1                     In these proceedings, the applicant (“ACCC”) seeks declarations, restraining orders, pecuniary penalties and other orders against three respondents.

2                     The first respondent (“Visy”), among its other activities, collects and processes recyclable waste paper and cardboard for supply to its paper mills. At all material times, its business included acquiring recyclable waste paper (including cardboard) in the Sydney metropolitan region.

3                     The second respondent (“Mr Guthridge”) was appointed National General Manager of Visy on 1 May 1996 and, from that time, had the day to day management and control of Visy’s operations in relation to the acquisition of recyclable waste paper. The third respondent (“Mr Richards”) became National Operations Manager of Visy in March 1996. From the beginning of 1997, Mr Richards held the position of General Manager of the Northern Region, including New South Wales.

4                     Between September 1996 and April 1997, Visy carried on negotiations with Northern Pacific Paper Pty Limited (“NPP”). NPP’s business included the collection of waste paper products in the Sydney metropolitan region. In the course of these negotiations, Visy presented to NPP a series of draft written agreements. The draft agreements included terms described as “non-competition” clauses.  None of the proposed agreements was ever entered into by the parties.

5                     The ACCC alleges that, by carrying out the negotiations with NPP and, in particular, by proffering the draft agreements to NPP on six separate occasions, Visy:

·        attempted to contravene s 45(2)(a)(i) of the Trade Practices Act 1974 (Cth) (“TP Act”) and;

·        attempted to induce NPP to contravene s 45(2)(a)(i).

Section 45(2)(a)(i) of the TP Act prohibits a corporation, inter alia, from making a contract if the proposed contract contains an “exclusionary provision”.

6                     The ACCC’s case is that the draft contracts each contained a term which was an “exclusionary provision”, as that expression is defined in s 4D of the TP Act. According to the ACCC, the relevant terms were exclusionary provisions because they had the purpose of preventing NPP, which was competitive with Visy in the market for the acquisition of recyclable waste paper, from acquiring recyclable waste paper from a particular class of persons, namely persons who were actual or potential suppliers of waste paper to Visy.

8                     For the most part, the facts were not in dispute.  The ACCC relied principally on the evidence of Mr Lurie, a director of NPP from 28 September 1995 until after May 1997.  Despite some forensic skirmishing, Mr Lurie ultimately was not cross-examined.  Mr McClintock SC, who appeared with Mr Kerr for the ACCC, also read affidavits from executives of companies which had dealings both with NPP and Visy.  None of these deponents was cross-examined.  The documentary evidence relied on by the ACCC was contained in a bundle of documents which was admitted into evidence without objection.

9                     Mr Sher QC, who appeared with Mr O’Brien for the respondents, read affidavits made by the following deponents:

·        Mr Geminder, who for a time was the National General Manager of Visy, responsible, inter alia, for Visy’s recycling operations in New South Wales;

·        Mr Gerard, at the relevant times the New South Wales Sales Manager of Visy;

·        Mr Guthridge; and

·        Mr Richards.

10                  Neither Mr Geminder nor Mr Gerard was cross-examined.  Both Mr Guthridge and Mr Richards, however, were and their evidence was challenged in certain respects.  It is fair to say that the challenges generally did not go to issues that were central to the case.  As will become apparent, although for the most part I accept their evidence, there are some matters on which I do not accept Mr Guthridge’s recollection.  In particular, I formed the view that there was an element of reconstruction about his reasons for inserting the non-competition clauses in the various draft agreements.

11                  Visy did not adduce evidence from Mr Kaye, who was Visy’s in-house lawyer at the relevant times as well as occupying the position of in-house Commercial Manager.  The unexplained failure by Visy to call Mr Kaye led to a submission by Mr McClintock, based on the principles enunciated in Jones v Dunkel (1959) 101 CLR 298, that it should be inferred that his evidence would not have assisted Visy on certain issues.

12                  Section 45, which is in Part IV of the TP Act, is concerned with contracts, arrangements or understandings containing so-called “exclusionary provisions”.  Sub-section 45(2) provides as follows:

“(2)     A corporation shall not:

(a)               make a contract or arrangement, or arrive at an understanding, if:

(i)                 the proposed contract, arrangement or understanding contains an exclusionary provision; or

(ii)               a provision of the proposed contract, arrangement or understanding has the purpose, or would have or be likely to have the effect, of substantially lessening competition; or

(b)               give effect to a provision of a contract, arrangement or understanding… if that provision:

(i)                 is an exclusionary provision; or

(ii)               has the purpose, or has or is likely to have the effect, of substantially lessening competition”.

13                  The expression “exclusionary provision” is, in effect, defined in s 4D of the TP Act:

“4D(1)  A provision of a contract, arrangement or understanding, or of a proposed contract, arrangement or understanding, shall be taken to be an exclusionary provision for the purposes of this Act if:

(a)               the contract or arrangement was made, or the understanding was arrived at, or the proposed contract or arrangement is to be made, or the proposed understanding is to be arrived at, between persons any 2 or more of whom are competitive with each other; and

(b)               the provision has the purpose of preventing, restricting or limiting:

(i)                 the supply of goods or services to, or the acquisition of goods or services from, particular persons or classes of persons; or

(ii)               the supply of goods or services to, or the acquisition of goods or services from, particular persons or classes of persons in particular circumstances or on particular conditions;

by all or any of the parties to the contract, arrangement or understanding or of the proposed parties to the proposed contract, arrangement or understanding….

(2)               A person shall be deemed to be competitive with another person for the purposes of subsection (1) if, and only if, the first-mentioned person…is, or is likely to be, or, but for the provision of any contract, arrangement or understanding or of any proposed contract, arrangement or understanding, would be, or would be likely to be, in competition with the other person, in relation to the supply or acquisition of all or any of the goods or services to which the relevant provision of the contract, arrangement or understanding or of the proposed contract, arrangement or understanding relates.”

14                  “Provision” is defined in s 4(1) of the TP Act as follows:

“‘provision’, in relation to an understanding, means any matter forming part of the understanding”.

Section 4(1) also defines the phrase “give effect to”:

“‘give effect to’, in relation to a provision of a contract, arrangement or understanding, includes do an act or thing in pursuance of or in accordance with or enforce or purport to enforce”.

15                  It will be seen that the prohibitions in s 45(2)(a)(i) and s 45(2)(b)(i) apply regardless of the effect of the exclusionary provisions on competition.  As was said by the Full Court in News Ltd v Australian Rugby Football League Ltd (1996) 64 FCR 410, at 558:

“It is plain that the Parliament regarded horizontal arrangements of an exclusionary character [between competitors] as having a necessary tendency to inhibit competition and that this was sufficient to proscribe the making of such arrangements.”

16                  Section 45(6) of the TP Act, broadly speaking, takes certain conduct out of the reach of s 45 if the conduct would, or would but for the substantial lessening of competition test contained in s 47(10), constitute a contravention of s 47 of the TP Act.  Section 45(6) is central to the resolution of the present case.  It provides as follows:

45(6)   The making of a contract, arrangement or understanding does not constitute a contravention of this section by reason that the contract, arrangement or understanding contains a provision the giving effect to which would, or would but for the operation of subsection 47(10) or 88(8) [which allows the ACCC to grant an authorisation to engage in the practice of exclusive dealing] or section 93 [which provides for notification of exclusive dealing to the ACCC], constitute a contravention of section 47 and this section does not apply to or in relation to the giving effect to a provision of a contract, arrangement or understanding by way of:

(a)               engaging in conduct that contravenes, or would but for the operation of subsection 47(10) or 88(8) or section 93 contravene, section 47; or

(b)               doing an act by reason of a breach or threatened breach of a condition referred to in subsection 47(2), (4), (6) or (8), being an act done by a person at a time when:

(i)                 an authorisation under subsection 88(8) is in force in relation to conduct engaged in by that person on that condition, or

(ii)               …; or

(iii)             a notice under subsection 93(1) is in force in relation to conduct engaged in by that person on that condition”.

17                  Section 47(1) of the TP Act provides as follows:

“(1)     Subject to this section, a corporation shall not, in trade or commerce, engage in the practice of exclusive dealing.”

Section 47 defines the practice of exclusive dealing to include a number of so-called vertical restraints.  Subsections 47(2) and (3) address restrictions on acquisition imposed by a supplier of goods or services on the customer: J D Heydon, Trade Practices Law, vol 1, par 6.20.  Subsection 47(2) deals with the supply of goods or services on condition that the purchaser does not acquire goods or services from a competitor of the supplier.  Subsection 47(3) covers a refusal to supply goods or services because the purchaser has acquired or dealt with, or has refused to cease acquiring or dealing with, goods or services of a competitor of the supplier.  Subsections 47(6) and (7) are concerned with the practice of third-line forcing, that is the practice of a supplier supplying goods or services on condition that the customer agrees to acquire goods or services from a third person.  Subsections 47(8) and (9) deal with restraints associated with the grant or refusal to grant interests in land.

18                  Subsections 47(4) and (5) were regarded by the parties as most pertinent to the operation of s 45(6) in the present case.  They concern restrictions imposed by a purchaser of goods or services on a supplier.  The subsections provide as follows:

“(4)     A corporation also engages in the practice of exclusive dealing if the corporation:

(a)               acquires, or offers to acquire, goods or services; or

(b)               acquires, or offers to acquire, goods or services at a particular price;

on the condition that the person from whom the corporation acquires or offers to acquire the goods or services or, if that person is a body corporate, a body corporate related to that body corporate will not supply goods or services, or goods or services of a particular kind or description, to any person, or will not, or will not except to a limited extent, supply goods or services, or goods or services of a particular kind or description:

(c)               to particular persons or classes of persons or to persons other than particular persons or classes of persons; or

(d)               in particular places or classes of places or in places other than particular places or classes of places.

(5)       A corporation also engages in the practice of exclusive dealing if the corporation refuses:

(a)               to acquire goods or services from a person; or

(b)               to acquire goods or services at a particular price from a person;

for the reason that the person…has supplied, or has not agreed not to supply, goods or services, or goods or services of a particular kind or description:

(c)               to particular persons or classes of persons or to persons other than particular persons or classes of persons; or

(d)               ….”.

19                  Section 47(10) imposes a lessening of competition test to the prohibition on exclusive dealing other than third line forcing:

“47(10)             Subsection (1) does not apply to the practice of exclusive dealing constituted by a corporation engaging in conduct of a kind referred to in subsection (2), (3), (4) or (5) or paragraph (8)(a) or (b) or (9)(a), (b) or (c) unless:

(a)               the engaging by the corporation in that conduct has the purpose, or has or is likely to have the effect, of substantially lessening competition; or

(b)               …”.

20                  Section 47(13)(a) gives an expanded definition of “condition” for the purposes of s 47:

“13.  In this section -

(a)   a reference to a condition shall be read as a reference to any condition, whether direct or indirect and whether having legal or equitable force or not, and includes a reference to a condition the existence or nature of which is ascertainable only by inference from the conduct of persons or from other relevant circumstances”.

21                  Section 76 of the TP Act provides for the imposition of pecuniary penalties.  Section 76(1) provides as follows:

“76(1)  If the Court is satisfied that a person:

(a)               has contravened any of the following provisions:

(i)                 a provision of Part IV;

(ii)               …;

(b)               has attempted to contravene such a provision;

(c)               …;

(d)               has induced, or attempted to induce, a person, whether by threats or promises or otherwise, to contravene such a provision;

the Court may order the person to pay to the Commonwealth such pecuniary penalty, in respect of each act or omission by the person to which this section applies, as the Court determines to be appropriate having regard to all relevant matters…”.

