Chris Bowen (Prospect, Australian Labor Party, Shadow Assistant Treasurer) Share this | Hansard source

The Trade Practices Legislation Amendment Bill (No. 1) 2007 has been a long time coming. In 2004, the Senate Standing Committee on Economics produced a report on the effectiveness of the Trade Practices Act. Government senators produced a minority report, which, although it made much less far-reaching recommendations, acknowledged that the Trade Practices Act needed to be changed. In 2004, the government released its policy document entitled Committed to small business. The Treasurer said in his second reading speech on this bill that it implemented the things the government said it would do in the document Committed to small business. He is right; it does—only, small business had to wait three years. In Committed to small business, the government said:

In response to concerns of small businesses, the Government will work to introduce further amendments to the Trade Practices Act to better balance the interests of large and small business.

Small business had to be concerned for three more years before this government was dragged kicking and screaming on the eve of an election to act. All this happened three years ago, at the end of the last term. Now, at the very end of this term, the government has finally got around to legislating its response—and what a disappointing response it is. This bill will do little to rectify the weaknesses in the Trade Practices Act that have long been identified. This is what some of the experts have had to say. A partner in Mallesons Stephen Jaques, Roger Featherston, said:

I’d be surprised if the amendments assist small business in any significant way.

Professor Bob Baxt, one of the most respected commentators on trade practices matters in Australia—a man recognised as a conservative in his thinking but deeply respected on both sides of the House—said:

There is going to be a lot of disappointment in parts of the community if they think this will be a magic wand to fix the problems.

Evan Jones, from the University of Sydney, said:

... these proposals constitute a change so mild as to be insignificant.

You would be unsurprised to learn, Madam Deputy Speaker, that I read through all the submissions to the Senate inquiry into this matter. I was drawn to the submission from Woolworths. It is a good submission. This is what Woolworths had to say about the government’s legislation:

Woolworths has no major objections to the Trade Practices Legislation Amendment Bill (1) 2007 and believes that it is useful in its objective of clarifying principles which the Australian Courts have, in general terms, considered and applied.

Woolworths believes that in this Bill, the Government is simply including a list of matters a Court can take into account.

We agree. All the government is doing in this bill is confirming what the courts have already said. Woolworths went on to say:

These changes clarify what Woolworths understand to be the existing Court’s power to take such matters into consideration.

So we have broad agreement that this bill is cosmetic. The government knows it is cosmetic. I would have thought if this bill were really good for small business, really pro-competition and really a major reform, we would have a long list of speakers from the government. Who do we have? The honourable member for Mitchell is the sole government speaker on this bill. He is the sole government representative willing to come into the chamber and say that this bill is good for small business. The Minister for Small Business and Tourism is not on the list. She has not put herself down to speak on this bill. She is not going to pretend in the chamber that this is good for small business. She is going to sum up but she is not going to speak on the bill. She has not put herself down. It is the Treasurer’s bill. She could have put herself down to speak and let the Treasurer sum up. He introduced it. We see a paucity of government representation on the speakers list for this bill, because the government knows that it is not all it is cracked up to be.

We will vote for this bill because it will do little harm, and it may do a minor amount of good. However, I will be moving a second reading amendment and I will then be moving six detailed amendments in the consideration in detail stage of the bill. These amendments will be moved and vigorously pursued in the other place. These amendments will represent the approach that Labor will take should we form an administration later in the year. They will form the basis of the legislative response that Labor will take in government as a matter of urgency. We will not be sitting on necessary reforms like this government has done for the last three years and longer. We will be moving swiftly and decisively.

I will now deal with the matters encompassed in this bill and, in turn, I will foreshadow the amendments that I will move on behalf of the opposition. I will deal with the gaping holes in this bill—matters which are not addressed at all. This bill seeks to clarify the operation of section 46 of the Trade Practices Act. In 1986, then Attorney-General Bowen—no relation—introduced major reforms to section 46 of the act. Before 1986, section 46 was known as the ‘monopolisation clause’. It prohibited a company which substantially controlled a market from abusing their market power. This clause was ineffective because a threshold to establish substantial control of a market meant that only monopolists or people very close to monopolists were captured by the old section 46. So, in 1986, the Labor government amended the act to relax the test. It made it illegal for a firm with substantial power in a market, as opposed to substantial control of a market, to abuse its market power. However, the High Court has interpreted the concept of a substantial degree of power in a market in such a way that it is difficult to discern the difference between substantial control and substantial power. In the Boral case, in particular, the majority of the High Court found that the key test for establishing whether a firm has a substantial degree of power in a market is whether it is able to raise its prices to supracompetitive levels to recoup its losses when it sells goods below cost for a sustained period of time.

