Bills Digest No. 87, 2016–17
PDF version [818KB]
Paul Davidson
Economics Section
29 March 2017
Contents
The Bills Digest at a glance
History of the Bill
Purpose of the Bill
Structure of the Bill
Background
The Harper Review Draft Report
The Harper Review Final Report
Additional consultation
Committee consideration
Selection of Bills Committee
Senate Economics Committee
Majority report
Other views
Senate Standing Committee for the
Scrutiny of Bills
Financial implications
Statement of Compatibility with Human
Rights
Parliamentary Joint Committee on
Human Rights
Schedule 1—misuse of market power
Elements of the test
‘Take advantage’ compared with
‘conduct'
Conduct
How the conduct test could work
The scope of the ‘market’
Harper view
Amendments in the Bill
Substantial degree of power
Purpose, effect or likely effect
Harper view
Interpretation of an ‘effects test’
in other provisions of the CCA
‘Proscribed purposes’ and
‘substantially lessening competition’
Purpose
Substantially lessening competition
Mandatory considerations
Draft report proposed defence
Discussion of the mandatory factors
Consequences of removing the
mandatory factors
Other issues regarding section 46
Need for statutory review
Schedule 2—telecommunications
industry
Part 1—main amendments
Division 2 of Part XIB
Division 3 of Part XIB
Discussion on Part XIB
Part 2—consequential amendments
Appendix 1
Current section 46
Appendix 2
Proposed new section 46
Date introduced: 1
December 2016
House: House of
Representatives
Portfolio: Treasury
Commencement: Sections
1-3 on Royal Assent; Schedules 1 and 2 on the earlier of a day or days to be
fixed by proclamation or six months after Royal Assent.
Links: The links to the Bill,
its Explanatory Memorandum and second reading speech can be found on the
Bill’s home page, or through the Australian
Parliament website.
When Bills have been passed and have received Royal Assent,
they become Acts, which can be found at the Federal Register of Legislation
website.
All hyperlinks in this Bills Digest are correct as
at March 2017.
The Bills Digest at a glance
The Competition
and Consumer Amendment (Misuse of Market Power) Bill 2016 (the Bill)
introduces amendments to the Competition and
Consumer Act 2010 (CCA) following the Government’s acceptance of
certain recommendations of the Competition Policy Review (the Harper Review).
The Bill has two principal purposes:
-
to amend section 46 of the CCA, which relates to the
misuse of market power
-
to repeal Divisions 2 and 3 of Part XIB of the CCA, which
relate to telecommunications-specific anticompetitive conduct arrangements.
The amendments to section 46 of the CCA follow from
extensive consultation as part of the Harper Review, subsequent consultation by
the Treasury, and the circulation of an Exposure Draft Bill. When introduced,
the Bill was also subject to inquiry by the Senate Economics Committee. The
amendments to Divisions 2 and 3 of Part XIB of the CCA follow from
the recommendations of the Harper Review and separate consultation conducted by
the Department of Communications and the Arts.
In summary, the main amendments to section 46 are:
- removing the ‘take advantage’ and ‘proscribed purposes’ aspects
of the current law
-
removing explicit references to predatory pricing
- introducing a ‘conduct’ test and a ‘purpose, effect, or likely
effect’ test
-
introducing a ‘substantially lessening competition’ test
-
amending the scope of the markets that misuse of market power is
to be subject to
-
introducing a set of pro-competitive and anti-competitive
mandatory factors for courts to apply.
The cumulative effect of the amendments is to
significantly expand the scope of section 46 to target conduct by corporations
with substantial market power. However, concerns remained that proposed subsection
46(1) would capture procompetitive conduct. The Bill therefore introduces a
series of non‑exhaustive pro- and anti-competitive mandatory factors as proposed
subsection 46(2). In recognising the concerns of participants—including
the Australian Competition and Consumer Commission (ACCC)—about the mandatory
factors, the Senate Economics Committee recommended, among other things, that
the mandatory factors be removed. If this were to occur there would be a
significant risk that subsection 46(1) as proposed would capture
pro-competitive conduct. A suggested solution is therefore to explicitly
provide that section 46 is solely concerned with anti-competitive conduct
(rather than any form of conduct).
The proposed repeal of Divisions 2 and 3 of Part XIB—as a
result of the changes proposed to section 46—have generally received much less
attention than the amendments to section 46. When Part XIB was initially
introduced in 1996, it was designed to be a transitionary part of the then Trade
Practices Act 1974 (now the CCA). As part of consultations, some
participants argued that the proposed changes to section 46 should be mirrored
in the provision on anti-competitive conduct in Part XIB. Some argued that the
removal of Divisions 2 and 3 was justified given the more mature
telecommunications market. However, this was contested by other participants.
Several important consequences arise from the proposed
repeal:
- Part XIB applies in addition to section 46 so this additional
avenue to correct anti-competitive conduct in the telecommunications market
will disappear. This is particularly relevant given the strong pecuniary
penalties that the ACCC can impose on carriers and carriage service providers
under Part XIB.
- Part XIB provides an avenue to exempt conduct which would
otherwise be considered to be anti‑competitive conduct. Although the
Harper Review recommended such ‘authorisations’ be available in relation to
conduct under section 46, it has not been introduced as part of the Bill.
Therefore, authorising telecommunications conduct will not be available until
such time as authorisations legislation passes Parliament.
History of
the Bill
On 23 March 2017, the Government introduced proposed
amendments to the Bill in the House of Representatives.[1]
The proposed amendments, among other things would amend the commencement date
of the Bill, so that it will commence at the same time as Schedule 1 to the
proposed Competition and Consumer Amendment (Competition Policy Review) Act
2017 and will not commence at all if Schedule 1 to that Act does not
commence. A Bill for the Competition and Consumer Amendment (Competition
Policy Review) Act 2017 has not yet been introduced into Parliament. The
commencement date of the Bill (if passed) is therefore currently unclear.
Purpose of
the Bill
The purpose of the Competition
and Consumer Amendment (Misuse of Market Power) Bill 2016 (the Bill) is to
amend the Competition
and Consumer Act 2010 (CCA) to reflect the Government’s
acceptance of certain recommendations of the Competition Policy Review (the
Harper Review). Specifically, the Bill introduces changes to section 46 of the CCA
which relates to the misuse of market power, namely:
- removing
the ‘take advantage’ and ‘proscribed purposes’ aspects of the current law
-
removing explicit references to predatory pricing
- introducing
a ‘conduct’ test and a ‘purpose, effect, or likely effect’ test
- introducing
a ‘substantially lessening competition’ test
- amending
the scope of the markets that misuse of market power is to be subject to
- introducing
a set of pro-competitive and anti-competitive mandatory factors for courts to
apply.
The Bill also repeals Divisions 2 and 3 of Part XIB of the
CCA which deal with telecommunications-specific anti‑competitive
conduct, as a consequence of amending section 46.
Structure
of the Bill
The Bill comprises two schedules:
- Schedule
1 introduces changes to section 46 of the CCA
- Schedule 2 contains two Parts. Part 1 repeals
Divisions 2 and 3 of Part XIB of the Act, and Part 2 provides for
consequential amendments as a result of the changes brought about by Part 1.
Background
The CCA exists to enhance the welfare of Australians,
and it is predicated on competition being a means to achieving that end.[2]
Competition may be lessened (and therefore welfare may be harmed) where a
business has market power sufficient that it can, to some extent, control the
market price, quantity, or both, of a good or service. One indicia of market
power may be the size of the business, although it was noted in introducing the
Bill for the Trade Practices Act 1974 (which became the CCA) that:
The provision is not directed at size as such. It is confined
to the conduct by which a monopolist uses the market power he derives from his
size against the competitive position of competitors or would-be
competitors—for example, by inducing a supplier or customer who is dependent
upon him not to deal with a competitor, or by predatory prices. A monopolist is
not prevented from competing as well as he is able—for example, by taking
advantage of economies of scale, developing new products or otherwise making
full use of such skills as he has or protecting his patent rights in respect of
an invention. In doing these things he is not taking advantage of his market
power.[3]
The Bill has been introduced after extensive consultation
on the misuse of market power provision of the CCA as part of a review
of Australia’s competition laws, known as the Harper Review. In 2013, the
Government commissioned the Harper Review to review and report on Australia’s
competition policy.[4]
The terms of reference, among other things, required the Harper Review to
consider
... whether the misuse of market
power provisions effectively prohibit anti-competitive conduct and are
sufficient to: address the breadth of matters expected of them; capture all
behaviours of concern; and support the growth of efficient businesses
regardless of their size ...[5]
An Issues Paper was released on 14 April 2014,[6]
and the Draft Report was released on 22 September 2014.[7]
The Final Report was released on 31 March 2015.[8]
The Harper
Review Draft Report
The Harper Review Draft Report made a number of
observations about the misuse of market power provision, and provided a draft recommendation
such that ‘... section 46 can be focused more clearly on the long-term interests
of consumers and enhanced to restore its policy intent’.[9]
Specifically, the Harper Review considered—at the time of writing its Draft Report:
- ‘taking advantage of market power’ is difficult to interpret and
apply in practice
-
the focus of the prohibition on showing the purpose of damaging a
competitor is inconsistent with the overriding policy objective of the CCA,
which is to protect competition, not competitors
-
supplementary prohibitions that attempt to address concerns about
predatory pricing do not advance the policy intent of section 46
-
in general, all prohibitions should focus on protecting
competition and not individual competitors and
-
the prohibition against unilateral anti-competitive conduct
should be made subject to an exception for business strategies or decisions
that enhance competitiveness and create durable consumer benefit.[10]
The Draft Report therefore considered a reformulation of
section 46 based on the above observations and sought further submissions on
the scope of the defence against the prohibition of unilateral anti-competitive
conduct where it:
-
would be a rational business decision if it was made by a
corporation that did not have a substantial degree of power in the market and
- was likely to have the effect of advancing the long-term
interests of consumers.[11]
The Harper
Review Final Report
The Harper Review Final Report reiterated that the focus
of section 46 should be on the long-term interests of consumers and also
repeated concerns about the ‘take advantage’ test;[12]
the ‘purpose’ test;[13]
the provisions dealing with predatory pricing; and that prohibitions should
focus on protecting competition, not competitors.[14]
However, in response to post-draft submissions, the Final
Report of the Harper Review did not include the defence proposed in the Draft
Report and instead proposed mandatory legislative guidance to assist the courts
in the operation of the section:
Specifically, the legislation should direct the court, when
determining whether conduct has the purpose, effect or likely effect of
substantially lessening competition in a market, to have regard to the extent
to which the conduct:
- increases competition in a market, including by
enhancing efficiency, innovation, product quality or price competitiveness; and
- lessens competition in a market, including by
preventing, restricting or deterring the potential for competitive conduct in a
market or new entry into a market.[15]
Additionally, the Final Report proposed two additional
mechanisms to address ‘residual concerns about business uncertainty’:
- first ... authorisation should be available to exempt
conduct from the prohibition in section 46; and
- second, the ACCC [Australian Competition and Consumer
Commission] should issue guidelines on its approach to enforcing section 46,
prepared in consultation with business stakeholders, legal experts and consumer
groups, and issued in advance of the commencement of the revised prohibition.[16]
In turn, the Final Report considered that the proposed
amendments to section 46, in conjunction with making authorisation (under Part
VII of the CCA) available, obviated the need for the telecommunication
industry‑specific anticompetitive conduct provisions (Division 2 of Part
XIB) and exemption order regime (Subdivision B of Division 3 of Part XIB).[17]
Schedule 2 of the Bill repeals those provisions.
The ACCC has issued draft guidelines for the
interpretation of the misuse of market provisions.[18]
About authorisation
Authorisation provides protection against legal action for
conduct or arrangements that might breach the competition provisions of the CCA.
