Private enforcement in Australia – an emerging opportunity

Whilst private enforcement action has been available to the victims of competition law infringements since the mid 1970s, Australia’s competition law landscape has traditionally been dominated by public enforcement proceedings.

However, major changes to Australia’s competition laws may be on the horizon with a raft of reforms under review by the Australian Government, including changes which ought to see an emergence of private enforcement in Australia.

In this article, we look at some examples of private enforcement action in Australia, identify some of the potential barriers to private enforcement and explore some of the proposed reforms.

The Australian private competition law enforcement landscape is not entirely barren. In recent times, a small number of significant private enforcement actions have been commenced. These proceedings have followed successful prosecutions by the Australian regulator, the Australian Competition and Consumer Commission (ACCC).

The ACCC’s successful prosecution of the packaging company, Visy, for cartel conduct in contravention of the Competition and Consumer Act (CCA) led to two private enforcement proceedings. One of those actions was taken by one of Visy’s most significant customers, Cadbury Schweppes, seeking A$245 million in damages which was resolved on confidential terms.  The second proceeding was a class action by a group of customers, led by Jarra Creek, which sought A$466 million in damages. It settled for A$95 million.

More recently, the ACCC’s successful prosecution of a group of international airlines for entering into price fixing arrangements for the provision of air freight services led to a class action which resulted in a A$38 million settlement.

Indeed, class actions are likely to remain a prominent feature of any private competition law enforcement in Australia primarily due to their ‘opt-out’ basis and the emergence of litigation funders in this arena.

Despite these examples of activity, private enforcement in Australia remains dwarfed by the scale of public enforcement. In exploring the reasons for this imbalance, it is instructive to compare three key elements of the regime with the position in the United States (where private enforcement actions represent the significant majority of competition proceedings).

1.  Financial incentives:

In Australia, the amount recoverable in private competition litigation is limited to the loss or damage resulting from a contravener’s breach. That is in stark contrast with the position in the United States where treble damages are available.

The rules governing costs within Australia are also less favourable to a plaintiff than those in the United States, resulting in more risk for private claimants. In Australia, costs follow the event – win or lose – potentially leading to a plaintiff being responsible for the defendant’s costs, or even multiple defendants’ costs.  In contrast, the United States has an asymmetric costs rule which permits a successful plaintiff, but not a successful defendant, to recover costs.

2.  Evidence gathering:

In the United States, plaintiffs are permitted to depose potential witnesses prior to trial. The deposition process provides US plaintiffs with a dynamic and probing evidence gathering option not available to Australian plaintiffs who are limited to the more rigid pre-trial evidence gathering tools such as interrogatories and discovery.

3.  Abuse of dominance:

The Australian prohibition of an abuse of dominance (referred to as a misuse of market power; s 46 of the CCA) has been somewhat anaemic. The provision requires a plaintiff to establish that the defendant “took advantage” of its market power for a proscribed purpose. It is insufficient to establish mere motive and the plaintiff must establish what the respondent “had in view” or the “end sought to be accomplished”¹.

The need to address regulatory and practical impediments to private enforcement in Australia was recognised in the recent Competition Policy Review (referred to as the Harper Review). Key reforms advocated by the Harper Review which ought to encourage private enforcement in Australia include the following:

1.  Allow the use of admissions in a prior proceeding as prima facie evidence in private enforcement

Recent successes in significant private competition law cases in Australia have ridden on the coattails of prosecutions by the ACCC.  Whilst the CCA allows a finding of fact by a Court in a prior proceeding to be used as prima facie evidence of that fact in a subsequent private enforcement proceeding (s 83 of the CCA), the utility of this provision may be undermined in circumstances where the ACCC’s prosecution is resolved with the respondents.  The Harper Review noted that there is uncertainty as to whether a private litigant can rely on s 83 of the CCA in relation to facts which have been admitted in a prior proceeding.

The Review has recommended that s 83 of the CCA be amended to expressly extend to admissions of fact made by a person in a prior proceeding.  If implemented, this should encourage more private actions to follow on from ACCC proceedings.

2.  Substantive changes to misuse of market power prohibition

The Harper Review found that the Australian law regarding misuse of market power is currently “deficient” and “out of step with international approaches”. The Review recommended that it be amended to abolish the “purpose” and “taking advantage of power” tests and, instead, to prohibit a company which has substantial market power from engaging in any conduct where the purpose or the likely effect is to substantially lessen competition in any market.

Such amendments would overcome the perceived difficulties associated with establishing a misuse of market power.

3.  Allow private enforcement against overseas corporations without Australian Government consent

Currently, before conduct outside of Australia can be relied upon in a private enforcement proceeding, written consent must be obtained from a Minister in the Australian Government (s5 of the CCA). Consent can be refused for reasons including that, in the opinion of the Minister, it is not in Australia’s national interest to grant the consent.

The Harper Review described this requirement as “an unnecessary roadblock” and has recommended its removal.

4.  Promote greater access to support services for small business

The Harper Review found that small businesses face significant difficulties when endeavouring to engage in private enforcement actions.

In an effort to help address those difficulties, the Harper Review has recommended that where the ACCC decides not to take enforcement action in relation to a complaint by a small business, it should direct the parties to alternative dispute resolution.

On a global heat-map of private competition law enforcement, Australia may be represented as amber. Compared with the applicable regimes in red-hot jurisdictions such as the United States, there are some perceived impediments for private plaintiffs in this arena. However, proposed reforms are likely to generate energy and we expect to see meaningful growth in private competition law enforcement as a consequence.