QUESTION ONE (30 Marks) FiltAir Ltd makes air conditioners and is the leading manufacturer in Australia. It has a 45% market share. Daegun, a recent Korean entrant into the market, is the next largest supplier with a 20% market share. The remaining 35% is spread evenly among seven other firms. Import duties on the import of air conditioners are due to be reduced by half in 2012 and completely abolished in 2015. FiltAir is an old established Australian company with a well-developed nationwide network of wholesalers. It contracts with them under agreements which include the following clauses: 4 You will not stock or sell any make of product other than FiltAir. 6 You will be the only wholesaler of FiltAir in your district. 9 Our suggested prices are enclosed in Schedule 1. We wish to see our image of quality and reliability maintained. It is not in your interests to have this standard lowered with price reductions or frequent 'sales'. 14 At any time either party may terminate this Agreement by 40 days' notice in writing. Daegun has similar contracts with its wholesalers. Of the 60 wholesale outlets selling air conditioners in Australia, FiltAir has 29 of them and Daegun 14. The other manufacturers sell through the remaining 17 wholesalers. At a Yoga session last summer, Maggie Donovan, the managing director of FiltAir and Hwan Wily, the chief executive officer of Daegun were both present. After a while the conversation turned to developments in the air conditioning industry. Hwan remarked: Surely we must be able to increase our market share. Why don't we [Daegun] concentrate on the West and Centre and you [FiltAir] take on the East. That should see the rest of them fall away. Maggie nodded, made a note in her electronic diary. Sam, a part-time law student attending the Yoga session for the first time at the invitation of Maggie for whom Sam works as an assistant, overheard the conversation and decided to send a letter recounting what he had heard to the ACCC. Three months later, on 2 July, FiltAir relinquished 8 of its 9 wholesalers in the West and Centre, leaving only the Broome one still subject to the franchise agreement. Four of the wholesalers that had been terminated immediately joined Daegun as franchised Daegun wholesalers. On 12 July, Daegun cancelled its Sydney wholesalers and on 16 July its Melbourne and Brisbane ones. All the terminated wholesalers were informed that their franchises had been ended to enable the manufacturers to 'achieve economies in distribution'. By September, neither firm had wholesalers operating in the same city anywhere in Australia. The franchise agreements continued in the original form albeit now with different wholesalers as signatories. Analyse the competition law issues involved.

Advise FiltAir (and Maggie) as to possible liability under the Competition and Consumer Act 2010 (Cth). What measures could FiltAir take to avert liability?