The standard of proof required in merger cases has become the centre of considerable controversies and confusion following the Australian Federal Court’s decision in Metcash. This paper reviews the use of counterfactuals and the inherent contradictions in adopting the real chance standard of proof. It also critically examines the different approaches of the judgments in Metcash, and the more formal approach by the New Zealand High Court in the Warehouse decision. This is assessed using probability theory. The discussion points to the adoption of the balance of probabilities as the requisite standard of proof, and a watering down of the counterfactual in preference to a more direct approach to merger assessments. The discussion also critically assesses the use of counterfactuals in monopolisation and anticompetitive practices cases under Australian and New Zealand competition laws.
Following the Full Federal Court’s decision in ACCC v Metcash Trading1 and the judgment of Emmett J at trial2 uncertainties have arisen over the counterfactual test in merger cases. This comes hard on the heels of controversy surrounding the counterfactual in market power abuse cases3
In the light of these developments I have been asked to comment on the issues that arise from the use of counterfactuals in Australian, New Zealand, UK, and European competition laws. Specifically, for my assessment of the importance and/or difficulty of using counterfactual analysis in sections 45 (agreements, understanding and arrangements), 47 (exclusive dealing) and 50 (mergers and acquisitions) of the Competition and Consumer Act 2010 to assist in determining whether the actions of the firm or firms had “the effect or are likely to have the effect of substantially lessening competition in a market”.. Also my thoughts on the use of counterfactuals in section 46 (taking advantage of market power).4
The paper is organised as follows. Section I sets out the nature of counterfactuals, and the issues that arise generally with their use, and in particular in competition law. Section II looks more closely at the future “before and after” counterfactual in merger review under s 50, and the standard of proof. Section III examines s. 46 counterfactuals. Further, Annex A reviews approaches to merger review in New Zealand, the UK, the European Community and the USA.