French, Justice Robert --- "Competition law - covering a multitude of sins" (FCA) [2004] FedJSchol 5

Competition Law Conference
Sydney 15 May 2004

Competition Law – Covering a Multitude of Sins

Justice RS French
Federal Court of Australia

Introduction

1. In a moment of non-legal cosmic reflection Oliver Wendel Holmes wrote to Frederick Pollock that life is like an artichoke, you nibble off a few bits and throw the rest away. Some would say that competition treats society like an artichoke. Deliberate, ruthless and focussed upon efficiency it nibbles at a few bits and throws the rest away. In truth however, the competitive process and the laws which seek to promote it are no more immune from the viruses of their real world environment than any other area of social and economic regulation. The purposes of competition law are never pure in economic terms. With the passage of time, in the Australian experience, it has broadened and diversified and attracted qualifications and exemptions. This is an organic evolution that sees certain aspects strengthened because of their perceived social benefits and others weakened because of perceived social costs. The broadening of competition law in Australia seems more pronounced than its limitation. It has come to cover a multitude of sins. This is something we may have to accept as a reality of life. The object of this paper is to refer to some aspects of this evolution and some contemporary questions relating to its application and enforcement.

An Act of Faith Becomes a Bible

2. When it was first enacted the Trade Practices Act 1974 (Cth) contained no statement of its objects. Such statements had not then become fashionable in the drafting of Commonwealth Statutes. The long title of the Act described it succinctly and uninformatively as ‘an Act relating to certain trade practices’. Its purpose, according to the Second Reading Speech given in the Senate by then Attorney-General, Senator Lionel Murphy, on 30 July 1974 was:
   

‘... to control restrictive trade practices and monopolies and to protect consumers from unfair commercial practices.’ [1]

It was said to attend to ‘a wide variety of problems’.

When it was enacted the Act comprised ss 1 to 172 and it had 172 sections. It was, when passed, an Act of faith. For no one had then done any prospective cost benefit analysis of its operation. Nor has any general quantitative historic analysis been done since its enactment. It may be that it is too hard to be possible. But the faith that began the Act endures. It was recently reaffirmed by the Dawson Committee:

‘... the competition provisions in Part IV have served Australia well.’[2]

That assertion was in the nature of a faith statement. It has been criticised on the basis that there was very little evidence before the Committee about the impact of the Act. The assessment of that impact would require substantial and sophisticated investigation.[3]

3. Despite the want of comprehensive empirical evaluation, both Act and regulator have a degree of continuing political credibility that makes them very attractive repositories for the management of a variety of problems much wider than Senator Murphy could have had in contemplation when he delivered his Second Reading Speech in 1974. The number of reviews of the Act and various aspects of its operation is legion. They reflect the ongoing interest in and debate about its proper scope and the mechanisms for its enforcement. A list of the reports and reviews by name would include reference to Swanson[4], Blunt[5], the Green Paper[6], Griffiths[7], Cooney[8], Hilmer[9], the Law Reform Commission[10], Reid[11], Baird[12], Hawker[13], Wilkinson[14], Dawson[15] and, most recently, the Report of the Senate Economics Reference Committee[16].
4. Today the sections of the Act are numbered from 1 to 173 and there are on my manual count, 670 of them. This is a distinctly non-Arabic numerology. Things are no better with Roman numerals. Initially the Act had twelve Parts numbered from I through to XII. The Parts still number from I to XII but there are now twenty three of them. In the original Act there were four Parts dealing with what might be called substantive law, namely Pt IV entitled ‘Restrictive Trade Practices’, Pt V entitled ‘Consumer Protection, Pt VIII entitled ‘Resale Price Maintenance’ and Pt X ‘Overseas Cargo Shipping’. The other Parts provided infrastructure for the administration of the Act in the form of the Trade Practices Commission (Pt II) and the Trade Practices Tribunal (Pt III), provisions relating to their powers and immunities (Pt XII), provisions relating to enforcement and remedies (Pt VI) and provisions for authorisation, notification and clearance of activities which might be anti-competitive (Pt VII). The titles of the Parts added since then are testament to the broadening scope and diversity of competition law and the power of the proposition that if you don’t regulate competition it is apt to get out of hand. Indeed in aspects of the Act and contemporary debate relating to misuse of market power, unconscionable conduct and the protection of small business we hear echoes of the High Court in the 1912 Coal Vend case:

‘Cut throat competition is not now regarded by a large proportion of mankind as necessarily beneficial to the public.’ [17]

5. Subject matter areas introduced into the Act since 1974 are: access to services (Pt IIIA), unconscionable conduct (Pt IVA), industry codes (Pt IVB), liability for defective goods (Pt VA), GST price exploitation (Pt VB and Pt XIIAA), price surveillance (Pt VIIA), the telecommunications industry and telecommunications access regimes (Pt XIIB and Pt XIIC). In the wake of the Hilmer Review a National Competition Council has been established under the Act (Pt IIA) and provision made for a competition code to be adopted by the various States (Pt XIA).

