Australia: Competition Policy Review - or the Harper Review - a review of competition policy

During the 2013 Liberal Party election campaign, Tony Abbott pledged a review of competition policy. The final terms of reference were released on 1 April 2014 and the review was chaired by Professor Ian Harper and titled the 'Competition Policy Review', however it is generally referenced as the 'Harper Review' (Review).

From farm gate to supermarket shelf, each producer, processor, marketer and consumer is affected by the way in which companies compete for market share and commercial margin along the supply chain. The competitive pricing of fresh milk between the supermarket chains Woolworths and Coles is a recent example of the public attention and tabloid scrutiny competitive practices attract in Agribusiness.

Current situation

Section 46 of the Competition and Consumer Act 2010 (CCA) prohibits the misuse of market power by a corporation. The origins of the section stem from monopolisation - companies which may become so large that they control markets for their own purpose. Such control can often be detrimental to consumers and producers.

Competition is of course a central mechanism to trade – the essence of commercial activity is competition on quality, price and service in order to gain market share and increase profits. The Privy Council in Commerce Commission v Carter Holt Harvey Building Products Group Ltd1 noted "it is open to the trader to compete on price as well as quality, so long as he does not use his dominant position for the purpose of producing an effect which is anti-competitive".

Requirement for change

The Review in conjunction with third party submissions to the review panel considered whether section 46 was effective in deterring anti-competitive behaviour by companies with substantial market behaviour.

The current 'purpose' test is linked to the power of a company exhibiting the alleged anti-competitive behaviour. The two current legal tests under section 46 are:

  • the conduct must involve the company taking advantage of the company's market power
  • the conduct must have been for the purpose of eliminating or substantially damaging a competitor, preventing entry of a person into a market or deterring or preventing a person from engaging in competitive behaviour.

Advocates for reform have contended that change is required to better focus section 46 on preventing anti-competitive conduct, without relying on the purpose or intent of companies.

The recommendation of the final report

Taking into account a number of submissions made in response to the Draft Report, the Final Report contains a recommendation to amend section 46. The Review recommended this section be re-framed 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 2. In recommending that section 46 be reformulated in this manner, the Review concluded that the 'take advantage' test was not a useful way to differentiate competitive and anti-competitive behaviour.

'Purpose' and 'effect'

The root of the debate in relation to section 46 has surrounded the 'purpose' test and the absence of an 'effects' test. The Review considered that it is the effect of anti-competitive conduct which harms the consumer, not the purpose of the company in undertaking it.

Competition law does not focus on the harm to competitors amongst the tussle of trade; rather it is about harm to the competitive process. The adoption of an 'effects' test is intended to focus section 46 on the result of anti-competitive conduct rather than only a company's 'purpose' or intent, and introducing the test would also align this provision with the sections 45 3, 47 4 and 50 5 of the CCA.

Australian Dairy Farmers 6 in their submission to the Review agreed that an 'effects' test would be beneficial in order to discover the "true impact for consumers, farmers and others of strategies undertaken by those with significant market power".

The National Farmers Federation 7 also supported shifting the onus away from a company's intent in undertaking anti-competitive behaviour, to testing the 'effects' such behaviour would likely have on a market place.

Conversely, Coles Group Limited 8 did not support the 'effects' test, noting it would challenge any business decision-makers to determine if conduct would be challenged by the ACCC.

AGL Energy Limited 9 noted that the addition of the 'effects' test would broaden the scope for potential claims against large companies, even if the conduct did not have any anti-competitive purpose.

Is there a defence?

The Review in the earlier draft report considered defences in order to avoid the risk of the section capturing pro-competitive conduct. However, the final report abandoned this consideration in favour of mandatory, but not exhaustive, legislative guidance. The proposed guidelines would carve out conduct which has the purpose, effect or likely effect of enhancing efficiency, innovation, product quality and price competitiveness and focus on conduct which has the purpose, effect or likely effect of preventing, restricting or deterring the potential for competitive conduct in the market or new entry into the market.

These guidelines would aim to ensure that competitive activity for lawful commercial reasons is not captured under the proposed provisions.

ACCC opinion

The ACCC 10 strongly endorsed the proposed changes by the Review, with the exception of the proposed legislative guidelines. The ACCC submitted that the guidelines were unnecessary and had the potential to create a hurdle for an applicant, as they created a requirement for an applicant to positively disprove any pro-competitive aspects of a company's behaviour.

The ACCC further provided that they would publish their own set of guidelines to interpret a re-formulated section 46.

The final view

The recommendations of the Review and the Final Report are currently being considered by the Australian Government.

Companies with significant market power will be concerned about the proposed amendments to section 46 as (if the recommendations are implemented) those companies would need to consider the effects of any proposed conduct on competition in markets as well as the purpose of that conduct. This may result in greater uncertainty about whether proposed conduct would breach the CCA. The proposed legislative and/or ACCC guidelines may go some way to address this, but ultimately much will depend on the courts' interpretation of any amended provision.

Footnotes

1[2004] All ER (D) 235 (Jul) (New Zealand)

2Competition Policy Review, Final Report,March 2015, pg 348.

3 Contracts, arrangements or understandings that restrict dealings or affect competition.

4 Exclusive dealing.

5 Prohibitions of acquisitions that would result in a substantial lessening of competition.

6 By letter to the Competition Policy Review Secretariat dated 19 November 2014, pg 5.

7 By submission to the Competition Policy Review dated November 2014, pg 10.

8 By submission to the Competition Policy Review dated November 2014, pg 8.

9 By letter to the Competition Policy Review Secretariat dated 21 November 2014, pg 3.

10 By letter to The Treasury, 29 May 2015, pg 14-15.

This publication does not deal with every important topic or change in law and is not intended to be relied upon as a substitute for legal or other advice that may be relevant to the reader's specific circumstances. If you have found this publication of interest and would like to know more or wish to obtain legal advice relevant to your circumstances please contact one of the named individuals listed.

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