Guidelines relating to deferral of arbitrations and backdating of determinations under Part IIIA of the Trade Practices Act 1974
1Guidelines relating to deferral of arbitrations and backdating of determinations under Part IIIA of the Trade Practices Act 1974
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This work is copyright. Apart from any use as permitted under the Copyright Act 1968, no part may be reproduced by any process without permission from the Australian Competition and Consumer Commission. Requests and inquiries concerning reproduction and rights should be addressed to the Director Publishing, Australian Competition and Consumer Commission, GPO Box 1199, Dickson ACT 2602.
Important notice
This guide is designed to give you basic information; it does not cover the whole of the Trade Practices Act and is not a substitute for professional advice.
Moreover, because it avoids legal language wherever possible there may be generalisations about the application of the Act. Some of the provisions referred to have exceptions or important qualifications. In most cases the particular circumstances of the dispute need to be taken into account when determining how the Act applies to that dispute.
Section 1 - Guidelines relating to deferral of arbitrations and backdating of determinations under Part IIIA of the Trade Practices Act 1974 - Guidelines relating to deferral of arbitrations and backdating of determinations under Part IIIA of the Trade Practices Act 1974 | Zoe
A third party who makes a request for access to a service declared under Part IIIA of the Act.
Access undertaking<br>
Access providers may give an access undertaking to the ACCC. An undertaking may specify the terms and conditions on which access will be made available to third parties. An undertaking may provide for the ACCC to resolve disputes that arise under that undertaking. An access undertaking is able to be enforced in the Federal Court.
Arbitration
Refers to the process of arbitration of an access dispute by the Commission under Part IIIA of the Act.
Commission
Refers to those members of the ACCC who are constituted to conduct the arbitration.
Declared service
A service (see definition of service) for which a declaration is in operation—see s. 44B of the Act.
Final determination
A determination of the commission made pursuant to s. 44V of the Act that is not an interim determination.
Interim determination
A determination that is expressed to be an interim determination.
Party
A person who is formally recognised as a party to an arbitration under Part IIIA of the Act—see ss. 44B and 44U of the Act.
Provider
The entity that is the owner or operator of the facility that is used (or is to be used) to provide the service (see definition of service)—see s. 44B of the Act.
Service
As defined in s. 44B, the term service refers to ‘a service provided by means of a facility’ and includes the (a) use of an infrastructure facility such as a road or railway line; (b) handling or transporting things such as goods or people; and (c) a communications service or similar service, but excludes matters specified in the Act.
Third party
In relation to a service (see definition of service), a person who wants access to the service or wants a change to some aspect of their existing access to the service—see s. 44B.
Preface
About these guidelines
Part IIIA of the Trade Practices Act 1974 (the Act) is a key component of the regulatory framework supporting the development of a competitive environment in markets associated with the operation of certain infrastructure facilities.
Effective from 1 October 2006 the Trade Practices Amendment (National Access Regime) Act 2006 amended Part IIIA by, among other things, providing the Australian Competition and Consumer Commission (ACCC) with mechanisms to:
defer arbitration of an access dispute where it is also considering an access undertaking on related issues
backdate a final determination and apply payment of interest to a backdated determination.
The legislative amendments also require the ACCC to formulate, within six months after commencement of the Trade Practices Amendment (National Access Regime) Act 2006, guidelines for these provisions and to have regard to them when exercising its statutory powers.
The purpose of these guidelines is to explain how the ACCC might apply the provisions on deferral of arbitrations and backdating of final determinations when making decisions under Part IIIA.
These guidelines are legislative instruments under the Legislative Instruments Act 2003 which means that they are subject to disallowance and will sunset after ten years. More generally, however, the ACCC will regularly review the effectiveness of its arbitration processes and update these guidelines as necessary.
1 Introduction
Under Part IIIA of the Trade Practices Act 1974 (the Act), the Australian Competition and Consumer Commission (ACCC) must, among other tasks:
arbitrate access disputes for declared services
assess access undertakings and industry access codes.
Effective from 1 October 2006 Part IIIA was amended to allow the ACCC to defer arbitration of an access dispute where it is also considering an access undertaking on related issues. Further, the ACCC has the discretion to backdate a final determination and apply payment of interest to a backdated determination.
These provisions bring Part IIIA into line with similar provisions contained in the telecommunications access regime in Part XIC of the Act.
