By Rufina Cheung (Portfolio Lead — Commercial Law), Wolters Kluwer
On 20 September 2017, the Full Federal Court set aside the Australian Competition Tribunal’s decision to grant merger authorisation for Tabcorp Holdings Limited to acquire Tatts Group Limited. The Full Court later released its reasons for setting aside the Tribunal’s decision. The ACCC and CrownBet had applied for judicial review alleging legal error in the Tribunal’s decision. The ACCC succeeded, but only on its first ground (Competitive detriment). The Full Court held that the Tribunal had overlooked considering the detriment identified by the ACCC: ACCC v Australian Competition Tribunal (2017) ATPR ¶42-552;  FCAFC 150.
The matter was referred back to the Tribunal for further consideration. The Tribunal has ordered a re-hearing on October 24 and 25.
Tribunal must consider any non-trivial competitive detriment
Under s 95AZH of the Competition and Consumer Act 2010, the Tribunal must not grant authorisation unless it is satisfied in all the circumstances that the proposed acquisition would result, or be likely to result, in such a public benefit that the acquisition should be allowed. Since benefits may be offset by detriments, all relevant detriments must be examined. This includes competitive detriments. The Tribunal must consider any non-trivial (or “substantive”) competitive detriment which will result, or is likely to result, from the acquisition, whether it occurs on a market-wide basis or not: –, .
Competitive detriment vs Substantial lessening of competition in a market
“Substantive” competitive detriments under s 95AZH(1) are conceptually distinct from substantial lessening of competition in a market under s 50. Section 95AZH(1) is not focused on the inquiry posed by s 50 (ie whether there will be a substantial lessening of competition in a market). The focus is much broader than it is under s 50; for instance, it is not limited only to detriment in a market: , .
On the other hand, the issue of whether there is a substantial lessening of competition in a market is not necessarily a legally irrelevant, ie prohibited, consideration. If a party alleges that an acquisition will result in a detriment which consists itself of a substantial lessening of competition in a market, the Tribunal will need to assess that proposition: . In this case, CrownBet asserted a substantial lessening of competition in a market as the very detriment on which it relied for the purposes of s 95AZH: .
ACCC’s case vs CrownBet’s case
The dispute on appeal focused on a narrow segment of the national market for wagering services, which involved online competition between Tatts and Tabcorp, especially in relation to totalisator wagering. Totalisator wagering involved the pooling of bets, the deduction of a fixed takeout amount from the pool by the operator, and the distribution of the balance among the winning punters. The takeout amount is subject to a legal maximum.
Before the Tribunal, the ACCC had submitted that the merged entity would no longer be constrained in setting its takeout rate in Queensland, Tasmania, SA or the NT and could freely increase that rate to its legal maximum. The ACCC said this would have a significant price-effect in the segment, which was a substantive competitive detriment that the Tribunal was required to consider under s 95AZH(1). Importantly, however, the ACCC accepted that there would be no substantial lessening of competition in the overall wagering market.
CrownBet’s argument was apparently similar, but actually quite different. It alleged the same competitive effect of reduced online competition between Tabcorp and Tatts especially in relation to totalisator wagering. But this was not the detriment on which it relied. It submitted that the impact in that segment would substantially lessen competition in the overall wagering services market. The substantial lessening of competition was the detriment on which CrownBet relied, under s 95AZH(1).
The Tribunal rejected CrownBet’s case on detriment. The Tribunal held that, since the market included all types of wagering product, it was difficult to describe any lessening of competition arising from restrictions on a market segment as “substantial”. It concluded that there would not be a substantial lessening of competition in the consumer wagering market due to the merger, and therefore, no public detriment was likely to arise.
Full Court’s decision
The Tribunal did not deal with the ACCC’s more confined case on detriment in the segment. Its reasoning was sufficient to dispose of CrownBet’s case but not to dispose of the ACCC’s. The ACCC’s case slipped through the cracks: , .
The competitive effect advanced by the ACCC was a detriment within s 95AZH(1) and thus a mandatory relevant consideration. If the Tribunal failed to take account of this matter, prima facie, its decision must be set aside. It was not possible to say that if the Tribunal had concluded that the narrower detriment suggested by the ACCC existed that the balancing exercise would have concluded in the same way. The ACCC was entitled to an order that the Tribunal’s decision be set aside ab initio. The Tribunal failed to carry out its task and made a jurisdictional error by omitting to deal with a central issue raised by the ACCC: , , .
“With and Without”
The ACCC and CrownBet submitted that the Tribunal failed to analyse what the position would be “with or without” the merger. The Full Court held that the “with or without” approach was useful in most cases, but was not ultimately a substitute for s 95AZH(1): .
The Tribunal found that CrownBet’s suggested detriment did not exist. It did not consider whether this detriment resulted from the merger. But it did not need to do so, and it would have been meaningless to do so, in relation to a non-existent detriment: .
The Tribunal had overlooked considering the ACCC’s suggested detriment. Until it decided that the detriment exists, the question of whether it would, or would be likely to, result from the merger did not yet arise: .
Weight to benefits retained by Tabcorp
The ACCC submitted that the Tribunal did not give different weights to the savings retained by Tabcorp, and those passed through to the racing industry, when assessing the public benefit. It alleged that the Tribunal failed to apply the “modified total welfare standard”.
The Full Court held that the modified total welfare standard was a legitimate approach. However, the Tribunal’s reasons were to be measured against s 95AZH(1), not the modified total welfare standard. Even if s 95AZH(1) did carry within it the modified total welfare standard, it would not necessarily require the Tribunal to give explicit weightings. The Tribunal’s weighing of benefits and detriments might involve an instinctive synthesis of incommensurable factors. It would be unworkable to require the Tribunal explicitly to give a weight to each benefit: –.
CrownBet challenged the rationality of the Tribunal’s decision, and advanced seven arguments. The Full Court held that the Tribunal’s conclusions were not irrational.
This case has been reported in more detail in CCH’s Australian Competition and Consumer Law Reporter, and may be cited as ACCC v Australian Competition Tribunal (2017) ATPR ¶42-552;  FCAFC 150. The Tribunal’s decision was reported as Application by Tabcorp Holdings Limited (2017) ATPR ¶42-550;  ACompT 1.
The original version of this article was first published on Friday 22 September 2017 in CCH’s Australian Commercial Law Tracker.