Early Visions of Purpose and Meaning

6. The purpose of the Act was also described in the 1974 Second Reading Speech as being ‘to promote efficiency and competition in business, to reduce prices and to protect all Australians against unfair practices’.[18] Beyond that very broad statement of intent and the other statements referred to earlier there was not much in the way of a coherent policy framework or theory to explain the presence in the one statute of its seemingly disparate measures. From the perspective of 30 years of hindsight the Second Reading Speech presented narrowly focussed statements about aspects of two classes of behaviour with which the Act was concerned, namely restrictive trade practices and unfair practices. Nevertheless the measures directed to these behaviours could be seen as promoting and protecting competition in two ways:

1. By preventing anti-competitive conduct.

2. By ensuring that consumer choices would be based upon accurate information about goods and services.

On that basis the Act was to be understood as a law about competition in the broadest sense in which consumer protection was itself an aid to the competitive process. But that formulation does not define adequately the ultimate social goal of the legislation.

7. Competition is not so much a goal in itself as a means to an end. What Mason CJ and Wilson J said of s 46 in the Queensland Wire case[19] could be applied to all of the provisions of the Act designed to protect competition:

‘... the object ... is to protect the interests of consumers, the operation of the section being predicated on the assumption that competition is a means to that end.’

That observation might also encompass the protection of consumers against misinformation as a pro-competitive means of enhancing consumer welfare generally as well as in respect of particular transactions. In so saying it must be accepted that there are important views of competition law and policy which do not include consumer protection within its scope. The Hilmer Committee said that competition policy ‘seeks to facilitate effective competition to promote efficiency and economic growth while accommodating situations where competition does not achieve efficiency or conflicts with other social objectives’. The protection of consumers as a group was seen as an area distinct from competition policy despite its acknowledgement ‘that both policies benefit consumers and that some consumer protection provisions improve the efficiency of markets’.[20] The Dawson Committee, focussing upon Pt IV of the Act, acknowledged that competition is not an end in itself but ‘an important means whereby an economy can achieve economic efficiency’. This it linked to the ultimate outcome of sustaining ‘economic welfare’.[21]

8. The Act now has, and has had since 1995, a statutory statement of its overall objectives in s 2:

‘The object of the Act is to enhance the welfare of Australians through the promotion of competition and fair trading and provision for consumer protection.’

If the whole Act is about consumer welfare in a general economic sense, not limited to specific transactions, then the competition provisions and the consumer protection provisions can stand together comfortably under one rubric. Although Pt V operates directly to protect consumers against varieties of misleading or deceptive conduct and other unfair trade practices, it can also be seen as supporting the competitive process in a wider sense by ensuring that markets have access to accurate information about products and services. The benefits of competitive outcomes reflected in the delivery of better goods and services for lower prices may be defeated if their advantages are obscured by a fog of misinformation from some competitors protective of lower quality and/or higher prices. So the Act, as originally conceived, could be justified by a single consumer welfare purpose. Since its enactment however there have been ongoing pressures to broaden or diversify that general objective in favour of the protection of particular classes of competitor and protections for consumers going beyond protection against various species of misinformation. There has also been ongoing pressure to qualify or limit the application of the Act with respect to particular sectors of the economy.

Purposes at Large – The Authorisation Process

9. The Act embodied in 1974, and still does, a mechanism by which social and other policy objectives unrelated to competition can qualify its application. That is the authorisation mechanism. The ACCC may, under s 88 of the Act, grant authorisation to corporations to engage in various species of conduct that without such authorisation would be prohibited by one or other of the applicable provisions of Pt IV.
10. One of the tests prescribed for the authorisation of conduct by s 90(6) and (7) requires the ACCC to determine whether the proposed conduct is likely to result in a public benefit and whether that benefit would outweigh the detriment to the public constituted by any lessening of competition that would be likely to result. A broader test applies to other per se conduct. That is simply that the proposed conduct would result or be likely to result in such a benefit to the public that it should be allowed. The public benefit criterion permits consideration by the ACCC of any consequence of the proposed conduct which can be characterised as ‘of value to the community generally, any contribution to the aims pursued by society, including as one of its principal elements (in the context of trade practices legislation) the achievement of the economic goals of efficiency and progress – Re Queensland Co-Operative Milling Association Ltd (1972) 25 FLR 169. While there has been some exposition of the limits of the concept of public benefit by reference to the distinction between public and private the categories of things that might qualify as benefit is not closed.
11. Perhaps more importantly than the boundaries of the concept of public benefit, which are unlikely ever to be satisfactorily defined, is the function conferred upon the ACCC and ultimately upon the Tribunal by the use of those words in the authorisation provisions. For they empower the ACCC to make evaluative judgments of benefit which are barely contestable save for a different evaluation by the Tribunal. It enables social objectives ranging well beyond the realm of economic efficiency not only to be taken into account by the regulator but also to be defined by it in determining whether or not there is a benefit. Moreover the regulator is entitled to weigh the benefit and thus effectively assign non-justiciable priorities or weightings to various classes of benefit which may have something or nothing at all to do with the competition objectives of the Act. In the process the ACCC may negotiate by attaching conditions to its authorisations effectively fine-tuning to achieve satisfactory levels of public benefit or to reduce the risk of anti-competitive detriment.
12. The rationale for the authorisation process was embedded in the general description of competition policy objectives in the Hilmer Report at p xvi:

‘Competition policy is not about the pursuit of competition per se. Rather it seeks to facilitate effective competition to promote efficiency and economic growth while accommodating situations where competition does not achieve efficiency or conflicts with other social objectives. These accommodations are reflected in the content and breadth of application of pro-competitive policies, as well as the sanctioning of anti-competitive arrangements on public benefit grounds.’

