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Competition and Consumer Legislation Amendment (Small Business Access to Justice) Bill 2017

Private Members Bill

 

Introduction of the bill

Senator Katy Gallagher introduced this private members' bill into the Senate on 16 February 2017, the same day that the Senate Economics Committee reported on the Competition and Consumer Amendment (Misuse of Market Power) Bill 2016

 

Content of bill

 

Explanatory memorandum

An explanatory memorandum acommpanied the bill and can be found Competition and Consumer Legislation Amendment (Small Business Access to Justice) Bill 2017 page.

 

Second reading speech

The second reading speech by Senatory Katy Gallaher is reproduced below (Hansard, 16 February 2017

Today, Labor introduces the Competition and Consumer Legislation Amendment (Small Business Access to Justice) Bill 2017.

This private senators' bill amends two acts, the Competition and Consumer Act 2010 and the Australian Small Business and Family Enterprise Ombudsman Act 2015. The primary aim of the bill is to allow judges in the Federal Court to waive liability for adverse costs to small business private litigants in cases related to the misuse of market power.

This bill addresses a prominent problem with the operation of section 46 of the Competition and Consumer Act 2010 without changing its intention.

The problem is that when private parties litigate breaches of the competition law, the risk of significant adverse cost orders and the time taken to finalise action in the courts have an excessively inhibiting effect on small businesses.

These disincentives within the legal system allow the well-resourced legal teams of our larger corporations to stare down potentially legitimate claims from small businesses and suppliers who can't sustain a long legal case and can't risk testing their claim where there is a prospect of adverse costs.

The mechanisms, as they stand, can act as an unintended filter keeping legitimate cases out of the courts.

Almost by definition, cases in which the misuse of market power may be at play reflect an asymmetry in the resources and the organisational capacities of the businesses involved.

Too many smaller businesses are having to make a decision about calling out bad conduct based on the resources they can invest in the pursuit of a court ruling, rather than on the merits of their case.

Their access to justice is being compromised by the same asymmetries the law is supposed to address.

This issue was addressed by the Harper Competition Review that found small business access to remedies to be wanting, stating:

"From submissions and consultations with small business, the Panel is convinced that there are significant barriers to small business taking private action to enforce the competition laws"

Access to Justice

In recent years, small businesses have consistently been asking: what really are the government's plans? This was the question my predecessor as shadow minister for small business, the member for Greenway, would hear most often over the course of the 44th Parliament. Sadly, with livelihoods at stake, the situation has not changed.

When the current Prime Minister toppled the member for Warringah, he promised leadership.

Many people took the Prime Minister at his word, but we seek to judge him by his actions.

And when it comes to key reforms for small and medium sized businesses, the Prime Minister's actions have been few and fainthearted.

Prime Minister Turnbull has failed to deliver a coherent plan for our economy. A phoney war on multinational tax avoidance and three word slogans have left many small and medium sized businesses wondering if the Prime Minister is truly in charge of the economy.

And they're right to wonder. After all, it's Labor that has been setting a clear economic policy agenda - taking the lead on tackling multinational tax avoidance, and setting out a pathway to fairer superannuation and more affordable housing.

We've been making our policy announcements, doing the hard work, doing consultation and announcing detailed policy as the Turnbull government has found itself again and again without an agenda, without thoughtful policy and without an economic strategy. Slogans don't cut it.

Like all Australians, small businesses seek confidence and certainty from their government.

But the Turnbull government has instead come to them with a confidence trick. The government's proposed "effects test" (which I will return to in more detail) is bad policy.

Yes, it is appropriate we discuss the deliberate and intentional misuse of market power by large players, as this hurts competition and small businesses.

We know this because Labor put in place the Trade Practices Act under Gough Whitlam.

And we know this because Labor continues to find ways to ensure that Australian consumers can rely on the benefits of competitive markets.

Since its inception, the Trade Practices Act 1974 (now the Competition and Consumer Act 2010) has included section 46, a section designed to prevent firms with substantial market power from using that power to eliminate or substantially damage a competitor, prevent the entry of a competitor, or deterring or preventing competition.

But it's not just about writing the right laws. It's also about making sure they are enforced.

The problem is not the existing law - but the risks associated with pursuing litigation.

It was made clear to us that the biggest barrier in bringing such actions was the threat of adverse cost orders in the event that a case failed.