Parties apply for authorisation where they believe that there is some risk
that the conduct they propose to engage in would or may breach the
competition provisions of the CCA and they require the certainty
provided by an authorisation to undertake the activity. Authorisation is a
formal and public process.
In general, the ACCC may grant authorisation if it is
satisfied that the likely public benefits flowing from the proposed conduct
for which authorisation is sought, outweigh the likely public detriments
flowing from that conduct.
Authorisation has not previously been available for
conduct that may breach section 46 of the CCA.
However, coinciding with the proposed section 46,
authorisation is now proposed to be available under a revised authorisation
test by which the ACCC may grant authorisation if it is satisfied either that the
conduct is unlikely to substantially lessen competition or is likely to
result in a net public benefit.
Under the proposed authorisation test, in order to grant
authorisation to section 46 conduct, the ACCC must be satisfied that the
conduct meets at least one limb of the test; but for the ACCC to deny
authorisation the conduct must fail both limbs of the test.
Australian Competition and
Consumer Commission (ACCC), Draft framework for misuse of market
power guidelines, ACCC, Canberra, September 2016, p. 16.
|
Additional consultation
The Government decided to consult further on the
recommended changes to section 46 via a Treasury discussion paper.[19]
The discussion paper canvassed a range of potential options to alter section
46, including a number of variations on the Harper Review recommendation.[20]
The outcome from the discussion paper was to implement the Harper Review
recommendations in full.[21]
At the same time as the Exposure Draft was released,[22]
the Department of Communications and the Arts commenced a consultation process on
the possibility of removing Divisions 2 and 3 of Part XIB—which covers
telecommunications‑specific anticompetitive conduct—in light of the
Government’s acceptance of the Harper Review recommendations.[23]
The conclusion from both processes culminated in a
Treasury exposure draft of legislation, which, among other things, reflected
the Harper Review recommendations on the misuse of market power, as well as
removing Divisions 2 and 3 of Part XIB.[24]
Committee
consideration
Selection
of Bills Committee
The Selection of Bills Committee recommended that the Bill
be referred to the Senate Economics Legislation Committee (Economics Committee)
for inquiry and report by 16 February 2017.[25]
Senate
Economics Committee
Majority
report
The Economics Committee received 35 submissions and reported
on 16 February 2017.[26]
The position of major interest groups from those submissions and other
consultations are referenced throughout the key issues and provisions section
below.[27]
The majority Senators on the Committee made three recommendations:
- the
proposed mandatory factors in subsection 46(2) be removed
-
the government undertake a post-implementation review of the
changes to section 46 at least five years after commencement and
- that
the Bill be passed.[28]
The potential consequences of removing the mandatory factors
are discussed below in the section titled ‘Key potential consequences of
removing the mandatory factors’. A number of submitters to the inquiry called
for a post-implementation review, particularly with regards to the removal of
an explicit offence for predatory pricing.[29]
Other views
The dissenting report by Labor Senators noted that since
1976, 12 Australian competition reviews had recommended against the
introduction of an ‘effects test’.[30]
Labor Senators considered that the proposed changes would result in a ‘lawyer’s
picnic’.[31]
They also opposed the removal of Divisions 2 and 3 of Part XIB, stating:
Given the concentrated nature of the telecommunications
market, it remains appropriate to preserve Part XIB in order to both retain
adequate deterrence and facilitate speedy action against anti-competitive
conduct in the sector if it arises.
Labor Senators consider the stronger mechanisms available
under Part XIB are still necessary to deter misuse of market power by Telstra,
and potentially NBN Co in the future.[32]
Additional comments were provided by Senator Xenophon who
broadly supported ‘the recommendations of the committee but [considered that] they
simply do not go far enough to resolve current failings of competition law ...’[33]
Senator Xenophon recommended:
- a ‘cost waiver order’ be introduced to improve access to justice
- a divestiture order be made available as a remedy to the courts
for serious or repeat market power abuse offender cases
-
reverting to the recommendation in the Harper Review Draft Report
(outlined above) that a statutory defence for rational business conduct which
had the effect or likely effect of long-term benefit to consumers be
introduced.[34]
Senate
Standing Committee for the Scrutiny of Bills
The Senate Standing Committee for the Scrutiny of Bills
made no comment on the Bill.[35]
Financial
implications
The Government considers that the Bill will entail no
financial impact on the Government.[36]
Statement of Compatibility with Human Rights
As required under Part 3 of the Human Rights
(Parliamentary Scrutiny) Act 2011 (Cth), the Government has assessed
the Bill’s compatibility with the human rights and freedoms recognised or
declared in the international instruments listed in section 3 of that Act. The
Government considers that the Bill is compatible.[37]
Parliamentary
Joint Committee on Human Rights
The Parliamentary Joint Committee on Human Rights
considered that the Bill did not raise human rights concerns.[38]
Schedule 1—misuse
of market power
Elements of
the test
Existing subsection 46(1) establishes an offence for the
misuse of market power. It has six elements:
1. a corporation
2. that has a substantial degree of power in a market
3. shall not take advantage of that power
4. in that or any other market
5. for the purpose of
6. eliminating or substantially damaging a competitor of the corporation or
of a body corporate that is related to the corporation; or preventing the entry
of a person; or deterring or preventing a person from engaging in competitive
conduct—in that or any other market.
Item 1 in Schedule 1 of the Bill repeals and
replaces section 46 of the CCA. Proposed subsection 46(1) similarly
has six elements, although there are some significant differences with current
subsection 46(1). It provides:
1. a corporation
2. that has a substantial degree of power in a market
3. must not engage in conduct
4. that has the purpose, or has, or is likely to have, the effect
5. of substantially lessening competition in
6. that market; or any other market in which the corporation or a body
corporate that is related to that corporation—supplies/acquires goods or
services, or is likely to supply/acquire goods or services either directly or
indirectly through one or more persons.
As elements 1 and 2 remain unaltered by the amendments in
the Bill it is not anticipated that there will be substantive changes to the judicial
interpretation of these elements. The remainder of the discussion in this Bills
Digest will therefore focus on the remaining four elements which are classified
as follows:
- ‘take
advantage’ compared with ‘conduct’
- the
scope of the ‘market’
- ‘purpose’
compared with ‘effect’
- ‘proscribed
purposes’ and ‘substantially lessening competition’.
Part IV is mirrored in the Competition Code in Schedule 1
of the CCA, which applies anti-competitive laws through application
legislation in the states and territories. Therefore, although the discussion
which follows refers to the provisions of Part IV, it equally applies to Part 1
of Schedule 1.
‘Take
advantage’ compared with ‘conduct’
The Harper Review Final Report considered that the element
of take advantage ‘... is not a useful test by which to distinguish
competitive from anti-competitive unilateral conduct’.[39]
The Harper Review based this conclusion on the way in which the provision had been
interpreted by the courts.
In Queensland Wire,[40]
the majority joint judgment considered that ‘[t]he question is simply whether a
firm with a substantial degree of market power has used that power for a
purpose proscribed in the section, thereby undermining competition ...’,[41]
and went on to conclude:
In effectively refusing to
supply Y-bar to the appellant, BHP is taking advantage of its substantial
market power. It is only by virtue of its control of the market and the absence
of other suppliers that BHP can afford, in a commercial sense, to withhold
Y-bar from the appellant. If BHP lacked that market power—in other words, if it
were operating in a competitive market—it is highly unlikely that it would
stand by, without any effort to compete, and allow the appellant to secure its
supply of Y-bar from a competitor.[42]
In the four subsequent cases noted in the Harper Review,[43]
three of those cases involved circumstances where the trial and appellate
courts differed on the application of whether the particular corporation in
question had taken advantage of its market power.[44]
Ultimately, the main issue identified by the Harper Review was that the
jurisprudence from those decisions has involved a focus on a hypothetical
counterfactual of a corporation without the market power and the court asking itself
how a firm without the market power could have behaved.[45]
The Harper Review considered that the take advantage test
‘has given rise to substantial difficulties of interpretation, revealed in the
decided cases, undermining confidence in the effectiveness of the law.’[46]
It is relatively straightforward to demonstrate that there have been differences
in judicial interpretation of the matters that have been decided under section
46, although those differences have not always turned on the application of the
take advantage test.[47]
Further, the Harper Review considered that the partial codification in 2007 of
the hypothetical counterfactual was unlikely to have increased confidence in
the effectiveness of the law.[48]
A speech given by current ACCC Chairman Rod Sims in May
2015 in response to the release of the Harper Review Final Report succinctly
highlighted three problems with the application of the take advantage test:
First, we need to predict the
behaviour of a firm in a hypothetical world that can be difficult to imagine
and agree on. Contemplating a market where all is the same, except the source
of the firm’s market power is removed, is often fanciful.
...
Second, and fundamentally, it fails to address the key issue;
the likely effect of the conduct on competition. Is the conduct likely to
restrict, limit or hinder other firms from competing on their merits? This
question is best addressed by focusing on the likely market outcomes from the
conduct. The likely actions of a hypothetical firm in a hypothetical market
would seem largely irrelevant.
Third, and most important, relying on the counterfactual test
fails to recognise that the effects on competition of conduct by a firm with a
substantial degree of market power can differ to the effects of the same
conduct in a competitive market.[49]
In summary the Harper Review noted that ‘[b]usiness
conduct should not be immunised merely because it is often undertaken by firms
without market power’,[50]
and therefore recommended the removal of references to ‘take advantage’ and
replacing it with a ‘conduct’ test.
Conduct
Conduct is already defined in the CCA[51]
as the doing or refusing to do any act. Refusing to do an act is further
defined to mean refraining (otherwise than inadvertently) from doing that act,
or making it known that that act will not be done. The courts have held that
the omission to act must have been deliberate.[52]
It has also been held that the definition means that to refrain (otherwise than
inadvertently) from doing an act, or to make it known that an act will not be
done, is to refuse to do that act, and as such, amounts to engaging in conduct.[53]
A number of section 46 cases that have been brought over
the years have involved a refusal to supply.[54]
As a general proposition, suppliers are not obliged to supply everyone who
seeks to order their goods:
Economic efficiency is enhanced if suppliers are allowed the
freedom to decide by whom and under what conditions their product will be sold.[55]
Section 46 is not concerned with how a corporation should
conduct its business,[56]
but as noted above, a deliberate refusal to supply would constitute conduct for
the purposes of the CCA.
One of the clearest differences between the take
advantage test and a conduct test was in effect
illustrated by the High Court in Melway:
Section 46 of the Act requires, not merely the co-existence
of market power, conduct, and proscribed purpose, but a connection such that
the firm whose conduct is in question can be said to be taking advantage of its
power.[57]
How the
conduct test could work
With the ‘take advantage’ element removed by the Bill, it
is reasonable to presume that a co-existence between market power and conduct
would be sufficient to satisfy that aspect of section 46. That is to say, if a
corporation possesses market power and, for example, makes a deliberate
decision to refuse to supply, then it will have engaged in the conduct to which
proposed subsection 46(1) is directed. Given that the output decision of
a profit-maximising corporation with market power is to supply less of its
products to the market than it would under a more competitive environment; it
stands to reason that firms with market power would often undertake to refuse
to supply (that is, to engage in conduct) so as to maximise the returns on the
products that they do supply.
It may therefore be the case that the conduct test is
somewhat easier to satisfy (and potentially to understand and apply) than the
take advantage test. This may be particularly so given the number of cases that
have been brought under section 46 where there was a refusal to supply,
assuming that such refusals continue. However, the question that needs to be
asked is not whether a conduct test is easier to satisfy than a take advantage
test; but whether the change furthers the objective of the section, and by
corollary, the CCA.
