Root and branch review on the cards

Coalition to uproot competition laws?

Published On 09/09/2013 | By Peta Stevenson | Reform

With the votes counted and Tony Abbott safely claiming a Coalition victory on 7 September 2013, it’s not only the government that is getting a makeover.  As with most elections, the lead up was jam-packed with members of parliament standing on platforms, proposing legal reform and offering change – this one was no different and Australia’s competition laws are now up for a significant review.

In March 2012, Shadow Minister for Small Business, Competition Policy and Consumer Affairs Bruce Billson announced that the Coalition would conduct a “root and branch” review of competition law in Australia (the Review), which was further affirmed in the Coalition’s August 2013 Policy for Small Business (2013 Policy).

The Coalition has indicated its preference that the Review be led by a business person rather than a retired judge or legal luminary.

Committing itself to commencing the Review within the first one hundred days of government has particular political significance. This phrase has its genesis in a quote by President Franklin D. Roosevelt and was also used in relation to his implementation of his “New Deal” reforms in the first 100 days of his presidency in 1933.

Back to basics – the root and branch review

The Review will centre on protecting and promoting small business, something that has been on the agenda of the Australian Competition and Consumer Commission (ACCC) for some time now (previously blogged about here).

In its 2013 Policy, the Coalition stated that the root and branch review of competition laws “will ensure that both small and big business have a level playing field assisted by helping small business better understand fair commercial conduct and a more effective Franchise Code” with a particular focus on “how current and emerging pressures are impacting on economic growth and vitality and durable consumer interests, and how well equipped the current competition toolkit is at dealing with these pressures”.  In order to achieve this new level playing field, they proposed:

  •  A root and branch review of the competition framework.  The Coalition’s Review is intended to be an objective, evidence-based review of how well equipped Australia’s competition framework is to deal with current and emerging pressures in the economy.
  • To extend unfair contract protections that currently apply to consumers to small business.  In order to facilitate this, the Coalition is proposing to provide $1 million to implement this initiative (see below for further detail and here, here and here for blog posts on this topic).
  • Refining the national franchising code.  The Coalition proposes to refine the national franchising code so as to reduce the red tape and to improve knowledge amongst franchisors and franchisees alike so as to strengthen its effectiveness (see here for a blog on this topic).

What to watch for – the most likely areas of reform

1. Extension of the unfair terms regime to small business

The Coalition has committed to extending the protection of unfair contract term provisions to small business, stating that this change would ensure “that big and small businesses get a ‘fair-go’ and do the right thing by each other in their respective marketplaces, delivering real and lasting benefits to consumers”.

Currently, the regime only applies to terms found in standard form consumer contracts.  When first mooted by the then Labor Government in 2008/2009, both Labor and the Coalition endorsed the regime applying to both consumers and small business.  However, the Labor Government withdrew support for its application to small business customers following vocal opposition from many corporates (mostly large businesses).  Key reasons for the opposition included the removal of certainty of contract, small businesses having a greater capacity to understand and manage risk than consumers and the absence of evidence of a real need or policy justification to protect small business in this way.

Nothing is provided by way of evidence in the 2013 Policy to justify the proposed extension.  The Coalition will need to overcome the significant challenge of identifying and defining which small businesses are to be protected (e.g. by reference to the nature of goods or services, through a prescribed monetary threshold, by reference to the size of the business or annual turnover?)  If the new Government does continue down this path, it would be a world first as no other major unfair terms regime in any other country, including Japan, the UK and South Africa, is drafted to extend protection to business customers.

2. Review of the formal merger review process

The Coalition has stated its disappointment with the business community’s failure to use the formal (rather than informal) merger review process and that it will consider a wholesale review of the legislative provisions and ACCC’s merger guidelines.

Under the existing formal review process, the ACCC must decide within 40 business days whether to clear a transaction, and a party is able to appeal the ACCC’s decision on the merits to the Australian Competition Tribunal.  A decision binds the ACCC and confers statutory immunity from any third party proceedings in relation to the merger.

Despite this seemingly attractive option, the public nature of the process has meant corporations continue to prefer the informal review process (under which parties receive a non-binding “no action” letter) and, in fact, the formal process has not been used to date.

We can foresee situations where parties may prefer the existing formal process (with its access to merits review), such as:

  • where the acquirer is expecting complaints and desires greater transparency around the identity of the complainants and nature of the complaints than is allowed under the informal clearance procedure, or
  • where the merger parties and the ACCC differ in their views of the extent of any competition concerns, or the necessity of any divestment or behavioral remedy is in dispute.

