Thursday, 11 May 2017
Competition and Consumer Legislation Amendment (Small Business Access to Justice) Bill 2017; Second Reading
I rise to speak to the Competition and Consumer Legislation Amendment (Small Business Access to Justice) Bill 2017. In commencing my comments I want to commend the work of Senator Gallagher in putting together this bill, which I think is very much targeted at the heart of the problem regarding competition between large and small businesses.
Before I go to my more substantive comments on the bill, I feel compelled to make some comments in respect of the contribution made by Senator Macdonald earlier in the debate. Senator Macdonald, in the course of his contribution, found ways of talking about Adani and the native title bill and then went on to discuss the low-value GST report which the Senate Economics Committee has handed down and had a good discussion about some of those points. In their own right, there were some interesting and perhaps constructive comments made throughout parts of Senator Macdonald's contribution, but they certainly lacked any connection with the very worthwhile bill that is before the chamber for consideration today, which is unfortunate.
I welcome Senator Xenophon's support for this bill. I note that he said that imitation is the sincerest form of flattery and that there would be comparable amendments coming forward from his party in relation to government legislation to address this area. I think that illustrates the fact that this bill does go to the heart of many of the problems that are affecting small business—they are fighting in the marketplace, trying to do the right thing and conduct their business, but they are rubbing up against the interests of big business, who have a substantial advantage over them.
We know that this is an issue. Senator Dastyari, in his contribution, talked about that issue—where businesses have deep pockets, they are able to, essentially, deny others the right to access justice. This is a huge concern. It has been identified by the Productivity Commission, which made some recommendations in respect of protective cost orders in 2014. We know that this is a very important issue. Unfortunately, we do not see a great deal of wholehearted support for this proposition on the other side. Instead, we see the government going down the track of the proposal to amend the effects test, which we have some concerns with.
This bill is the right pathway to improve competition in our economy. On our side of the chamber we understand small businesses and the struggles they face against the much bigger, well-funded and well-advised corporations. We know that small businesses face many barriers when it comes to taking action against anticompetitive behaviour by the big end of town. Rather than implementing the Deputy Prime Minister's latest thought bubble, which was the effects test, this bill delivers real change for small businesses.
An effects test is shorthand for a test that looks at whether conduct engaged in by a firm with a substantial degree of market power has the purpose, effect or likely effect of substantially lessening competition. This is dangerous economic policy. It is not just Labor that is saying this. I note that, in relation to the inquiry into the government legislation, the Waste Buying Group—a waste and recycling services business in the commercial industrial marketplace—made a submission which was quite informative. This business indicated that it was operating in an industry dominated by huge multinational firms who practise a range of tactics designed to hold a client bound to service contracts. They say the consequence is that it leads to poor competition in the marketplace and results in high prices and poor service outcomes for the client base.
One would think that this is one of those types of businesses that would wholeheartedly embrace the effects test and any purported effort to even up the position of large and small businesses. However, that is not the case. This business indicates that small business and clients will simply not be able to afford the costs of expensive trials in relation to this matter. Based on their experience, they believe that the ACCC will be overwhelmed with work, under resourced or just not interested. They believe that the ACCC—this is their own view, not my own view—is not an authority they can rely upon to advocate for the industry. In their submission, they recommended the introduction of an affordable tribunal to adjudicate abuse or market-power competition issues, so that small businesses or their clients could access it. That is a good illustration of the fact that this is not a Labor thought bubble; this is something that does have support out there amongst small businesses who understand that the government's approach is flawed.
The effects test risks making business afraid to compete, which ultimately hurts consumers. This will create a legal risk every time a business seeks to lower prices for their customers, and what obviously will happen in that situation is that consumers will be the losers. This is at a time when we are all faced with cost-of-living pressures. We know that we have wage growth at record lows. We know we have increasing unemployment and below trend economic growth. In this environment, we need all of the resources of the market to bring prices down so that consumers can benefit from that, so that families can make ends meet. This is a hugely important consideration.
Labor are not the only group of people warning of a lawyers' picnic if the government's legislation on the effects test were to pass. The small business lobby group COSBOA themselves have stated that they are concerned that the wording will create a lawyers' picnic, as predicted by the opponents of the effects test. When even the original proponents of the policy are saying that it is dangerous, you know that the government has made a complete mess of competition policy.
Labor do welcome strong competition policy, but it must be informed and enforced, and the government package is neither. What we are seeing are dangerous legislative proposals without addressing either the resources of the ACCC, which was commented on by the Waste Buying Group submission, or making it easier for small businesses to litigate in their own private capacity. In the words of former Treasurer Peter Costello, 'a so-called effects test will protect competitors, especially less efficient ones, from competition'.
Since 1974—and I think this point has been made previously—there have been at least 10 inquiries into Australia's competition laws which have considered a proposed effects test and rejected it. Apart from Professor Harper's review, only one other inquiry has ever recommended it. So there is a reason why 10 out of 12 inquiries have recommended against an effects test. The reason for that is it is bad law. It is going to have a detrimental impact on the consumer. In the submissions to the Harper review, the effects test has been described as legally unworkable, something that will chill competition and something that will create uncertainty for business. These changes will deter job-creating investment in Australia by adding to the new layers of red tape and barriers to investment which have already been imposed by the coalition government.
It is little wonder that the government's own former Minister for Trade and Investment, Mr Robb, is opposed to this latest anti-investment measure. The Turnbull government's proposed effects test is a move to satisfy internal politics. This is not about policy. A level-headed analysis of the effects test shows that the Prime Minister is using competition policy as a political prop. We know that the Prime Minister himself has said previously that he would be deeply concerned about the introduction of an effects test, and we have seen other people such as Mr Samuel, the former ACCC chairman, saying:
Under the Harper amendment, businesses would curb their competitive behaviour because of the legal risk. This would have drowned the commercial activity of big business in a sea of uncertainty. Lawyers and economists would need to sit at the right hand of business CEOs to guide them on the legality of every significant transaction.