The maximum penalty which may be imposed on a body corporate for each act or omission to which ss 76(1) applies is $10 million: s 76(1A)(b).  In the case of an individual, the maximum penalty is $500,000: s 76(1B).

22                  Waste paper collected for recycling purposes is destined for companies which recycle the paper in their mills.  In Australia, and especially in the Sydney metropolitan area, the two main recyclers are Visy and Amcor Ltd (“Amcor”).  Some waste paper is, however, exported and export prices affect domestic prices.

23                  The waste paper collection industry comprises businesses which collect the waste paper from those who generate the waste.  Collectors of waste supply recyclers or other collectors who, in turn, supply recyclers.  The industry is somewhat unusual in that, although generators of waste paper may sell the waste to a collector, collectors are sometimes paid to remove waste paper or rubbish which contains a significant proportion of waste paper.  The supplier may pay the collector, for example, when the supplier has relatively small amounts of waste paper available or the waste product is useful to recyclers only after being decontaminated.  The persons from whom waste paper is collected are referred to in the industry as the “customers” of the collector, even when they pay the collector to remove the waste products.

24                  In addition to collecting waste paper and selling it to recyclers or other collectors, collectors also may sort or process the waste in order to remove contaminants.  By making the product more acceptable to recyclers they add value to it.  As Mr Geminder pointed out in his evidence, Visy’s practices in relation to its customers are influenced by export prices.  When export prices are high, Visy may encounter difficulty in purchasing waste products at economically sustainable prices.  Conversely, when export prices are low, Visy may lower the prices paid for waste or impose a charge for collecting it from customers.  It may also reduce the quantities of waste product collected.

25                  In the latter part of 1995, Visy usually obtained waste paper in metropolitan areas directly from its customers.  Depending on market conditions and the “quality” of the waste, Visy either paid its customers for their waste or charged them a fee for the materials collected.  Visy had its own collection system, but also relied on contracted collectors.  More recently, Visy has come to rely more or less exclusively on contracted collectors.

26                  From September 1995 (when Visy and NPP entered into a contractual arrangement) to May 1996, NPP operated from premises at Silverwater.  In consequence of NPP’s dealings with Visy, it had acquired the machinery necessary to sort certain kinds of waste products so as to remove contaminants and thereby produce recyclable waste paper.  During this period, NPP used self-employed collectors who collected waste paper from their own customers.  NPP also used sub-contracted drivers who collected waste paper directly from NPP’s customers.  The self-employed collectors were paid a set rate per tonne of waste, while sub-contracted drivers were paid a daily rate.  Some customers were paid a fee based on the tonnage of recyclable waste collected.

27                  During the period it operated from the Silverwater premises, NPP obtained waste from rubbish collectors.  Rubbish collectors provide a general collection service for their customers, rather than one which targets recyclable waste paper.  NPP was prepared to accept rubbish if it contained a substantial proportion of recyclable, relatively uncontaminated, waste paper.  NPP charged rubbish collectors a fee per load of rubbish delivered.  NPP itself never provided rubbish collection services directly to individual customers.

28                  From September 1995 until the closure of the Silverwater premises in May 1996, NPP obtained approximately 25 per cent of its recyclable waste from customers, 50 per cent from collectors and the balance from rubbish collectors.  Once Silverwater closed, NPP lost the capacity to sort rubbish to remove decontaminants.  From that time onwards, NPP’s collectors and sub-contractors delivered waste paper directly to Visy’s premises at Smithfield.  In general, NPP paid collectors on presentation of the original Visy weighbridge docket. 

29                  Since NPP no longer accepted rubbish after Silverwater closed in May 1996, it received no payment after that date from any collector or customer for removing or accepting waste paper.  This state of affairs continued until NPP ceased operating in April 1997.

30                  The first contact between Visy and NPP occurred in about late August or early September 1995.  NPP offered to provide waste paper collected from office buildings in Sydney.  Visy saw an advantage in this source of supply and offered to provide NPP with a conveyer to enable waste products to be decontaminated. 

31                  On 19 September 1995, NPP (then known as Keytrip Pty Ltd) and Visy entered into a written agreement (“the 1995 Agreement”).  The conclusion of this agreement pre-dated Mr Lurie’s involvement in NPP.  The 1995 Agreement provided that for a term of five years NPP:

“will sell to [Visy], and [Visy] will buy from [NPP] the whole of [NPP’s] stocks of cardboard, white paper and mixed wastepaper specified in the First Schedule”.

32                  The First Schedule to the 1995 Agreement specified three types of waste paper, namely “Cardboard”, “Mixed Wastepaper – office ‘cleaned’” and “Mixed Mix ex MRF (Multi Recycling Facility) material”. The Schedule also specified the prices to be paid per tonne for each type of waste paper during different periods within the five year term.  The 1995 Agreement specifically provided that Visy was obliged to accept all goods collected by it from NPP or delivered to it by NPP, subject to limited exceptions such as contaminated waste paper. The agreement made no express reference to the sources from which NPP was entitled to obtain waste paper.  This omission is of some importance to the present case.

33                  In January 1996, NPP, through Mr Lurie, offered to purchase waste paper from Local Government Recycling Co-operative Limited (“Co-operative”), an organisation which coordinated the collection of recyclables from local councils. Shortly thereafter, representatives of Visy complained to Mr Lurie that NPP had no right to contract with Co-operative, since it was a Visy customer.  Mr Delacca, the then General Manager of Visy, wrote to Mr Lurie on 7 February 1996, asserting that Visy did not regard the intent of the 1995 Agreement as covering Visy’s purchase of waste paper from Co-operative for resale at a profit to Visy.  Mr Delacca expressed the view that NPP could be a long term supplier of waste paper to Visy but that it was

“clearly not feasible…to have you working against us in the marketplace”.

The upshot was that Visy negotiated directly with Co-operative, which agreed to supply Visy with its waste paper.

34                  At about this time, a dispute arose between Visy and NPP concerning the prices to be paid by Visy for various categories of waste paper supplied by NPP.  Visy also claimed that NPP had failed to deliver high quality white waste paper as it was obliged to do under the 1995 Agreement.  By mid-March 1996, the dispute between Visy and NPP escalated to the point where NPP engaged solicitors to represent it. In correspondence, Visy claimed, inter alia, that NPP had breached the 1995 Agreement by selling waste paper classified as “first grade white” to other buyers and by supplying Visy with unacceptably low grade waste paper.

35                  It is common ground that the dispute later became the subject of litigation which was ultimately settled.  The details of the litigation are irrelevant for present purposes.  The principal significance of the dispute to the present case is that the negotiations between the parties generated a proposal that NPP should become an exclusive agent for Visy.

36                  During the period NPP was negotiating with Visy with a view to resolving the dispute, it sought to obtain waste paper from customers Visy regarded as its own. In particular, on 20 March 1996, Aspex Paper Australia Pty Ltd (“Aspex”), agreed to deliver waste paper to NPP at its Silverwater facility.

37                  A meeting took place on 7 May 1996 between Mr Lurie and Mr Xu of NPP and Mr Guthridge, the newly appointed General Manager of Visy, and Mr Gerard, then the New South Wales Sales Manager of Visy.  At this stage, the lease of the Silverwater premises had either expired or was nearing its end.  At the meeting, Mr Guthridge proposed that NPP should enter a franchise agreement with Visy and that NPP should lease premises in or near Alexandria, a southern suburb of Sydney. Mr Guthridge said that Visy would provide NPP with a baler, computer and customer support.

38                  Correspondence was subsequently exchanged between Mr Lurie of NPP and representatives of Visy concerning these proposals. By this time, Mr Guthridge had become aware of the difficulties (from Visy’s point of view) arising out of the 1995 Agreement.  In Mr Guthridge’s words, he

“formed the view that Alan Lurie was trying to exploit its ambiguities contrary to the original intention and spirit of the 1995 Agreement”.

Mr Guthridge decided that the difficulties could be resolved if Visy entered into an Exclusive Collection Agreement (“ECA”) with NPP. Mr Guthridge had had experience with the concept of an ECA in his previous employment.  He wished to establish NPP as Visy’s exclusive agent to provide what he described as “waste collection services” to suppliers of waste paper within a clearly designated geographical area embracing central Sydney and the Alexandria region. He had in mind that Amcor, a substantial competitor of Visy, had a significant customer base in this area.

39                  During May and June 1996, Mr Guthridge had a number of meetings with Mr Lurie and Mr Xu about possible sites for NPP’s operations under the proposed ECA.  At a meeting held on 5 June 1996, they discussed principles for drafting an ECA, although Mr Lurie expressed dissatisfaction with the proposed financial arrangements.

40                  As these negotiations proceeded, Visy’s complaints continued.  For example, on 27 May 1996, Visy’s State Manager complained to Mr Lurie that NPP’s collectors had been “pirating” waste from Visy’s customers.  NPP, too, had its complaints.  In late June 1996, Mr Lurie complained to Mr Guthridge that Visy had “stolen” Aspex from NPP.  The outcome of this particular complaint was that Mr Guthridge apologised for Visy’s failure to inform Mr Lurie of its negotiations with Aspex.

41                  By early June 1996, a draft ECA had been prepared.  According to Mr Guthridge, he prepared the initial draft based on a document he had used in his previous employment.  In about July 1996, Mr Richards took over the major responsibility for negotiating with NPP.  Mr Richards reported regularly to Mr Guthridge and at all times kept him informed as to developments.

42                  From early July to early September 1996, negotiations continued between the parties , but in a somewhat desultory fashion.  On 9 September 1996, Mr Richards sent Mr Lurie a draft ECA. At a meeting the following day, Mr Lurie objected to a 90-day termination clause in the ECA, on the ground that the 1995 Agreement still had more than three years to run.

43                  On 10 September 1996, Mr Lurie sent a fax to Mr Richards setting out the terms of an “Intended Agreement”, whereby NPP would become Visy’s agent and be given sole agency for the Sydney Metropolitan area. Mr Lurie concluded with the following proviso:

“THE ABOVE IS SUBJECT TO APPROVAL BY EACH PARTIES [sic] LAWYERS”.

On 12 September 1996, Mr Richards sent a fax to Mr Lurie setting out the terms Visy understood would be incorporated into a “Licensed Collection Agreement”. The terms provided for Visy to install a baler, conveyor belt and sorting facilities at NPP’s premises, which by this time were to be located at St Peters.  The St Peters premises were to be used as a transfer facility “where Visy [would] retain control and ownership of its [own] customers”.  In addition, NPP was to collect paper from its customers and on-sell it to Visy at specified prices.

44                  Mr Lurie sent a further fax to Mr Richards on 19 September 1996, setting out revised points which would be acceptable to NPP. Mr Lurie said that he wanted “to get this agreement into final format before I send it to the lawyers”.

45                  On 27 September 1996, Mr Richards forwarded to Mr Lurie a draft ECA. The draft provided that Visy was to grant NPP an exclusive licence to undertake collections and make deliveries of waste paper in a specified area during the term of the agreement.  The draft included a non-competition clause, but in less sweeping terms than its successors.  Shortly after 27 September 1996, a meeting took place between Mr Richards, Mr Lurie and NPP’s solicitors in an attempt to finalise the proposed agreement.

46                  In early October 1996, NPP lost the site at St Peters which it had been proposing to use as its facility. In the following days, Mr Lurie and Visy’s representatives inspected alternative sites.

47                  On 16 October 1996, Mr Lurie received from Visy a further draft of the ECA.  This is the first of the draft agreements on which the ACCC relies in its pleaded case and I refer to it for this reason as the “First ECA”.  According to Mr Richards, he prepared the draft “in collaboration with” a number of others.  He identified the other contributors as Mr Guthridge, Visy’s external solicitors (Holding Ryan and Redlich) and Mr Kaye, Visy’s in-house lawyer.  Mr Guthridge gave similar evidence.  Mr Richards was overseas when the First ECA was sent to NPP and it is not clear who actually forwarded the draft.

