ACCC win against Visy in High Court

The High Court today found that Visy Paper Pty Ltd had contravened section 45 of the Trade Practices Act 1974 which deals with anti-competitive agreements.

Visy had attempted to reach an agreement to prevent its competitor, Northern Pacific Paper Pty Ltd, a waste paper collection company, from taking Visy’s customers but claimed this was not unlawful because of a technicality in section 45(6) the Act.

By a 5:1 majority, the High Court agreed with the Full Federal Court that the conduct was illegal. In a joint judgment, their Honours Chief Justice Gleeson and Justices McHugh, Gummow and Hayne said:

“Section 45(6) provides to Visy Paper no answer to the case made against it by the ACCC”.

Their Honours observed that the focus should fall on the content of an agreement rather than the manner of its expression, stating:

“The relevant inquiry is about what may be done under the contract, arrangement or understanding, not how it is drafted."

In a separate judgment, His Honour Justice Kirby emphasised the importance of adopting a construction of section 45(6) which accords with Parliament’s intention:

“It is essential … to adopt a construction of the TPA that achieves the apparent purposes of that Act by furthering the objectives of Australian competition law…It also promotes the apparent legislative policies of according greater vigilance towards, and scrutiny of, horizontal arrangements among competitors, which are aimed at restricting output and competitive conduct in a market."

“The ACCC welcomes this as a landmark decision. It deters companies from eliminating competitors by stifling their ability to compete. By its decision, the High Court closed a potential loophole in the law”, ACCC Chairman, Mr Graeme Samuel, said today. 

“The decision will stop competitors who attempt to market share from escaping liability by invoking a technicality in the Act in section 45(6). It will also discourage companies, through clever drafting of legal agreements, to circumvent the law”.

 “Parliament’s intent is clear that market sharing conduct is so serious that it should be banned outright, regardless of its effect on competition. Competitors who attempt to disguise market sharing as lawful exclusive dealing will be actively pursued by the Commission.”

The case represents the first time the scope of section 45(6) has been comprehensively considered by the High Court. The decision is a significant contributor to clarifying the operation of that section.

Section 45(6) concerns the relationship between sections 45 and 47 of the Act. In short, Section 45(6) operates to remove from section 45 conduct which is covered by Section 47. It is designed to prevent overlap between the sections—if the conduct is exclusive dealing it should (generally) be subjected to a substantial lessening of competition test under section 47, if the conduct is market sharing, it should be automatically prohibited under section 45(2)(a)(i). Parliament views market sharing as so inherently anti-competitive that it bans it outright, whereas most exclusive dealing arrangements are subject to a competition analysis.

Section 45 bans the making of a contract containing an exclusionary provision. An exclusionary provision is an agreement between competitors to prevent or restrict the supply or acquisition of goods or services to or from particular persons. It is a form of market sharing. Section 47 covers exclusive dealing arrangements. A crucial difference is that exclusionary provisions under section 45 are prohibited regardless of their effect on competition but most section 47 arrangements are subject to a substantial lessening of competition test.

The High Court’s construction of section 45(6) resulted in Visy’s conduct being strictly prohibited by Section 45. The Federal Court will now consider the issue of penalty.

Background

In December 1998, the ACCC commenced proceedings against Visy alleging that Visy had attempted to contravene and attempted to induce Northern Pacific Paper Pty Ltd (NPP) to contravene section 45(2) of the Trade Practices Act 1974.

Section 45(2) prohibits the making of a contract containing an exclusionary provision. An exclusionary provision in a contract boycotts particular persons or classes of persons.

The ACCC alleged that Visy attempted to make a contract and attempted to induce NPP, a waste collection company, to make a contract containing an exclusionary provision by which NPP would boycott customers or potential customers of Visy. The Commission alleged that in 1996 Visy provided NPP with a number of draft agreements. Each draft contained a ‘non competition’ clause specifying that NPP would not collect or offer to collect recyclable waste paper from persons who were customers of Visy or had negotiated with Visy to become customers.

In November 2000, the Federal Court found that the Commission had not established its case essentially because Visy was able to invoke a defence in section 45(6) of the Act. The Court was satisfied that the Commission had proven the elements constituting an attempt and an exclusionary provision. The Commission’s case was dismissed on an interpretation of section 45(6).

The ACCC appealed to the Full Court of the Federal Court. On 10 August 2001 the Full Federal Court, by majority, found in the ACCC’s favour and upheld the Commission’s appeal that Visy had contravened section 45(2) of the Act.

Visy then sought special leave to the High Court to appeal this finding and leave was granted. The High Court hearing took place on 3 December 2002.