Federal Government Agrees to Implement Harper Review's 'effects test'

Recently (16 March 2016), it was reported that the Federal government had decided to adopt the most controversial recommendation from the Harper Review of Australia's Competition Laws (see our article Misuse of Market Power Headlines in Harper Competition Policy Review's Final Report). The decision has been described as "a surprise about-face" which sees the Federal government approving the use of the "effects test" to resolve questions of misuse of market power, a recommendation previously rejected by the Federal government.

Background - What is the Harper Review?

Initiated by the government, the Harper Review asked Professor Ian Harper and an expert panel to do an independent "root and branch" review of Australian Competition Policy. The need for the Harper Review was sold on the basis that it would be the ". . . [most] comprehensive review of Australia’s competition framework in more than 20 years" and would deliver a key election commitment of the government, which was to carry out such a review. The Harper Review produced various Draft Reports and Interim Documents with the review process closing in November 2014, and the Final Report being delivered on 31 March 2015.

Overall the report recommended changes to and the deregulation of retail trading hours, said to be based on the need for conventional retailers to be able to respond to growing online shopping which is now undermining the intent of the existing restrictions on retail trading hours and placing conventional retailers at a disadvantage. The final report also made recommendations to help small business and retail by seeking more flexibility in collective bargaining and faster access to remedies.

Some recommendations made by the Harper Review with respect to consumer contracts and what is to be considered unfair term have already been implemented and take effect from November 2016. Section 24 of the Australian Consumer Law (the ACL) has been amended and a consumer contract term will be deemed unfair if it would:

• cause a significant imbalance in the parties' rights and obligations under the contract;
• not be reasonably necessary to protect the legitimate interests of the party who would be advantaged by the term; and
• cause detriment (financial or otherwise) to a party if it were to be relied on.

However, out of all the recommendations of the Harper Review by far the most controversial was the use of the "effects test" to resolve questions of misuse of market power.

Background - What is the "effects test"?

At present, section 46 of the ACL deals with misuse of market power by restricting the conduct of corporations with a "substantial degree of market power". It applies to conduct which takes advantage of substantial market power for the purpose of:

• eliminating or substantially damaging a competitor;
• preventing a new player entering a market; or
• deterring or preventing a person from engaging in competitive conduct in a market.

Under the new law, now to be adopted by the government, the key change is that it will prohibit conduct which is ". . . for the purpose, or has the effect or likely effect, of lessening competition". The effect of the change is the increased ambit of the criteria and the potential to catch and prohibit more conduct. At the point the actual legislative changes are made and come into effect, businesses who find themselves in a substantial market position to which section 46 may apply will not only, as they do now, have to look to the purpose of competitive activity but also to the effect of such conduct and whether it lessens competition.

Reaction and Comment

Predictably, the reaction from big business lobby groups such as the Business Council of Australia has been to oppose the change with the SMH reporting that:

On the other hand, the chief executive of the Small Business Council of Australia is reported as saying that the Federal government ought to be congratulated for its decision:

The Federal opposition through Labor Shadow Treasurer Mr Chris Bowen warned that:

The Greens are reported to have applauded the decision seeing it as a win for small business and consumers. The Greens spokesperson for Competition Policy and Small Business, Mr Nick McKim being reported as saying:

In an interesting article in The Conversation, "Changes to competition laws may hurt consumers" Professor Stephen King, Department of Economics, Monash University, makes the clear the most important point of the debate around the "effects test" is the move away from "purpose" of conduct to a greater emphasis being placed on "whether competition is lessened by conduct" and the prospect of unintended consequences that may flow from this, consequences that may in fact hurt rather than aid consumers by sheltering or protecting poor quality and inefficient business:

TimeBase is an independent, privately owned Australian legal publisher specialising in the online delivery of accurate, comprehensive and innovative legislation research tools including LawOne and unique Point-in-Time Products.

Turnbull government sides with small business, agrees to implement controversial 'effects test' (SMH - 16 March 2016)

Changes to competition laws may hurt consumers (The Conversation - 17 March 2016)

Big win for small business on effects test (SMH - 16 March 2016)