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Introduction
On 16 May 2005, the Australian Competition Tribunal (Tribunal) delivered its reasons for the determination regarding Qantas and Air New Zealand's proposed alliance. Qantas and Air New Zealand had applied for review of the determination of the Australian Competition and Consumer Commission (ACCC), which had refused authorisation in relation to the proposed acquisition by Qantas of ordinary shares in Air New Zealand, and some cooperative arrangements between Qantas, Air New Zealand and Air Pacific.
Background
In December 2002, Qantas and Air New Zealand applied to the ACCC for authorisation of Qantas' proposed acquisition of a 22.5% voting interest in Air New Zealand, and for Qantas and Air New Zealand to enter into agreements to coordinate their activities with respect to all passenger and freight services on Air New Zealand flights, and all Qantas flights to, within and from New Zealand. Qantas and Air New Zealand also sought authorisation for an agreement to cooperate with Air Pacific Limited with respect to passenger and freight services. The conduct for which Qantas and Air New Zealand sought authorisation was known as the "Alliance".
In September 2003, the ACCC refused each request for authorisation. Qantas and Air New Zealand applied to the Tribunal for a review of the ACCC's determination. The Tribunal reviews matters on the basis of the evidence and submissions placed before it rather than being solely confined to the facts placed before the ACCC. This proved very important in this matter because the competitive environment in which the Alliance would have operated was found by the Tribunal to have changed significantly since the ACCC's decision to refuse authorisation.
A determination was published by the Tribunal in October 2004 granting the authorisations sought, however the reasons for judgment were not published until May 2005.
The Tribunal found that public benefits accruing as a result of the Alliance would outweigh any detriment resulting from certain anti-competitive aspects.
Changes to the competitive environment
The Tribunal emphasised that the state of competition in the relevant markets had changed significantly since the ACCC refused Qantas and Air New Zealand's requests for authorisation. The market in which the most significant changes had occurred was the trans-Tasman air passenger services market, which was also the market in which there were the most anti-competitive concerns.
The Tribunal considered that the two major competitive developments in this market since the ACCC's determination were the entry of Pacific Blue (Virgin Blue's trans-Tasman carrier) to a number of trans-Tasman routes and the expansion of Emirates' trans-Tasman business. The increased presence of these two carriers was a principal factor in the Tribunal's decision that competition would not suffer significant long term damage within the trans-Tasman passenger market.
The Tribunal found that while Qantas and Air New Zealand would be likely to comprise a significant share of the market immediately following the commencement of the Alliance, the presence of Pacific Blue and Emirates would constrain Qantas and Air New Zealand's ability to raise prices or reduce capacity in the longer term.
The Tribunal also noted that the very high market share held by Qantas and Air New Zealand, estimated at approximately 80%, was not necessarily indicative of the ability of rival carriers to compete in the future, particularly as this market share was calculated before Virgin Blue and Emirates launched serious initiatives in the market. Additionally, the rapid growth of these two rival carriers since their entry suggested that they faced no strategic disadvantage on the level of brand recognition or credibility.
The Tribunal also discussed the potential benefits that the Alliance could have upon Qantas' international strategy. Qantas argued that the Alliance and the resulting access Qantas would gain to the Auckland-Singapore route would allow Qantas to achieve its goal of establishing a "mini-hub" in Singapore. The Tribunal accepted that Qantas would benefit from "additional feed" and that this would in turn create income for both the airline and Australia. Australian passengers would benefit from a "comprehensive international network".
Time-sensitive travellers
Although the Tribunal found that the public benefits offered by the Alliance would overshadow any negative impact on competition, it did determine that time-sensitive travellers could suffer disadvantage.
These customers were characterised as travellers who required convenient time schedules and greater flexibility in booking and changing tickets, such as business customers whose air travel is arranged pursuant to a contract between their employer and the carrier.
Time-sensitive travellers tend to be dependent upon the convenient schedules and flexibility offered by full-service airlines such as Qantas and Air New Zealand, rather than being attracted to the lower fares offered by low-cost carriers such as Pacific Blue. The Tribunal recognised that these customers could be limited in their choice of airline following authorisation of the Alliance, but that any disadvantage was outweighed by the public benefits of the Alliance.