1.1 Deferring access disputes or access undertakings
The Trade Practices Amendment (National Access Regime) Act 2006 amends Part IIIA to enable access providers to lodge access undertakings and access codes with the ACCC after a service has been declared under Part IIIA. This is intended to provide a means for achieving certainty on access terms and conditions and facilitating negotiations between access providers and access seekers. Post-declaration undertakings are intended to reduce recourse to arbitration, thereby reducing the burden on the regulator and the industry.[1]
As the Part IIIA amendments facilitate the provision of post-declaration undertakings, this generates the possibility that the ACCC may need to deal with parallel processes. To allow for this possibility, the ACCC, when arbitrating an access dispute, now has the discretion under s. 44ZZCB to decide whether or not to suspend either an undertaking or arbitration process, if an undertaking is lodged after an arbitration has commenced.
1.2 Backdating of final determinations
Section 44ZO of the Act has been amended to enable the commission to backdate a final determination. The purpose of this amendment is to reduce the risk of the arbitration process being used by the service provider to delay providing access to the service.[2]
The amendments also provide that any or all of the provisions of a final determination can be backdated to a date earlier than the day on which the final determination takes effect.
The amendments in relation to backdating of a final determination also place limits on the extent to which any or all of the provisions can be backdated.
If the parties commenced negotiations on access to the service after the service was declared, provision of the final determination can be backdated to any date so long as the specified date is not earlier than the date upon which negotiations commenced.[3] This is intended to reduce incentives for a service provider to use commercial negotiations, the arbitration process or, in some cases, the appeal process as tactics to delay providing access.
If the parties commenced negotiations on access to the service before the service was declared, provisions of the final determination may only be backdated to a date that is on or after the day on which the declaration began to operate. A declaration commences at a time specified in the declaration, which cannot be less than 21 days after the declaration is published, or, if an application for review for a declaration is made within the period allowed, the declaration commences when the Australian Competition Tribunal makes its decision (s. 44I sets out these arrangements).
In either case, a determination cannot be backdated to a day on which the access seeker did not have access to the service.
A further limit set out in the amendments is that the ACCC cannot, under section 44ZO(3) of the Act, backdate any or all of the provisions of a final determination to a date which is before the commencement of the legislation (i.e. before 1 October 2006).
Either approach allows the commission considerable discretion in determining the appropriate date for backdating of a determination. This is because, in some circumstances, there may not be a clear and objective marker to indicate the date on which negotiations commenced, and it may be a matter on which the parties disagree.
The amendments also provide that, where a provision of a final determination is backdated so that it applies to a period in which an interim determination is in operation, the provision of the final determination prevails over the interim determination to the extent provided for in the final determination. Access seekers are expected to be mindful of the possible retrospective application of the provisions of a final determination, particularly in relation to access charges, when deciding to obtain access on the basis of the interim determination.
Finally, the amendments enable a final determination to require one party to pay interest at the rate specified in the determination for the whole or part of a period commencing on the date to which the provision was backdated and ending on the date on which the determination takes effect.[4]
1.3 Purpose of these guidelines
The purpose of these guidelines is to assist interested parties by setting out how the ACCC might apply the deferral and backdating provisions in the context of an arbitration under Part IIIA. The ACCC must have regard to these guidelines in deciding whether to defer consideration of an access undertaking or access dispute, backdate an arbitration determination and award interest. However, it should be noted that Part IIIA potentially covers a wide range of services. The application of these provisions will depend on the individual circumstances of the case and will need to be considered on a case-by-case basis.
These guidelines should be read with the ACCC’s Arbitrations: a guide to resolution of access disputes under Part IIIA of the Trade Practices Act (April 2006). The ACCC is currently updating this guide in light of the recent Part IIIA amendments, and a revised guide will be issued for public consultation in 2007.
1.4 Public consultation
Before finalising its intended approach, the ACCC consulted publicly in relation to matters set out in the guidelines. On 21 December 2006, the ACCC published on its website a draft set of guidelines and issued a media release inviting written submissions by no later than 2 February 2007.[5] A small number of submissions were received and these are available from the ACCC’s website.
Some comments received related to clarification of particular aspects of the guidelines involving (1) the limits to which determinations may be backdated and (2) matters of procedural fairness where the ACCC seeks to use information obtained outside an arbitration process for the purposes of that arbitration. In response to these submissions, the ACCC clarified these aspects of the guidelines.
There were a number of other comments which were considered but not included in the guidelines.
1.5 Structure of these guidelines
This section 1 explains the background to these guidelines and the relevant provisions of the Act.
Section 2 sets out the ACCC’s guidelines under s. 44ZO(8) of the Act. These explain the ACCC’s approach in deciding whether or not to suspend either an undertaking or arbitration process, if an undertaking is lodged after an arbitration has commenced. An extract of the relevant legislative framework under Part IIIA relating to deferral of arbitrations or access undertakings is presented in appendix A.
