Nick Xenophon (SA, Independent) Share this | Hansard source

The social and economic fabric of Australia is inexorably linked with the viability and the vibrancy of our small and medium business sectors, which are responsible for employing millions of Australians. These businesses, their employees and, above all, the consumers of their goods and services deserve a strong and effective Trade Practices Act, an act that is clear in achieving its objective of maximising benefits to consumers that flow from having a competitive environment within a framework that is fair to large and small businesses alike. I commend the government and the Minister for Competition Policy and Consumer Affairs, Chris Bowen, for introducing the Trade Practices Legislation Amendment Bill 2008 and for seeking to grapple with what are clearly deficiencies within the current act. I hope this bill is the first step in coming years to tackle what are clearly inadequacies with trade practices laws in this country.

One of the most glaring inadequacies—the effectiveness of the misuse of power provisions in section 46—was exposed in the High Court’s 2003 decision in what is known as the Boral case. It is worth reflecting for a moment on the shameful conduct of Boral and the absence of a remedy in the act for the aggrieved parties. Boral engaged in a price war from 1993 to 1996 with its concrete masonry products in the Melbourne market. It sold its goods lower than its variable costs—in other words, below cost. It could do so because of its deep pockets. There was a strong suggestion that consumers in the rest of the country were paying higher prices to, in effect, subsidise the artificially low prices in the Melbourne market.

Two smaller competitors, Rocla and Budget, closed down their Victorian masonry operations in May 1995 and June 1996 respectively. Another smaller operator, C&M, came dangerously close to being driven to the wall after this sustained low-cost pricing—many would say predatory pricing—by Boral. The ACCC took action, but its prosecution was ultimately unsuccessful when the High Court took such a narrow view of the ‘market power’ definition in section 46. The High Court’s interpretation also put so many unrealistic hurdles in the way of a successful section 46 prosecution that it rendered the section virtually useless. The hurdles included a requirement to show evidence that a big business could only be prosecuted if it had the ability to raise prices without losing business—in other words, it needed to be a monopoly. In addition, the High Court applied a secondary test that big businesses facing prosecution also needed to be able to recoup their losses as part of engaging in predatory prices. This is a test requiring, in effect, proof of something in the future, a near impossible evidentiary exercise. Unless you have a time machine, you will never be able to prove it. In that respect I welcome the government seeking to remove the requirement for recoupment in section 46. However, the government has not addressed the very narrow primary test for market power which still requires proof of a big business being able to raise prices without losing business. Until this very narrow primary test is overcome, section 46 will remain next to impossible to enforce.

The proposed amendment to section 46 also seeks, in effect, to codify the take advantage test in section 46. The setting out of the criteria on the surface appears to provide some clarity. But I have a concern that it may have the effect of merely codifying—in effect entrenching—the existing very narrow interpretation by the High Court of the take advantage test. In the High Court decisions in the Melway and Rural Press cases, the court held that a big business was only taking advantage of its market power if it was doing something unique with that market power. According to the High Court, if a big business had engaged in the same conduct with or without market power, it was not taking advantage of its market power and therefore it would not be in breach of section 46. What that in effect means is that the take advantage threshold would only be breached if a big business was engaging in conduct that could be attributed only to the fact that it had market power.

An analogy that has been put to me is that it is a bit like saying that if you rob a bank because you think you will get away with it you will not be charged if there was a chance you might also rob a bank believing you could not get away with it. It is confusing and there is certainly a lack of fairness, a lack of realism in the take advantage test. It really is Alice in Wonderland stuff. This is an artificial test, one where it is difficult to imagine a big business would ever be found to be taking advantage of its market power. Whilst I do not oppose the amendment, I ask the government to indicate how it believes this amendment would make it easier to cross the take advantage threshold. The ineffectiveness of section 46, as outlined in the Boral and other cases, led to the so-called Birdsville amendment passed just 12 months ago by this parliament. I commend Senator Barnaby Joyce for his relentless advocacy for small businesses and for this amendment in particular and the former government for enacting it and the former opposition for voting for it.