13. The decision-making processes involved in determining authorisation applications are polycentric. Neither the ACCC nor the Tribunal in granting an authorisation ascertains and determines rights and liabilities. A decision to authorise proposed conduct satisfies a condition sufficient to attract to that conduct an immunity which is created not by the regulator or the Tribunal, but by the Act itself. By an evaluative decision-making process which is not confined by any rules or criteria more precise than those set out in s 90 the ACCC and the Tribunal can, in effect, put the operation of the restrictive trade practices provisions of the Act to one side in the service of a variety of purposes which they may define and value under the general heading of public benefit. An analogous mechanism operates in respect of the application to trust income of different rates of tax according to the Commissioner’s determination that it is ‘reasonable’ to do so. This species of administrative determination has been described as ‘legislative’ in character – Giris v Federal Commissioner of Taxation [1969] HCA 5; (1969) 119 CLR 365.
14. Recent discussion of the use of authorisation in relation to mergers and acquisitions raises the issue of its special character. The Dawson Committee recommended that applications for the authorisation of mergers or acquisitions should be made directly to the Competition Tribunal.[22] The purpose of the recommendation was to fast track consideration of authorisation in a context in which time may be of the essence and in which third party interventions by way of review of ACCC authorisation determinations could extend time lines and prolong uncertainty. In deciding such an application there would be no requirement on the Tribunal to consider whether the merger or acquisition, absent authorisation, would contravene s 50. However the Dawson Committee also recommended that the Tribunal should have power to remit an application for consideration by the ACCC if of the view that it required a decision solely on competition questions posed by s 50 rather than a decision concerning public benefit and if the ACCC had yet to formally examine the matter. There is no obvious explanation for this recommendation in the Report which seems to involve two procedures with different objectives and which represents a departure from the existing philosophy of authorisation.
15. Let it be assumed, that the remitter process recommended by the Dawson Committee involves remitter of the application for authorisation from the Tribunal to be considered by the ACCC as though it were an application for clearance under the formal process also recommended by the Committee. The legal nature of the authorisation power has already been discussed. It is necessary to consider the legal character of a formal clearance process. A formal clearance by the ACCC or the Tribunal of a proposed merger could not be a binding determination of the question whether s 50 would be contravened were the merger or acquisition to proceed. For only a court may ascertain and determine rights in a binding manner. Presumably if formal clearance is to work it would have to be similar in legal concept to authorisation. That is to say, a clearance decision on competition grounds by the ACCC or the Tribunal would satisfy a sufficient condition for an immunity from the application of s 50, which immunity would be created by the statute. ‘Informal clearance’ by contrast is a process whereby the regulator forms an opinion that binds no one, determines no rights or liabilities and gives rise to no immunities. A remitter of a formal authorisation application to an informal competition clearance assessment would be an odd process indeed.
16. Assuming the proposed remitter power to operate between the authorisation process and the proposed formal clearance process it should be observed that these mechanisms serve different purposes. Authorisation may consider a variety of social objectives and the applicant can paint its case on a larger canvas than that provided by an application for clearance on competition grounds or to the Court for a declaration of the kind sought in AGL. That was one reason that in AGL it was held that authorisation was not an alternative to declaratory relief such that declaratory relief should be refused on discretionary grounds.
17. In summary, the authorisation process introduces into the Act a mechanism by which its application may be qualified or limited in favour of a variety of social objectives which are not defined by the Act but ultimately by its regulator and the Competition Tribunal. The nature of the authorisation process is qualitatively different from that of the determination of rights and liabilities under the Act.

