Bills Digest no. 189 2009–10
Competition and Consumer Legislation Amendment Bill
2010
WARNING:
This Digest was prepared for debate. It reflects the legislation as
introduced and does not canvass subsequent amendments. This Digest
does not have any official legal status. Other sources should be
consulted to determine the subsequent official status of the
Bill.
CONTENTS
Passage history
Purpose
Mergers and acquisitions
Unconscionable conduct
Concluding comments
Contact officer & copyright details
Passage history
Competition and Consumer Legislation
Amendment Bill 2010
Date
introduced: 27 May 2010
House: House of Representatives
Portfolio: Treasury
Commencement: Section 1 to 3 commence on
Royal Assent. Schedule 1, dealing with mergers and acquisitions,
commences no later than 2 months after Royal Assent, or earlier by
Proclamation. Schedule 2, dealing with unconscionable conduct,
commences immediately after commencement of Schedules 1 to 5 of the
Trade Practices Amendment (Australian Consumer Law) Act (No. 2)
2010.[1]
Links: The
links to the Bill, its Explanatory Memorandum and second
reading speech can be found on the Bills page, which is at http://www.aph.gov.au/bills/.
When Bills have been passed they can be found at ComLaw, which is
at http://www.comlaw.gov.au/.
The Bill is intended to commence after the enactment of the
Trade Practices Amendment (Australian Consumer Law) Bill (No. 2)
2010 which will, amongst other things, change the name of the
Trade Practices Act 1974 (TPA) to the Competition and
Consumer Act 2010 and move the existing provisions of Part IVA
of the TPA into the Australian Consumer Law. This Bill
proposes to:
- amend the TPA to clarify the operation of the mergers and
acquisitions provisions, and
- include a statement of interpretative principles in the
unconscionable conduct provisions in the Australian Consumer
Law[2] and the
Australian Securities and Investment Commission Act
2001 (ASIC Act) and unify the consumer and business related
provisions prohibiting unconscionable conduct in these Acts.
Whilst the two schedules to the Bill both amend the TPA, the
areas that they cover are disparate. That being the case,
this Digest will deal with each of the measures separately.
The Bill was referred to the Senate Economics Committee (the
Senate Committee) for inquiry and report by 15 June
2010.[3] The Senate
Committee, in its report, recommended that the Bill be
passed.[4] A
minority report by Senator Xenophon concluded that while broadly
supporting the legislation and its clarification of creeping
acquisitions and unconscionable conduct, the Senator does not
believe it addresses the issues effectively and that more needs to
be done to truly ensure fair competition in the market.[5]
This Digest draws on submissions to the Senate Committee
inquiry, and the contents of the Senate Committee report.
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The Explanatory Memorandum states that the Bill has no
significant financial impact on Commonwealth expenditure or
revenue.[6]
Section 50 of the TPA prohibits acquisitions of shares or
assets, other than in the ordinary course of business, where that
acquisition is likely to have the effect of substantially lessening
competition in a market.
Mergers fall into three generally recognised categories:
- a horizontal merger of firms operating at the same functional
level. The competitive concern with a horizontal merger is
that it necessarily result in their being one less actual or
potential competitor in a market because products that previously
competed against each other are brought under the same ownership
and control.[8]
- a vertical merger of firms which operate at different
functional levels. The competitive concern with a vertical
merger is the linking of previously separate functions under the
same ownership and control thereby restricting access to essential
raw materials or key bottleneck facilities.[9]
- a conglomerate merger between firms which are active in
different but related areas such as suppliers of complementary
products or services. Conglomerate mergers may lessen
competition if the merged entity has a degree of market power in
relation to one product which it can exploit by tying or bundling
another complementary product.[10]
Although there is no legislative requirement for merging parties
to notify proposed mergers, the Australian Competition and Consumer
Commissioner (ACCC) has the power to challenge or block a merger
which contravenes section 50 of the TPA. As a result, a practice
has evolved whereby merging parties voluntarily notify the ACCC
about, and seek ‘clearance’ of, proposed mergers. The
ACCC has developed Merger Guidelines which outline the
analytical and evaluative framework applied by the ACCC when
reviewing mergers.[11] The Chairman of the ACCC recently told a Senate
