Grant Chapman (SA, Liberal Party) Share this | Link to this | Hansard source

We are considering Democrat amendments (2) to (5) on sheet 5324 revised, moved by Senator Murray.

George Brandis (Queensland, Liberal Party, Minister for the Arts and Sport) Share this | Link to this | Hansard source

Where was I?

Andrew Murray (WA, Australian Democrats) Share this | Link to this | Hansard source

You had considered (2) and (3) and you were on (4).

George Brandis (Queensland, Liberal Party, Minister for the Arts and Sport) Share this | Link to this | Hansard source

Thank you very much, Senator Murray. The reason the government will not be supporting proposed Democrat amendment (3) to create section 46(4B) is that, in view of the government’s amendment today in relation to predatory pricing, it is superfluous. Recruitment is not legally required under the government’s predatory pricing amendments. This is clearly set out in the explanatory memorandum.

I turn to Democrat amendment (4), which would define more tightly the circumstances in which a corporation might be held to take advantage of market power. Once again, in the government’s view and in my view this is unnecessary. As the High Court decided as long ago as 1989 in the case of Queensland Wire v BHP, the concept of taking advantage of market power is purely a functional relationship. To take advantage of market power—and this is well settled by the cases—merely means to use market power, that there must merely be a relationship of causality between the conduct and the effect. Therefore, in our view, to gloss that or to further complicate it is both unnecessary and, with respect, unhelpful.

Democrat amendment (5) proposes the amendment of the act by the insertion of a section 46AB for anticompetitive price discrimination and a section 46AC for anticompetitive geographic price discrimination. The government generally does not favour—and I think the opposition is of a common mind here; correct me if I am wrong, Senator Sherry—the re-introduction of price discrimination as a separate stand-alone cause of action under the Trade Practices Act. Senator Murray, you will remember that, some years ago, there was a prohibition on price discrimination in section 49 of the old act. That was repealed years ago, I think, in the time of the previous Labor government. There were several reasons for that. The main reasons are, first of all, that price discrimination is of itself no vice unless it is attended by other conduct which would be independently unlawful as misuse of market power under the existing section 46 and, more particularly, now that there are these additional predatory pricing protections in the act, as a result of the government amendment I moved earlier in the day, a fortiori it is not necessary now to have an additional cause of action for price discrimination.

I ask the rhetorical question, Senator Murray: what conduct can you imagine of price differentiation would or should be caught by your proposed section 46AB that would not already be unlawful, either under the existing section 46 or, more particularly, the augmented section 46 with the predatory pricing amendments that the government has made? The only conduct that would be unlawful would be cases of differential pricing where there was no relevant malign intent or no other economic circumstances which would make the price differentiation anticompetitive.

So, at best, with respect—and I know I have used this word to describe a number of your amendments, so forgive me for using it again—your amendment is otiose. But, if it has any additional meaning, it could only have a chilling effect on price competition, and price competition is one of the very things the Trade Practices Act exists to protect. So for that reason we do not support amendment (5) either.

Andrew Murray (WA, Australian Democrats) Share this | Link to this | Hansard source

Through you, Minister, I have taken legal advice about these. They have an opinion, and I have one which of course differs in some respects from yours. Really, I have risen to thank you for your detailed and thorough explanation of the reasons for rejecting the amendments. That is very helpful.

The Temporary Chairman:

The question is that Democrats amendments (2) and (3) taken together be agreed to.

Question negatived.

The Temporary Chairman:

The question now is that Democrats amendments (4) and (5) taken together be agreed to.

Question negatived.

Steve Fielding (Victoria, Family First Party) Share this | Link to this | Hansard source

by leave—I move Family First amendments (1) and (2) on sheet 5333:

(1)    Schedule 2, page 6 (after line 12), after item 3, insert:

3A After subsection 46(7)

Insert:

        (8)    Where a corporation is held to have breached section 46AA of this Act, the corporation shall not be held to have breached this section with respect to the same conduct.

(2)    Schedule 2, page 6 (after line 12), after item 3, insert:

3B After section 46

Insert:

46AA Predatory pricing

        (1)    A corporation must not engage in predatory pricing which substantially lessens competition in any market.

        (2)    For the purposes of this section, predatory pricing occurs when a corporation that has a substantial degree of power in a market, or substantial financial power in a market, offers goods or services for sale in a market at prices which have the purpose or effect of substantially lessening competition in that market.

        (3)    Without limiting the generality of subsections (1) and (2), in considering whether a corporation has engaged in predatory pricing, the Court may have regard to:

                  (a)    whether the goods or services are offered at a price less than their relevant cost; and

                  (b)    the price for which competitors of the corporation are offering the same goods or services; and

                  (c)    the period of time for which the goods or services are offered at the relevant price; and

                  (d)    whether the corporation is offering the same goods or services in other markets for higher prices; and

                  (e)    the extent of competition in the market; and

                   (f)    the reasons for its conduct.

