A business owners guide to Australian competition law

A business owners guide to Australian competition law

The Australian Competition and Consumer Act (formerly known as the Trade Practices Act) governs how Australian businesses deal with their competitors, suppliers and customers.

That is, pretty much every aspect of commercial life. It therefore pays to have at least a working understanding of this area of law. It’s also worth keeping in mind that contravention of the Act can result in severe penalties, including jail terms and substantial fines.

Enforcement of the Act is the responsibility of the Australian Competition and Consumer Commission (ACCC). According to the ACCC, the purpose of the legislation is to “enable all businesses to compete on their merits in a fair and open market, while also ensuring businesses treat consumers fairly.”

This is achieved by prohibiting a range of conduct, regulating the way businesses conduct themselves and implying terms into consumer contracts, including guarantees with respect to the quality and safety of products.

When does the Act apply?  

The Act applies to any individual or organisation doing business in Australia. That is, buying or selling goods or services. The structure of the organisation is irrelevant. The act applies equally to for-profit and not-for-profit businesses, so long as they are operating in a commercial way.

It also extends to foreign corporations operating in Australian markets.

What kind of conduct does the Act prohibit?  

The Act prohibits a range of anti-competitive conduct.

This includes agreements between competitors to:

  • Fix or control prices
  • Divide markets based on geographical regions or other factors
  • Restrict supply, production or capacity
  • Rig bids

Agreements of this type are known as cartels.

Notably, to fall foul of the cartel provisions under the Act, competitors do not need to reach a formal agreement. The language used in the legislation is a ‘contract, arrangement or understanding’, which has been interpreted by the Courts to require something less than this. Specifically, it requires three elements: Communication between competitors, consensus, and a commitment to act in a certain (prohibited) way.

As a business owner, as soon as you or your staff begin communicating with competitors about matters with respect to which you are in competition, such as prices, access to different markets or competitive tenders, you are on dangerous ground.

Penalties for breaching the cartel provisions are severe. Individuals involved in a contravention may be prosecuted personally, facing up to ten years imprisonment or fines of $420,000 for each contravention. The maximum penalties for companies include fines of up to $10,000,000.

Other prohibited conduct includes concerted practices between competitors that fall short of being a cartel, but have the purpose, effect or likely effect of substantially lessening competition in a market.

Misuse of market power by a dominant player in a market is also outlawed. This typically involves unfair actions aimed at damaging competitors. An example would be substantially lowering your prices for an extended period in an attempt to drive a weaker competitor out of business.

Finally, mergers or acquisitions that will have the effect of substantially lessening competition are prohibited.

Beyond the prohibitions against anti-competitive conduct, the Act contains a number of provisions aimed at protecting small businesses. This includes prohibiting misleading and deceptive conduct in trade or commerce, voiding unfair terms in standard form contracts and outlawing unconscionable conduct.

What protections does the Act provide for consumers?

The Act also contains the Australian Consumer Law (ACL), a series of provisions aimed at protecting consumers.

These include the prohibition against misleading and deceptive conduct, which punishes companies that deceive consumers through their marketing and advertising.

The ACL also implies a number of standard terms into consumer contracts. These include terms that products will be of merchantable quality (that is, free from defects), fit for their intended purpose and in accordance with any samples shown to a customer. These consumer guarantees cannot be excluded or limited in any way, even if the customer agrees to it.

Finally, the ACL imposes liability on manufacturers and importers of goods that are found to be unsafe.

The disclaimer

This article is not intended to be a comprehensive description Australia’s competition and consumer protection laws, which are expansive, detailed and complex. Rather, it is intended as a guide to some of the more important aspects of the law for business owners.

We are not lawyers and the content of this article should be considered legal advice.

If you are concerned about potential liability under the Australian Competition and Consumer Act, or any other legal matter, you should engage a reputable commercial lawyer to advise you.