Section 3 sets out the ACCC’s guidelines under s. 44ZZCB(6) of the Act. These explain the ACCC’s approach to backdating a final determination and the awarding and calculation of interest. A copy of the relevant legislation relating to backdating of a final determination pursuant to Part IIIA is presented at appendix B.
2 Deferring arbitration of access disputes or consideration of access undertakings
2.1 General
This section explains the matters the ACCC will consider if, when arbitrating an access dispute, it must decide whether to defer the arbitration pending consideration of an access undertaking. Similarly, the commission may have to decide whether to defer the access undertaking while it continues to arbitrate the dispute. It also outlines relevant considerations of the commission simultaneously considering an access undertaking and conducting an arbitration in relation to the same matter.
2.2 ACCC guideline
2.2.1 Legislative framework
Section 44ZZCB deals with the situation of the ACCC simultaneously considering an access undertaking and conducting an arbitration on the same matter. It provides that the ACCC may defer consideration of the arbitration ‘in whole or in part’ while it is considering the access undertaking. Alternatively, the commission may decide to defer whether to accept the undertaking ‘in whole or in part’ while it arbitrates the access dispute [s. 44ZZCB(c) (d)].
In considering whether to defer consideration of the arbitration, the ACCC must have regard to:
the fact that the access undertaking, if accepted, will apply generally to all access seekers, not just those involved in the arbitration
any guidelines that it has made, and which are in force, on the deferral of arbitration
such other matters which the ACCC considers relevant [s. 44ZZCB(5)].
A full extract of the relevant legislative provisions is presented in appendix A.
2.2.2 Deferrals of arbitrations—relevant considerations
In deciding whether to defer one or more arbitrations while considering an access undertaking that relates to the same matter, the ACCC must have regard to a number of matters. These include:
effect of the undertaking—the ACCC must consider the fact that an undertaking, if accepted, will apply generally to all access seekers
the access undertakings process may enable the ACCC to deal with issues that are common to multiple arbitrations
These matters are discussed below.
Effect of the undertaking
Primarily, the ACCC must consider the fact that the undertaking, if accepted, will apply generally to all access seekers. On the other hand, there may exist particular circumstances or other relevant matters which justify continuing with arbitrations while simultaneously considering the access undertaking. These circumstances are addressed in section 2.2.3.
In certain circumstances, the ACCC may decide to give priority to an access undertaking. One factor that the commission may consider will be the extent to which pro-competitive outcomes of the access undertaking are available to all access seekers, compared with the outcomes of arbitration in which the benefits are confined to a few.
Access undertakings process
Additionally, the access undertakings process may enable the ACCC to deal with issues that are (or potentially will be) common to multiple arbitrations (for example price).
From an administrative perspective, it may be more efficient and less cumbersome to deal with these issues as part of a single industry-wide process. Also, assessment of an undertaking is a public process, thereby facilitating input from all interested persons and a greater degree of transparency. While it may be possible to address industry-wide issues in the arbitration context, where an access undertaking has been given to the ACCC this provides an alternative mechanism for doing so in an efficient manner.
Where the ACCC is considering an access undertaking and conducting one or more arbitrations that relate to the same matter, deferral of arbitration may free up the resources of the ACCC and the parties that can be used to comment on and assess the access undertaking. This should enable the undertaking to be assessed more quickly, and, if the access undertaking is subsequently accepted, the benefits to end-users would be realised more quickly. The ACCC is mindful of the need to minimise, as far as possible, the costs incurred by access seekers and access providers where there are multiple processes underway.
2.2.3 Continuation of arbitrations—relevant considerations
The ACCC envisages several circumstances where it may be appropriate to continue with arbitrations, namely where:
matters covered by the proposed undertaking have already been substantively considered in arbitrations
the arbitrations deal with issues separate or additional to those covered in the undertaking and/or
consideration of the undertaking is likely to involve a long time frame.
outstanding access issues are likely to be dealt with more effectively by arbitration.
Each of the circumstances is addressed below. Rather than establish prescriptive rules, and because the ACCC must exercise its discretion on a case-by-case basis, the guidelines explain how the ACCC would be likely to approach situations involving those circumstances.
In identifying these circumstances, the ACCC has endeavoured to envisage situations that may arise. That said, they are not the only circumstances in which it may be appropriate to continue with arbitration, and others can be considered pursuant to s.44ZZCB where relevant.