48                  The First ECA was expressed to be between Visy and

“THE PERSON whose name and address are specified in Item 1 of the Schedule (‘the Licensed Collector’)”.

This language suggests that the draft may have been intended as a template for agreements with other collectors of waste paper.

49                  Clause 3.1 of the First ECA provided as follows:

“3.1     Grant

(a)        Visy hereby grants to the Licensed Collector an exclusive licence to undertake Collections, provide Services and make deliveries during the Term.

(b)        For the removal of doubt, the Licensed Collector acknowledges that the licence granted to the Licensed Collector under this Clause 3.1 relates only to the collection of Specified Products in the Area …”.

Clause 1.1 contained the following definitions:

“‘Collection’ means each collection by the Licensed Collector of Specified Products in the Area;

‘Services’ means the [weighing, sorting and] baling of Specified Products [collected by the Licensed Collector or] supplied by Visy to the Licensed Collector;

‘Specified Products’ means the products to be collected by or supplied to the Licensed Collector under this Agreement as specified in … the Schedule …”.

The square brackets in the definition of “Services” were included in the draft ECA. 

50                  NPP was obliged at its own expense to collect the Specified Products from sources it identified or from sites nominated by Visy, provide the Services and exclusively deliver the Specified Products to a nominated site or make them available for collection by Visy from NPP’s premises (cl 6.2(a)).

51                  Clause 5.1 of the First ECA provided that, in consideration of NPP performing its obligations under the Agreement, Visy would pay it a collection fee for each “Collection, Service or Delivery” in accordance with a specified formula.  The specified formula provided for a collection fee in respect of each delivery of Specified Products to a site nominated by Visy.  The fee was calculated by reference to the weight of the product, discounted by a contamination factor determined by Visy.

52                  Clause 3.2 of the First ECA was designated as a non-competition clause.  It was in the following terms:

 “3.2    Non-Competition Clause

During the Term the Licensed Collector:

(a)        must not carry on, provide services to or be engaged, concerned, interested in or associated with any business or activity which is competitive with Visy’s business of collection of Waste Products;

(b)        must not, without limiting Clause 3.2(a), collect or make any attempt or offer to collect any Waste Products from persons who are customers of Visy or with whom Visy has entered into discussions or negotiations to become a customer;

(c)        …;

(d)        must not deliver or sell any waste products to any person other than Visy,

without the prior written consent of Visy.”  (Emphasis added.)

53                  The First ECA also provided for NPP to notify Visy as soon as it identified an opportunity to collect waste paper in the “Area” (cl 6.15).  Visy was then to use all reasonable efforts to enter into an agreement, arrangement or undertaking with the relevant person.  NPP was not to collect Specified Products from that person unless notified by Visy that an agreement, arrangement or understanding had been entered into or reached.

54                  The First ECA was discussed at a meeting held on 5 December 1996, between Mr Lurie and Mr Richards.  At this meeting, Mr Lurie asked for the non-competition clause to be removed from the draft.  According to Mr Richards, he said to Mr Lurie that:

“Clause 3.2 of the ECA is there to protect Visy’s investment in setting you up as an agent and allowing you to service our customers within the ECA region, except certain national account customers.  The only exception is NPP’s existing customers”.

55                  On 6 December 1996, Mr Richards sent Mr Lurie the Second ECA.  This and the subsequent versions of the ECA were in substantially the same form as the First ECA.  In particular, the non-competition clause remained unaltered.  The provision relating to new customers (formerly cl 6.15 of the First ECA) was, however, amended.  The amended clause provided that, subject to cl 3.2(b), NPP was entitled to negotiate arrangements with new customers in the Area without interference from Visy (Second ECA, cl 6.13(b)).  Visy was also to be entitled to negotiate arrangements with new customers in the Area without interference from NPP (cl 7.3).  There were also some changes to delivery procedures and to the formula for altering prices.  Mr Richards acknowledged that he had discussed the terms of the Second ECA with Mr Kaye, before the draft was dispatched to NPP.

56                  On 6 January 1997, Mr Richards sent Mr Lurie the Third ECA.  This draft was discussed at a meeting on 6 January 1997 between Mr Richards and Mr Lurie.  Their recollections differed as to whether Mr Lurie sought their removal of the non-competition clause at that meeting.  Nothing turns on the differences in their recollections.

57                  The Fourth ECA was sent by Visy to Mr Lurie on 22 January 1997.  On this occasion, it was sent under cover of a memorandum from Mr Kaye, signed by his secretary on his behalf.  The memorandum recorded that Mr Richards had requested that the draft be forwarded to Mr Lurie.

58                  In late January and early February 1997, negotiations continued between Visy and NPP.  Nonetheless, major and apparently irreconcilable differences between the parties became apparent.  One of the points of difference was Visy’s insistence on a ninety day termination clause.  NPP regarded this proposal as unacceptable, given that the 1995 Agreement had well over three years to run.  Yet further differences emerged between the parties in relation to the prices paid by Visy for certain categories of waste paper. 

59                  Mr Lurie apparently regarded negotiations as effectively at an end when Visy failed to respond to a fax sent by NPP on 7 February 1997.  On 19 February 1997, he sent a letter to Mr Richards.  The letter included the following paragraphs:

“As you are aware we closed our plant subject to going into a new contract with yourselves.  We have not openly solicited material since March of last year waiting for this contract to materialise.  Whilst we are still open to further discussions on this we have decided to try and recover the lost ground.”  (Emphasis added.)

60                  On 3 March 1997, NPP’s solicitors wrote to Visy, noting that negotiations between NPP and Visy concerning a variation of the 1995 Agreement had been unsuccessful.  They advised that they had been instructed that NPP “will insist on and require strict compliance with the terms of the [1995] Agreement.”  Mr Guthridge replied on behalf of Visy on 7 March 1997, characterising the letter from NPP’s solicitors as “offensive”. 

61                  At about this time, NPP approached a number of suppliers of waste paper with a view to acquiring supplies from them.  The suppliers included Cleanaway (a division of Brambles Industries Ltd), Co-operative and Amaroo Industries Ltd.  These three were, or had been, customers of Visy.

62                  On 27 March 1997, Mr Richards, at Mr Guthridge’s request, sent a fax to Mr Lurie and Mr Xu at NPP.  The fax noted that Visy and NPP had agreed “as an interim measure” on certain prices for white paper, and attached “a revised proposal for your consideration”.  I refer to the draft attached to the fax as the “First Supply Agreement”.

63                  The First Supply Agreement provided that, for a term of approximately of forty-two months, NPP would exclusively sell to Visy, and Visy would buy from NPP, the whole of NPP’s stocks of certain categories of waste paper.  NPP was to deliver the waste paper to Visy’s premises at Smithfield.  The prices for waste paper delivered by NPP were specified in the First Schedule to the draft agreement.  The draft included a non-competition clause in the following terms:

“9. Non Competition

During the Term [NPP]:

(a)   must not collect, approach or make any attempt or offer to collect Mixed Paper and White Paper from persons who are customers of [Visy] or with whom [Visy] has entered into discussions or negotiations to become a customer

(b)   must not deliver or sell Mixed Paper and White Paper to any person other than [Visy].”

Unlike the ECAs, the First Supply Agreement did not grant NPP exclusive rights in respect of any region or area.

64                  Mr Guthridge was overseas at the time the First Supply Agreement was sent to NPP.  He acknowledged, however, that he was probably aware of the non-competition clause.  Mr Richards was also aware of it.

65                  On 2 April 1997, Mr Xu replied to the fax of 27 March 1997 (which had not been received by NPP until 1 April 1997).  He informed Mr Richards that NPP was unable to accept the terms offered and that it intended to keep trading under the current contract (that is, the 1995 Agreement).  On the same day, Mr Xu complained of deductions made by Visy in the price paid for a consignment of waste paper by reason of what Visy asserted was unacceptable contamination.

66                  On 7 April 1997, Mr Gerard of Visy reported to Mr Richards that NPP had approached four accounts “to gain their work from Visy”.  The customers named were Cleanaway, Aspex, Darryl Lea Chocolates and Kirby Automotive Products (“Kirby”).  On the same day, Mr Lurie and Mr Xu met with Mr Richards.  In this conversation, either Mr Lurie or Mr Xu told Mr Richards that they would flood Visy with 5,000 tonnes of stock over the next two months from a new customer they had secured.  Mr Richards understood that the new customer was either Co-operative or Cleanaway. 

67                  Mr Richards explained his state of mind at this time as follows:

“It appeared to me at the meeting that what NPP was endeavouring to do was to secure all mixed paper volumes from kerb side collections that were available through [Co-operative], Cleanaway and other local councils, which I estimated to be stock piles in the range of 8,000 to 10,000 tonnes, and then force Visy to accept this material for the price for Mixed-mix MRF material under the 1995 Agreement.  Visy was already buying this waste under agreements with [Co-operative], Cleanaway and certain local councils.  NPP was also not operating [an] MRF for the sorting of waste and I believe that NPP was attempting to reduce the 1995 Agreement to one of a mere conduit or brokerage between suppliers of waste and Visy in endeavour to exploit the higher market prices under the 1995 Agreement.”

Soon after the meeting, Mr Richards sent a fax to Mr Guthridge, who was in New York.  In this fax, Mr Richards reported, inter alia, that he could “see little common ground as [NPP is] actively approaching our customers”.

68                  During April 1997, Mr Richards received reports of NPP collecting waste from customers Visy considered to be its own.  For example, on 21 April 1997, Mr Gerard sent a memorandum to Mr Richards providing a list “of our customers who [NPP] have approached or stolen material from”.  The memorandum, which was prepared at Mr Richards’ request, set out a list of ten customers (including Aspex and Kirby) who had either been approached by NPP or from whom NPP was alleged to have stolen material.  In other cases, according to the memorandum, material had “continually disappear[ed]”.  (There was no evidence that NPP had actually stolen stock from anyone.)

69                  On 29 April 1997, Mr Richards and Mr Gerard personally delivered a letter to Mr Xu of NPP.  The letter asserted that NPP had repeatedly acted in breach of the express and implied terms of the 1995 Agreement.  The letter noted that NPP’s solicitors had written on 14 March 1997 advising that NPP did not consider itself bound to supply all white paper to Visy, thereby demonstrating an intention to exploit the pricing structure in the Agreement when white paper increased.  The letter stated that, even if there were an ambiguity in the 1995 Agreement, which Visy denied, NPP’s position was “clearly contrary to the intention of the parties at the time of entering into the agreement”.  The letter further alleged that NPP had repeatedly failed to supply to Visy Mixed Mix ex MRF material and had refused to adjust the price accordingly.

70                  The letter continued as follows:

“          2. [NPP], well knowing that Visy had entered into contracts for the supply of waste with Visy’s suppliers, maliciously, wrongfully and with the intent to injure Visy, deliberately interfered with and procured supplies of Visy to break their contracts with Visy and refuse to perform or further perform such contracts.  This conduct has included offers to purchase waste which was required, under contract, to be delivered by Visy’s suppliers to it, as well as removing, without authorisation, from the premises of the suppliers, waste which was required, under contract, to be delivered by the suppliers to Visy….

            3. [NPP] has continually, both itself and through its agents, approached Visy’s customers and sought (and at times succeeded) to solicit their business.

            4. [NPP] has repeatedly supplied to Visy materials which are contaminated and not fit for recycling.