        (4)    In considering whether a corporation has engaged in predatory pricing, regard may be had as to whether or not it has or had the intention or capacity to recoup the costs of its predatory conduct, but actual or potential recoupment is not a necessary requirement of an offence under this section.

        (5)    The reference in subsection (2) to a competitor includes a reference to competitors generally, or to a particular class or classes of competitors.

        (6)    This section does not limit the application of section 46.

These amendments were put forward before the government did their eleventh-hour amendments. They do address the predatory pricing specifically, by having another section called predatory pricing.

The issue here is to look at defining predatory pricing that occurs when a corporation has a substantial degree of power in the market or a substantial financial power in the market and offers goods and services for sale in that market at prices which have the purpose or effect of substantially lessening competition in that market. The difference with the Family First amendments compared to the government’s is that the government’s look at substantial share of market as one of the key sole tests and do not look at the other issue of substantial financial power or even a substantial degree of power in a market, so they are slightly different. There are probably differing opinions about which way is best to make that happen. The other difference is in the purpose or the effect of substantially lessening competition in that market. I submit those points to the Senate and the government to consider.

Nick Sherry (Tasmania, Australian Labor Party, Shadow Minister for Banking and Financial Services) Share this | Link to this | Hansard source

I rise to indicate Labor’s view on these amendments. Senator Fielding has indicated he had drafted them prior to the government’s eleventh-hour amendments, which—as I mentioned earlier—we do not believe go far enough. But, having examined Senator Fielding’s amendments, we believe they would create some uncertainty because they would make it difficult to distinguish between genuine competitive conduct and anticompetitive conduct, which would discourage discounting and drive up prices for consumers.

Amendment (1) ensures there is no double jeopardy issue arising through the senator’s amendments. Amendment (2) does not provide any criteria as to what constitutes lessening of competition. It is unclear when prices would reduce competition as stated in the amendments. The amendments also introduce an effects test so that conduct can be predatory pricing even if there was no purpose for the conduct to be anticompetitive. But this introduces a concept that could limit rather than encourage competition.

Further, the amendments list some factors for the courts to use in determining whether predatory pricing has occurred. However, these factors do not adequately define predatory pricing and hence introduce further uncertainty into the act. Also, at least in part, the amendments have the same effect as Labor’s amendment to ensure that recoupment of costs is not required to prove predatory pricing. So all in all our conclusion on the amendments is that, whilst in one area there is a crossover with a Labor amendment to be dealt with, the level of uncertainty and difficulty that is created by the amendments as a whole leads Labor to the conclusion that it cannot support them.

George Brandis (Queensland, Liberal Party, Minister for the Arts and Sport) Share this | Link to this | Hansard source

The government does not support Senator Fielding’s amendments. There are several reasons for that; let me deal with the three most important. But I should indicate that one of the reasons given by Senator Sherry for the Labor Party’s opposition to your amendments, Senator Fielding, is quite wrong. Senator Sherry, if I understood him correctly, thought that introducing substantial lessening of competition would add uncertainty. Substantial lessening of competition has been a key concept of part IV of the Trade Practices Act since 1974. I do not know who is advising you, Senator Sherry, but that is not the issue here at all.

There are three particular reasons why the government does not support these amendments, Senator Fielding, and they are these. First of all—and I dare say you expect me to say this—in our view the government amendments that were passed by the Senate earlier in the day sufficiently, if that were necessary beyond the existing terms of section 46, deal with the issue of predatory pricing in any event.

Secondly, your amendment would for the first time introduce into section 46 of the act—that is, the misuse of market power provisions—two quite novel concepts. The first is to regard substantial financial power as an alternative test to substantial market power. That, if I may say so, Senator Fielding, really is a heresy when it comes to competition law. The whole point here is to deal with the exercise of power in a market. Part IV of the Trade Practices Act is about the use or misuse of market power so that the conduct upon which the prohibitions in the act fix are the various ways and circumstances in which market power may be abused.

What you are saying, Senator, is, ‘As well as the misuse of market power, we should have a second concept: the misuse of financial power.’ But that concept would only have any operative effect if one could not make out misuse of market power. So, Senator Fielding, you ask yourself the question: ‘In what circumstances could it be anticompetitive for a company which was not misusing market power nevertheless to be constrained in its commercial activity because of its financial power?’ I suppose the only answer to that question would be: if you had a very wealthy company. But if wealth of that company—a company with great financial power—did not translate into the existence of market power, which could very easily be the case, why would we want to attack the company merely because it was a wealthy company?

