Vertical Agreement in Australia

While Australian competition policy towards vertical restraints has been largely
influenced by the developments in economic theory and antitrust doctrine in the
United States, particularly in 1970s, there are significant differences. 1 In particular,
special attention is given to non-price vertical arrangements, which are singled out for
detailed legislative treatment in section 47 of Trade Practices Act. Some vertical
practices are illegal per se while others are made subject to competition test.2
The old Trade Practices Act was replaced by the Competition and Consumer Act in
2010. Presently, competition, in Australia, is regulated by the Competition and
Consumer Act 2010 (Hereinafter referred to as CCA). CCA does not define Vertical
agreements nor does it refer to the term vertical restraint practices. However it deals
with vertical restraint through series of provisions and unlike Indian competition law,
it does not address vertical restraint through a single comprehensive section.
The general provisions related to vertical restraint are laid down in section 45 of the
CCA. It prohibits inclusion of any term in the arrangement or contract or
understanding that has the purpose, effect or likely effect of substantially lessening
competition.3 Section 45 would not be of great significance until the scope of terms
like contract, understanding and arrangement is understood. The terms contract,
arrangement and understanding are not defined under the CCA but these terms
have been interpreted the courts in a liberal and broad manner. The Federal Court of
Australia has observed that arrangements does not only include written arrangements
but it also include implied agreement or conduct of parties which shows mutual
obligations.4 It has thus been clarified by the court that to arrive at an understanding
or to make an arrangement it is not necessary for anything to be written down. In fact,
such agreements are often not put into writing. Nothing need even be expresseda
nod and wink is sufficient.5 If necessary, the court will infer the requisite 'meeting of
minds' from circumstantial evidence such as evidence of joint action, similar pricing
1 R. Ian Mcewin, Vertical Restraint in Australian Trade Practices Act, Review of Industrial
Organization 9: pp 627 (1994).
2 R. Ian Mcewin, Vertical Restraint in Australian Trade Practices Act, Review of Industrial
Organization 9: pp 628 (1994).
3 Section 45, Competition and Consumer Act, 2010.
4 See TPC v Nicholas Enterprises Pty Ltd (No 2) (1979) FLR 83; Top Performance Motors Ltd v Ira
Berk (Qld) Pty Ltd (1975) 24 FLR 286
5 Australian Competition and Consumer Commission, Anti Competitive Agreements, available at
<https://www.accc.gov.au/business/anti-competitive-behaviour/anti-competitive-agreements>

structures, or even from evidence of opportunities the parties had to reach an

understanding.6
As mentioned above, Australian competition law has special focus on non-price
vertical arrangements, which are mainly covered by section 47 of the CCA. It covers
exclusive dealing and exclusive dealing may be divided into two sub heads that are
third line forcing and other exclusive dealing agreements. Third line forcing is
when the supplier supplies the goods or service to the buyer only on a condition that
the buyer will have to buy a product or service from a specific third party. Other types
of exclusive dealing occur when the one person imposes such restriction on the other
person, which affects or limits freedom to choose with whom to deal with. Other than
the above-mentioned vertical restraints that are covered under section 47, there is
another vertical restraint that is covered by section 48, which is resale price
maintenance. Resale price maintenance and third line forcing are prohibited under the
act irrespective of their impact on the competition in Australia or in other words these
restraints are per se void. Every other vertical restraint is subject to the competition
test which means that whether such restraint has the purpose, effect or likely effect of
substantially lessening competition in the relevant market.
An assessment of whether exclusive dealing arrangements results in a substantial
lessening of competition would involve consideration of:

Whether there has been a real effect on the competition in the overall market
for a particular product and its substitutes

Whether the refusal to supply would substantially restrict the availability of

that type of product to consumers

Whether consumers are severely restricted in their ability to buy a product or

its substitutes because the business has imposed territorial restrictions as a
condition of supply.7

Substantially lessening of competition, as a concept, is evaluative 8 and the courts

should consider the future state of competition in the market with and without the

6 Australian Competition and Consumer Commission, Anti Competitive Agreements, available at

<https://www.accc.gov.au/business/anti-competitive-behaviour/anti-competitive-agreements>
7 Australian Competition and Consumer Commission, Exclusive Dealing, available at
<https://www.accc.gov.au/business/anti-competitive-behaviour/exclusive-dealing>
8 Stirling Harbour Services Pty Ltd v Bunbury Port Authority [2000] FCA 38

impugned conduct rather than considering the present state of competition. 9 However
reference to the present state of competition can be made for better evaluation of the
conduct.
It is also important to consider that there is a mechanism provided under CCA by
which a party can obtain immunity from prosecution for exclusive dealing (including
third line forcing). The parties for the same have two options- Authorization; and
notification. Authorization can be obtained for a transaction of exclusive dealing by
ACCC but, the procedure for authorization mentioned under section 88 of CCA is
comparatively long and that is the reason it is rarely used. In the notification process,
a party wishing to engage in exclusive dealing can obtain immunity from prosecution
by the Australian Competition and Consumer Commission (ACCC) by notifying the
proposed conduct under s 93 of the CCA. Unless the ACCC decides to oppose the
notification, immunity will be obtained from the date of lodgment (or 14 days after
the date the notification is lodged in the case of third line forcing notifications). 10 The
notification will be allowed by the ACCC only till the time public benefits or
precompetitive benefits outweigh any anticompetitive detriments.11 Further, The said
mechanism cannot give immunity to restraints, which are in terms of resale price
maintenance or price discrimination. Thus, authorization for resale price maintenance
or price discrimination cannot be given.

9 Dandy Power Equipment Pty Ltd v Mercury Marine Pty Ltd (1982) 64 FLR 238
10 Kathryn Edghill, Partner, Truman Hoyle, Exclusive Dealing Overview, Lexis Web, available at
<http://lexisweb.lexisnexis.com.au/Practical-Guidance-Topic.aspx?tid=2323>
11 Baker and Mckenzie, Guidebook to Competition Law in Asia Pacific, October 2010 at pp 8.

References
Articles and Guidebooks

R. Ian Mcewin, Vertical Restraint in Australian Trade Practices Act, Review of

Industrial Organization 9: pg 627- 647, 1994.

Clough, Daniel-"Law and Economics of Vertical Restraints in Australia'"

[2001], Melbourne University Law Review 551

Baker and Mckenzie, Guidebook to Competition Law in Asia Pacific, October
2010

Cases

TPC v Nicholas Enterprises Pty Ltd (No 2) (1979) FLR 83

Top Performance Motors Ltd v Ira Berk (Qld) Pty Ltd (1975) 24 FLR 286
Stirling Harbour Services Pty Ltd v Bunbury Port Authority [2000] FCA 38
Dandy Power Equipment Pty Ltd v Mercury Marine Pty Ltd (1982) 64 FLR
238c

Websites

www.accc.gov.au