When politicians look to make progress on the alignment of trans-Tasman laws toward a single economic market, for some reason competition law is seen as low hanging fruit. Perhaps this is because “common sense” would indicate that the principles of competition should be the same on both sides of the Tasman. But the lesson from 2009 is that we need to be careful about following the Australian example.
Two harmonisation hares sent running in 2009, hopefully to be snared and stewed in 2010, were:
First, the New Zealand Prime Minister, on a trip across the Tasman and in a surge of ANZAC bonhomie, promised we would look at following Australia’s lead and criminalising cartel offences, and
Second, the New Zealand Commerce Commission pleaded with our new Supreme Court to abandon the rigour of the counterfactual test for section 36 of the Commerce Act and adopt some recent changes made to the equivalent Australian Trade Practices Act (TPA).
The problem is the TPA in Australia is a political football. We can’t say this too strongly. There are times when changes are made in Australia that are the result of pure politics. The two developments referred to above are prime examples.
How Australia came to introduce criminal sanctions this year hasn’t received much air time in New Zealand but it is instructive. The Australian political saga includes a media savvy and aggressive chairman of the ACCC, a review of the Trade Practices Act (largely seen as a vehicle for reining him in), the ACCC retaliating by proposing to review criminal sanctions as a diversionary tactic and a threat, a report discussing criminal sanctions drifting through the Australian bureaucracy for a number of years, and a Prime Minister who needed to look tough and decisive to divert attention from his association with a high profile cartelist.
All of it fascinating TV. At least to competition lawyers. But at no point was the question “is this a good idea?” properly debated. Yet the consequences of introducing criminal processes and sanctions into commercial law are serious and it’s not clear that the extra deterrence is warranted. Our Government is committed to discussing the pros and cons of this issue in early 2010.
The counterfactual test
Similarly with the Australian reforms to the prohibition on the misuse of market power (section 36 here, section 46 there). As discussed elsewhere, the prohibition’s reliance on the so-called “counterfactual test” has been controversial, both here and across the Tasman. Critics argue that the test is too hypothetical and too hard to apply in practice. The Commission, possibly the biggest critic of section 36, explained its loss in the Court of Appeal on the Telecom proceedings '0867' in those terms and has appealed to the Supreme Court explicitly to change the law by departing from the Privy Council precedents and dropping the counterfactual test. The Commission wants us to adopt the changes recently made to section 46 in Australia that ‘broaden’ the test for taking advantage.
The problem is the Australian amendments were, infamously, drafted on a beer coaster in a Birdsville pub by a politician supportive of the strong small business lobby in Australia. While they received some polish as they proceeded through the legislative process, more than a whiff of bar smoke remains and Australian lawyers complain that still no-one really knows what they mean.
The effect of the new broader test in Australia is that firms with market power now have to ask themselves whether a proposed price, investment, or other commercial decision is “related” to their market power.
In this situation the rational response of the firm with market power is the conservative one – don’t drop the price, don’t make the investment.
The lesson from 2009 is that it is easy to set harmonisation hares running if you don’t know the background. Let’s hope 2010 is the year of harmonisation homework.