That is why Labor will make it easier for small businesses to bring actions and seek remedies in cases of alleged anti-competitive behaviour.

Labor's Access to Justice for Small Business policy will empower judges to remove liability for the defendant's legal fees if a small business brings a case in the Federal Court.

Effective competition law should not be about who has the deepest pockets.

This reform will level the playing field - where small and medium businesses allege anti-competitive behaviour, they will be better placed to fight it in the courts.

This is good for competition and good for small businesses.

The feedback on access to justice has been consistent. The major barrier to private litigation under the Competition and Consumer Act 2010 is the potential cost liability to the applicant if a case is lost.

Small businesses typically have limited experience with legal action and little if any experience in the courts. They worry about the prospect that costs will be awarded against them, leaving them liable for their own legal costs as well as those of their competitors.

These Federal Court cases are often David versus Goliath, and Goliath has those aforementioned deep pockets and is sure-footed in the courts.

Labor's reform will waive the liability of private litigants where they can demonstrate that their case has merit and that they are opposing anti-competitive behaviour.

Labor will permit Federal Court justices to waive the liability of litigants for the legal costs of opponents with deeper pockets in Part IV litigation under the Competition and Consumer Act 2010.

This means that before a case has been moved, and before legal costs have started to build up, the court will have an opportunity to indicate that a case has merit. Once that decision has been made, the small business can proceed to test the law, knowing that a failed case won't leave them accountable for the cost of a big business's legal defence.

Labor will also allow the Australian Small Business and Family Enterprise Ombudsman to provide professional assistance to small businesses and their representatives with respect to the merits and likelihood of success of an application for a no adverse costs order.

While this assistance will not amount to a legally binding decision, it will provide more certainty for the private litigants in a forum outside of the courts.

This is in keeping with the ombudsman's remit of assisting small businesses in alternative dispute resolution.

This is about protecting the competitive process, and competition is about advancing the interests of consumers.

This will remove an unnecessary element of jeopardy in the decision making process for small businesses and their representatives as they consider seeking recourse to private litigation.

It will mean that those who resort to uncompetitive practices, such as price-fixing or the misuse of market power, will be subject to closer scrutiny.

This will remove one of the biggest barriers to bringing litigation, the potential liability for adverse costs of powerful vested interests.

Facilitating private litigation where there is a legitimate case to be made about anti-competitive behaviour is good for competition, good for consumers and good for the currently anaemic case law that has defined the terms in which courts can judge the misuse of market power.

It allows small businesses to go forward in certain instances with confidence that even if they lose, they won't be hit by a multi-million dollar cost order for the big business's costs. That's in the public interest.

We see this in other jurisdictions and other places, where litigation in the public interest is valued. And here, under this policy, a number of cases will go forward that wouldn't have gone forward before.

This is a modest, sensible proposal to empower small businesses to pursue failures in the competitive process.

Detail in the bill

Schedule 1 of this Bill amends the Australian Small Business and Family Enterprise Ombudsman Act 2015 to add the meaning of conduct under the Competition and Consumer Act 2010, and define the assistance the Ombudsman may give to parties seeking no adverse cost orders in proceedings in relation to contraventions of the Competition and Consumer Act 2010.

Parliament passed the Australian Small Business and Family Enterprise Ombudsman Act 2015 and Australian Small Business and Family Enterprise Ombudsman (Consequential and Transitional Provisions) Act 2015 in 2015 to establish the Australian Small Business and Family Enterprise Ombudsman.

The ombudsman commenced operations on 11 March 2016. The ombudsman replaces the former Office of the Australian Small Business Commissioner. The role of the Australian Small Business and Family Enterprise Ombudsman (ASBFEO) is to:

Advocate for small businesses and family enterprises;

Provide access to dispute resolution services; and

Ensure government policies are small business friendly.

To assist in the process of a private litigant requesting a 'no adverse cost order', this bill will allow the Small Business Ombudsman to provide an initial assessment on whether a private litigant is likely to be granted a no adverse cost order.

The representatives of small business private litigants will be able to submit their proposal to the ombudsman and receive professional assistance and advice with respect to the likelihood of success. This includes advice on the arguments that might be made and the evidence that might be adduced to satisfy a court that a no adverse costs order should be made. It also includes assistance with preparing arguments.

