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Government misguided on merger test: Costello

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"The Government's proposed new merger test under the Trade Practices Act is misguided and ill-conceived", Shadow Attorney General and Shadow Minister for Justice, Mr Peter Costello, said today.

"Although the wording of the test is to be changed from

"dominance" to "substantially lessening competition", in applying that test courts will have to take into account nine statutory factors - five of which are already applied under the "dominance" test. The nine statutory factors were included to pacify

Treasurer Dawkins who opposed the change of the merger test. By asking the courts tv take into account the same factors as

previously, Treasurer Dawkins was squared on the basis that the changes would not make a substantial difference. But by re­ describing the test, other sections of the Labor Caucus were squared off on the grounds that the merger test would

significantly change.

"The Government's position is a triumph for linguistic

gymnastics. The problem is that in applying the test to actual situations, it will be difficult to predict the result, and extremely confusing for companies to know the circumstances in which they are permitted to acquire or merge, and the

circumstances in which they are not.

"The matter will be thrown to the courts which no doubt will spend years clarifying the operation of the new provisions. (It has taken a decade to clarify the meaning of the current test). This may help the Government since it moves the controversy off to the courts and regulators, but it will do nothing for the business environment.

"Treasurer Dawkins was not the only Labor Minister to oppose a change in the merger test. The Government under Attorney General Bowen took the same view. The House of Representatives Committee under now Minister Griffiths took the same view. Mr Duffy took

the same view until earlier this year.

"The Business Council, the Australian Chamber of Commerce & Industry (ACCI), the MTIA, the Law Council, and other senior business and professional groups oppose the change.

"The Opposition opposes a change in the current provisions.

"At a time when Australia is attempting to harmonise its law with New Zealand and apply the Trade Practices Act uniformly across the Tasman, this disharmonises the merger test with New Zealand.



It disharmonises the Australian test with that applying in the European community. Although the American test is a

"substantially lessening competition" test, informed opinion suggests that it is applied in a way similar to the current

Australian test. In applying the current Australian test, the courts have already decided that factors such as market share, barriers to entry, product differentiation, vertical integration, and the ability to increase prices, should be taken into account.

"Although the Government's proposed new merger test will lead to a great deal of uncertainty as to what is actually permitted and what is actually forbidden in practice, there is one sure thing that can be said about it. It widens the jurisdiction of the

Trade Practices Commission to enquire into mergers and

acquisitions of assets and to play a significant role in

determining who can offer to buy and to whom a seller can offer to sell.

"The Trade Practices Commission has lobbied long and hard to increase its jurisdiction in this area. It has had a great

success. Professor Eels has played "Yes Minister" to Attorney General Duffy.

Unconscionable Conduct

"But the Government compromise on the question of unconscionable conduct is a good one.

"The Government originally proposed to extend Section 52A of the Trade Practices Act to commercial contracts opening new causes of action for "unconscionable conduct".

"It is not proceeding with that and now proposes to codify

existing common law remedies, as they develop from time to time, and apply them by the statute. This is sensible.

"Recent developments in the law of equity as laid down by the High Court have widened the opportunity for relief.

"The Coalition welcomes the developing doctrine which allows contracts to be set aside where there has been inequitable conduct, and supports the proposed statutory provisions of Section 51AA which recognises and adopts it.

End release: For further information : Tel: (06) 277 47501

11 November 1992