Ursula Stephens (NSW, Australian Labor Party, Shadow Parliamentary Secretary to the Leader of the Opposition (Social and Community Affairs)) Share this | Hansard source

Tonight we are finally debating strengthening section 46 and section 51AC of the Trade Practices Act. This debate has been a long time coming and it has not come soon enough. In 2004, the Senate Standing Committee on Economics produced a report on the effectiveness of the Trade Practices Act, and government senators produced a minority report. Even that report, which was less far reaching than the majority report, actually acknowledged that the Trade Practices Act required changes. That was over three years ago and at the end of the last term. Now at the very end of this term, near an election, the government has suddenly decided to legislate its response to the 2004 inquiry. And what a half-hearted response it is.

However, today, at the eleventh hour, the government has caved into pressure, moving an additional amendment dealing with predatory pricing. This backflip is designed to make the Treasurer look as though he cares about small business and trade practices reform, while the truth is that he has been dragged kicking and screaming every step of the way. Labor has consistently argued that the Trade Practices Act needs to be strengthened to deter predatory pricing. The government’s amendment—which was circulated today—to its own bill means that if a company has substantial market share it cannot sell for a sustained period of time below relevant cost for an anticompetitive purpose. This new, specific predatory pricing section has some fundamental differences to existing section 46 so that there will now be two tests: one for predatory pricing and one for other examples of misuse of market power. The concept of substantial market share and the removal of the ‘take advantage’ connection makes this new provision different from section 46, which uses the concept of substantial market power.

Labor moved sensible, balanced amendments which the government rejected in the House, and this government amendment appears to have been hastily cobbled together at the last minute. Labor will support the government amendments but will monitor any unintended consequences that may arise from this complex, two-test proposal.

This government is not interested in rectifying the weaknesses in the Trade Practices Act that are very well known by all. The recent Senate Standing Committee on Economics inquiry into this bill heard evidence from a number of small business groups and competition law experts that said the bill does not go far enough and, in fact, adds very little to the Trade Practices Act. I will be moving a second reading amendment and detailed amendments in the committee stage which would strengthen the Trade Practices Act to protect competition in the Australian economy and small businesses from unfair practices. This would be good for the economy and good for consumers. The amendments were moved in the House of Representatives. Labor’s amendments represent the approach that Labor will take to the Trade Practices Act if we form government later this year. We will not sit on the necessary reforms for three or more years, like this government has. We will certainly take some action to protect small businesses through an amended and improved Trade Practices Act.

I turn now to the amendments that are in this bill. The bill seeks to clarify the operation of section 46 of the Trade Practices Act. Section 46(1) prohibits a corporation with a ‘substantial degree of power’ from ‘taking advantage’ of that power for the purpose of:

(a) eliminating or substantially damaging a competitor of the corporation or of a body corporate that is related to the corporation in that or any other market;

(b) preventing the entry of a person into that or any other market; or

(c) deterring or preventing a person from engaging in competitive conduct in that or any other market.

In 1986, the then Labor Attorney-General, Mr Bowen, 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 its market power. This clause was ineffective because the threshold to establish substantial control of a market meant that only monopolists or near-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 one substantially controlling a market, to abuse its market power. However, the High Court has interpreted the concept of substantial degree of power in the market in a narrow way which does not accord with the parliament’s intention of 1986 to lower the bar of section 46.

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 recoup its losses after it sells goods below cost for a sustained period of time. It is hard to conceive of any company which is not a monopoly passing this test. The ACCC, for example, has 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 Frank Zumbo has written:

For the small or medium sized entity competing with larger, more economically powerful corporations, the High Court’s decision appears to mean they will ordinarily have little, if any, recourse under s46—

section 46—

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 ...

The government’s response is to legislate to clarify that a substantial degree of power is a lower test than control of the market, that a corporation can have a substantial degree of power in a market even if it is not free of constraint and that more than one corporation can have a substantial degree of power in a market.

Labor agrees with including the elements that the government proposes, but the fact is the government’s amendments do not go far enough. 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, and I will be moving as such in the in-committee stage.

There is another element that this bill completely fails to deal with. That is the definition of ‘take advantage’. Section 46 of the Trade Practices Act prohibits a firm from taking advantage of its market power. Courts have defined ‘take advantage’ in a very narrow way. The courts’ interpretation in such a way means that, if the firm is able to act in the way it is alleged, in the absence of market power it shall not be regarded as having taken advantage of that power. To overcome this, I will be moving an amendment to make it clear that ‘take advantage’ encompasses action being materially facilitated by market power. This amendment will make it clear that the key test is whether the firm would have been likely to undertake this action in the absence of market power and whether the conduct was related to the market power.

The bill does make 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 market power in that market. We support this amendment but note that its usefulness is limited unless the government addresses that ‘take advantage’ issue.

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

In relation to the creation of a second deputy chair, I note the government has indicated that this will be someone from a small business background; however, this is not mandated by the legislation. The act does mandate, however, that one of the commissioners be from a consumer background.

The bill also amends part IVA of the act, which deals with unconscionable conduct. Section 51AC, which prohibits unconscionable conduct in transactions between businesses, applies only to transactions under $3 million, because it is designed to protect small business. The 2004 Senate committee majority report recommended that the $3 million limit be abolished, as it is arbitrary, and unconscionable conduct should be illegal regardless of the size of the transaction or the businesses involved. This is also the recommendation of the ACCC and several small business groups.