It is quite clear that it is Mr Joyce, the Deputy Prime Minister, who has become the government's chief economic spokesperson, and this is detrimental to the Australian consumers and the broader economy.
Labor understand that cost orders from courts represent an insurmountable barrier for many small businesses. We have the Competition and Consumer Act, but if it is too expensive for small businesses to take action then clearly that is a problem; our society is the worse for it, with some anticompetitive conduct not made public and not properly addressed. It should not be acceptable today for big businesses with deep pockets and armies of lawyers to overwhelm small businesses. The legal fees are a significant obstacle for small businesses across this country.
To generate this public good of a fair, competitive economy, it is important that small businesses be given the ability to raise court actions without the threat of long, expensive and protracted court cases. It is important that a well-funded and well-advised large firm is not able to wear small businesses down. The Turnbull government has refused to address this inequity despite, as I said earlier, the Productivity Commission and the government's own competition review saying that small businesses are disadvantaged in the court process. Labor's Competition and Consumer Legislation Amendment (Small Business Access to Justice) Bill 2017 will restore the balance by letting a small business request a no-adverse-costs order early in the court case. Allowing small businesses to seek relief from adverse-costs orders at an early stage of the judicial process will provide financial certainty to the private litigant. A judge would hear this application and decide on the merits. This would require amendments to the Federal Court Rules.
This is a sensible change, a pro-small-business move that empowers them to make full use of the laws that we have on the books. It is also in line with international trends. Other countries are trying to find ways to encourage private litigation so the public interest can be served. In the United States there is a view that public interest in private litigation occurring is so great that positive measures should be taken to actively encourage it. Consequently, a private party which successfully proves an antitrust claim is entitled to treble damages—three times the proven loss caused by the conduct. No such policy currently exists under Australian law. In the European Union the commission has called on all jurisdictions in which costs follow the event, as in Australia, to carefully review the appropriateness of this approach in competition cases as, again, there is considered to be a significant benefit to the public when private matters are pursued through the courts. In the United Kingdom the Competition Appeals Tribunal has been established and has been granted discretion to make any order it sees fit in relation to costs, as opposed to the usual rule. So there is international interest in the approach that has been taken by Labor on this matter. It shows that we are at the forefront of seeking to address one of the key concerns that small businesses have today.
When it comes to the issue of mitigating risk, Labor's legislation will enable the Small Business and Family Enterprise Ombudsman to provide professional assistance as to whether the no-adverse-costs order is likely to be successful. There are risks when opposing no-adverse-costs orders. Where legal action has no or little cost, the risk of frivolous or vexatious litigation increases. In fact, if legal action is of sufficiently low cost, the threat of vexatious legal action could be used when negotiating with a larger firm. However, these risks can be mitigated and do not outweigh the potential benefit of increasing private litigation under the Competition and Consumer Act. It is proposed that the small business ombudsman be funded to vet applications, preventing adverse-costs orders under part IV of the Competition and Consumer Act. This process is designed to provide advice to the potential litigant and will not mandate a no-adverse-costs order in any court case. This will help small businesses to better understand their prospects of obtaining a no-adverse-costs order and will act to reduce the risk of frivolous litigation where the ombudsman does not see merit in the litigation. This will not constitute legal advice under this bill, and the ombudsman cannot provide advice and support to private litigants. The ombudsman will be restricted to assessing whether there is the possibility of a no-adverse-costs order. Where the ombudsman positively vets an application from a potential private litigant, a letter of support will be provided to the applicant. This nonbinding letter of support would indicate to the applicant that there is a good case for a no-costs order to be approved by a judge.
This is a pragmatic approach and it is the sort of approach that gives small business the confidence to use the legal system. Unfortunately, there is a widespread view amongst not only small businesses but also other members of the community that, when they are taking on a large adversary in the court system, they might as well not even try, because the odds are stacked against them. This very pragmatic approach breaks down those barriers to access to justice. It assists small businesses and private litigants, as opposed to the introduction of the effects test, and confers a useful and practical power on the new ombudsman. A three-person section in the small business ombudsman has been costed at $500,000 per year.
Small business is crucial to Australia's economy. The budget that we have just seen confirms that Mr Turnbull is a Prime Minister for the big end of town over those working hard to grow their businesses and create jobs. Small businesses make up 97 per cent of businesses in Australia and are the engine room of the economy. We all use that terminology, but it is true. They employ more than 4.7 million people and contribute in excess of $343 billion to the economy every year. This scale simply cannot be ignored. That is why we would like to have seen Mr Turnbull and the Treasurer put more of a focus on small and medium businesses in the budget instead of focusing on the big end of town.
This bill is about making sure our competition laws are better enforced by giving small business access to justice. Businesses have the legal right to take action if a competitor is engaging in anticompetitive conduct. However, at the moment it is very hard for small businesses to do this, even where there is a clear breach of our competition laws. Even where a small business has a strong case, they have to think very carefully about the fact that larger players have money and a far greater capacity to fight these cases. Of course, there is the worry that, if they lose, they will face huge legal bills. We know that small-business people have gone into business often leveraging their homes, taking on financial burdens and employing people. This means, in effect, that small players are discouraged from taking action to enforce Australia's competition laws. This is contrary to the public interest.
This bill will address the difficulties small businesses face in getting access to justice under Australian competition laws. Small businesses are too often discouraged from pursuing strong cases. This bill empowers small business to go forward to enforce our laws to ensure that the legal system is fairer for everyone and to ensure that true competition applies. Consumers are the winners in that situation. This is a win-win bill. I encourage those opposite to support this bill.