TRADE PRACTICES AMENDMENT (CARTEL CONDUCT AND OTHER MEASURES) BILL 2008 Explanatory Memorandum
TRADE PRACTICES AMENDMENT (CARTEL CONDUCT AND OTHER MEASURES) BILL 2008
2008-2009
THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA
SENATE
TRADE PRACTICES AMENDMENT (CARTEL CONDUCT AND OTHER
MEASURES) BILL 2008
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)
Table of contents
Glossary .............................................................................................................. 1
General outline and financial impact .............................................................. 3
Chapter 1 Detailed explanation of amendments ............................... 5
Glossary
The following abbreviations and acronyms are used throughout this
supplementary explanatory memorandum.
Abbreviation Definition
TP Act Trade Practices Act 1974
Bill Trade Pract ices Amend ment (Cartel Conduct
and Other Measures) Bill 2008
ACCC Australian Co mpetition and Consumer
Co mmission
Co mmittee Senate Standing Co mmittee on Economics
1
General outline and financial impact
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 28th day after the day
on which the Bill receives Royal Assent.
Financial impact: Nil.
Compliance cost impact: Nil.
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Chapter 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 Australias
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
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Trade Practices Amendment (Cartel Conduct And Other Measures) Bill 2008
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
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Chapter 1 - Detailed explanation of amendments
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 jo int 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 fo r 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 applicat ion to joint ventures .
However, if a joint venture sought to rely on this exception, the jo int
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 direct ly
or indirectly, to the parties to the contract, arrangement or
understanding, or the cartel provision is for the jo int advertising of the
price fo r the re-supply of goods or services so acquired. That is, the
exception does not exclude its application to jo int ventures, and could
be relied upon by joint ventures engaged in marketing activit ies
regarding goods or services collectively acquired.
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Trade Practices Amendment (Cartel Conduct And Other Measures) Bill 2008
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 mo re 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 co mmittee co mprising representatives of the joint
venture parties will decide fro m 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)).
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Chapter 1 - Detailed explanation of amendments
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
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Trade Practices Amendment (Cartel Conduct And Other Measures) Bill 2008
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 -- o mit "current section 154R in the TP Act",
substitute "section 154R in the TP Act as proposed to be amended
by item 30 o f Schedule 2".
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