It is very commonplace. In fact, in any healthily functioning market you will find several players, several corporations, with financial power—if that is to be defined as financial resources or wealth or as ‘deep pockets’—which, nevertheless, do not have substantial market power because it is a competitive market. But, if it is given that it is a competitive market, why would the Trade Practices Act be interested in intervening? That is the very thing that the Trade Practices Act is there to secure, so the premise of your amendment, insofar as it would invoke this additional concept of financial power as a ground of intervention, really is deeply anticompetitive.

Thirdly, we do not agree with the introduction of an effects test into a section which would operate cognately with section 46. There is an effects test, as you know, Senator Fielding, in section 45, but it is about horizontal arrangements. There has been a debate going on for as long as the Trade Practices Act has been the law of the land as to whether or not what the misuse of market power provisions—which are about corporations acting unilaterally, not in concert—should deal with is a purpose, which section 46 does, or also an effect. The reason that most respectable opinion settles upon limiting the operation of section 46, or of any provision cognately operating with section 46, to purpose is that if you said that the operation should settle upon merely an effect absent a purpose to drive competition out of the market then you would potentially be capturing any successful competitive strategy. If you had a corporation which was not motivated by one of the three purposes prohibited by section 46(1), and it was not seeking to eliminate or substantially damage or drive out of the market a competitor but nevertheless an effect of its corporate conduct was to damage a competitor, then that conduct would be prohibited.

As I said earlier in the debate, the basic proposition of part IV of the Trade Practices Act is that it exists to protect the competitive process, not to protect individual competitors. If the Trade Practices Act were to seize upon any occasion in a competitive market when an effect of a powerful corporation might be to drive out of the market a competitive company, albeit that that was not the purpose of the successful company, then I can leave it to you to imagine what a chilling effect that would have on the operation of the market. Ultimately, by its chilling effect on the operation of free competition, it would in fact be deeply anticompetitive, so that is another reason why the government does not go along with your proposed amendment.

Steve Fielding (Victoria, Family First Party) Share this | Link to this | Hansard source

I will have to respond to that, to a certain extent. If the minister were to read that the substantial financial power was not on its own but it was with regard to whether it has the purpose—we will leave out the effect for the moment—of substantially lessening competition in that market, it is not just financial power that, all of a sudden, makes you a target; not at all. In actual fact, the government’s amendment works on substantial share of market. It does not say ‘power in a market’; it works on percentage of share of a market, so you have got to look at those issues in combination, not in isolation, as has seemed to be done there. Item (3) says:

... the Court may have regard to:

(a)

whether the goods or services are offered at a price less than their relevant cost; and

(b)

the price for which competitors of the corporation are offering the same goods or services; and

(c)

the period of time for which the goods or services are offered at the relevant price; and

(d)

whether the corporation is offering the same goods or services in other markets for higher prices; and

(e)

the extent of competition in the market; and

(f)

the reasons for its conduct.

This could be taken slightly out of context. We can debate this ad nauseam, but I will just leave it at that. There is obviously going to be disagreement in views on the issue. I put the amendments before the Senate.

Question negatived.

Nick Sherry (Tasmania, Australian Labor Party, Shadow Minister for Banking and Financial Services) Share this | Link to this | Hansard source

by leave—I move opposition amendments (2) and (3) on sheet 5344 together:

(2)    Schedule 2, page 6 (after line 12), after item 3, insert:

3A  After subsection 46(4A)

Insert:

      (4B)    A corporation can have a substantial degree of market power even though there is no proof that the corporation has the ability to, or will have the ability to, recoup losses from pricing below the relevant cost to the corporation supplying the goods or services.

(3)    Schedule 2, page 6 (after line 12), after item 3, insert:

3B  After subsection 46(7)

Add:

        (8)    In determining for the purposes of this section whether a corporation has taken advantage of its market power, the Court shall have regard to whether:

             (a)    the conduct of the corporation is materially facilitated by its substantial degree of market power;

             (b)    the corporation engages in the conduct in reliance on its substantial degree of market power;

             (c)    the corporation would be likely to engage in the conduct if it lacked a substantial degree of market power; and

             (d)    the conduct of the corporation is otherwise related to its substantial degree of market power.

Firstly, amendment (2) reads:

A corporation can have a substantial degree of market power even though there is no proof that the corporation has the ability to, or will have the ability to, recoup losses from pricing below the relevant cost to the corporation supplying the goods or services.

This means that, where the form of proscribed behaviour alleged under section 46(1) is predatory pricing, it is not necessary to demonstrate a capacity to subsequently recoup the losses experienced as a result of that predatory pricing strategy.