In this regard, as noted above by the High Court in Melway,
the take advantage test forms part of the filter that helps distinguish between
pro- and anti-competitive conduct (the other substantive filter is the
proscribed purposes, see below). By removing the take advantage test and
replacing it with a conduct test, there is a risk that the test no longer acts
so as to adequately filter procompetitive from anticompetitive conduct.
Therefore, there is a legitimate concern that the proposed conduct test may set
the requisite bar too low and inadvertently capture procompetitive conduct.
Possible solution
A possible solution to the risk of over-capture could be
to predicate the conduct test with the word ‘anti-competitive’. This would
help clarify that the purpose of section 46, in conjunction with the
objectives of the CCA, is to enhance consumer welfare. By definition,
conduct that is pro-competitive should not be caught by the operation of
section 46, and inserting the clarifying word anti-competitive should help to
ensure that that is the case. A similar approach was proposed in a submission
by Minter Ellison to the Economics Committee inquiry into the Bill.[58]
|
The scope
of the ‘market’
Harper view
Element 2 of the proposed test of whether there has been a
misuse of market power is that there is a substantial degree of power in a
market. The Harper Review considered that the definition of market
in section 4E of the CCA remained appropriate, and in the context of
section 46, recommended no change to the scope of the market:
Accordingly, the Panel proposes that the primary prohibition
in section 46 be re-framed to prohibit a corporation with a substantial degree
of market power from engaging in conduct if the conduct has the purpose, effect
or likely effect of substantially lessening competition in that or any other
market. [emphasis added][59]
The scope of the market was expanded a decade ago (to its
current form) in response to the decision in Rural Press where the Full
Federal Court implied that the requisite market power needed to be exercised in
the same market that the power was acquired in.[60]
A number of other provisions in Part IV of the CCA currently prohibit
certain restrictive practices ‘in any market’.[61]
The model legislative provisions in the Harper Review
reflected that intent,[62]
as did the Treasury consultation paper that followed the Harper Review Final
Report.[63]
The consultation process culminated in the release of an Exposure Draft Bill
and Explanatory Memorandum on 5 September 2016.[64]
The Exposure Draft contained the phrase ‘in that or any other market’
consistent with the opinion of the Harper Review.
Amendments
in the Bill
However, the amendments in Schedule 1 to the Bill
have substantially changed the market definition from what was proposed in the
Exposure Draft. In essence, the scope of the market that is proposed is that
which currently prevails in the telecommunications industry under Part XIB of
the Act (see below).
In summary, the scope of the market is proposed to be
changed to:
- in that market or
-
a market where the corporation (or a related body corporate)
supplies, or is likely to supply goods or services directly or indirectly or
- a market where the corporation (or a related body corporate)
acquires, or is likely to acquire goods or services directly or indirectly.[65]
According to the Explanatory Memorandum accompanying the
Bill:
The Harper Review recommended reframing section 46 to
prohibit a firm with a substantial degree of power in a market from engaging in
conduct with the purpose, effect or likely effect of substantially lessening
competition in any market. However, extensive consultation with
stakeholders revealed a concern that the reference to ‘any market’ made section
46 excessively broad in scope.[66]
Given the change to the
scope of the market was first introduced in the Bill, the only consultation on
the change has been as a result of the Economics Committee inquiry into the
Bill.[67]
As noted by the Small and Medium Enterprise Business Law Committee of the
Business Law Section of the Law Council of Australia (SME Committee):
The SME Committee also notes that the above Bill has a change
from the draft Bill circulated for discussion in 2016. That change relates to
excluding impact in “any market”. This differs from other CCA provisions.
Accordingly, the SME Committee has concerns about the ramifications of that
change. The SME Committee believes that the reasons for the change, as set out
in the Explanatory Memorandum, are unconvincing.[68]
A similar view was put by Associate Professor Julie Clarke
who stated:
... it is not obvious that the more restrictive definition is
needed or that conduct by a company enjoying substantial market power, and
which has the purpose or effect of harming competition in any market, should
not be prohibited.[69]
It is unclear to what extent, if any, the exercise of
unilateral conduct by a corporation with substantial market power in ‘an
unrelated market’ may result in harm to consumer welfare.[70]
Nevertheless, it is clearly more than merely theoretical, otherwise
stakeholders would not have asked for the change as part of Treasury’s
consultation on the Harper Review recommendations. It is most likely the case
that the change will increase the focus on the definition of the requisite
market. As noted in Queensland Wire:
The analysis of a s.46 claim necessarily begins with a
description of the market in which the defendant is thought to have a
substantial degree of power. In identifying the relevant market, it must be
borne in mind that the object is to discover the degree of the defendant's market
power. ... [I]t is necessary to describe
accurately the parameters of the market in which the defendant's product
competes: too narrow a description of the market will create the appearance of
more market power than in fact exists; too broad a description will create the
appearance of less market power than there is.[71]
The concept of the market is defined
separately in the CCA.[72]
In addition to the above, the majority joint judgment in Queensland Wire
discussed Pincus J’s finding (at first instance) of an impermissible purpose (namely
excluding Queensland Wire from the star picket post market) and that:
... that market is not the most
informative one on which to focus. Pincus J. accepted that “there are great
advantages accruing to B.H.P. as a participant in the rural fencing market, by
virtue of its being the sole domestic supplier of star pickets” and that
“(t)hose advantages ... extend well beyond being relatively free from price
competition in selling star pickets.” The evidence regarding the importance to
BHP of being the only supplier of the full range of rural fencing products
indicates that it is in the market for rural fencing products where those
advantages lie and where BHP’s market power is being extended.[73]
Under the changes proposed in Schedule 1 to the
Bill, conduct may now potentially escape liability under section 46 where
that conduct has the purpose, effect or likely effect of substantially
lessening competition in an unrelated market.
A slightly different interpretation of the consequences of
changing the scope of the market was put in a submission by the Law Council of
Australia:
Practically speaking, this means that a bakery which is 60%
owned by a company which in turn has a majority stake in a cement business
which has substantial market power, may contravene s46 if it is found, from its
internal emails ... to have the purpose of substantially lessening competition in
a local baking market (say, by investing in substantially more efficient plant
which will allow it profitably to reduce prices below its rivals costs). This
appears to be an unintended outcome.[74]
A Business Council of Australia submission considered that
the application of section 46 should be constrained to ‘any other market in
which the corporation supplies or acquires goods and services.’[75]
Substantial
degree of power
The element of ‘a substantial degree of power in a market’
is not amended as a result of the Bill. Therefore, it is not expected that its
current interpretation will materially change. The one point to note is that
with the scope of the market having been reduced, it can be expected that there
will, by way of corollary, be an impact on the interpretation of the word
‘market’. The interpretation will be such that section 46 will no longer apply
to an unrelated market.
Purpose,
effect or likely effect
Element 4 of the proposed test of whether there has been a
misuse of market power is that the conduct that has been engaged in has a particular
purpose, or has, or is likely to have, a certain effect.
Harper view
Much was made in submissions to the Harper Review of its
recommendation to move from a purpose test to a ‘purpose, effect or likely
effect’ test.[76]
In the main, concerns were expressed that a firm with market power ought not to
be held liable for the effect of its actions, but rather only its
purpose in taking those actions. The current drafting of section 46 of the CCA
requires that the purpose must be one of three proscribed
purposes (see below).
As noted in the Harper Review ‘compared to the ‘take
advantage’ test, the meaning of the ‘purpose’ test in section 46 is at least
clear and capable of reliable application by the courts’.[77]
The Harper Review largely ignored consideration about the desirability of a
subjective purpose test and/or of an objective effects test as it considered
that such consideration obscured the larger issue of the proscribed purposes.[78]
The Harper Review therefore focused on whether the purpose of the conduct undertaken
by the firm with market power was for a proscribed purpose, where that
proscribed purpose generally focused on injury to a competitor. The Harper
Review was centrally concerned with the fact that the purpose of the conduct was
more aimed at injury to competitors, rather than injury to competition
(see below).
The Harper Review characterised the effect on competition
as the effect on the ‘competitive process’.[79]
It considered that this was a better aim of section 46 rather than to prohibit
unilateral conduct which had the purpose of injuring a competitor. This
reasoning also formed part of the recommendation to introduce a ‘substantially
lessening competition’ threshold into section 46 (see below).
The Harper Review further noted that the introduction of
an ‘effects test’ would mirror other Part IV offences.[80]
As a result, there is some jurisprudence available on the interpretation and
application of an effects test in relation to other restrictive trade
practices.
Interpretation
of an ‘effects test’ in other provisions of the CCA
The phrase ‘has or is likely to have’ has been interpreted
to invite the court to objectively look at the facts, as well as infer from
those facts, what would be the likely consequences, when viewed at, or about,
the time the arrangement was made, without regard to the subjective state of
mind of the parties.[81]
The word ‘likely’ has been subject to a range of possible
meanings. For example, in Tillmanns Butcheries[82]
it was stated:
The word “likely” is one which
has various shades of meaning. It may mean “probable” in the sense of “more
probable than not”—“more than a fifty per cent chance”. It may mean “material
risk” as seen by a reasonable man “such as might happen”. It may mean “some
possibility”—more than a remote or bare chance. Or, it may mean that the
conduct engaged in is inherently of such a character that it would ordinarily
cause the effect specified.[83]
In Monroe Topple & Associates,[84]
it was stated that ‘“[l]ikely” does not mean “more likely than not”. It is
sufficient that there is a real chance or possibility that a substantial
lessening of competition will occur ...’[85]
See also French J in AGL v ACCC[86]
who, in construing the meaning of ‘likely’ in section 50 stated:
In my opinion, having regard to the statutory context
provided by other sections of Pt IV the correct construction is that ‘likely’
refers to a significant finite probability or ‘a real chance’ rather than ‘more
probable than not’.[87]
From this it can be suggested that all that is required is
that there is a real chance that the alleged conduct has or is substantially
lessening competition.
‘Proscribed
purposes’ and ‘substantially lessening competition’
Element 5 of the proposed test of whether there has been a
misuse of market power is whether the purpose, effect, or likely effect of the
conduct is to substantially lessen competition.
Section 46 currently requires, among the other elements
outlined above, that the corporation must have acted for one of three
proscribed purposes, namely:
- eliminating or substantially damaging a competitor of the
corporation or of a body corporate that is related to the corporation in that
or any other market
-
preventing the entry of a person into that or any other market or
-
deterring or preventing a person from engaging in competitive
conduct in that or any other market.
The Harper Review considered that moving to an effects
test was appropriate (see above); but that it was not appropriate to maintain
the current focus of the proscribed purposes on competitors. Instead,
the focus of the provision should be on competition (that is, the
competitive process). This was reasonably self-evident as it would not be sound
policy to prohibit unilateral conduct that had the effect of damaging
individual competitors.[88]
In practice however, the current provisions have not been interpreted in this
manner so it is questionable whether the approach would have changed as a
result of the proposed amendments (see box 1). It was considered appropriate
that firms with a significant degree of market power be responsible for the
consequences of their actions, and not merely their intent. In many respects,
this is analogous to the Harper Review’s reasoning in recommending the
introduction of an ‘effects test’ (see above).
Box 1: Injury to competitors or injury to competition?
