[T774]The Trade Practices Act

For a number of years, the prohibitions against anti-competitive conduct under the Trade Practices Act 1974 (TPA) caused problems for joint venture activities. As of 1 January 2007, the Trade Practices Legislation Amendment Act (No 1) 2006 introduced a new defence to allegations of breach of the TPA. As a result of the amendments, parties to joint ventures will have increased scope to collaborate in respect to their activities, including pricing, so long as the activities do not substantially lessen competition.
The new defence is all the more welcome in light of increased financial penalties for companies (now the higher of $10 million, or three times the gain from the contravention or 10 per cent of Australian turnover) as well as heightened sanctions for individuals (including disqualification of directors) for breaches of the TPA.
The new joint venture defence will be of particular interest to the financial services sector given the continuing trend of collaborative arrangements between financial institutions.
The problem with joint ventures
Joint ventures can have anti-competitive effects, such as preventing competition which might otherwise have occurred or raising barriers of entry to evolving markets. However, joint ventures may also be pro-competitive and provide public benefits, particularly when they are employed as a means of developing new products or services or producing existing products or services more efficiently. Examples of such arrangements include outsourcing internal functions, customer loyalty programs and retail alliances.
Other reasons for reform
Furthermore, the pricing exemption referred to above, had no in-built joint venture exemption for potentially exclusionary provisions joint venture arrangements. This had the effect that some of the most commercially sensible proposals by commercial negotiators caused legal headaches when Australian competition law advice was sought.
In addition, international joint ventures where Australia was part of a much wider business proposal raised different problems. A joint venturer who assumed that because its agreement was valid under United States law because of the ?rule of reason? analysis there, might find itself in serious difficulty from an Australian perspective if it had ignored the wide ranging effect of Australian ?per se? rules.
Even if the joint venture parties believe that, due to their good relations, trade practices issues are not a problem at the time the venture was formed, circumstances may change. If a dispute emerges and the parties ?fall out with each other?, unforeseen TPA issue(s) may become a serious problem. For example, if one party wished to place significant pressure on the other, that party could seek immunity from the Australian Competition and Consumer Commission (ACCC) under its immunity policy. This would expose the other joint venturer to potentially significant penalties and other consequences. Something similar to this scenario has in fact occurred in Australia recently.
In its review of the competition provisions of the TPA, the Dawson Committee recognised the limited scope of the joint venture exemption and acknowledged that, particularly in areas of innovative growth such as e-commerce, new types of joint ventures would not benefit from the exemption. The committee recommended that the exemption for joint ventures under the TPA should be widened.
The new defence
The TPA provides a broad definition of ?joint venture? which focuses on a joint activity in trade or commerce carried on by the parties, rather than on the legal form adopted. A joint venture structure does not of itself provide an automatic exemption, and joint ventures which are shams for anti-competitive conduct will not be likely to benefit from the exemption. Instead, the exemption is limited to provisions which can be shown to be ?for the purposes of? the joint activity?requiring an analysis of individual contractual provisions in light of the overall objective of the joint venture. Is the restriction in question reasonably necessary in the context of the joint activities?
In order to satisfy the definition, parties to a joint venture need to show that they are engaged in a joint venture that is separable from the activities in which they are individually engaged and demonstrate their individual contributions to that activity by way of capital, property or skill.
Outlook for the future
The kinds of collaborative activity in the financial services sector that could benefit from the joint venture exemption in the future include associations (such as credit card associations) and networks (such as stock exchanges). For example, a collaborative initiative of market participants providing an essential service utilized by all financial institutions may be able to avail of the defence. Members of a network, who compete with each other in a market, will potentially have added flexibility to collaborate to the extent their collaboration does not give rise to a substantial lessening of competition.
The defence also brings Australian law into line with other jurisdictions, by focusing on the effect on competition of the arrangements in question, rather than on the form. Joint venture provisions will still require a TPA analysis. But overall, the new defence is a welcome tool for businesses contemplating engaging in joint venture activity and brings a touch of common sense to the competition law analysis of such structures.