Matters already substantially considered in arbitration
If the ACCC were to rigidly apply the principle of deferring arbitrations while considering an access undertaking on the same matter, then this could lead to adverse consequences. Particularly, it could have the effect of creating an incentive for access providers to offer access undertakings only once arbitrations have progressed through their substantive phase[6], with a view to delaying further progress, or completion, of the arbitration. To reduce the risk of an access provider attempting to delay arbitrations through submitting undertakings, the ACCC may decide to conduct the arbitration and undertaking processes concurrently.
In the ACCC’s view, it is preferable for access undertakings to be given to it as early as possible and, in any event, before commencement of the substantive phase of arbitrations. This ensures that the ACCC, access seekers and other interested persons focus on the establishment of industry-wide access arrangements through a public and transparent process in a timely manner.
Where, however, matters in the access undertaking have already been substantively addressed in arbitration at the time the undertaking is given, then deferring the arbitrations is likely to delay their completion. In this circumstance, it may be appropriate to continue with arbitration in order to make a final determination or at least put in place an interim determination reflecting the work undertaken to date.
When the ACCC decides to continue with arbitration, it could make an interim determination and then commence assessment of the access undertaking. If the access undertaking is accepted by the ACCC, the ACCC must terminate the arbitrations to the extent that the matters in dispute are dealt with in the undertaking. The ACCC would, in normal circumstances, continue with arbitration in order to make a final determination if there are matters still in dispute which are not dealt with in the undertaking. If the access undertaking is not accepted by the ACCC, the interim determination would continue in effect unless revoked or until such a time as the ACCC issues a final determination in relation to the arbitration.
Where an access provider chooses to wait until after the ACCC has commenced the substantive phase of an arbitration before giving an access undertaking, there is a higher likelihood of the ACCC continuing with arbitration even if only to make an interim determination, although the ACCC reserves the right to follow this course even where an access undertaking is submitted at an earlier stage.
Additional issues
Part IIIA provides general guidance on what should be included in an undertaking. An access undertaking might not deal with every aspect of access to a service. Consequently, where arbitrations deal with issues additional to those covered in the undertaking, it may be appropriate to continue the arbitral process on those issues, even where arbitration and access undertaking processes are begun at a similar time. This approach is reflected in the provision of s. 44ZZCB(1)(c), which provides that an arbitration can be deferred in whole or in part.
For instance, in the case of a declared service, where the ACCC is conducting arbitrations on both price and non-price issues, it may be given an undertaking dealing with only price. The ACCC could therefore defer consideration of the price issues in the context of arbitrations (leaving this to be assessed as part of the access undertaking process) but proceed with consideration of the non-price issues. This would then enable the ACCC to finalise the arbitrations once the pricing issues covered by the access undertaking have been addressed.
In the case of a non-declared service, the acceptance of an access undertaking relating to the service will preclude the possibility of declaration. If a service provider submits an access undertaking for a non-declared service that only deals with terms and conditions related to price, alternative mechanisms to deal with non-price terms and conditions may be required. This may, for example, involve private commercial arbitration between the parties in the event of a dispute.
Undertaking may take some time
While the Act establishes a six-month time frame for consideration of an access undertaking, this can be extended, and more than one extension is possible. While the ACCC therefore endeavours to consider access undertakings in an expeditious manner, it is possible that access undertakings involving complex issues could take longer to assess.
In such circumstances, it may be appropriate to continue the conduct of arbitrations in order to make interim determinations , particularly where this would enable greater certainty on access terms and conditions in a timely manner.
Access providers are expected to lodge with the ACCC all relevant information (including pricing models and data) at the time of lodging the undertaking, as part of detailed supporting information. This can help reduce the time frame for consideration of the undertaking. This also serves to indicate an intention on the part of the access provider to work with the ACCC in order to facilitate timely consideration of the undertaking.
2.2.4 Other relevant considerations
The guidelines set out in the section above explain the ACCC’s approach to those circumstances which it envisages may arise. That said, it is not possible to exhaustively describe all circumstances in which it will be appropriate to continue with an arbitration. Thus, the Act specifically enables the ACCC to take account of other matters it considers relevant [s. 44ZZCB(5)].
2.2.5 Use of arbitration information in assessment of the access undertaking
Confidential information obtained by the parties to arbitration as part of that process may be relevant to the assessment of an access undertaking on the same matter. Accordingly, the parties to the arbitration may wish to use or disclose this information in, or for the purposes of, their submissions to the ACCC regarding the access undertaking.