The courts consider recoupment now. The government’s amendments leave it to the courts to decide whether recoupment is an issue or not. Labor’s amendments explicitly state that recoupment is not a factor, as it should be unnecessary to prove in relation to predatory pricing. Stating that it is not necessary to prove recoupment lowers the bar to predatory pricing and removes the need for the courts to look at the future in determining predatory pricing. Labor’s amendments make it clear that recoupment is not a factor and make it easier to prove predatory pricing for small business. Even though the supplementary explanatory memorandum states that recoupment is not necessary, Labor believes that it is best to state this in the legislation to put the issue beyond doubt.

Labor’s third amendment lists four factors the court must have regard to in determining whether a company with substantial market power has taken advantage of that power for an anticompetitive purpose. The need for clarification of ‘take advantage’ arises from the Rural Press case and the Melway case. In the Rural Press case, the court found a company is not taking advantage of its marketing power if it does something it could do without any market power. This interpretation leaves little conduct which could be construed as taking advantage. This amendment would remove uncertainty about the meaning of ‘taking advantage’ by making clear the link between proscribed conduct and the possession of substantial market power.

George Brandis (Queensland, Liberal Party, Minister for the Arts and Sport) Share this | Link to this | Hansard source

The government supports neither of these amendments. The reason the government does not support the recoupment amendment, opposition amendment (2), is that it rigidifies the process of proof. A court—and this is uncontroversial—may have regard to the issue of recoupment, but to erect stringent statutory guidelines as to whether or not a court must have regard to a particular criterion or circumstance is, in my view, generally not desirable and certainly not desirable here because, in these cases, it all depends on the particular facts of the operation of a corporation and a market with particular features. They vary from one to another, so I think it would be very bad law to overly rigidify the considerations to which the court might have regard.

With regard to opposition amendment (3), I make the same point that I tried to make to Senator Murray before: the scheme of section 46 of the Trade Practices Act is really very elegant. There are three elements. There has to be a corporation with a substantial degree of power in a market—and there can be a debate about how that is determined and how it raises the issue of thresholds. Then it has to be actuated by a malign purpose—one of the three purposes proscribed by section 46(1). The link between them is taking advantage of the power for the proscribed purpose. The courts have been very clear about this. ‘Take advantage’ means ‘use’. All it means is that there be a causal or functional relationship between the use of the market power and the achievement of the malign purpose. What the court said in the Rural Press case is quite right. It is quite conceivable that you could have a corporation with substantial power in a market which acts for the purpose of eliminating or substantially damaging a competitor in a market but which nevertheless ought not to be caught by section 46 because the functional or causal relationship between the first and the third elements does not exist.

Let me give you a hypothetical example, Senator Sherry. Let us say there was a corporation with a substantial degree of power in a market that decided to eliminate a competitor by surreptitiously engaging some hoodlum to burn down its competitor’s warehouse. That is a corporation with a substantial degree of power in a market that has done something that is in fact unlawful and that is designed to eliminate or substantially damage a competitor, but it has not used its market power to engage in that conduct; it has done something independently unlawful. For section 46 to work, there has to be a functional or causal relationship between the market power and the proscribed purpose. That is supplied by the element ‘taking advantage’. But what has to be taken advantage of or ‘used’—to use the simplest Anglo-Saxon word you can imagine that the courts have settled on—is the market power in order to achieve that purpose. The four tests that you propose adding to section 46 would really add complications to what is a very simple set of propositions and would make section 46 work much less effectively or thoroughly. For that reason, the government opposes that amendment too.

Steve Fielding (Victoria, Family First Party) Share this | Link to this | Hansard source

I know we are not referring to the government’s amendments but, as recoupment has just come back up again, I was wondering whether the minister could explain why it was mentioned in the explanatory memorandum to the amendments that the government moved?

Nick Sherry (Tasmania, Australian Labor Party, Shadow Minister for Banking and Financial Services) Share this | Link to this | Hansard source

To maybe save a bit of time, I have one other point that I want to seek clarification on. I just make the point, Minister, that your own amendment gets rid of the ‘take advantage’ element. Perhaps you could respond to that when you deal with Senator Fielding’s question.

George Brandis (Queensland, Liberal Party, Minister for the Arts and Sport) Share this | Link to this | Hansard source

I will deal with what Senator Fielding had to say first. Recoupment may be an issue because, if a corporation engaged in conduct of the kind that section 46 or the cognate provisions that have now been introduced are intended to proscribe and can be demonstrated to be intending to recoup its short-term losses by long-term monopoly profits after it has eliminated a competitor from a market, that may very well be good evidence that will supply the wanting proof of the anticompetitive purpose. It might also, in certain circumstances, demonstrate that advantage had been taken of market power too—but it really goes to the issue of purpose primarily.

