Dispatches From the Moderate Left

Thursday, July 14, 2005

Conservative Judicial Activism - Part III (Aust)

Conservative Judicial Activism - Part I (eligibility for parliament)
Conservtive Judicial Activism - Part II (voting 'rights')

The third post in this series looks at the third case in the High Court's 'trilogy' of cases on s.46 of the Trade Practices Act. This section is an extremely important part of Australia's regulation of market competition as it prohibits big firms using their market power to eliminate or damage their competitors through inappropriate use of that power.

The first High Court case on the section was Queensland Wire (1989) where a court which was sympathetic to the competition-promotion aims of the act found that BHP had misused its very substantial market power. The next main HC case on the section was Melway (2001) where a significantly more conservative court (basically the current one) found that Melway hadn't breached the section in reasonable decision which nevertheless restricted the law somewhat. Boral (2002) was next where the court unfortunately dabbled in economics and reached an absurd conclusion about the nature of market power (I wrote a paper on this if you're interested!) and found that the largest firm in a concentrated industry didn't have substantial market power.

The next HC case was Rural Press (2004), the third in this recent trilogy. By the end of Rural Press the conservative HC had practically read s 46 out of existence. It is now, basically, a toothless provision. Between this case and Boral the HC has shown it will ignore commercial realities and play semantic word games in order to interpret the anti-competitive actions of big businesses in the most favourable light under the section. I don't always agree with Kirby J, but I almost completely agree with his comments at the end of his dissent in Rural Press:

This is the third recent decision of this Court in which a majority has adopted an unduly narrow view of s 46 of the Act. In effect, it has held, in each case, that the established large degree of market power enjoyed by the impugned corporation was merely incidental or coincidental to the anti-competitive consequences found to have occurred. Notwithstanding the proof of market power, the Court has held that the impugned corporations did not directly or indirectly "take advantage" of that power to the disadvantage of competition in the market.

In my view, the approach taken by the majority is insufficiently attentive to the object of the Act to protect and uphold market competition. It is unduly protective of the depredations of the corporations concerned. It is unrealistic, bordering on ethereal, when the corporate conduct is viewed in its commercial and practical setting. The outcome cripples the effectiveness of s 46 of the Act. It undermines this Court's earlier and more realistic decision in Queensland Wire. The victims are Australian consumers and the competitors who seek to engage in competitive conduct in a naive faith in the protection of the Act. Section 46 might just as well not have been enacted for cases like these where its operation is sorely needed to achieve the purposes of the Act. Judicial lightning strikes thrice. A novel doctrine of innocent coincidence prevails. Effective anti-competitive threats can be made without the redress which s 46 appears to promise. Once again I dissent.

I'll explain the case a bit more to demonstrate just how activist these conservative judges had to be to reach what was almost seemed to be a pre-desired outcome.

In an rural/regional area of SA, the Murray Valley Standard had a monopoly over the supply of local news in its distribution area and sold 4-5,000 papers daily. A nearby paper with about half the circulation, the River News, decided to expand subscription into a small part of the Standard's distribution area. It took on new staff, procured local advertisers and began to sell papers, increasing its circulation by about 150 immediately. Capitalism in action.

The owners of the Standard didn't like this. Unlike the River News, which was purely a local concern, the Standard was owned by a national publisher of local newspapers and had comparatively massive financial and print resources. A few people from the Standard called up and sent letters to the management of the River News letting them know in no uncertain terms that if they didn't cease selling in the Standard's distribution area immediately they were going to start selling a free* newspaper in the core distribution area of the River News. River News got the hint and ran away.

What the Standard was doing wasn't legitimate economic competition, it was bullying and that is what s 46 is supposed to stop. If you don't believe me then read it:
(1)A corporation that has a substantial degree of power in a market shall not take advantage of that power for the purpose of:
    (a) eliminating or substantially damaging a competitor of the corporation or of a body corporate that is related to the corporation in that or any other market;
    (b) preventing the entry of a person into that or any other market; or
    (c) deterring or preventing a person from engaging in competitive conduct in that or any other market.

Given their past reluctance to give the section any teeth, you can imagine the HC sitting around and asking itself 'how are we going to let the big guy get off this time?' Well they managed to by using some amazingly pedantic syntactic gymnastics. I disclaim again, don't read this unless your brain can handle legalese:
The words "take advantage of" do not extend to any kind of connection at all between market power and the prohibited purposes described in s 46(1). Those words do not encompass conduct which has the purpose of protecting market power, but has no other connection with that market power. Section 46(1) distinguishes between "taking advantage" and "purpose". The conduct of "taking advantage of" a thing is not identical with the conduct of protecting that thing. To reason that Rural Press and Bridge took advantage of market power because they would have been unlikely to have engaged in the conduct without the "commercial rationale" - the purpose - of protecting their market power is to confound purpose and taking advantage. If a firm with market power has a purpose of protecting it, and a choice of methods by which to do so, one of which involves power distinct from the market power and one of which does not, choice of the method distinct from the market power will prevent a contravention of s 46(1) from occurring even if choice of the other method will entail it.

How you can try and say the two halves of the phrase "shall not take advantage of that power for the purpose of" is beyond me. But take a step back and look at what the effect this reading has had on s 46. Now a company with theoretically unlimited amount of market power in a certain market is allowed to use that market power to stop another firm from entering that market so long as that firm can be credibly threatened in a separate market. Further, they could actually carry out that threat and use predatory pricing to destroy the other business in the other market and then expand into that market and, according to the judges in Rural Press there hasadvantage "taking advantag" of their market power. Extraordinary.

A subsequent senate review of the act recommended a number of changes designed to reverse the damage done by the High Court to s 46. Peter Costello didn't really see the problem with Rural Press
[T]here is nothing about the High Court’s application of 'take advantage' in Rural Press that suggests a narrowing of section 46.

The Government therefore agrees with Government Senators that there is no significant ambiguity in the meaning or application of 'take advantage' and that the current interpretation does not hinder the operation of section 46.

Thankfully he didn't seem to believe himself when he said that there was 'nothing' about Rural Press which narrowed s 46 as he agreed with another recommendation, which will probably become law some time next year:
The Committee recommends that section 46 be amended to state that a corporation which has a substantial degree of power in a market shall not take advantage of that power, in that or any other market, for any proscribed purpose in relation to that or any other market.

It would have been nice to see him back the broader definitional clarifications (as his small business constituency was asking) because the latter recommendation only touches on one aspect of the HC's trilogy of s 46 activism. Still, it's nice to see that some of this activism was a bit much for the government to swallow.

*Note: the majority didn't really mention that the newspaper was going to be free, despite the trial judge finding that that was exactly what was threatened. You always know judges are doing something fishy when they deliberately fail to mention material facts.

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