Nick Xenophon (SA, Independent) Share this | Link to 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.

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

Fifteen months ago Family First introduced legislation to stop predatory pricing. Why? Because our competition laws were too weak and did not adequately deal with anticompetitive conduct like predatory pricing. Predatory pricing is a real problem because it can drive small businesses out of the market, and when you knock small businesses out of the market you get less competition, which results in higher up prices for consumers.

Last year, when Family First introduced its plan to stop predatory pricing, small business had already been waiting for government action for more than three years. That is how long it took to action recommendations from the Senate Standing Committee on Economics. Predatory pricing is where large and powerful businesses use their substantial market power or substantial financial power to drop their prices in one area to drive out competitors. Not only are small businesses affected, with some forced to shut up shop because they can no longer compete, but Australian families are also affected, suffering from higher prices in the long term. The Trade Practices Act states:

The object of this Act is to enhance the welfare of Australians through the promotion of competition and fair trading and provision for consumer protection.

The welfare of Australians is central, but to achieve that we need a mechanism to protect consumer welfare, which is fair trading and competition. There is a danger that, without the appropriate regulation, unfair trading and distorted competition can lead to higher prices and less choice for consumers as well as the loss of the benefit of small businesses to local communities. Family First acted on predatory pricing because Australia had some of the most concentrated markets in the world. Our grocery market is one of the most concentrated in the world, being dominated by just two players, and now our petrol market has gone the same way with Coles and Woolworths.

In September last year, with the support of both major parties, predatory pricing amendments were passed by this parliament. Family First’s plan to address predatory pricing was similar to what was eventually passed last September with the support of both Labor and the coalition. In fact, Family First’s plan went further by also adding ‘substantial financial power’ to capture those big businesses that may not have ‘substantial market share’ but have very deep pockets to price in such a way as to drive out competitors. Family First’s plan also introduced an ‘effects test’. The ‘effects test’ would mean that those corporations that do have financial or market power would need to be careful in how they use that power so it does not have the effect of substantially lessening competition or eliminating competitors. Up until now it has proven nearly impossible to prove predatory pricing by intent only.

It was interesting that the ACCC supported an ‘effects test’ in evidence to the 2004 Senate committee inquiry but did not take it any further. Last year, when the Senate looked at Family First’s predatory pricing plan, the Fair Trading Coalition pointed to problems in the operation of the Trade Practices Act to stop anticompetitive practising, arguing:

… as markets become more concentrated (as is the case in many sectors of the Australian economy) Australia needs to have strong and properly administered laws which guard against the misuse of market power and in particular, predatory behaviour by large businesses. Without significant laws against such behaviour, the FTC believes that large businesses will continue to take advantage of their market power, resulting in further concentration of markets. That concentration will eventually lead to a loss of competitors and thus competition in markets, a loss of choice for consumers and ultimately less price competition, which further disadvantages consumers.

At the same inquiry, there was widespread concern that, as Professor Frank Zumbo said:

… s 46—

of the Trade Practices Act—

is not operating effectively to prevent large and powerful corporations from engaging in predatory conduct or other abuses of market power.

So that was the background to some of the changes. Even though Family First still believes the predatory pricing laws that were passed last year by the Senate did not go far enough, it seems odd that the Rudd government now wants to undo some of those gains. Family First is not convinced that the changes made last year cannot be used by the Australian Competition and Consumer Commission to improve competition in the Australian marketplace.

Jan McLucas (Queensland, Australian Labor Party, Parliamentary Secretary to the Minister for Health and Ageing) Share this | Link to this | Hansard source

I would like to thank senators who have taken part in the debate on the government’s Trade Practices Legislation Amendment Bill 2008. This bill delivers on the government’s promise to reform important areas of the Trade Practices Act, including strengthening section 46. The bill directly addresses predatory pricing. It aligns the predatory pricing prohibition in section 46 with the general prohibition against the misuse of market power, ensuring that it does not discourage legitimate discounting. It also ensures that it is not necessary to prove recoupment to establish predatory pricing.

The bill also strengthens section 46 more generally, by clarifying the meaning of ‘take advantage’ for the purposes of section 46. In particular, it addresses the 2003 Senate inquiry’s finding that the present test focuses on a corporation’s physical capacity to engage in conduct rather than its rationale for doing so. The bill also enhances the prohibitions against unconscionable conduct in business transactions. In particular, it repeals the monetary thresholds which currently limit the operation of 51AC of the Trade Practices Act and section 12CC of the ASIC Act. It enhances the protection afforded by both sections by focusing the prohibitions on the wrongdoing involved rather than on the arbitrary monetary thresholds. In addition, the bill includes three amendments that improve the ability of the act to be effectively enforced. Firstly, it provides the Federal Magistrates Court with the jurisdiction to hear section 46 matters in appropriate cases. Secondly, it clarifies the ACCC’s section 155 powers, ensuring that it can fully investigate suspected contraventions of the law and act to protect consumers from harm. Thirdly, it requires that a deputy chairperson of the ACCC has experience in or knowledge of small business matters.

The amendments contained in the bill were announced by the government on 28 April this year and an exposure draft was released publicly on 1 May. They were also largely foreshadowed as opposition amendments to the Trade Practices Legislation Amendment Bill (No. 1) 2007. Those amendments, however, were not adopted in the final version of that bill, despite many of them being recommended by the 2004 Senate inquiry into the effectiveness of the Trade Practices Act in protecting small business. At the time, the government, then in opposition, noted that the amendments would be pursued following a change of government.

I would like to thank the Senate Standing Committee on Economics for its timely consideration of, and report on, the bill. The committee’s inquiry attracted a large number of submissions from groups interested in trade practices reform.

