Does the term "another person' in s 47(6) mean another specified person, or any other person?
63 The Commission submits that the contention by the respondents that the imposed condition of s 47(6) is necessarily concerned with acquisition by the customer of goods or services from a specified third party is incorrect.
64 Section 47(6) is part of s 47, which concerns exclusive dealing. Consistent with the concept of exclusivity is the notion of limitation, or the shutting out of persons or objects of the class (see Macquarie Dictionary). This is borne out by the drafting of the other subsections of s 47 which refer, for example, to 'a competitor of the corporation' and 'particular persons or classes of persons'. Section 47(6) does not specify a 'particular person' or a 'particular class of persons' but it does refer to 'another person' and not to 'any other person' which is used, for example in s 46(7) of the Act, where the reference is clearly not to a specified person or persons. If the Legislature had intended "another person" to mean "any person" it would have been a simple matter so to specify.
65 There is no requirement for a contravention of s 47(6) that there be the effect of substantially lessening competition (s 47(10)). Unlike other subsections of s 47 of the Act, the proscription of third line forcing conduct operates per se, without reference to any test relating to competition. Therefore, the third person does not need to be in the same market as the corporation, or be a competitor of the corporation. If the third person is in fact more than one person, these persons do not need to be in the same markets or competitors of each other. The effect on competition in any market of the condition to acquire goods or services from "another person" does not need to be assessed for conduct which otherwise satisfies the requirements in s 47(6).
66 Section 47(6) deals with third line forcing: the forcing of a customer into acquiring particular goods or services from another as a condition for obtaining, in this case, call credits from the Telco. The question is whether the s47(6) is directed to prohibiting the forcing of the customer to acquire goods or services that are not otherwise wanted, or to forcing the customer to acquire goods or services from a nominated source as a condition for obtaining the call credits, or both. If the subsection were only directed to the goods or services, the reference to the source of the goods would be unnecessary. This indicates that the prohibition of exclusive dealing in s 47(6) is directed both to the goods and services and to the source, both to the goods or services of a particular kind or description and to the identity of the particular 'another person' or persons from whom the goods or services are to be obtained, directly or indirectly.
67 Put another way, s 47(6) may either be directed at conditions which favour the supplier whose goods or services are forced on the customer over other suppliers of those goods or services, or to a restriction of the customer's choice of the supplier from whom he or she acquires the other goods or services. If "another person" were read to mean, for example, any leasing company, neither of these objects would be fulfilled or addressed. There is no relevant forcing where the identity of the third person can be any provider of finance of the customer's choosing.
68 In Heydon J D, Trade Practices Law: Restrictive Trade Practices, Deceptive Conduct and Consumer Protection (Lawbook Co., subscription service) at [6.342] (update 127), Heydon J comments that third line forcing 'is only likely to occur where there is some agreement between the manufacturer enforcing it and the manufacturer who benefits from it'. This requires an identified third party, not anyone at large. His Honour observes that any such agreement which affects competition will be caught by s 45 of the Act, thereby rendering s 47(6) superfluous. As noted above, however, s 47(6) does not require that the third line forcing affects competition in any market. In any case, that does not affect the meaning of "another person".
69 The legislative history demonstrates that Parliament's concern in s 47(6) and s 47(7) was with anti-competitive conduct. In Australian Competition and Consumer Commission v Bill Express Ltd (in liq) (2009) 180 FCR 105 at [52]-[56], Gordon J summarised the history of s 47(6) and amendments that have been made to it, referring in particular to the fact that there has been no amendment to import the substantial lessening of competition test into third line forcing, despite repeated consideration and recommendations to the contrary. The Commission contends that this supports its submission, as considered in Heydon's Trade Practices Law, that s 47(6) should not be presumed to be concerned with competition, but may be concerned to protect interests other than or additional to competition. Even if the imposed condition is that goods or services be acquired from other persons who are themselves in sufficient competition such that the condition does not have the effect of substantially lessening competition, this does not preclude a contravention of s 47(6).
