23 Oct 2007

Law Firms and the Big End of Town

By Evan Jones
23 October, 2007: Australia's top law firms don't merely act for the big end of town — they are the big end of town, writes Evan Jones. So why is anyone surprised by what they've got to say about predatory pricing?

The Coalition has been dragging its heels for years in heeding calls to amend the Trade Practices Act to relieve small businesses from big business predation.

At issue is the weakness of sections addressing the 'misuse of market power' (section 46) and 'unconscionable conduct' (section 51). After a long delay, during which Treasurer Peter Costello sweet-talked elements in the small business lobby, a Bill went before the House of Representatives on 8 August with a string of trivial amendments, satisfying nobody except the worn-out 'champion' of small business, Senator Ron Boswell.

Lo and behold, when the Bill arrived in the Senate on 11 September, another amendment had been added to section 46, specifically addressed to 'predatory pricing' or firms with a 'substantial market share' engaging in below-cost pricing for a sustained period.

This bomb was planted by renegade National Party Senator Barnaby Joyce, and constructed by University of New South Wales academic Frank Zumbo. Joyce claims that the idea came to him while passing through outback Birdsville, and the 'Birdsville' amendment has been hot news in the business press ever since. The issue even made the ABC's 7.30 Report.

Big business reaction has been muted, save for dismay from the voluble Woolworths CEO Michael Luscombe. Instead, the running has been taken by the lawyers, acting as functionaries for the big end of town.

We know about Clayton Utz's perfidious role in protecting British American Tobacco in the Rolah McCabe suit. Now, in attacking the Birdsville amendment, the law firms are acting on their own accord for corporate business in general.

The arguments are wild. Legal precedent is rarely produced, and even then misappropriated. Willful misrepresentation of the role of the Trade Practices Act is pervasive. Abstract scenarios supplant representative corporate-small business relationships. Disastrous but improbable outcomes are predicted.

Mallesons Stephen Jacques partner Dave Poddar (Australian Financial Review, 17 September) and Blake Dawson Waldron's Peter Armitage (AFR, 28 September) are representative spokesmen. They claim that price discounting by corporates will cease, and that Australian companies will be prevented from supplying below cost to match low-priced imports or the low prices of overseas-based companies (Woolworths against Aldi, for example). Armitage speaks for fellow antagonists when he complains that: ' vigorous price competition from which all consumers benefit will be suppressed.'

None of the gurus are admitting the obvious that the wording will not capture short-term discounting or the more important price competition facilitated by cost reductions.

Image thanks to Lukas

John Kench and Aldo Nicotra, of Johnson Winter & Slattery (AFR, 24 September), recognise the implicit directive of the Joyce amendment towards legitimate forms of competition. But they argue bizarrely that proscription against below-cost pricing will force retailers to bear down even harder on supply prices and that small business suppliers will be the losers from the legislative change.

Kench and Nicotra admit that small business suppliers are already mercilessly pressured by large retailers and service providers: 'The fate of many domestic input suppliers depends on their willingness to comply with often unreasonable buying demands of large corporations.' In essence, these lawyers would prefer a lax statute that gives corporates flexibility in choice of unconscionability against small business suppliers or competitors, rather than supporting a regulatory proscription against unconscionability in general.

But the honour for defense of corporate privileges goes to Freehill's Bob Baxt, ironically previously chairman of the competition regulator's predecessor - the Trade Practices Commission - between 1988 and 1991. Baxt (AFR, 19 September) writes:

Those who support the Birdsville amendment ignore the fundamental basis upon which our competition law operates. As the High Court of Australia enunciated in the [1989] Queensland Wire case, the purpose of the statute is to promote competition; and successful competition is bound to cause damage to some competitors. Put another way, it said that 'competition by its very nature if deliberate and ruthless.'

Baxt conveniently elides that successive senior judges are part of the problem (not least in the appalling High Court Boral decision in February 2003), necessitating a shoring up of the Act itself. The writers (and amenders) of the Act did not intend that the courts should condone a 'dog eat dog, anything goes' free for all.

Moreover, section 46 differs from the rest of the Act in its focus on the defense of competitors as a means of facilitating the competitive process. It reads:

A corporation that has a substantial degree of power in a market shall not take advantage of that power for the purpose of:

· 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;

· preventing the entry of a person into that or any other market; or

· deterring or preventing a person from engaging in competitive conduct in that or any other market.

For some reason, high profile competition lawyers and even High Court judges keep ignoring the letter of the law.

Small business is essential roadkill for corporate marauding, so the pro-corporate legal firms have been happy to deny small business a voice indeed it is part of their brief. Their spokespeople are furious that the prospect of an election has seen Costello kowtow to Joyce and worse, to the radio browbeating of Alan Jones (whose missives are informed by data from Sydney retailer Craig Kelly, who has the goods on the practices of Woolworths and Coles and of the shopping centre landlords).

According to them, support for the corporates is the product of professional expertise whereas support for small business is driven by a 'populist' and ignorant kowtowing to vested interests.

A reflection of 'expertise' is in Blake Dawson Waldron's Peter Armitage's claim that 'a pharmacist whose company operates one pharmacy in a remote country town, that has only one other pharmacy, will be at risk of breaching the Birdsville amendment if it engages in repeated loss leading as part of a vigorous attempt to attract customers and get the better of its competitor.'

Given that the pharmacist won't be loss leading on pharmaceuticals, will s/he be seeking greater market share by loss leading on toilet paper? The example is ludicrous. More pertinent indeed real-life examples could be drawn from Woolworths and Coles's predatory practices to drive out small business competitors.

The 1999 Baird Parliamentary Committee Report on the retailing sector exposed predatory pricing by Woolworths on a wide variety of items over a sustained period in Dubbo. When queried on the evidence, CEO Roger Corbett dissembled, claiming ignorance. Such are the qualifications for a seat on the Reserve Bank Board. The Birdsville amendment threatens the big retailers, not hypothetical pharmacies, but you won't get this opinion from the lawyers.

The lawyers' peak body, the Law Council of Australia, is a regular contributor to Parliamentary Committee hearings in support of corporate and antagonistic to small business interests. Six of Australia's top tier law firms are members of the Business Council of Australia Allens Arthur Robinson, Blake Dawson Waldron, Clayton Utz, Freehills (the dominant firm behind Howard's repressive WorkChoices legislation), Mallesons Stephen Jaques and Minter Ellison. These firms do not merely stump for the big end of town they are the big end of town.

The law firms' allegiance is most pronounced in banking. Any small business litigant against its bank lender will find it almost impossible to acquire competent legal assistance because the major banks have either bought off or threatened the top tiered law firms to prevent them acting for the little guy.

I am associated with a manuscript whose subject is bank malpractice against small business borrowers (covering one major bank in particular) and the complicity of the legal system in this corruption. A prospective publisher gave the manuscript to its regular second-tier law firm for advice on potential defamation. Back came the opinion, and it was off. The opinion was not addressed to how to facilitate the book's publication but why the book should not be published. There was no mention of current defamation law or relevant precedents. Value for money, this was not.

In seeking background to this curious affair, I discovered another litigant against this particular bank who sought assistance from this same law firm in the late 1990s. The law firm was told by the bank you now get several million dollars of billings; you can double that or get nothing, take your pick. Fortunately the litigant found a maverick who was outside the loop.

Money talks. But does it make sense or offer legitimacy? Influence is what counts, not sense or legitimacy. This is the mentality required to understand the current harangue by the legal profession against Senator Joyce's 'Birdsville' amendment to the Trade Practices Act.

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