Before doing so, however, it may be necessary for the ACCC to grant its consent to such use or disclosure. This may be the case where, for example, confidential information in an arbitration is subject to a confidentiality order made by the ACCC which limits use or disclosure of the information outside the arbitration context.[7]
If the ACCC’s consent is required, the party wishing to use or disclose the confidential information should make a written request to the ACCC seeking consent for the proposed use or disclosure. The request should describe the information that the party wishes to use and the persons to whom and the purposes for which the information would be disclosed.
In general, the ACCC will be inclined to consent, although before doing so it will seek the views of the other party or parties to the arbitration. In granting its consent, however, the ACCC will impose such conditions as are necessary to protect the confidential information and ensure that it is used and disclosed only for the purposes of the access undertaking assessment process.
2.2.6 Use of information obtained in assessment of the access undertaking (or other non-arbitration responsibilities) in an arbitration context
The ACCC may receive information relevant to an arbitration in the context of performing other non-arbitration responsibilities. This could occur, for example, when assessing an access undertaking proposal.
If there are no confidentiality issues around the use of such information, the ACCC will use the information, if it is relevant and subject to matters of procedural fairness, in the arbitration. Where appropriate, the ACCC will provide an opportunity for parties to be heard in relation to the use of such information prior to the ACCC issuing a final determination.
The ACCC recognises that it is critical to adopt sound information handling practices to maintain the confidence of all parties to an access dispute. Therefore, if there are claims of confidentiality, the ACCC will consult with the person who provided the information and seek their views on providing the information to the parties. As noted in the ACCC’s guidelines on the Collection and Use of Information (October 2000), where the ACCC receives information on a confidential basis it will not publicly disclose that information without the consent of the provider. However, the ACCC does reserve the right to use that information for the purpose of performing other statutory functions. Issues related to the use and disclosure of information in an arbitration are discussed further in the ACCC’s related guide, Arbitrations: a guide to resolution of access disputes under Part IIIA of the Trade Practices Act (April 2006) which is available from the ACCC’s website.
2.2.7 Coordination of decision making
Where the ACCC decides to defer the arbitration pending consideration of an access undertaking, it will be necessary to ‘re-activate’ the arbitration once the ACCC has made its decision on the access undertaking. Also, where the arbitration has not been deferred, it will be appropriate to ‘update’ the arbitration to reflect that decision.
If the ACCC decides to accept the undertaking, it may be required to terminate the arbitration [s. 44ZZCB(2)]. However, where the arbitration dispute is not withdrawn [s. 44T] or terminated [s. 44Y], the ACCC will be required to proceed with the arbitration and make an interim or final determination that is not inconsistent with the undertaking.
If the ACCC continues with the arbitration, the work that the ACCC has performed in respect of the undertaking may, as appropriate, be used for the purposes of making an interim or final determination in the arbitration.
The terms and conditions of any final determination may include backdating provisions (where appropriate).
In the event that the ACCC has made a final determination on the arbitration prior to making its decision on the access undertaking, either party can seek a variation to the determination. If the other party refuses, then this can form the basis of a dispute notification and the ACCC can resolve the matter by way of arbitration [ss.44S, 44ZU].
2.2.8 Review of the undertaking by the tribunal
A person whose interests are affected by an ACCC decision on an access undertaking decision may apply in writing to the Australian Competition Tribunal for review of the decision. [s.44ZZBF(1)]. The review by the tribunal is a reconsideration of the matter and will therefore add to the time involved in considering the access undertaking. In such a situation, it may be appropriate for the ACCC to a make an interim or final determination in any arbitration previously deferred pending consideration of the access undertaking—the interim determination will usually be consistent with the ACCC’s decision on the access undertaking.
If the ACCC has made an interim determination, once the tribunal has completed its review, the ACCC can either terminate the arbitration or proceed towards finalising the arbitration to the extent it is necessary to do so.
If the ACCC has already made a final determination, then the access undertaking will automatically prevail over the ACCC’s determination to the extent of any inconsistency [s. 44ZZCC].
2.2.9 Review of arbitrations by the tribunal
A party to a final determination may apply in writing to the tribunal for review of the determination. The application must be made within 21 days after the ACCC has made the determination [ss. 44ZP(1), (2)]. If a party does apply for a review, the determination is of no effect until the tribunal makes its determination on the review. A review by the tribunal is a re-arbitration of the access dispute and the tribunal has the same powers as the commission for the purposes of the review [ss. 44ZP(3), (4)]. The decision of the tribunal will take effect as soon as it is made [s.44ZP(8)].
3 Backdating of final determinations
3.1 General
This section explains the matters the ACCC will consider when deciding whether to backdate a final determination and the methodology that the commission is likely to adopt in awarding interest.