… Visy regards [NPP’s] conduct (individually and in aggregate) as constituting a fundamental repudiation of the Agreement and evidences an intention by [NPP] to no longer be bound by the Agreement.  Thereby, Visy hereby gives notice that it regards [NPP’s] conduct as a repudiation of the Agreement, and that it accepts such repudiation, bringing that contract to an end without prejudice to its other rights and remedies.”

71                  Following a conversation between Mr Xu and Mr Richards, the latter sent a fax to NPP on 30 April 1997 in these terms:

“I wish to confirm my conversation with Jack [Xu] last night whereby I undertook to allow [NPP] to deliver today while you contacted your operators to advise of the changed circumstances.  I will allow this arrangement to continue until the end of deliveries today on the proviso that deliveries are limited to your normal suppliers and at current levels of supply.

I also note that, contrary to our earlier Agreement you have continued to approach Visy customers and as recently as yesterday you collected and delivered a product from one of customers. 

After consideration of all the circumstances I attach terms under which Visy would be prepared to accept deliveries form [NPP] affective 1^st May 1997.”

72                  The attached two page document was headed

“TERMS OF SUPPLY

Northern Pacific Paper Pty Ltd”

The document (to which I refer as the “Second Supply Agreement”) specified the price for three categories of waste papers and specified the maximum volume of mixed paper.  All waste was to be delivered contaminant free, as determined by Visy in its absolute discretion.  Visy was to be able to terminate the arrangement on seven day’s notice at any time.  It was also entitled to review the price for any grade of waste on seven day’s notice.  NPP, at its own cost, was to deliver waste to Visy’s premises at Smithfield.  Breach of the terms would “result in immediate cessation of acceptance of deliveries from [NPP].”

73                  Paragraphs 7 and 8 of the Second Draft Supply Agreement were in the following terms:

“7. Non-acceptance

Visy will not accept product from [NPP] which Visy deems is [sic] a customer of Visy.

8.      Non-Competition

While [NPP] is selling waste to Visy, [NPP] must not collect, approach or make any attempt to offer to collect waste from persons who are customers of Visy or with whom Visy has entered into discussions or negotiations to become a customer.”

74                  Mr Richards acknowledged in cross-examination that the letter of 30 April 1997 was a “take it or leave it letter”. 

75                  On 9 May 1997, NPP’s solicitors sent a letter to Visy denying that NPP had repudiated the 1995 Agreement.  The letter stated that, on the contrary, NPP accepted what it regarded as Visy’s repudiation of the 1995 Agreement.

76                  The ACCC’s case was founded on the proposition that if Visy and NPP had executed any of the six draft agreements (the four ECAs and the two Supply Agreements), Visy’s conduct in making the contract would have contravened s 45(2)(a)(i) of the TP Act.  This proposition was supported by the following reasoning:

·        At the time each draft agreement was presented to NPP, Visy and NPP were competitive with each other in the market for the acquisition of waste paper and for the supply of waste paper removal services in the Sydney metropolitan area.  Accordingly, had the agreements been executed, the contracts would have been made between two persons who were competitive with each other: TP Act, s 4D(1)(a), (2).  In any event, s 4D(2) deems a person to be competitive with another for the purposes of s 4D(1) if the first person, but for the provision of a contract, would be likely to be in competition with the second person.  In this case, but for the non-competition clause in the relevant agreement (assuming it had been executed), it is likely that NPP would have been competitive with Visy in the market.

·        The non-competition clauses in the draft agreements had the purpose of preventing NPP from supplying services (the removal of waste paper) to, or acquiring goods (waste paper) from, a particular class of persons, namely customers or potential customers of Visy (TP Act, s 4D(1)(b)(i)).  This was true of cl 3.2(b) in each of the ECAs.  It was also true of cl 9(a) of the First Supply Agreement and cl 8 of the Second Supply Agreement.

·        Accordingly, if any of the draft agreements had been executed, each would have contained an exclusionary provision as defined in s 4D(1) of the TP Act.  In those circumstances, Visy would have contravened s 45(2)(a)(i) of the TP Act.

77                  Next, the ACCC submitted that conduct amounts to an attempt to contravene s 45(2)(a)(i) if it involves one or more steps towards the commission of the prohibited act (the making of a contract containing an exclusionary provision) and is immediately, and not merely remotely, connected with or preparatory to the commission of that act.  Mr McClintock argued that the provision by Visy of each of the draft agreements to NPP, coupled with the express or implied invitation to NPP to enter into the agreements, constituted an attempt to contravene s 45(2)(a)(i).  Mr McClintock acknowledged that the ACCC’s case was strongest in relation to the Second Supply Agreement.  This was so because NPP needed only to accept what was in substance a “take it or leave it” offer in order for the proscribed act to be completed.  Nonetheless, Mr McClintock submitted that Visy’s conduct in forwarding the other draft agreements to NPP, in the context of serious commercial negotiations between the parties, in each case was sufficiently connected with the making of a contract as to constitute an attempt to contravene s 45(2)(a)(i) of the TP Act.

78                  According to Mr McClintock, Mr Guthridge and Mr Richards had each attempted to induce NPP to contravene s 45(2)(a)(i), within the meaning of s 76(1)(d) of the TP Act.  Mr Guthridge’s conduct in supervising and carrying out the relevant negotiations amounted to inducing or attempting to induce NPP to enter the agreements.  Mr Richards’ conduct in carrying out the negotiations also constituted inducement.

79                  The ACCC anticipated the respondents’ reliance on s 45(6) of the TP Act as a complete defence to the alleged contraventions.  Mr McClintock conceded that Visy’s conduct could not be shown to have had the purpose or the effect of substantially lessening competition in a relevant market.  He contended, however, that there were several reasons why s 45(6) of the TP Act did not apply in the circumstances of the present case.

80                  Mr McClintock pointed out that s 45(6) does not apply so as to exclude the making of a contract from the prohibition in s 45(2)(a) unless the contract contains a provision, the giving effect to which would (or would but for the operation of s 47(10)) constitute a contravention of s 47.  He also pointed out that the practice of “exclusive dealing” as defined in s 47, does not include the case where a corporation (A) acquires or offers to acquire goods from another person (B) on condition that B will not acquire goods from a third party.  In particular, s 47(4) covers only the case where (relevantly) A acquires or offers to acquire goods from B on condition that B will not supply goods or services to a third party.

81                  The ACCC submitted that the non-competition clauses contained in the ECAs and Supply Agreements were properly to be characterised as imposing a prohibition on NPP acquiring goods (that is, waste paper) from third parties, rather than as a prohibition on NPP supplying services (the removal of waste products) to third parties.  Mr McClintock contended that the non-competition clauses had to be understood in the context of NPP’s actual conduct.  After the loss of the Silverwater premises in May 1996, NPP had never been paid by customers to collect waste because it lacked the facilities to process contaminated waste.  In these circumstances, and taking a commercially realistic view of the dealings between the parties, what Visy wanted to prevent was NPP buying waste paper from customers.  It followed, so it was argued, that Visy’s conduct, had it succeeded in making a contract with NPP and in implementing its terms, would not have contravened s 47.  Accordingly, s 45(6) did not operate to exclude Visy’s conduct from the scope of the prohibition in s 45(2)(a)(i).

82                  The ACCC then made submissions as to the effect of s 45(6) of the TP Act on the assumption, contrary to its principal submission, that the non-competition clauses had what Mr McClintock described as a “dual operation” (that is, restricting NPP not only from acquiring waste paper from Visy’s customers, but from supplying services to those customers).  The ACCC argued that s 45(6) applied neither to the non-competition clauses nor to any conduct by Visy giving effect to them, insofar as the clauses prevented NPP from acquiring goods from third parties.

83                  According to Mr McClintock, this conclusion followed from the language of s 45(6), properly construed.  He relied on three inter-related points concerning the wording of s 45(6):

·        the expression “by reason that” should be construed to mean “if and insofar as”;

·        the word “would” means “would necessarily”; and

·        “provision” refers not to a particular term or clause of a contract but to a discrete legal obligation.

84                  Mr McClintock submitted that, read this way, s 45(6) is attracted if and only to the extent that the giving effect to an exclusionary provision necessarily contravenes s 47.  In the present case, each non-competition clause contained two discrete legal obligations (a prohibition on NPP acquiring goods from Visy’s customers and a prohibition on NPP supplying services to Visy’s customers).  Section 45(6) applied to the non-competition clause to the extent that it obliged NPP not to supply services to Visy’s customers (since giving effect to that obligation would necessarily constitute exclusive dealing as defined in s 47(4)).  But s 45(6) did not apply to the non-competition clause to the extent that it obliged NPP not to acquire goods from Visy’s customers (since giving effect to this obligation could not amount to exclusive dealing within s 47).  Thus s 45(6) did not exclude from the prohibition in s 45(2)(a)(i) of the TP Act the making of an agreement containing the non-competition clause

85                  Mr McClintock submitted that s 45(6), in any event, was not satisfied in the present case because giving effect to each non-competition clause could not, of itself, constitute a contravention of s 47.  For the purposes of this argument, he appeared to accept that the non-competition clause was the relevant “provision”, for the purposes of s 45(6).  However, “giving effect to” the non-competition clause would merely oblige NPP not to collect waste paper from Visy’s customers.  Taking s 47(4) as an example of exclusive dealing, a clause requiring NPP not to collect waste paper from Visy’s customers would not, of itself, constitute exclusive dealing.  It would be necessary, in addition, for Visy to acquire, or to offer to acquire, goods or services from NPP.  In the absence of an express link between NPP’s obligation not to collect waste paper from Visy’s customers (the exclusionary provision) and Visy’s agreement to acquire to waste paper from NPP, it could not be said that giving effect to the exclusionary provision as such would necessarily constitute a contravention of s 47.

86                  Finally on this point, the ACCC submitted that s 47(4) was not satisfied in the present case because none of the various draft agreements contained an offer to acquire NPP’s waste paper.  Rather, each agreement contemplated a series of individual transactions in the course of which Visy would acquire or offer to acquire waste paper.

87                  The respondents relied on s 45(6) of the TP Act as a complete answer to the ACCC’s case.  The respondents contended that the purpose of s 45(6) is to remove from the scope of s 45(2)(a)(i) and s 45(2)(b)(i) conduct (that is, exclusive dealing) which is caught by s 47, or which would be caught except for the requirement in s 47(10) that the conduct has the purpose or effect of substantially limiting competition.  To put it another way, the respondents submitted that the policy underlying s 45(6) is that exclusive dealing is to be dealt with under s 47 and, in general, is prohibited only if the relevant conduct has the purpose or effect of substantially lessening competition.  The respondents contrasted this with the “per se” prohibitions on collusive conduct in s 45(2)(a)(i) and s 45(2)(b)(i).

88                  The respondents answered the ACCC’s contentions as to the interaction between s 45(6) and s 47 as follows:

·        Each non-competition clause was plainly intended to prevent NPP from supplying services to, as well as acquiring goods from Visy’s customers.  The question was not whether NPP had in fact been supplying services in the period leading up to the drafting of the non-competition clauses.  The question was what effect the clause was intended to have.

·        Section 45(6) should be interpreted to accord with its policy objectives.  In particular, there is no basis for dissecting a single provision in a contract, such as each of the non-competition clauses, into discrete components.

·        Had any of the draft agreements been entered into and had Visy given effect to one of the non-competition clauses, it would necessarily have engaged in exclusive dealing within s 47(4) and s 47(5), since each clause was intended to prohibit NPP from supplying services to Visy’s customers.

·        The reference in s 45(6) to “giving effect to” an exclusionary provision is not to be understood in isolation from the contract, arrangement or understanding of which the provision forms part.  To do otherwise would allow form to triumph over substance.