Estimates Committee hearing that this merger clearance regime is
‘working very well’, citing statistics for the
financial year up to 1 June 2010 of 274 merger assessments—
256 that were not opposed, four that were cleared with
undertakings, and 14 that were opposed or had concerns that were
expressed confidentially.[12]
‘Creeping acquisitions’ are generally defined to be
a series of small-scale acquisitions by a corporation that
individually may not substantially lessen competition in a market
in breach of section 50 of the TPA, but collectively may have that
effect over time. There are currently no provisions in the TPA that
prevent or limit creeping acquisitions. Concerns about creeping
acquisitions have been raised primarily in relation to the
independent supermarket sector and the liquor sector.[14]
The ‘creeping acquisitions’ issue has been the
subject of numerous inquiries and reports. It has previously been
considered by the Parliamentary Joint Select Committee on the
Retailing Sector in its 1999 Fair Market or Market Failure
report; as part of the Dawson Committee review of the competition
provisions of the TPA in 2002 (Dawson Committee Review)[15]; and later by the
Senate Economic Reference Committee in 2004 during its inquiry into
the effectiveness of the TPA in protecting small business (the
Small Business Review).[16]
The ACCC has also considered the issue, first in 2004, in its
report titled Shopper Docket Petrol Discounts and Acquisitions
in the Petrol and Grocery Sectors (Shopper Docket
Report)[17]; and
again in 2008 in the Grocery Price Inquiry.[18]
More recently ‘creeping acquisitions’ were
considered by the Senate Standing Committee on Economics in its
inquiry into the Senator Steve Fielding’s Private
Member’s Bill (the Trade Practices Act (Creeping
Acquisitions) Amendment Bill 2007[19]; and then again in 2010 in an inquiry into
Senator Nick Xenophon’s Private Member’s Bill (Trade
Practices Amendment (Material Lessening of
Competition—Richmond Amendment Bill 2009).[20]
The conclusions of these reviews have varied about the extent of
the problem presented by creeping acquisitions.[21] For example, the Dawson
Committee Review found there was no basis for the introduction of a
‘creeping acquisitions’ law.[22] In contrast, the Small Business
Review argued that as a matter of logic, creeping acquisitions
must, if continued indefinitely, at some point result in a very
concentrated market. Current merger law does not effectively
address this issue and section 50 of the TPA should be strengthened
to take account of the cumulative effects of acquisitions which
over time may substantially lessen competition.[23]
In the Grocery Price Inquiry, the ACCC reviewed and rejected
claims that serial acquisitions by the major supermarkets had
undermined competition. Notwithstanding that, the ACCC did
recommend the adoption of a creeping acquisitions prohibition of
general application to address concerns raised in relation to the
competitive impact of individual supermarket acquisitions by the
major supermarket chains.[24]
In its response to the ACCC’s findings in this Inquiry,
the Rudd Government stated that it would take steps to implement a
‘creeping acquisitions’ law ‘as a matter of
urgency’.[25]
As part of its response to the Grocery Price Inquiry, the
Federal Government published two separate public consultation
documents (the discussion papers) seeking comments on proposed
options for changes to section 50 of the TPA to account for
creeping acquisitions.[26] Various models to regulate creeping acquisitions were
proposed in the discussion papers. In summary, these models were as
follows.
Aggregation model: this would prohibit an
acquisition by a corporation which, when combined with previous
acquisitions made by the corporation within a ‘specified
period’ would be likely to substantially lessen completion in
a market.[27] This
model closely resembles the legislative changes proposed in the
Senator Fielding Private Member’s Bill mentioned above.
The ACCC opposed this model on the basis that determining the
impact of current and previous acquisitions would be very
complicated and likely to raise substantial evidential
challenges.[28]
Substantial market power model: this would
prohibit a corporation from making an acquisition if it already has
a substantial degree of power in a market and that acquisition
would result in ‘any lessening’ of competition in that
market.[29] This
model was opposed in a number of submissions on the basis that it
runs contrary to an established principle of competition law,
namely, that the merger regime should only be used to block
acquisitions which adversely affect consumer welfare by
significantly lessening competition. The ACCC, on the
other hand, supported this model. This model resembles the changes
proposed in Senator Nick Xenophon’s Private Member’s
Bill mentioned above.