But that is not always going to be the case. The point that I am making is that you do not do the operation of section 46 and like provisions of part IV of the Trade Practices Act any favours by imposing these structural rigidities in what may or may not be taken into account for the purposes of proof. These cases—and, as you know, I have run them—are very hard to prove. But you do not do yourself any favours by rigidifying the requirements of proof. An applicant in a section 46 proceeding is always better off, in my view, when they can have the full flexibility of the section at their disposal, including the provisions that enable proof by inference that are in section 46(7) of the act, which we have not discussed so far this evening. There are many, many refinements to this argument. People have spent weekends at conferences debating this very point. But in layman’s language, as it were, that is the point: it rigidifies something that does not need to be rigidified.

Steve Fielding (Victoria, Family First Party) Share this | Link to this | Hansard source

If I could just continue with the recoupment issue, could you explain to me why recoupment as an issue was in the explanatory memorandum? Given that it was not mentioned in the amendments on sheet PF441, why is it in the explanatory memorandum?

George Brandis (Queensland, Liberal Party, Minister for the Arts and Sport) Share this | Link to this | Hansard source

It is there because it may be a factor. The recoupment of short-term losses by long-term monopoly profits, which is what recoupment is about, may be a factor. Therefore, it is relevant to advert to that in the explanatory memorandum. Chapter 2.1 of the explanatory memorandum says, in slightly more considered language, what I just said to you a moment ago—that it is not a prerequisite to establish a breach of section 46(1). The explanatory memorandum states:

In short, the legal position is that recoupment is not required to prove a breach of section 46.

You see, it may well help to prove a breach of section 46, but neither is it the case that you need to show recoupment to prove that section 46 has been breached. Nor will it always be the case that recoupment is the decisive factor in showing whether or not there is a proscribed section 46 purpose. It may be relevant. In many cases, it will be relevant. But to elevate this one consideration above all the other considerations that can go to demonstrate that a corporation has acted in a particular way to achieve one of the three proscribed section 46 purposes is, as I said earlier, not really doing section 46 any favours by rigidifying the circumstances in which a breach may be demonstrated to have occurred.

Andrew Murray (WA, Australian Democrats) Share this | Link to this | Hansard source

On the same point, Minister: I have understood the supplementary explanatory memorandum, and it does state in its final sentence:

... that the legal position is that recoupment is not required to prove a breach of section 46.

It is always dangerous to put yourself in the other man’s shoes but, as I read Senator Fielding’s questions and as I read my own position and that of the Labor Party, that is not what is worrying, because recoupment is not required to prove a breach of section 46. The problem is whether the inability to recoup would be an impediment to proving section 46. You might perhaps suggest that the wording of both my previous amendment and Senator Sherry’s amendment is not clear enough. But that, to me, is what we are trying to elicit. Perhaps in your response you could explore that problem: that, if there were an inability to recoup the losses, could a section 46 case still be successfully prosecuted?

George Brandis (Queensland, Liberal Party, Minister for the Arts and Sport) Share this | Link to this | Hansard source

The answer to that question is yes. Conceivably, one can imagine a set of circumstances in which one demonstrated that there was an inability to recoup the losses but nevertheless was able independently, by proof of other facts and circumstances, to demonstrate that one of the proscribed purposes in section 46 was present. Senator Murray, you are dealing with these things in real time too. The recoupment issue is always going to a retrospective issue. It is always going to be an issue that is addressed by courts and barristers with the luxury of looking at what happened retrospectively. But, of course, at the time at which the conduct is engaged in, which is usually either contemporaneous with or post the time at which the relevant purpose was formed, then it may well be that the malefactors, the people who constitute the corporate mind, are not in any sophisticated or systematic way turning their minds to issues of recoupment at all. So I can well imagine a circumstance in which one could demonstrate a section 46 breach even though, looked at with the benefit of hindsight, as courts inevitably do, it could be demonstrated retrospectively that there was in fact no prospect of their purpose being fulfilled at all.

Question put:

That the amendments (Senator Sherry’s) be agreed to.

Andrew Murray (WA, Australian Democrats) Share this | Link to this | Hansard source

I move Democrat amendment (6) on sheet 5324 revised:

(6)    Schedule 2, page 6 (after line 12), after item 3, insert:

3C  After subsection 50(1)

Insert:

     (1A)    A corporation must not directly or indirectly:

             (a)    acquire shares in the capital of a body corporate; or

             (b)    acquire any assets of a person;

if the acquisition and any previous acquisitions by the corporation in any relevant market in the 5 years preceding the current proposed acquisitions collectively have the effect, or are likely to have the effect, of substantially lessening competition in a market.

