discount prices.
A supplier can legally recommend a resale price, but only if the price is, in every sense of the word,
recommended only. There must be no obligation of any nature to follow the recommendation and this must
be made clear to the reseller to whom the recommendation is made.
Example - Resale Price Maintenance
In 1990, two retailers decided to discount products. Sony withheld supply of the goods
ordered by the two stores. Sony was found to have engaged in resale price
maintenance. Sony was fined $250,000 and two executives involved were fined a total
of $37,000. See: Trade Practices Commission v. Sony (Aust) Pty Ltd (1990) A.R.P.R.
41-031.
Relevance to the Forestry Corporation’s activities Resale Price Maintenance typically arises where a manufacturer sells its product to a reseller of the product.
The CCA definitions of Resale Price Maintenance require the goods sold by a reseller to be the same goods
sold by the seller.
The Forestry Corporation’s sales of timber are mostly to millers who convert the timber into another product.
And even if the Forestry Corporation had the means or incentive to control the price of the manufactured
product this would not be Resale Price Maintenance.
Document title: Competition and Consumer Act 2010 Compliance Policy –
BP2013/03
Document ID (TRIM No.): D00146380
Version No. 1
P a g e |9
Issue Date: 8/07/2013
Review Date: 8/07/2016
The Forestry Corporation’s customers do from time to time on-sell unsawn logs supplied by the Forestry
Corporation. Often the Forestry Corporation is directly involved in the on-sell by delivering to the on-sell
purchaser and invoicing the on-sell purchaser at prices agreed between the Forestry Corporation and the onsell seller. However, because the Forestry Corporation is not competing for market share particularly in
native forestry where it is the only long term supplier in the State, there is no incentive to maintain market
share or reduce competition in the market by being involved in Resale Price Maintenance. Further, except
for a limited number of one off parcel sales the Forestry Corporation, sales occur under long term wood
supply agreement none of which impose any restrictions regarding the price for which timber may be onsold.
CONDUCT THAT IS CONDITIONALLY PROHIBITED
Certain conduct is conditionally prohibited. That is, it is only prohibited if its purpose, effect or likely effect
results in a substantial lessening of competition in the relevant market. Examples include:
•
anti-competitive contracts, arrangements or understandings (section 45);
•
secondary boycotts (section 45D);
•
exclusive dealing (section 47); and
•
mergers and acquisitions (section 50).
This means that the Forestry Corporation can lawfully do these things provided the conduct does not have
the purpose, effect or likely effect, of substantially lessening competition in a relevant market.
ANTI-COMPETITIVE CONTRACTS – SECTION 45
The CCA contains a general provision that prohibits the making or giving effect to general anti-competitive
contracts, arrangements or understandings. These are any contracts, arrangements or understandings that
have the purpose or effect (or likely effect) of substantially lessening competition in a market.
SECONDARY BOYCOTTS – SECTION 45D
The main elements of secondary boycotts are:
•
A person must act in concert with a second person;
•
The conduct must hinder or prevent the supply of goods or services by a third person to a fourth
person;
•
The conduct must have the likely effect of substantially lessening competition in any market in which
the third person operates; and
•
The conduct must have the purpose and likely effect of lessening competition in any market in which
the fourth person operates.
11.1. EXCLUSIVE DEALING – SECTION 47
Generally speaking exclusive dealing involves practices such as:
•
the supply of goods or services on condition that the buyer will not buy goods or services from a
competitor;
•
refusal to supply goods or services because the buyer refuses to meet these conditions;
•
buying goods or services on condition that the supplier will not supply the goods or services to
particular persons;
•
refusal to buy goods or services because the supplier will not supply goods or services to particular
persons.
11.2. MERGERS AND ACQUISITIONS – SECTION 50
The CCA prohibits an entity from buying shares in another entity or the assets of another entity or person if
the effect of the purchase would be to substantially lessen competition in a market.
Document title: Competition and Consumer Act 2010 Compliance Policy –
BP2013/03
Document ID (TRIM No.): D00146380
Version No. 1
P a g e | 10
Issue Date: 8/07/2013
Review Date: 8/07/2016
11.3. GENERAL COMMENT ON THE RELEVANCE OF CONDITIONALLY PROHIBITED PRACTICES
TO THE FORESTRY CORPORATION
Each of the practices described above are only prohibited if its purpose, effect or likely effect results in a
substantial lessening of competition in the relevant market. It is unlikely that the Forestry Corporation would
in the normal course of its business be taken as entering into any arrangement that would have the purpose
or effect of lessening competition in a market.
