Friday, 25 November 2011
Competition and Consumer Legislation Amendment Bill 2011; In Committee
Bill—by leave—taken as a whole.
I have a couple of comments to make on the Competition and Consumer Legislation Amendment Bill 2011. I did not have an opportunity to speak to it during the second reading debate, not through any lack of trying on the part of the minister, who graciously tried to see where I was—I was in another meeting. I will make a couple of short contributions that will lead into the amendments that I will be moving shortly.
I do not oppose this bill, but I believe that it could be improved. That is why I will be moving amendments to omit the word 'substantially' and substitute the word 'materially' when it comes to mergers. It is my view that the ACCC does not have the legislative firepower that it needs to deal with the issue of mergers. Having the word 'materially' rather than 'substantially' with regard to lessening competition would make a very real difference to the highly concentrated markets we have here in Australia. We have a situation where Woolworths and Coles control some 80 per cent of the dry grocery market. We have had too many mergers that have been approved by the ACCC under the current legislation. We have seen the difficulties in the grocery sector with petrol and we have a looming problem with the liquor market, and the word 'substantially' does not do the job that it should—it is too high a test. That is why I am grateful for the work that Associate Professor Frank Zumbo, from the University of New South Wales, has done in relation to this and other competition issues.
I have some questions for the government. I am aware of the time constraints and I will be short and succinct. I am concerned about the amendments to the definition of unconscionable conduct in this regard. My question is as follows: the government is going to include a number of paragraphs in the legislation that set out examples of unconscionable conduct. It is quite proscriptive, but I ask the minister whether what is proposed in the bill is essentially repeating what the courts have said in previous cases? Do these amendments expand the scope of the unconscionable conduct provisions in the legislation? I will start off with that, and I had two or three more questions after that.
If I may assist the minister, the legitimate concerns I have about these amendments are about whether they will actually make a difference if what the bill is proposing to do is simply to restate the position of the courts in existing cases. What difference will it make? That is essentially my question, and I have some follow-up questions depending on the minister's answer. I think it is quite material to how effective these changes will be, and what the government believes these changes will mean to the definition of unconscionable conduct and the practical application of the law.
I am conscious of the time, so I will try to deal with your concerns, Senator Xenophon, though I am not necessarily sure I will satisfy them.
Effectively, clarifying the issues you raised, the expert panel that explicitly considered the issue of unconscionable conduct has raised a number of concerns about potential use of examples in the ACL. For example, listing a particular scenario as amounting to unconscionable conduct might be misleading when a court might decide that a scenario with slightly different facts does not involve unconscionable conduct. Examples might be treated as rebuttable presumptions either formally by the courts or in the development of business practices. Examples are unlikely to remain current as business practices and technologies evolve.
The Senate Standing Committee on Economics, which I referred to in my second reading speech, considered whether the definition of 'unconscionable conduct' should be inserted in the act in its December 2008 report, The need, scope and content of a definition of unconscionable conduct for the purposes of part IVA of the Trade Practices Act 1974. The committee noted two significant reservations about defining unconscionable conduct in the act. Firstly, terms used in a definition would need to be carefully considered for their judicial meaning, and it would need to be clear to stakeholders how the courts' interpretation of these terms might encroach on current business practices and how a definition would affect larger businesses' responsibilities under other statutes. Secondly, agreeing on a suitable definition would be a prolonged and difficult process, and definitions proposed, such as that put forward by Professor Zumbo, to whom Senator Xenophon has referred, were considered too complex and uncertain. Accordingly, the Senate committee considered that a definition of unconscionable conduct should not be adopted, and recommended an alternative process whereby an expert panel should consider whether examples should be inserted in the act. This is the path the government took. The expert panel explicitly considered whether examples would improve the functioning of the law in this area, and instead recommended that principles be inserted in the act.
My only other comment is that it is correct that the principles that are inserted are obviously based on case law.
I am grateful to the minister for those answers. I want to go further. I refer my friends in the coalition to the Senate Standing Committee on Economics report, The need, scope and content of a definition of unconscionable conduct for the purposes of part IVA of the Trade Practices Act 1974. It is a December 2008 report—it is amazing to think that three years have passed so quickly. There are additional comments made by both the coalition and myself about the need for a statutory definition of unconscionable conduct. I am pleased that the coalition took that view at that time and I hope it is still their view.