Consideration of the matter in New Zealand
At the same time as Qantas and Air New Zealand applied to the ACCC for authorisation of the Alliance, they also made similar applications to the New Zealand Commerce Commission (NZCC) for authorisation under the Commerce Act 1986 (NZ) (Commerce Act). In October 2003, the NZCC refused authorisation under the Commerce Act. An appeal to the High Court of New Zealand was dismissed.
Conclusion
This case demonstrates the Tribunal's sensitivity to the importance placed on market dynamics and the impact that changed circumstances can possibly have on a competition assessment in an appeal to the Tribunal. It also shows the practical difficulties in coordinating trans-Tasman regulatory authorisations.
Jacqueline Cremer
Solicitor
T +61 2 9296 2789
jacqueline.cremer@mallesons.com
The Trade Practices Amendment Bill (No 1) 2005 (2005 Dawson Bill) contains a new provision which, if passed, will expressly prevent corporations from indemnifying an officer for liability to pay pecuniary penalties resulting from any breach of Part IV of the Trade Practices Act 1974 (TPA) and for legal costs incurred in defending or resisting proceedings in which such liability is found.
The prohibition extends beyond the original recommendations of the Dawson Committee, which were confined to a prohibition indemnifying officers for pecuniary penalties. However, the proposed legislation is consistent with similar provisions under the Corporations Act 2001. The proposed section only relates to an "officer" of a corporation, rather than "officers, employees or agents" as under the previous version of the 2005 Dawson Bill.
The proposed amendment
Specifically, the proposed section 77A prohibits a body corporate or a related body corporate from indemnifying an officer against:
- liability to pay a pecuniary penalty under section 76 for a contravention of a provision of Part IV (proposed section 77A(1)(a)) or
- legal costs incurred in defending or resisting proceedings in which the person is found to have such a liability (proposed section 77A(1)(b)).
Part IV of the TPA sets out the prohibitions against restrictive trade practices, such as the prohibitions against misuse of market power, price fixing, exclusive dealing and resale price maintenance.
Section 76 imposes pecuniary penalties for breaches of Part IV. As indicated in our previous alerts and updates, those pecuniary penalties will significantly increase as a result of other amendments contained in the 2005 Dawson Bill.
What the changes will mean
If enacted, the proposed section will prohibit corporations from paying pecuniary penalties imposed in respect of an officer's Part IV contravention, or the legal costs of defending or resisting proceedings, where an officer is found to be liable to pay a pecuniary penalty.
The section may leave open the possibility for corporations, for example, to make a conditional loan to an officer to defend legal proceedings. However, the loan would need to be repaid if the officer were found to have breached Part IV of the TPA and therefore incurred a liability to pay a pecuniary penalty.
The proposed changes may impact on a corporation's risk profile for vicarious liability for actions of its officers. Faced with the prospect of substantial legal costs for which they may be personally liable, officers may be more willing to admit liability and settle the proceedings. There could therefore be a potential higher likelihood of divergence between the interests of a corporation and its officers in defending any Part IV action taken against the corporation and named officers.
In some instances, corporations may have already adopted a policy of not indemnifying officers where the officer is ultimately found in breach of Part IV on the basis that this encourages greater individual responsibility regarding legal compliance.
Status of the 2005 Dawson Bill
For an update on the status of the 2005 Dawson Bill at the time of publication see the In Brief section of this update.
Jacqueline Cremer
Solicitor
T +61 2 9296 2789
jacqueline.cremer@mallesons.com
EU: 2004 Annual Report on Competition Policy
The 2004 Annual Report on Competition Policy was adopted by the European Commission in late June 2005. It provides an overview of 2004's most important legislative and policy initiatives and decisions in the field of EU competition policy.
The year saw the introduction of new EC Treaty rules on restrictive business practices and abuse of monopoly power. Amongst other things, the new set of implementing rules created a new enforcement regime based on close cooperation between competition authorities at a national and European Commission level.
During 2004, the European Commission also adopted a new block exemption regulation and guidelines on patent, know-how, designs and software copyright licensing (technology transfer) agreements. The block exemption regulation provides a legal safe harbour for many technology transfer agreements, while acknowledging that they can at times serve to harm competition and consumers.
