On 23 March 2016, Hall & Wilcox, in conjunction with the Australian Chamber of Commerce and Industry, had the honour of hosting an exclusive briefing with the Treasurer, the Hon Scott Morrison MP, and the Minister for Small Business and Assistant Treasurer, the Hon Kelly O’Dwyer MP, on the Commonwealth Government’s recent announcement to implement the Harper Review’s recommendations to adopt an ‘effects’ test for misuse of market power.

Under the existing law, businesses with substantial market power are prohibited from taking advantage of that power for the purpose of eliminating or substantially damaging a competitor, preventing the entry of a business into a market or deterring or preventing a business from engaging in competitive conduct. This is set out in section 46 of the Competition and Consumer Act 2010 (Cth) (CCA).

The most controversial of the Harper Review’s recommendations, released in March 2015, is to broaden the prohibition on misuse of market power in a bid to improve the effectiveness of targeting unilateral anti-competitive conduct. Professor Harper found that section 46 is deficient due to:

  • difficulties in interpreting and applying the ‘take advantage’ test to distinguish between pro-competitive and unilateral anti-competitive conduct; and
  • the ‘purpose’ test focusing on harm to individual competitors rather than on harm to the competition process itself.

The Harper Review recommended that section 46 be amended to:

  • remove the ‘take advantage’ test; and
  • replace the ‘purpose’ test with an ‘effects’ test prohibiting corporations with substantial market power from engaging in conduct that has the purpose, effect or likely effect of substantially lessening competition.

The Harper Review also recommended that in determining whether or not conduct has such anti-competitive purpose or effect, courts should have regard to certain factors, specifically, whether the conduct enhances efficiency, innovation, product quality or price competitiveness and whether it prevents, restricts or deters the potential for competitive conduct or new entry.

On 16 March 2016, the Commonwealth Government announced that it supports the Harper Review’s recommendations on section 46 in full. In response, Shadow Small Business Minister, Michelle Rowland, expressed the Labor party’s concerns with amending the current law and reframed the issue as an access to justice matter that could be addressed by permitting judges to waive the liability of the small business to pay the costs of the larger business in unsuccessful litigation.

In providing an insight into the Government’s support of the Harper Review at the Hall & Wilcox briefing, Mr Morrison stressed the importance of the Australian regulatory environment to reflect our modern economy. Accordingly, Mr Morrison emphasised that the purpose of the reform is to increase innovation and productivity and enhance competition amongst all businesses to support economic growth and the economy’s successful transition from the resources boom.

Mr Morrison noted that Cabinet considered contributions from large and small businesses and took an ‘I’m on the consumers’ side’approach. Ms O’Dwyer added that the reform is ‘not aimed at particular businesses’ and that it would be ‘counterproductive to view it as small businesses versus large businesses’. Instead, these changes are intended to ‘support economic growth and jobs because all businesses will have a go and compete on merits’. Ms O’Dwyer continued that ‘the consumers are the winners because they will have access to more innovative businesses’.

Ms O’Dwyer also reiterated the points made in the Harper Review that the ‘effects’ test is consistent with competition laws in other OECD countries, such as the US and Canada, and is a ‘sensible change’ as it is effectively the same test that is currently applied to the prohibitions under section 45 (anti-competitive agreements), section 47 (exclusive dealing) and section 50 (mergers) of the CCA.

Whilst an early election may delay the introduction of new laws, an exposure draft legislation implementing the proposed changes to the CCA will be released for consultation before it is introduced into Parliament later in 2016. Ms O’Dwyer indicated that at the same time, the ACCC will be drafting guidelines to help businesses better understand the operation and impact of these changes.