In broad terms that would appear the Forestry Corporation is participating in the eastern seaboard hardwood
sawlog market, hardwood pulpwood market and speciality hardwood log market, as well as softwood sawlog
market and softwood pulpwood market.
The Forestry Corporation’s participation in these markets is characterised by entering long term timber
supply agreements having terms of between 5 to 20 years except in the case of the Visy softwood pulpwood
agreement which has a potential term of 60 years.
It should also be understood at the outset that entering into a long term timber supply agreement is not the
type of arrangement that of itself may be taken as lessening competition in a market. The courts recognise
that “every commercial contract lessens competition to some degree. Each party is taken out of the market
to the extent of its commitment. The parties, being bound to each other, are unable to buy from, or sell to,
others the goods or services the subject of the contract. To that extent they are inhibited in their ability to
compete with others for purchases or sales. But those restrictions are fundamental to contract law; law
which the Trade Practices Act was designed to supplement, not to supplant.” Eastern Press Pty Ltd v
General Newspapers Pty Ltd (1991) 30 FCR 385 at 420-421.
Rather, before issues of interfering with competition in a prohibited way could arise, it would necessary that
the wood supply agreement impose limits on a party beyond the commitment to supply and purchase
specified quantities, such as a prohibition against selling timber to any other party or against purchasing
timber from any other party. There are no such explicit limits imposed in any of the Forestry Corporation
wood supply agreements.
Some timber supply agreements do require the customer to use FCNSW as its first priority source of supply
but this obligation only operates to the extent the customer has taken the annual quantity FCNSW is
obligated to supply.
Also it should be mentioned that in a limited number of agreements but notably the Visy agreement the
Forestry Corporation has given a “right of first refusal” in relation to additional resource becoming available.
Whether such a provision is prohibited turns firstly on whether it could be viewed as being anticompetitive
and secondly if anticompetitive whether the effect is a substantial lessening of competition.
Arrangements which involve price discrimination may also be anti-competitive arrangements (as well as a
misuse of market power). Price discrimination can occur if the Forestry Corporation supplied goods or
services to customers at different prices or with different discounts, rebates, allowances or credit
arrangements.
An examination of the contract, arrangement or understanding and its effect on the particular market must be
undertaken in order to determine whether its purpose, effect or likely effect results in a substantial lessening
of competition in that market.
At a more specific level it is apparent that:
(a) (b) in relation to section 45D (secondary boycotts) is primarily designed to combat union boycott activity
and is unlikely to relate to any conduct that the Forestry Corporation might engage in;
Section 50 Mergers and Acquisitions is also unlikely to be relevant to the Forestry Corporation.
MISUSE OF MARKET POWER
MISUSE OF MARKET POWER – SECTION 46
A misuse of market power happens when an entity that has a substantial degree of market power, takes
advantage of that power for one of the proscribed purposes.
Document title: Competition and Consumer Act 2010 Compliance Policy –
BP2013/03
Document ID (TRIM No.): D00146380
Version No. 1
P a g e | 11
Issue Date: 8/07/2013
Review Date: 8/07/2016
6.2
Proscribed Purposes
The proscribed purposes are:
•
eliminating or damaging a competitor;
•
preventing a person from entering a market; or
•
deterring or preventing a person from engaging in competitive conduct.
6.3 More than One Purpose
An unlawful purpose need not be the only purpose for engaging in the conduct. It will be a breach of the
CCA if an entity has a number of purposes (including a legitimate one) and one of them is an unlawful one
and is substantial, though not necessarily the dominant purpose.
6.4
Market Power
It is necessary to determine the precise market involved before it can be determined whether an entity has a
substantial degree of market power. This will usually require economic analysis of the market.
A substantial degree of market power is not the same as having a large market share. For example, a
market-share as low as 30% can amount to a substantial degree of market power in a particular market. A
combination of factors must be examined to determine market power in any particular market, including:
•
the market share of the product or service in question;
•
barriers to entering into the market (i.e. how difficult is it for a new participant to break into the
market?);
•
the financial strength of the entity;
•
the ability of the entity to behave with little regard to what its competitors, suppliers or customers will
do;
•
an analysis of the market as a whole; and
•
the impact of the entity’s conduct on the market.
6.5 Take Advantage of Market Power
An entity need only use its market power to take advantage of it. There must, however, be a causal
connection between the entity’s market power and the conduct in question. The market power must be used
for one of the proscribed purposes. There does not have to be any malice in the action.
6.6
L
egitimate Business Reasons
Not all conduct engaged in by an entity with a substantial degree of market power will be prohibited. If the
conduct is engaged in for legitimate business reasons, there may not be a misuse of market power. This is
so even if the conduct has the effect of damaging a competitor.