89                  Mr Sher submitted that, even if s 45(6) did not constitute a defence, the ACCC had not established that Visy had attempted to contravene s 45(2)(a)(i) of the TP Act.  The respondents denied that NPP and Visy were competitive with each other.  They also advanced an argument concerning the mens rea required for an attempt.  The steps in the argument were these:

·        Under the general law, attempt requires proof of intention in relation to all elements of the offence, even where the offence is one of strict liability.

·        Thus, although a contravention of s 45(2) can occur without proof of mens rea, an attempt to contravene s 45 cannot.  It was therefore necessary for the ACCC to prove that the respondents intended to do acts which would have the result of breaching s 45(2)(a)(i).

·        In particular, it was necessary for the ACCC to prove not only that Visy and NPP were in competition but that each of the respondents knew that Visy and NPP were in lawful competition with each other at the relevant times.  Mr Sher submitted that the ACCC could not satisfy this requirement because Mr Guthridge and Mr Richards (and, through them, Visy) believed that NPP was not entitled to compete with Visy.  Specifically, Mr Sher invited me to find that both Mr Guthridge and Mr Richards believed that the 1995 Agreement prevented NPP from “poaching” Visy’s customers, or at least that the ACCC had not shown that their evidence to that effect should be rejected.

90                  Alternatively, the respondents submitted that, on the evidence, neither party was prepared to execute any of the draft agreements without the approval of their respective lawyers.  In particular, Visy would not have executed an agreement without approval by its lawyers.  For this reason, the respondents’ actions amounted neither to an attempt to make a contract containing an exclusionary provision, nor to an attempt to induce NPP to make such a contract.

91                  Further, so the respondents argued, the evidence fell short of establishing that any of the respondents had attempted to induce NPP to contravene s 45(2)(a)(i).  Inducing a contravention of the TP Act requires some act of compulsion or act of persuasion aimed at ensuring that an act is committed which constitutes a contravention.  No such element was present in this case.

92                  Since the respondents relied on s 45(6) of the TP Act as constituting a complete defence to the ACCC’s claims that they had contravened Part IV of the Act, it is convenient to consider that question first. 

93                  It is generally accepted that s 45(6) is intended to prevent overlap between ss 45 and 47 and, in particular, to subject the practice of exclusive dealing to the regime created by s 47 rather than that imposed by s 45. As Hely J said in South Sydney District Rugby League Football Club Ltd v News Ltd (1999) 169 ALR 120, at 135:

“[t]he traditional view is that s 45 does not apply to exclusive dealing arrangements (s 45(6)), as exclusive dealing is regulated by s 47”.

S G Corones, Competition Law in Australia (2^nd ed, 1999), at 303, observes that the effect of s 45(6) is that

“s 45 does not apply in relation to a provision of the contract that contravenes s 47”.

While the general object of s 45(6) may be relatively easy to identify, its language and structure are complex, presenting difficult issues of statutory construction.

94                  The sub-section has what might be described as a bipartite structure, which corresponds to the structure of s 45(2).  Section 45(2)(a) prohibits the making of a contract, arrangement or understanding if, inter alia, the proposed contract, arrangement or understanding contains an exclusionary provision as defined in s 4D.  (The reference to the “proposed” contract arrangement or understanding reflects the fact that s 45(2)(a) is directed to the making of a contract, arrangement or understanding, rather than to implementation of an existing contract, arrangement or understanding: J D Heydon, Trade Practices Law, vol 1, at par 470.)  The first part of s 45(6) specifies circumstances in which the making of a contract, arrangement or understanding does not constitute a contravention of s 45(2)(a).  It therefore removes from the prohibition in s 45(2)(a) conduct that otherwise would or might contravene the prohibition.

95                  The second part of s 45(6) specifies circumstances in which conduct that otherwise would or might contravene s 45(2)(b) is taken outside the scope of that provision.  The second part of s 45(6) operates by providing that s 45 is not to apply to or in relation to the giving effect to a provision of a contract, arrangement or understanding in certain ways.  The reference to “the giving effect to a provision of a contract, arrangement or understanding” corresponds to the prohibition in s 45(2)(b) against giving effect to a provision of a contract, arrangement or understanding which is either an exclusionary provision or has the purpose or effect of substantially lessening competition.

96                  The first and second parts of s 45(6) work in different ways.  The first part is not concerned with “giving effect to” a provision of a contract, arrangement or understanding.  It directs attention to a hypothetical situation.  The question posed by the first part of s 45(6) is whether giving effect to a provision contained in the relevant contract, arrangement or understanding

·        would or

·        would, but for the operation of s 47(10) (the substantial lessening of competition requirement)

constitute a contravention of s 47.  If the answer is yes, the making of the contract, arrangement or understanding is not to constitute a contravention of s 45(2)(a).

97                  By contrast, the second part of s 45(6) directs attention to conduct that has actually occurred.  This is presumably because the prohibition in s 45(2)(b) is expressed in terms of giving effect to a provision of a contract, arrangement or understanding, not making the contract, arrangement or understanding.  Section 45(6) provides that s 45(2)(b) does not apply to or in relation to the giving effect to a provision of a contract, arrangement or understanding by way of

·        engaging in conduct that contravenes (not “would contravene”) s 47 or would, but for the anti-competitive requirement in s 47(10), contravene s 47; or

·        doing an act by reason of a breach of a condition referred to in subss 47(2), (4), (6) or (8). 

To consider the application of the second part of s 45(6) to a particular case, it is therefore necessary to consider the conduct actually engaged in by the alleged contravener in order to give effect to the provision.

98                  A number of points should be made about the drafting of s 45(6) and, in particular, the first part of the sub-section. 

99                  First, the sub-section uses the expression “by reason that”.  This phrase usually means “because”.  Both parties in the present case, however, agreed that s 45(6) did not use the expression in this sense.  They both adopted the view that the expression meant “if”, although the ACCC added the gloss that the expression was intended to mean “if and insofar as”.  Accordingly, the first part of s 45(6) should be read as providing that the making of a contract, arrangement or understanding is not to constitute a contravention of s 45(2)(a) if the contract, arrangement or understanding contains a provision of the kind identified.  I shall return to the ACCC’s suggested gloss.

100               Secondly, s 45(6) refers to giving effect to “a provision” rather than giving effect to an exclusionary provision.  The reason for this seems to be that s 45(2) refers not merely to exclusionary provisions, but also to provisions which have the purpose or effect of substantially lessening competition.  The generic word “provision” in s 45(6) is therefore intended to encompass both exclusionary provisions and provisions which have the purpose or effect of substantially lessening competition.

101               Thirdly, in construing s 45(6) it is necessary to take into account the definition in s 4(1) of the expression “give effect to”.  In relation to a provision of a contract, arrangement or understanding, it is defined to include

“do an act or thing in pursuance of or in accordance with or enforce or purport to enforce.”

This definition has itself been given a broad construction.  It covers a case, for example, where a decision-maker acts in accordance with an arrangement or understanding even though the decision-maker does not have the arrangement or understanding in mind: Tradestock Pty Ltd v TNT (Management) Pty Ltd (No 2) (1978) 32 FLR 420, at 432-433; Trade Practices Commission v TNT Management Pty Ltd (1985) 6 FCR 1, at 68.

102               Fourthly, the language of the second part of s 45(6) makes it clear that the drafter assumed that a provision of a contract, arrangement or understanding can be given effect to “by way of”

·        engaging in conduct that contravenes s 47 and

·        doing an act by reason of a breach or threatened breach of a condition referred to in subs (2),(4),(6) or (8) of s 47.

103               Section 45(2) of the TP Act, in its original form, prohibited the making of a contract, arrangement or understanding “in restraint of trade or commerce”.  In that form, s 47 dealt with what the Swanson Committee described as

            “agreements, or potential agreements, for the supply of goods or services involving the vertical practices of exclusive dealing, product forcing and territorial or customer restrictions”:

Trade Practices Review Committee, Report to the Minister for Business and Consumer Affairs (August 1976) (the “Swanson Committee”), par 4.1.  As the Swanson Committee observed, s 47, for the most part, dealt with restraints that otherwise fell within the general prohibition in s 45.

104               At that time, the relationship between ss 45 and 47 was governed by s 45(5).  It provided that s 45 was not to apply to a contract, arrangement or understanding insofar as the contract, arrangement or understanding was of the kind referred to in s 47(2) or constituted the practice of exclusive dealing as mentioned in subss 47(3) and (4).  Subsections 47(2) and (3) dealt with “full-line forcing”: that is, supply of goods or services on the condition that the person supplied would acquire other goods or services directly or indirectly from the supplier.  Subsection 47(4) dealt with the practice of third line forcing and was not subject to a substantial lessening of competition requirement.

105               The Swanson Committee considered that ss 45 and 47 created distinctions between certain kinds of agreement and conduct which were illogical and sometimes harsh: Swanson Committee, par 4.105.  It identified the most important of these matters as the “usual grant of an exclusive franchise”.  The Committee recommended that the most appropriate way of dealing with restrictions imposed in an exclusive franchise arrangement was in the context of s 47, which was generally to apply only if the lessening of competition test were satisfied: Swanson Committee, par 4.106.

106               The Trade Practices Amendment Act 1977 (Cth) (the “1977 Act”) implemented some, although not all of the recommendations of the Swanson Committee.  The 1977 Act dispensed with the concept of “restraint of trade or commerce” and introduced ss 4D(1) and 45(2) in substantially their present form.  The 1977 Act also introduced more elaborate exclusive dealing provisions in s 47, again in substantially their present form.  In particular, s 47(4) dealt specifically with restrictions imposed by buyers on sellers of goods, a practice that had previously been left to the general language of s 45.  Section 47(10) applied the test of substantially lessening competition to the vertical arrangements covered by s 47, except for third line forcing (subss 47(6) and (7)) which remained “per se” contraventions of the TP Act.

107               The relationship between the collusive conduct provisions of s 45 and the restrictions on vertical arrangements in s 47 was governed by s 45(6).  The 1977 Act enacted s 45(6) in its present form, except that the sub-section did not include the words “but for the operation of subsection 47(10)”.  Neither the Explanatory Memorandum to the Trade Practices Amendment Bill 1977, nor the second reading speech (Cth Parl Deb, HR, 8 December 1976, at 3531 ff) further explain the manner in which s 45(6) was drafted.

108               The effect of the 1977 Act was that s 45(6) applied, generally speaking, only where the conduct giving effect to the relevant provision had the purpose or effect of substantially lessening competition as required by s 47(10).  This was thought to create difficulties: see F H Callaway, “Section 45 or 47?” (1980) 54 ALJ 200, at 202-203.  In order to address these difficulties, s 45(6) was amended by the Trade Practices Revision Act 1986 (Cth) (the “1986 Act”), which added the words “but for the operation of subsection 47(10)”.  The Explanatory Memorandum gave this explanation for the insertion of the additional words:

“3.       This amendment extends the operation of the exclusion in sub-s 45(6) so that it prevents s 45, and in particular its prohibition on exclusionary provisions (s 4D) from applying to arrangements which, while coming within the definition of exclusive dealing in s 47, do not contravene that section because they do not have the purpose or the effect of substantially lessening competition (sub-s 47(10)).

109               It should be noted that, although the 1986 Act was preceded by a Green Paper (The Trade Practices Act: Proposals for Change (Feb 1984)), the Green Paper did not consider the scope or drafting of s 45(6).