Notwithstanding that, I want to get to the nub of the issues of the specific amendments proposed by the government. Does the government expect that there will be more cases brought to court as a result of these amendments to the definition of unconscionable conduct?
Frankly, it is very difficult to give you an answer to that and to predict the level of disputes, cases et cetera. One of the factors would be the decision of the regulator—the ACCC. I understand why you are interested in an answer but, having taken advice, it is not possible for me to give an answer on that matter. It is a somewhat hypothetical matter of conjecture.
Given Senator Xenophon invited me to make some comments, I thought I should briefly restate our position on this. Senator Xenophon, you and I have spent some quality hours in the Senate Economics References Committee together, particularly on supermarket issues. I was not a member of the committee that reported that. I would state, though, that our commitment to the root-and-branch review of the act encompasses the issue you raise. We do not necessarily have a position on it. We think that, two decades on, it is time to look at it. The events that are necessary to trigger an offence are something we are keen to look at. However, my personal view on the question about whether something should result in a greater number of court cases is that a good act does not necessarily lead to a higher number of court cases because it has an educative function that means that behaviour changes, which does not necessarily lead to a higher number of court cases.
I am grateful for Senator Ryan's contribution. I indicate to him that I think that is a fair point. Just because you do not have more court cases does not mean that the legislation is not more effective or broader. But the coalition did state three years ago that there is a need for a statutory definition of unconscionable conduct and that the current law was not adequate. It then set out in the additional comments that there is a need for a statutory list of examples that constitute unconscionable conduct—which is consistent with this bill, I believe—that there is a need for a prohibition against bullying, intimidation, physical force, coercion and undue harassment and that there is a need for a statutory definition of the statutory duty of good faith as well as a legislative framework to deal with unfair contract terms in business relationships involving small businesses. That is something that the coalition signed up to three years ago. Senator Eggleston, Senator Bushby, Senator Joyce and I signed up for that.
Another way to put the question to Senator Sherry is this: will these amendments in terms of unconscionable conduct broaden the operation of the section?
The amendments, as I have mentioned both in the committee stage and in the second reading stage, are intended to provide clarity and are based on case law. You did indicate that you were asking the question in another way—
I appreciate the minister's frankness. If the government is unable to say whether this will broaden the operation of the section, you need to query what the benefit of these amendments will be. If it is simply restating the position of the case law then it is the status quo. It is just a bit of window dressing for the current operation of laws relating to unconscionable conduct. I think the government has set out why it does not accept the need for a statutory definition of unconscionable conduct but, if it cannot say that it will broaden the operation of the section, to what extent does it consider that there may be a gap in the law in the absence of a statutory definition? Isn't it better to have a statutory definition as to what the government is intending to do? I accept that the intentions of the government with respect to this legislation are good ones, but I worry that effectively the status quo will remain as is.
I think we are just going to have to do agree to disagree. You have a conceptual approach that I think is best summed up as about the nature of 'broaden'. I have indicated that these amendments will strengthen and clarify. I understand your perspective. I do not necessarily agree with it, but I do understand it. You are seeking far-reaching broadening, if I can add to your descriptor. These changes are meant to strengthen and clarify. I do not think I can add any more to my earlier remarks.
by leave—I move the amendments on sheet 7136:
(1) Schedule 1, page 3 (after line 3), before item 1, insert:
1AA Subsection 50(1)
Omit "substantially", substitute "materially".
(2) Schedule 1, page 3 (after line 5), after item 1, insert:
1A Subsection 50(2)
Omit "substantially", substitute "materially".
(3) Schedule 1, page 3 (after line 17), after item 3, insert:
3A Subsection 50(1) of Schedule 1
Omit "substantially", substitute "materially".
These amendments are intended to lower the threshold by which mergers are considered by the ACCC. Under the current threshold a merger is only prohibited if it 'substantially' lessens competition. The use of the word 'substantially' makes the threshold a very high one requiring the merged entity to exercise market power after the merger. Proving the existence of market power requires proof of an ability to raise prices without losing business. Very few businesses would have market power under the definition as it is effectively only a monopolist that would have the power to raise prices without losing business.