Amended substantial market power
model: this was proposed in the second discussion
paper.[30] It would
prevent a corporation that already has a substantial degree of
power in a market from making any acquisition that would have, or
be likely to have, the effect of enhancing that power. This would
change the competition test to be applied and remove any reference
to a ‘lessening of competition’. This model was heavily
criticised by business groups and the legal profession.
Declaration of corporations and/or product/service
sectors: this option would apply the ‘creeping
acquisitions’ law only to corporations and/or product/service
sectors which have been ‘declared’ by the
Minister.[31] The
amended substantial market power model would be applied to
transactions involving ‘declared’ corporations or
product/service sectors. The ACCC strongly opposed the declaration
model.
Stakeholders opposing the models proposed in the discussion
papers included the Business Council of Australia, the National
Retailers Association, the Law Council of Australia and the major
grocery retailers (Woolworths and Coles). Amongst other things they
argued that the Government and the ACCC have failed to establish
any factual or policy case for the introduction of a
‘creeping acquisition’ law.[32] Those supporting the models of a
creeping acquisition law were other business and industry groups,
including suppliers to, and representatives of, the small business
sector (particularly the independent grocery sector). The principal
concern expressed by these parties is the increasing concentration
of certain industries and the resultant market power thought to be
enjoyed by large firms.[33]
It is of significance that the amendments proposed by the Bill,
do not take up any of the Treasury models—the
Government’s stated rationale for abandoning them being that
there was no clear consensus of support for any of the models and
the costs of implementation would outweigh any benefits.[34] The Bill instead
proposes to amend section 50 in the following ways:
- the stipulation in subsection 50(6) that merger regulation will
only apply in ‘substantial’ markets will be removed;
and
- the prohibition on mergers that substantially lessen
competition in ‘a market’ is replaced with a
prohibition on substantially lessening competition in
‘any market’.
The Explanatory Memorandum states that the intention of the
changes is to remove any uncertainty as to the ability of the ACCC
to consider local markets when considering acquisitions. Although
the current ACCC Merger Guidelines make it clear that the ACCC
believes a local market can be a ‘substantial’ market,
the Explanatory Memorandum points to the comments made by French J
in Australian Gas Light Company v ACCC (No 3)
(2003) 13 FCA 317 which may cast doubt on this.[35]
With regard to the change of wording from ‘a market’
to ‘any market’ this is intended to clarify the ability
of the ACCC or a court to consider multiple markets when assessing
mergers. The Minister’s second reading speech states:
The amendment will clarify that businesses
cannot challenge a decision to block a proposed acquisition on the
grounds that the substantial lessening of competition identified
was in one or more markets other than the primary market in which
the acquisition would occur.
The ACCC and the courts will be able to
consider the totality of the competitive effects resulting from an
acquisition, including impacts in upstream and downstream markets,
not just impacts in ‘a market’.[36]
Many of the submissions to the Senate Committee inquiry noted
the short time-frame for comments on the Bill (2 June to 4 June
2010) raising concerns about the ability to provide a meaningful
written submission and to consult with their various members within
that time.
The Business Council of Australia (BCA)
considers that the Government’s final amendments, though
unnecessary, are preferable to the options that have been proposed
in previous discussion papers, particularly because the
‘substantial lessening of competition’ test is
retained.[37] The
submission further qualifies its support stating:
However, the BCA has concerns that the proposed
amendments may have unintended consequences. For example, they may
have the effect of causing unnecessary examination of less than
economically meaningful markets that are not substantial, creating
unnecessary burdens and costs for business and therefore dampening
economic activity and investment. With this in mind, the BCA
considers that the Bill should provide for review of the effect of
the proposals after two years.[38]
[…]
The BCA therefore supports an approach which
maintains the ‘substantial lessening of competition’
test and responds only to “specific problems with
specific remedies, rather than responding with general remedies
that could have unintended consequences for overall economic
activity and employment”.[39]
The Law Council of Australia puts a
‘strong submission’ that there is no need for any
further amendment to the TPA to address creeping acquisitions and
that the current ‘substantial lessening of competition in a
market’ test in section 50 is a highly flexible one which
already gives the ACCC (and the courts) the ability to take into
account a wide range of factors that are relevant to the likely
effect of a particular acquisition on competition in a
market.[40] It
argues that this view is reinforced by recent ACCC decisions and
investigations which indicate that the ACCC is willing to apply the
relevant provisions of the TPA to acquisitions of small assets and
undeveloped retail sites, further indicating that concerns in
relation to ‘creeping acquisitions’ are not reflected
in the ACCC’s current practices.