110               The first reason given by the ACCC to support its contention that the respondents could not rely on s 45(6) was that the non-competition clauses were properly to be characterised as imposing a prohibition on NPP acquiring goods from third parties, rather than as a prohibition on supplying services to third parties.  Visy therefore could not have engaged in the practice of exclusive dealing as defined, for example, in s 47(4), since, assuming it had entered into one or other of the various draft agreements, it would not have acquired or offered to acquire goods on condition that NPP would not supply services to third parties.  To put the ACCC’s contention within the framework of s 45(6), it submitted that giving effect to the relevant “provision” (any one of the non-competition clauses in the various draft agreements) would not constitute a contravention of s 47, since the provision merely imposed a restraint on NPP acquiring goods from third parties and did not amount to a condition that it was not to supply services to third parties.

111               Mr McClintock did not distinguish between the non-competition clauses in the ECAs and those in the Supply Agreements.  It will be recalled that the non-competition clause in the ECAs (cl 3.2(b)) provided that NPP was not:

“to collect or make any attempt to offer to collect any Waste Products from persons who are customers of Visy or with whom Visy has entered into discussions or negotiations to become a customer”.

“Waste Products” was defined to mean “any waste products that Visy processes or intends to process”.

112               This language is plainly wide enough to encompass NPP collecting “Waste Products” from Visy customers, whether NPP paid the customers for the products or was paid to collect the products.  I did not understand Mr McClintock to dispute this conclusion.  Moreover, he accepted that the starting point for determining the scope of the non-competition clause was the language actually used.  And he conceded that collecting waste paper from customers who paid the collector for doing so constituted the supply of services by the collector.

113               Mr McClintock sought to overcome these formidable difficulties by pointing out that NPP had not been paid by customers to collect waste after the loss of the Silverwater premises in May 1996.  He also pointed out that the ECAs required NPP to sell and deliver exclusively to Visy all “specified Products” collected or received by it from whatever source.  Therefore, so he argued, the ECAs essentially provided for Visy to acquire goods from NPP.

114               The matters relied on by the ACCC are, in my opinion, largely irrelevant to the present issue.  It was Visy that included the non-competition clauses in the ECAs.  The uncontradicted evidence of Mr Geminder established that Visy itself sometimes charged its customers for collecting waste, especially when export prices were low.  Its business included sorting, cleaning and compacting waste products.  It was Visy (through Mr Guthridge and Mr Richards) that was concerned to impose stringent restrictions on NPP dealing with Visy’s customers or potential customers.  It was in Visy’s interests to prevent NPP collecting waste from Visy customers who were prepared to pay NPP for waste collection services, just as it was in Visy’s interests to prevent NPP from purchasing waste paper from Visy’s customers.  While it is true that NPP had not been paid by customers to collect their waste products after May 1996, that position could have changed at any time.  For example, NPP might well have decided to return to the pre-May 1996 situation by obtaining the machinery necessary to process lower quality waste and soliciting that waste from suppliers.  More to the point, Visy clearly wished to prevent that possibility becoming a commercial reality.

115               Mr McClintock cited observations of Lockhart J in Castlemaine Tooheys Ltd v Williams & Hodgson Transport Ltd (1985) 7 FCR 509, at 531-532, in support of the contention that the operation of s 47 is not to be determined solely by reference to the terms of contracts between traders, but by the actual conduct of the parties in their business dealings.  With respect, his Honour was plainly right to emphasise the need to consider the commercial realities of business dealings.  But here it is entirely in accordance with the commercial realities to view the non-competition clauses (including those in the Supply Agreements) as imposing conditions designed and intended to prevent NPP from supplying services to a particular class of persons, namely Visy’s customers.  The clauses were not designed merely to prevent NPP purchasing waste products from Visy’s customers.

116               It is now necessary to address the hypothetical question posed by s 45(6) of the TP Act: would giving effect to the “provision” in the ECAs or Supply Agreements have constituted a contravention of s 47 (ignoring the lessening of competition requirement imposed by s 47(10))?

117               In my view, the “provision” to which attention must be directed is each of the non-competition clauses.  As I have explained, s 45(6) uses the word “provision” to embrace both an exclusionary provision (s 45(2)(a)(i) and s 45(2)(b)(ii)) and a provision which has the purpose or effect of substantially lessening competition (s 45(2)(b)(i) and s 45(2)(b)(ii)).  In this case, it is each non-competition clause that is said by the ACCC to constitute the exclusionary provision in respect of which s 45(2) operates (or, more accurately, would have operated had any of the draft agreements been finalised as a contract).

118               In my opinion, there is no warrant for notionally breaking up the alleged exclusionary provision into what Mr McClintock described as “discrete legal obligations”.  This approach receives no support from the statutory language or from the terms of any of the non-competition clauses themselves.  Each of the non-competition clauses in the ECAs and Supply Agreements prohibits NPP from collecting waste products from customers of Visy.  None of them distinguishes between the acquisition of goods and the provision of services to Visy’s customers.  It would do violence to the language of the clauses to divide each single prohibition into “discrete” components for the purposes of applying s 45(6).

119               This is not to suggest that s 45(6) should be construed in a formalistic manner.  It may well be, for example, that a “provision” in a particular contract will not be co-extensive with a specific clause in that contract.  Mr McClintock gave the example of a term of a contract which is deliberately framed so as to attract s 45(6) and thereby gain the benefit of a statutory regime which includes the lessening of competition requirement laid down by s 47(10).  He suggested that this might be done by including a restriction on a seller of goods supplying services to a third party, when neither the buyer nor the seller ever contemplated that the seller would actually supply services to the third party.  In my view, it would not be difficult to exclude such a contrived and commercially unrealistic term from the scope of the “provision” for the purposes of s 45(6).  A similar approach could be taken to a term of an understanding or arrangement (see also the definition of “provision”, at [14] above).  But in the present case there was nothing artificial or commercially unrealistic about the non-competition clauses insofar as they were intended to prevent NPP from supplying services to (as well as acquiring goods from) customers of Visy.

120               In inquiring whether the giving effect to a provision would constitute a contravention of s 47, it is necessary to bear in mind the broad definition of “give effect to” in s 4(1).  The definition includes doing an act in pursuance of or in accordance with the provision or purporting to enforce the provision.  If a provision restricts a seller of goods from supplying services to the buyer’s customers (conduct caught by s 47(4)), the buyer acts in accordance with the provision by refusing to permit the seller to supply those services.  This is so even though the provision also prevents the seller acquiring goods from the buyer’s customers (something not within s 47(4)).

121               Again, it may be appropriate to apply a test of commercial reality in order to decide whether giving effect to a particular provision would constitute a contravention of s 47.  For example, the evidence may make it clear that a non-competition clause, in practice, would never be invoked by a buyer of goods to prevent the seller supplying services to customers of the buyer.  Although it is unnecessary to express a final opinion, a court might well conclude that “giving effect” to that clause, having regard to the commercial realities, would not contravene s 47.  The question does not arise in the present case because there is nothing commercially unrealistic about the notion that Visy would invoke the non-competition clause to prevent NPP supplying service to Visy’s customers.

122               It seems to me to follow from what I have said that Mr McClintock’s suggested narrow construction of the expression “giving effect to” in s 45(6) should be rejected.  He invited me to hold that “giving effect to” any one of the non-competition clauses (assuming it formed part of a contract) would not contravene s 47(4) because the clause merely obliged NPP not to collect waste paper from Visy’s customers.  The clause said nothing, so he contended, about Visy acquiring or offering to acquire goods or services from NPP.  Thus giving effect to the non-competition clause would not satisfy one of the elements of the practice of “exclusive dealing”, as defined in s 47(4).

123               This construction of s 45(6) would render the provision largely, if not completely, ineffective.  An exclusionary provision, read in isolation from the contract, arrangement or understanding of which it forms part, will rarely (if ever) address all elements of the practice of exclusive dealing as defined in each sub-section of s 47.  In order to determine whether “giving effect to” an exclusionary provision would contravene s 47, it is necessary to take into account the terms of the contract, arrangement or understanding of which the provision forms part.  Had Visy and NPP entered into an ECA containing a non-competition clause, NPP’s agreement not to collect waste products from Visy’s customers (cl 3.2(b)) would have been inextricably linked with Visy’s obligation to acquire goods or services from NPP under the exclusive arrangements provided for in the ECA (cll 3.1(a), 5.1, 6.2(a)).  In other words, the contract of which the non-competition clause formed part made it clear that the quid pro quo for the restraint imposed by that clause in NPP was Visy’s promise to acquire goods or services from NPP.  “Giving effect to” an exclusionary provision such as the non-competition clause in the ECAs encompasses acting in accordance with the clause and with any contractual provision constituting the quid pro quo for that clause.  This conclusion is consistent with the assumption in the second part of s 45(6) (see at [102] above) that a provision of a contract can be given effect by engaging in conduct that contravenes s 47.

124               I should add that I do not accept the ACCC’s contention, which was not developed, that s 47(4) was not satisfied in this case because none of the various draft agreements contained an offer to acquire NPP’s waste paper.  I doubt that this is the correct characterisation of the relevant provision of the ECAs or the Supply Agreements.  But in any event, the issue is not the technical construction of the draft agreements, but whether “giving effect to” the exclusionary provision would contravene s 47(4).  As I have explained, that question directs attention to conduct engaged in by the parties.  That conduct can include the acquisition of goods or services if that conduct is in accordance with the term constituting the quid pro quo for the exclusionary provision.

125               It also follows from what I have said that I would not read the expression “by reason that” in s 45(6) as meaning “if and insofar as”, if the consequence is that a single exclusionary provision in a contract is subjected to the regime in s 47 only to the extent that the provision authorises or contemplates conduct included in the definition of the “practice of exclusive dealing” in s 47.  I appreciate that Hely J said in South Sydney v News, at 135, that “‘by reason that’ has a meaning equivalent to ‘if and insofar as’”.  But his Honour was not concerned with the issue that has arisen in this case.  Indeed, he expressly acknowledged (at 136) that:

“[i]t may be sufficient to attract s 45(6) if, viewed from one perspective (although not necessarily from all perspectives), that conduct [that is, giving effect to a term limiting a rugby league competition to fourteen teams] would be within s 47”.

His Honour declined to express a view on that issue in the absence of full argument.

126               In my opinion, to read the phrase “by reason that” in the manner suggested by the ACCC results in too narrow a construction of s 45(6).  Had Parliament intended the phrase to be read in this way, it would have been simple to say so.  After all, as Mr Sher pointed out, both ss 45(5) and 45(7) use the very words “in so far as”.  Yet these words are missing from s 45(6).

127               The view that I have expressed seems to me to be consistent with the legislative history of s 45(6).  The Explanatory Memorandum to the 1986 Act, to which I have referred (at [108] above), suggests that the intent of s 45(6) is to prevent the prohibition imposed by s 45(2) on exclusionary provisions from applying to arrangements which come within s 47.  The intended consequence is that, with the exception of third line forcing, arrangements within s 47 contravene the TP Act only if they have the purpose or effect of substantially lessening competition (s 47(10)). 

128               The conclusion I have reached is also consistent with the principle of statutory construction that

“if the language of the Act after the ordinary rules of construction have been applied remains ambiguous or doubtful, it is appropriate to remove or resolve that ambiguity or doubt in favour of a [respondent], at least, where the proceedings are for a penalty”:

TPC v TNT Management Pty Ltd, at 48, per Franki J.  It is true that the rule is “one of last resort” (Beckwith v The Queen (1976) 135 CLR 569, at 576, per Gibbs J) and that it cannot be used to contradict a result Parliament intended: Waugh v Kippen (1986) 160 CLR 156, at 164-165.  There is, nonetheless, room for its operation in the present case.  The text of s 45(6) is ambiguous.  There is no clearly discernible statutory purpose that suggests that s 45(6) should be given the narrow construction for which the ACCC contends.  The broader construction leads to the conclusion that conduct that otherwise would contravene the TP Act regardless of its effect on competition will do so only if it is shown that the conduct has the purpose or effect of substantially lessening competition.

