The case highlights the need for businesses to carefully consider the legality of any restraint they attempt to agree with a supplier or a customer who may also be regarded as one of their competitors. In this case Visy contravened the TPA even though no agreement was finalised, and in circumstances where the Australian Competition and Consumer Commission (ACCC) conceded there was no purpose or likely effect of substantially lessening competition.
A 5:1 majority of the High Court (Justice Callinan dissenting) found the proposed supply agreement, which included a clause that would prevent NPP from collecting waste paper from customers of Visy, included an exclusionary provision,3 prohibited by section 45 of the TPA irrespective of its effect upon competition.
In making its decision the Court clarified the interaction between section 47 of the TPA, which prohibits anti-competitive exclusive supply or acquisition arrangements, and section 45, which contains a prohibition upon anti-competitive agreements, price-fixing and exclusionary provisions.
The Federal Court will now go on to assess matters such as the pecuniary penalties that might be awarded against Visy and its two employees who were involved in the conduct.
Summary of the facts
Visy conducted a vertically integrated business involving the collection and recycling of waste paper and cardboard. NPP, on the other hand, conducted a business of collecting waste paper and selling it to recycling companies such as Visy. The collection of waste paper by Visy and NPP on some occasions involved:
- the acquisition of waste paper from particular persons, ie where the waste paper was purchased, and
- the supply of waste paper collection services to particular persons, ie where Visy or NPP were paid to collect the waste paper.
Visy sought to make an agreement with NPP whereby NPP would supply the waste paper it collected to Visy and would not collect waste paper from Visy's other existing, and certain prospective, suppliers. Several draft documents containing non-competition clauses were provided to NPP by Visy but no agreement was ultimately concluded.
Visy in the Federal Court
The proceedings arose out of an investigation conducted by the ACCC. In January 2000 the primary judge (Justice Sackville) dismissed the proceedings,4 finding that the attempted arrangement should not be considered under section 45 of the TPA by reason of section 45(6). However, on appeal, a majority of the Full Court of the Federal Court (Justices Hill and North) ruled in favour of the ACCC and found that the conduct of Visy did contravene section 45 of the TPA.
Exclusive dealing or an exclusionary provision?
The central issue debated before the High Court was whether the conduct of Visy should be examined under section 45 or section 47 of the TPA. This debate was technical in nature and the Court was asked to interpret both the legislation and the non-competition clause itself.
On the facts of this case the non-competition clause proposed by Visy could potentially be examined under the TPA in either of the following ways:
- as an exclusionary provision of an arrangement between two competitors, which had the purpose of preventing, restricting or limiting the supply of waste paper collection services to, or the acquisition of waste paper from, customers of Visy by NPP. In this circumstance the conduct of Visy would be prohibited by section 45 of the TPA as alleged by the ACCC, or
- as exclusive dealing of the type described in section 47(4) of the TPA, in so far as it dealt with the acquisition of waste paper from NPP on condition that NPP would not supply waste paper collection services to customers of Visy. In this circumstance the conduct of Visy would not contravene the TPA, because the ACCC conceded that it did not have the purpose or likely effect of substantially lessening competition as required by section 47(10).
The key to resolving this conflict is found in section 45(6) of the TPA, which is designed to prevent this type of overlap between sections 45 and 47. Section 45(6) effectively states that exclusionary provisions, which also amount to the practice of exclusive dealing, should only be considered under section 47 and not section 45.
In their joint judgment, Chief Justice Gleeson and Justices McHugh, Gummow and Hayne firstly examined the non-competition clause. They expressed the view that the interpretation of the proposed agreement was not to be dictated by the particular drafting used by Visy. Rather, the substance and content of the proposed agreement had to be considered.5 The substance of the non-competition clause in this case had a dual function—it restricted NPP's freedom to supply services and also its freedom to acquire goods.6 The non-competition clause thus contained two separate provisions. The provision that restricted the supply of services triggered the anti-overlap provision in section 45(6) because it was also exclusive dealing and could not contravene section 45 of the TPA. However, the provision that restricted NPP's acquisition of goods was not exclusive dealing as defined in section 47 of the TPA. Accordingly, this second provision did not invoke the anti-overlap provision and was an exclusionary provision prohibited by the TPA.
Justice Kirby agreed that Visy's appeal must be dismissed but separately expressed the view that the drafting used in the TPA should be interpreted in a manner that allows the different sections to work together in a way that gives effect to the policy behind the legislation.7 In this context, Justice Kirby expressed the view that the overlap provision section 45(6) was intended to ensure that non-price restrictions which are part of vertical supplier–purchaser relationships are only considered under section 47. However, in Justice Kirby's view, section 45(6) was clearly not intended to remove the absolute prohibition upon exclusionary restraints that are a part of the horizontal relationship between competitors, and which are designed to restrict supply or eliminate price competition.8 Justice Kirby found that the non-competition clauses were primarily referable to the horizontal competitive relationship between NPP and Visy, rather than to their vertical supplier–purchaser relationship, and did not trigger section 45(6) of the TPA.
What does it mean?
This decision makes it clear that businesses must carefully examine the legality of any restraints they are considering including in supply or acquisition agreements with another party who may also be their competitor. If part of the substance of such a restraint is exclusionary in nature and does not fall within the technical definition of exclusive dealing, however it may be drafted, there is a risk that it could contravene the TPA as an exclusionary provision irrespective of its effect upon competition.
The law relating to exclusionary provisions has rapidly developed in recent times. Earlier this year the High Court made an important decision in this area relating to the South Sydney District Rugby League Football Club.9 The High Court is likely to make further clarifications in a case involving the ACCC and Rural Press, where it has reserved its judgment. The Dawson Committee in its review of the competition provisions of the TPA has also recommended significant changes to the legislation relating to exclusionary provisions. It is anticipated that draft legislation dealing with these recommendations will be considered by Parliament later this year.
In light of this rapidly changing legal environment, care must be taken when contemplating any restrictive arrangement involving an actual or potential competitor, even in the context of ordinary supply or acquisition arrangements.
1 Visy Paper Pty Ltd v Australian Competition and Consumer Commission [2003] HCA 59.
2 Australian Competition and Consumer Commission v Visy Paper Pty Ltd (2001) ATPR 41-835.
3 'Exclusionary provision' is defined in section 4D of the TPA. Section 4D applies to provisions of a contract, arrangement or understanding, and contains two primary elements: (1) there must exist a state of competition in relation to the supply or acquisition of the relevant goods or services between two or more parties to the contract, arrangement or understanding; (2) there must be the purpose of preventing, restricting or limiting the supply to, or the acquisition from, particular persons or classes of persons.
4 Australian Competition and Consumer Commission v Visy Paper Pty Ltd (2001) ATPR 41-799.
5 Chief Justice Gleeson and Justices McHugh, Gummow and Hayne at paragraph 32.
6 Chief Justice Gleeson and Justices McHugh, Gummow and Hayne at paragraph 34.
7Justice Kirby at paragraph 56.
8 Justice Kirby at paragraph 63.
9 News Limited & Ors v South Sydney District Rugby League Football Club Limited & Ors [2003] HCA 45. For a summary of this case, please refer to our earlier article titled titled 'The High Court clarifies exclusionary provisions: News Limited v South Sydney' (27 August 2003).
For more further information please contact: Chris Jose, telephone: 03 9288 1416 or email: chris.jose@freehills.com
This article provides a summary only of the subject matter covered, without the assumption of a duty of care by Freehills. The summary is not intended to be nor should it be relied upon as a substitute for legal or other professional advice.