The government’s bill is supported by leading business groups, including the Council of Small Business Organisations of Australia and the Australian Chamber of Commerce and Industry, as striking the right balance. The bill also has the support of leading academics and legal practitioners.

I now turn to issues raised by senators during the course of the second reading debate on the bill. In relation to the treatment of predatory pricing under the act, the 2004 Senate inquiry considered that the act would be strengthened by making predatory pricing a clearer target of section 46. The government’s amendments achieve this objective. They do it in a way that is consistent with the longstanding prohibition in section 46(1) against the misuse of market power rather than through the uncertain and imprecise wording of the Birdsville amendment.

Considerable amendments have been made to clarify the meaning of ‘market power’ since the Boral decision. In 2007, amendments were made to section 46 which addressed the leveraging and coordination of market power. Those amendments also ensured that more than one corporation may have substantial market power and that a corporation may have such power even though it does not substantially control the market or have absolute freedom from competitive constraint. Those amendments were supported by the government when we were in opposition.

However, the government does not support the present operation of the Birdsville amendment. Its present reference to market share has given rise to confusion and may chill beneficial price competition. Both the method for calculating market share and what amounts to a substantial market share are unknown. The ACCC has publicly stated that section 46(1AA) as currently drafted adds considerable uncertainty to the law and that it should be amended to clarify the protection that it provides.

The argument has been made that the Birdsville amendment simply requires time to be tried and tested in the court. However, it may take many years for the uncertainty it has created to be resolved, increasing enforcement costs for the victims of predatory pricing and stifling procompetitive conduct. It is the role of the legislature to make good laws, not to leave the law-making to the courts.

The Birdsville amendment’s reliance on market share has also put Australia out of step with international best practice in regulating predatory pricing. As noted by the OECD, competition regimes are converging towards the notion that unilateral conduct provisions should be applied only to firms that have substantial market power. In addition, by operating in relation to market share, the Birdsville amendment may not capture the conduct of many powerful firms. For example, it may not capture powerful firms who are entering new markets, are operating in markets where products or services are purchased infrequently on the basis of long-term contracts—typically through bidding processes—or derive their power by controlling upstream markets.

In contrast, market power is a well-established concept in competition law which allows the court to consider all the relevant characteristics of a market in determining whether a firm has acted anticompetitively. Such factors include the size of a firm, including its market share; the size and number of its competitors; the barriers to entry or expansion; profit margins; degree of vertical integration; and a variety of other factors. As noted by the International Competition Network, a key advantage of market power is that it involves a multifaceted analysis that reaches well beyond market share.

I note the opposition’s amendments will remove a key benefit of the government’s bill in relation to the treatment of recoupment by the courts. The bill clarifies the role of recoupment in predatory pricing cases under section 46(1AA). At present section 46 does not expressly provide whether it is necessary to prove recoupment in order to establish a case of predatory pricing. Submissions to the 2004 Senate inquiry raised concerns about this lack of clarity and its impact on the effectiveness of section 46. In particular, concerns were expressed that it may be necessary to prove recoupment in order to establish a predatory pricing case following the High Court’s decision in the Boral case. The Senate inquiry recommended that section 46 be amended to clarify that it is not necessary to prove recoupment when establishing a breach of section 46 for predatory pricing. The government’s bill gives effect to this recommendation. Section 46 should clearly provide that recoupment is not legally necessary in order to establish a breach for predatory pricing. Recoupment may be an indicator of such behaviour, but it should not be an essential precondition. By opposing the government’s amendment the opposition would return section 46 to the uncertain and undesirable position resulting from the High Court’s Boral decision.

The opposition opposes the extension of the Federal Magistrates Court jurisdiction to cover section 46 matters. I note that the Senate inquiry in 2004 concluded that the Federal Magistrates Court could resolve a number of section 46 cases with a cost saving for all sides. The Federal Magistrates Act 1999 permits the Federal Magistrates Court to transfer proceedings to the Federal Court when appropriate. Such a transfer may occur in complex and resource-intensive cases or where the amount being claimed is beyond the $750,000 jurisdictional limit of the Federal Magistrates Court. The Federal Magistrates Court could clearly be utilised in relation to cases where section 83 of the act applies. Section 83 allows parties to rely on factual findings from previous court proceedings. By expanding the jurisdiction of the Federal Magistrates Court to include section 46 claims, the court would be empowered to hear such matters. At the same time, the government’s bill does not limit that jurisdiction solely to matters arising by way of section 83, in recognition of the fact that litigants should have direct recourse to the Federal Magistrates Court in appropriate cases.

The views of the Law Council have been raised in relation to the Federal Magistrates Court amendment. I note that in its submission to the economics committee on this bill the Law Council recognised that a case brought with the assistance of section 83 in the Federal Magistrates Court ‘might well be justified’. The council submitted that the case for such claims to be brought in the Federal Magistrates Court is much more compelling up to the limit of the Federal Magistrates Court’s existing $750,000 jurisdictional limit. The opposition’s refusal to accept the government’s amendments to the ASIC Act in schedule 3 of the bill fails to recognise the existing jurisdiction of the Federal Magistrates Court. The FMC already has jurisdiction in relation to claims of unconscionable conduct in financial service. That jurisdiction was bestowed on the Federal Magistrates Court by the opposition when they were in government. The government’s amendments simply recognise this existing jurisdiction in clarifying the law. The same applies to the amendments to the unconscionable conduct provisions of the Trade Practices Act, which have been opposed by the opposition.

This bill delivers on the government’s commitment to strengthening laws promoting fair competition. It delivers for small business and consumers. It builds on the agenda implemented by this government to reform the Trade Practices Act. Working families will benefit from the government’s reforms because they will facilitate effective competition, which should result in lower prices, greater choice and better quality products and services.

Question agreed to.

Original question, as amended, agreed to.

Bill read a second time.