The Handshake: Significant Change - Australian Government’s effect on competition

Significant Change - Australian Government’s effect on competition

Paul McLachlan, John Kettle, Alex Hutchens

The Australian Government announced today that it will amend section 46 of the Competition and Consumer Act 2010 (Cth) so that it is illegal for powerful companies to act anti-competitively. Specifically, the law will prohibit a company with substantial market power from engaging in conduct with the purpose, effect or likely effect of substantially lessening competition in a market.

It is not an exaggeration to say that this is the most substantial reform of Australia’s competition law since the introduction of the Trade Practices Act in 1974.

McCullough Robertson advocated for a change to the law in the consultation on the proposed changes. Most Australian firms have lobbied for there to be no change.

The current section 46 requires that the company with market power have ‘taken advantage’ of its market power for particular purposes. The High Court has interpreted that obligation so that it is very difficult to prove a misuse of market power where the company could have engaged in the same conduct even if it did not have market power. In practice, this has proved to be a very high hurdle, with courts usually finding that the firm’s conduct did not need and rely on the market power. Despite widespread concerns about the power of large suppliers/customers in various industries, the ACCC has rarely succeeded in any prosecutions it has brought under the section.

The proposed section 46 will lower that hurdle substantially. In many of the cases the ACCC has lost, the court has still found there to be a collective arrangement that substantially lessened competition (breaching other provisions of the Act). Now, there will be no need to prove the existence of an agreement. Any unilateral conduct by a firm with market power will be illegal if it has the effect of substantially lessening competition in a market (or is likely to): even where the effect is an unintended consequence, and even if the conduct was conduct that small firms can and do engage in.

This will bring Australian law much closer to the way competition law applies to single firm conduct in the European Union. The experience in the European Union is that cases based on abuse of dominance are common (both by the European Commission and by private litigants) and have a strong success rate.

The reform implements the recommendations of last year’s Harper Review in full, after a further consultation by the Australian Government on this change specifically. It recognises that when firms with market power engage in conduct, it can have vastly different effects on competition than when small firms engage in the same conduct. Australian law has never recognised that distinction to date.

Please contact Paul, John or Alex for any information or discussion on this or any other competition issue.