Example - Misuse of Market Power
•
In 1993, Telstra was sued for misusing its market power. It had contracted with a
company to print telephone directories on condition that the printer not use its
printing presses for any other printing except with Telstra’s consent. It was
alleged that Telstra had done this to deny printing services to its competitors. The
court found on this occasion that the restraint was entered into for legitimate
reasons, being to ensure that the printing services were available. However, it
was clear that conduct of this nature could have amounted to a misuse of market
power if an anti-competitive purpose had existed. See: General Newspapers Pty
Ltd v. Telstra Corporation (1993) 45 F.C.R. 164.
•
In 1984 BHP was sued for misusing its market power to prevent a company from
entering a market. BHP was responsible for about 97% of Australia’s steel output
and was the sole Australian manufacturer of steel “Y-bar”. Y-bar is used to make
star pickets for agricultural fencing. Queensland Wire Industries asked BHP to
supply it with Y-bar so that it could begin manufacture of star pickets to
supplement its existing range of fencing products. BHP effectively refused. The
Court found that, in refusing to supply Y-bar, BHP had misused its market power
for one of the proscribed purposes. See: Queensland Wire Industries v. Broken
Hill Proprietary Co. Ltd (1989) 167 C.L.R. 177.
Document title: Competition and Consumer Act 2010 Compliance Policy –
BP2013/03
Document ID (TRIM No.): D00146380
Version No. 1
P a g e | 12
Issue Date: 8/07/2013
Review Date: 8/07/2016
Relevance to the Forestry Corporation
It is in the market of eastern seaboard hardwood and softwood markets that the Forestry Corporation could
be said to have market power.
It is unlikely that the Forestry Corporation would be found to exercise its power in these markets for one of
the proscribed purposes. It has no need to eliminate or damage a competitor or prevent a competitor from
entering the industry. For the most part its native forest and plantation resource is largely committed under
long term timber supply agreements so it is not competing for sales. To the extent its resource is not
committed it is for reasons other than competition from other suppliers.
7.
7.1
Misleading or Deceptive Conduct under the ACL
BROAD DESCRIPTION
The ACL section 18(1) (formerly TPA s52(1)) provides that ‘A person must not, in trade or commerce,
engage in conduct that is misleading or deceptive or is likely to mislead or deceive.’ In addition to applying to
persons generally, this section applies as a Commonwealth law to the conduct of corporations (s131, CCA).
The section imposes a standard on the market place. Remedies for misleading conduct are found elsewhere
in the legislation and include damages, injunction, rescission of contract and other measures. This section
has had a profound effect on Australian commerce. It has generated a vast case law.
Although section 18 appears in the ACL, the section is not limited to consumer transactions or dealings.
Many of the cases on misleading conduct are business-to-business cases.
The concepts of misleading or deceptive conduct have been taken at face value by the courts. ‘Deceptive’
requires an intention to deceive (fraud) and so is of little relevance because proving fraud is difficult. But
‘misleading’ requires no intention or particular state of mind. In fact the prohibition of misleading conduct
imposes a strict liability not to lead another into error in commercial and consumer dealings. Case law has
established that an innocent (non-fraudulent and non-negligent) statement may generate liability.
It is also possible to be liable for what was not said if the failure to speak up was in context misleading. This
usually arises when a person has made a statement but fails to qualify it sufficiently.
The impact of section 18 (and its former manifestation s52, TPA) has been very wide. ‘Conduct’ includes
actions and statements, such as:
•
advertisements;
•
promotions;
•
quotations;
•
statements; and
•
any representation made by a person.
Notably the courts have been wary about allowing statutory misleading conduct in effect to displace the law
of contract. Consequently it has been held that making a contractual promise and then later not keeping it is
not misleading conduct unless the promise was not genuinely made in the first place (that is, it was
fraudulent which is difficult to prove). Even so, some types of promises, for example about the performance
or capability of a product, have generated liability under this legislation.
7.2
IN TRADE OR COMMERCE
The allegedly misleading conduct must occur in trade or commerce. This has been interpreted very broadly
by the courts and covers any kind of commercial activity, including the dealings before a contract is made. It
is easier to state where the legislation does not apply than to discuss the huge number of case where it does
apply. It does not apply to:
•
private, one-off sales, for example, the sale of a car after having advertised it in the local newspaper;
•
internal communications within an organisation, such as a company or government department;
•
regulatory activity by government bodies;
•
provision of information by government in a non-commercial context, for example, information about
pension rights; or
•
political statements.