To say, as the now government says, that the Birdsville amendment should now be scrapped because the test of market share, rather than market power, is too uncertain is something that I cannot countenance. I see no reason why the Birdsville amendment cannot coexist with the proposed amendments to section 46 the government is seeking. What is wrong with letting the small businesses of Australia have an alternative—and some would say clearer—remedy for predatory pricing? These two subsections can and should coexist.

The concept of market share is not unknown in competition law. Canadian competition regulators look to market share as part of a benchmark to determine whether anticompetitive conduct has occurred. Those commentators who say the Birdsville amendment is unworkable or uncertain have failed to provide any real evidence in support of their claims. They fail to recognise the safeguards and inherent thresholds in the Birdsville amendment—namely that, firstly, substantial market share must be established; secondly, goods must be sold below their cost; thirdly, goods must be sold for a substantial period of time below their cost; and, fourthly, the purpose must be anticompetitive purpose. Senator Joyce is nodding, so I think I am on the right track there.

This amendment has only been law for less than a year. It is simply premature for the government to seek to ditch a provision that on the face of it has great potential to enhance competition. Research from the United States, including the work of Professor Skidmore and his colleagues, indicates that laws against below-cost pricing in the petrol industry have led to lower prices for consumers using similar concepts that I see in the Birdsville amendment.

I now refer to the other amendments in this bill. Firstly, I refer to the amendment that seeks to mandate the requirement that one of the ACCC’s deputy chairs has knowledge of and experience in small business matters. It seems, on the face of it, reasonable. However, it should be noted that the ACCC has had a small business commissioner since 1998. The key to assisting small businesses is, I believe, to ensure that the laws are effective, enforceable and accessible. Having a small business deputy commissioner is, of itself, no substitute for laws that are weak and ineffective and in practical terms unenforceable either because of narrow judicial interpretation or because it is just too costly for a small business to run the case.

Secondly, I support and commend the government for repealing the thresholds for unconscionable conduct. But I note and endorse the comments of Associate Professor Frank Zumbo from the Australian School of Business at the University of New South Wales, who, in his evidence to the Senate Standing Committee on Economics, saw its use as being part of a broader reform process. He said:

... unless you change the substantive meaning or the substantive flaws in 51AC as they currently exist—that is, a lack of definition of unconscionable conduct in the section itself—removing the cap will not be of any practical assistance.

That is why I will move a second reading amendment that this issue be referred to the economics committee for an inquiry on the need to develop a clear statutory definition of unconscionable conduct and the scope and content of such a definition. I move:

At the end of the motion, add “and that the following matter be referred to the Economics Committee for inquiry and report by 3 December 2008:

The need to develop a clear statutory definition of unconscionable conduct for the purposes of Part IVA of the Trade Practices Act 1974 and the scope and content of such a definition”.

In relation to the jurisdiction of the Federal Magistrates Court I note the opposition does not support this amendment. I remain to be convinced that this will assist small businesses in a practical sense given that it is very expensive for a small business to bring action in any court let alone in the Federal Magistrates Court and let alone in an area of law as complex as trade practices law, particularly given the circumstances where the High Court has narrowly interpreted key provisions of the act.

My question to the government is: why has the ACCC been excluded from bringing an action in the Federal Magistrates Court? They can do so in the Federal Court but the government seeks to preclude the ACCC from bringing such an action in the Magistrates Court. Surely, if the government wants to assist small businesses, it should allow the ACCC to bring an action in the Federal Magistrates Court on behalf of small businesses, just as it can in the Federal Court.

I foreshadow an amendment for the committee stage to allow the ACCC to bring such actions in the Federal Magistrates Court. I also ask of the government: what funds or resources will the government make available to assist small businesses to bring cases before the Federal Magistrates Court? What is the point of having the right to a day in court if you cannot afford to get there in the first place?

Finally, in relation to the ACCC’s information gathering powers I broadly support the amendment under section 155. But it is reasonable for the government to disclose how these new powers for the ACCC will interact with the court’s power to order discovery or other interlocutory orders, and I look forward to an explanation from the government in this regard. If the Australian economy is going to serve the people of Australia, we do not just need free markets; we need fair markets. I look forward to the committee stage of this bill.