It is hard to conceive of a company which would be in a position where it could do that if it were not a monopolist or very close to being a monopolist. The ACCC said:

The majority judgments in Boral contain several statements indicating an absolute freedom of constraint is required to establish a ‘substantial degree of power’—effectively restoring the threshold to monopolists or near monopolists contrary to Parliament’s intention behind the 1986 amendments.

Similarly, Associate Professor Zumbo, from the University of New South Wales, has written:

For the small or medium sized entity competing with larger, more economically powerful corporations, the High Court’s decision appears to mean that they will ordinarily have little, if any, recourse under s46 for allegations of predatory pricing by those corporations which, while being large and economically powerful, are unable to set prices unilaterally without losing custom or to act totally or almost totally without competitive restraint.

Or as Smith and Trindade—two other respected commentators—have written:

The majority were driven by the desire to ensure that price cutting by an efficient firm could not be called into question under s46. However in doing so, the High Court has introduced what amounts to a threshold dominance test and failed to provide a proper framework for distinguishing between conduct which the act is designed to foster and that which the community expects it to prevent. Indeed, as Kirby J has pointed out in the dissenting judgment, the majority have effectively created a case for reform of S46.

The government’s response is to legislate to clarify that a substantial degree of power is a lower test than control of the market, even if it is not free of constraint, and that more than one corporation can have a substantial degree of power in the market. It is simply not good enough for the government to declare that ‘substantial power’ in a market is a lower test than ‘control’ of the market. That was abundantly clear to the High Court in the Boral case and has been abundantly clear to the court since the 1986 amendments. That would have been clear to their honours when they read the explanatory memorandum to the 1986 bill. It would also have been clear to their honours when they read Attorney-General Bowen’s second reading speech. They know that ‘substantial power’ in a market is a lower test than ‘control’, yet they have still made the decisions that they have made in Boral and in other cases. I agree with including the clauses that the government proposes in this bill, but it is a fallacy to suggest they will deal with the mischief that has been created by the courts. It is a fallacy to suggest that these measures will fix in any way the shortcomings of section 46.

The opposition believes that it is vital to include a provision in the act to make it clear that the ability to recoup losses is not required to establish market power. The government initially flagged that they were considering including an amendment to say that recoupment was a necessary element to prove. They have dropped that. I am glad that they have dropped that, but they need to go further and put a clause in the act which says, ‘It is not necessary for a court, the ACCC or any other litigant to establish that a firm has an ability to recoup losses from under-cost pricing over a sustained period of time to establish market power.’ In the consideration in detail stage, I will be moving a substantive amendment to that effect.

There is another element in this bill which the government completely fails to address. That is the definition of ‘take advantage’. Section 46 prohibits a firm from ‘taking advantage’ of its market power, and it has become quite a controversial term. It does not seem like it on the face of it, but the courts have interpreted it in different ways. Different courts have approached ‘take advantage’ in different manners. Some courts have defined ‘take advantage’ in such a way that, if the firm was able to act the way it is alleged, in the absence of market power, then it cannot have ‘taken advantage’ of its market power. This would be the case even if it would make no commercial sense for the company to act in that way. If a company could have technically acted in that way in the absence of market power—even if no rational businessperson would have acted that way—some courts have determined that that means that market power was not taken advantage of.

To overcome this, I will be moving an amendment to make it clear that ‘taking advantage’ encompasses action being materially facilitated by market power. This amendment will make it clear that the key test is not whether the firm could have undertaken its actions in the absence of market power but whether it would have been likely to and whether the conduct was related to the market power. This is a very sensible amendment—it is supported by the ACCC; it is supported across the board. For the life of me, I do not know why the government have not embraced it. Maybe the Minister for Small Business and Tourism tried and could not convince the Treasurer. That is possibly true and I would give her credit for trying. The government as a whole need to accept this amendment. If they are sensible and rational, they will accept at least this amendment. If they reject the rest, they should accept at least this one because this is a key amendment in making section 46 a truly procompetitive section in the Trade Practices Act.