While this will not be legally binding, the ombudsman will assist small businesses in better understanding the merits of their case and their prospects of successful application for a no adverse costs order under the Competition and Consumer Act 2010.

Schedule 2 of this Bill amends the Competition and Consumer Act 2010 to allow no adverse cost orders in certain circumstances in litigation undertaken under the Act.

Allowing judges in the Federal Court to waive liability to adverse costs of small business private litigants will empower private litigants under Part IV of the Competition and Consumer Act to bring meritorious litigation without the prospect of prohibitive legal fees.

At an early stage of the court case, the private litigant will be able to request a 'no adverse cost order', preventing large legal fees of the defendant being transferred to the litigant. The judge will then assess the initial arguments and decide whether there is merit to the case. If merit is established, any liability for the defendant's legal fees will be waived.

The court may make a no adverse costs order in circumstances where:

the action has a reasonable chance of success;

the matter may have significance beyond the litigant (such as that there are likely to be other similar cases); and

where the financial disparity of the applicant relative to the respondent is such that a respondent could use a cost order as a deterrent to undertaking litigation.

Labor is the party of competition policy

This policy complements the other pro-consumer and pro-competition policies Labor took to the 2016 election - this was a space left conspicuously vacant by those opposite.

Labor proposed to:

Increase civil penalties under the Australian Consumer Law from $1.1 million to $10 million, bringing penalties in-line with the competition provisions of the Competition and Consumer Act 2010;

Adopt the European Union's (EU) penalty system for anti-competitive conduct, which is based on 30 per cent of the annual sales of the relevant product or service, multiplied by the number of years the infringement took place, limited to the greater of 10 per cent of annual turnover, or $10 million;

Use some of the revenues from increased penalties to increase the Australian Competition and Consumer Commission's (ACCC) litigation budget from its current level of $24.5 million to a maximum of twice that level ($49 million);

Amend the Competition and Consumer Act 2010 to give a completely independent market studies function to the ACCC so that it can explore public interest issues such as pricing discrepancies and increased market concentration;

Amend section 76 of the Competition and Consumer Act 2010 to allow the Court to apply higher penalties for conduct that targets or disproportionately impacts disadvantaged Australians;

Include a requirement in the Competition and Consumer Act 2010 that the ACCC prioritise investigations of conduct that targets or disproportionately impacts disadvantaged Australians;

Task government to investigate the impacts of increased market concentration on income inequality in Australia and produce policy recommendations on how the negative effects of market concentration can be mitigated; and

Encourage states and territories to include competition principles in planning and zoning legislation, as recommended by the Harper Review, with a specific focus on shortfalls of appropriately zoned land for key services in disadvantaged communities.

This bill, and the policies I've just mentioned, all build on Labor's proud competition policy legacy.

The Labor Party is the party of the Trade Practices Act 1974, the National Competition Policy, the Australian Consumer Law and the criminalisation of cartels.

Australians can trust Labor to get it right when it comes to competition and consumer protection.

The Government's dangerous 'effects test'

An 'effects test' is shorthand for a test that looks at whether conduct engaged in by a firm with a substantial degree of market power has the purpose, effect or likely effect of substantially lessening competition.

This is dangerous economic policy.

The effects test risks making business afraid to compete, which ultimately hurts consumers.

This will create a legal risk for a business every time it seeks to lower prices for its customers.

Consumers are the losers under the effects test.

The Council of Small Business Australia (COSBOA) have also set out a concern that "the wording… will create a 'lawyers picnic' as predicted by the opponents of the effects test".

Labor welcomes strong competition policy but it must be informed and enforced. The Government's package is neither.

What we see are dangerous legislative proposals without addressing either the resources of the ACCC or making it easier for small businesses to litigate in their own private capacity.

Since 1974 at least 10 inquiries into Australia's competition laws have considered the proposal of an effects test and have rejected it. Apart from Professor Harper's review, only one other inquiry has ever recommended it.

In submissions to the Harper review, the effects test has been described as 'legally unworkable', something that 'will chill competition' and something that 'will create uncertainty for business'.

These changes will deter job-creating investment in Australia by adding to the new layers of red tape and barriers to investment which have already been imposed by the Liberal-National government.

Little wonder the government's own former Minister for Trade and Investment Andrew Robb was opposed to this latest anti-investment measure.

