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How the Australian Competition Tribunal became merger lawyers' worst nightmare
18 May 2023 06:31 by James Panichi
When Australia’s antitrust chief Gina Cass-Gottlieb used a high-profile press conference to outline her wish-list for changes to the country’s merger laws, what she offered up to journalists was a story that could write itself.
After years of dealmakers sidelining and sidestepping the Australian regulator, all mergers above a certain threshold would require notification with the Australian Competition & Consumer Commission, or ACCC, under a proposal that Cass-Gottlieb had presented to government.
If adopted by the federal parliament, this proposal would sound the death knell for Australia’s long-established voluntary notification regime, which allows merging companies to make up their own minds about whether to give the ACCC a heads-up.
In April, Cass-Gottlieb offered this simple takeaway: Australia needed to toughen up and remove the notification discretion companies have enjoyed. Under the proposed changes, M&A lawyers’ first port of call would have to be the ACCC.
It amounted to a significant announcement — but not one that rocked the world of local antitrust lawyers. In fact, many of them say they had already factored in changes to a voluntary notification regime that had left Australia out of step with comparable jurisdictions.
Instead, lawyers began to fixate on Cass-Gottlieb’s slightly cryptic words on the role of the courts in reviewing ACCC merger decisions. Antitrust experts became concerned that the top competition regulator was proposing a model that would curtail their avenues for appeal.
Since the ACCC chair’s April 12 speech, those concerns have worsened. Lawyers now fear that the regulator would be able to knock back a deal, with the specialized antitrust court, the Australian Competition Tribunal, taking on sole responsibility for reviewing the decision.
But why would that be a problem? That’s where the response to Cass-Gottlieb’s National Press Club of Australia speech becomes interesting.
Central to the concerns of Australian antitrust lawyers is a recent ruling by the head of the Competition Tribunal, Michael O’Bryan, defining the court’s role very narrowly (see here). In particular, O’Bryan said the Tribunal wasn’t there to offer a “re-hearing.”
This sounded alarm bells because it suggested the ACCC could block a deal with the Tribunal reviewing that decision — all without allowing companies to present fresh evidence and cross-examine witnesses. The judges would merely review the available information.
The ACCC has since told MLex that it’s not suggesting that dealmakers shouldn’t have any access to the Federal Court of Australia, where all hearings would be de novo — that is, there would be a full-blown “re-hearing,” with the deployment of documents and witnesses.
Yet lawyers told MLex that Cass-Gottlieb’s public utterances on the matter have offered them little reassurance and that their concerns over the role of the Competition Tribunal are real.
So — what’s behind all of this?
One likely explanation is that the ACCC is hoping to pressure merging companies not to withhold information when applying for merger review — a perennial source of frustration for the regulator, which has often been forced to stop the clock while it waits for documents.
The Competition Tribunal’s determination not to re-try a case could compel merging parties to put all of their cards on the table when applying for clearance. What would be the point of keeping your powder dry if you’re not ultimately allowed to roll out the cannons?
But for now, all dealmakers can hope for is that any future legislation spells out clearly their right for a Federal Court appeal. That, rather than the mandatory regime, is now likely to be the focus of industry lobbying efforts.
Court turf wars
The disquiet began with the wording of Cass-Gottlieb’s April 12 speech.
Under existing rules, the Competition Tribunal reviews contested authorization processes, with the more popular informal reviews ending up in the Federal Court. But under a mandatory regime, Cass-Gottlieb said that all appeals would be heard by the Competition Tribunal.
“In the proposed new formal process, the ACCC, or Australian Competition Tribunal on review, would not clear a merger unless it is satisfied that the transaction is not likely to substantially lessen competition,” Cass-Gottlieb said.
Australia’s top official then went on to provide a significant exception to the planned merger updates.
Under the proposed changes, the ACCC would still have the right to “call-in” for review all deals — even those falling beneath the established threshold. However, judicial review of such deals would be dealt with by the Federal Court, not the Competition Tribunal.