An important consideration is whether the interpretation
of section 46 as regards purpose has focused on injuring
competitors, rather than competition. One of the clearest explanations was
provided by the joint majority judgment in Queensland Wire where it
was considered that protection of individual traders was not an objective,
stating:
... the object of s 46 is to protect the interests of
consumers, the operation of the section being predicated on the assumption
that competition is a means to that end. Competition by its very nature is
deliberate and ruthless. Competitors jockey for sales, the more effective
competitors injuring the less effective by taking sales away. Competitors
almost always try to “injure” each other in this way ... and these injuries are
the inevitable consequence of the competition s 46 is designed to foster. In
fact, the purpose provisions in s 46(1) are cast in such a way as to prohibit
conduct designed to threaten that competition—for example, s 46(1)(c)
prohibits a firm with a substantial degree of market power from using that
power to deter or prevent a rival from competing in a market. The question
is simply whether a firm with a substantial degree of market power has used
that power for a purpose proscribed in the section, thereby undermining
competition ...[89]
[emphasis added]
Therefore section 46 has been interpreted to relate to
competition and not to competitors. Additionally this has been explicitly
recognised by ACCC Chairman Rod Sims in a recent speech where there was
discussion about ‘the insider/outsider divide’:
There is, on the one hand, an exclusive club, with members
of the club knowing that section 46 means ‘avoid damage to the competitive
process’.
On the other hand, those not in the club, the vast majority
of the population, aren’t privy to this insight ...
This insider/outsider divide that has emerged contributes
to a lot of unnecessary activity. The ACCC is often urged to take action
under section 46 when harm has been done to an individual competitor,
particularly if that competitor is a small business.[90]
Notwithstanding the current words in section 46, those
words have not been interpreted by either the courts or the regulator as
amounting to a breach when an individual business is injured.[91]
Viewed in that manner, the amendments in Schedule 1 to the Bill ensure that
on a plain reading of the CCA, injury to an individual competitor is
highly unlikely to breach section 46. The only feasible way in which a breach
could occur is if the injury suffered amounted to a substantial lessening of
competition in that or a ‘related market’ (see above for a discussion on the
relevant market).
|
Purpose
As noted above, there are currently three proscribed
purposes set out in section 46. Those proscribed purposes help to filter pro-
from anti-competitive conduct. As explained by Mason CJ and Wilson J in Queensland
Wire:
... it is significant that s 46(1) already contains an
anti-competitive purpose element. It stipulates that an infringement may be
found only where the market power is taken advantage of for a purpose
proscribed in par (a), (b) or (c). It is these purpose provisions which define
what uses of market power constitute misuses.[92]
Section 4F of the CCA provides that the actual
purpose need only be a substantial one (rather than the exclusive purpose). As
noted in Queensland Wire, purpose in section 46 simply refers
to an intention to achieve a particular purpose.[93]
A number of cases have been lost due to a failure to demonstrate a proscribed
purpose,[94]
although it is interesting to note that the ACCC has only lost one matter
(which is currently subject to appeal).[95]
The effect of the amendments in Schedule 1 to the
Bill is that the purpose for which conduct is undertaken will be irrelevant if
the conduct has or is likely to have the effect of substantially lessening
competition.
In Melway Kirby J (dissenting) considered the
following illustrative purposes:
There are numerous “purposes”
which such a corporation might have which could explain and justify, for
example, a refusal to supply a monopolist's product to a would-be competitor of
current distributors. They could include the fact that the would-be competitor
is judged as: (1) incompetent to handle a product that in some hands might be
dangerous; (2) a person with a poor credit record or with unacceptable business
ethics; (3) unqualified to offer essential after-sales service; (4) liable to
damage the reputation of the supplier; (5) being unable to maintain accurate
records; (6) prone to engage in deceptive advertising or unfair practices; or
(7) likely to breach persistently the reasonable terms of a distribution
agreement.[96]
[footnotes omitted]
None of the seven purposes listed above by Kirby J would
be sufficient to attract liability under section 46 currently; however, the
effect of item 1 would mean that any of these purposes would be
sufficient to breach section 46, provided that the effect or likely effect of
the relevant conduct was a substantial lessening of competition.
The operation of the purpose, effects or likely effects
test and the addition of the substantial lessening of competition test will
have the effect of lowering the bar, which seems somewhat peculiar given that
the ACCC has generally not had difficulty in proving a proscribed (and thereby
more limited) purpose in the past. Further, since it is generally the
subjective purpose that is relevant in determining liability,[97]
any purpose behind conduct that has the effect or likely effect of substantially
lessening competition will become sufficient. It should be further noted that
liability still attaches when the aim of the purpose is unattainable.[98]
Therefore, it is perhaps unsurprising that participants argued that the purpose
element should be removed entirely from section 46.[99]
This view was forcefully put by the Law Council of Australia that ‘aggressive,
“locker-room” talk’ should not be caught within the ambit of section 46.[100]
A similar concern was put by Minter Ellison that:
The centrality of subjective purpose in the current section
46 in our experience typically leads to a forensic focus in investigations on
trawling many thousands of internal company emails for indications of a ‘bad’
subjective purpose. That quest for ‘smoking gun’ expressions of purpose in
internal communications very often elevates the status of the unusual, the
random, the poorly expressed or the downright wrong in company communications.[101]
Substantially
lessening competition
The Harper Review proposed the introduction of a ‘substantially
lessening competition’ test in largely analogous terms to the introduction of
the effects test, namely that it is a well-known and accepted part of
restrictive trade practices in Part IV of the CCA.[102]
The test has been interpreted as requiring a counterfactual assessment whereby
the court must consider the state of competition in the market both with and without
the conduct.[103]
The term ‘substantial’ has not been conclusively
determined although it has been interpreted to mean ‘... that there be a purpose,
effect or likely effect of the impugned conduct on competition which is
substantial in the sense of meaningful or relevant to the competitive process.’[104]
It has also been considered that it is not sufficient for liability if the
relevant effect was quantitatively more than insignificant or not
insubstantial.[105]
Under section 4G of the Act, ‘lessening of competition’ includes
references to preventing or hindering competition. Hindering competition has
been interpreted to mean in any way affecting usual competition to an
appreciable extent.[106]
Competition is itself defined in section 4 to include imports.
Mandatory
considerations
Proposed subsection 46(2) introduces a non-exhaustive
list of pro- and anti-competitive factors—as recommended by the Harper Review
Final Report. Accordingly, the court must, when considering ‘... whether the
conduct has the purpose, or has or is likely to have the effect, of
substantially lessening competition in a market ...’, take into account the
extent to which that conduct has the purpose or effect or likely effect of:
- increasing competition in that market, including by enhancing
efficiency, innovation, product quality or price competitiveness in that market
- lessening competition in that market, including by preventing,
restricting, or deterring the potential for competitive conduct or new entry
into that market.
Draft
report proposed defence
The Harper Review Final Report included the list of
mandatory factors as it was concerned that without them pro-competitive conduct
may otherwise be inadvertently caught.[107]
Indeed, in the Draft Report, the Harper Review proposed a statutory defence
which would exonerate conduct, if the conduct in question:
- would be a rational business decision by a corporation that did
not have a substantial degree of power in the market and
-
would be likely to have the effect of advancing the long-term
interests of consumers.[108]
The Draft Report also proposed that the onus of proof in
relation to these matters be imposed on the corporation that has engaged in the
conduct.[109]
Many post-Draft Report submissions roundly criticised both
the introduction of the defence, as well as the reversal of the onus of proof.[110]
The Final Report recommended the inclusion of the mandatory considerations but
did not provide for the earlier form of a defence.
Part of the rationale for the adoption of the substantially
lessening competition test (see above) was that it was well known in industry.[111]
Whether the fact that a concept is well known forms a relevant basis upon which
to change the law is not discussed here. What is important is that the
substantially lessening competition test in other provisions of Part IV of the CCA
is not subject to legislative guidance. Therefore, to the extent that
jurisprudence on substantially lessening competition is well known to industry
(see above), it would only be illustrative as the mandatory factors
accompanying the substantially lessening competition test would be unique to
the CCA.
Discussion
of the mandatory factors
Since the mandatory factors were included in the Harper
Review Final Report—but not the earlier Draft Report, stakeholders did not get
the opportunity to comment on them during the Harper Review process. Instead,
it was not until Treasury commenced its consultation process that stakeholders
had the chance to consider the mandatory factors and make comments about them.
A submission from Minter Ellison to Treasury suggested
moving the mandatory factors in proposed paragraph 46(2)(b) so that
the mandatory factors would be part of a broader definition of ‘anti-competitive
conduct’.[112]
A similar suggestion was made in a submission by the
Business Council of Australia.[113]
An issue with changing the reference to conduct to a reference to
anti-competitive conduct or exclusionary conduct as
suggested by stakeholders was one of the key points in the Business Council of
Australia submission. It was put there that the conduct test in subsection
46(1) should remain, but proposed rewording subsection 46(2) such that it only
applied to exclusionary conduct.
However, this potentially creates an issue in relation to
the pro-competitive mandatory factors. The way it was phrased appears to place
an onus on the court to assess whether the conduct complained of was pro‑competitive,
and if so, subsection 46(1) does not apply. Whilst that makes sense from a
practical perspective—subsection 46(1) should not apply to pro-competitive
conduct—it seems a rather cumbersome way to express what the law should be.
This can be readily contrasted with the phrasing adopted
by the Harper Review and which is reflected in Schedule 1 to the Bill.
It is made quite clear that an evaluative assessment is required in assessing
the pro- and anti-competitive aspects of the conduct.
While the ACCC strongly endorsed the Harper Review Final
Report recommendations affecting subsection 46(1)—that is, removing ‘take
advantage’ and the proscribed purposes, and moving to an effects test which
focuses on whether conduct substantially lessens competition—it expressed
serious concerns about the mandatory factors. The ACCC listed five issues so as
to demonstrate that ‘the proposed mandatory factors are unnecessary and
unworkable’:
-
sections 45 and 47 currently function effectively without the
need for consideration of mandatory factors, yet each has the same [substantially
lessening competition] SLC test
-
inserting mandatory factors in section 46 will lead to legal
arguments that the test is to be construed differently to the SLC test in
sections 45 and 47
-
the inclusion of the proposed mandatory factors would significantly
increase the complexity of section 46, contrary to the simplification
recommendation of the Harper Review
- the mandatory factors would impose a heavy and unrealistic
evidentiary burden upon an applicant to disprove matters which will often be
within the respondent’s knowledge (such as any efficiency enhancements or
changes in product quality)
- the mandatory factors would require some quantification or
weighing of anti-competitive purposes or effects as well as efficiencies and
innovation, and a netting off exercise to determine whether there is a
substantial lessening of competition.[114]
The Economics Committee inquiry into the Bill agreed with
these and other participants that the mandatory factors were unnecessary and
that:
... the other reforms to section 46, as drafted in the Bill,
are more than sufficient to address the deficiencies evident in the current
legislation. Additionally, the committee considers that the removal of the
mandatory factors will aid in reducing uncertainty among affected stakeholders.[115]
Accordingly, the Economics Committee recommended that
subsection 46(2) be removed from the Bill.[116]
Consequences
of removing the mandatory factors
If the mandatory factors in proposed subsection 46(2) of
the Bill were to be removed as suggested by the Economics Committee there would
be a number of consequences.
First is the lack of statutory guidance that will
be provided to courts about distinguishing between pro- and anti‑competitive
conduct. Currently, that distinction is provided in the statute by two means:
the take advantage test and the proscribed purposes. Those ‘filters’ have been
removed in the new drafting of section 46. The Harper Review recognised that without
some other form of ‘filter’ there was a real risk that section 46 would
‘over-capture’ in the sense that pro-competitive behaviour would be caught.[117]
To that end, the Draft Report proposed a statutory defence. However, the Final Report
proposed legislative guidance with the introduction of a list of mandatory
non-exhaustive factors. The risk of over-capture is further exacerbated by the
introduction of the any conduct test and the capturing of conduct
undertaken for any purpose that has the effect or likely effect of
substantially lessening competition.
