The government recently released an exposure draft outlining further reforms to the Trade Practices Act 1974 (Cth) (Act), intended to increase protection for small businesses from anti-competitive conduct by their more powerful rivals.
These reforms follow highly publicised amendments to the misuse of market power and unconscionable conduct provisions of the Act by the former government in 2007.
The government proposes to reform three main areas of the Act.
Misuse of market power
First, the government has indicated its intention to amend the misuse of market power prohibition in section 46 of the Act with a view to strengthening the section to catch predatory pricing and removing uncertainties around the operation of the section. It proposes to do so by:
- making it clear that section 46 can apply in cases of ‘predatory pricing’, regardless of whether a firm, who has supplied goods or services at a price less than relevant cost, is ever able to recoup losses incurred by their conduct
- amending section 46(1AA) of the Act which was introduced as part of the controversial ‘Birdsville Amendments’ made by the former government in 2007.
This amendment will bring section 46(1AA) in line with the rest of section 46 by ensuring that it will only apply to corporations who take advantage of their substantial degree of power in a market (rather than simply to firms with a substantial market share).
In proposing this amendment, the government has drawn on ACCC comments as to confusion caused by the amendments and their potential to ‘dampen legitimate competitive conduct’. (For a more detailed discussion of the ‘Birdsville Amendments’ see our October 2007 Competition and Market Regulation Update), and
- clarifying the meaning of the term ‘take advantage’, to address uncertainties considered to have arisen in previous High Court interpretations of this phrase.
For some time, there has been concern that the approach previously taken by the High Court has made it harder for parties to prove the misuse of market power under the section. The amendments seek to remove this uncertainty by clearly identifying the factors to which a court may have regard in deciding if a corporation has taken advantage of its market power.
Unconscionable conduct
Second, the amendments will increase the potential scope of the unconscionable conduct provisions by removing the $10 million threshold which currently applies to the operation of section 51AC. This is intended to extend the operation of section 51AC to a wider range of small business transactions.
Enforcement
The Act will be amended to enable small and medium size businesses to bring misuse of market power cases before the Federal Magistrates Court.
At present, the federal magistrates can hear unconscionable conduct cases for claims up to $750,000 but not allegations of the misuse of market power. The government hopes that this measure will increase the ability of small businesses to enforce their rights by reducing the costs associated with taking large scale litigation in the Federal Court.
Other amendments
Other reforms proposed by the government as part of the reform package include amending the Act to require at least one of the ACCC deputy chairpersons to have small business expertise, and to strengthen the ACCC’s information gathering powers under the Act in certain circumstances.
The United Kingdom High Court has issued an initial judgment in a landmark test case raising the fairness of personal current account unarranged overdraft charges.
The test case was brought by the United Kingdom competition regulator, the Office of Fair Trading (OFT) with the agreement of eight of the United Kingdom’s largest current account providers (banks). The case followed an investigation by the OFT into the fairness of personal current account unarranged overdraft charges, and is being closely watched by financial institutions and regulators around the world, including in Australia.
In a positive finding for the banks, on 24 April 2008, the United Kingdom High Court found that the banks' current terms and conditions relating to unarranged overdraft charges did not amount to penalties which the banks are precluded from enforcing at common law.
However, the court did find that the charges are capable of being assessed for fairness under the United Kingdom Unfair Terms in Consumer Contracts Regulations 1999 (Regulations).
A further hearing will now be required in order for the court to determine if the relevant charges are, in fact, unfair under the Regulations.
The High Court’s decision is of particular interest in Australia where the issue of these kinds of bank charges continues to attract considerable consumer and media attention.
Australian banks may take some comfort from the court’s judgment that, at least under United Kingdom law, such charges do not constitute unenforceable penalties at common law.
However, given that Victoria’s Fair Trading Act 1999 contains a provision based on the United Kingdom Regulations, and that the Productivity Commission is shortly due to publish its final report on Australia’s consumer policy framework (including unfair contracts regulation), this is a space to watch.
The ACCC has announced that it will not oppose the Pact Group’s purchase of Brickwood Holdings, despite having opposed the same merger in October 2007.