This bill makes it clear that it is an offence for a firm to abuse its market power in any other Australian market. This is an important amendment due to the finding of the Federal Court in the Rural Press case that it is only an offence to abuse your market power in that particular market. We support this amendment but, again, I stress that this provision by the government will be useless unless they fix ‘taking advantage’ and recoupment. This amendment will make little practical difference unless they fix the other two issues and accept Labor’s position on that. I welcome the moves to clarify that it is an offence to abuse your market power in another market. That is appropriate and we support it.

The bill also makes it clear that firms can gain market power by acting in concert with others. The bill amends section 46 to note that a court can take into consideration any market power that a firm has by virtue of agreements with others or covenants which the corporation is bound by or entitled to the benefit of.

Again I make the point that no case has fallen because of this. This was not an issue in Boral or in other cases of interest, so we welcome this as a useful clarification, but let us not suggest or pretend that this is a major step forward in terms of anticompetitive conduct. We support the measure nonetheless.

In relation to the position of the second deputy chair, we support the creation of this position by this bill. I note that the government has indicated that this will be somebody from a small business background. However, this is not mandated by the legislation. The act does mandate in section 7 that one of the commissioners must be from a consumer background. Why would the act mandate that a commissioner must be from a consumer background but not mandate that the second deputy chair should be from a small business background? I will be moving in the consideration in detail stage that the bill mandate that the second deputy chair be a person of small business background.

The bill also amends part IVA of the act, which deals with unconscionable conduct. Section 51AC prohibits unconscionable conduct in transactions between businesses but only applies to transactions under $3 million. The original intent was to only protect small businesses. The Senate committee majority report recommended the $3 million limit be abolished because it is arbitrary. I would make this point in agreement with the Senate committee: unconscionable conduct should be illegal regardless of the size of the transaction or the businesses involved. This is also the recommendation of the ACCC, the government’s own body. Chairman Samuel said, in giving evidence to the Senate inquiry:

Our submission indicates that we do not think the current threshold is appropriate and, indeed, we think that the concept of the threshold is itself inappropriate. We think the current threshold is inappropriate because it is a sudden cut off. Just below $3 million is within the section, while just over $3 million is outside the section, when in fact the context of the section is dealing with unconscionable conduct between larger businesses that are in a superior bargaining position compared to businesses that maybe in the lesser bargaining position. We think that ought to be the threshold for the application of the section.

As I said, unconscionable conduct is unconscionable conduct. The test for proving unconscionable conduct is very high, and appropriately so; it is not an easy thing to prove. But there are small businesses that engage in transactions greater than $10 million, and we agree with the ACCC, the consumer watchdog, that the concept of a threshold is a flawed one. I will be moving an amendment accordingly in the consideration in detail stage.

Under section 51AC of the act—the same section—when considering whether a corporation has engaged in unconscionable conduct in a business transaction, the court may have regard to a non-exhaustive list of factors. This bill amends the section to add the ability to unilaterally vary a contract to the list of matters that can be considered, and this reflects the recommendations of the Senate committee. This is unobjectionable and welcome, but I stress that the list of factors to be considered by the court has always been non-exhaustive. It has always been open to the court to consider any matter which it sees fit. Therefore, while this amendment is perhaps sensible and certainly unobjectionable, it is of questionable value. Unilateral variation clauses are a serious matter. They allow a contract party to vary some aspect of the contract without consulting the other party. In some cases they are reasonable and sensible and allow flexibility, but others allow variations which are unfettered and which give the more powerful party unlimited rights to vary clauses in any circumstances. These are the clauses which cause most concern. Labor will support this measure as it does no harm, but we do not regard it as a significant step forward.

