Whoever wins the election, the TPA will change

By Joanne Daniels and Rob Shilkin.

Key Points:
Some significant reforms to competition law are being proposed.

Although competition law has not been a major focus of the current election campaign, the major political parties all have policies to amend the competition law provisions of the Trade Practices Act.

Some significant reforms to competition law are being proposed.

The Coalition

The Coalition's plans for reform to the Trade Practices Act are largely contained in the Trade Practices Amendment Legislation Bill 2004, which was introduced to Parliament before the election campaign. The main reforms include:

• Introduction of a voluntary, formal merger clearance process
• Introducing a defence for exclusionary provisions (ie. boycotts) and price fixing if the conduct is for the purposes of a joint venture and does not substantially lessen competition
• Third line forcing (a corporation offering goods or services, or a discount, on the condition that the purchaser acquires goods from a third person (including a related body corporate)) to be subject to a "substantial lessening of competition" test, rather than being strictly illegal
• A new notification process to enable small businesses to obtain immunity from the Act when bargaining collectively
• Financial penalties for a breach of the Act to be increased to a maximum of 10 percent of the company's turnover
• A prohibition on companies indemnifying employees and directors who are found to have breached the Act; and
• Giving courts the power to disqualify an individual implicated in a contravention of the Act from being a director of a corporation or being involved in its management.

In addition, the Coalition has promised to implement two of the recommendations of the recent Senate Economics Committee report "The effectiveness of the Trade Practices Act 1974 in protecting small business". Generally speaking, these reforms are:

• Relatively minor reforms to section 46 of the Act, which prohibits misuse of market power. The Coalition proposes to amend section 46 to better deal with predatory pricing, by enabling courts to take account of "below cost pricing" and whether a corporation has a reasonable prospect or expectation of recoupment when determining if a corporation misused their market power.
• In relation to unconscionable conduct in small business transactions, the $3 million cap will be raised to $10 million. Courts will also be able to have regard to the imposition or utilisation of contract terms that allow for the unilateral variation of any contract between the large business and the small business, in determining if unconscionable conduct has occurred.

The Coalition has also flagged that it is investigating the introduction of criminal penalties and jail sentences for "hard core cartel" conduct.

Australian Labor Party

The ALP has proposed a far more wide-reaching raft of reforms to the Trade Practices Act which will potentially have very significant impacts on Australian businesses.

It has released a platform entitled "Restoring Competition and Innovation - Labor's plan to reform the Trade Practices Act". It has also signed up to the 10 items contained in the "Fair Trading Coalition Small Business Charter of Fairness".

The main amendments proposed by the ALP are:

Mergers and acquisitions

The ALP's position on the Coalition's proposed reforms to the merger clearance process is unclear. However, the ALP will amend the Act to allow the ACCC to treat a series of cumulative acquisitions as one single event and then determine whether the series of acquisitions lessens competition. This proposal is intended to put a brake on creeping acquisitions, where a larger company proceeds to acquire smaller businesses over a period of time.

Misuse of market power

The ALP proposes that predatory pricing be specifically dealt with in the Act by stating that, in determining whether there has been a breach of section 46, the capacity of the corporation to sell below its variable cost should be taken into account and that it is not necessary for a corporation to be able to recoup the losses experienced as a result of any predatory pricing strategy. This could significantly broaden the application of section 46 to corporations engaging in competitive pricing strategies.

The ALP also proposes to amend section 46 to state that, in determining whether a corporation has market power, it is relevant if the corporation has substantial financial power. "Financial power" will be defined in terms of access to financial, technical and business resources. This amendment would widen the reach of section 46 to more corporations than are presently caught by the section.

Penalties and remedies

The ALP will introduce criminal sanctions for breaches of the price fixing provisions of the Trade Practices Act. It is unclear whether or not this policy is broader than the Coalition's policy of introducing criminal sanctions for "hard core cartels".

The ALP will also give the ACCC the power to issue cease and desist orders to restrain corporations from misusing their market power. These orders are interim administrative orders made by the ACCC that could restrain a corporation from engaging in particular conduct.

The ACCC also proposes to introduce a new power of divestiture for use by the courts in cases of repeated abuse of market power and cartel activity.

The ALP is understood to support the Coalition's proposal to introduce turnover-based penalties, a prohibition on indemnifying employees for contraventions of the Act and the option of courts to disqualify individuals from directing or managing of a company.

Unconscionable conduct

The ALP proposes to proscribe unilateral variation of contracts and the termination of contracts at will without just cause. It is unclear whether such conduct will be prohibited outright or will be introduced as an indicium of unconscionable conduct.

Administration

The ALP proposes to create a "Small Business as Consumers Division" of the ACCC whose role would be "to act generally as a small business advocate within the ACCC". Further, the ALP proposes that a Small Business Advocate be appointed to represent small business to the Commonwealth Government.

The ALP also proposes to build into the Trade Practices Act a formal statutory review of the Act. It is unclear how frequent such reviews will take place or who will undertake them.

The ALP will extend the jurisdiction of the Federal Magistrates Court so that it can hear misuse of market power and unconscionable conduct cases and matters involving contraventions of industry codes.

Franchising

The ALP proposes to amend the Franchising Code of Conduct to explicitly impose a duty of good faith on franchisors. Further, the ALP plans to amend the Code to ensure that complaints are resolved within 12 months of their lodgement and that "class-type" actions can proceed.

Third line forcing

The ALP proposes to retain the existing strict prohibition on third line forcing, rather than adopt the Coalition's policy of making it subject to a "substantial lessening of competition" test.

Collective negotiation

The ALP supports the amendment of the Act to enable small businesses to collectively negotiate with their suppliers/acquirers and franchisors, including a right of collective boycott.

Australian Democrats

The Democrats have stated their belief that the National Competition Council should be abolished. As a second alternative, the Democrats advocate that the Council of Australian Governments should "urgently revisit all aspects of national competition policy to properly assess whether its economic and social objectives are being met and to gauge its environmental impacts."

The Australian Democrats have supported the 17 recommendations of the recent Senate Economics Committee report "The effectiveness of the Trade Practices Act 1974 in protecting small business". The main recommendations supported by the Democrats include:

• amendments to section 46 as supported by the ALP (see above)
• introducing measures which would prohibit retail lease provisions compelling tenants to keep their tenancy terms and conditions secret
• amending section 50 to catch "creeping acquisitions"
• introducing a divestiture remedy for contravention of section 46
• giving the ACCC cease and desist powers; and
• extending the jurisdiction of the Federal Magistrates Court.

Greens

The Australian Greens have not published a detailed trade practices policy. However, they have stated that they "support enhanced anti-monopoly laws in Australia to stop companies, whether nationally or internationally owned, from gaining domination in the Australian market, as is the case at present in the media industry".

The Greens have also promised to revoke the National Competition Policy and make it possible for States and Territories to regulate in "a way that suits them instead of in a way that suits the global market place".

Conclusion

Regardless of who forms Government after the federal election, it would seem that significant changes to the Act are likely.

The changes proposes by the ALP, the Democrats and Greens, which are motivated by a desire to use the Act as a tool to improve conditions for small businesses, are more wide-ranging and could quite dramatically affect competition law and practice in Australia.

Thanks to Kara Gilmartin for her help in preparing this article.