Australian Competition & Consumer Commission v Visy Paper Pty Ltd

The statutory provisions 5 By virtue of s 76(1) of the Act, a pecuniary penalty is to be imposed, inter alia, where the Court is satisfied that a person has attempted to contravene a provision of Part IV of the Act and where a person has attempted to induce a person, whether by threats or promises or otherwise, to contravene such a provision. 6 Section 45(2) of the Act provides: "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, whether the contract or arrangement was made, or the understanding was arrived at, before or after the commencement of this section, 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."

7 Section 4D(1) of the Act is concerned to define "exclusionary provision". It provides: "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 or, if a party or proposed party is a body corporate, by a body corporate that is related to the body corporate."

8 There is a definition of "provision" in s 4(1) of the Act as follows: " 'provision', in relation to an understanding, means any matter forming part of the understanding."

9 The same subsection defines "give effect to" as follows: " '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." 10 Section 45(6) provides a defence to s 45(2)(a) of the Act where the conduct constitutes (or in the case of an attempt would, if the attempt had succeeded, have constituted) the practice of exclusive dealing. The subsection provides as follows: "(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) or section 93, 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) by reason of subsection 93(7) conduct engaged in by that person on that condition is not to be taken to have the effect of substantially lessening competition within the meaning of section 47; or (iii) a notice under subsection 93(1) is in force in relation to conduct engaged in by that person on that condition."

11 What constitutes "exclusive dealing" is defined in s 47. The section describes a number of restraints. For example, ss 47(2) and (3) are concerned with restrictions on acquisitions imposed by a supplier of goods or services on a customer. Subsections (6) and (7) are concerned with the practice of third-line forcing, that is to say in general terms, the practice of a supplier supplying goods or services on condition that the customer agrees to acquire goods or services from a third person. Relevant for present purposes is the practice referred to in subs (4) which provides: "(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 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."

12 However, the prohibition against exclusive dealing does not apply where subs (10) applies. That subsection provides: "(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) the engaging by the corporation in that conduct, and the engaging by the corporation, or by a body corporate related to the corporation, in other conduct of the same or a similar kind, together have or are likely to have the effect of substantially lessening competition."

The background to the alleged attempts 13 As already indicated Visy requires recycled waste for use in its business of producing paper and cardboard for resale. In the Sydney metropolitan area there are two main recyclers, Visy and Amcor Ltd ("Amcor"). Hence in that area waste suitable for recycling is mainly destined for one or other of these recyclers. Some waste is, however, exported. Export has some effect on the domestic prices for waste. 14 Those involved in the industry of obtaining waste for on-sale or in the case of Visy for its own use refer to the industry as the "Waste Paper Collection industry", those who obtain waste as "collectors" and those from whom waste is obtained "customers". In our modern society waste is produced in large quantities and by a variety of paper users. Some, produce waste in large quantities. Others, such as private citizens, in relatively small quantities. According to the evidence of Mr Lurie, a director at the relevant time of NPP, which was unchallenged, the industry is unusual in a number of respects. In the hands of some, particularly those who create relatively small quantities of waste, the waste they produce will be seen as a liability in that they will have to pay to have it removed. For others, particularly those who create large quantities of waste, it is perceived to have a value in that it can be sold. So, in the first class of case "collectors" will be paid to call at the premises where the waste is generated and take it away. In the second class of case the "collectors" will enter into an agreement for the sale of waste by the person or company, who or which generates it, and will agree to pay for it, take delivery of it and take it away. There is a third class of case where "collectors" will take waste away but no money will pass on either side. Presumably this class of case will be where the person or company, who or which generates the waste, will have waste which is too large in quantity to require payment to take it away, but too small in quantity to be paid for it. Finally, local government will also be a source of waste which it might itself collect from ratepayers and cart away to a central location where it might then be acquired by collectors. 15 There were in evidence agreements of various kinds which had been entered into by Visy between 1992 and 1996. An example of the second class of case is an agreement entered into by Visy with Woolworths Limited, pursuant to which Woolworths agreed to "supply" and Visy to "purchase" waste for a consideration. Under that agreement Woolworths was to deliver the waste from some stores to Visy's premises and in respect of other stores Visy was to provide a "collection service" at no cost. An agreement with Franklins Limited provided likewise for a sale and purchase of the "whole of the Vendor's stocks of Waste Material" for a consideration determined by reference to the weight per tonne of waste. The agreement provided that Visy would collect all of the waste material for transporting to its premises and would provide and maintain bins compactors or other equipment "necessary to put the Waste Material in the form [Visy] require[d]". 16 An example of an agreement in the fourth category was an agreement with the Local Government Recycling Co-operative Ltd (the "Co-operative") which provided for the sale to Australian Paper Limited (agent for Amcor) of waste sourced at the Co-operative's Sydney recycling facility for a price per tonne delivered to Australian Paper's Botany mill. A later proposed agreement to which NPP was to be a party provided for the sale of waste to NPP at a rate per tonne quoted FOB at the Rhodes facility of the Co-operative. 17 In the latter part of 1995, Visy usually obtained the waste it needed for recycling direct from those who generated it. Generally, it charged a fee for collecting the waste. Later in the relevant period it acquired waste from contractors with whom it contracted. As a result of contractual arrangements entered into between Visy and NPP, NPP was a contractor although unlike what was normally the case with such contractors NPP acquired waste from its own customers rather than customers of Visy. 18 By agreement dated 19 September 1995 between Visy and NPP (then called Keytrip Pty Limited) which was expressed to continue for five years (the "1995 Agreement") NPP agreed to sell to Visy and Visy to buy from NPP the whole of NPP's stock of "cardboard, white paper and mixed wastepaper" described in the agreement for a price set out. The goods the subject of the agreement were to be collected by Visy from premises of NPP at Silverwater. For the purposes of the agreement NPP had acquired the machinery necessary to sort waste to remove contaminants. NPP acquired waste, generally, in two ways. First NPP used contractors to obtain waste and deliver it to Silverwater. The contractors were paid a set rate per tonne of waste. Secondly, it also used sub-contracted drivers to obtain waste from persons with whom it had contracted. We use the word "obtain" in an attempt to use a word which may not have connotations which favour either Visy or the ACCC. His Honour found that NPP did not, itself, provide rubbish collection services directly to individual customers. 19 In May 1996, NPP closed its Silverwater premises. Thereafter it was unable to sort rubbish and remove contaminants. It provided, whether before or after the closure, no services to those who wished to have rubbish removed but acquired waste from those collectors who provided such services and from sub-contractors who operated as before. Waste so acquired was delivered by NPP to Visy under the 1995 Agreement. NPP ceased to operate in April 1997.