I have dealt with the matters contained in this bill. I will now use the rest of the time available to me to deal with the matters ignored by the bill. First among these is the government’s complete failure to deal with the criminalisation of cartel conduct. This has been an issue on the public agenda for years. The Dawson committee recommended the criminalisation of cartel conduct. The Dawson committee took a very conservative approach to these matters. The Dawson committee recommended very few changes, but they did recommend jail terms for cartel conduct, and the government accepted that recommendation. For a reason known only to himself, the Treasurer has refused to legislate for jail terms for cartel conduct. He seems to have a conveyor line. He says that we will do collective bargaining, then we will do section 46 and then, when we get around to it, we might do jail terms for cartel conduct. I know the government have indicated that they intend to introduce the legislation soon, but there could well be only a few more sitting weeks before the election is called—in fact, it is likely that there will be only a couple more sitting weeks before the election is called. It is highly unlikely that the cartel conduct bill will be approved by the House before the election. The government have had three years to do it. On the eve of an election, they flag that they might get around to doing it soon.

The case for prison terms remains strong. Successive chairs of the ACCC have called for it, and the current chair sees it as a priority; he has made public statements to that effect. This government has completely ignored the need to do it, but it is the law in the United Kingdom and it is the law in the United States. The United States increased the jail terms from three years to 10 years, yet, by its inaction, this government thinks it is appropriate to have a jail term of zero years. It shows that this government is soft on cartel conduct. It shows that this government does not care about real and serious trade practices reform. The second reading amendment that I will move will call on the government to do this as a matter of urgency. I can flag that an incoming Rudd Labor government, should we be elected, will be doing this as a matter of urgency. We will not wait the three or more years that this government has waited. We will deal with it as a matter of priority.

It is important that we give the ACCC the powers it needs to do its job. At the moment, there is a strong case that some of these powers are lacking. Under section 155 of the Trade Practices Act, the ACCC can obtain information relevant to its inquiries by requiring people to provide documents to it or to be interviewed by it. The Butterworths annotated act, which I have spent a lot of time with over the last six weeks or so, describes this power as ‘the principal source of power available to the commission to compel the production of information from businesses and the public’. But the courts have ruled that this power ceases when a court case commences. I understand the legal theory behind that, but it does create real practical difficulties.

The ACCC has argued that the revocation of its section 155 powers is a disincentive to begin court cases, and it is easy to see why. It delays the seeking of injunctions for anticompetitive behaviour to stop, thus delaying the provision of relief to affected businesses and consumers. There is a trade-off. Do we seek an injunction to stop this activity but lose our section 155 powers, or do we let the action continue and keep our 155 powers? It is an unacceptable trade-off. It should be unacceptable to the members opposite. It is certainly unacceptable to the members on this side, and when we move into the consideration in detail stage I will be moving an amendment accordingly.

The Federal Magistrates Court can hear certain matters under the Trade Practices Act, most notably section 51 cases. However, the Magistrates Court cannot hear section 46 cases. It means that a small business wishing to bring an action under section 46 must commence it in the Federal Court. In addition, under section 83 of the act, a company can bring an action for damages based on findings of fact in another case. For example, if the ACCC brings an action against a company under section 46, small business can bring an action for damages based on the findings of fact in that case. However, this action must also be brought in the Federal Court, forcing small business into the Federal Court. That is a more expensive jurisdiction and does not have conflict resolution as its focus, which the Federal Magistrates Court does. Accordingly, several small business groups have called for the Federal Magistrates Court to be given jurisdiction in both types of matters. The opposition regards this as a reasonable request. I will be moving an amendment to give the Federal Magistrates Court, as well as the Federal Court, jurisdiction over section 46 matters in ACCC cases.

Creeping acquisitions is another matter completely ignored in this bill. Section 50 of the act gives the ACCC power to disallow mergers or acquisitions if they will lead to an unacceptable degree of control in a market. The powers of the ACCC to intervene in larger mergers and acquisitions which impact on the market are fairly clear. The commission’s powers in smaller markets are less clear and, in any event, the ACCC is not able to consider the impact of creeping acquisitions on the national market—that is to say, a major chain buying 100 stores in one go would have an effect on the national market; buying one store a week for the next two years would have a similar effect, but the ACCC would have no power to act. The cumulative impact on competition of a series of acquisitions may be something the ACCC wishes to examine, but it currently has no power to do so. It is time to give the ACCC that power, and I will be moving accordingly.