3.2 ACCC guideline
3.2.1 Legislative framework
Under s. 44ZO, the provisions of a final determination may be expressed to take effect earlier than the date on which the determination takes effect. In the case of a declared service, a final determination can be backdated to any date so long as the specified date is not earlier than the date upon which negotiations commenced [s. 44ZO(4)(a)]. If the parties commenced negotiations on access before the service became a declared service, then backdating is limited to a date that is on or after the day on which the declaration began to operate [s. 44ZO(4)(b)]. In either case, a determination cannot be backdated to a day on which the access seeker did not have access to the service. In addition, the ACCC cannot backdate any or all of the provisions of a final determination to a date which is before the commencement of the legislation (i.e. before 1 October 2006).
A full extract of the relevant legislative provisions is presented in appendix B.
Section 44ZO also requires the ACCC to formulate guidelines about its approach to backdating and to have regard to those guidelines. These guidelines are set out below.
3.2.2 Rationale for backdating
Backdating of a determination only applies in certain circumstances and only where the access seeker already has access to the service. The objective of the backdating provisions is to remove an incentive to delay the negotiate/arbitrate process. Subject to s. 44ZO(4), in the case of a declared service, the price determined by the ACCC can be backdated to a specified date that is up to the day upon which negotiations commenced. The ability to backdate a dispute to the date when negotiations commenced means that, in certain cases, parties can continue to negotiate without needing to notify an access dispute in order to facilitate a backdated determination.
A determination cannot be backdated to a day on which the access seeker did not have access to the service. Therefore, the backdating provisions will not affect incentives to provide access in the first place but will lessen incentives to demand unreasonable terms and conditions.
3.2.3 Approach to backdating
Given that the backdating provision is intended to improve incentives, the ACCC will, in general, be inclined to backdate determinations. That said, each case must be considered on its merits. In particular, the ACCC is likely to consider whether the manner in which the parties have conducted themselves before and during the arbitration provides grounds for not backdating the determination.
For instance, if, before notification of the dispute, the access provider offered the access seeker price and non-price terms and conditions that are substantially similar to those determined by the ACCC and the access seeker refused, then it may not be appropriate to backdate. Considering the parties’ conduct in this way improves incentives for the access provider to offer reasonable price and non-price terms and conditions and reduces incentives for the access seeker to notify a dispute in the hope that the final price will be lower and backdated.
Similarly, if the access seeker has been tardy in responding to offers put forward by the access provider, then it may not be appropriate to backdate to the start of negotiation.
To minimise incentives for delay during the arbitration, the ACCC may indicate at the outset whether it is likely to backdate the final determination. However, the ACCC would expect to reconsider this issue towards the conclusion of the arbitration to see if there are any grounds for modifying its views on backdating.
The Act provides flexibility about the nature of the backdated terms and conditions. In some circumstances, it may be appropriate to provide that the same charges apply retrospectively and prospectively, while in others it may be better to have separate retrospective and prospective charges. For instance, if a price is cost-based, it may be appropriate to determine retrospective charges based on costs for the relevant year rather than current costs. These are matters on which the ACCC is likely to seek submissions from the parties.
3.2.4 From when?
The extent to which any or all of the provisions of an arbitration determination can be backdated is limited to the following circumstances:
(a) if the third party and provider commenced negotiations on access to the service after the service became declared, the specified day must not be earlier than the day on which negotiations commenced
(b) if the third party and provider commenced negotiations on access to the service before the service became declared, the specified day must not be earlier than the day on which declaration began to operate.
In both cases, the specified day cannot be a day on which the third party did not have access to the service [s. 44ZO(4)].
In the case of (a) above, the parties will need to demonstrate the date on which negotiations commenced, and this is a matter over which they may disagree. For instance they may have differing views about the purpose of a particular meeting—one may assert that the meeting was concerned with negotiations for a new contract, whereas the other may say it was concerned with reviewing administrative matters. To minimise the scope for disagreement about the date on which negotiations began, the parties should consider evidencing negotiations in writing.
3.2.5 Interest
For backdating to act as a control on the incentive for delay, the ACCC believes the backdated payment should include an interest component. This is expressly permitted by s. 44ZO(6). Where backdating provides a mechanism for the adjustment of monies from the access provider back to the access seeker (in the case of overpayments), inclusion of an interest component as part of that re-adjustment to the flow of funds is, in the ACCC’s view, a natural and logical consequence. This should also apply in the case of underpayments made by the access seeker to the access provider whereby an interest component should also be included in the re-adjustment of monies between the parties.