Second is whether relying on the substantially
lessening competition test to filter pro- from anti-competitive conduct
is sufficient. Whether the substantially lessening competition test is fit for
the purpose of distinguishing between pro- and anti-competitive conduct is not
discussed in academic writing about Part IV of the CCA. In any event,
even if the test is fit for purpose, it is confined to breaches of particular
conduct unique to each section; it is not applicable (in its current form) to
all forms of conduct, and certainly not unilateral conduct.[118]
The Business Council of Australia submitted that relying on the ‘substantially
lessening competition’ test alone is insufficient.[119]
Third, the question arises as to how a proposed
section 46 which is without the mandatory factors would interact with other
provisions of Part IV of the CCA.[120]
It has been reasonably commonplace that the ACCC has brought claims against
corporations with substantial market power under section 46 contemporaneously
with action under other provisions of Part IV.[121]
Due to the current substantive differences between section 46 and other
provisions of Part IV, the arguments that the ACCC has run have largely been similar
in terms of the alleged offending conduct, but have had to satisfy different legislative
tests. That, however, may change under the new formulation of subsection
46(1).
The ACCC has issued draft guidance material associated
with proposed section 46. That material only provides
illustrative examples of conduct that, in principle, may or may not amount to a
misuse of market power.[122]
It does not consider whether other provisions of Part IV would or would
not potentially be breached. A submission on the draft guidelines from the
Australian Automobiles Association suggested that:
In addition, the ACCC could offer even further guidance by
providing an example or undertaking a case study of a situation that would not
constitute a misuse of market power under the current section 46 but may
constitute a breach under the proposed reforms. This would provide a clearer
picture of how the ACCC will interpret the proposed section 46 compared to the
current one. This could be a clear example or one that is more complex and
ambiguous, like the matters relating to the service and repair market.[123]
There is a danger that, without the mandatory factors,
there would not be sufficient differentiation between the prohibitions in proposed
section 46 and the other sections in Part IV of the CCA. Given the
scope of the amendment in Schedule 1 to the Bill, any conduct
with any purpose that has the effect or likely effect of substantially
lessening competition is sufficient to attract liability, providing the other
elements are in place. Principally, the difference between the application of other
provisions of Part IV and that of section 46 to a set of facts is whether or
not the corporation has a substantial degree of market power.[124]
It is likely that there would be significant uncertainty for business if the
mandatory factors were removed. A similar view was put by the Australian Food
and Grocery Council:
Unlike other CCA offences based on a substantial lessening of
competition, the proposed s.46 potentially applies to ALL conduct of a
corporation with market power. Other substantial lessening of competition
provisions (sections 45, 47 and 50) deal only with specific instances of
behaviour, such as contracts or acquisitions, and in no other instance is the
test applied to unilateral behaviour by a corporation.[125]
[original emphasis]
Although the ACCC listed five reasons which demonstrated
that the mandatory factors were unnecessary and unworkable (see above), the
most persuasive is perhaps the fourth reason surrounding the evidentiary burden
placed on the applicant to disprove the impact of the pro-competitive factors.
Generally the applicant, be it the ACCC or a private party, will have less
information about the pro-competitive aspects of the alleged conduct than the party
engaging in that conduct. Given that the applicant bears the onus of proof, it
will be up to the ACCC to demonstrate that the conduct substantially lessened
competition. As such, it will be up to the ACCC to demonstrate that the pro-competitive
factors are not applicable or that they are so insignificant that the alleged
conduct remains sufficient to amount to a substantial lessening of competition.
As pointed out above, this will be very difficult to do notwithstanding the
potential application of section 155 notices to the action.[126]
Other
issues regarding section 46
Section 46 of the CCA has been the subject of a
number of amendments since 2007. The Harper Review concluded that:
The proposed reform would allow section 46 to be simplified.
Amendments introduced since 2007 would be unnecessary and could be repealed.
These include specific provisions prohibiting predatory pricing and amendments
that attempt to explain the meaning of ‘take advantage’.[127]
About predatory pricing
‘Predatory pricing’ occurs where:
- a
corporation prices a product below some measure of cost and
- it
does so with the intention of driving a competitor out of the market and
- the corporation raises the price again in an attempt to recoup
the losses they incurred as a result of their below cost conduct. This is
referred to as recoupment.
In effect, ‘predatory pricing’ is an exclusionary tactic
because the corporation is seeking in its pricing, to exclude competitors
from the market for the product. This can be done in one of two ways:
- for an existing competitor, the corporation excludes them from
the market for the product because the competitor cannot match the below cost
price that has been set
-
for a new competitor, the corporation sets the price so low
that it deters anyone else from entering the market.
The difficulty with ‘predatory pricing’ is that in some
instances, it looks like legitimate competitive behaviour, because the
existence of price wars is often an indicator of competition.
|
Currently subsections 46(1AAA)-(1A) and (4A) explicitly
deal with predatory pricing.
The Bill repeals these subsections, along with subsection
46(5) which excludes the acquisition of plant and equipment from
section 46; subsection 46(6) which provides that clearances or
authorisations under other Part IV provisions do not contravene subsection
46(1) and subsection 46(7) as a consequence of removing references to proscribed
purposes and take advantage from subsection 46(1).
The Harper Review noted that ‘[t]he existing
interpretative provisions in section 46, insofar as they are relevant to the
proposed new [mandatory factors], would be retained (subsections 46(2) to
46(4)).’[128]
To that end, current subsections 46(2)-(4) are reflected as proposed subsections
46(3)-(8) with only minor word changes which are not anticipated to change
the overall meaning of the subsections.
The Harper Review acknowledged concerns about residual
risks of over-capture and concluded that:
Any residual concerns about business uncertainty can be
further mitigated in two ways:
-
first ... authorisation should be
available to exempt conduct from the prohibition in section 46; and
- second, the ACCC should issue guidelines on its approach to enforcing
section 46, prepared in consultation with business stakeholders, legal experts
and consumer groups, and issued in advance of the commencement of the revised
prohibition.[129]
The proposed authorisation provisions have not been
introduced in the Bill, although the Government has agreed to permit
authorisations, so it is anticipated that those changes will be legislated at
some point in the future.[130]
The ACCC issued draft guidance on its enforcement approach in September 2016.[131]
Need for
statutory review
Overall, participants supported the recommended changes
relating to subsections 46(3)-(8), although some concerns were raised about the
removal of the provisions relating to predatory pricing.[132]
More generally, participants strongly indicated that the section 46 changes
should be subject to a post-implementation review.[133]
Schedule 2—telecommunications
industry
Part 1—main
amendments
The amendments in Part 1 of Schedule 2 to
the Bill repeal Divisions 2 and 3 of Part XIB of the CCA. In summary, Part
XIB covers the telecommunications industry, specifically anticompetitive
conduct, tariff-filing, and record-keeping rules. Part IXB applies in
addition to Part IV.
Division 2
of Part XIB
Section 151AK within Division 2 of Part XIB sets out the competition
rule which provides that a telecommunications carrier or carriage
service provider must not engage in anti-competitive conduct. Section 151AJ
of the CCA details the circumstances in which a carrier or a carriage
service provider will be regarded as engaging in anti-competitive conduct, being
if:
- it
has a substantial degree of power in a telecommunications market and
- either
- takes
advantage of that power in that or any other market with the effect, or likely
effect, of substantially lessening competition in that or any other
telecommunications market or
- takes
advantage of that power in that or any other market, and engages in other
conduct on one or more occasions, with the combined effect, or likely combined
effect, of substantially lessening competition in that or any other
telecommunications market.
There are notable differences between section 151AJ and
section 46:
- section
151AJ deals with effects and likely effects whereas section 46 (currently)
deals with purpose
-
section 151AJ is concerned with effects on competition in a
telecommunications market whereas section 46 is (currently) concerned with
damaging competitors or potential competitors.[134]
Division 3
of Part XIB
Division 3 of Part XIB relates to competition notices and
exemption orders. There are two types of competition notices, which have
different requirements:
- Part A competition notices: these must specify the kind of
anticompetitive conduct which the ACCC is alleging (rather than any particular
instance of anticompetitive conduct)[135]
- Part B competition notices: these must include particulars of the
contravention that the ACCC believes has occurred or is occurring. In any
proceedings, the existence of such is a notice is prima facie evidence
of the matters in the notice, and can reverse the onus of proof.[136]
Potential penalties for a breach accrue on a daily basis
and are currently set at a maximum of $31 million and $3 million per day for
each day in excess of 21 days where the competition rule has been
breached for more than 21 days (otherwise the maximum penalty is the sum of $10
million plus $1 million for each day the contravention continued).[137]
Section 151AS of the CCA provides an avenue for an
applicant to seek an exemption order from the ACCC such that
specified conduct by the applicant is exempted from the scope of section 151AJ
(which deals with anticompetitive conduct). The process for obtaining an exemption
order is similar to the process for authorisation for certain Part IV
offences.
Importantly, the amendments in Schedule 1 to the
Bill do not expand the existing authorisation provisions to include section 46.
However, the amendments in Part 1 of Schedule 2 to the Bill have
the effect of removing ‘authorisations’ from the telecommunications industry
until such time as the Government introduces legislation to provide
authorisations for activity captured under proposed section 46 (which
would then apply to all industries).
Discussion
on Part XIB
Part XIB was introduced in 1996 to operate in addition to
Part IV of the Act in part because:
Telecommunications is an extremely complex, horizontally and
vertically integrated industry and competition is not fully established in some
telecommunications markets. There is considerable scope for incumbents to
engage in anti-competitive conduct because competitors in downstream markets
depend on access to networks or facilities controlled by the incumbents.
Furthermore, the possibility of anti-competitive cross-subsidies by incumbents
from non-competitive markets to markets in which competition exists or is
emerging is a particular threat to the establishment of a competitive
environment.
Total reliance on Part IV of the [Trade Practices Act]
TPA to constrain such anti-competitive conduct might, in some cases, prove
ineffective because of the state of competition in the telecommunications
industry and the fast pace of change in this industry.[138]
The introduction of Part
XIB was always designed to be transitory:
It is intended that competition rules for telecommunications
will eventually be aligned, to the fullest extent practicable, with general
trade practices law. Part XIB will apply for the period from 1 July 1997 until
some future review determines that competition is sufficiently established that
the Part or some provisions of the Part are no longer needed.[139]
During its 20 year existence so far, Part XIB has not been
frequently invoked. As noted in the Explanatory Memorandum to the Bill:
Since the introduction of Part XIB [in 1997], the ACCC has
only issued five Part A competition notices, with the last issued in April
2006, and only one Part B notice which was later withdrawn by the ACCC.[140]
That said, merely because Part XIB has been infrequently
used does not necessarily provide justification for its repeal. It could the
case that, for instance, Part XIB has been rarely invoked because it operates
as a ‘credible threat’ to the telecommunications industry, particularly the
existence of the pecuniary penalty provisions. From a public policy
perspective, what is relevant is whether Part XIB remains fit for purpose and
provides net benefits to the Australian community.