Clearance for Mergers and Acquisitions

18. Consideration of authorisation and clearance procedures does lead on, although by way of a diversion, to consideration of the proposals for a formal clearance mechanism as against the present system of informal clearance and the recently emerged fallback of declaratory proceedings in the Federal Court.
19. The utility of pre-merger clearance depends upon the extent to which it can provide certainty of access, timely and cost effective procedures and finality in outcome. These attributes exist in differing degrees in each of the clearance mechanisms and their importance will vary according to the circumstances of the case.
20. Informal clearance should pose no access problem. Anybody can ask the ACCC for its attitude to a proposed transaction. It should be cheaper than formal procedures utilizing the Tribunal or the Court. The timelines will vary from case to case and depend upon the resources available to the ACCC and the extent of the market investigations it must carry out. Subject to adequate resourcing and given the accumulation of a body of corporate knowledge in the ACCC about various markets, informal clearance should take less time for a given transaction than a formal administrative or judicial process. The best achievable outcome of informal clearance from an acquirer’s perspective is a response from the ACCC that the proposed transaction does not raise any competition concerns. Such an expression of opinion, as noted above, secures no rights or immunities against third party action or ACCC change of heart which could be based upon fresh information. In many cases, however, the informal clearance will be assessed by the acquirer as providing an adequate reassurance for its commercial purposes albeit there is an element of risk assessment involved. Refusal of informal clearance may so affect the acquirer’s risk assessment that the transaction will not proceed. It may be open to the acquirer in such a case to approach the Court for a declaration that the proposed acquisition will not contravene the provisions of s 50. Access to the Court for that purpose is not guaranteed. The Court has no jurisdiction to give advisory opinions about proposed transactions. Whether it can entertain an application for a declaration will depend upon whether there is a real controversy before it, not just an hypothetical one. In AGL v ACCC the dispute was real, there was a controversy. The ACCC had effectively threatened post acquisition proceedings. But that set of facts may not arise in every case and the general question whether there is a dispute has no bright line answers.
21. The timeliness of court proceedings depends, as with the informal clearance process, upon the resources available to the Court in terms of judicial availability and also no doubt the resources available to the parties including human resources, such as suitable solicitors, counsel and economic and industry experts. The AGL case was dealt with expeditiously because these resources were available. They may not be so readily available in every case.
22. The judicial declaration provides certainty and security of outcomes so far as it goes. The ‘so far as it goes’ qualification imports the assumption that the transaction which proceeds is in the material respect the transaction upon which the court has made its decision. There is a degree of inflexibility in judicial outcomes that does not apply to administrative decision making where a process of negotiation can lead up to the final decision which may be attended by various conditions including changes to aspects of the proposed transaction.
23. A party seeking declaratory relief in relation to a proposed acquisition will also bear the onus of proving that the transaction will not contravene s 50. Questions of onus do not arise so acutely in inquisitorial administrative processes which can be built around a formal clearance mechanism. Indeed, from an acquirer’s point of view it would be better off if the ACCC were to take injunction proceedings where the onus rests upon it. A judicial declaration is also subject to appeal by way of rehearing. An appeal court may be invited to review the evidence put before the trial judge and to come to different conclusions about the relevant market definition and structure and whether there is or is not likely to be a substantial lessening of competition if the acquisition proceeds. These are evaluative decisions on which reasonable minds can differ and to the extent that they may be revisited on appeal they introduce an element of uncertainty into the judicial process. Nevertheless, ultimately the judicial process delivers finality.
24. A formal administrative clearance mechanism using the tribunal as the final and only forum for consideration of the merits of the case has the advantage of certainty of access unaffected by the existence or non-existence of disputes with the ACCC or third parties. Depending on the complexity of the transaction under examination and the attitude of third parties the costs of such proceedings may be comparable to the judicial process and may be less. They can be mitigated by the use of informal procedures. There is also an absence of the constraints imposed by the rules of evidence. Having said that I should say that even in the Court the reception of evidence is generally governed by the fundamental criteria of relevance, fairness and efficiency rather than technicality. Where the parties take a sensible approach and/or the Court exercises reasonably firm control much can be agreed that is not in issue and the case can go forward.
25. An important and perhaps critical difference between formal administrative clearance and judicial declaration is that formal clearance can be based upon statutory provisions that confer the necessary immunity as a legal consequence of the Tribunal’s determination that the transaction will not contravene s 50. In this respect the same legal underpinning can be used for formal clearance as is used for authorisation. Moreover the statute can preclude merits review of the Tribunal’s finding so that its competition assessment is not open to review on the facts. Judicial review will always be available for jurisdictional error including breaches of natural justice. That is because the relevant jurisdiction, invested in the High Court, is conferred by the Constitution. In reality it is likely that the Tribunal decisions on formal clearance applications would be reviewable generally under the Administrative Decisions (Judicial Review) Act and/or by specific provision for review on a question of law in the same way as the Administrative Appeals Tribunal can be reviewed. Whichever of those review mechanisms is used it would not generally be open to a court to revisit the Tribunal’s findings on issues such as market definition and whether the transaction was likely to give rise to a substantial lessening of competition.
26. Generally speaking there is much to be said for the introduction of a formal clearance mechanism subject to judicial review for error of law or process. That does not prevent the continuance of an informal clearance system which will probably be adequate for a great range of uncontroversial acquisitions.