If the ACCC backdates a determination and orders one party to pay money to the other with respect to the backdating period, it will generally also provide for the payment of interest on the backdated amount. In this regard, the ACCC proposes to adopt the following methodology for the calculation of interest:
Interest will be calculated on the amounts of money that have been overpaid (or underpaid).
These amounts usually will be calculated by reference to the volume of services supplied by the access provider to the access seeker over the backdating period and to the charges that the ACCC considers should have applied in respect of those services.
The backdating period is the period between the date on which backdating commences and the date on which the determination takes effect.
The rate of interest will be applied to those amounts from the date on which the overpayments (or underpayments) were made.
Rate of interest
If backdating of a determination is to have its intended effect—which is to lessen incentives on the access provider to delay the arbitration process—then the parties should be placed, as far as possible, in the position they would be in had the arbitrated price applied from the outset. This means the rate of interest that is to be applied should reflect the opportunity costs associated with the funds foregone as a result of the access arrangements that prevailed until the ACCC’s determination. Awarding interest is not intended to operate as a sanction or penalty on the party required to pay the money. The rate of interest should therefore reflect the opportunity cost of the overpayment—that is, the opportunities that the person making the payment has foregone by being deprived of the overpaid amount. This may be influenced by:
the best alternative use available to the person making the overpayment—for instance the person making the overpayment may have instead preferred to use the money to reduce their overdraft or to finance new investment.
the risk of not being repaid in the event that the person to whom the overpayment was made becomes insolvent.
Similar principles would also apply to the case of an underpayment.
Where the parties have reached agreement on an interest rate, the ACCC may have regard to this rate as evidence of the parties’ estimate of the opportunity cost. If, however, the rate agreed by the parties appears to significantly depart from a reasonable estimate of the opportunity cost (for instance if it is more in the nature of a ‘penalty’), or if no rate has been agreed, then the ACCC may base its calculations on the rate that would have been paid to raise the amounts by means of debt financing. As a general guide, the ACCC’s preferred approach will be to adopt the variable indicator rate for large businesses that is published by the Reserve Bank of Australia.[8]
In determining the interest rate, it is also necessary to determine the frequency with which interest is compounded—daily, monthly or annually. In this regard, the ACCC will consider any approach agreed between the parties in respect of repayment of monies and, in the absence of agreement, the approach which would be adopted in a debt financing agreement. As a general guide, the interest rate period is likely to be determined by the timing of cash flows to the business owed the settlement.
A decision to backdate a final determination and award interest raises a number of issues and it is possible that the Commission may decide to invite or direct parties to make written submissions in order to fully consider the circumstances and extent to which such decisions should be made.
3.2.6 Impact of interim determinations on backdating
Where backdating is a satisfactory alternative to an interim determination, the ACCC will consider not granting an interim determination. However, the fact that an interim determination has been made does not mean that backdating is ineffective and therefore unnecessary. The interim determination helps to ensure that the objectives of Part IIIA are realised in the period leading up to the final determination. Backdating is, nevertheless, important in reducing incentives to delay progression towards the final determination.
3.2.7 Symmetry of approach
The situation generally envisaged involves an access provider ‘refunding’ to the access seeker the difference between the charges payable over the period leading up to the final determination and the charge set by the ACCC. However, it is conceivable that the reverse situation may occur, where the determination sets a charge higher than that currently being paid by the access seeker. In such a situation, backdating is still likely to be appropriate to reduce any incentives that an access seeker has to delay progression of the approach.
Appendix A
Deferral of arbitrations/access undertakings under Part IIIA
Legislative framework
Section 44ZZCB Deferring access disputes or access undertakings
(1) If, at a particular time, the Commission is:
(a) arbitrating an access dispute under Division 3 relating to one or more matters of access to a declared service; and
(b) considering whether to accept an access undertaking relating to the service and to one or more of these matters;
then the Commission may, by notice in writing, decide to:
(c) defer arbitrating the access dispute, in whole or in part, while it considers the access undertaking; or
(d) defer considering whether to accept the access undertaking, in whole or in part, while it arbitrates the access dispute.
Deferral of arbitration of access dispute
(2) If:
(a) the Commission defers arbitrating the access dispute; and
(b) the Commission then accepts the access undertaking and it comes into operation;
then the Commission must terminate the arbitration when the undertaking comes into operation, but only to the extent of the matters relating to access to the service that are dealt with in the undertaking:
Note: The third party’s access to the service is determined under the access undertaking to the extent of the matters it deals with. If the access dispute deals with other matters, the third party’s access to the service in relation to those other matters is determined under any determination the Commission makes.