A review of the formal process would need to address matters of timing, commercial certainty and the need to protect the confidentiality of commercially sensitive information.

3. Creeping acquisitions

Another area for possible further reform is the way the Competition and Consumer Act 2010 (Cth) (CCA) deals with creeping acquisitions.

Over the past year, we have seen increasing concerns as the big supermarket chains buy up smaller grocery stores in a move to gain market share (blogged about here, here and here).  This reform aims at better controlling this “creeping” process and stands in a long line of other proposed regulatory reform before Parliament when the election was announced (blogged about here), much of which sought to deal with Coles/Woolworths issues with regard to creeping acquisitions.

Reforms have already been made to the CCA to enhance the ACCC’s ability to consider smaller acquisitions, with 2011 amendments to section 50 intended to clarify that the ACCC (and courts) have the power to reject mergers and acquisitions that would substantially lessen competition in any local, regional or national market (rather than the previous requirement that any market affected be “substantial”).  This reform was not seen as significant, rather confirming the ACCC’s existing approach to merger reviews (as set out in the ACCC’s Merger Review Process Guidelines).

As a broad range of reform options have previously been considered, we wait to see how the Review’s terms of reference scope this issue.

Room for more?

Other areas that could be the subject of scrutiny as part of the Review could include:

  • The continuing utility of the national access regime in Part IIIA of the CCA.  With the Productivity Commission’s final report on Part IIIA due to Government in October 2013, this could be an additional focus of the Review.
  • The tools available to the ACCC to investigate potential contraventions, especially in the consumer protection/unconscionable conduct areas.
  • Extending the price-signaling prohibitions (currently applicable only to the banking sector) should be extended to the petrol industry.
  • Removing the per se prohibition on third line forcing, making it subject to a substantial lessening of competition test.
  • The introduction of divestment as a remedy for conduct by companies that take advantage of a substantial degree of power in a market for a prohibited purpose (section 46).

Wholesale change?

While we have outlined a number of particular areas that may be subject to minor or tinkering reform, a more substantial overhaul of all or part of the competition regime is not completely out of the question.  As Billson has foreshadowed: “In a number of areas we have seen a change in the economy; there are new challenges and new pressure points. The laws themselves have been applied and not functioned in the way they were originally envisaged. In other areas we’ve seen provisions not fully exercised.” 

The most obvious candidate for significant change, given the level of criticism leveled at the court’s interpretation of the provision, is the misuse of market power prohibition in section 46.  Billson has stated that the section has been “read down and rendered almost useless when faced with practical examples of muscle flexing of a big business against a small business that occurs in our economy”.

Former ACCC Chairman Allan Fels, among others, has suggested that section 46 ought to be amended to include an assessment of the likely effect of a dominant companys conduct on competition, rather than rely on the more difficult purpose test that looks to whether the corporation has used their position with the intention of achieving an anti-competitive result.

There have also been suggestions that the competition provisions in Part IV of the CCA should be pared back to a small number of essential prohibitions akin to UK, EC and US competition legislation.  Such a simplification of Part IV has been rejected by former reviews including the 1993 review headed by Fred Hilmer, and would be at the risk of certainty based on judicial interpretation to date.

The Coalition’s stated focus on the position of small business suggests a move away from the protection of the competitive process to the protection of the competitors.  With the possibility of significant change afoot, the policy underlying the ACCC – to enhance the welfare of Australians through the promotion of competition and fair trading and provision for consumer protection – cannot be underemphasised.  With review of the CCA a near inevitability, we note the words of Roosevelt:

“To reach a port we must set sail –
Sail, not tie at anchor
Sail, not drift.”

Keep a close eye on In Competition as more detail about the Review becomes available.

Authors: Peta Stevenson and Martine Phillips

Photo credit: Flickr | DAVE

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About The Author

is a partner in the Sydney office of King & Wood Mallesons where she specialises in competition litigation with experience in a wide range of jurisdictions. Peta also advises clients on the application of the anti-competitive conduct, consumer protection and access provisions of the Competition & Consumer Act 2010 (Cth) and related state legislation. In 2001/02 she undertook her LLM at the University of Cambridge, during which time she developed a passionate if fleeting interest in rowing.

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