The submission concludes:
However, the proposed amendments to section 50
of the TPA are less objectionable than the previous options already
considered by Treasury. Nevertheless, the [Law Council] Committee
is concerned that the practical outcome of the proposed amendments
may be to provide the ACCC with an enhanced ability to examine the
impact of acquisitions on very small, local and micro-markets which
may not be economically distinct markets. This in turn is likely to
increase regulatory uncertainty and has the potential to increase
costs, to the detriment of Australian business and consumers. It
will be important […] that the ACCC administers the amended
section 50 of the TPA in an appropriate and reasonable
manner.[41]
The National Association of Retail Grocers of Australia
(NARGA)[42] supports the proposed ‘creeping
acquisition’ amendments, but believes more needs to be done
to improve competition in Australia’s highly concentrated
markets. Their submission makes further recommendations including
that an entity’s local or regional market share could be
measured in terms of the share of retail space applicable to the
sector in question. NARGA also support a system of compulsory
notification of acquisitions by large entities in concentrated
markets. Such a notification requirement should apply to
acquisitions of sites, leases and stores. NARGA believes that
‘[w]ithout mandatory notification, the proposed amendments
would be difficult to implement.[43]
Master Grocers Australia (MGA)[44] states that it is appropriate
for the issue of creeping acquisitions to be addressed by the
Federal Government and ‘welcomes the move towards addressing
this serious anti competitive hindrance in the supermarket and
packaged liquor market place’. However the submission
qualifies this support noting the amendments are a first step and
that there are further barriers that need to be addressed in the
retail supermarket and packaged liquor sectors to achieve a healthy
competitive market. Their submission supports the views expressed
by NARGA.[45]
The Motor Trades Association of Australia
(MTAA) submission states that in general terms MTAA does not oppose
the Bill and believes its passage should be supported. However MTAA
also believes that the measures outlined in the Bill are unlikely
to have a significant effect on behaviour in the market.[46]
In respect of the amendments to the merger provisions MTAA
acknowledges that they may help to clarify the operation of section
50 but that ‘it is not clear that it will substantially
address MTAA’s concerns about creeping
acquisitions’.[47]
Section 50 in Part IV of the TPA prohibits mergers or
acquisitions that would, or would be likely to substantially lessen
competition in a market— market being defined as limited to
substantial markets in Australia, or a State, or Territory, or
region of Australia (subsection 50(6)).
Item 1 of Schedule 1 of the Bill amends
subsection 50(1) and (2) replacing the words ‘a market’
with ‘any market’. Item 2 amends the
definition of ‘market’ in subsection 50(6) to remove
the word ‘substantial’ and thus remove the requirement
that the market affected by a merger must be
‘substantial’.
The effect of these amendments is that new section
50 would prohibit mergers or acquisitions that would, or
would be likely to, substantially lessen competition in
any market—market being defined as markets
(not just substantial markets) in Australia, or a State, or
Territory, or region of Australia (new subsection
50(6)).
The amendments to section 50 apply to acquisitions occurring
after the commencement of these provisions (item
3).
Items 4 and 5 of Schedule 1 of
the Bill make corresponding amendments to the Schedule version of
section 50 in the TPA. These amendments are identical to the
amendments in items 1 and 2
except that they apply to natural persons rather than to
corporations.[48]
This is so that the Schedule version of Part IV in the Competition
Code is in the same terms as Part IV of the TPA.
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The doctrine of unconscionable conduct developed over several
hundred years in the courts of equity. It is a mechanism whereby
equity may intervene to undo a state of affairs which it would
offend against conscience to permit to continue, irrespective of
the legality of the situation at common law. Traditionally, relief
on the basis of unconscionable conduct is available where one party
to a transaction is at a special disadvantage in dealing with the
other party and the other party unconscientiously takes advantage
of the opportunity thus placed in his hand.[50]
Unconscionable conduct in trade or commerce is also prohibited
by statute, both at the Commonwealth level and in the States and
Territories. At the Commonwealth level, unconscionable conduct is
governed by the provisions of Part IVA of the TPA[51] and, in near identical terms, by
Part 2, Division 2, Subdivision C of the ASIC Act. The
relevant provisions of the ASIC Act relate to the supply of
financial services.
