As a starting point, market is defined in the CCA under s 4E as a ‘market in Australia’ for goods or services, and substitutes for goods and services, or are otherwise competitive with. In QCMA the court provided guidance on how to go about assessing the market. A market is an area of close competition between firms, where there is a strong substitution effect in the long run. The test we apply is the SSNIP test, which is whether a Small but Significant and Non-transitory Increase in Price will result in an increase in demand for the alternative good. This is a method of testing whether two goods are substitutes, and if they are, then they must be in the same market.

A. For consumers, we want to be considering whether they switch to a new product, or geographically do they change suppliers, and how far are they willing to go.

B. For suppliers, we want to be considering whether they switch production to another product, or geographically how far will they move to find new customers.

In ACCC v Flight Centre, the court considered that a market has four dimensions, the product, the geography, the function, and a temporal dimension. Furthermore, when considering the definition of the market, we should take a purposive approach considering the statutory provision governing the breach. A limitation on this, is that any definition we arrive at, must not be divorced from the commercial reality.

In Re Tooth, the court started by identifying areas of close competition, before proceeding through substitution to related products, taking a long run view of consumer behaviour. The boundary of the market is where there is a breach in the substitution chain, such that the firms within the market so far, would be capable of

increasing their prices without being substantially undermined by the other product. The court also reinforced the statement in Flight Centre, that the market has four dimensions.

Air NZ

The market definition is an economic tool, and assessment of the market is not done in a vacuum, but rather by reference to the conduct in issue, and the relevant statutory provision. Any resulting market definition must have economic and commercial reality (reinforcing Flight Centre).

Fortescue Metals – SSNIP Test

Applied a hypothetical monopolist test – if we have a 5% price rise for at least one year, how would the market react. Any product consumers shift to is a substitute and part of the market.

As discussed in Flight Centre, and Air NZ, there are four dimensions to the market. I’ll consider each in term, to try establish the relevant market here.

(3)

15

Established ROT

Employers

ROT applies to all limits on the freedom of employees to work after termination.

Just Group v Peck

Employers have a legitimate interest in protecting confidential information and customer connections. They can protect this by restraining involvement with a competing business, and the limitation need not be limited to only disclosing that information.

Vendor and purchaser

Goodwill is a recognised legitimate interest, and the higher the price paid for the business, the more likely a court will be to hold that a given level of restraint is reasonable (Southern Cross v Palmer).

Partnerships

Even where a partner is not party to a restrictive agreement, ex-partners must not canvass former clients, or persuade them to deal with a new firm. This applies to all ex-partners.

Vertical restraints (also CCA s 47)

Where there is an agreement restricting the use of goods sold under the agreement, or relating to other goods or services, such as not purchasing similar goods from a competitor. This may also apply in the case of franchises. ROT will only apply where the agreement requires giving up a freedom previously held, noting that where ROT fails to apply, these agreements will be covered by the CCA.

Bodycorp

In Bodycorp, the court considered a restraint of trade restricting franchisee’s from leaving, operating similar to a penalty clause. The court considered that the interference went beyond what was reasonable to protect AAMI’s interest and the agreement was thus unenforceable.

Horizontal

Restraints in horizontal agreements such as between competitors regarding price, quantity or terms, are enforceable at common law under ROT so long as they are reasonable. However, this conduct will also fall under CCA s 45AD for cartel provisions (except for employment/sale of business).

Non-contractual

The cases regarding sporting interests, as the players were not a party, but rather were subjected to the body’s rules. This was seen in De Belin, and Buckley.

(4)

50

What do?

There are a few avenues open to X due to the conduct not having occurred yet.

1. Could proceed without contacting the ACCC

Parties are not under an obligation to notify the ACCC of any proposed mergers. This method runs the risk though of ACCC seeking an injunction while they analyse the merger, if they think there are competition issues involved.

2. Could seek informal clearance from the ACCC (recommended if merge = >20% MS)

 Under this approach, X can notify the ACCC that they are intending to proceed with the specified deal, and seek informal clearance that the ACCC agrees it will not SLC. Note though, that this does not bar ACCC from prosecuting the deal in the future, it is just highly unlikely after it has passed through the process.

 The ACCC may give clearance alongside a request for undertakings from the parties, which would then be enforceable by the ACCC under s 87B. This enables the ACCC to impose conditions which they think would result in the deal not SLC, such that they are comfortable for it to proceed.

 This option would amount to an informal merger review process, and if ACCC approves, the merger is deemed ‘pre-assessed’. If however the ACCC refuses informal clearance, X could either seek authorisation formally under s 88, or proceed regardless and contest in court. For example, Metcash succeeded in court against the ACCC that the merger would not SLC.

3. X could seek formal authorisation from the ACCC under s 88(1)

The ACCC will apply the test under s 90(7), and consider whether the merger would have the effect of SLC, and either authorise if they consider it will not, OR, they may consider that the public benefits arising from the merger outweigh any public detriment that is likely to result, and as such should grant an authorisation on that basis.

When assessing the above, the ACCC must consider as public benefits (90(9A)):

 Significant increases in the real value of exports

 Significant substitution of domestic products for imported goods

 All other relevant matters relating to the international competitiveness of any Australian industry If authorisation is granted, then the merger will not contravene s 50.

If the ACCC refuses authorisation, X could appeal to the ACT, as seen in AGL and Seaswift, which both succeeded. Alternatively, X could proceed with the merger and risk a court battle and the potential for divestiture after the fact, or an injunction forestalling the process. Note though, that in court X could only argue that the merger would not SLC. While for authorisation, there is the public benefit test also.

4. Seek a declaration from the Federal Court, that the merger will in their view not SLC

But can only have grounds to bring this before the court if there is an indication that the ACCC will challenge the merger (brought under CCA s 163A).

Throughout the merger process, X should be careful of acting as if the two firms are one before the deal is completed. This is because until the merger is complete, the firms are still separate and can thus contravene provisions of the CCA, such as the cartel provisions, and it could also cause commercial issues generally if the deal does not proceed, and confidential information was shared for example.

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