Scott Morrison to amend effects test legislation to remove hurdles for proving misuse of market power

Treasurer Scott Morrison will seek to add an amendment to the government’s effects test legislation today that will remove the “mandatory factors” a court would have to consider when deciding whether a business has misused its market power, in a move small business groups say will hopefully pivot big business towards a mindset of corporate responsibility.

The latest development comes two years after the Harper Review recommended Section 46 of the Competition and Consumer Act should be changed to prevent companies with substantial market power from misusing this

Following more than a year of consideration, and at one point, a shelving of a so-called possible effects test, the government introduced the Competition and Consumer Act (Misuse of Market Power) Bill into the House of Representatives last December.

The legislation, which is still before Parliament, proposes to change competition law to ensure businesses cannot act with the “purpose, effect or likely effect of lessening competition”, regardless of whether they intended that outcome from their actions.

While long-championing the introduction of the bill, small and independent business groups, including the Council of Small Business Australia and Master Grocers Australia, have suggested the planned effects test did not go far enough, pointing out that the policy still presented a number of hurdles to finding in court that a company had misused its power. A number of mandatory considerations remained in the proposed legislation, including whether the business was acting with “innovation” in mind, or to “enhance efficiency”.

However, in a planned amendment to be moved to the legislation today by Treasurer Scott Morrison, the list of “mandatory factors” a court must consider would be removed.

A treasury spokesperson told SmartCompany the amendment “will further strengthen laws that prevent firms with substantial market power engaging in conduct that harms competition in Australian markets”.

“The Turnbull Government continues in its commitment to reforms that will benefit consumers, businesses and the economy by boosting innovation, opening new markets and increasing choice for communities,” the spokesperson says.

The Labor Party has long opposed the introduction of an effects test, with former shadow treasurer Chris Bowen claiming in 2015 the policy would create a “lawyers’ picnic” when handed to the courts.

But Master Grocers Australia chief executive Jos de Bruin told SmartCompany this morning those still citing a “lawyers’ picnic” as a defence against an effects test should talk to small businesses who feel they have no power to fight big corporations.

He says independent grocers have long campaigned to have these “mandatory factors” removed, and says the current situation of competition in Australia presents a big disincentive for small businesses to grow or start their own businesses at all.

“We have advocated have those mandatory factors removed, because they are definite hurdles for the ACCC to overcome,” de Bruin says.

“I think the first thing is that small to medium family owned businesses right now feel that they have absolutely no protection and there are no deterrents. That, in effect, is a disincentive to grow your business.”

While Master Grocers hopes the effects test will ultimately force big businesses to “look over their shoulders to say ‘are we a good corporate citizen?’”, de Bruin says the planned changes to the Competition Act are still not enough, because the worst that can happen to a business is a fine.

“The current laws as such [if you misuse market power] means that you’re heavily, heavily fined. But there’s nothing in there to say, ‘well if we’ve proven you’ve misused your market power, we order you to divest,’” he says.

The Australian Competition and Consumer Commission also supports the strengthening and simplification of Section 46 of the Competition and Consumer Act, with chairman Rod Sims telling Fairfax this week the removal of “mandatory factors” would make the law much easier to enforce and would prevent lawyers coming up with ways to argue a company’s behaviour wasn’t anti-competitive.

“Keep it simple as that way everyone knows what it is and it’s easier for the courts to enforce,” Sims said. 

Legal experts have previously told SmartCompany it will be some time before small businesses actually saw the results of an effects test in action. Big businesses are unlikely to pre-emptively change their behaviours, says de Bruin, but he believes the legislation creates an expectation of good corporate citizenship, and puts Australia in line with the rest of the world on this issue.

“This law won’t do anything based upon current behaviours. Like, is Coles going to stop expanding? Or Woolworths? But it does create a check,” he says.

“We need to check some of the behaviours out there. I think this is clearly a step in the right direction, and it only puts us in sync with other economies.”