Predatory buying not taking advantage of market power
The recent judgment from the Federal Court in Australian Competition and Consumer Commission v Cement Australia Pty Ltd provides guidance on when a company will contravene competition law by misuse of its market power.
The case considered certain conduct by Cement Australia and its related companies in relation to the supply and acquisition of fly ash. Fly ash is a by-product of the combustion of black coal which, if it is of suitable quality, may be used as a partial substitute for cement in the making of concrete.
Cement Australia and its related companies entered into contracts requiring four power stations in South-East Queensland to supply minimum amounts of fly ash to them. The Australian Competition and Consumer Commission (ACCC) alleged that the companies had no commercial need for the fly ash and their entry into the contracts was ‘predatory buying’ intended to prevent other parties from entering and competing in the market.
The ACCC argued that Cement Australia had contravened s 45 (substantial lessening of competition) and s 46 (misuse of market power) of the Trade Practices Act 1974 (Cth) (TPA), now the Competition and Consumer Act 2010.
Justice Greenwood considered the relevant markets and the conduct of Cement Australia and its related companies in a detailed judgment running to almost 1000 pages. His Honour found that two relevant markets existed – an upstream market for the supply of unprocessed fly ash and a downstream market for concrete grade fly ash. Cement Australia held a substantial degree of power in the downstream market.
Cement Australia was found to have breached s 45 of the TPA because it had made and given effect to contractual arrangements that had a substantial purpose of preventing a competing party from entering the market and obtaining a supply of fly ash. Those were purposes directed at substantially lessening competition and would likely have that effect.
However, Greenwood J found that Cement Australia had not breached s 46 of the TPA because it had not taken advantage of its market power.
What constitutes ‘misuse’ of market power?
Section 46 will be breached where a company has a substantial degree of market power and takes advantage of that power for certain anti-competitive purposes.
Applying previous authorities, Greenwood J confirmed that ‘taking advantage’ of market power involves a party engaging in anti-competitive conduct that would not be profitable for a corporation that does not have the same market power. The question requires an examination of not only what the party did, but also why it was done. It is then an objective question whether a party acting in that way, in similar circumstances but without a substantial degree of market power, could have engaged in the relevant conduct.
His Honour found that another company in the position of Cement Australia but in a workably competitive market, could have entered into the contract on the same terms and conditions. On that basis, Cement Australia had not taken advantage of its market power.
Importance of this decision
The decision in this case demonstrates that the test for misuse of market power is difficult to satisfy. It also highlights that, whilst conduct may not contravene s 46, it may possibly contravene other sections of the Competition and Consumer Act, such as s 45.
However, it is important to remember that a superseded version of s 46 applied to Cement Australia’s conduct. Amendments were made to s 46 in 2008 with the aim of making it easier to prove that a party has taken advantage of their market power. Greenwood J did not consider those amendments.
Section 46(6A) now allows the court to consider, in deciding if a company has misused its market power, whether:
- conduct was materially facilitated or, in other words, made easier by its market power
- a company relied on its market power when it engaged in the conduct
- it was likely that the company would have engaged in the conduct without a substantial degree of market power
- any other connections exist between the market power and the company’s conduct.
It is not clear whether Cement Australia’s conduct would contravene s 46 as it is now in force; it is possible that a different conclusion may have been reached if the factors in s 46(6A) were considered by the court.
Review of competition laws and policy
The Federal Government announced in December 2013 that it intends to undertake a ‘root and branch’ review of competition laws and policy. Draft terms of reference for the review have been provided to the states and territories for comment and it is hoped the review will be completed within 12 months.
The information in this publication is provided for general purposes only. It is not to be relied on as a substitute for legal advice. Crown Law and the Department of Justice and Attorney-General accept no liability for losses caused by reliance on the material in this publication. Formal legal advice should be obtained for particular matters.
Published: 10 April 2014
Author: Catherine Jackson