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Tuesday, 16 September 2008
Page: 4

Senator McLUCAS (Parliamentary Secretary to the Minister for Health and Ageing) (12:49 PM) —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 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.

The ACTING DEPUTY PRESIDENT (Senator Hutchins)—The question is that the second reading amendment of Senator Xenophon be agreed to.

Question agreed to.

Original question, as amended, agreed to.

Bill read a second time.