CONCLUSION ON THE APPLICATION OF section 45(6)

129               For the reasons I have given, s 45(6) of the TP Act applies in the circumstances of the present case.  Had any of the draft agreements reached the stage of a contract, arrangement or understanding, the effect of s 45(6) was to remove the making of that contract, arrangement or understanding from the prohibition in s 45(2)(a)(i) of the TP Act.  Thus none of the respondents can be found to have attempted either to contravene s 45(2)(a)(i) or to induce NPP to contravene s 45(2)(a)(i).  The ACCC’s claims must therefore fail.

130               In view of the conclusion I have reached as to the application of s 45(6) of the TP Act to the present case, it is not strictly necessary to consider whether, independently of s 45(6), the ACCC has established that Visy attempted to contravene s 45(2)(a)(i) of the TP Act.  Nonetheless, in case the matter goes further, I shall address that question.

131               The definition of exclusionary provision in s 4D(1) has two limbs.  The first requires, in the case of a provision of a contract, that the contract be made between persons, any two of whom are competitive with each other.  In this case, of course, the persons said by the ACCC to be competitive with each other are NPP and Visy.  Section s 4D(2) specifies that persons are deemed to be competitive with each other if and only if the first person:

“is, or is likely to be, or, but for the provision of [the] contract…would be or would be likely to be in competition with the other person…in relation to the supply or acquisition of all or any of the goods or services to which the relevant provision of the contract…relates”.

132               The ACCC identified the relevant market in respect of which NPP and Visy were competitive as the market in the Sydney metropolitan area for the acquisition of waste paper and for the supply of waste paper removal services.  The respondents did not quarrel with that characterisation of the relevant market.  Nor did they dispute that, if NPP and Visy were competitive with each other in that market, they were in competition in relation to the supply or acquisition of the goods or services to which the exclusionary provisions (the non-competition clauses of the various draft agreements) related.

133               Although no reference was made in argument to the question, it seems that the relevant time for determining whether persons are competitive is the time at which the contract, arrangement or understanding between them is entered into.  This follows from the language of s 4D(1)(a): see also Dowling v Dalgety Australia (1992) 34 FCR 109, at 134; Stokely-Van Camp Inc v New Generation Beverages Pty Ltd (1998) 44 NSWLR 607, at 615-616, per Young J.  In the context of the present case, where no relevant contract, arrangement or understanding was ever entered into between Visy and NPP, the times at which the question of competitiveness must be assessed are the times at which the draft agreements containing non-competition clauses were proffered by Visy to NPP.  It was at these times that NPP was invited to enter into a contract containing (on the ACCC’s case) an exclusionary provision.  Had NPP accepted the invitation, a contract containing an exclusionary provision (assuming the other requirements of s 4D to have been satisfied) would have been in place.

134               The respondents, although placing most reliance on the mens rea argument, also contended that NPP and Visy were not in fact competitive or likely to be competitive with each other in the market identified by the ACCC.  Mr Sher relied on what he said was the fact that Mr Lurie of NPP had always accepted that the 1995 Agreement prevented NPP from “poaching” Visy’s customers.  Mr Sher also pointed to the negotiations between the parties in the course of which Visy assisted NPP to relocate to new premises.  He characterised this behaviour as inconsistent with a competitive relationship between the parties.

135               In my opinion, the evidence falls well short of showing that Mr Lurie regarded the 1995 Agreement as precluding NPP from acquiring waste paper from or supply waste paper collection services to Visy’s customers.  After all, the 1995 Agreement said no such thing.  Mr Lurie’s uncontradicted evidence shows that he rejected the proposed non-competition clause in the ECAs.  More importantly, his letter of 18 April 1997 attributed NPP’s unwillingness to solicit materials from Visy’s customers after March 1996 to the fact that it was “waiting for this contract [with Visy] to materialise”.

136               It is true that at various times in the negotiations between Visy and NPP each party seems to have accepted that it was not to approach particular customers without the consent of the other.  NPP, for example, withdrew from dealings with Co-operative in early 1996 at Visy’s request.  In April 1996, Mr Gerard of Visy asked NPP to confirm that it would not buy material from Cleanaway and on-sell to Visy.  NPP’s dealings with Aspex were discussed between Mr Lurie and Mr Guthridge in July 1996.  The most likely explanation for these and similar discussions is that the parties were attempting to negotiate fresh binding arrangements and NPP was prepared to accommodate Visy’s obvious concern that NPP should not approach its (Visy’s) customers. 

137               It is also true that there was a degree of co-operation between Visy and NPP, at least for a period of time.  But this co-operation, for example in relation to NPP relocating premises and being provided with equipment by Visy, occurred in the context of negotiations between the parties for a fresh contract.  Co-operation of this kind is by no means inconsistent with Visy and NPP having been in competition in a particular market.  A fortiori co-operation of this kind is not inconsistent with concluding that it was likely that the parties would have been in competition but for the proposed non-competition clause.

138               The evidence overwhelmingly suggests that, after the breakdown in negotiations between Visy and NPP in February 1997, NPP vigorously endeavoured to obtain supplies of waste paper from Visy’s customers. As Mr Richards explained in his evidence, NPP’s strategy, in the absence of a fresh agreement, was to exploit the terms of the 1995 Agreement by maximising the quantity of waste products it would force Visy to accept.  It is clear, too, that Visy viewed NPP’s efforts as a threat to its own business activities, as shown by a series of communications, internal and external in April 1997.  It is difficult to see how, on the objective evidence, any conclusion is open other than that NPP was competitive with Visy in the relevant market between February and April 1997.

139               It may not be correct to say that during the whole of the period from March 1996 to February 1997 NPP was actually competitive with Visy.  During this period NPP had more or less suspended its attempts to obtain waste paper from Visy’s customers.  It had adopted that course because Mr Lurie and Mr Xu expected, or at least hoped, that a satisfactory agreement with Visy could be finalised.  That agreement, if concluded, would have replaced the 1995 Agreement.  But once the hope or expectation of a fresh agreement was dashed in February 1997, NPP resumed its approaches to Visy’s customers.

140               Visy proffered the ECAs to NPP at various times between October 1996 and January 1997.  The position during this period was that NPP would have resumed its competitive activities, had Mr Lurie formed the view that the negotiations with Visy had broken down.  On the hypothesis that NPP and Visy reached final agreement on the terms of one or other of the ECAs, it is likely that NPP would have been competitive with Visy but for the exclusionary provision (the non-competition clause) continued in the hypothetical contract.

146               It will be recalled that the respondents submitted that they were entitled to succeed because the ACCC had not established the mens rea required for an attempt to contravene s 45(2)(a)(i) of the TP Act.  In particular, they submitted that the ACCC had failed to establish, to the required standard of proof, that Visy (through Mr Guthridge and Mr Richards) was aware that NPP was in lawful competition with Visy at the relevant times.  The factual foundation of the respondent’s contention was that the ACCC had not disproved the claims by Mr Guthridge and Mr Richards that they each believed that the 1995 Agreement prevented NPP from “poaching” Visy’s customers.  According to Mr Sher, it was not to the point that the 1995 Agreement may not have actually precluded NPP from dealing with Visy’s customers.  There could be no attempt to contravene s 45(2)(a)(i) unless Visy had been aware not merely that NPP was actually competing for Visy’s customers but that NPP was lawfully entitled to do so.

147               Mr Guthridge stated in his affidavit that at all times during negotiations with NPP he believed

“that the spirit and intent of the 1995 Agreement was that NPP was Visy’s agent, and was not entitled to compete with Visy for the acquisition of waste paper which NPP would in turn supply to Visy” (Emphasis added.)

Mr Richards, for his part, claimed that he understood that the 1995 Agreement prevented NPP from acquiring waste paper from Visy’s customers in order to supply Visy.

148               I must confess that I regard these claims as surprising.  The 1995 Agreement, as Mr Richards acknowledged in his evidence, did not contain any express term prohibiting NPP from collecting waste paper from Visy’s customers.  Mr Guthridge and Mr Richards had access to legal advice and, I infer, would have received advice concerning the scope and meaning of the 1995 Agreement.  Neither of them referred to legal advice as the basis for their state of mind.  Rather, their evidence was couched in terms of the “spirit and intention” of the 1995 Agreement.  It is curious that it was not until 28 April 1997 that Visy asserted in writing that NPP had breached an implied term of the 1995 Agreement by approaching Visy’s customers (although there had been somewhat vague references in earlier correspondence to NPP acting contrary to the “intention of our agreement”).  My scepticism is compounded by the failure of Visy to call Mr Kaye as a witness.

149               Nonetheless, the fact remains, as Mr Sher pointed out, that neither Mr Guthridge nor Mr Richards was directly challenged in cross-examination as to their beliefs concerning the 1995 Agreement.  In the absence of such a challenge, I cannot be satisfied to the requisite standard (see Australian Competition & Consumer Commission v Amcor Printing Papers Group Ltd (2000) 169 ALR 344, at 360-361) that their claims should be rejected.  Accordingly, I find that both Mr Guthridge and Mr Richards believed at all times that there were substantial grounds for Visy contending that the 1995 Agreement did not permit NPP to collect waste paper from Visy’s customers.  I have framed the finding in this way because Mr Guthridge, in his affidavit, acknowledged that there were “ambiguities” in the 1995 Agreement which (as he perceived matters) Mr Lurie was trying to exploit “contrary to the original intention and spirit of the 1995 Agreement”.  Mr Richards knew that the 1995 Agreement contained no express non-competition clause.  He also acknowledged in his evidence that the point of the non-competition clause was to stop NPP collecting waste from Visy’s customers.  I infer that he, like Mr Guthridge, appreciated at the least that there were “ambiguities” in the 1995 Agreement.

150               It is generally accepted that the common law offence of attempt requires proof of mens rea: Georgianni v The Queen (1985) 156 CLR 473, at 506, per Wilson, Deane and Dawson JJ; Knight v The Queen (1992) 175 CLR 495, at 501.  This is so even where the attempt is to commit an offence of strict liability: B Fisse, Howard’s Criminal Law (5^th ed, 1990), at 390-391; P Gillies, Criminal Law (3^rd ed, 1993), at 658-659.  The consequence is that an attempt to commit an offence of strict liability requires a more blameworthy state of mind than the completed offence.

151               In TPC v Tubemakers, Toohey J applied the common law principles to the case of an attempt to contravene s 45(2) of the TP Act.  His Honour said (at 737) that counsel for the respondents had correctly conceded that the prohibitions in s 45(2) are absolute and not dependent on establishing mens rea on the part of the alleged offender.  (This observation may, perhaps, require modification to the extent that s 45(2), read with s 4D(1), incorporates a subjective purpose to prevent or limit the supply of goods or services to, or the acquisition of goods or services from, particular persons or classes of persons.)  His Honour also said this (at 737, 743):

“In ordinary parlance, to say that a person has attempted to do something means that he has acted with the purpose of bringing about that which he is said to have attempted.  Questions may arise as to what precisely must be proved to establish attempt to commit an offence, but the principle that proof of intent is necessary is well established: R v Mohan [1975] 2 All ER 193.

…

I accept, as already indicated, that there was no attempt to contravene s 45 unless those involved had the relevant intention, that is that they acted with the purpose of brining about a result – in this case an arrangement or understanding that had the purpose or would have or be likely to have the effect of substantially lessening competition.”

