Competition law: COVID-19 and cartel conduct

Competition law: COVID-19 and cartel conduct

Competition law: COVID-19 and cartel conduct

Over the last month, many Australian companies have been forced to quickly adapt in response to changes in consumer demand as a result of the COVID-19 pandemic. But what happens when the best way to ensure a continued supply of goods and services to the Australian community requires coordination with your competitors?

Cartel conduct

The restrictions in relation to “cartel conduct” can be found in Part IV, Division 1, of the Competition and Consumer Act 2010 (Cth) (CCA). Broadly speaking, these provisions prohibit businesses who are ordinarily in competition with each other from coordinating with one another, particularly in relation to price fixing, bid rigging, restricting outputs in the production and supply chain, or market sharing by allocating customers, suppliers or territories.

Application to Australian businesses: grant of interim authorisations

There are many different situations arising as a result of COVID-19, which may require business to develop a coordinated response with their competitors. For example:

  • businesses operating in essential industries may wish to coordinate in order to provide a minimum standard of relief (for example, by way of a reduction and/or waiver in fees, or through the provision of discounted support packages) to customers facing economic hardship;
  • businesses experiencing a higher than usual demand for specific goods may wish to coordinate to ensure the security of their supply chain, and to ensure the fair allocation of those goods across Australia; and
  • businesses experiencing a lower than usual demand for services may wish to coordinate to ensure the continued supply of those services across Australia in circumstances where it may not otherwise be commercially viable to do so.

Under “normal” circumstances, these activities may fall within the definition of cartel conduct, prohibited under the CCA. However, recent guidance from the Australian Competition and Consumer Commission (ACCC) acknowledges the severe disruption caused by COVID-19:[1]

The ACCC will continue to actively engage with governments and businesses about potential authorisations that support coordination between competitors that is ordinarily prohibited but which is necessary and in the public interest at this time (eg the application by supermarkets allowing a coordinated approach to best ensure grocery supply).

Given the above, while it is clear that the cartel conduct provisions remain in force, it may now be easier for businesses to obtain authorisation[2] to engage in such behavior – with the ACCC indicating that these matters will be “progressed very quickly”.

Generally, authorisations can be granted where the ACCC is satisfied, in all the circumstances:[3]

(a) that the conduct would not have the effect, or would not be likely to have the effect, of substantially lessening competition; or

(b) that:

(i) the conduct would result, or be likely to result, in a benefit to the public; and

(ii) the benefit would outweigh the detriment to the public that would result, or be likely to result, from the conduct.

It is clear from the recent authorisations granted by the ACCC that relevant benefits to the public may include measures which assist consumers and/or businesses experiencing financial difficulty as a result of COVID-19, measures which allow for the continuing supply of goods to consumers in an equitable way, and measures which are required to ensure positive public health outcomes. Further, where the proposed measures are stated to be temporary in nature, the ACCC is less likely to consider such measures would “materially alter the competitive dynamics” in those particular markets.

Recent examples: interim authorisations granted by the ACCC

Many essential industries are now taking advantage of the ACCC’s interim authorisation process. In most cases, urgent interim authorisations have been approved by the ACCC within 1-3 days. Recent examples include:

  • Banking and insurance: On 20 March 2020, the ACCC granted interim authorisation to the Australian Banking Association, allowing its members to coordinate in implementing a support package for small business customers experiencing financial difficulties as a result of COVID-19, including by deferring principal and interest repayments for term and retail loans. In granting the authorisation, the ACCC recognised that enabling the participating banks to offer a relief package with minimum features and consistent messaging would be of benefit to small businesses. A further interim authorisation was granted on 30 March 2020, in relation to additional financial relief and assistance initiatives. In addition, a similar interim authorisation was granted to Suncorp, Allianz, QBE, and other insurance brokers on 2 April 2020, allowing them also to coordinate in relation to the provision of certain financial hardship measures.
  • Supermarkets: On 23 March 2020, the ACCC granted interim authorisation to participating supermarket chains (including Coles, Woolworths, Aldi and Metcash), allowing them to coordinate in order to ensure the supply and fair and equitable distribution of retail products to consumers during the COVID-19 pandemic. This allowed the supermarkets to collectively discuss supply chain issues with manufacturers and suppliers and to coordinate in providing greater access to retail products to those most in need, including the elderly, disadvantages and those in remote or rural areas.
  • Medical and pharmaceutical supplies: On 25 March 2020, the ACCC granted interim authorisation to the Medical Technology Association of Australia, allowing its members (and non-member businesses who supply or distribute relevant medical equipment) to implement a coordinated strategy in relation to the supply of medical equipment in response to the COVID-19 pandemic, including ICU ventilators, COVID-19 testing kits and personal protective equipment. This allowed the businesses to share information in relation to available stock levels, likely quantities that could be obtained through existing and new supply channels, and opportunities to increase domestic manufacturing, while coordinating to prioritise certain requests for supply and ensuring the efficient fulfilment of orders, as directed by the relevant State and Federal Governments. Similar interim authorisation was granted to the National Pharmaceutical Services Association in relation to the supply of medicines and pharmaceutical products on 31 March 2020.
  • Regional aviation: On 26 March 2020, the ACCC granted interim authorisation to Rex, QantasLink and Virgin Australia to coordinate flight schedules, and enter into agreements to share revenue, in order to reduce capacity on ten regional routes as a result of the COVID-19 pandemic. These measures allowed the three companies to reduce capacity in a way that maintains the viability of flying certain routes, without compromising schedule offerings to passengers.
  • Internet and communications service providers: On 31 March 2020, the ACCC granted interim authorisation to NBN Co, Telstra, Optus, Vodaphone, TPG and Vocus to implement a range of temporary contingency planning measures in order to deal with the effects of the COVID-19 pandemic on Australia’s telecommunications networks and end users. These measures include the implementation of capacity optimisation strategies (including priority and/or greater access to certain groups including health and educational institutions), and support to certain classes of end users experiencing financial difficulties as a result of COVID-19 to ensure their ongoing access to communications services.
  • Petrol: On 3 April 2020, the ACCC granted interim (and conditional) authorisation to the Australian Institute of Petroleum, BP, Caltex, Mobil and Viva Energy, allowing them to coordinate in respect of maintaining the supplies of fuel products available to Australian businesses and facilitating the efficient use of fuel storage capacity in Australia, which may have been impacted by the COVID-19 pandemic.
  • Shopping centres: On 3 April 2020, the ACCC granted interim authorisation to Scentre Group and the Shopping Council of Australia (and its members), allowing them to take urgent industry wide action to assist small and medium enterprise tenants adversely financially impacted by the outbreak of COVID-19. These measures include cooperation in providing rent relief to SME tenants, which might have otherwise been payable to the Shopping Council of Australia’s members.

As can be seen from the above examples, interim authorisations have been granted in a diverse range of industries and for varying reasons. It is important to note, however, that businesses must seek, and be granted, an authorisation or interim authorisation prior to engaging in any of the types of coordination described above.

If you or your business requires further advice in relation to any of these issues, please contact Gordon Hughes AM.

[1] See the ACCC’s media release at: https://www.accc.gov.au/media-release/accc-response-to-covid-19-pandemic.

[2] Applications are to be made pursuant to section 88(1) of the CCA.

[3] See section 90(7) of the CCA.

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