Competition and Consumer Amendment (Misuse of Market Power) Bill 2016: Senate Committee Reports

Thursday 23 February 2017 @ 12.45 p.m. | Corporate & Regulatory | Trade & Commerce

The Senate Standing Committee on Economics (the SSCE) has delivered its report on the Competition and Consumer Amendment (Misuse of Market Power) Bill 2016 (Cth) (the Bill) on 16 Feb 2017. The Bill was introduced into the House of Representatives on 1 December 2016 and currently stands at the second reading stage. The Bill seeks to implement the reforms to the Competition and Consumer Act 2010 (Cth) (CCA) recommended by the Harper Review of competition policy which we have reported on previously see Related Articles, below . 

Overview of the Bill

In general terms, the Bill proposes to amend the CCA to make stronger the prohibition preventing corporations with substantial market powers from engaging in conduct that has the ". .    . purpose, effect or likely effect of substantially lessening competition in markets in which they directly or indirectly   participate"; to remove provisions in relation to telecommunications-specific anti-competitive conduct and the competition notices and exemption order regime; and make consequential amendments.

More specifically, the Bill has two schedules. The first schedule to the Bill amends section 46 of the CCA to strengthen the prohibition of the misuse of market power by corporations and better target anti-competitive conduct by corporations with a substantial degree of market power. This is achieved in the first schedule by amending section 46 to prohibit a corporation with a substantial degree of market power engaging in conduct with the purpose, effect or likely effect of substantially lessening competition. Further, for conduct to be considered a misuse of market power, it must occur in a market where there is an actual or likely supply or acquisition of goods or services by the corporation or another prescribed entity.

The first schedule further amends section 46 of the CCA to provide guidance in the form of a list of factors that must be taken into account (aka mandatory factors) when assessing whether conduct has the purpose, effect or likely effect of substantially lessening competition; and simplifies the provision by removing the specific prohibition against predatory pricing.

The concept of the ". . . purpose, effect or likely effect of substantially lessening competition", known as an "effects test", now proposed to be added, is new to section 46, but is said to be consistent with existing legal concepts within the CCA.

The second schedule to the Bill proposes consequential amendments repealing the telecommunications-specific anti-competitive conduct provisions in Division 2 of Part XIB of the CCA, and the competition notices and exemption order regime in Division 3 of Part XIB of the CCA. These provisions being seen as no longer necessary or appropriate given the amendments proposed to  section 46 of the CCA by the first schedule of the Bill.

The SSCE's Inquiry

In its report the SSCE says that the inquiry was advertised on its website and that it contacted relevant stakeholder and interested parties by 9 January 2017, receiving as a result, 35 submissions from a broad range of interested parties. The SSCE did not hold any public hearings for the purposes of this inquiry.

The SSCE's Views on the Proposed Legislation

The SSCE agreed with arguments that section 46 was "unfit for purpose and deficient in its current form" and had created an effective safe harbour for anti-competitive conduct carried out by firms with substantial market power.

The SSCE considered the current section 46 had ". . . not provided adequate protection for non-dominant firms from the destructive actions of firms with substantial market power". It agreed with the removal of the "take advantage" and "prohibited purpose" elements from the current CCA legislation and the introduction of an "effects test" saying, such  ". . .  will provide a more equitable market in which all businesses can flourish". Also being careful to stress the amendments did not represent ". . . an argument for small versus big; rather they represent support for open and fair markets that allow all businesses to participate and compete on their merits".

The SSCE was not swayed by arguments that the proposed amendments to section 46 ". . . could potentially create a lack of certainty and risk chilling vigorous competitive conduct". It considered the arguments ". . .  possibly overstated" and  that existing jurisprudence would inform the application of the proposed amendments in an appropriate way.

The SSCE felt it appropriate that legislation designed to deter the misuse of market power was focused not only on the purpose of such conduct, but also on the outcomes of the conduct on competition - this was achieved by focusing on conduct that harms the competitive process, rather the individual competitors.

The ACCC's draft "Framework for misuse of market power guidelines" and proposals to incorporate same into the new section 46 were considered but rejected on the basis that the draft guidelines reflected the ACCC's approach to the interpretation of the proposed legislation, not that of the courts.

The SSCE acknowledged concerns, in relation to the proposed introduction of mandatory factors to be considered by the courts when determining whether conduct constituted a misuse of market power, and rejected the introduction of such factors as unnecessary, finding other reforms to section 46, in the Bill ". . .  are more than sufficient to address the deficiencies evident in the current legislation". The SSCE also considered that ". . . the removal of the mandatory factors will aid in reducing uncertainty among affected stakeholders".

The SSCE's Recommendations

As a result of the above views formed by the SSCE the following formal recommendation were made:

  •  Recommendation 1 - that the proposed mandatory factors, as drafted in subsection 46(2) of the Bill, be removed;
  • Recommendation 2 -  that the government undertake a post-implementation review of the reforms to section 46 at least five years after commencement; and
  • Recommendation 3 - that the Bill be passed.

Dissenting Views and Reports

Both the opposition senators on the SSCE and the independent senator Nick Xenophon delivered dissenting reports. The opposition recommended that ". . . the Senate should not pass the Bill, saying that while it welcomed strong competition policy such policy "must be informed and enforced" and  the ". . . government's package is neither". The opposition argued that the proposed changes to section 46 will ". . . deter job-creating investment in Australia by adding to the new layers of red tape and barriers to investment which have already been imposed by the Liberal-National Government". The opposition report was also critical of the proposed "effects test" on political rather than legal grounds and argued that the proposed repeal of the anti-competitive conduct provisions in Part XIB of the CCA will weaken important safeguards necessary for the proper functioning of the telecommunications market.

In his dissenting report, senator Nick Xenophon provided the following three recommendations:

  • A 'cost waiver order' should be introduced into market power abuse litigation cases to improve access to justice;
  • A divestiture order be made available as a judicial remedy for serious or repeat market power abuse offender cases; and
  • A defence should be introduced so that the primary prohibition would not apply if the conduct in question:
    • would be a rational business decision or strategy by a corporation that did not have a substantial degree of power in the market; and
    • the effect or likely effect of the conduct is to benefit the long-term interests of consumers.

The onus of proving that the defence applies should fall on the corporation engaging in the conduct.

Next Steps

The passage of the legislation will be interesting even with the SSCE report recommending the legislation be passed. There have been strong voices and business interests on both sides of the "market power" debate and it will be interesting to see how that plays out in the Federal Parliament during the Bill's remaining steps to being passed, as the Financial Review states:

"The big supermarket chains and the Business Council of Australia fought particularly hard against this legislative change. But they could not beat the lobbying power of the National Farmers' Federation, Master Grocers Australia and the Council of Small Business Australia."

It might be too early to think the opposing sides have completely accepted the Bill or that the opposition or independents like Senator Xenophon will not seek amendments in Parliament, and  of further interest once the Bill passes, will be how the ACCC works with the new law, or as the Financial Review reports:

"The problem for big business is that there is now tremendous uncertainty about how the Australian Competition and Consumer Commission will interpret the law when complaints are made."

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.

Sources:

Report: Competition and Consumer Amendment (Misuse of Market Power) Bill 2016 (SSCE 16/02/2017)

Competition and Consumer Amendment (Misuse of Market Power) Bill 2016 and supporting material as reported in the TimeBase LawOne Service

A big day in Canberra for business and unions (AFR 16/02/2017)

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