In March, the Deputy Prime Minister and Minister for Agriculture and Water Resources, Barnaby Joyce, welcomed the Government’s proposal to introduce an ‘effects test’ as recommended by the Harper Review of Competition Policy.
In his media release, Mr Joyce said the Government listened to the overwhelming view of agricultural and small business to protect them against misuse of market power and anti-competitive behaviour.
An ‘effects test’ will prohibit big businesses with substantial market power from behaving in such a way that has the “purpose, effect or likely effect” of substantially reducing competition without any economic justification.
Recommendation 30 of the Harper Review stated the primary prohibition in section 46 of the Competition and Consumer Act 2010 (CCA) should be reframed to prohibit a corporation that has a substantial degree of power in a market from engaging in conduct if the proposed conduct has the purpose, or would have or be likely to have the effect, of substantially lessening competition in that or any other market.
Difficulties with current form of section 46
The existing section 46 only applies to firms that have a substantial degree of power in a market. Section 46 defines conduct as a misuse of market power if it satisfies two legal tests:
First, the conduct must have involved taking advantage of the firm’s market power.
Second, the conduct must have been undertaken for the purpose of eliminating or substantially damaging a competitor, preventing the entry of a person into a market, or deferring or preventing a person from engaging in competitive conduct.
The existing law also makes reference to behaviour that harms competitors, rather than competition.
In a lecture delivered at the University of Melbourne in May 2014, former Australian Competition and Consumer Commission (ACCC) Chairman, Professor Allan Fels AO, presented a compelling case for the addition of an ‘effects test’ to section 46 of the CCA as “virtually every country in the world has an ‘effects test’ and Australia is an embarrassing exception (along with New Zealand).”
Mr Fels went on to state that “a key principle of competition law is that a firm with market power should not be allowed to take advantage of that power to harm competition”, and that “the CCA does not conform with that principle”. The former ACCC chairman also acknowledged that the “ACCC has stated that there are some cases it would bring under s 46 if it did not have to prove purpose.”
Prior to its decision, the Government initiated a consultation period beginning 11 December 2015, which sought industry feedback on options to strengthen the law regarding the misuse of market power, including the introduction of an ‘effects test’. As part of this review the Treasury released a discussion paper calling for submissions.
AADA provided a submission to the Treasury (Market and Competition Policy Division), which is available at http://automotivedealer.com.au/submissions/. As detailed in its submission, AADA supported Recommendation 30 of the Harper Review to strengthen the misuse of market power law through the introduction of an ‘effects test’.
AADA supports amendments to the CCA that have the purpose of increasing competition and providing protections against a firm with substantial market power engaging in activity that will harm other firms and the consumer. This reform would discourage those with substantial market power from misusing it to damage competitors or prevent entry into the market, thus reducing competition, which could create negative outcomes for the industry and the consumer.
The ‘big end of town’ were disappointed with the decision, and Professor Allan Fels AO predicted that big businesses will put up a fierce fight against reform. HWL Ebsworth Lawyers have indicated that this may be relevant to Dealers in dealings with financiers. Proving a likely effect on competition in court is going to be a hugely complex and expensive exercise, and in practice section 46 will likely be litigated mostly by the ACCC.
In an article on its website, accountancy firm Price Waterhouse Coopers advises clients with a substantial degree of power in a market to carefully review their decisionmaking processes to ensure that relevant decisions are captured and evaluated in terms of their competitive impact. This review should extend to internal controls and delegations within corporations, such that key decision points are flagged for a more rigorous competition analysis before they are made or implemented. AADA advises its members to do the same.
Recent media articles indicate that Labor is opposed to the ‘effects test’, arguing it risks creating a ‘lawyers’ picnic’.
1Hutchens 2016, Turnbull government sides with small business, agrees to implement controversial ‘effects test’, viewed 26/04/2016, < http://www.smh.com.au/federal-politics/political-news/turnbull-government-sides-with-small-business-agrees-to-implement-controversial-effects-test-20160316-gnk6mx.html>.
2Harper, Anderson, McCluskey & O’Bryan QC 2015, Competition Policy Review: Final Report, viewed 21/04/2016, < http://competitionpolicyreview.gov.au/files/2015/03/Competition-policy-review-report_online.pdf>.
3Fels 2014, The Competition Review: The Competition Provisions of the Competition and Consumer Act, viewed 26/04/2016, <http://law.unimelb.edu.au/__data/assets/powerpoint_doc/0007/1758418/Allan-Fels-slides-Panel-discussion-19th-May.pptx.>.
4O’Malley, Deakin, Chora & Ng 2016, What the effects test for section 46 means for you, viewed 22/04/2016, <http://www.pwc.com.au/legal/assets/legaltalk/legaltalk-alert-s46-effects-test-16mar16.pdf>.