Under the existing threshold relatively few mergers or acquisitions are stopped by the ACCC. Mergers and acquisitions reduce competition in the market and lead to higher levels of market concentration. A reduction in competition is detrimental to competition and consumers as it may lead to higher prices and reduced product choices. We need a stricter threshold for assessing mergers. Within this context the concept of materiality is adopted, as that is a commonly understood concept used in the accounting and business world to assess the impact of particular conduct or an event. In this context a merger will substantially lessen competition if it has or would have a noticeably adverse impact on competition by reducing in a material way the number of efficient independent competitors and the range of product choices available to consumers.
That is at the heart of this. We need to do a lot better. In recent years too many mergers have been approved by the ACCC. The ACCC does not have the legislative firepower to deal with these issues adequately. The threshold is simply too high under 'substantially'; 'materially' would remedy that.
I acknowledge and appreciate the concern of Senator Xenophon and the attention he has paid to this issue—as has Senator Ryan. I recall a significant number of discussions about this at Senate estimates. We are dealing with substituting the word 'substantially' with 'materially'. The detailed and principled approach that Senator Xenophon is proposing reflects what is known as his trade practices Richmond amendment bill. I do note we are developing a trend to name amendments in this area after geographic locations based on where proposals are drafted or communicated. But that is by the by. I am not sure which Richmond this is—I know a number of Richmonds.
Thank you. As I have said, the proposal is to change the test to 'material' lessening of the competition, as reflected in Senator Xenophon's earlier bill. That bill was referred to the Senate Economics Legislation Committee for inquiry. The majority report—both government and opposition—recommended against the passage of the bill with this approach contained in it. The concept of substantially lessening competition has been part of section 50 since 1993. It is well established and understood by the courts, the ACCC, business and consumers.
The concept of 'substantially' is interpreted by the courts to mean 'that the effect of the acquisition be 'meaningful or relevant' to the competitive process'. Australia's SLC test for mergers is consistent with merger laws in many other OECD countries, including the US, Canada, the UK and New Zealand. What is proposed—effectively the Richmond amendment—could have the effect of moving Australia out of line with international practice. It would make significant changes to Australia's merger law that are likely to have substantial and unintended consequences.
Consistent with our previous position, as enunciated in the Senate Economics Legislation Committee and the response to considering what is known as the Richmond bill, the government is unable to support the amendments that Senator Xenophon has presented.
In the interests of time I did not choose to make a second reading contribution so I will quickly sum up where we are coming from with this legislation and Senator Xenophon's amendments. I note that the concluding comments of the Parliamentary Library's Bills Digest say:
Given the history of reviews and the Rudd Government’s commitment to implement a ‘creeping acquisitions’ law ‘as a matter of urgency’, it might seem that the amendments to the merger provisions proposed by the Bill are an anti-climax. Descriptions of the amendments as ‘window dressing’ or ‘pragmatic’ would also appear to be apt. These minor amendments largely reflect the ACCC’s current interpretation of the existing law and are unlikely to have any substantial effect on merger analysis in the future.
Similarly with the unconscionable conduct provisions. The Federal Government has been under pressure for some time to strengthen these prohibitions and the Bill purports to finally address these calls. The changes are, in fact, relatively minor. Their real effect seems likely to be minimal and they are not expected to have a substantial impact in practice. However there are other reforms happening at this time including the amendments to the Franchising Code of Conduct ...
It goes on to say that they might have a collective impact. I think the reality is, as Senator Sherry has just outlined, that the word 'substantially' is understood in case law on this legislation. It is true that it is consistent with legislation in the UK, the US, Canada and New Zealand and it has been part of case history and case law in Australia since 1993. There is a concern that if the word were changed to 'materially' the government would be arguing that 'substantially' and 'materially' mean the same, because this is to be seen as only a clarification, not a change. So the government would argue that 'substantially' and 'materially' are the same. However, if 'substantially' were changed in the legislation, people would come back, in relation to all those cases since 1993, saying, 'Where does that leave us?' The difference between 'substantially' and 'materially' would need to be tested in the courts. We could end up with a bit of a process in the courts, in the making of that determination. Although Senator Xenophon says that 'materially' is understood to be a lesser threshold than 'substantially', there would be a legal argument as to whether that was the case and, if it was the case, at what point would 'materially' kick in as opposed to the stronger definition that is 'substantially'. It is for that reason that the Greens will not support Senator Xenophon's amendments: they lead to that unresolved question of the difference between 'materially' and 'substantially'. I do not want to bring into play at this time that which has already been dealt with. I also want the legislation to stay consistent with international law and with other countries' laws and experience.