Part IVA of the TPA contains three substantive provisions
prohibiting unconscionable conduct. Briefly, the three provisions
operate as follows:
- Section 51AA prohibits conduct that is
unconscionable within the meaning of the unwritten law of the
States and Territories. This section was introduced in
1992.
- Section 51AB prohibits engaging in conduct, in
connection with the supply of goods or services to a person, that
is, in all the circumstances, unconscionable. This section
was originally introduced, as section 52A, in 1986.
- Section 51AC prohibits conduct that is, in all
the circumstances, unconscionable, in connection with the supply or
acquisition of goods or services, to or from a corporation.
This section was introduced in 1998.
The TPA does not define unconscionable conduct.[52] Rather, it requires the courts
to apply the doctrines associated with unconscionable conduct,
either as it exists in equity (section 51AA), or coloured by the
circumstances described by the statute. Sections 51AB and 51AC
contain a list of factors which the courts may consider in making a
determination of unconscionable conduct.
For section 51AB the factors include: the relative
strengths of the parties’ bargaining positions; whether the
consumer was required to comply with conditions that were not
reasonably necessary for the protection of the legitimate interests
of the other party; whether the consumer was able to understand any
documents relating to the supply of the goods or services; whether
any undue influence or pressure was exerted on, or any unfair
tactics were used against, the consumer, and the amount for which,
and the circumstances under which, the consumer could have acquired
identical or equivalent goods or services elsewhere.
For section 51AC the factors include those matters listed
above (though framed in terms of conduct towards ‘business
consumers’ and ‘small business suppliers’ rather
than towards ‘consumers’), and additionally: the extent
to which the conduct of one party towards another was consistent
with the first party’s conduct in similar transactions; the
requirements of any applicable prescribed industry code; the
requirements of any other industry code, if the one party acted on
the reasonable belief that another would comply with that code; the
extent to which the stronger party unreasonably failed to disclose
any intended conduct that might affect the weaker party’s
interests, or any risks to the weaker party arising out of any
intended conduct; the extent to which the stronger party was
willing to negotiate the terms and conditions of any contract with
the weaker party; whether the stronger party has a contractual
right to vary unilaterally a term of a contract with the weaker
party, and the extent to which the parties acted in good
faith.[53]
The Trade Practices Amendment (Australian Consumer Law) Bill
(No. 2) 2010, currently before the Parliament, proposes, amongst
other things, to transfer, the TPA Part IVA unconscionable conduct
provisions to the Australian Consumer Law so that:
- section 51AA of the TPA would become section 20 of the
Australian Consumer Law;
- section 51AB, with some amendments, would become section 21;
and
- section 51AC, with some amendments, would become section
22.[54]
It is these new unconscionable conduct provisions (sections 21
and 22) of the Australian Consumer Law that this Bill would repeal
and replace.
The Federal Government has been under pressure for some time to
strengthen the prohibitions on unconscionable conduct in the
TPA. Discontent in the franchising sector has been the
primary catalyst for change and that discontent was aired in a
number of enquiries and subsequent reports. [55] In particular the Senate Standing
Committee on Economics published a report on its inquiry into the
statutory definition of ‘unconscionable conduct’ in
December 2008.[56] The Committee did not recommend the introduction
of a statutory definition, but made three recommendations directed
at improving the clarity of the unconscionable conduct provisions
in the TPA. In particular it recommended:
- an amendment to section 51AC of the TPA which states that the
prohibited conduct in the supply and acquisition of goods or
services relates to the terms or progress of a contract
- there be further inquiry to consider the option of producing a
list of examples and/or statement of principles for insertion into
the TPA, and
- the ACCC pursue targeted investigation and funding of test
cases.[57]
Also in December 2008, the Parliamentary Joint Committee on
Corporations and Financial Services (Joint Committee) tabled its
report Opportunity not opportunism: improving conduct in
Australian franchising. The Joint Committee made 11
recommendations including that the TPA be amended to provide for
pecuniary penalties in relation to breaches of the unconscionable
conduct provisions.[58]
Additionally, both Western Australia and South Australia have
also held their own inquiries considering allegations of
unconscionability in the franchising sector.[59]
In November 2009, the Federal Government responded to both the
Senate Economics Committee inquiry and the Joint Committee inquiry
by commissioning an expert panel to consider a range of suggested
changes to the Franchising Code of Conduct and the unconscionable
conduct provisions of the TPA. An issues paper was circulated as
part of this process. [60]
The expert panel reported in February 2010 and recommended
against the proposal of inserting a list of statutory examples of
unconscionable conduct into the TPA to guide courts, concluding
that this would not achieve certainty and may create false
expectations. The panel considered, however, that a list of
interpretative principles may assist the courts in applying the
unconscionable conduct prohibition.[61] These recommendations were
subsequently endorsed by the Government in March 2010.[62]
Schedule 2 of the Bill implements these recommendations of the
expert panel. It proposes to amend the unconscionable conduct
provisions of the Australian Consumer Law to:
- include a statement of interpretative principles to provide
that:
- the statutory prohibition against unconscionable conduct is not
limited by the equitable or common law doctrines of unconscionable
conduct
- in considering whether conduct to which a contract relates is
unconscionable, a court should not limit its consideration to the
formation of the contract alone, but may also consider the terms of
the contract and the manner in which the contract is carried out,
and
- the statutory prohibition against unconscionable conduct can
apply to a system or pattern of conduct or behaviour over time,
whether or not a particular individual is identified as having been
disadvantaged by the conduct or behaviour.
