Small and medium-sized business given more opportunity to fight corporate bullies

21 December 2007


Small and medium-sized businesses now have greater protection from corporate bullies following recent changes to the Trade Practices Act.

The changes to section 46 of the Act address companies abusing their market power by drastically cutting prices with the intention of either destroying a rival business or denying market entry to a new competitor.

Changes to section 51AC of the Act give guidance to the Courts as to what is unconscionable conduct when negotiating the supply or purchase of goods or services.

These amendments give SMEs greater opportunities to mount legal challenges against the unsavoury practices of predatory pricing and unconscionable conduct.

However, it’s important to remember that it is an underlying purpose of the Act to promote competition, which means businesses can behave in a competitive manner without breaching the Act.

Just because a rival business discounts its product or services to compete, that doesn’t automatically mean they have engaged in predatory pricing. There will only be a breach if there is the intention to eliminate or substantially damage a competitor or prevent the entry of a business or person into a market.

Under the changes to the Act, in pursuing allegations of predatory pricing by a business rival, the following has to be determined:

The price is less than the ‘relevant’ cost.

The competitor has a substantial share of the market.

The predatory pricing took place over a sustained period.

Intention to put the SME out of business or prevent it from entering a market.

Penalties for breaching section 46 are especially significant, with penalties for corporations ranging up to the greater of $10,000,000; three times the benefit gained by the corporation; or 10% of annual turnover of the corporation, which can amount to a very significant sum. Penalties for an individual can be up to $500,000.

Other changes to section 51AC of the Trade Practices Act also give SMEs more tools to bring corporate bullies to heel.

If a business has entered into a contract where they believe they have been taken advantage of, this could amount to ‘unconscionable conduct’.

In the past, the contract or transaction had been limited to $3 million but this has now been raised to $10 million opening the legal avenue to a wider range of SMEs.

It’s vital that SMEs who believe they have a legitimate claim against a business rival get proper legal advice.

Garth Campbell is a trade practices lawyer with Thomson Playford.

Main points:

SMEs now have greater opportunities to mount legal challenges against corporate bullies

New guidelines for determining allegations of predatory pricing

Size of contracts that can be considered for unconscionable conduct claims increased.