Deferral of consideration of access undertaking
(3) If:
(a) the Commission defers considering whether to accept the access undertaking; and
(b) the Commission then makes a final determination in relation to the arbitration of the access dispute;
then the Commission must resume considering whether to accept the access undertaking.
Publication
(4) The Commission must publish, by electronic or other means, any decision it makes under subsection (1) and its reasons for the decision. The Commission must give a copy of the decision (including the reasons for the decision) to each party to the arbitration.
Guidelines
(5) In exercising the power conferred by subsection (1), the Commission must have regard to:
(a) the fact that the access undertaking, will, if accepted, apply generally to access seekers and a final determination relating to the access dispute will only apply to the parties to the arbitration; and
(b) any guidelines in force under subsection (6).
It may have regard to any other matter it considers relevant.
(6) The Commission must, by legislative instrument, determine guidelines for the purposes of subsection (5).
(7) The Commission must take all reasonable steps to ensure that the first set of guidelines under subsection (6) is made within 6 months after the commencement of this subsection.
Appendix B
Backdating of final determinations under Part IIIA
Legislative framework
A. Section 44ZO
Backdating
(3) Any or all of the provisions of a final determination may be expressed to apply from a specified day that is earlier than the day on which it takes effect under subsection (1) or (2).
Example: The Commission makes a final determination on 1 August. It takes effect under subsection (1) on 22 August, but it is expressed to apply from 1 July.
(4) The specified day must not be earlier than the following day:
(a) if the third party and provider commenced negotiations on access to the service after the service became a declared service—the day on which the negotiations commenced;
(b) if the third party and provider commenced negotiations on access to the service before the service became a declared service—the day on which the declaration began to operate.
However, the specified day cannot be a day on which the third party did not have access to the service.
Operation of interim determination
(5) If a provision of a final determination is expressed to apply from a day when an interim determination was in effect, the provision of the final determination prevails over the interim determination to the extent set out in the final determination.
Interest
(6) If:
(a) a provision of a final determination is covered by subsection (3); and
(b) the provision requires a party to the determination (the first party) to pay money to another party;
the determination may require the first party to pay interest to the other party, at the rate specified in the determination, on the whole or a part of the money, for the whole or part of the period:
(c) beginning on the day specified under subsection (3); and
(d) ending on the day on which the determination takes effect under subsection (1) or (2).
Guidelines
(7) In exercising the power conferred by subsection (3) or (6), the Commission must have regard to any guidelines in force under subsection (8). It may have regard to any other matter it considers relevant.
(8) The Commission must, by legislative instrument, determine guidelines for the purposes of subsection (7).
(9) The Commission must take all reasonable steps to ensure that the first set of guidelines under subsection (8) is made within 6 months after the commencement of this subsection.
B. Transitional provisions that apply to Section 44ZO[9]
The amendment made by item 75 (i.e. this item relates to backdating) applies in relation to access disputes notified to the Commission after the commencement of that item. However, a day specified under subsection 44ZO(3) of the Trade Practices Act 1974 after that commencement cannot be a day occurring before that commencement. This means that the ACCC cannot backdate any or all of the provisions of a final determination to a date which is before 1 October 2006.
ACCC contacts
The ACCC cannot give legal advice. However, it can give you information on the issues discussed in this guide. For more information contact the ACCC.
[3] The National Competition Council (NCC) is responsible for making recommendations to the designated Minister in relation to declaration of services under Part IIIA. There is likely to be an expectation that parties will have commenced negotiations on access prior to a party submitting an application for declaration of services.
[5] ACCC media release, 21 December 2006, ‘ACCC issues draft guideline on deferral of arbitrations and backdating of determinations under Part IIIA of the Trade Practices Act 1974’.
[6] The substantive phase of arbitration involves the ACCC shaping the processes relevant to the arbitration and receiving all the relevant information. For more information, see the ACCC’s related guide, Arbitrations: a guide to resolution of access disputes under Part IIIA of the Trade Practices Act (April 2006). A copy can be downloaded from the ACCC’s website at www.accc.gov.au.
[7] More information on use and disclosure of information obtained during an arbitration is in chapter 4 of the ACCC’s related guide, Arbitrations: a guide to resolution of access disputes under Part IIIA of the Trade Practices Act (April 2006).
[8] The data series is publicly available on the Reserve Bank of Australia’s website. See series F05, Indicator Lending Rates.
[9] This is sourced from Part 2, Application and Transitional Provisions’ of the Schedule of Amendments contained in the Trade Practices Amendment (National Access Regime) Act 2006.