The other comment I will make, quickly, is that the ACCC is under different leadership. It is quite clear from that new leadership that the ACCC intends to take a more assertive position in relation to mergers and so on, and that it wants to become a little more proactive. I am concerned that making this change now might in some way complicate the opportunity that exists for a more aggressive and assertive role for the ACCC in this space. I support the ACCC's new leadership's stated position of taking a more assertive position in this area. I do not want to complicate those matters. That is why the Greens will not be supporting Senator Xenophon's amendments.
However, I say to the government that, while it is says this clarifies things, the Parliamentary Library's assessment suggests it is extremely minor and does not really make any substantial change. The Greens agree with Senator Xenophon that we need substantial change. If the ACCC's attempts to use the law as it currently stands in a more assertive and proactive way fail, because the law turns out to restrict the ACCC's ability to do so, I will be very happy to be back here supporting a much more substantial intervention. At this stage we support the minor amendment that the government is proposing but will not support Senator Xenophon's amendment. I will say that this is a space that we are all going to be watching with a very interested eye so as to see how the ACCC proceeds in the next 12 months.
I rise to outline that the coalition will not be supporting Senator Xenophon's amendments. The consequences of moving from 'substantially' to 'materially' may be significant. It is our view that those issues should be considered as part of the root-and-branch review of the competition act that we have proposed. Senator Xenophon, I know that you have a very good productive relationship with the shadow minister, Mr Billson, as you do with me. I know that he is keen to continue these discussions with you. But at this stage, that slight change of words needs to come from an evidence based assessment. The coalition will not support the amendments.
I thank Senator Milne for her contribution. She makes two very reasonable points. In noting that, I have been present on one occasion when the new head of the ACCC, Mr Sims—this was in the context of franchising law, on which there has been some recent improvement in dispute resolution and a range of other changes—indicated the ACCC's renewed interest in applying the upgraded franchising area of the legislation and devoting more attention to that. I will not go to other issues of franchising reform, but I do note that. I think it is an important consideration. I accept Senator Milne's caveat that, in supporting these amendments today, the Greens will be keeping a close eye on developments as they emerge from the focus of the ACCC.
I am grateful for the comments made by my colleagues. In relation to those of Senator Milne: it is fair enough for her to say, by referring to the Bills Digestthe objective analysis of legislation, if you like, that we receive here—that it is about clarification and could be seen to be window dressing. I am disappointed that the Australian Greens cannot support the amendment at this time, but at least they are keeping the door open. I do acknowledge that there has been a change of guard at the ACCC, and that Mr Rod Sims, the new chairman, has taken a different approach. The statements he has made to date have been encouraging. The way in which he has approached evidence at Senate estimates hearings is refreshing. I welcome that, but I still think we are not giving the ACCC the powers it needs to deal with this adequately.
When it comes to issues of mergers and acquisitions, let us put this in perspective. Senator John Williams is in the chamber. I thought his contribution and a question he put to Mr Sims during a Senate estimates hearing not so long ago were telling. Senator Williams basically asked—I am sure he will correct me if I misquote him—how is it that in the last 30 years, the last generation, we have had a situation where Coles and Woolworths have gone from a 40 per cent market share between the two of them to something like an 80 per cent market share? That is an exponential increase. How is that good for competition? How is that good for suppliers down the supply chain? How is that good for wholesalers? How is it good for consumers that they have so little choice in this country? And how is it good that we have two big gorillas in the room when it comes to our grocery sector? You even have multinationals, such as Heinz, saying: 'This is killing us in terms of food processing. This is actually squeezing us out of the marketplace because of the conduct of those two.'