      (1B)    A person must not directly or indirectly:

             (a)    acquire shares in the capital of a body corporate; or

             (b)    acquire any assets of a person;

if the acquisition and any previous acquisitions by the person in any relevant market in the 5 years preceding the current proposed acquisitions collectively have the effect, or are likely to have the effect, of substantially lessening competition in a market.

This is one of those amendments which have been terribly difficult to design. The Senate Economics References Committee, in March 2004, in its report on the effectiveness of the Trade Practices Act 1974 in protecting small business, referred to the issue of ‘creeping acquisitions’. Those people who have participated in competition law discussions over probably a decade or more would know that creeping acquisitions have been the bane of the grocery retailing sector in particular. Everybody understands the problem of creeping acquisitions. It is an easy one to express and an easy one to understand—that is, the cumulative effect of acquisitions over time can result in the accumulation of market power such that it will threaten competition—but how to deal with it has been the topic of major discussion. At page xviii of the report of the Senate committee I referred to, it stated the following:

Submissions before the inquiry suggested that in the retail grocery sector and the retail liquor sector, large chains are acquiring the stores of independent competitors in a program of ‘creeping’ acquisitions. Witnesses expressed concern that s.50 of the Act, designed to prevent acquisitions that would have the effect of ‘substantially lessening competition in a market’, is inadequate in dealing with piecemeal acquisitions because no single purchase is likely, by itself, to lead to a substantial lessening of competition.

The ACCC itself expressed concern about this issue, but also noted that it has not yet determined whether creeping acquisitions in general (as opposed to specific case) do substantially lessen competition and so cause economic detriment. Further, if they do have this effect, the ACCC expressed uncertainty about whether the current section 50 provisions would be adequate to deal with that issue.

The Committee considers, as a matter of logic, that creeping acquisitions must, if continued indefinitely, at some point result in a very concentrated market. The clear consensus of evidence before the Committee supported this view, and no substantial arguments were raised to oppose it. Current merger law does not effectively address this issue. Section 50 of the Act should be strengthened to take account of the cumulative effects of acquisitions which over time may substantially lessen competition.

Recommendation 12

The Committee considers that provisions should be introduced into the Act to ensure that the ACCC has powers to prevent creeping acquisitions which substantially lessen competition in a market.

Easy to say but hard to do. The government senators said at page 89:

Government Senators do not support this recommendation. In our view, the existing provisions of Part IV, subject to the amendments we have recommended above, adequately deal with such competition issues which ‘creeping acquisitions’ might raise.

With respect, I disagree with the government senators. There are a number of government senators I know who are extremely concerned about creeping acquisitions, and some of them might be sitting near me in this debate.

The Democrats have attempted to address this issue. We have created amendment (6). There may be those people who cannot see this amendment working, because it does use the time period of five years as the period in which creeping acquisitions can be taken into account or when they may or may not impact on an acquisition made in another state. That may be, but there needs to be some time based recognition of the creeping acquisition phenomenon.

Everybody knows that the definition of ‘market’ in the Trade Practices Act is an integral part of a case getting up. So, if the relevant market is recognised as a national market, this amendment allows a court sufficient flexibility to review the pattern of acquisitions over five years in any relevant market to get a better fix on their collective or aggregated impact on competition. If the pattern of behaviour demonstrably substantially lessens competition then this amendment allows the ACCC to deal with them. At the moment, the ACCC cannot.

More importantly, this amendment allows creeping acquisitions in local and regional markets to be considered, and that is where the adverse impact on competition from creeping acquisitions over five years may be much more pronounced. One only needs to think about the changing media landscape, for instance, to see the validity of this argument. I freely confess to the minister that this is a difficult one to design; it is a difficult one to attack. But the principle that I wish to see expressed is that creeping acquisitions, in the same way as substantial acquisitions, should be seen as potentially capable of creating the same effects as a substantial acquisition could, and that is the mischief we are seeking to remedy through this amendment.

George Brandis (Queensland, Liberal Party, Minister for the Arts and Sport) Share this | Link to this | Hansard source

I understand entirely, Senator Murray, what you are saying. This is, if I may perhaps describe it this way, the straw that broke the camel’s back problem. There is nothing in the language of the existing section 50, though, which in the government’s view would not be adequate to deal with the problem that you raise. The effect of your amendment is to introduce into section 50 some additional words:

... and any previous acquisitions by the corporation in any relevant market in the 5 years preceding the current proposed acquisitions collectively ...

