The inclusion of an “effects test” in competition law to catch out big companies that misuse their market power will not lead to more cases, empower small business or cut litigation costs, says a former Australian Competition and Consumer Commission lawyer.

Alexandra Merrett, a former senior enforcement lawyer for the competition watchdog, warned that, since the 1993 inclusion of an effects test in section 50 of the Competition and Consumer Act relating to mergers, only two cases had gone on to final judgments.

“There doesn’t seem much for small business in this report,” she said. “There’s nothing in the report that helps private litigants run cases.”

The inclusion of an effects test in section 46 of the act lowers the bar by allowing action to be brought against companies whose conduct would be “likely to have the effect” of substantially lessening competition.

Currently, legal action is only permitted under section 46 against companies that acted with the “purpose” of substantially les­sening competition.

Dr Merrett said big businesses were right to be concerned about the new test, saying its application could be applied more broadly and capture more kinds of conduct, some of it legitimate.

Richard Goyder, the managing director of Wesfarmers, which owns Coles, said it was disappointing the panel continued to recommend changing section 46 to introduce an effects test.

“There is no compelling evidence of a deficiency in the current law in a competitive economy. There is significant risk, however, that the uncertainty that will arise from the proposed changes may actually stifle rather than promote competitive conduct and leave consumers worse off,” he said.

Dr Merrett suggested small business would not benefit from the inclusion of an effects test, ­either, warning the watchdog only had the capacity to run up to half a dozen new cases of this kind a year.

She said the high costs and time frames for decisions meant it was not practical for private parties to bring their own cases.

Small business groups and ­retailers warned yesterday that the proposed effects test lacked teeth. “We’re not 100 per cent sure about the proposed changes to section 46. We don’t think they give us a lot of confidence,” said executive director of the Australian Retailers Association Russell Zimmerman. “We just don’t think that there’s the grunt behind it.”

Chief executive of the Council of Small Business of Australia Peter Strong said the effects test was “not as tough” as he’d like.

Extracted in full from The Australian.

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