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STANDING COMMITTEE ON ECONOMICS
27/07/2007
Corporations (National Guarantee Fund Levies) Amendment Bill 2007 and related bills

CHAIR —I welcome back the Treasury officials. Are there any matters that you wish to put to the committee prior to taking questions?

Ms Holdaway —Yes, if I may, thank you. We have been listening very carefully to the other evidence provided to the committee and have given due consideration to the submissions put forward. In that context, I think it is important to remember some recent history to do with consideration of section 46. As you all know, the Dawson review concluded that the competition provisions, including section 46, have in effect been serving the Australian people very well, that they has been very effective and that they continue to be so. But, at the time, as we all know, there were certain High Court cases underway. Since the Dawson review recommendations we have seen the results of those High Court cases, and I think it is without doubt that those decisions created uncertainty around the operation of section 46, which has led to this committee looking into the effectiveness of that provision. As a result of that, a number of recommendations were made.

What is before you in the bill is a very careful consideration of all those recommendations, including the view of the decisions of the High Court, and we believe that the amendments go a long way to making sure that we have a very effective section 46, which is really at the heart of the competition policy framework, to ensure that the Trade Practices Act continues to be effective in promoting competition which ultimately will lead to enhancement in the welfare of the Australian people. I wanted to start with those comments to highlight that we are here to ensure the absolute effectiveness of section 46. Thank you for the opportunity.

CHAIR —Thank you. Mr Rogers, do you have anything further to add?

Mr Rogers —I have no comments.

Senator BERNARDI —Is it fair to say that section 46 is designed to ensure the health of the competitive process rather than to specifically target whether an individual competitor will survive in a given market?

Ms Holdaway —That is correct.

Senator BERNARDI —That is the intention of that part of the legislation?

Ms Holdaway —As stated in section 2 of the Trade Practices Act, the whole intention of the act is to enhance the welfare of Australians by promoting competition and, as you said, protecting the competitive process rather than a particular competitor in a market.

Senator BERNARDI —Ms Holdaway, we have heard substantial evidence today, and certainly it is in one of these submissions, that simply says that section 46 does not work at all and that, in fact, these changes proposed by the government will not cause it to work. How do you respond to that?

Ms Holdaway —I think we have also heard views that it is working just fine, which is also in some of the submissions. Really, section 46 is focused on ensuring that there is no misuse of market powers. There have been a number of court cases that looked at the operation of section 46. I think that, by and large, the structure of section 46 is still valid and that what was required was further clarification. I think the bill is providing that clarification; it is ensuring that it improves the effectiveness of section 46. It is difficult to accept the conclusion that section 46 does not work at all.

Senator BERNARDI —You mentioned the court cases that have arisen over this section of the act. How do you respond to the claims that we should be codifying the High Court’s decisions?

Mr Rogers —There have been a number of decisions on 46. What this committee’s report provided was the opportunity for the government and interested stakeholders to take a look at how it is operating and decide which of those pronouncements to incorporate into the law. The government’s response to the Senate committee’s recommendations adopts those recommendations that on the one hand balance the interests of all the competitors in the market and on the other hand take account of relevant concerns that were raised in the course of the inquiry.

Senator BERNARDI —You have to take account of all competitors in the market. We also have to be mindful of the impact on consumers, don’t we?

Ms Holdaway —Absolutely.

Senator BERNARDI —We have heard evidence that an increase in regulation in this area could in fact increase prices to consumers. Do you have any comment to make on those sorts of claims?

Ms Holdaway —I think they are valid comments and claims. Certainly it is a very fine balance that we have to strike here. What we are talking about is ensuring that no anticompetitive behaviours take place. There may be quite legitimate behaviours out there of which ultimately the benefits go to the consumers. What we certainly do not want to do is create an environment where we have a chilling effect on what is very robust and healthy competition. We accept the validity of that claim and we have taken that into account in coming up with the clarifications and enhancements through this bill.