The European Commission also demonstrated its commitment to enforcement in 2004, with three decisions, including the Microsoft decision, prohibiting the use of dominance. In addition, six decisions against cartels were adopted, with fines totalling €390 million.
New Merger Regulations commenced on 1 May 2004, which introduced better tests for identifying mergers that could harm the European economy.
Horizontal merger guidelines were also adopted, and the year saw an increase in notified transactions of 37 from the previous year, despite this figure still being lower than the number of cases in 2000.
With respect to state aid, the European Commission also adopted rules streamlining and simplifying notification procedures, and a number of important individual cases were dealt with by the Commission.
A bitter pill to swallow: €60 million fine for abuse of a dominant position
The Anglo-Swedish pharmaceutical group AstraZeneca was recently fined €60 million for abusing its dominant market position. AstraZeneca produces Losec, which is used in the treatment of ulcers.
The European Commission found that AstraZeneca had sought to restrict its competitors from accessing the pharmaceuticals market by making misrepresentations to national patent offices and by misusing pharmaceutical authorisation procedures. It held that these activities made it impossible for other companies to launch a generic product and also prevented parallel imports.
In its finding, the European Commission highlighted that the purpose of market authorisation is to give companies the right to sell medicine, not to exclude competitors.
AstraZeneca has announced that it will appeal the European Commission's decision.
A new sheen to the De Beers diamond investigation
The Belgian Association of Dealers, Importers and Exporters of Polished Diamonds (BVGD) has sought to have its antitrust case against the De Beers company re-opened. De Beers is the largest diamond manufacturer in Europe. The BVGD has argued that De Beers has continued to abuse its dominant market position by artificially limiting the availability of diamonds on the market. In addition, the group has accused De Beers of misleading the European Commission.
The De Beers investigation first began in July 2000. The European Commission's investigation ceased when De Beers offered a number of proposals to amend its supply system, which had been the subject of complaints against the company. In January 2003, De Beers was also cleared of concerns that its "supplier of choice" distribution arrangements could artificially reduce the supply of high quality diamonds.
Also currently under European Commission investigation is De Beer's joint venture with Alrosa, a Russian state-owned diamond producer.
In this section we list some of our recent alerts. Complete copies of our alerts can be found on our competition homepage www.mallesons.com/expertise/competition
ACCC v Baxter Healthcare: bundled out of trouble by Crown immunity
This alert examines the Federal Court's decision in ACCC v Baxter Healthcare [2005] FCA 581. Justice Allsop found that Crown immunity protected Baxter's conduct from the reach of the TPA. The decision will be of interest to companies that deal with government departments and state purchasing authorities, and those who "bundle" products across various markets. For a brief summary of this judgment, also see the In Brief section of this update.
Proposed amendments to the National Access Regime in Part IIIA of the TPA
This alert summarises changes proposed to the National Access Regime by the Trade Practices Amendment (National Access Regime) Bill 2005. The changes are mainly procedural, and include the introduction of pricing principles to guide decision makers and parties negotiating access to a service under Part IIIA. For a summary of the changes, also see the In Brief section of this update.
When you are negotiating a contract, take the time to consider what type of exclusion clause will best serve your interests. Do you know the main factors to consider in negotiating an exclusion clause?
If you are entering into a contract, it is likely that you will want to allocate contractual risk and to define each party's liability obligations using an exclusion of liability clause. Exclusion clauses operate as a defence to claims for breach of contract. If the other party claims a breach of contract they must prove that you have breached the contract. If they are successful in doing so, you may then rely on any exclusion of liability clause as a defence to exclude, limit or restrict your liability for the breach.
An exclusion clause can be used to exclude, limit or restrict a party's liability as follows:
- exclude - eg by excluding liability for a certain type of loss, such as loss of profits
- limit - eg by limiting liability for loss to a specified monetary amount, or
- restrict - eg by requiring claims for liability to be made within a specified period of time.
If you are drafting an exclusion of liability clause, bear in mind that being able to rely on the clause will depend on applicable common law principles (including principles of interpretation that apply to exclusion clauses) and the provisions of the TPA and State Fair Trading laws. When drafting exclusion clauses you should carefully consider whether any industry-specific rules apply - eg for supplying telecommunications goods and services. Here are five things that every in-house counsel should know about exclusion clauses.