Now, it is the interposition of those words, because the other part of your two proposed subsections merely replicates the existing language of 50(1) and 50(2). So the question one has to ask, Senator Murray, is: is the effect you are seeking to achieve by the insertion of those words not already achieved by the existing language of section 50? I respectfully submit to you that it is, particularly if you look at the very broad language of 50(3), which sets out a non-exhaustive list of nine factors to which the court may have regard in determining whether an acquisition has the effect of substantially lessening competition. Those factors include, by subparagraph (c) of 50(3), ‘the level of concentration in the market’; by subparagraph (g), ‘the dynamic characteristics of the market’; and by subparagraph (h), ‘the likelihood that the acquisition would result in the removal from the market of a vigorous and effective competitor’.

Senator Murray, I do not think logically it is possible to say that it adds anything to enjoin a court to have regard to acquisitions over the previous five years when already, under the existing language of the section, one of those factors to which the court may have regard is the level of concentration. If the level of market concentration has been built up cumulatively over the previous five years or even longer than the previous five years, that is something to which the court can have regard under the existing provisions of 50(3)(c). So the amendment, it seems to me, if I may say so, is unnecessary.

There is also, though, the not unimportant problem that the draftsman has used the expression ‘any relevant market’ without defining what the relevant market is. For those reasons the government will not support the amendment—not because we disagree with you but because we think the mischief which you identify is already dealt with by the current language of the act.

Nick Sherry (Tasmania, Australian Labor Party, Shadow Minister for Banking and Financial Services) Share this | Link to this | Hansard source

I indicate that, with respect to Democrat amendment (6), Labor agree that creeping acquisitions need to be taken into account. We did move a second reading amendment outlining this rather than making detailed amendments because this is a major change. We believe it is better to consult on the precise wording before drafting the amendments. Action on creeping acquisitions is something that Labor will be implementing in government if we are elected later this year, following consultation on that detail. For that reason we are unable to support this amendment tonight.

Andrew Murray (WA, Australian Democrats) Share this | Link to this | Hansard source

I appreciate the response from both the minister and the shadow minister. The minister’s response is that the government is of the view that the act as it is presently constituted, if I understand his answer correctly, does take into account creeping acquisitions. However, my view from the evidence I have received over time both in the Senate and prior to my coming into the Senate is that those who are most aggrieved by creeping acquisitions have found themselves unable to pick the timing or the circumstance which would entail them bringing a case before the courts—is it 100 stores minus one or 100 stores plus one at which you finally make the move? I am pleased that Labor are willing if elected to address this issue. I have freely confessed how difficult this is to design and I am pleased that they intend to consult and take further advice on this matter before settling on the way in which this should be done.

Question negatived.

The running sheet suggests I move amendments (7) to (9) on sheet 5324 revised together. But I seek leave to move amendments (7) and (8) together, and then (9), but I am happy to speak to all three amendments in the debate.

Leave granted.

I move:

(7)    Schedule 2, page 6 (after line 12), after item 3, insert:

3D After subsection 51AAB

Insert:

51AAC Unfair contract terms

        (1)    A corporation must not, in trade or commerce, in connection with:

             (a)    the supply or possible supply of goods or services to a person (other than a listed public company); or

             (b)    the acquisition or possible acquisition of goods or services from a person (other than a listed public company);

include in a contract, arrangement or understanding, or proposed contract, arrangement or understanding, an unfair term.

        (2)    A person must not, in trade or commerce, in connection with:

             (a)    the supply or possible supply of goods or services to a corporation (other than a listed public company); or

             (b)    the acquisition or possible acquisition of goods or services from a corporation (other than a listed public company);

include in a contract, arrangement or understanding, or proposed contract, arrangement or understanding, an unfair term.

        (3)    A term is to be regarded as unfair for the purposes of subsections (1) and (2) if, contrary to the requirements of good faith and in all the circumstances, it causes a significant imbalance in the parties’ rights and obligations arising under the contract, arrangement, or understanding, or the proposed contract, arrangement or understanding, to the detriment of the consumer or small business.

        (4)    An unfair term is void.

        (5)    The contract will continue to bind the parties if it is capable of existing without the unfair term.

        (6)    This section only applies to a contract, arrangement or understanding, or proposed contract, arrangement or understanding entered, or proposed to be entered into, on or after the commencement of this section.

(8)    Schedule 2, page 6 (after line 12), after item 3, insert:

3E After subsection 51AC(1)

Insert:

     (1A)    For the purposes of this section unconscionable conduct includes any action in relation to a contract or to the terms of a contract that is unfair, unreasonable, harsh or oppressive, or is contrary to the concepts of fair dealing, fair-trading, fair play, good faith and good conscience.