70 However, the fact a substantial lessening of competition test was not imported into s 47(6) does not positively support a construction of s 47(6) that includes conduct which is unlikely to affect competition at all. The fact that the competition test does not apply does not mean that the scope and effect of s 47(6) has nothing to do with competition. That subsection is part of s 47 and is in Part IV of the Act which covers restrictive trade practices. Section 47(1) provides that subject to the section, a corporation shall not engage in exclusive dealing (emphasis added). Section 47(6) deals with an example of exclusive dealing, namely third line forcing. Third line forcing has been the subject of a per se prohibition since the enactment of s 47. The absence of a competition test may simply mean that a contravention of the section per se was considered sufficiently detrimental to competition, in most cases, such that it was felt unnecessary or inappropriate to require that it also be proved substantially to lessen competition. As was said by Drummond J in Australian Competition and Consumer Commission v IMB Group Pty Ltd (in liq) [2002] FCA 402at [56], the prohibition in s 47(6) can be justified if it is reserved for conduct that is so likely to damage competition that it is prohibited absolutely; it was justified on this basis by the Swanson Committee in its review of the Act in 1976. Justices Gummow, Hayne and Heydon observed in Rural Press Ltd v Australian Competition and Consumer Commission (2003) 216 CLR 53 at [82] that the practice of exclusive dealing within s 47(6) was seen by Parliament as so generally offensive to the competition goals underlying the Act that it is to be considered without application of any purpose or effect of substantially lessening competition in a market.
71 The absence of a lessening of competition clause in s 47(6) does not mean that a discussion by a Judge of the effect on competition is in error, or that it necessarily leads to a rejection of a construction drawn in the context that s 47 reveals a general purpose of proscribing practices which tend to lessen competition. As recognised in Project Blue Sky (at [71] and [78]), interpretation must be informed by the purpose of the Act which may require a departure from the ordinary literal meaning of the words. The legislative history demonstrates that Parliament's concern in ss 47(6) and 47(7) was with anti-competitive conduct (IMB at [56]-[58] per Drummond J). Third line forcing has been seen to have anti-competitive effects insofar as it involves in effect a firm with market power renting it to another so as to extend or leverage the impact of its market power to a new market (Trade Practices Law at[6.342]-[6.344]).
72 In explaining s 47 of the Trade Practices Act 1974 (Cth), in the Second Reading Speech, the Attorney-General referred to the limitation on the freedom of the person to deal as regards persons or places. He also explained that it provides for exclusive dealing in which a third person is involved, for which the requirement of substantially lessening competition in the market does not apply. He cited, as an example of conduct that is covered, the situation where the supplier obtains a commission or other benefit on sales by the third person to the customer. This suggests a particular third person with whom the supplier had such an arrangement.
73 The words in s 47(6) are "another person" and not for example, "another particular person" or "another specified person". Historically, amendments were made to the statutory provision affecting third line forcing, from describing the third party as "a particular third person" in s 36(1)(b) of the Trade Practices Act 1965 to "a second person" in the Restrictive Trade Practices Act 1971-1973. There is a degree of ambiguity in that expression that is not answered by the legislative history. There is no explanation in the Explanatory Memorandum or in the second reading speech to explain the purpose behind that change. In the absence of explanation it could be said that it was to lift the restriction of the specification of "particular" or for some other perceived purpose. It could have been considered ambiguous or redundant. If it had been intended to have expanded the scope of the subsection, it might be thought that an explanation would have been provided.
74 There has been some judicial consideration of the s 47(6), some of which assists on this aspect and some of which, not being directed to this issue, is equivocal:
· Exclusive dealing involves supply upon a condition that may have been suggested by the recipient of the supply or may have been imposed by 'some third party' (Re Ku-ring-gai Co-operative Building Society (No 12) Ltd (1978) 36 FLR 134 at 167 per Deane J).
· In Legion Cabs, Franki J concluded that the forcing of acquisition from a nominated service station operated by any lessee of Shell was exclusive dealing as it constituted the forcing of acquisition from 'a second person'. Justice Franki was there considering the language of the older provision for exclusive dealing. However, Franki J made it clear at 383 to 385 that no different conclusion is reached when the language 'another person' of the new provision is applied. As Northrop J pointed out in SWB Family Credit Union Ltd v Parramatta Tourist Services Pty Ltd (1980) 32 ALR 365 at 381, the society in Legion Cabs 'imposed an obligation upon the persons to whom they supplied a service to acquire goods or services from other persons designated or approved by the society and to the exclusion of persons carrying on similar businesses to those designated or approved by the society'[emphasis added].
· The effect of the offer in SWB was: 'We offer to supply services to you if you do acquire services from another' which Smithers J distinguished from the framework of the section, being 'I offer to supply services to you on condition that you undertake to acquire services from another' (at 374). The offer in SWB could only be accepted by the offeree actually acquiring services from 'the person indicated' and not by the offeree undertaking to acquire services from another. Justice Smithers was led 'without equivocation' to the conclusion that an offer to supply services on condition that the offeree will acquire services directly or indirectly from a designated person is conduct specified in s 47(6) only where the condition is that the offeree undertakes or otherwise incurs an obligation to acquire the goods or services (at 375). Justice Northrop in SWB did not specifically consider whether "another person" could have been any non-designated third person.