The Bill also takes up a further recommendation of the expert
panel by consolidating sections 21 and 22 in order to remove the
distinction between business and consumer transactions with respect
to unconscionable conduct. As a result, the factors to which a
court may have regard when considering whether conduct is
unconscionable in the circumstances will be the same for both
business and consumer transactions (adopting the longer list of
factors which presently apply to business transactions).[63] The rationale for this
merging of these two provisions is to eliminate the risk that the
courts could ascribe different meanings to concepts contained in
both sections.[64]
The Bill will also amend the unconscionable conduct provisions
in the ASIC Act in the same way.
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As already stated, many of the submissions to the Senate inquiry
noted the short time-frame for comments on the Bill (2 June to 4
June 2010) raising concerns about the ability to provide a
meaningful written submission and to consult with their various
members within that time.
The Law Council of Australia considers that the
proposed changes are appropriate to ‘assist the Courts in
applying the prohibition of unconscionable conduct, as well as
improve stakeholder understanding of the meaning and scope of the
provisions’.[65] The submission notes in particular that it is:
[…] appropriate to provide further
safeguards for consumers by encouraging corporations to be aware of
the totality of their actions and contracts with consumers.
[…] as a matter of principle, the courts
should be free to make their own findings in relation to each
individual case brought before them, and should not have their
discretion fettered unreasonably by legislation. Accordingly, the
Committee prefers the approach adopted in the Bill of including a
list of interpretive principles rather than the use of examples
which could have had the effect of being interpreted as limiting
the application of the unconscionable conduct provisions.[66]
The Shopping Centre Council of Australia
accepts the proposed changes to the unconscionable conduct
provisions but with some reservations. The reservation is that the
change may encourage unintended judicial activism, leading to
‘findings that statutory unconscionable conduct exists in
commercial settings commonly accepted as unobjectionable. Such a
development would be regrettable and would take the law beyond what
was envisaged when the present section 51AC was introduced in 1998
and thus add to, rather than reduce commercial uncertainty.[67]
The Motor Trades Association of Australia
(MTAA) has no objection to the unconscionable conduct amendments,
but does not believe that they will address many of its concerns
about the operation of the unconscionable conduct provisions.
For small business operators one of the
major difficulties is that ‘unconscionable’ conduct is
a difficult concept to prove. The factors to be listed in the new
section 22 of the Competition and Consumer Act are not of
themselves determinative of a breach of the unconscionable conduct
provision and the courts have found that there must be something
more than ‘hard bargaining’ on the part of the stronger
party to sustain a case of unconscionable conduct. Many businesses
that operate under contractual arrangements (such as franchise
agreements) are in a ‘captive’ situation and MTAA does
not believe that the current law deals effectively with
inappropriate behaviour by larger business in such
circumstances.
MTAA believes, as it has previously proposed to
the Committee, that business-to-business contracts should in fact
be covered by unfair contracts legislation.