1. Consider how the court would interpret the clause if there is a dispute
Make sure that the exclusion clause is unambiguous. That way it will be interpreted according to its natural and ordinary meaning, read in the context of the contract as a whole, and the intention of the parties will be considered. If there is ambiguity, the courts will adopt a construction less favourable to the party wanting to rely on the clause. For example, a clause that excludes liability for a breach of warranties will not exclude liability for a breach of conditions.
Make sure that the exclusion clause is not so broad that it removes the legal characteristics of a contract from the agreement. For example, if an exclusion clause is so wide that it completely protects a party from liability for non-performance, it may destroy any consideration that the liable party was to provide in exchange for the other party's promises.
Specify that the exclusion clause continues after the contract has expired or has been terminated. It will then apply to claims which have arisen but have not been notified prior to expiry or termination.
Although recent Australian case law suggests it may be unnecessary, if you intend liability for negligence to be excluded, it is best that you expressly state this.
2. Remember that the exclusion of TPA implied terms (eg that goods will be of merchantable quality) for supplying goods or services to a "consumer"1 will be void
You are unable to exclude or limit liability for loss or damage caused by breach of any of the TPA implied terms if the goods or services are ordinarily acquired for personal, domestic or household use.
You may limit (but not exclude) damage caused by breach of any of the TPA implied terms if the goods or services are priced below $40,000 and not ordinarily acquired for personal, domestic or household use. As long as the limitation is fair and reasonable, you may limit liability:
- for goods - to the replacement or repair of the goods or payment of the cost of replacement or repair
- for services - to the resupply of the services or payment of the cost of resupply.
3. Exclusion clauses will not protect against "misleading or deceptive conduct" under section 52 of the TPA or the equivalent provisions in the State and Territory Fair Trading legislation
It is well-established that an exclusion clause cannot be used to defeat liability under section 52 of the TPA or its equivalent in the State and Territory Fair Trading laws. Once you have established that the other party's conduct was misleading or deceptive and that you suffered loss as a result, no exclusion clause, however well-drafted, will protect the other party from liability for that conduct.
However, an exclusion clause may be relevant in the context of section 52 of the TPA in relation to the question of a party's reliance or inducement to enter a contract. An exclusion clause may effectively break the reliance nexus where it provides the party to whom the misrepresentation was made with sufficient information, so that it would be hard for that party to claim that it has relied on the misrepresentation in entering the contract. To maximise its effect, ensure that the exclusion clause:
- is appropriate in the context of the particular contract
- clearly indicates that the other person or corporation has only relied on the representations and warranties in the contract
- is brought to the attention of the other person or corporation entering the contract, and
- is the subject of legal advice obtained by the other person or corporation entering the contract.
4. Unfair terms in Victorian consumer contracts will be void
New provisions in the Victorian Fair Trading Act 1999 (Victorian FTA) make any term in a consumer contract2 found to be "unfair" void.3 These provisions focus on the substantive fairness of contract terms, rather than the way in which they are enforced.
Terms that may be "unfair" include terms that:
- permit the supplier (but not the consumer) to avoid or limit performance
- limit the supplier's vicarious liability for its agents
- limit the consumer's right to sue the supplier
- avoid, limit or restrict the supplier's liability for breach of contract or negligence, or make the consumer carry a risk that the supplier is better able to bear.
To avoid allegations that an exclusion clause is unfair, ensure that you draft the clause in plain English and avoid words which are unclear to those without legal knowledge.
To avoid allegations of unconscionable conduct, also ensure that the circumstances surrounding the existence and enforcement of the exclusion clause are fair. For example, suppliers should not use unfair tactics to compel consumers to accept an exclusion clause. Be willing to negotiate the scope of the exclusion clause and bring it to the consumer's attention.
5. Specifically exclude consequential/ indirect loss
When drafting an exclusion clause, be careful to specify exactly what loss is being excluded.
Avoid relying on clauses excluding liability for "consequential" or "indirect" loss to cover loss of profits, loss of revenue and loss of opportunity. The courts have narrowly interpreted broadly drafted exclusion clauses that exclude liability for "consequential or indirect loss" and have broadly interpreted "direct losses". Where, for example, loss of profits flow directly from a breach of contract an exclusion of liability for indirect or consequential loss will not cover such loss of profits.