Unconscionable conduct is unconscionable conduct regardless of the size of the transaction. There are small businesses that engage in transactions greater than $10 million, and we agree with the ACCC that the concept of a threshold is a flawed one. Labor will be moving an amendment to abolish that threshold. Under section 51AC of the act, when considering whether a corporation has engaged in unconscionable conduct in business transactions, a court may have regard to a non-exhaustive list of factors. This bill amends the section to add to the list of matters that can be considered the ability to unilaterally vary a contract. It has always been open to the courts to take into account the ability to unilaterally vary contracts as part of unconscionable conduct cases. Therefore this amendment, whilst unobjectionable, adds little to the unconscionability provision that already exists.

This bill does not go far enough to strengthen the Trade Practices Act. It omits a number of important amendments to the Trade Practices Act that would take us a step forward to better protect honest businesses from anticompetitive conduct. First among these must be the government’s complete failure to deal with the matter of jail terms for cartel operations. The 2003 Dawson committee recommended the imposition of prison terms for individuals found to have engaged in serious cartel conduct. The government accepted this recommendation in 2005 and said then that it would legislate for prison penalties; however, we are now in 2007 and the government has not legislated for prison terms in this legislation. The ACCC has been persistently calling for the imposition of such prison terms.

I note that an amendment to the TPA to introduce criminal penalties is on the agenda for the next sittings. Labor certainly hopes that this will settle the issue, but it should have been included in this bill. There is no reason for it not being included in this bill. The second reading amendment that I move will condemn the government for not introducing prison terms for very serious cartel behaviour and will call on the government to honour its commitment to introduce those jail terms as a matter of urgency.

Labor will give the ACCC the powers it needs to do the job that Australian consumers expect. At the moment, there is a strong case that some of those 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. This is the ACCC’s primary information-gathering power. However, the courts have ruled that this power ceases when a court case commences. In evidence before the 2004 committee, the ACCC argued that revocation of section 155 powers is a disincentive to begin court actions and seek injunctions for anticompetitive behaviour, thus delaying the provision of relief to affected businesses and consumers. I will be moving an amendment which deals with this to ensure that the ACCC has the information it needs to do its job.

The Federal Magistrates Court can hear certain matters under the Trade Practices Act but not section 46 matters. This means that small businesses wishing to bring an action under section 46 must commence it in the more expensive and cumbersome 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 which allows a small business to bring an action for damages based on the findings of fact in an ACCC case. However, this section 83 action must be brought in the Federal Court. The necessity to bring an action in the Federal Court means that small businesses will be faced with substantial costs. An action in the Federal Magistrates Court is cheaper and there is a conciliation process to resolve matters without proceeding to a full hearing. Several small business groups have called for the Federal Magistrates Court to be given jurisdiction in both types of matters. I will be moving an amendment to give the Federal Magistrates Court, as well as the Federal Court, jurisdiction over section 46 matters, to make it easier for small business to access justice when they have been subject to anticompetitive conduct by bigger players.

Creeping acquisition is a vitally important matter which is 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 of the market. The lack of the ability for the ACCC to look at small mergers over time means that the ACCC is not able to consider the impact of creeping acquisitions on the national market. The cumulative impact on competition of a series of acquisitions may be something that the ACCC wishes to examine in determining market concentration, but it will have no authority to do so. It is time to give the ACCC the unquestioned and clear power to regulate creeping acquisitions. The second reading amendment I will move will call on the government to do this, and I can indicate that the Labor Party will do this should we form government later in the year.

A major complaint of small business is their lack of bargaining power when it comes to negotiating with big business. An option to protect small business from unfair practices would be to insert a new section into the act which allows unfair contract terms to be struck out by a court, based on the UK and Victorian models. Both the British and Victorian models provide courts with the power to declare as unenforceable terms in contracts that are unfair. Under our proposal, if a court held that a contract term was unfair, there would be no penalty for the larger company imposing the term, but the term would be struck out of the contract. If the contract were viable without the term, then the rest of the contract would stand. There is, of course, a balance to be struck between promoting competition by outlawing unfair terms and allowing vigorous, even aggressive, contract negotiations in an open market. However, there is considerable merit in inserting a new clause in the Trade Practices Act which enables a firm or an individual to seek to have an unfair contract term struck out in the Federal Magistrates Court.

Labor has always been a strong supporter of the Trade Practices Act. In fact, it was Labor that introduced the Trade Practices Act in 1974 and, again, the Labor Party that strengthened the act in 1986. The coalition, on the other hand, have a poor history when it comes to this act. For all their bluster on being the party of small business and better economic managers, we see precious little on their supposed commitment to the Trade Practices Act. The government have waited until the very last minute, the eleventh hour just before an election, to introduce this legislation. It is a case of too little, too late, with a desperate last-minute amendment to its own bill in an attempt to quell well-deserved criticism from small businesses.

I now move the second reading amendment standing in my name, which has been circulated in the chamber:

At the end of the motion, add “but the Senate:

(a)

notes that:

(i)

the Economics References Committee handed down its report, The effectiveness of the Trade Practices Act 1974 in protecting small business, in March 2004, and the Government responded in June 2004 and yet the Government is only now introducing its legislative response,

(ii)

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

(iii)

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 Australian Competition and Consumer Commission (ACCC) consistently calling for such penalties to be introduced;

(b)

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

(c)

further notes with concern that this bill does not give the ACCC power to investigate and regulate ‘creeping acquisitions’; and

(d)

calls on the Government to:

(i)

legislate for this as soon as possible, and

(ii)

closely examine options for introducing a regime dealing with unfair contract terms between businesses as well as between businesses and consumers”.