Review of the Australian Competition and Consumer Commission annual report 1996-97 Submissions

Submission No 2: Australian Petroleum Agents and Distributors Association

18 November 1997

Mr David Hawker MP
Chairman
Standing Committee on Financial Institutions
& Public Administration
Parliament House
CANBERRA ACT 2600

Dear David,

I attach answers to the questions that you gave me in late July: I apologise for the late response, but look forward to discussing them with you tomorrow.

Yours faithfully

G A Watts
General Manager

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Our influence is our future
15th floor. 499 St Ki1da Road, Melboune. VIC 3004 Telephone: (03) 9866 6900 Facsimile: (03) 9866 6960

REPLY TO ACCC RESPONSES ON S87B UNDERTAKINGS AS INVITED BY
MR DAVID HAWKER MP, CHAIRMAN,
STANDING COMMITTEE ON FINANCIAL INSTITUTIONS AND PUBLIC ADMINISTRATION

Prepared by
Frank Zumbo
on behalf of
APADA

The following comments are in reply to the ACCC's responses with respect to issues raised on S87B undertakings. The ACCC responses have been put to the Standing Committee on Financial Institutions and Public Administration, chaired by Mr David Hawker MP.

Section 87B undertakings

From the outset, it needs to be noted that s 87B undertakings can be divided into the following categories:

Undertakings that have been accepted AFTER a breach of the Act has occurred

In these circumstances, the undertakings are accepted by the ACCC as an alternative to court proceedings. In particular, the ACCC is able to accept from the corporation in breach an undertaking which offers redress to the victims of the breach. In such cases, there is a concern that the interests of the victims or third parties may not be adequately taken into account by the ACCC in assessing the appropriate form of redress. At present, there is no mechanism to ensure that the proper interests of the victims or third parties are in fact taken into account.

Whilst the undertaking's in this category relate to both Part IV (Anti-competitive conduct) and Part V (consumer protection), it is submitted that the concerns about the need to consider the interests of third parties are particularly relevant to Part IV cases. Since Part IV deals with anti-competitive conduct within industries, there is a clear need to ensure accountability with respect to the undertakings entered into by the ACCC. Indeed, undertakings have the clear potential to be used to re-structure industries at the expense of third parties and the public interest generally.

Undertakings that have been accepted BEFORE a breach of the Act occurs

In these circumstances, the ACCC enters into an undertaking in return for its agreement not to pursue court action in the event that the ACCC considers that there is a potential breach of the Trade Practices Act. Such undertakings are prevalent in relation to mergers. Clearly, the area of mergers raises difficult issues. Firstly, the Trade Practices Act provides an authorisation process as a mechanism for dealing with immunity from prosecution for potentially anti-competitive mergers. The process is transparent, provides accountability and ensures that third parties have an adequate opportunity to raise issues that impact on their interests. In short, the authorisation process protects the public interest by providing a procedure for considering and weighing the various competing interests. More importantly, there is an appeal mechanism which makes the various parties accountable.

Unfortunately, s 87B undertakings lack all these safeguards. In particular, undertakings provide a party to a merger every incentive to bypass the authorisation process. This leaves both the ACCC and the public interest in a precarious position. In short, the ACCC is not accountable for its decision to accept an undertaking in relation to a potentially anti-competitive merger. Similarly, there is no protection for public interest or the interests of third parties.

Since the undertaking is given in return for not pursuing the case before the Court, it is readily apparent that the undertaking acts as a quasi authorisation in these circumstances. The undertaking offers a defacto exemption or immunity from the law, particularly in the case of mergers where the ACCC is the only party that can seek an injunction to prevent a potentially anti-competitive merger.

Whilst these undertakings can be varied or withdrawn, the ACCC is required to give its consent. In doing so, the ACCC is not obliged to consider the interests of third parties. Clearly, the same questions of transparency and accountability arise in relation to the varying or withdrawal of undertakings. Finally, there is the issue of the ACCC's role in the supervision of the undertaken. Indeed, the question arises as to whether the ACCC has the resources to adequately monitor the undertakings.

Question 6

Given that undertakings are presently an agreement between the ACCC and a private party there is a question as to whether or not it is appropriate for the ACCC to act as a contracting party to an agreement that may have industry wide ramifications. Clearly, the outcome is a reflection of the negotiating ability of the ACCC and the private party. Whilst the parties may be equally matched, there may be allegations that the ACCC has extracted a result which it could not have achieved in the authorisation process or in a court proceeding. Thus, the undertaking process may lead to the allegation that the ACCC has 'gone too far' in obtaining the undertaking.

In short, the question needs to addressed as to how far the ACCC should be permitted to enter into essentially private agreements which bypass the authorisation process or the judicial system. An unappealable undertaking presents clear dangers to the rule of law and, in particular, to the need for a party to know where they stand under the law. At present, there are no statutory guidelines for the way the ACCC is to approach the issue of undertakings. Under s87B, the ACCC is given a very broad discretionary power with no built-in legislative safeguards.

Once again, the lack of any statutory requirement to consider the public interest or the interests of third parties is particularly critical where the ACCC accepts an undertaking before any breach has occurred. At this point, the lack of proper consideration of the interests of third parties is likely to mean that the undertaking will affect those third parties in circumstances where they have no control. At least where an undertaking is sought after a breach, a third person may have private rights of action under the Trade Practices Act. In the absence of a breach, the undertaking may have an industry wide impact without affording third parties the ability to safeguard their interests or, at the very least, have any concerns addressed by the ACCC.

By allowing an appeal to the Australian Competition Tribunal in matters involving competition issues, any party having a sufficient interest can put its concerns within a public forum. Clearly, a tension arises as to the interests of the party who wishes to have an undertaking quickly accepted by the ACCC and the public interest in having the matter independently and objectively reviewed. It is perhaps too tempting to favour a quick and private agreement at the expense of accountability and the safeguarding of the public interest. There is also the possibility that private parties favour the undertaking process because they wish to avoid the public gaze of the authorisation process or court proceedings. A balance needs to be struck between the wish for secrecy and the need for transparency and accountability.

Given the ACCC has the ability to pursue a case before the courts and, therefore, can delay a merger there is a possibility that the ACCC may demand a 'high' price for its agreement to the undertaking. Whilst the ACCC can not 'impose' an undertaking, it certainly has considerable scope to secure an outcome that the other party may have no choice but to accept. Similarly, the other party may simply 'give in' for the sake of expediency. It may just be convenient to give an undertaking that the party knows can not be appealed.

In relation to the Caltex/Ampol undertaking, there is ample food for thought as to the dangers of a perception that the ACCC is attempting to reshape an industry without proper regard to the public interest or the interests of third parties.

Question 8

Once again, it is imperative that a balance be struck between the wish for secrecy by a private party and the need for transparency and accountability in the s 87B undertaking process. Secrecy or confidentiality is surely only one dimension to the undertaking process. Another dimension is the impact that the undertaking can have throughout an industry. Resolution of one matter through an undertaking is bound to impact upon other sectors off the industry. An appeal mechanism can ensure that appropriate consideration is given to the broader issues that may be raised by an undertaking.

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