A lot of small businesses are concerned about the high definition, the high threshold, that goes with unconscionable conduct. It is difficult to prove. As I said earlier, in my view that is appropriate. It should be difficult to prove. Unconscionable conduct cases can result in significant damages and penalties, and it is appropriate that there be a significant evidentiary hurdle to cross. However, the government should be considering other approaches. The second reading amendment that I will move will call on the government to closely examine the opportunity to have unfair contract terms struck out without penalty or damages in a similar method to the way the Victorian system and the United Kingdom system work. This should be considered for relationships—contracts between businesses and consumers, and between businesses and other businesses. Under this model there would be no penalty. There would be no damages, but what is clearly an unfair contract term—and this has been defined closely in the Victorian and the United Kingdom legislation—could be struck out by the Federal Magistrates Court. I indicate this is something that an incoming Rudd Labor government would seriously consider, and I call on the government to seriously consider it as well.

It is appropriate to say that it is important in these matters to reach a balance. We believe the government has not reached that balance. We believe the government has taken nothing near the sort of approach it needs to take to promote competition. This is not about supporting one sector of the economy over another. This is not about giving small business an unfair competitive advantage over big business. This is about stopping businesses behaving in an anticompetitive manner. The government has simply ignored that.

This will be a matter of some considerable debate in the other place, so it is appropriate that I spend a couple of minutes dealing with some of the flagged suggestions that have been promoted by people in the other place. Senator Fielding has moved his own private member’s bill, and it is likely he will move amendments based on that private member’s bill. I flag here that I find some of the things in that private member’s bill concerning. I find the fact that predatory pricing would be made illegal in only three industries—sales of groceries, fuel and pharmaceutical products, including toiletries—to be concerning. I think it is a fundamental principle that the Trade Practices Act should apply across the board and should not indicate that one industry is in and other industries are out. I am also concerned about including financial power and an effects test, which is covered in Senator Fielding’s proposed amendments and also in Senator Joyce’s proposed amendments. So I indicate, while I would be happy to have discussions with minor parties in the Senate, I would be very reluctant to be supporting those amendments as they have been flagged in the other place.

I have today outlined an alternative approach to the government when it comes to promoting competition. The difference is: Labor believes in the Trade Practices Act. The Labor Party introduced the Trade Practices Act in 1974. The Labor Party strengthened the Trade Practices Act in 1986 against the wishes of the Liberal Party, because the coalition do not support the principles of the Trade Practices Act; they do not believe it. They have been dragged kicking and screaming to introduce these amendments three months before an election, three years after they said they would. This bill is a sop and the government have let small business and consumers down—and they know it and small business knows it. The government are strong on rhetoric when it comes to small business; they are very weak on action. They are very weak on promoting competition. They opposed us when we introduced the Trade Practices Act. They opposed us when we strengthened it and now they have come up with this. It is a sop. It does not achieve real reform. Only Labor’s amendments achieve real reform.

I move the second reading amendment that has been circulated in my name:

That all words after “That” be omitted with a view to substituting the following words:“whilst not declining to give the bill a second reading, the House:

(1)

notes that the Senate Economics Committee handed down its report on the effectiveness of the Trade Practices Act in March 2004, and the Government responded in June 2004 and yet the Government is only now introducing its legislative response;

(2)

notes that this failure to act represents a disregard for the importance of promoting competition by preventing anti-competitive behaviour directed against small business and consumers;

(3)

notes that this bill fails to introduce gaol terms for serious cartel operations, despite  the Dawson Review recommending this in 2003 and the Government accepting this recommendation in 2005 and despite the ACCC consistently calling for such penalties to be introduced;

(4)

condemns the Government for the failure to legislate for gaol terms for serious cartel conduct;

(5)

further notes with concern that this bill does not give the ACCC power to investigate and regulate “creeping acquisitions” and calls on the Government to legislate for this as soon as possible; and

(6)

calls on the Government to closely examine options for introducing a regime dealing with unfair contract terms between businesses as well as between businesses and consumers”

I foreshadow, as I have done already in my remarks, that I will be moving six amendments in the consideration in detail stage. They will be necessary to ensure real reform. They will form the basis for Labor’s approach in government. Should Labor form office in a couple of months time, they will be our priority to implement in government. Only Labor’s amendments can achieve the necessary reform. Only a Labor government can achieve that reform.

See this speech in context