The Turnbull government's proposed effects test is a move to satisfy internal politics.

This is not about policy. A level headed analysis of the effects test shows Malcolm Turnbull is using competition policy as a political prop.

Barnaby Joyce has become the government's chief economic spokesperson. This is detrimental to the Australian consumers and the broader economy.

What will the effects test mean?

Consumer prices: The day this decision was announced, Barnaby Joyce said selling milk for $1 litre was too low. The price should be higher. In the same press conference, he raised how milk was sold in China for up to $11. This is just the start of how consumer prices, the everyday costs of living, will hit families after the introduction of an effects test;

Uncertainty: Businesses need certainty to plan and make decisions. Litigation over the effect of their decisions will heighten uncertainty and make it difficult for businesses to plan ahead. This will impact on investment and jobs; and

Innovation and growth: The Prime Minister talks a lot about innovation. However Australia's largest employer, Wesfarmers, has said they are deeply concerned about the negative impact of this decision on innovation. This will make it harder for businesses to test new products.

Conclusion

The only people who need to be nervous about the Access to Justice policy in this private senators' bill, are those who are systematically misusing their market power, safe in the knowledge that their disadvantaged competitors don't have the resources to bring the law to bear on them.

I encourage all those who consider themselves friends to small business to support this bill and help us deliver greater access to justice for Australia's thousands of small businesses.

Debate adjourned.

 

Second reading debate

The bill was debated on 11 May 2017 in the Senate. Speakers included Senator Katy Gallagher (ALP), Senator Ian Macdonald (LP), Senator Nick Xenophon (NXT), Senator Sam Dastyari (ALP, Senator Chris Back (LP), Senator Christopher Ketter (ALP), Senator Murray Watt (ALP) and Jane Hume (LP).

All speeches can be viewed on the Second Reading speeches page for the bill.

During the course of his speech Senator Xenophon noted that he and his colleagues support, 'with some amendments' the 'effects test' contained in the Competition and Consumer Amendment (Misuse of Market Power) Bill 2016. In this respect, Senator Xenophon proposes 'moving a whole range of amendments based on this bill to the government's effects test bill, because we think that is the right thing to do in order to make that piece of legislation work much more effectively'.

 

Media release

The media release accompanying the introduction of the bill is reproduced below (from media release, 16 February 2017)

Labor will introduce legislation into the Senate today that will help small businesses take cases of anti-competitive behaviour to court.

Currently, small businesses are less likely to take up private litigation against anti-competitive behaviour.

This is because big businesses have deep pockets and armies of lawyers, so the risk of small businesses being overwhelmed and having to pay the big businesses’ legal fees is a significant obstacle.

The Turnbull Government has refused to address this inequity despite the Productivity Commission and the Government’s own Competition Review saying that small businesses are disadvantaged in the court process.

Labor’s Competition and Consumer Legislation Amendment (Small Business Access to Justice) Bill 2017 will restore the balance by letting a small business request a ‘no adverse costs order’ early in a court case.

If the judge decides that the case has merit, the small business will not have to pay the big business’ legal costs.

Labor’s smart legislation will also enable the Australian Small Business and Family Enterprise Ombudsman to provide professional assistance as to whether the ‘no adverse costs order’ is likely to be successful. This is in keeping with the Ombudsman’s current dispute resolution mandate and will help to filter vexatious litigants from the process.

Because Labor is the party of competition policy, our access to justice reforms are based on evidence of what works, unlike the populism relied on by the Turnbull-Joyce government.

We understand that good competition law protects the competitive process, not competitors.

This is why Labor does not support the Turnbull Government’s effects test. Their policy has very little evidentiary support and will not achieve greater competitive balance between small and big businesses.

Instead it will cripple legitimate competition, depress innovation, deter investment and frighten companies from lowering prices on groceries, particularly in regional and remote areas.

Labor is throwing the Prime Minister a lifeline with our access to justice legislation.

With it he has the chance to properly support small business, ditch Barnaby Joyce’s ill-thought through effects test and back in Labor’s policy which will provide access to justice for thousands of small businesses around Australia.

Senator Katy Gallagher is Labor's Shadow Minister for Small Business and Financial Services.

This is a joint release with Labor's Shadow Assistant Treasurer Andrew Leigh MP.

 

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