The Vertigan Review recommended that the
telecommunications-specific anti-competitive regime in Part XIB be reviewed to
assess its ongoing effectiveness.[141]
The Harper Review provided that:
The proposed amendment to section 46 and the availability of
authorisation would also obviate the need for the telecommunications
industry-specific anti-competitive conduct provisions (Division 2 of Part XIB)
and exemption order regime (Subdivision B, Division 3 of Part XIB) of the [Competition
and Consumer Act] CCA. Division 2 currently provides for an
effects-based test in relation to the conduct of carriers or carriage service
providers (within the meaning of the Telecommunications Act 1997) with a
substantial degree of power in a telecommunications market. Division 3 allows
applications to the ACCC for an order exempting specific conduct from the scope
of that effects test, where the public benefit outweighs the anti-competitive
detriment.[142]
There was a review conducted by the Department of
Communications and the Arts in relation to Part XIB as part of the Treasury
exposure draft response to the Harper Review.[143]
A submission to the review by the ACCC stated:
... if section 46 of the CCA is amended as proposed, the
Australian Competition and Consumer Commission (ACCC) would support repealing
the telecommunications specific anti-competitive conduct provisions in Part XIB
of the CCA. ... While market power concerns still remain in the
telecommunications sector, the ACCC considers that the proposed amendments to
section 46 are likely to be an effective tool for dealing with any associated
competition concerns.[144]
A submission from the Australian Communications Consumer
Action Network (ACCAN) considered that:
The telecommunications market has undergone, and will undergo
a significant amount of changes in the next few years. Due to these
circumstances, ACCAN does not believe now is the time to remove existing
competition law protections except where there is clear and unnecessary
duplication. Until further competition develops, ACCAN strongly believes it is
in the best interests of end users that the ACCC should continue to be able to
issue competition notices to intervene quickly and effectively to protect
consumers from anti-competitive market behaviour.[145]
A submission from Telstra supported repealing the relevant
provisions:
Telstra considers that if the proposed amendments to section
46 are made, the competition rule and competition notice regime in Divisions 2
and 3 (and associated provisions in Divisions 7-10) of Part XIB, will distort
competition to the detriment of consumers and should be repealed as soon as
possible. ... Retaining the competition rule and competition notice regimes would
make Australia an outlier [internationally] in terms of competition regulation.[146]
The Competitive Carriers’ Coalition considered that
subsection 151AJ(2) (which deals with engaging in anti‑competitive
conduct) could be removed to avoid duplication, but strongly advocated
retaining other aspects of Part XIB, noting:
The competition rule extends to conduct in contravention of
other sections of Part IV of the CCA, including section 45 (contracts,
arrangements or understandings) and section 47 (exclusive dealing).
Further, the telecommunications competition regime embraces
the use of competition notices that may be issued in respect of
anti-competitive conduct and potential contraventions of the competition rule.
Competition notices are important enforcement tools that should remain
available to the Australian Competition and Consumer Commission (ACCC) to
address anti-competitive conduct.[147]
A similar view was put in a submission by NBN, although
the submission also canvassed other potential changes to Part XIB.[148]
Optus submitted that notwithstanding development in
telecommunications, concentrated markets remained and that there was a
justification for the retention of the existing Part XIB provisions. The
submission did, however, agree that the anti-competitive conduct provision in
Part XIB should mirror the changes recommended by the Harper Review (and
introduced by item 1 of Schedule 1 above), apart from the
mandatory factors.[149]
A submission from Vodafone expressed a strong preference to retain Divisions 2
and 3 of Part XIB, stating that ‘[t]he justifications for introducing these
anti-competitive conduct prohibitions remain as relevant today as they did when
they were introduced in 1996.’[150]
Part 2—consequential
amendments
Part 2 of Schedule 2 to the Bill makes a
range of consequential amendments to the CCA as a result of the main
amendments proposed in Part 1. For instance, items 2-4 of Schedule
2 remove references to section 151AJ from other provisions of the CCA
to reflect the proposed removal of the anti-competitive conduct provision. Items
5 and 6 of Schedule 2 amend the heading and simplified outline of
Part XIB to reflect the proposed more limited scope of Part XIB, which will
then be focused on filing tariff information and record-keeping rules. It is
not anticipated that the amendments as proposed in Part 2 will change
the operation of the CCA.
Appendix 1
Current
section 46
46 Misuse of market power
(1) A
corporation that has a substantial degree of power in a market shall not take
advantage of that power in that or any other market for the purpose of:
(a) eliminating
or substantially damaging a competitor of the corporation or of a body
corporate that is related to the corporation in that or any other market;
(b) preventing the entry of
a person into that or any other market; or
(c) deterring or preventing
a person from engaging in competitive conduct in that or any other market.
(1AAA) If a corporation
supplies goods or services for a sustained period at a price that is less than
the relevant cost to the corporation of supplying the goods or services, the
corporation may contravene subsection (1) even if the corporation cannot, and
might not ever be able to, recoup losses incurred by supplying the goods or
services.
(1AA) A corporation that
has a substantial share of a market must not supply, or offer to supply, goods
or services for a sustained period at a price that is less than the relevant
cost to the corporation of supplying such goods or services, for the purpose
of:
(a) eliminating
or substantially damaging a competitor of the corporation or of a body
corporate that is related to the corporation in that or any other market; or
(b) preventing the entry of
a person into that or any other market; or
(c) deterring or preventing
a person from engaging in competitive conduct in that or any other market.
(1AB) For the purposes of
subsection (1AA), without limiting the matters to which the Court may have
regard for the purpose of determining whether a corporation has a substantial
share of a market, the Court may have regard to the number and size of the
competitors of the corporation in the market.
(1A) For the purposes of
subsections (1) and (1AA):
(a) the
reference in paragraphs (1)(a) and (1AA)(a) to a competitor includes a
reference to competitors generally, or to a particular class or classes of
competitors; and
(b) the
reference in paragraphs (1)(b) and (c) and (1AA)(b) and (c) to a person
includes a reference to persons generally, or to a particular class or classes
of persons.
(2) If:
(a) a
body corporate that is related to a corporation has, or 2 or more bodies
corporate each of which is related to the one corporation together have, a
substantial degree of power in a market; or
(b) a
corporation and a body corporate that is, or a corporation and 2 or more bodies
corporate each of which is, related to that corporation, together have a
substantial degree of power in a market;
the corporation shall be taken
for the purposes of this section to have a substantial degree of power in that
market.
(3) In
determining for the purposes of this section the degree of power that a body
corporate or bodies corporate has or have in a market, the court shall have
regard to the extent to which the conduct of the body corporate or of any of
those bodies corporate in that market is constrained by the conduct of:
(a) competitors,
or potential competitors, of the body corporate or of any of those bodies
corporate in that market; or
(b) persons
to whom or from whom the body corporate or any of those bodies corporate
supplies or acquires goods or services in that market.
(3A) In
determining for the purposes of this section the degree of power that a body
corporate or bodies corporate has or have in a market, the court may have
regard to the power the body corporate or bodies corporate has or have in that
market that results from:
(a) any
contracts, arrangements or understandings, or proposed contracts, arrangements
or understandings, that the body corporate or bodies corporate has or have, or
may have, with another party or other parties; and
(b) any
covenants, or proposed covenants, that the body corporate or bodies corporate
is or are, or would be, bound by or entitled to the benefit of.
(3B) Subsections (3)
and (3A) do not, by implication, limit the matters to which regard may be had
in determining, for the purposes of this section, the degree of power that a
body corporate or bodies corporate has or have in a market.
(3C) For the purposes
of this section, without limiting the matters to which the court may have
regard for the purpose of determining whether a body corporate has a
substantial degree of power in a market, a body corporate may have a
substantial degree of power in a market even though:
(a) the body corporate does
not substantially control the market; or
(b) the body corporate does
not have absolute freedom from constraint by the conduct of:
(i) competitors, or
potential competitors, of the body corporate in that market; or
(ii) persons
to whom or from whom the body corporate supplies or acquires goods or services
in that market.
(3D) To avoid doubt,
for the purposes of this section, more than 1 corporation may have a
substantial degree of power in a market.
(4) In this section:
(a) a reference to power is
a reference to market power;
(b) a reference to a market
is a reference to a market for goods or services; and
(c) a
reference to power in relation to, or to conduct in, a market is a reference to
power, or to conduct, in that market either as a supplier or as an acquirer of
goods or services in that market.
(4A) Without limiting
the matters to which the court may have regard for the purpose of determining
whether a corporation has contravened subsection (1), the court may have regard
to:
(a) any
conduct of the corporation that consisted of supplying goods or services for a
sustained period at a price that was less than the relevant cost to the
corporation of supplying such goods or services; and
(b) the reasons for that
conduct.
(5) Without
extending by implication the meaning of subsection (1), a corporation shall not
be taken to contravene that subsection by reason only that it acquires plant or
equipment.
(6) This
section does not prevent a corporation from engaging in conduct that does not
constitute a contravention of any of the following sections, namely, sections
45, 45B, 47, 49 and 50, by reason that an authorization or clearance is in
force or by reason of the operation of subsection 45(8A) or section 93.
(6A) In determining
for the purposes of this section whether, by engaging in conduct, a corporation
has taken advantage of its substantial degree of power in a market, the court
may have regard to any or all of the following:
(a) whether
the conduct was materially facilitated by the corporation’s substantial degree
of power in the market;
(b) whether
the corporation engaged in the conduct in reliance on its substantial degree of
power in the market;
(c) whether
it is likely that the corporation would have engaged in the conduct if it did
not have a substantial degree of power in the market;
(d) whether
the conduct is otherwise related to the corporation’s substantial degree of
power in the market.
This
subsection does not limit the matters to which the court may have regard.
(7) Without
in any way limiting the manner in which the purpose of a person may be
established for the purposes of any other provision of this Act, a corporation
may be taken to have taken advantage of its power for a purpose referred to in
subsection (1) notwithstanding that, after all the evidence has been
considered, the existence of that purpose is ascertainable only by inference
from the conduct of the corporation or of any other person or from other
relevant circumstances.
Appendix 2
Proposed
new section 46
46 Misuse of market power
(1) A corporation that has a
substantial degree of power in a market must not engage in conduct that has the
purpose, or has or is likely to have the effect, of substantially lessening
competition in:
(a) that market; or
(b) any other market in which
that corporation, or a body corporate that is related to that corporation:
(i) supplies goods or
services, or is likely to supply goods or services; or
(ii) supplies
goods or services, or is likely to supply goods or services, indirectly through
one or more other persons; or
(c) any other market in which
that corporation, or a body corporate that is related to that corporation:
(i) acquires goods or
services, or is likely to acquire goods or services; or
(ii) acquires
goods or services, or is likely to acquire goods or services, indirectly
through one or more other persons.
(2) Without limiting the
matters to which regard may be had in determining for the purposes of
subsection (1) whether conduct has the purpose, or has or is likely to
have the effect, of substantially lessening competition in a market, regard
must be had to the extent to which:
(a) the
conduct has the purpose of, or has or would be likely to have the effect of,
increasing competition in that market, including by enhancing efficiency,
innovation, product quality or price competiveness in that market; and
(b) the
conduct has the purpose of, or has or would be likely to have the effect of, lessening
competition in that market, including by preventing, restricting, or deterring
the potential for competitive conduct or new entry into that market.
(3) A corporation is taken for
the purposes of this section to have a substantial degree of power in a market
if:
(a) a
body corporate that is related to that corporation has, or 2 or more bodies
corporate each of which is related to that corporation together have, a
substantial degree of power in that market; or
(b) that
corporation and a body corporate that is, or that corporation and 2 or more
bodies corporate each of which is, related to that corporation, together have a
substantial degree of power in that market.
(4) In determining for the
purposes of this section the degree of power that a body corporate or bodies
corporate have in a market:
(a) regard
must be had to the extent to which the conduct of the body corporate or of any
of those bodies corporate in that market is constrained by the conduct of:
(i) competitors,
or potential competitors, of the body corporate or of any of those bodies
corporate in that market; or
(ii) persons
to whom or from whom the body corporate or any of those bodies corporate
supplies or acquires goods or services in that market; and
(b) regard
may be had to the power the body corporate or bodies corporate have in that
market that results from:
(i) any
contracts, arrangements or understandings that the body corporate or bodies
corporate have with another party or other parties; or
(ii) any
proposed contracts, arrangements or understandings that the body corporate or
bodies corporate may have with another party or other parties.