Construing the Act – Judicial Broadening and Legislative Contraction

27. In their interpretation of the provisions of the Act the courts, acting within the proper limits of their role, do not re-write its provisions. There is no doubt, however, that their broad language gives rise to the necessity, in particular cases, for the courts to make choices about their scope. These are constructional choices. The making of such choices involves interstitial judicial legislation. Sometimes such choices will have results that, although well within the language of the provision under consideration, will differ from the expectations of those who drafted and enacted it and those of their successors.
28. Section 52 of the Act is probably the most dramatic example of the way in which judicial construction has given rise to applications of the section unlikely to have been imagined by those who passed the Act in 1974. Its location in Pt V under the title Consumer Protection suggested, not unreasonably for some, that it was concerned with misleading or deceptive conduct directed to people in their capacity as consumers and that it would not cover private commercial negotiations – Westham Dredging Co Pty Ltd v Woodside Petroleum Pty Ltd [1983] FCA 30; (1983) 66 FLR 14. That view was overtaken by a torrent of authority to the contrary. Private commercial negotiations are now grist for the mill of s 52 litigation in both Federal and State Courts. This includes large-scale corporate and commercial disputes which rage well above the heads of ordinary consumers.[23]
29. It may be debated whether and if so to what extent such applications of Pt V of the Act fall under the general rubric of consumer protection supporting the competition process. But the judgments which so apply s 52 have followed the ordinary meaning of its words which do not have built into them any limitation by reference to the public or private character of the conduct complained of. There is, of course, a control imposed by the requirement that the conduct be in trade or commerce. Even so, many of the cases have given that term a broad interpretation albeit it was somewhat confined in Concrete Constructions (NSW) Pty Ltd v Nelson [1990] HCA 17; (1990) 169 CLR 594. In so doing however the Court upheld the generally wide application of the section (at 604):

‘What the section is concerned with is the conduct of a corporation towards persons, be they consumers or not, with whom it (or those whose interests it represents or is seeking to promote) has or may have dealings in the course of those activities or transactions which of their nature bear a trading or commercial character.’

30. Section 52 is an open textured rule and it is perhaps not surprising that it has been applied to a wide variety of situations in the public arena which could never have been contemplated by its drafters. These include the misleading use of trade marks, labels, logos, business names, getup, the sale and leasing of property, including businesses, pre-contractual representations in general and professional advice and services. It has also been applied to commercial speech in the public arena. It can be said of the section now that it embodies a universal norm of commercial behaviour applicable to corporations and, through the Fair Trading Acts of the States, to individuals, whether they are dealing inter se as traders or business people or with members of the public as consumers. Notwithstanding the recalcitrance of human nature it may be surmised that over a long period of time the application of that norm will support a culture of care in the provision of information which will be supportive of the competitive process and so serve consumer welfare generally. The application of this norm in one case however elicited a legislative reaction at the instigation of a section of the economy that most loudly demands accountability from the rest.
31. This example of political sensitivities responding to judicial construction of the section occurred early in the development of its jurisprudence with the enactment of s 65A in 1984. Under that section so called ‘information providers’ are exempted from the provisions of Pt V relating to misleading or deceptive conduct arising out of the publication of matter other than matter relating to the sale or supply of goods or services or interests in land. The enactment of s 65A followed the decisions of the Federal Court in Australian Ocean Lines v West Australian Newspapers Ltd (1983) 66 FCR 453 and Global Sportsman Ltd v Mirror Newspapers Ltd (1984) 2 FCR at 82. In those cases the Court held the publication, by media outlets, of false or misleading statements in news reports could contravene s 52. This position was not to be tolerated for long and legislative change was swift. The exemption inserted was ad hoc. It reflected a response to media pressure rather than the implementation of any coherent policy of competition or consumer welfare. It also reflected the susceptibility of the Act to change in response to particular judicial decisions without clear reference to the way in which such change might fit into competition policy. That susceptibility persists as appears from the debate over the need for a legislative response to the Boral decision which is discussed in the next section.

Legislative Responses – New Purposes

32. Human nature being what it is there has always been the potential for special pleading, conceptual confusion and a broadening of the purposes of the Act or qualifications of it by particular exemptions. To the extent that the Act requires construction and application by judges there is an inescapably organic element in its development. This is a product not of judicial capriciousness but rather the statutory language and in particular, in Pt IV, the attempt it represents to fuse legal and economic concepts. While common formulae may be developed to elaborate upon these terms they all require evaluative judgments. And although, in form, findings of fact they are in truth expressions of judicial opinion albeit reached on a careful and principled basis. In this area it is often the case however that one regulator’s/business person’s/politician’s view is as good as another judge’s.
33. Section 46 is a case in point. It was, at one time, propounded as a provision protective of small business. The Blunt Committee in 1979 proposed that while the primary thrust of the Act was towards efficiency there should be a protection of small firms from the predatory conduct of others with a substantial degree of market power. In the Second Reading Speech for the 1986 amendments which recast s 46 into its present form, the Attorney General referred to the importance of an effective provision controlling the misuse of market power to ensure that small business was given a measure of protection from the predatory actions of powerful competitors. But s 46 does not speak in terms which offer any particular protection to small business. As the decision in Queensland Wire made clear, the section is concerned with the protection of competition, not competitors. That principle was reaffirmed in Melway Publishing Pty Ltd v Robert Hicks Pty Ltd (2001) 205 CLR 1 at 13 and again in Boral Besser Masonry Ltd v ACCC [2003] HCA 10; (2003) 195 ALR 609. If action brought by or on the complaint of a small firm were to succeed in an action under s 46 then it would only do so upon the basis that all the elements of a contravention, as defined by the terms of the section, have been established. That is not to say that a s 46 contravention could not be made out in a case where the victim was a small firm or firms. For example predatory price-cutting by a cartel to drive a small firm non-member from the market and so maintain the effectiveness of the cartel may constitute s 46 conduct.[24]
34. The Boral judgment did not offer any more support for small business than that offered by the language of s 46. Gleeson and Callinan JJ reiterated that ‘[t]he purpose of the Act is to promote competition, not to protect the private interests of particular competitors. If the damage is sufficiently serious competition may eliminate a competitor.’
35. It is interesting to note that in his judgment in ACCC v CG Berbatis Holdings Pty Ltd (2003) 197 ALR 153, delivered just two months after the judgment in Boral, Callinan J reflected briefly upon the relationship between the prohibition of unconscionable conduct in s 51AA and the prohibition in s 46. This was in the context of a small business case involving allegations of unconscionable conduct by a shopping centre owner against his tenants. Callinan J said (at [186]):