· In SST,Gleeson CJ, Gummow, Hayne, Haydon and Crennan JJ considered a condition (at [10]) whereby the relevant company was to direct all work to 'the corporations the lender shall direct'. At [13] their Honours held that a corporation was engaged in the practice of exclusive dealing within s 47(6) by supplying services on the condition that the customer would acquire services 'from another person (namely, corporations nominated by the [corporation])' [emphasis added].
75 The respondents variously put the following propositions, said to be drawn from the authorities, to support the proposition that s 47(6), on its proper construction, requires that the third party be identified.
· From the text of the subsection, the source of the goods or services which must be acquired must be specified, or the words 'from another person' are otiose(Trade Practices Commission v Tepeda Pty Ltd (t/a Metro Motor Market) (1994) ATPR 41-319 at 42,246-42,247 per Davies J).
· If the section was directed at the acquisition of goods or services from an unidentified random source, the words 'directly or indirectly' immediately before 'from another person' would serve no purpose, be inapt and not fit (SWB at 375 per Smithers J).
· 'The section is aimed at the prevention of arrangements promoting the acquisition of particular goods and services exclusively from a particular and designated person…' (SWB at 375 per Smithers J).
· If no third party supplier is specified, the market of the good or service which the customer is required to acquire remains competitive.
· The condition must be one that the customer will acquire goods or services directly or indirectly from a designated or specifically identified person, rather than from anybody. (SWB at 375; Williams & Hodgson Transport Pty Ltd v Castlemaine Tooheys Ltd (1985) 64 ALR 521 at 532 per Wilcox J; Tepeda at 42,246-42,247; see also Hill J's comments on SWB and Tepeda in Australian Competition and Consumer Commission v Universal Music Australia Pty Ltd (2001) 115 FCR 442 at [458]-[459] where his Honour was considering s 47(2), (3) but contrasting them with s 47(6)).
· Such a construction of s 47(6) is consistent with the apparent purpose of the section being to strike at conditions which restrict trade by depriving the customer of choice in relation to the acquisition of goods or services (relevantly, the choice to acquire the goods or services from traders other than those specified and thereby adversely affecting such traders).
· If "another person" were to refer to any other person, the section would have an improbably wide reach. For example, it would proscribe a condition that a customer acquire finance or insurance from a reputable company (Tepeda at 42,246).
76 Justice Heydon discusses the requirement that the condition concern acquisition from "another person" in Trade Practices Law at [6.410]. The conclusion of Smithers J in SWB that it means 'exclusively from a particular and designated person' does, as Heydon J points out, involve reading words into the subsection. However, his Honour notes and seems to approve the approach of Davies J in Tepeda as sensible. While Heydon J emphasises that the construction of s 47(6) must take into account that there is no requirement of any anti-competitive effects as an ingredient of liability, that does not mean, in my view, that "another person" means any person other than the person imposing the condition and other than the person on whom it is imposed. As Heydon J points out at [6.342], the undesirable practice addressed by s 47(6) is that one party 'farms out to another for a price, its coercive economic power' (citing Osborne v Sinclair Refinery Co 286 (1960) F 2d 832 at 840). It is difficult to see how this is achieved if that other person is any other, unidentified, person. Third line forcing has an anti-competitive effect insofar as it involves, in effect, a firm with market power "renting" it to another so to extend or leverage the impact of its market power to a new market (Trade Practices Laws at [6.342]-[6.344]). Justice Heydon does indicate a preference for the construction that the third party should be no particular supplier or group of suppliers but merely some other person but, as the commentary then discloses, recognises that such a construction renders illegal very sensible conditions.
77 In IMB at [58], Drummond J used the expression 'third line tying' in discussing s 47(6). That suggests an identified third party. In Tepeda there was only one third party. Although obiter, Davies J expressed the opinion that:
By reference to "another person", the section has in mind a specific person, otherwise the reference would be unnecessary. The provision does not prohibit a requirement such as, e.g., that the customer will acquire finance or insurance from a reputable company. The vice with which it deals is a corporation's requirement that such goods or services shall be obtained from a specified source.
I agree, with this view. The reference to "another person" in s 47(6) of the Act does not mean any other person.