Item (7) refers to unfair contract terms with respect to 51AAC. This amendment is based on the unfair contract terms legislation which operates in Victoria. Under that legislation consumers have a private right of action in the courts. It appears from what I am told that it has worked fairly effectively in Victoria—there have been no floodgates opened for litigation and the legislation has had the effect that was intended when it was constructed. The amendment utilises both the Victorian and United Kingdom legislation to define ‘unfair’, and the courts have had no problems interpreting the concept in a way that does not undermine the certainty of contracts. Since courts now routinely deal with the word ‘fair’ I cannot see why they would have any difficulty dealing with the word ‘unfair’. The United Kingdom legislation has been operating for over 10 years and the Victorian legislation for a few years. As I say, it has been reported to me that there are no problems in those jurisdictions.

With respect to item (8), 3E refers to unconscionable conduct in 51AC(1). The important aspect of this amendment is that it covers any action in relation to a contract which has a broad notion that would cover conduct as well as the actual contract terms. It was deliberately drafted in that manner. As somebody who has dealt with hundreds of contracts in my business life, conduct is a vital area to cover when determining matters such as these.

Item (9) is based on the recommendation from the Senate committee that I outlined earlier—the March 2004 Senate Economics References Committee. I would hope that my Labor Party colleagues would be able to support this in view of the fact that they supported the original recommendation, and I would hope that some government members might reconsider this matter. This is to do with the transaction value. The divestiture power in 3G in this amendment has been drafted to deal with section 46 because that is what the majority Senate report recommended. I think I should leave it at that at present.

Nick Sherry (Tasmania, Australian Labor Party, Shadow Minister for Banking and Financial Services) Share this | Link to this | Hansard source

I thank Senator Murray for his cooperation in agreeing to split amendments (7) and (8) from amendment (9). Amendment (7), similar to amendment (6), would make a major important change to the Trade Practices Act. I have indicated how Labor would deal with that in the context of the second reading amendment. Labor does not agree to amendment (8). Labor believes that the current, well-settled case law outlining the meaning of unconscionable conduct, while strict, is appropriate. Finally, Labor indicates its support for amendment (9). We support this because it is effectively the same as Labor’s amendment to remove the $3 million threshold from section 51AC, regarding unconscionable conduct, which we will get to shortly.

George Brandis (Queensland, Liberal Party, Minister for the Arts and Sport) Share this | Link to this | Hansard source

The government does not support these amendments, Senator Murray. We remain to be persuaded that section 51AC, in its current form—which operates upon the controlling concept of unconscionable conduct, with the assistance of subsection 51AC(3), which identifies 11 different categories of circumstances to which the court might have regard in making decisions about unconscionability—does not work perfectly well at the moment. It is not to be forgotten, of course, Senator Murray, that section 51AC of the Trade Practices Act builds upon an existing body of equitable doctrine, which goes back many centuries as to what unconscionable conduct means.

What you would do, if I may say so, with respect—and Senator Sherry is quite right: the case law on this is quite settled; it is quite searching—is upset the structure of section 51AC by replacing it with a provision such as 51AC(3) in your proposed amendments, which would have it that:

A term is to be regarded as unfair ... if, contrary to the requirements of good faith—

I pause to say that, although good faith has rhetorical meaning, it also has a technical meaning in the law—

and in all the circumstances—

which is an open-ended category which invites an infinity of considerations to be brought into contemplation—

it causes a significant imbalance in the parties’ rights and obligations arising under the contract ...

Well, for goodness sake, Senator Murray, if that means that whenever there is a negotiation as a result of which there is a significant change, which you might characterise as an imbalance in the party’s rights and obligations under a contract, the contractual term can be set aside by a court, then it seems to me, with respect—and you as a businessperson should understand this, I think, better than most—that it attacks one of the core principles of commercial law: the security of transactions.

There is no controversy. Where there is unconscionable conduct—which, as I said before, is a well-understood notion in the law—there ought to be circumstances in which a contractual term is set aside, but if, absent of unconscionable conduct, there is a carte blanche for courts to set aside contractual terms merely because one side gets the rough end of the deal, that is the end of security of transactions or contractual certainty, which is such an important commercial desideratum.

It only gets worse, with respect, when we go to item 8, which would define unconscionable conduct as anything that is:

... unfair, unreasonable, harsh or oppressive, or is contrary to the concepts of fair dealing, fair-trading, fair play, good faith and good conscience.

Heavens above, Senator Murray: what a cornucopia of adjectival extravagance that is. Can you tell me what the concept of fair play is in commercial law? I bet you cannot. Nobody can because there is no such thing as the concept of fair play in commercial law. It troubles me when people substitute settled legal concepts for political rhetoric.

Progress reported.