‘... There is no necessity to explore the ambit of [s 46] in this case or its relationship with s 51AA. It is sufficient to point out that its presence may seem to indicate the, or some circumstance in which the use of a superior bargaining power may be relevant.’

Small business should perhaps not take too much comfort from that somewhat Delphic passage. It may be however that the unconscionable conduct provisions of the Act do offer more prospect of protection than s 46 against economic bullying, particularly s 51AC which is not limited by the scope of equity and the common law as is s 51AA. The purpose of the unconscionable conduct provisions is consistent with that kind of protection. Their application may be preferable to remoulding s 46 in a way that could seriously compromise legitimate competitive activity.

36. The decision of the majority of the High Court in Boral turned ultimately upon the proposition that Boral, as the trial judge had found, did not have a substantial degree of market power in the market for concrete masonry products in Melbourne. Customers of the company had the ability to play off one supplier against another and to keep prices down. The necessary purpose was demonstrated in that case. As Gaudron, Gummow and Hayne JJ said (at [173]):

‘For thirty months BBM cut its prices for some of the goods it made and sold, in the expectation that one or more of its competitors would leave the market for those goods.’

But purpose does not imply power. The same joint judgment at [184] set out the requirements for showing a contravention of s 46 in terms which, as one would expect, simply follow the words of the section:

‘... as s 46 is framed and has been interpreted in this Court what is required first is an assessment of whether the firm in question possessed a substantial degree of market power ... and if so, then asking whether the firm has taken advantage of that power for a proscribed purpose and in that way abused that power.’

37. A political response to the Boral decision and to claims that the High Court was failing to protect small business may be seen in the Report of the Senate Economics References Committee, published in March this year. The terms of reference of the Committee required it to inquire into the effectiveness of the Trade Practices Act in protecting small business. The Committee noted that the majority of groups representing the views of small business to it expressed the view that s 46 offers no effective protection from the misuse of market power.[25]
38. The Committee was told, by the ACCC among others, that the courts, and specifically the High Court, had interpreted s 46 in a manner inconsistent with the intention of parliament when the 1986 amendment, lowering the threshold to a substantial degree of market power, was introduced. This proposition has been explained in detail by Professor Frank Zumbo who infers inconsistency with legislative intent by arguing that the test applied to the determination of a substantial degree of power by the High Court in Boral set a threshold as high as the former requirement that the corporation be in a position substantially to control the market. The threshold was set that high, it is said, because the High Court equated the statutory words with total or near total independence from competitive constraint and in particular the ability to raise prices without losing customers.[26] The concept of parliamentary intent as used in statutory construction is a metaphor. It should not be deployed lightly. It is really a conclusionary statement which follows from the application of generally accepted principles for the interpretation of a statute. The proposed construction is declared to accord with the legislative intent because it was reached according to rules which those involved in drafting the laws and those who had to interpret them would accept as legitimate. And the fundamental rule is that construction starts with the ordinary meaning of the words read in context. In fairness to Professor Zumbo his argument and his conclusions are essentially constructional. The Committee, however, seemed to have used intent as though it reflected some collective psychological reality.
39. Part IV contains provisions which require normative and evaluative judgments in their application. Their language is rich in metaphor. The idea of market is the leading metaphor. Other key economic concepts such as ‘a substantial degree of power in a market’ and ‘take advantage of power’ fall to be applied within that metaphorical arena. Some of these concepts pile metaphor upon metaphor. The notion of ‘a substantial degree of power in a market’ offers no quantitative measure but rather forms an instruction to the court to make a judgment. When the court has done that, as in Boral, it is difficult to talk of its judgments being inconsistent with the parliamentary intent. To say that is to say simply that one wants the court to make a different judgment or be easier to persuade.
40. The Committee recommended that s 46 be amended to ‘clarify the intentions of Parliament’. The recommendation was in the following terms:

‘Recommendation 1

The Committee recommends that the Act be amended to state that the threshold of ‘a substantial degree of power in a market’ is lower than the former threshold of substantial control; and to include a declaratory provision outlining matters to be considered by the courts for the purposes of determining whether a company has a substantial degree of power in a market. Those matters should be based upon the suggestions outlined by the ACCC in paragraph 2.16 of this report.’