Document title: Competition and Consumer Act 2010 Compliance Policy –
BP2013/03
Document ID (TRIM No.): D00146380
Version No. 1
P a g e | 13
Issue Date: 8/07/2013
Review Date: 8/07/2016
7.3
STRICT LIABILITY
Mention has been made already of the strict liability imposed as a result of the word ‘misleading’ (but not
‘deceptive’ which requires a guilty mind). This is one of the most remarkable things about the legislation. It is
not to the point for a person accused of misleading conduct to say that he or she did not know that the
information was incorrect or that he or she took all due care when preparing the information. The only
question is: was it misleading? Did it lead the other party into error? An innocent person can be found to
have engaged in misleading conduct.
The strict liability principle in relation to misleading conduct has two possible exceptions:
•
If the misleading conduct consists of making a statement about the future, the person making the
statement can defend by proving that he or she had reasonable grounds for believing that the
prediction was correct (s4, ACL);
•
A person who acts as a ‘mere conduit’ for information that turns out to be incorrect can defend an
action based on misleading conduct. It must be clear that the provider of the information is not in any
way responsible for it and is just passing it on for what it is worth.
7.4
NO EXCLUSION
There have been many attempts to draft a clause in a contract that effectively removes potential liability for
misleading conduct and almost universal failure. This is not because there is any section in the CCA which
prohibits contracting out. Instead, the courts take the view that parliament has set a standard of conduct by
legislation and it should not be possible to contract out of that. So long as a person has been misled in trade
or commerce, it appears no contractual device can remove this fact.
However, it is possible to qualify the information so as to make it not misleading if it turns out to be wrong.
The High Court held that an inaccurate survey diagram, included in a real estate agent's brochure for an
expensive house, was not misleading because of a disclaimer in the brochure that stated that information
provided may not be accurate and that potential buyers should check for themselves. Note that this was a
disclaimer in the brochure which contained the misleading information. It is still true after this decision that an
exclusion clause buried in the fine print of the contract will not be effective.
7.5
ENFORCEMENT AND REMEDIES
A contravention of the prohibition on misleading and deceptive conduct is subject to remedies including
injunctions, damages and compensatory orders, as set out in Chapter 5 of the ACL.
Civil penalties and criminal sanctions do not apply to section 18, because of its very broad scope. Section 18
of the ACL creates a norm of business conduct, and allows persons to seek remedies for harm caused by
breaches of that norm, rather than giving rise to a contravention that attracts punitive sanctions. Other
prohibitions against specific forms of false or misleading conduct may also apply to instances of misleading
conduct and have specific penalties and criminal sanctions.
7.6
RELEVANCE TO THE FORESTRY CORPORATION
This is one area of the CCA where the Forestry Corporation, or indeed any entity involved in trade or
commerce, has a potential liability, reiterating the strict liability nature of the section and the
difficulty in excluding liability under it.
It can be assumed that the Forestry Corporation’s conduct in its performance of the following activities:
•
selling timber;
•
procuring the services of contractors to harvest and haul the timber
•
attracting third party investors in plantations; and
•
its provision of forestry management services for those plantations.
is conduct occurring in trade or commerce.
These activities have the potential to bring s18 CCL into play particularly as they inherently involve making
representations regarding available resource, available work or the future performance of plantations.
Document title: Competition and Consumer Act 2010 Compliance Policy –
BP2013/03
Document ID (TRIM No.): D00146380
Version No. 1
P a g e | 14
Issue Date: 8/07/2013
Review Date: 8/07/2016
8. 8.1
Unconscionable Conduct under the ACL
UNCONSCIONABLE CONDUCT UNDER THE UNWRITTEN LAW
Section 20 of the ACL states that a person (which includes a corporation) must not, in trade or commerce,
engage in conduct that is unconscionable within the meaning of the unwritten law from time to time. The
purpose of this section is principally to widen the range of remedies available to the victim of unconscionable
dealing. It also enables the ACCC to investigate unconscionable conduct and, if necessary, bring legal action
on behalf of the person who has been treated unconscionably.
Section 20 appears to refer to the doctrine of unconscionable dealing as it has been interpreted in case law.
However, the words are perfectly general and the courts have not yet settled on what constitutes
unconscionable conduct under ‘the unwritten law’ and it may go beyond the doctrine of unconscionable
dealing to include other equitable doctrines (for example, equitable estoppel).
Nevertheless, unconscionable conduct is generally accepted to mean conduct which should not be done in
good conscience. Unconscionable conduct is more than simply unfair or harsh – it must have an element of
bad conscience.
Business behaviour may be deemed unconscionable if it is particularly harsh or oppressive, and is beyond
hard commercial bargaining.
