Bill may threaten joint ventures: lawyer

The new iron ore joint-venture arrangement between Rio Tinto and BHP could easily be in this boat, a Sydney competition lawyer, Brent Fisse, has warned.

Under the proposed legislation, operational understandings and arrangements required for joint ventures will need everything that could be construed as cartel behaviour to be exempted in specific written provisions in a contract from day one.

Until now, joint ventures have needed only an understanding between parties about collusive or cartel behaviour.

Mr Fisse said many joint ventures were general contracts where operational arrangements were implemented to achieve pro-competitive aims.

He said understandings about cartel behaviour such as price-fixing often arose down the track. Others included restriction of output, allocation of market sharing, allocation of customers and bid rigging.

Given the nature of the deal between Rio Tinto and BHP, Mr Fisse expected exemptions such as these and the other defined terms would be covered, but he says there could easily be operational understandings and arrangements that were not.

He also said the legislation offered no time parameters for investigation of cartel behaviour at a criminal level, unlike present legislation, in which cartel behaviour, prosecuted only as a civil offence, limited investigation of company records back six years.

The Trade Practices Amendment (Cartel Conduct and Other Measures) Bill 2008 is due to be enacted this year. It will give the Australian Competition and Consumer Commission and the Commonwealth Director of Public Prosecution powers for the first time to make criminal prosecutions over serious cartel behaviour, though lesser offences under certain criteria could still be prosecuted as civil offences.

The bill has attracted criticism from competition lawyers, academics and businesses since details were made public by the Federal Government late last year.

Mr Fisse raised the joint venture issues in a submission this month to the Competition Policy and Consumer Affairs Minister, Craig Emerson, but is concerned it will be put in the "too hard basket".

"I am not sure there is a contractual fix for this. Companies with joint ventures would have to go right back [through records] and find out if there are any cartel provisions and then cover them all with contracts. I am not sure anyone is going to go to all that trouble. They will just take the risk, but it is a real risk."

Mr Fisse said the aim of the bill was to make people aware of the seriousness of cartel behaviour and to prevent them engaging in naked price-fixing, concocting a joint venture down the track with an exception based on an understanding that was not written down.

"That's the evil, but anyone who is half smart will put a joint venture exemption into a contract anyway if they are going to try and dodge the cartel offence and other serious prohibitions against cartel conduct."

The enforcement and compliance manager for the Australian Competition and Consumer Commission, Marcus Bezzi, told a Sydney competition law conference last month the joint-venture exception was created to provide certainty for genuine joint-venture parties while not providing camouflage for cartelists.

One of the reasons the regulator had been so vocal in supporting the criminalisation of cartel conduct was its value as a deterrent, he said.

"Whereas pecuniary penalties, no matter how large, may be regarded by some as merely a business cost, the risk of imprisonment alters the equation completely."

But Mr Fisse said the Government was trying to get away with a superficial response with fixes that he said would not work.

"They're nuts if they let it proceed," he said.