(5) For the purposes of this
section, a body corporate may have a substantial degree of power in a market
even though:
(a) the body corporate does not
substantially control that market; or
(b) the body corporate does
not have absolute freedom from constraint by the conduct of:
(i) competitors, or
potential competitors, of the body corporate in that market; or
(ii) persons
to whom or from whom the body corporate supplies or acquires goods or services
in that market.
(6) Subsections (4) and (5)
do not limit the matters to which regard may be had in determining, for the
purposes of this section, the degree of power that a body corporate or bodies
corporate has or have in a market.
(7) To avoid doubt, for the
purposes of this section, more than one corporation may have a substantial
degree of power in a market.
(8) In this section:
(a) a reference to power is a
reference to market power; and
(b) a reference to a market is
a reference to a market for goods or services; and
(c) a
reference to power in relation to, or to conduct in, a market is a reference to
power, or to conduct, in that market either as a supplier or as an acquirer of
goods or services in that market.
[1]. Competition
and Consumer Amendment (Misuse of Market Power) Bill 2016, Proposed
amendment [sheet GZ201].Parliament of Australia, ‘Competition
and Consumer Amendment (Misuse of Market Power) Bill 2016’, Australian
Parliament website.
[2]. Competition and
Consumer Act 2010, section 2; Queensland Wire Industries Pty Ltd v
Broken Hill Pty Co Ltd (1989) 167 CLR 177, [1989] HCA 6,
[24] (Mason CJ and Wilson J).
[3]. L
Murphy, ‘Second
reading speech: Trade Practices Bill 1974’, Trade Practices Bill: In
Committee, 14 August 1974, p. 923.
[4]. T
Abbott (Prime Minister) and B Billson (Minister for Small Business), ‘Review
of competition policy’, media release, 4 December 2013.
[5]. Competition
Policy Review, Competition
policy review terms of reference, 27 March 2014.
[6]. Competition
Policy Review, Competition
policy review issues paper, 14 April 2014.
[7]. Competition
Policy Review Panel (Australia), Competition
policy review: draft report, (Harper Review: draft report), Canberra, September 2014.
[8]. Competition
Policy Review Panel (Australia), Competition
policy review: final report, (Harper Review: final report), Canberra, March 2015.
[9]. Harper
Review: draft report, op. cit., p. 42; Draft recommendation 25,
p. 44.
[10]. Ibid.,
pp. 42–43. See also pp. 206–212.
[11]. Ibid.,
p. 212.
[12]. Harper
Review: final report, op. cit., Canberra, March 2015, pp. 337–339.
[13]. Ibid.,
pp. 339–340.
[14]. Ibid.,
pp. 60–62, 335–348.
[15]. Ibid.,
p. 61.
[16]. Ibid.,
p. 345.
[17]. Ibid.
[18]. Australian
Competition and Consumer Commission (ACCC), Draft
framework for misuse of market power guidelines, ACCC, Canberra, September 2016.
[19]. The
Treasury, Australian
government response to the Competition Policy Review, The Treasury,
Canberra, 24 November 2015, p. 25.
[20]. The
Treasury, Options
to strengthen the misuse of market power law, Discussion paper, The
Treasury, Canberra, December 2015.
[21]. M Turnbull (Prime
Minister), S Morrison (Treasurer) and K O’Dwyer (Assistant Treasurer), Fixing
competition policy to drive economic growth and jobs, media release,
16 March 2016; S Morrison (Treasurer), Release
of exposure draft for consultation: strengthening Australia’s competition law,
media release, 5 September 2016.
[22]. Competition
and Consumer Amendment (Competition Policy Review) Bill 2016: exposure draft,
5 September 2016.
[23]. Department
of Communications and the Arts, Review
of the Part XIB telecommunications anti-competitive conduct provisions,
Discussion paper, Canberra, September 2016.
[24]. Competition
and Consumer Amendment (Competition Policy Review) Bill 2016: exposure draft,
op. cit.
[25]. Senate
Selection of Bills Committee, Report,
10, 2016, The Senate, Canberra, 1 December 2016, p. 3.
[26]. Senate
Economics Legislation Committee, Competition
and Consumer Amendment (Misuse of Market Power) Bill 2016 [Provisions],
The Senate, Canberra, February 2017.
[27]. Senate
Economics Legislation Committee, ‘Submissions’,
Parliament of Australia website, February 2017.
[28]. Senate
Economics Legislation Committee, Competition
and Consumer Amendment (Misuse of Market Power) Bill 2016 [Provisions],
op. cit., p. 23.
[29]. Australian
Dairy Farmers, Submission
to Senate Economics Legislation Committee, Inquiry into the Competition and
Consumer Amendment (Misuse of Market Power) Bill 2016, submission
no. 6, 6 January 2017, p. 3; Woolworths Limited, Submission
to Senate Economics Legislation Committee, Inquiry into the Competition and
Consumer Amendment (Misuse of Market Power) Bill 2016, submission no. 19,
9 January 2017, p. 4; Business Council of Australia, Submission
to Senate Economics Legislation Committee, Inquiry into the Competition and Consumer
Amendment (Misuse of Market Power) Bill 2016, submission no. 27, January 2017,
p. 7.
[30]. Senate
Economics Legislation Committee, Competition
and Consumer Amendment (Misuse of Market Power) Bill 2016 [Provisions],
op. cit., p. 25.
[31]. Ibid.,
p. 27.
[32]. Ibid.,
p. 28.
[33]. Ibid.,
p. 29.
[34]. Ibid.,
pp. 30–31.
[35]. Senate
Standing Committee for the Selection of Bills, Scrutiny
digest, 1, 2017, The Senate, Canberra, 8 February 2017, p. 11.
[36]. Explanatory
Memorandum, Competition and Consumer Amendment (Misuse of Market Power)
Bill, pp. 3–4, 30.
[37]. The
Statement of Compatibility with Human Rights can be found at pages 31–32 of the
Explanatory
Memorandum to the Bill.
[38]. Parliamentary
Joint Committee on Human Rights, Scrutiny
report, 1, 2017, The Senate, Canberra, 16 February 2017,
p. 32.
[39]. Harper
Review: final report, op. cit., p. 338.
[40]. Queensland
Wire Industries Pty Ltd v Broken Hill Pty Co Ltd (1989) 167 CLR 177, [1989] HCA 6.
[41]. Ibid.,
[24] (Mason CJ and Wilson J).
[42]. Ibid.,
[28] (Mason CJ and Wilson J). See also Deane J at [10] (with whom Dawson J
agreed) who construed the market differently and focussed heavily on the
purpose of BHP’s refusal to supply QWI with Y-bar. See further Toohey J at
[37].
[43]. Melway
Publishing Pty Ltd v Robert Hicks Pty Ltd (2001) 205 CLR 1, [2001] HCA 13;
Boral Besser Masonry Ltd v ACCC (2003) 215 CLR 374, [2003] HCA 5;
Rural Press Ltd v ACCC (2003) 216 CLR 53, [2003] HCA 75;
ACCC v Cement Australia, [2013] FCA 909.
[44]. The
fourth case was decided in 2013 and the ACCC has appealed the Federal Court’s
penalty decision: ACCC, ‘ACCC
appeals Cement Australia level of penalties’, media release, MR 99/16, 6 June 2016.
[45]. There
was a consideration of whether the appropriate test was a ‘could have behaved’
test or a ‘would have behaved’ test. In Melway and Rural Press the
courts adopted a ‘could have behaved’ test. In response to the Rural Press
decision, section 46 was amended with the insertion of subsection (6A) to
formalise a ‘would have behaved’ test.
[46]. Harper
Review: final report, op. cit., p. 338.
[47]. F
Zumbo, ‘The
High Court’s Rural Press decision: the end of s 46 as a deterrent against abuse
of market power?’, Trade Practices Law Journal, 12, 2004, pp. 126–134.
[48]. Harper
Review: final report, op. cit., pp. 338, 345.
[49]. R
Sims, ‘Section 46: the great
divide’, speech to the Hodgekiss Competition Law Conference, ACCC website,
Sydney, 30 May 2015.
[50]. Harper
Review: final report, op. cit., p. 339.
[51]. Competition and
Consumer Act 2010, subsection 4(2).
[52]. Rhone-Poulenc
Agrochimie SA v UIM Chemical Services Pty Ltd [1986] FCA 218,
[29] (Bowen CJ).
[53]. Re
Tooth & Co Ltd; Re Tooheys (1977) TPRS 203.131 [electronic version not
available].
[54]. Queensland
Wire Industries Pty Ltd v Broken Hill Pty Co Ltd (1989) 167 CLR 177, [1989] HCA 6;
Melway Publishing Pty Ltd v Robert Hicks Pty Ltd (2001) 205 CLR 1, [2001] HCA 13;
NT Power Generation Pty Ltd v Power & Water Authority (2004) 219 CLR
90, [2004]
HCA 48; ACCC v Cabcharge Australia Ltd [2010] FCA
1261; ACCC v Ticketek Pty Ltd [2011] FCA
1489.
[55]. S
Corones, Competition Law in Australia, 3rd edn, Lawbook Co., 2004,
p. 414.
[56]. Melway
Publishing Pty Ltd v Robert Hicks Pty Ltd (2001) 205 CLR 1, op. cit., [17]
(Gleeson CJ, Gummow, Hayne and Callinan JJ).
[57]. Ibid.,
[44] (Gleeson CJ, Gummow, Hayne and Callinan JJ).
[58]. MinterEllison,
Submission
to Senate Economics Legislation Committee, Inquiry into the Competition and
Consumer Amendment (Misuse of Market Power) Bill 2016, submission
no. 15, 9 January 2017; Business Council of Australia, Submission
to Treasury, Competition and Consumer Amendment (Misuse of Market Power)
Bill 2016: exposure draft, submission no. 79210900, September 2016,
p. 6.
[59]. Harper
Review: final report, op. cit., pp. 57 and 340.
[60]. Rural
Press Ltd v ACCC [2002] FCAFC
213. The decision was upheld on appeal, although the High Court did not
comment on this aspect of the appeal: Rural Press Ltd v ACCC (2003) 216
CLR 53, [2003]
HCA 75. Section 46 was amended by the Trade Practices
Legislation Amendment Act (No. 1) 2007.
[61]. Competition
and Consumer Act, sections 45, 45B, 45C, 45DA, 47, 49–50.
[62]. Harper
Review: final report, op. cit., p. 513.
[63]. The
Treasury, Options
to strengthen the misuse of market power law, op. cit.
[64]. S
Morrison, Release
of exposure draft for consultation: strengthening Australia’s competition law,
op. cit. See also Treasury, ‘Competition
law amendments: exposure draft consultation’, Treasury website, 5 September 2016.
[65]. Competition
and Consumer Act, proposed paragraphs 46(1)(a)–(c).
[66]. Explanatory
Memorandum, Competition and Consumer Amendment (Misuse of Market Power)
Bill 2016, p. 12.
[67]. Senate
Economics Legislation Committee, Competition
and Consumer Amendment (Misuse of Market Power) Bill 2016.
[68]. Law
Council of Australia, Submission
to Senate Economics Legislation Committee, Inquiry into the Competition and
Consumer Amendment (Misuse of Market Power) Bill 2016, submission
no. 20, 9 January 2017, p. 2.
[69]. J
Clarke, Submission
to Senate Economics Legislation Committee, Inquiry into the Competition and
Consumer Amendment (Misuse of Market Power) Bill 2016, submission
no. 7, 6 January 2017, p. 7.
[70]. That
is, the market power is not exercised in the market that the power originates
from, nor is the market power exercised in another market where the corporation
(or a related body corporate) supplies or acquires (or is likely to supply or
acquire), whether directly or indirectly, goods or services.
[71]. Queensland
Wire Industries Pty Ltd v Broken Hill Pty Co Ltd (1989) 167 CLR 177, [1989] HCA 6,
[15] (Mason CJ and Wilson J).