Senator BERNARDI —So you believe this bill will balance the protection of business and align the interests of consumers to the long-term benefit of our economy?

Mr Rogers —That is certainly the government’s view.

Senator BERNARDI —I have nothing further to ask immediately, but I may have in a moment.

Senator STEPHENS —This morning I started to ask you some questions and then we got distracted. I appreciate the fact that you had the opportunity to listen to several witnesses who are pretty underwhelmed by this piece of legislation and do not really believe that it is actually going to deliver any more benefits. They argued that the Trade Practices Act as it stands is robust and that these amendments could in fact have the effect of muddying the waters a little and creating confusion about some definitional issues. You have not actually responded to those concerns, and I wonder if you have something to say.

Ms Holdaway —We can certainly pick up on some of those definitional issues that some of the previous witnesses highlighted. Obviously from our perspective these amendments do make a difference. They do help to clarify without limiting the factors that the courts can actually take into account when considering what constitutes a substantial level of market power. In that regard, we heard some of the witnesses talk about the definition of relevant cost and how perhaps that may lead to uncertainty and confusion. I think Senator Chapman highlighted this previously. It is with the proviso that the court may wish to take that into account.

 ‘Relevant cost’ was specifically chosen because the other options for how the cost could be described are unnecessarily limiting. We have heard of ‘variable cost’ as another option—and I think we have already heard a number of problems associated with that—as well as what was described as ‘avoidable cost’. I think it is fair to say that the way courts have used ‘avoidable cost’ may even be quite different from perhaps what was described in the Pharmacy Guild’s submission. So in choosing another definition there are a number of issues which really do not lead to any more certainty. But by using the term ‘relevant cost’, what we have done—and I think the chair has highlight this—is not to codify the court’s decision but to allow that flexibility while providing certain levels of certainty about what we mean by predatory pricing, which is that it is below relevant cost.

Senator STEPHENS —What about the definition of ‘taking advantage’?

Ms Holdaway —I think we have heard from many witnesses that that is a very difficult term to define. But having said that, it was the government’s view that there was not enough ambiguity about the term ‘taking advantage’. A lot of the confusion and uncertainties that were created by the court’s decision were around the definition of ‘substantial level of market power’, while there was a reasonable level of understanding of what ‘taking advantage’ entails.

Senator STEPHENS —You mentioned the robust nature of the Dawson inquiry and the fact that the report took a fairly minimalist view and did not recommend many legislative changes. But it did make one significant recommendation, and that was about the imposition of prison terms for individuals found to have been engaged in serious cartel conduct. The government accepted that recommendation in 2005, but we still have not seen anything. Why is it not in this bill?

Ms Holdaway —Certainly, as you said, the government has already made a public announcement that it accepts the recommendations of the Dawson review. The timing of the introduction is a matter for the government.

Senator STEPHENS —One of the submissions—and I have not noted down which one it was—mentioned the issue of unconscionable conduct and made the suggestion that unconscionable conduct be extended to cover unconscionable terms of contract rather than just procedural unconscionability in negotiating contracts. Do you have a view on that?

Mr Rogers —I think I understand what you are talking about. I think the view there was that it should be extended into almost an unfair contracts provisions type regime. That is a significant departure from the way that 51AC is drafted at the moment. There was certainly no suggestion in the recommendations of the committee that that be the way provisions be drafted. The unfair contracts terms regime is quite different. It is about prescribing how people enter into contracts and what contract terms are allowed. Section 51AC does not take that approach. As a result, the government’s bill does not pick up on that concept.

Senator STEPHENS —Do you have a comment about the suggestion in the Fair Trading Coalition’s submission that section 51AC be amended to prescribe conduct?

Mr Rogers —I do. Again, that is a significant departure from the way that 51AC is drafted. At the moment it is very much that the prohibition is against unconscionable conduct; it is not directed at particular types or examples of conduct. The factors listed in the section are things for the court to take into account. We are looking at the unconscionability of certain conduct so, again, it is quite a departure from the way that that provision is drafted. I think a lot of stakeholders would have a significant view on it.