The ACCC suggestions were as follows:

‘The policy intention behind s 46 should be given effect by amending s 46 to clarify the following principles:

1. The threshold of ‘a substantial degree of power in a market’ is lower than the former threshold of substantial control.
2. The substantial market power threshold does not require a corporation to have an absolute freedom from constraint – it is sufficient if the corporation is not constrained to a significant extent by competitors or suppliers.
3. More than one corporation can have a substantial degree of power in a market.
4. Evidence of a corporation’s behaviour in the market is relevant to a determination of substantial market power.’
   
41. The Committee made a number of other recommendations in relation to s 46. Recommendation 3, dealing with predatory pricing, was in the following terms:

‘Recommendation 3

The Committee recommends that the Act be amended to provide that, without limiting the generality of s 46, in determining whether a corporation has breached s 46, the courts may have regard to:

. the capacity of the corporation to sell a good or service below its variable cost.

The Committee recommends that the Act be amended to state that:

. where the form of proscribed behaviour alleged under s 46(1) is predatory pricing, it is not necessary to demonstrate a capacity to subsequently recoup the losses experienced as a result of that predatory pricing strategy’

42. The Committee recommended that in determining whether or not a corporation has a substantial degree of power in a market, the court may have regard to whether the corporation has substantial financial power. By financial power was meant access to financial, technical and business resources (Recommendation 4). It recommended that the section be amended to state that a corporation with a substantial degree of power in one market shall not take advantage of that power in that or any other market for any proscribed purpose (Recommendation 5). It also recommended the extension of s 46 to cover companies exercising market power by virtue of their ability to act in concert whether as a result of a formal agreement, or understanding, or otherwise, with another company (Recommendation 6). The Committee declined to recommend the introduction of an effects test under s 46 and in this respect followed the Dawson Report.
43. The changes to s 46 proposed by the Committee represent, at least in part, responses to judicial construction and application of the section. They do so in the context of a political purpose related not to the protection of competition but to the protection of small business. Without canvassing the merits of the proposed amendments they will, if implemented, result in a larger and more complex provision than at present exists. They will undoubtedly widen its scope. The question which requires anxious consideration is whether they will widen the net of s 46 so far as to prohibit species of competitive conduct. There are fine judgments sometimes required in the application of s 46 between the legitimate use and the abuse of market power and between protecting competition and protecting competitors. One thing is clear, language being what it is, a section embodying all of these amendments will present new constructional choices which the judges will have to make in accordance with their role of administering justice according to law. Their choices are unlikely to please everyone and those displeased will no doubt talk about parliamentary intent.
44. If the true objective of the changes is related to the protection of small business, then the preferable locus of such change may lie in provisions relating to unconscionable conduct and particularly s 51AC. That section was considered by the Committee in its report. It accepted that it is still relatively new and that no sophisticated body of jurisprudence has developed in relation to it.
45. Unlike the reports and review which were listed earlier in this paper and which stretch over the years since Swanson in 1977, the Senate Report is still warm and immediate in its relevance to discussion about the Act. Its robust tone reflects the political composition of the Committee and contrasts with the tone and approach of the Dawson Committee. The Report provides a good current case study for the way in which the evolution of competition law involves the interplay of judiciary, legislators, the regulator and the wider community of sectoral interests affected by the Act. Its focus on small business is redolent of that of the Reid Committee in 1997.
46. The terms of reference of the Reid Committee which reported in 1997, made no mention of competition policy. The report was focussed upon ‘major business conduct issues arising out of commercial dealings between firms’. It dealt with retail tenancies, misuse of market power, small business finance, legislative protection against unfair conduct and access to justice and education. While acknowledging that it was not appropriate to protect small business through the competition provisions, there was a strong small business emphasis in the Committee’s recommendations. This was well reflected in the Committee’s observation at par 4.62:

‘The Committee does not consider it acceptable to use small businesses as cannon fodder in the market place – providing rounds of competition to the major retailers before being eliminated to make way for new victims.’

47. This approach to competition law reform contrasts with that on the first page of Chapter 1 of the Dawson Report which restated the importance of the distinction between the prevention of conduct that may lessen competition and the protection of less competitive businesses. At p 36 the Committee observed:

‘... the purpose of the competition provisions of the Act is to promote and protect the competitive process rather than to protect individual competitors. The competition provisions should not be seen as a device to achieve social outcomes unrelated to the encouragement of competition. As a matter of policy those outcomes may be regarded as desirable, but the policy will not be competition policy. Nor should the competition provisions seek the preservation of particular businesses or of a particular class of business that is unable to withstand competitive forces or may fail for other reasons. Those are matters which may legitimately be the subject of an industry policy, but that is not a policy which is to be found in the competition provisions in Part IV of the Act.’