“The role of the Federal Court in considering merger-enforcement matters would also continue for transactions that do not trigger the notification thresholds,” she said.
So, all deals above the threshold would be reviewed by the Competition Tribunal; all deals below it by the Federal Court. Clear enough.
But would that preclude the Federal Court from having any involvement in above-the-threshold deals? This is the fundamental question for M&A lawyers, as they face the prospect of their clients losing the right to a de novo trial.
On that, Cass-Gottlieb’s speech appeared to grant some wiggle-room.
“As noted, we consider that the Australian Competition Tribunal is the appropriate review body for ACCC decisions in the formal regime. The Federal Court would continue to consider applications for declaration and judicial review,” she said.
Antitrust lawyers say the meaning of this is murky, prompting MLex to contact the ACCC for clarification. The response appears to indicate that, contrary to popular perception, the competition enforcer isn’t seeking to remove the Federal Court from the picture altogether.
“Parties could seek a declaration by the Federal Court (at its discretion) or judicial review in the Federal Court of the Competition Tribunal’s decision under the Administrative Decisions (Judicial Review) Act 1977 (Cth),” the written response says.
This would suggest that Competition Tribunal decisions could be appealed to the Federal Court. It may even point to a right for aggrieved dealmakers to take an adverse ACCC finding directly to the Federal Court.
But then, the waters are muddied again. In its response to MLex, the ACCC said that deals falling below the established threshold, which Cass-Gottlieb had first suggested would go straight to the Federal Court for review, will also come under the Competition Tribunal’s purview.
“Once a merger is called in, it is proposed that it would be treated in the same way as a notifiable merger and therefore any decision by the ACCC would be reviewable to the Tribunal,” the ACCC spokesperson said, adding that there would “also be avenues for declaration and judicial review via the Federal Court.”
The take-home message of all of this is that the Competition Tribunal’s slimmed down, only-the-facts review is likely to be the first stop for dealmakers wanting to appeal an ACCC decision. After that, the Federal Court will have a role that has yet to be clarified.
The Australian Competition Tribunal is a federal court that has been around since 1965. But in recent years it has been sidelined, with prominent merger reviews ending up in the Federal Court — for example, the 2020 TPG Telecom-Vodafone Hutchison appeal.
But in recent years, the revival of the “authorization” merger-review mechanism — a more structured alternative to the informal merger-review process — has become a more popular route for companies needing greater certainty and looking for protections from legal action. And the court of review for authorizations is the Competition Tribunal.
This is why the first significant review of an ACCC merger probe in recent years, involving a complex three-part network-sharing deal between Telstra and the aforementioned TPG, has percolated through to the Tribunal, in what is being seen as a test of the court’s approach.
The Tribunal’s review is still underway. However, the March procedural ruling by O’Bryan has set the rules for further hearings under existing laws. The ruling will also be a key point of reference if the ACCC gets its way and ends up funnelling more reviews to the Tribunal.
Here’s what happened in the Telstra-TPG case.
The two Australian telecommunications companies wanted to cross-examine three executives from Singtel Optus — a third-party telco operator that is opposing agreement — as part of the appeal of the ACCC’s decision to reject the network-sharing plan.
But the Tribunal said that 2017 updates to the Competition and Consumer Act stipulated that the “review in the present matter is not a re-hearing.”
“The implicit contention of the applicants that a review of the ACCC’s determination by the Tribunal is intended to afford an applicant an opportunity to test and challenge evidence that was received by the ACCC is not supported by the language,” the Tribunal panel said.
This means that hearings of the Competition Tribunal’s panel can’t form the basis of a new review, but only question the ACCC’s decision, as it was made at the time.
For the record, the Tribunal’s panel is made up of O’Bryan, a Federal Court judge, former antitrust official Jill Walker and former banking executive Diana Eilert.
Into the weeds
The exact wording of the proposed merger-law changes put forward by the ACCC hasn’t been revealed. But the mere suggestion that the Competition Tribunal could end up with a more prominent role is part of the broader clash over evidence between the ACCC and dealmakers.
