On 31 March 2015, the Federal Minister for Small Business, Bruce Billson MP,  released the latest report from Professor Ian Harper.

The 6-part, 500 + page report discusses a wide range of issues and makes a large number of recommendations about the future shape of Australia’s competition laws and the future operation of related government agencies.

The lengthy nature of the report means that it would be very easy to dismiss the report as just another government report that has been developed for lawyers, policymakers and bureaucrats – but that would be a mistake for small business in general, and the fuel industry in particular.

In the 20 years since the last report into Australia’s competition laws, the competitive dynamic within the downstream petroleum industry has changed markedly. The entry of Coles and Woolworths, in particular, has seen a dramatic shake-up of the petroleum retail industry in Australia – to the point that these two grocery majors now sell more than 50% of all retail fuels in Australia.

Situations like these are typically referred to as industries where there is a concentration of market power among a small number of large companies – and one of the core goals of Australia’s competition policy is to ensure that these larger companies do not use their market power to destroy competition from smaller companies.

The principal purpose of Section 46 of the Competition and Consumer Act (2010) is to ensure that larger companies to not misuse their market power – a concern that is increasingly being discussed within our industry as a result of the entry of the grocery majors in recent years.

The Harper Review suggests that there is a case for changing the operation of Section 46. The current legislation requires that individual businesses bringing a legal case under this provision must:

  1. prove that the action of the larger companies has adversely affected competition within a given industry and that the actions of the larger company were deliberately intended to do so. That is, the smaller company taking the action must prove that the market actions of the larger company had an adverse affect on competition and that such effect was actually intended; and
  2. fund their own costs and, in the event of losing their case, must also pay the legal costs of the larger company.

At a practical level, satisfying the first requirement is extremely difficult as it is generally not possible for any business (or indeed the ACCC) to prove that the actions of another business were specifically intended to limit or destroy competition.

The second requirement is even more challenging for smaller businesses given that any action taken against a larger company means that the smaller company risks being forced to pay the legal costs for both itself and the larger company in the event of losing their case (a likely outcome under current legislation given the limitations of the first requirement discussed above).

Suffice to say, there have been very few actions under Section 46 and virtually no successful cases in since the Hilmer Competition Report was released more than 22 years ago.

The Harper Review rightly finds fault with the current operation of Section 46, specifically targeting the practicality of the existing Clause.

The final report has partly addressed industry concerns with the first requirement of Section 46 by suggesting that future legislation should only require proof of adverse effect for a case to be successfully brought against a company accused of misuse of market power.

“We say partly because the proposed wording of the recommended changes to Section 46 remains vague, suggesting that bringing a legal case under this provision would likely be a very lengthy, complex and expensive legal process,” ACAPMA CEO Mark McKenzie said

“Unfortunately, the final report has also not effectively addressed the second limitation of the current legislation – effectively denying ‘access to natural justice’ to all but the bravest and richest small businesses seeking to bring a case of misuse of market power against a larger company.

“In our industry, this means that a small fuel retailer must fund their own costs against a larger business in the event that they believe the larger business is misusing their market power – and pay their own costs and that of the larger company if they lose.

“No independent fuel retailer is going to take on that risk, effectively making the proposed changes to Section 46 as ineffective as the current provisions in protecting the interests of smaller business operating within our industry.”

Mark also added that “while we accept that some protections must be in place to stop frivolous legal actions by smaller business, the Australian Government must look at alternatives that do not involve small business funding costs in the event of loss”.

Possible options include the creation of a legal fund – possibly jointly funded by government and industry – where funds can be utilized to lower the barriers to the initiation of actions by smaller, independent fuel retailers.

“When you consider the amount of time and taxpayer funds invested by the Australian Government in supporting periodic investigations of our industry, it seems reasonable to expect that the Government could direct some of these funds to support actions targeting misuse of market power in our industry,” Mark said.

Moreover, the current community attitude seems to be premised in the belief that the presence of smaller numbers of big businesses delivers lower prices for consumers. Such a belief is highly contestable when you look at consumer experiences over the past 20 years.

“Despite major changes in the competitive fabrics of a number of Australian industries (e.g. domestic airline, insurance, grocery and fuels) all we appear to have done is to create duopolies and oligopolies that have made it harder for smaller businesses to survive without providing tangible consumer benefits in the form of sustained lower prices for goods and services,” Mark said.

The Harper Review is an important first step in improving Section 46 but ACAPMA believes that the government must address the genuine barriers to the practical application of this Clause of the Competition and Consumer Act (2010)

“Our plan is to provide direct feedback to the Australian Government as they consider the recommendations of the Harper Review. Our goal will be to seek additional concessions that reduce the substantial financial risks associated with a small business initiating action against a larger business,” Mark said.

The ACAPMA Secretariat is keen to hear any ideas that members may have for improving the practicality of Section 46 as a means of ensuring that sufficient safeguards are in place to prevent misuse of market power within the downstream petroleum industry.

Any members wishing to provide input should email communications@acapma.com.au or call the secretariat on 1300 160 270.