Full Federal Court upholds ACCC Visy appeal

The Full Federal Court today upheld the Australian Competition and Consumer Commission’s appeal that Visy Paper Pty Ltd had contravened Section 45 of the Trade Practices Act 1974.

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 the Act, a view upheld by the trial judge.

"A significant precedent has now been established", ACCC Chairman, Professor Allan Fels, said today. "When competitors unlawfully agree not to supply (or buy from) a particular person or business they can't escape liability by invoking a technicality in Section 45(6) of the Act.

"The ACCC welcomes this significant decision as it ensures complete coverage of the Act to prevent anti-competitive behaviour and has wide implications. It represents the first comprehensive consideration by the courts of the inter-relationship between Sections 45 and 47 of the Trade Practices Act 1974.

"The courts by this decision have closed a potential loophole in the law. It is a decision made which discourages companies, through clever technical drafting of legal agreements, to prevent their competitors from taking their customers or engaging in a wide range of other kinds of prohibited conduct.

"Parliament has made its intentions on collective exclusionary behaviour very clear. Parliament views such activity as sufficiently serious to ban it outright, regardless of its effect on competition. Consistent with Parliament's intention, the ACCC intends to pursue competitors who agree to boycott particular customers or suppliers. These activities are often called primary boycotts.

The court, in a majority decision, placed an expansive interpretation on the operation of Section 45(6) consistent with the ACCC's submissions. In a joint judgment, their Honours Justices Hill and North said:

"the construction we favour gives s45(6) an operation which accords with a national legislative policy, so far as that may be ascertained from the words which Parliament has used, and far from being a narrow construction produces a sensible result".

The court’s construction of Section 45(6) resulted in Visy’s conduct being strictly prohibited by Section 45.

Section 45 prohibits the making of a contact 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.

The ACCC began proceedings in December 1998 alleging that Visy attempted to breach Section 45(2) of the Act by attempting to make a contract and attempting to induce Northern Pacific Paper Pty Ltd, a rival wastepaper collection company, to make a contract containing an exclusionary provision. The provision prevented NPP from dealing with Visy's customers.

At trial, the court was satisfied that the ACCC had proven its case subject to a defence in Section 45(6). The court found that the ACCC had proven the elements of an attempt and an exclusionary provision but dismissed its case on an interpretation of Section 45(6). The ACCC appealed to the Full Court of the Federal Court over the operation of Section 45(6).

Section 45(6) deals with the inter-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 stop overlap between the two sections.

Section 45 bans the making of a contract containing an exclusionary provision, Section 47 covers exclusive dealing arrangements. A crucial difference is an exclusionary behaviour under Section 45 is prohibited regardless of its effect on competition but most section 47 arrangements are subject to a substantial lessening of competition test.

Background

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

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 ACCC alleged that in 1996 Visy provided NPP with a number of draft agreements for negotiation. 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 ACCC 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 ACCC had proven the elements constituting an attempt and an exclusionary provision. The ACCC case was dismissed on an interpretation of Section 45(6).

The ACCC then appealed to the Full Court of the Federal Court.