The Association acknowledges that the
amendments are proposed to expressly clarify that the
unconscionable conduct provisions apply not only to conduct during
the negotiation of an agreement but also to conduct during the
course of the agreement. While this is a welcome amendment to the
Act, the comments above in relation to the hurdle of proving
‘unconscionability’ remain, in the Association’s
view, relevant.[68]
Item 4 of Schedule 2 to the Bill repeals and
replaces the unconscionable conduct provisions (sections 21 and
22)[69] as they
will appear in the Competition and Consumer Act
2010.[70]
Proposed section 21(1) prohibits a person from
engaging in unconscionable conduct towards another person in
connection with:
- the supply or possible supply of goods or services to a person
(other than a listed public company)
- the acquisition or possible acquisition of goods or services
from a person (other than a listed public company).[71]
Proposed subsections 21(2) and
(3) provide further explanation of the extent of
the prohibition on unconscionable conduct, namely:
- it is not possible to assert that the action of instituting
legal proceedings or instituting formal dispute resolution
processes amounts to unconscionable conduct (paragraphs
21(2)(a) and 21(2)(b))
- when determining whether a person has engaged in conduct that
is unconscionable, the court:
- must not have regard to any circumstances that were
not reasonably foreseeable at the time of the alleged contravention
(proposed paragraph 21(3)(a)), but
- may have regard to conduct engaged in, or
circumstances existing, before the commencement of the section
(paragraph 21(3)(b)).
Proposed subsection 21(4) is the major change.
It sets out a list of interpretative principles to be followed in
relation to section 21 stating that it is the intention of the
Parliament that:
- the prohibition against unconscionable conduct in this section
is not limited by the unwritten law relating to unconscionable
conduct (in other words, while common law and equitable doctrines
on unconscionable conduct may be instructive, courts are free to
develop the statutory prohibition independently from these
doctrines, as the need arises)
- the prohibition against unconscionable conduct in this section
is capable of applying to a system of conduct or pattern of
behaviour, whether or not a particular individual is identified as
having been disadvantaged by the conduct or behaviour, and
- in considering whether conduct to which a contract relates is
unconscionable, a court’s consideration of the contract may
include consideration of:
- the terms of the contract
- the manner in which and the extent to which the contract is
carried out, and
- is not limited to consideration of the circumstances relating
to formation of the contract.
The Explanatory Memorandum states that these principles has been
drawn from existing case law and clarify, rather than alter, the
effect of the statutory prohibition of unconscionable conduct.
Proposed section 22 lists the matters the court
may have regard to for the purpose of determining whether a person
has contravened the unconscionable conduct provisions. The list is
not new but rather is drawn from the current statutory prohibitions
of unconscionable conduct toward businesses which have been
discussed above.
Item 1 of Schedule 2 to the Bill makes
amendments to the ASIC Act that essentially mirror the amendments
in item 4 just described. Since
1988, the TPA unconscionable conduct provisions have been mirrored
in Part 2, Division 2, Subdivision C of the ASIC which apply in
respect of financial services. The effect of item
1 is that new sections 12CB and
12CC of the ASIC Act will continue to mirror the
unconscionable conduct provisions as set out in the Australian
Consumer Law.
Given the history of reviews and the Rudd Government’s
commitment to implement a ‘creeping acquisitions’ law
‘as a matter of urgency’, it might seem that the
amendments to the merger provisions proposed by the Bill are an
anti-climax. Descriptions of the amendments as ‘window
dressing’[72]
or ‘pragmatic’[73] would also appear to be apt. These minor amendments
largely reflect the ACCC’s current interpretation of the
existing law and are unlikely to have any substantial effect on
merger analysis in the future.
Similarly with the unconscionable conduct provisions. The
Federal Government has been under pressure for some time to
strengthen the prohibitions on unconscionable conduct in the TPA
and the Bill purports to finally address these calls. The changes
are, in fact, relatively minor. Their real effect seems likely to
be minimal and they are not expected to have a substantial impact
in practice. However there are other reforms happening at this time
including the recent amendments to the Franchising Code of Conduct
announced on 4 June 2010[74] and the new enforcement powers and civil
pecuniary penalties in relation to unconscionable conduct. It may
be that the combined effect of these changes could alleviate some
of the concerns of small business and the franchising industry.
Members, Senators and Parliamentary staff can obtain further
information from the Parliamentary Library on (02) 6277 2438.
Mary Anne Neilsen
22 June 2010
Bills Digest Service
Parliamentary Library
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