Trade Practices Legislation Amendment (No 1) Act 2007
(including Birdsville Amendment)
This Act made minor amendments to s 46 designed to overcome perceived limitations brought about by recent High Court decisions - in particular, it provided some guidance as to the threshold required for establishing substantial market power - in particular, by making clear that it was not necessary to demonstrate absolute freedom from competitive constraint. In addition, it introduced a radical new s 46(1AA) (the Birdsville Amendment) designed to capture predatory pricing (referred to as the Birdsville Amendment)
The original amendment bill provided for very cosmetic changes to s 46: essentially it provided for some further clarification about matters the Court may consider in determining whether a company has market power and made clear that market power does not require ‘substantial control’ or ‘absolute freedom from competitive restraint’; it also provided that the Court may have regard to sustained low cost pricing, but this was the only concession given to predatory pricing in the original bill. In addition to expanding on the definition of market power the bill provided expressly for the possibility of leveraging market power – making clear the power did not have to be in the market to which the conduct was targeted.
At the last minute the bill was amended to provide for a drastic new provision relating to predatory pricing (referred to as the 'Birdsville amendment' after the pub in which it was supposedly conceived by Senator Barnaby Joyce). In introducing the amendment Senator Brandis was quick to point out that, while many held the view that the existing provisions of s 46 were ‘sufficiently broad to deal with the problem’ of predatory pricing, these amendments were proposed ‘out of a sense of abundant caution’ (Senate Hansard p 10, 17 Sept). Labor and the Democrats indicated they would support the amendment (Senator Sherry and Senator Murray respectively, p 11 Senate Hansard 17 Sept), although Senator Sherry considered it would have been better to strengthen section 46, not introduce new sections, and expressed concern that the ‘amendment was hastily cobbled together at the last minute’.
The new provision provides, essentially, that:
(1) a corporation with a substantial share of the market (different from substantial market power – the reason for the difference remains a mystery - a new s 46(1AB) provides that the number and size of competitors will be a relevant factor)
(2) must not supply, or offer to supply, goods or services
(3) for a sustained period
(4) at less than the relevant cost (whatever that means)
(5) for the purpose of:
(6) - the same prohibited purposes as apply to s 46(1)
The 'taking advantage' requirement is eliminated altogether. There is no specified need for recoupment and the ‘Supplementary Explanatory memorandum’ made clear that the new provision does not require recoupment, although it may provide some evidence that the provision has been breached. This is the only guidance the Supp EM provides to this new provision.
It is generally believed that the goals of section 46 is to promote competition and not small business or any other interest group. This view was expressed by the High Court in Melway Publishing Pty Ltd v Robert Hicks Pty Ltd (2001) 205 CLR 1, stated ‘[s]ection 46 aims to promote competition, not the private interest of particular persons or corporations.’ (para 17)
However, in his second reading speech, Barnaby Joyce, responsible for the bill's introduction, made various statements highlighting his view that the provision was intended to protect small business:
"I would like to thank my colleague Senator Boswell who, for as long as he has been in this place, has been a fighter for small business. I hope that Senator Boswell sees this legislation as yet another endorsement of his career in working for small business. Senator Boswell and I—being National Party senators from Queensland—have been working with small business to try to get a better deal. ... We have to look after small business. Small businesses encapsulate the freedom of living in this nation—the freedom to go into business, to be master of your own ship, to determine your own destiny, to profit by the sweat of your brow and by so doing to espouse that freedom in the way you think and the way you act in society. Small business is the absolute seedbed from which the freedom of democracy is built. ...
Some people say that it is going to be the end of discounting. What a load of rubbish! When you do it with the motive of destroying small businesses—those mum-and-dad businesses which are the cornerstone of our economy and which encapsulate the aspiration of freedom to advance within Australia—then you are breaking the law. ...
I hope that everybody acknowledges just how seminal this legislation, especially the government amendment, is in changing the anticipation and assessment of the corruption of big business in pushing small business out of business. ... We believe in the aspirations of the small business person above all others, because we know that once that aspiration is taken out of the economy, once the prospect of being your own master is squeezed out of our society, the tenets of a range of freedoms are lost. It might be a joke, but I use the example that even Jesus Christ, when he was looking for disciples, went and found small business people. He went out and found fishermen. Even just looking at that as an example, he found people who had the freedom to make their own decisions on whether to stay or go; they did what they wished. It is a very important point. I do not know how he would go if he turned up today and he had to stand at the back of a queue at a major bank and scream to people to listen to a message. That is also part of why I have such an entrenched fervour for the protection of small business. It is a key thing that we need to look to. Within the National Party there is one thing that is unique about all of us, every senator who sits in here. We are all small business people ...
As we go forward, I hope that this ‘Birdsville amendment’ is something that people will reflect on and think that there was a change that came about, and that when people go to Birdsville, amongst other things like going to the races, they will say that this is where a new stage—not the complete stage, not the panacea, not the be-all and end-all—of looking after small business started. ... I look forward in the future to progressing other issues pertaining to small business."
In his second reading speech promoting the Bill, Senator Brandis, Senator Brandis, also acknowledged that the 'bill delivers for small business in a number of important ways', and stated that he believed the bill had achieved the right balance between competing interests: 'the balance of promoting competition, consumers and small business.' Most commentators on the bill made some reference to the benefits of the bill in protecting small business.
Section 46(1) was amended to include the following passage (in italics): '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 ...' This was designed to ensure that 'leveraging' of market power into another market was captured (although this does not seem to have presented much of a problem in the past)
The following new provisions were also added:
(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.
(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.
The OECD Review of Regulatory Reform - Australia (2009) stated (at p 61):
It is questionable whether there is sufficient evidence to support a view that the general prohibition under Section 46 does not cater adequately for predatory pricing cases. In its current form, the new dedicated prohibition risks causing undue and unproductive uncertainty in the business sector about pricing decisions and may even have a 'chilling' effect on competitive behaviour; in particular in light of the replacement of the 'power' element with a 'share' element in the predatory pricing prohibition. The current government has been thwarted in the Parliament in its attempts to address these concerns. In light of this, the government should monitor this area and take advantage of future opportunities to remove at least the market share aspect of the Birdsville amendment when they arise.