152               In my view, it follows from TPC v Tubemakers that an attempt to contravene s 45(2)(a)(i) of the TP Act requires proof that those involved intended to bring about a particular result, namely, in the present case, a contract containing a provision having the purpose specified in s 4D(1)(b)(i).  In my opinion, the ACCC has discharged that burden.  Both Mr Guthridge and Mr Richards fully understood and intended that a non-competition clause, if incorporated into a contract with NPP, would prevent NPP from acquiring waste paper from Visy’s customers.  Despite the views held by Mr Guthridge and Mr Richards concerning the intention of the 1995 Agreement, neither was prepared to rely simply on enforcement of that agreement as the means of preventing NPP dealing with Visy’s customers. 

153               It perhaps also follows from TPC v Tubemakers that proof is required that those involved intended to bring about a contract between persons whom they knew were actually competing or likely to be competing with each other (s 4D(1)(a)).  If that is so, I think that the ACCC has also discharged this burden.  At the time the Supply Agreements were presented to NPP, Mr Guthridge and Mr Richards were well aware that NPP was attempting to secure waste paper from Visy’s customers.  They wanted NPP to enter into a Supply Agreement containing a non-competition clause in order to terminate NPP’s competitive activities.  At the time the ECAs were presented to NPP, both Mr Guthridge and Mr Richards were aware that NPP had previously attempted to obtain waste products from Visy’s customers.  I infer that they knew that, unless NPP entered into a contract containing a non-competition clause, it was likely that NPP would resume its attempts to deal with Visy’s customers.

154               In my opinion, however, it does not follow from TPC v Tubemakers that there can be no attempt to contravene s 45(2)(a)(i) if the persons involved believed that one party to the proposed contract was already subject to a contractual restraint curtailing its freedom to compete with the other party.  The respondents’ argument assumed that the expression “persons [who] are competitive with each other” in s 4D(1)(a) incorporates a requirement that the competitive activities not be in breach of any prior contractual restraint.  Mr Sher did not explain why this should be so.  Nor did he point to any authority supporting the contention, beyond an assertion that leading cases such as Queensland Wire Industries Pty Ltd v The Broken Hill Proprietary Company Ltd (1989) 167 CLR 177, do not suggest that it is the purpose of Part IV of the TP Act to advance competition which manifests itself in criminal or civil wrongs.  Mr Sher did not point to any specific observations in any of the cases supporting the proposition for which he contended.

155               In the absence of authority supporting the respondents’ contention, I find it difficult to see why a gloss should be placed on the language of s 4D(1)(a) to prevent it applying where competition is in breach of a prior contractual restraint.  It is quite possible for two people actually to compete in a given market notwithstanding that, by doing so, one of them contravenes, or arguably contravenes, a prior contractual restraint.  The fact that the competitive conduct is or might be in breach of contract does not alter the fact of the competitive conduct.  Nor does it alter the fact that the competitive conduct may work to the benefit of consumers.  In the present case, for example, NPP competed for a time with Visy in the market for the acquisition of waste paper in the Sydney metropolitan area.  It competed, so the evidence shows, by offering higher prices for waste paper, thereby benefiting or potentially benefiting suppliers who had hitherto been Visy’s customers.  Presumably, the customers would have been disadvantaged if NPP had been persuaded to enter a contract with Visy containing a non-competition clause, thereby bringing the competitive conduct to a halt.  It is not easy to see why Visy’s conduct should be regarded as outside the scope of Part IV simply because the relevant decision-makers believed that there were substantial grounds for Visy to contend that the 1995 Agreement prevented NPP poaching Visy’s customers.

156               A prior contractual restraint might have evidentiary significance in determining whether the requirements of s 4D of the TP Act have been satisfied.  For example, A might propose that B enter a contract containing a non-competition clause.  The proposed non-competition clause might simply duplicate an existing contractual restraint on B’s entitlement to acquire goods from A’s customers.  The evidence might show that B had always accepted that the prior restraint was binding and did not intend to challenge its validity or scope.  In those circumstances, it might be difficult to say that B was competitive with A at the time the latter proposed the non-competition clause.  It might also be difficult to conclude that A had the purpose required by s 4D(1)(b)(i).

157               In the present case, it is clear that Mr Guthridge and Mr Richards did not see the proposed non-competition clauses as merely a superfluous reiteration of an existing contractual restraint.  They saw the proposed clauses as the means by which NPP’s irksome competitive activities would be brought to an end.  The finding that Mr Guthridge and Mr Richards believed that the 1995 Agreement probably prevented NPP poaching Visy’s customers is, in my opinion, not to the point.  Visy had the intention necessary to constitute an attempt to contravene s 45(2)(a)(i) of the TP Act.

158               So far as Visy is concerned, the final contention advanced by Mr Sher was that all the draft agreements were subject to a condition that final approval was to be given by the lawyers.  The imposition of that condition, so it was argued, rendered the proffering of the draft agreements to NPP too remote from the making of a contract to constitute an attempt to make a contract containing an exclusionary provision.

159               The principles governing the actus reus necessary to constitute an attempt were stated, in the context of an alleged attempt to contravene s 45(2)(a)(ii) of the TP Act, in Trade Practices Commission v Parkfield Operations Pty Ltd (1985) 7 FCR 534, at 538-539:

“We agree that an attempt must involve the taking of a step towards the commission of the illegal act and that it is not sufficient that it be merely remotely connected or preparatory to the commission of it.  See Haughton v Smith [1975] AC 476 at 492 and Trade Practices Commission v Tubemakers of Australia (1983) 5 TPR 321 at 339; 47 ALR 719 at 736 where Toohey J referred to the following statement in Archbold’s Pleading Evidence and Practice (36^th ed), par 414:

            ‘…the actus reus necessary to constitute an attempt is complete if the prisoner does an act which is a step towards the commission of the specific crime, which is immediately and not merely remotely connected with the commission of it, and the doing of which cannot be regarded as having any other purpose than the commission of the specific crime.’

See also Director of Public Prosecutions v Stonehouse [1978] AC 55 at 68.”

160               The Court in TPC v Parkfield was concerned with the effect of conversations between two petrol retailers, in the course of which one sought to ascertain the other’s attitude to raising petrol prices.  The Court held that the conversations were sufficient to constitute attempts to contravene s 45(2), notwithstanding that the price fixing proposal had not reached an advanced stage.  The Court said this (at 539):

            “The learned trial judge was also of the view that for an attempt to be within s 76(1)(b) of the Act it must be at a reasonably advanced stage of carrying out that which is charged as being attempted.  He thought that in the present case Mr Chapman did not, for himself or Parkfield, attempt to enter into an arrangement with Sykes because even if he had secured Sykes’ agreement, there still remained much to be done and it may well have been the case that the proposal put to Sykes may have been impossible of achievement.  We do not think that there is any warrant for holding that an attempt must have reached an advanced stage before it comes within the purview of s 76(1)(b).

161               In my opinion, Visy had plainly gone beyond mere preparatory acts or acts only remotely connected to the commission of the illegal act.  Visy had proffered six separate draft agreements to NPP.  On each occasion, the draft contained a non-competition clause drafted on behalf of Visy.  The draft in each case was capable of being accepted by NPP, if it had been minded to do so.  If NPP had entered into an agreement in the terms offered, it would have made a contract containing an exclusionary provision.

162               This conclusion is not affected by Mr Guthridge’s evidence that during 1996 and early 1997 he said to Mr Lurie on several occasions that he could take negotiations on the ECAs only so far and that any final agreement would need “sign off from Visy’s lawyers”.  I am not prepared to reject Mr Guthridge’s evidence on this point, despite some reservations about it.  But it must be remembered that the ECAs had been developed with the assistance of Visy’s lawyers.  I infer, in the absence of evidence to the contrary (bearing in mind Mr Kaye’s unexplained absence from the witness box) that the lawyers had seen and, at the least, not objected to the non-competition clause in the ECAs.  There is no basis for concluding that, even if the lawyers had to “sign off”, the lawyers would have raised any objection to the non-competition clause.  Mr Sher did not suggest otherwise.

163               The position, if anything, is even clearer in relation to the Supply Agreements.  Mr Guthridge did not say that the drafts were supplied to NPP on the basis that they were subject to clearance by Visy’s lawyers.  This omission is not surprising, at least in relation to the letter of 28 April 1997.  That letter, which purported to terminate the 1995 Agreement, was sent after Visy had obtained legal advice.  Mr Richards agreed that the letter was a “take it or leave it” document.  It is plain that the sending by Visy of each Supply Agreement to NPP, with an implied invitation to NPP to accept its terms, was a sufficient step towards the commission of an illegal act as to constitute an attempt by Visy to contravene s 45(2)(a)(i) of the TP Act.

164               The ACCC’s case against Mr Guthridge and Mr Richards was that they had attempted to induce NPP to enter into contracts containing exclusionary provisions.  Where an attempt to induce is alleged, there must be an intention to bring about the prohibited result: Trade Practices Commission v Mobil Oil Australia Ltd (1984) 3 FCR 168, at 183, per Toohey J.  The concept of an attempt to induce a contravention of the TP Act was further explained by the Full Court in TPC v Parkfield, at 539-540:

“Finally, his Honour thought that there could be no attempt to induce XL to make an arrangement of the kind alleged if there was no arrangement which was in place or could readily be effected.  He thought that the evidence established no more than that there was an invitation ‘to start to see if an arrangement can be made’.  We do not think that it was necessary for any arrangement to be in place, or readily able to be effected, with the other retailers.  It was sufficient that the respondents sought to persuade XL to enter into an arrangement to increase prices.  As was said in Yorke v Lucas (1983) 49 ALR 672 at 681 (affirmed by the High Court, (1985) [158 CLR 661]:

            ‘Inducing a contravention in the context of s 75B(b) connotes, in our view, some act of compulsion by force or threat of force or some act of persuasion or stimulation aimed at ensuring that an act is committed which constitutes a contravention.  The word ‘incite’ is akin to ‘induce’, though induce probably covers a wider field.’”

165               In my view, the evidence clearly establishes that Mr Guthridge and Mr Richards attempted to persuade NPP to enter into the Supply Agreements knowing that the agreements contained the non-competition clauses.  They each intended that NPP should execute the agreements.  They each knew and intended that the non-competition clauses would prevent NPP collecting waste products from Visy’s customers.  Both Supply Agreements were put to NPP with an invitation, express or implied, to accept their terms.  In the case of the Second Supply Agreement, the document was put to NPP on a “take it or leave it” basis.  As Mr Richards acknowledged, he was not inviting NPP to negotiate about the terms of the draft.  The price of non-acceptance was to be termination of the NPP’s business relationship with Visy.

166               The position in relation to the ECAs is, perhaps, less clearcut.  Nonetheless, had it been necessary to do so, I would have concluded that Mr Guthridge and Mr Richards endeavoured to persuade NPP to enter into agreements containing the non-competition clauses.  They therefore attempted to induce NPP to contravene s 45(2)(a)(i) of the TP Act.

167               The respondents have established that s 45(6) of the TP Act applies to the circumstances of the present case.  The effect is that the making of a contract between Visy and NPP containing a non-competition clause would not have constituted a contravention by Visy of s 45(2)(a)(i) of the TP Act.  Accordingly, the ACCC has failed to make out its case that Visy attempted to contravene, or attempted to induce NPP to contravene, s 45(2)(a)(i) of the TP Act.  The ACCC has also failed to make out its case that Mr Guthridge and Mr Richards attempted to induce NPP to contravene s 45(2)(a)(i) of the TP Act.

168               It follows that the application must be dismissed.  The ACCC must pay the respondents’ costs.

Associate:

Dated:              20 November 2000