What’s clear is that it would be in the ACCC’s interest for lawyers to provide more evidence about a deal at a much earlier stage — at the time of filing, in fact. Under existing rules, that doesn’t always happen.
Lawyers have argued that the ACCC’s existing ability to launch an investigation and take legal action over completed deals that aren’t notified to the watchdog suggest the existing rules aren’t as “voluntary” as an outside observer may think. But enforcement probes can be protracted and costly — a clear source of frustration for the ACCC.
For example, more than a year after Google completed its acquisition of watch maker Fitbit, the regulator’s investigation of the $2.1 billion deal was still underway in 2022, although it has all but disappeared (see here).
Just months into her role as ACCC chair, Cass-Gottlieb spoke of the regulator’s frustrations with information delays from merging companies, particularly those based overseas.
It’s true that many M&A lawyers bristle at the idea of not being able to present a de novo case to a court and say it would amount to procedural unfairness. Yet some also concede that a Competition Tribunal “re-hearing” would indeed force them to present all of their evidence from Day 1 — just as the ACCC would want it.
However, the arguments about procedural unfairness remain compelling.
For example, the time, money and paperwork required to prepare a merger clearance submission at the high level that would stand up in a hypothetical, subsequent review could be prohibitive, particularly for small companies.
While it’s true that this kind of regime would align Australia more closely with clearance mechanisms in other jurisdictions, it could also amount to a significant regulatory burden for those wanting to do business in an economy substantially smaller than that of the United States or the European Union.
Pushing dealmakers towards an up-front presentation of evidence could have a cooling effect, critics say. This could lead foreign investors to conclude that a disproportionately complex regime isn’t worth their time and money.
Alignment with overseas jurisdictions by creating a mandatory regime is one thing, but the ACCC’s proposals aren’t that straightforward and have left some arguing that the regulator is cherry-picking from overseas jurisdictions, rather than seeking to emulate them.
For example, the ACCC’s call-in powers for deals that fall beneath the threshold are in line with similar regulatory changes in other jurisdictions over concerns about “killer acquisitions” — tech deals in which an established player acquires a start-up to neutralize future competition.
The consensus among Australian lawyers is that while the goal of targeting killer acquisitions may be noble and one that’s likely to resonate with lawmakers, unless call-in powers are better defined they could effectively create a two-tier system.
The fear is that companies doing below-the-threshold deals would have to wait, nervously, for months, wondering whether the ACCC will call them in. This could push dealmakers to voluntarily notify the ACCC, to avoid the uncertainty — undermining the thresholds’ purpose.
Admittedly, it’s very early days: The detail on whether the merger call-ins would be subject to a deadline hasn’t been revealed or even formulated. There was only so much Cass-Gottlieb could cover in a 30-minute speech and the ACCC has said it has no firm view at this stage.
Indeed, the question of how long reviews take is already causing headaches for local practitioners.
Australia’s current informal merger review system isn’t underpinned by any legislation, which means that timelines linked to reviews are the subject of guidelines only, rather than strict requirements.
According to the guidelines, a review to the point where a statement of issues is published or an announcement of a final decision is made can typically take six to 12 weeks. But that guideline isn’t what it used to be, lawyers argue, with reviews taking longer and often being put on hold, as the ACCC waits for information from companies or regulators overseas.
At the time of writing, the Australian regulator’s longest-running merger review under consideration began in June 2022 and is linked to Microsoft’s bid for Activision Blizzard. The ACCC’s timeline for its review has been on hold since February.
Under the proposed changes, the ACCC’s caseload is also likely to increase, with a mandatory system likely to generate more reviews and have an impact on the watchdog’s timetabling.
Of course, the regulator is well within its rights to flag the broader need for change without providing all of the detail that lawmakers will ultimately require. In the meantime, though, Australian lawyers appear unnerved, as they parse Cass-Gottlieb’s speech for meaning.
The sooner concrete proposals come to light, the better, they say. Then the legislating — and lobbying — will begin in earnest.
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