8.2
UNCONSCIONABLE CONDUCT IN CONNECTION WITH GOODS AND SERVICES
Section 21 of the ACL provides:
(1)
A person must not, in trade or commerce, in connection with:
(a)
the supply or possible supply of goods or services to a person (other than a listed public
company); or
(b) the acquisition or possible acquisition of goods or services from a person (other than a
listed public company); engage in conduct that is, in all the circumstances, unconscionable.
Section 22(1) of the ACL provides some guidance as to what amounts to unconscionable conduct when
determining whether a person (the supplier ) has contravened section 21 in connection with the supply or
possible supply of goods or services to a person (the customer ). That section provides that the court may
have regard to, amongst other things:
a)
the respective bargaining strengths of the parties;
b)
whether the customer was required to comply with conditions not reasonably necessary for the
protection of the supplier;
c)
whether the customer understood documents relating to the transaction;
d)
whether any undue influence or unfair tactics were used against the customer; and
e)
the price and circumstances under which the customer could have acquired the goods or services
from a third party.
Section 22(2) of the ACL provides some guidance as to what amounts to unconscionable conduct when
determining whether a person (the acquirer ) has contravened section 21 in connection with the acquisition
or possible acquisition of goods or services from a person (the supplier ), That section provides that the
court may have regard to, amongst other things, if there is a contract between the acquirer and the supplier
for the acquisition of the goods or services:
(i) the extent to which the acquirer was willing to negotiate the terms and conditions of the contract with
the supplier; and
(ii) the terms and conditions of the contract; and
(iii) the conduct of the acquirer and the supplier in complying with the terms and conditions of the
contract; and
(iv) any conduct that the acquirer or the supplier engaged in, in connection with their commercial
relationship, after they entered into the contract; and
(iv)
w
hether the acquirer has a contractual right to vary unilaterally a term or condition of a contract
between the acquirer and the supplier for the acquisition of the goods or services.
These factors are only a guide and the list is not exhaustive. Conduct may be considered to be
unconscionable where there has been serious misconduct or unfairness.
Document title: Competition and Consumer Act 2010 Compliance Policy –
BP2013/03
Document ID (TRIM No.): D00146380
Version No. 1
P a g e | 15
Issue Date: 8/07/2013
Review Date: 8/07/2016
Remedies applicable to the unconscionable conduct provisions of the ACL include setting the contract aside,
injunctions, damages, compensatory orders and other remedies, such as non-punitive orders and adverse
publicity orders. There are also civil pecuniary penalties with maximum penalties of $1.1 million for a body
corporate and $220,000 for a person other than a body corporate, as well as disqualification orders, redress
for non-parties and public warning
Relevance to the Forestry Corporation
It is unlikely that in its capacity as the supplier of goods (eg timber) or services (eg plantation management
services) the Forestry Corporation need be concerned with the unconscionable conduct provisions. Usually
the bargaining strength of the acquirer of the timber or services has been significant and terms and
conditions of the contracts could not be characterised as unconscionable.
The position of the Forestry Corporation as the acquirer of services, in particular harvest and haulage
services may be different, bearing in mind that the unconscionable conduct provisions in regard to goods
and services are aimed at protecting small businesses. While at this stage in the writers opinion the
standard form harvest and haulage agreements could not be described as having unconscionable provisions
they do contain provisions that give the Forestry Corporation rights to unilaterally change terms (albeit
subject to external review and in accordance with stated principles). Those contracts also give the Forestry
Corporation discretions that could be exercised in an unconscionable way.
CONCLUSION
The restrictive trade practices provisions of the CCA have little relevance to the Forestry Corporations core
business activities. This is borne out by the writer’s experience in 24 years employment with the
Corporation. Over that period there has been only one breach of these provisions (in particular section 45 exclusionary provisions) in a dispute between the Forestry Corporation and a customer and on that occasion
it was the Forestry Corporation alleging the breach. In due course Queens Counsel specialising in CCA
matters advised there was no such breach.
The ACL provisions concerning misleading and deceptive conduct and unconscionable conduct are probably
more relevant to the Forestry Corporations core business activities. As with the restrictive trade practice
provisions there has, in the writer’s experience, been only one instance of a party alleging the Forestry
Corporation acted in a misleading and deceptive way. Again counsel advised the claim would not be upheld
and it was not pursued by the other party. However given the broad net cast by the misleading and
deceptive conduct and unconscionable conduct provisions, the potential for a breach should be not be
discounted.
David Giles, General Counsel
18 June 2013
Document title: Competition and Consumer Act 2010 Compliance Policy –
BP2013/03
Document ID (TRIM No.): D00146380
Version No. 1
P a g e | 16
Issue Date: 8/07/2013
Review Date: 8/07/2016