Senator FIELDING —There is a lot of talk today about the issue of price, or the relevant price. There seems to be a bit of confusion about it. How should it be interpreted?

Ms Holdaway —Relevant price or cost?

Senator FIELDING —Cost.

Ms Holdaway —There is an explanation in the explanatory memoranda which basically allows for factually gathering that information, whether that be by the ACCC or, if the case goes before the court, by the court. The relevant cost may in actual fact include variable cost and in some cases may even include part of the fixed cost, so it is on an average total cost. So what the relevant cost to the organisation may constitute will really depend on a case-by-case basis.

Mr Rogers —Picking up from what Ms Holdaway said there, it is important to remember that section 46 does apply throughout Australia regardless of industry or market or type of company. While it may be possible to craft industry specific definitions for a lot of these concerns, when you are dealing with something like section 46 and in fact with the Trade Practices Act generally—which is an act of general application—by putting in specific definitions you run the risk of potentially allowing anticompetitive conduct that may not be captured by those definitions.

Senator FIELDING —So you are basically saying that the courts or the ACCC will be able to interpret that in the right way?

Mr Rogers —Yes.

Senator FIELDING —Some others may argue that that may be confusing and create chaos throughout Australia. But I hear what you are saying. Some of the submissions say that there were no problems with the Trade Practices Act and that it is working fine. Is that true?

Ms Holdaway —It is probably not fair for us to comment on that as such. But, as I said in my mini opening statement, it is true that there was a certain level of uncertainty created by the High Court decisions. The content of the bill is aimed at ensuring that the operation of section 46 is as effective as possible.

Senator FIELDING —I assume that that would be a balanced perspective that you would have, so I cannot see how we can take submissions that claim that there is no need for a change as credible or even balanced if that is the conclusion that they are drawing.

Mr Rogers —The government accepted that there was scope to clarify the operation of section 46 and that is what the government’s bill is directed at.

CHAIR —I am not going to go through some of the evidence that talked about whether section 46 is still operating as it should be, because in the main the view—apart from Professor Zumbo’s—is that that section is operating as it was intended as a matter of principle. I will turn to some of the practice issues. What has been put to us today by some witnesses is that the matters included in the government’s amendments are already matters that may be considered as material by the court. Is it indeed clear that the courts are giving appropriate consideration to the matters raised in the amendments? If not, is that the reason why these amendments have been brought in?

Mr Rogers —It is right to say that a lot of the things that are in the bill have found expression in court judgements. What the bill does is provide a degree of clarity in light of those judgements over a number of years in relation to a number of factors. Putting it on the face of the legislation provides a clear signal to the economy and to markets across Australia about how section 46 is to operate.

CHAIR —So in effect—and I will be careful how I put this—is this indicating that the courts must include these matters as matters that they may take into consideration; if that makes sense? Do you see where I am coming from? You are nodding, Ms Holdaway, so I think I will take your answer!

Ms Holdaway —I think it is probably fair to conclude—the way you have, Chair—that they must take into consideration these factors that they may take into consideration for the particular case that they are considering.

CHAIR —And that is not the situation at the moment? Is that indeed why this is a change to section 46 and its interpretation as it stands at the moment?

Ms Holdaway —Yes.

CHAIR —The secretary has quite rightly said that Hansard cannot pick up nods, but I deferred to you anyway and indicated that you were nodding, so I do not think Hansard has missed anything in the interpretation. But the point is well noted.

Mr Rogers —I think it is also worth noting perhaps that, because of the wording that is used in the bill, it does not limit the general prohibition that is in subsection (1). That still stands.

CHAIR —Yes. As there are no further questions, Ms Holdaway and Mr Rogers, thank you for arriving here at nine, staying and hearing that evidence and giving the committee some feedback. I appreciate it. Thank you very much.

Proceedings suspended from 2.37 pm to 2.45 pm