So, if you intend a particular loss, such as loss of profits, to be excluded, don't rely on a clause that excludes "consequential or indirect loss (including loss of profits...)". Otherwise you run the risk that only indirect loss of profits will be excluded.
Renae Lattey
Senior Associate
T +61 3 9643 4065
renae.lattey@mallesons.com
1 In general terms, a person is deemed to acquire goods or services under the TPA as a "consumer" where the goods or services are priced at $40,000 or less or, if the price exceeds $40,000, where the goods or services are of a kind ordinarily acquired for personal, domestic or household use or consumption.
2 The definition of "consumer contract" in the Victorian FTA is substantially different from the definition of that term in the TPA. The Victorian FTA defines "consumer contract" as a contract to supply goods or services of a kind ordinarily used for personal, domestic or household use for the purpose of the ordinary personal, domestic or household use or consumption of those goods or services. The TPA definition is broader in that it encompasses goods or services ordinarily acquired for personal, domestic or household use. In addition, the Victorian FTA does not contain the $40,000 threshold for consumer contracts which appears in the TPA.
3 There are proposals to create a uniform approach to unfair terms across the States and Territories.
What’s happened to the Dawson Bill?
The 2005 Dawson Bill was passed by the House of Representatives in early 2005 and was to be considered by the Senate in the sitting that concluded on Friday 19 August 2005. However, the Bill was not debated during that sitting and, in the meantime, it has been reported that the Government will retain the current outright prohibition of third line forcing in the TPA thereby scrapping the introduction of a competition defence for third line forcing conduct.
This development means that the amendments will need to be put before the House of Representatives and this may lead to further delays in the passing of the 2005 Dawson Bill. If you would like more information on the 2005 Dawson Bill or, in particular, the third line forcing issue, please contact one of the Competition group specialists listed at the back of this update.
Changes to Part IIIA of the TPA
On 2 June 2005, the Federal Government introduced the Trade Practices Amendment (National Access Regime) Bill 2005 (Bill). The Bill is intended to enhance the National Access Regime in Part IIIA of the TPA.The proposed changes should provide greater certainty and transparency for infrastructure investors and users who are subject, or potentially subject, to the national access regime.
The key proposed changes are as follows:
- An objects clause will be inserted into Part IIIA. One effect of the clause will be that decision makers must give overarching weight to the effects of their decisions on investment in infrastructure.
- The Government will introduce pricing principles to guide decision makers and parties negotiating access to a service under Part IIIA.
- Government sponsored infrastructure resulting from a competitive tender process may be exempted from declaration under Part IIIA.
- The criteria for declaration will make it clear that declaration must result in a material increase in competition. A material increase in competition means "more than trivial".
- A decision to accept an access undertaking will be subject to full merits review by the Australian Competition Tribunal.
- Time limits will be introduced for decisions made by the National Competition Council, the ACCC and the Australian Competition Tribunal. It will be possible to extend the time limits in certain circumstances.
On 15 June 2005 the Bill was referred to the Senate Economics Committee, which is due to report its findings on 5 September 2005.
For more information on the Bill see our Competition law alert dated 8 June 2005 which can be found in the publications section of our competition homepage: www.mallesons.com/expertise/competition
ACCC v Baxter Healthcare - continued
Our last update mentioned that on 16 May 2005 Justice Allsop of the Federal Court handed down judgment in the case of ACCC v Baxter Healthcare. At that time the judgment remained confidential. An abridged version of the judgment has now been publicly released.
In the judgment, Justice Allsop dismissed the ACCC's action against Baxter Healthcare on the basis that Crown immunity extended to Baxter's conduct in dealing with state purchasing authorities. Justice Allsop held that if Crown immunity did not apply then Baxter's conduct would have contravened sections 46 (misuse of market power) and 47 (exclusive dealing) of the TPA. The ACCC has appealed the decision on the application of the principle of Crown immunity and several findings regarding sections 46 and 47.
For an in depth analysis of the judgment see our Competition law alert dated 24 June 2005 which can be found in the publications section of our competition homepage: www.mallesons.com/expertise/competition