Pact Group and Brickwood Holdings are both significant suppliers of PET bottles in Australia. PET bottles are made from polyethylene terephthalate, and are commonly used for commercially-packed bottled water and soft drinks.
The ACCC previously opposed their merger on the basis of likely competition concerns in the supply of PET bottles in Queensland, New South Wales and Victoria. In particular, the ACCC was concerned about the merger in light of commercial and family relationships between Pact and Visy, in circumstances where Brickwood was a significant and direct competitive constraint on Visy in the supply of PET bottles to large beverage manufacturers. The ACCC considered that other producers of PET bottles would be unlikely to have sufficient capacity to supply these customers, having regard to the high capital costs of establishing new facilities for the level of production required.
In January 2008, the Pact Group submitted a fresh clearance application in which it provided new information relating to possible entry and expansion into the market.
The new information provided in the submission seems to have addressed the ACCC’s concerns because, on 23 April 2008, the ACCC announced that it would not oppose the merger.
Although noting that there was likely to be some decrease in competition in the market as a result of the merger, the ACCC was satisfied that there was a possibility of alternative sources of supply, and that this would prevent the existing players increasing price above competitive levels. Possible alternative sources considered by the ACCC include sponsored entry, expansion of existing suppliers, or self-manufacture by customers.
The ACCC has indicated that it will issue a Public Competition Assessment in this matter, which should provide further insight into the reasons for its change of heart.
eBay has sought immunity from the exclusive dealing provisions of the Trade Practices Act 1974 (Cth) (Act) for its plans to limit the payment options available to buyers and sellers on its site.
Under eBay’s proposal, from 17 June 2008 sellers on eBay will only be able to accept payment via PayPal (a wholly-owned subsidiary of eBay) or cash at the time the customer picks up or otherwise receives delivery of the goods. Buyers will not be able to pay by direct bank deposits, cheques or money orders. eBay claims that the restrictions are necessary to address online fraud, and increase consumer confidence in e-commerce.
eBay has sought immunity for the conduct by using the notification process under the Act. Under this process, firms may obtain immunity from exclusive dealing conduct by lodging a notification with the ACCC. Immunity will remain in place unless and until the ACCC decides that the public benefit from the conduct does not outweigh its anticompetitive detriment.
The ACCC’s website indicates that it will accept submissions on the proposal until 2 May 2008. It will then be up to the ACCC to decide whether the immunity should continue to stand.
eBay’s proposal has generated significant public interest, with the ACCC having received more than 100 submissions on the issue, including submissions from numerous eBay users opposing the restriction. It appears that the matter has also attracted interest at the highest levels, with the Reserve Bank of Australia being reported to be considering making a submission.
The government has announced plans to introduce a National FuelWatch Scheme based on the model currently used in Western Australia. It expects the scheme to be in place by mid-December this year.
Under the proposal, oil companies and petrol retailers will be required to notify the ACCC of the price they will be charging for petrol one day in advance, and keep the price at that level for 24 hours.
The intention is to promote greater transparency of petrol prices for motorists who are currently faced with significant and frequent fluctuations over the petrol price cycle. The government claims that the scheme is also likely to put downward pressure on prices, citing ACCC findings that the FuelWatch scheme in Western Australia has resulted in price reductions of about two cents per litre.
This expectation of lower prices is not shared by critics of the scheme, who claim that the scheme will result in higher average charges and the reduction of discounts offered on certain days during the petrol price cycle.
Airport parking brought within ACCC’s ‘domain’
The Federal Government has directed the ACCC to monitor prices, costs and profits of car parking services at Australia’s five major airports. Total car parking revenue reached $206 million last year and according to Infrastructure and Transport Minister, Anthony Albanese, the move will ‘provide greater transparency and accountability for the pricing of these facilities’.
ACCC announces view that Bakers Delight franchiser has not acted unconscionably
The ACCC has announced that it will discontinue an investigation of Bakers Delight relating to allegations of misleading and deceptive conduct, and unconscionable conduct towards its franchisees.
While the ACCC rarely comments about investigations, it advised that it had made the announcement in this instance because of substantial publicity that had surrounded the investigation.
More information
For information regarding possible implications for your business, contact a member of the Competition & Market Regulation team.