48. It will be interesting to see which, if any, of the Senate Committee changes are accepted. If they do pass into law, then competition law may in truth cover a multitude of sins not limited to sins against competition.
49. Or course plurality and disparity and, depending upon perspective, corruption or mitigation of the purposes of competition law, are not confined to Australia. A recent text by Ky P Ewing, essays an interesting overview of the diversity of approaches in competition policy at the international level.[27] The author refers to the work of Ignacio De Leon identifying three schools of thinking which he calls the Efficiency School, the Structural School and the Lobbyist School. The Efficiency School focuses upon the allocation of resources for the greatest good – it is a consumer welfare model of competition law. The Structural School, particularly in developing countries in Latin America, would use competition policy to overcome economic inequality reflected in concentrated markets. The Lobbyist School, which may be called a ‘school’ with tongue in cheek, is one according to which ‘less effective competitors use the policy in order to keep in check or force the exit of more effective firms from the market and thus preserve the current distribution of rents in society’.[28] Robert Bork has evidently called this ‘Predation through Governmental Processes’.[29] Ewing observes that the lobbyist version is something that afflicts every country. Examples cited from the United States are export trading company cartel laws, the rigid price discrimination theories embodied in the Robinson-Patman Act which he describes as a patent attempt to curtail the more efficient grocery and other chains and various exemptions and immunities granted by Congress and individual States. He also observes that:

‘While the European Commission tries to evaluate fairly the complaints of competitors, many fear that the EC’s emphasis on competitive views causes it (perhaps unconsciously) to succumb to lobbyist activities, thus thwarting true consumer welfare purposes.’[30]

Conclusion

50. In the end it is a matter for elected governments to determine whether the social cost of unqualified competition in particular circumstances is unacceptable. Competition law practitioners, regulators and judges must and do recognise that competition policy operates in a real life, real time political and social context and that this will necessarily have an impact upon the scope of its application and the objectives to which it is applied. This much has been recognised in the Act from the beginning in its authorisation provisions. But when competition laws become primarily business protection laws then they are in truth stood on their head.

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[1] Parl Deb Senate 30/7/74 p 540
[2] Review of the Competition Provisions of the Trade Practices Act 2003 at 34
[3] McEwin, Competition Law in a Small Open Economy [2003] UNSWLawJl 15; (2003) 26 UNSW Law Journal 246
[4] Trade Practices Review Committee, Report to the Minister for Business and Consumer Affairs, August 1976 (AGPS, Canberra, 1976)
[5] Trade Practices Consultative Committee, Small Business and the Trade Practices Act, December 1979
[6] Trade Practices Act: Proposals for Change (AGPS, Canberra, 1984)
[7] The House of Representatives Standing Committee on Legal and Constitutional Affairs, 1989 (The Griffiths Committee)
[8] The Senate Standing Committee on Legal and Constitutional Affairs, 1991 (The Cooney Committee)
[9] National Competition Policy, Report by the Independent Commission of Inquiry, August 1993
[10] Compliance with the Trade Practices Act 1974, Report No 68
[11] Finding a Balance: Towards Fair Trading in Australia, Report by the House of Representatives Standing Committee on Industry, Science and Technology, 1997
[12] Joint Select Committee on the Retailing Sector, 1999 (The Baird Committee)
[13] The House of Representatives Standing Committee on Economic Finance and Public Administration, 2001 (Hawker Committee)
[14] The Review of the Impact of Part IV of the Trade Practices Act 1974 on the Recruitment and Retention of Medical Practitioners in Rural and Regional Australia
[15] A Review of the Competition Provisions of the Trade Practices Act, 2003
[16] The Effectiveness of the Trade Practices Act 1974 and Protecting Small Business, Senate Economic References Committee, March 2004
[17] Adelaide Steamship Co Ltd v King and the Attorney General [1912] HCA 58; (1912) 15 CLR 65 at 76
[18] Parl Deb Senate 30/7/74 p 548
[19] Queensland Wire Industries Pty Ltd v Broken Hill Pty Ltd [1989] HCA 6; (1987) 167 CLR 177 at 191
[20] National Competition Policy – Report by Independent Committee of Inquiry, August 1993 p XVI and fn 3
[21] Dawson Committee at 33
[22] Dawson Committee Recommendation 2.3
[23] See eg Sellars v Adelaide Petroleum NL (1994) 179 CLR 332 involving misleading statements in the course of corporate acquisition negotiations and consequent loss of opportunity to enter into an alternative contract on favourable terms.
[24] Corones, Section 46 of the Trade Practices Act: Boral, The Dawson Committee and the Protection of Small Business (2003) ABLR at 210
[25] Senate Economics References Committee at 7
[26] Zumbo – Boral Case: Has the High Court done justice to s 46? (2003 11TPLJ 199 at 216)
[27] Ky P Ewing, Competition Rules for the 21st Century, Principles from America’s Experience, 2003 Kluwer Law International
[28] Ewing op cit at 17 citing De Leon, Latin American Competition Law and Policy: A Policy in Search of Identity (Kluwer Law International 2001) at 25 and W Baumol and J Ordover, Use of Anti Trust to Subvert Competition 28 Journal of Law and Economics (1985) at 247-266.
[29] De Leon op cit at 35 n 60 cited in Ewing at 62 n 26
[30] Ewing at 17