Our current laws are not good enough and that is why we need a change from 'substantially' to 'materially'. I am grateful to the Minister for Small Business for mentioning the Richmond amendment because I was going to get to it. The Richmond amendment is named after the location of the United service station at 128 Marion Road Richmond West in South Australia—a service station run for many years by William and Samira Fares. This is a small family business—a business where they put in hard work, do great mechanical work and serve petrol, and they are salt of the earth people. They have worked their guts out to build up that business, and what happens? Woolworths decides to set up an outlet right next door to them—blocking the view of oncoming traffic to their service station—to compete with them in a way that is not fair; to compete with them with their huge buying power in a way that cannot allow a level playing field.
It is an issue that I raised directly with Michael Luscombe, the former CEO of Woolworths, and he was good enough to meet with me in Sydney last year about this. I put to him—I do not think he would mind me saying this—'If you say that they can compete then why don't you let the Fares, in their United service station at 128 Marron Road Richmond West in South Australia, access petrol at the same price you can access petrol?' There are days when the wholesale price that William and Samira Fares pay for their petrol is higher than the price that Woolworths is retailing it for. How can that be fair? We need to remedy that. We need to give small businesses in this country are fighting chance.
I have small businesses—I am not going to do anything to identify them—come to my office, and they are even reluctant to be seen to walking into my office. They tell me, 'If we make a complaint to the ACCC about what Woolworths and Coles are doing to us, about the conditions they sometimes put on us, such as they suddenly want ten tonnes of a particular vegetable at a certain price'—which is below the cost of production for these businesses—'and we do not do it, then that will be the end of their relationship with us.' You also have small businesses setting up a business model that is based on having Coles and Woolworths as their main buyer, and they say, 'There's no point going to the ACCC because if we make a complaint we're finished.' If these things are happening then we need to do something about mergers in this country, we need to do something about increasing competition, and we need to do something about small businesses having a fighting chance.
That is why I have moved this amendment. I am grateful to the Greens for a least keeping the door open. Senator Madigan has told me privately, and he may want to make a contribution on behalf of the DLP, that he will be supporting this amendment. So we will be dividing on this amendment. I would urge Senator Williams, if he is able, to at least keep the door open to this and to at least consider supporting this.
We need to do something better. We need to have a situation where the laws of this nation work for the small business sector and, in turn, for consumers. As for the references that have been made to other countries not going to 'materially', in the United States—I am grateful for the work that Senator Williams has done on this—they have got the Robinson-Patman Act where you cannot have anyone having more than 20 per cent of the market. You do not have a situation there where two supermarket chains control 80 per cent of the dry grocery market as in this country. They have got legislative safeguards. They may not have the word 'materially' in some of those jurisdictions, but they have got other pieces of legislation that gives a semblance of protection to small business. That is what the key to this is.
I note that Senator Ryan, on behalf of the coalition, says that he is not supporting this. Senator Ryan and I have disagreements about the marketplace, but I have a genuinely good work relationship with Senator Ryan. I do respect that he has got some intellectual firepower. I do not agree with his position on the $1 milk and the like. I say that genuinely; at least we can have a discussion about it. My plea to Senator Ryan, to the coalition, to the Greens and to the government is: something has gone seriously wrong in this country when it comes to allowing the level of market concentration in so many industries. Associate Professor Frank Zumbo has assisted me with drafting the Richard amendment. He met the Fares; he spoke to them and he spoke to the Minister for Small Business, the Hon. Tom Koutsantonis, their local member. One good thing that has come out of the meeting that we had at Richmond West a year and a half ago is that there is now a Small Business Commissioner of South Australia, which Associate Professor Zumbo had a key role in creating.
There are some small changes to franchising law—I know that Senator Sherry is not ecstatic about that—where small business, under a Labor government, I might add, will have a fighting chance. It is disappointing that the Liberal Party in South Australia oppose that. Let us do this right. Let us revisit this. I welcome Senator Milne's comments. I would urge my colleagues to think carefully about this amendment. There will be a division on it based on Senator Madigan's gracious support for this amendment. There is something seriously wrong in this country in the way that we have dealt with the big end of town and small businesses.
The question is that amendments (1) to (3) on sheet 7136 be agreed to.
The Senate divided. [12:26]
(The Deputy President—Senator Parry)
Bill agreed to.
Bill reported without amendments; report adopted.