Small Business Reforms to the Trade Practices Act

A Bill to amend the Trade Practices Act 1974 (“TPA”) was introduced into in the House of Representatives by the Federal Government on 20 June 2007. The legislation, if passed, will amend Sections 46 and 51AC (among other provisions) of the TPA to enhance the protection of small businesses from misuse of market power and unconscionable conduct in business dealings.

SECTION 46 (MISUSE OF MARKET POWER)

Section 46 of the TPA prohibits a corporation from taking advantage of a “substantial degree” of market power for anti-competitive purposes. Small businesses have expressed concerns that recent High Court decisions have made it difficult for them to bring successful claims against large corporations under Section 46. This Bill is intended to address some of those concerns.

SUBSTANTIAL DEGREE OF POWER

Based on its discussions with small business lobby groups, the Government will change the TPA to provide that:

• For the purposes of Section 46, more than one corporation can have a substantial degree of power in a market;
• A corporation can have a substantial degree of market power even though it does not substantially control a market; and
• A corporation can have a substantial degree of market power in a market even though it does not have absolute freedom from constraint in that market by the conduct of its competitors or persons to or from whom the corporation supplies or acquires goods or services.

The intention of these amendments is to broaden the test as to whether a corporation has a “substantial degree of power” in a market and thereby make it easier for small business to base a claim of misuse of market power against a larger corporation.

PREDATORY PRICING

The Bill permits Courts to consider whether a corporation has priced goods or services below “relevant cost” for a sustained period and the reasons for such conduct (in determining whether a corporation has misused its market power). This provision is meant to assist small business in a claim alleging predatory pricing by making it clear that the alleged offending corporation must provide reasons for its conduct.

The Bill, however, does not insert a reference to a “reasonable prospect or expectation of recovering losses” incurred by below-cost pricing for the alleged predatory pricing conduct. The Explanatory Memorandum notes that two other options had been considered, namely amending the TPA so that it is not necessary to demonstrate a capacity to recoup losses, or amending the TPA so that Courts may consider the capacity to recoup losses. The Government did not pursue these options in light of concerns that that they may limit the ability of the Courts to find breaches of Section 46 in cases of predatory pricing.

OTHER CHANGES

Other changes to the TPA, which were previously announced by the Government, include:

• Preventing leveraging of market power, by providing that a corporation must not take advantage of a substantial degree of market power, either in the market in which the power is held or in any other market;
• Taking account of co-ordinated market power, by allowing Courts to have regard to any market power the corporation has that results from any agreements it has with parties outside its corporate group;
• Amending Section 51AC of the TPA to provide that a Court may consider unilateral variation of contract terms when determining whether a corporation has acted unconscionably, and raising the price limitation under the Section from $3 million to $10 million, thereby extending its application to a wider range of transactions entered into by small business that supply or acquire goods and services; and
• Establishing a second Deputy Chairperson for the ACCC, with the position to be filled by a candidate who is experienced in small business matters.