[72]. Competition and
Consumer Act 2010, section 4E. For a good explanation of the
interpretation and importance of correctly defining the ‘market’ see I Stewart,
‘The
economics and law of section 46 of the Trade Practices Act’, Australian Business
Law Review, 26, 1998, pp. 111‑138, esp. 114–121.
[73]. Queensland
Wire Industries Pty Ltd v Broken Hill Pty Co Ltd (1989) 167 CLR 177, [1989] HCA 6,
[30] (Mason CJ and Wilson J).
[74]. Law
Council of Australia, Submission
to Treasury, Competition and Consumer Amendment (Misuse of Market Power)
Bill 2016: exposure draft, 4 October 2016, p. 7.
[75]. Business
Council of Australia, Submission
to Treasury, op. cit., p. 11.
[76]. See
Harper Review: final report p. 339 (footnote 539) for examples of
submissions which supported the Draft Report changes, and p. 339 (footnote 540)
for examples of submissions which opposed the Draft Report changes.
[77]. Harper
Review: final report, op. cit., p. 339.
[78]. Ibid.
[79]. Ibid.
[80]. Competition and
Consumer Act 2010, sections 45, 47, and 50.
[81]. ACCC
v Pauls Ltd [2002] FCA
1586, [104] (O’Loughlin J); Trade Practices Commission v TNT Management
Ltd [1985]
FCA 23, [257] (Franki J).
[82]. Tillmanns
Butcheries Pty Ltd v Australasian Meat Industry Employees’ Union (1979)
42 FLR 331, [1979]
FCA 85.
[83]. Ibid.,
[34] (Bowen CJ). See further Deane J at [10].
[84]. Monroe
Topple & Associates Pty Ltd v Institute of Chartered Accountants in
Australia [2002] FCAFC
197.
[85]. Ibid.,
[111] (Heerey J) (with whom Black CJ and Tamberlin J agreed). Also note that
Heerey J was referring to Deane J’s judgment in Tillmanns Butcheries Pty Ltd
v Australasian Meat Industry Employees’ Union (1979) 42 FLR 331, [1979] FCA 85
which concerned s 45D of the Act, ‘but the reasoning of Deane J is equally
applicable to the concept of likely effect in s 47(10)’ at [111].
[86]. Australian
Gas Light Company v Australian Competition and Consumer Commission (No. 3) [2003] FCA
1525.
[87]. Ibid.,
[343] (French J).
[88]. Harper
Review: final report, op. cit., p. 339.
[89]. Queensland
Wire Industries Pty Ltd v Broken Hill Pty Co Ltd (1989) 167 CLR 177, [1989] HCA 6,
[24] (Mason CJ, Wilson J).
[90]. R
Sims, ‘Section 46: the great
divide’, speech to the Hodgekiss Competition Law Conference, Sydney, 30 May 2015.
[91]. See
also C Coops, ‘A
fly in the ointment for the ACCC? Implications of the Cement Australia decision
for the interpretation of section 46’, Australian Journal of Competition
and Consumer Law, 23, 2015, pp. 83–96, p. 95.
[92]. Queensland
Wire Industries Pty Ltd v Broken Hill Pty Co Ltd (1989) 167 CLR 177, [1989] HCA 6,
[22] (Mason CJ, Wilson J), [4] (Deane J) (with whom Dawson J agreed).
[93]. Ibid.,
[32] (Toohey J).
[94]. See,
for example, RP Data Limited v State of Queensland [2007] FCA
1639; Seven Network Ltd v News Ltd [2009] FCAFC
166; Monroe Topple & Associates Pty Ltd v Institute of Chartered
Accountants in Australia [2002] FCAFC
197.
[95]. Australian
Competition and Consumer Commission v Pfizer Australia Pty Ltd [2015] FCA 113;
Australian Competition and Consumer Commission (ACCC), ‘ACCC appeals Pfizer
decision’, media release, 18 March 2015. See also M Terceiro, ‘Mythbusting: bridging the
great section 46 divide’, Competition and Consumer Protection Law, blog,
8 November 2015.
[96]. Melway
Publishing Pty Ltd v Robert Hicks Pty Ltd (2001) 205 CLR 1, [2001] HCA 13,
[104] (Kirby J).
[97]. R
Miller, Miller’s Australian competition and consumer law annotated, 38th
edn, Thomson Reuters (Professional) Australia Limited, Sydney, 2016,
pp. 590–591.
[98]. Ibid.,
p. 527.
[99]. Harper
Review: final report, op. cit., pp. 339–342.
[100]. Law
Council of Australia, Submission
to Treasury, op. cit., p. 5.
[101]. MinterEllison,
Submission
to Senate Economics Legislation Committee, op. cit., p. 2.
[102]. Harper
Review: final report, op. cit., p. 341; Competition and
Consumer Act 2010, sections 45, 47, and 50.
[103]. Stirling
Harbour Services Pty Ltd v Bunbury Port Authority [2000] FCA 38,
[113] (French J).
[104]. Ibid.,
[114].
[105]. See
discussion in Rural Press Ltd v ACCC (2003) 216 CLR
53, [fn. 26].
[106]. The
Australian Builders’ Labourers’ Federated Union of Workers—Western Australia
Branch v J-Corp Pty Ltd [1993] FCA 266,
[39] (Lockhart and Gummow JJ); Devenish v Jewel Food Stores Pty Ltd (1991) 172 CLR 32,
[31] (Mason CJ).
[107]. Harper
Review: final report, op. cit., p. 344.
[108]. Harper
Review: draft report, op. cit., p. 212.
[109]. Ibid.,
p. 210.
[110]. Harper
Review: final report, op. cit., pp. 342–345.
[111]. Ibid.,
pp. 341, 343.
[112]. Minter
Ellison, Submission
to Treasury, Competition and Consumer Amendment (Misuse of Market Power)
Bill 2016: exposure draft, submission no. 127029476, 29 September 2016,
p. 5.
[113]. Business
Council of Australia, Submission
to Treasury, Competition and Consumer Amendment (Misuse of Market Power)
Bill 2016: exposure draft, op. cit., pp. 12–13.
[114]. Australian
Competition and Consumer Commission, Submission
to Treasury, Competition and Consumer Amendment (Misuse of Market Power)
Bill 2016: exposure draft, submission no. 458281969, 5 October 2016,
p. 7.
[115]. Senate
Economics Legislation Committee, Competition
and Consumer Amendment (Misuse of Market Power) Bill 2016 [Provisions],
op. cit., pp. 22–23.
[116]. Ibid.,
p. 23, recommendation 1.
[117]. Harper
Review: final report, op. cit., pp. 342–345.
[118]. Australian
Food and Grocery Council, Submission
to Treasury, Competition and Consumer Amendment (Misuse of Market Power)
Bill 2016: exposure draft, submission no. 49942290,
30 September 2016.
[119]. Business
Council of Australia, Submission
to Treasury, Competition and Consumer Amendment (Misuse of Market Power)
Bill 2016: exposure draft, p. 11, op. cit.
[120]. There
is also an important relationship between section 46 and Part IIIA of the CCA
which covers the national access regime to nationally significant
infrastructure, but that is not discussed here.
[121]. Generally
action has been brought under sections 45 and/or 47 in addition to section 46:
M Terceiro, ‘Mythbusting: bridging the
great section 46 divide’, op. cit.
[122]. ACCC,
Draft
framework for misuse of market power guidelines, ACCC, Canberra, September 2016.
[123]. Australian
Automobiles Association, Submission
to ACCC, Draft framework on misuse of market power, 30 September 2016,
p. 4.
[124]. There
is also a distinction made between the purpose of the arrangement (section 45)
and the purpose of the corporation engaging in the relevant conduct (section
46), in addition to the fact that section 46 applies to unilateral conduct.
[125]. Australian
Food and Grocery Council, Submission
to Treasury, Competition and Consumer Amendment (Misuse of Market Power)
Bill 2016: exposure draft, op. cit., p. 4.
[126]. Section
155 notices relate to the information gathering powers of the ACCC. Private
litigants do not have access to section 155 notices and are therefore arguably
further disadvantaged.
[127]. Harper
Review: final report, op. cit., p. 345.
[128]. Ibid.
[129]. Ibid.
[130]. Explanatory
Memorandum, Competition and Consumer Amendment (Misuse of Market Power)
Bill 2016, pp. 27–29.
[131]. ACCC,
Draft
framework for misuse of market power guidelines, Canberra, September 2016.
[132]. Choice,
Submission
to Treasury, Competition and Consumer Amendment (Misuse of Market Power) Bill
2016: exposure draft, submission no. 587199721,
12 February 2016, p. 2; National Farmers’ Federation, Submission
to Treasury, Competition and Consumer Amendment (Misuse of Market Power)
Bill 2016: exposure draft, 12 February 2016, p. 1. For
concerns about the loss of an explicit offence for predatory pricing see, for
example, Queensland Dairyfarmers’ Organisation, Submission
to Treasury, Competition and Consumer Amendment (Misuse of Market Power)
Bill 2016: exposure draft, 12 February 2016, p. 1; Senate
Economics Legislation Committee, Competition
and Consumer Amendment (Misuse of Market Power) Bill 2016, p. 19.
[133]. Senate
Economics Legislation Committee, Competition
and Consumer Amendment (Misuse of Market Power) Bill 2016, pp. 19, 21, 23.
[134]. R
Miller, Miller’s Australian competition and consumer law annotated, op. cit.,
p. 1221.
[135]. Competition and
Consumer Act 2010, section 151AKA.
[136]. Ibid.,
sections 151AL and 151AN.
[137]. Ibid.,
paragraph 151BX(3)(a).
[138]. Explanatory
Memorandum, Trade Practices Amendment (Telecommunications) Bill 1996, p. 6.
[139]. Ibid.,
p. 7.
[140]. Explanatory
Memorandum, Competition and Consumer Amendment (Misuse of Market Power)
Bill 2016, p. 15. See also, ACCC, Competition
notices register (s. 151AR), ACCC, Canberra, n.d.
[141]. M
Vertigan, Independent
cost-benefit analysis of broadband and review of regulation: statutory review
under section 152EOA of the Competition and Consumer Act 2010,
June 2014, Canberra, pp. 22––24.
[142]. Harper
Review: final report, op. cit., p. 345.
[143]. Department
of Communications and the Arts, Review of the Part XIB telecommunications
anti-competitive conduct provisions, Discussion paper,
September 2016, Canberra.
[144]. ACCC,
Submission
to the Department of Communications and the Arts, Review of the Part XIB
telecommunications anti-competitive conduct provisions, 6 October 2016,
p. 1.
[145]. The
Australian Communications Consumer Action Network, Submission
to the Department of Communications and the Arts, Review of the Part XIB
telecommunications anti-competitive conduct provisions,
6 October 2016, p. 1.
[146]. Telstra
Corporation Limited, Submission
to the Department of Communications and the Arts, Review of the Part XIB
telecommunications anti-competitive conduct provisions, 30 September 2016,
p. 2.
[147]. Competitive
Carriers’ Coalition, Submission
to the Department of Communications and the Arts, Review of the Part XIB
telecommunications anti-competitive conduct provisions, 3 October 2016,
pp. 1–2.
[148]. NBN
Co Limited, Submission
to the Department of Communications and the Arts, Review of the Part XIB
telecommunications anti-competitive conduct provisions, 2016, pp. 1, 6, 8.
[149]. Optus,
Submission
to the Department of Communications and the Arts, Review of the Part XIB
telecommunications anti-competitive conduct provisions, September 2016.
[150]. Vodafone
Hutchison Australia, Submission
to the Department of Communications and the Arts, Review of the Part XIB
telecommunications anti-competitive conduct provisions, October 2016,
p. 2.
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