small business gets its bite back

  • Date:01 Sep 2005
  • Type:CompanyDirectorMagazine

Small business gets its bite back

The ability of the small business lobby to ensure that its interests are adequately protected has never been better illustrated than by the apparent federal backdown on proposed reforms to the Trade Practices Act which were to be debated in Parliament in the last weeks of August.
The Trade Practices Legislation Amendment Bill (No 1) 2005 (the Dawson Bill) will contain significant changes to the original draft legislation with respect to third line forcing. This is an area of the law which the ACCC and small business have highlighted as an area of difficulty.
Third line forcing occurs where, for example, a company (say a bank) sells a product (say it lends money on a mortgage to a consumer) on the basis that the consumer must obtain insurance in relation to that mortgage from a third party. Even if that third party is a wholly-owned subsidiary of the bank making the loan, this practice is illegal, irrespective of the impact of the deal on “the market”.
In most other jurisdictions such arrangements are usually assessed on whether they lead to a lessening of competition.
The Dawson Committee had recommended that the law be changed to enable these practice to be assessed on the basis of whether they impacted on competition – and the Government had agreed to that change. But small business had suggested that there are too many powerful players in the market that can impose such arrangements on smaller businesses in a way that makes it very difficult for them in the context of third line forcing.
The significant impact arising from the recent election of senators representing small business and rural areas has perhaps led to the Government succumbing to pressures to reinstate the per se prohibition.
It would not be such a serious matter if the penalties for breaching these provisions of the Act (where you do not have to show that competition has been lessened). But they are to be significantly increased under the Dawson Bill.
Currently the maximum penalty is $10 million for such a breach, but under the Dawson Bill amendments the penalties will go up to a maximum of 10 percent of gross Australian turnover associated with the breach. While highly unlikely that such third line forcing practices can result in significant damage to the players, there may be situations where artificial arguments could be put forward to support such high penalties. Also while the ACCC is unlikely to pursue such matters (except in the most blatant cases where the relevant practice would almost certainly be anticompetitive). Businesses engaging in such a practice will not be able to operate with any degree of confidence or safety unless they notify the ACCC of the practice. Such notifications are not expensive; but they are time-consuming and sometimes can be quite technical.
The small business lobby will also have its say when the next major amendment to the Trade Practices Act is introduced later this year. The Trade Practices Legislation Amendment (Small Business Protection) Bill 2005 is shortly to be tabled in Parliament. It will contain sweeping changes to the law on unconscionable conduct affecting small business. Section 46 of the Trade Practices Act (which prohibits misuse of market power) will also be amended – although it is safe to say that this provision has not been as widely and successfully used as many thought would be the case after the High Court of Australia’s decision in the Queensland Wire case in 1989. This case has been seen as the high water mark in the use of the section 46 in the last few years successive losses have been sustained by the ACCC in its prosecution of Boral Limited for alleged predatory pricing, and in its action against Rural Press Limited for alleged leverage of market power from one market to another. While the ACCC has also suffered less spectacular losses there have been some minor successes in other cases.
The ACCC has shown a recent unwillingness to pursue actions under section 46 because of the difficulties of proof. The proposed small business amendments are likely to lead to a greater reliance on this area of the law.
Also, the Government has signalled that it will appoint a deputy chairman of the ACCC to be primarily responsible for small business once this proposal is agreed to by ministers of the relevant states and territories.
The influence of small business continues to grow with unfortunate negative consequences in the way legislation is being drafted. This only adds to the cost of business; often the greater costs are imposed on small business itself.