The Dispute between Visy and NPP between January 1996 and October 1996 20 Relations between Visy and NPP started to sour in January 1996 when NPP offered to purchase waste from the Co-operative, which had at least at some time sold its waste direct to Visy. Visy saw this as contrary to the spirit of the 1995 Agreement which Visy asserted did not contemplate NPP purchasing from a Visy customer and then on-selling waste to Visy at a profit. Ultimately, the Co-operative agreed to sell its waste directly to Visy. 21 Around the same time a dispute arose between Visy and NPP concerning the prices to be paid by Visy for various categories of waste supplied. It was claimed by Visy that NPP had failed to deliver high quality white waste paper as it was obliged to do under the 1995 Agreement. The dispute subsequently became the subject of litigation which was ultimately settled. The dispute led to negotiations between Visy and NPP on a proposal advanced by Visy that NPP become the exclusive agent for Visy for the supply of waste and that the 1995 Agreement be terminated. However, in the meantime NPP was negotiating with companies which Visy regarded as its own suppliers of waste. One of these was Aspex Paper Australia Pty Ltd which agreed with NPP to deliver waste to NPP at its Silverwater facility. 22 The first negotiations between Visy and NPP took place around 7 May 1996 at a meeting at which Mr Guthridge and a Mr Gerard then New South Wales Sales Manager of Visy were present against the background both that the NPP lease of the Silverwater premises had either expired or was nearing its end and a proposal by Mr Guthridge that NPP should lease premises in or near Alexandria and enter a franchise agreement with Visy. Mr Guthridge offered on behalf of Visy that that company would provide NPP with a baler, computer and customer support. It was subsequently proposed by Visy that Visy enter an Exclusive Collection Agreement ("ECA") with NPP. To this end Visy prepared a draft agreement based on a document that Mr Guthridge had used in a previous employment. The first draft (it is not relied upon by the ACCC) was sent to NPP on 9 September 1996. The draft followed meetings and correspondence between the parties as to the terms of the proposed ECA. 23 A further draft was provided to NPP on 27 September 1996. It recited that Visy carried on the business of collecting waste products from its customers for the purpose of recycling them and that Visy would grant to NPP an exclusive licence to collect specified waste products in a specified area. The proposed term was five years unless terminated. The exclusive licence was to "undertake Collections and make Deliveries". There was a "Non-Competition" clause that provided, inter alia, that NPP was not to: "… 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…"

There was also a prohibition on NPP delivering or selling any waste products to any person other than Visy without prior consent. 24 Further meetings were held between the parties and further drafts prepared. By October NPP had lost an opportunity to obtain new premises near Alexandria in St Peters to use as its facility and alternative sites were being looked at by Mr Lurie and representatives of Visy.

The Draft ECAs Relied on 25 The first of the draft ECAs relied upon as constituting a breach of s 45(2)(a)(i) of the Act, if entered into, was a draft received by NPP on 16 October 1996. Although Senior Counsel for the ACCC did not seek to distinguish between the drafts, the provision of which to NPP was alleged to constitute the relevant offence, it is necessary to set out at least some of them as the terms do differ. 26 The first, which his Honour suggested may have been intended as a template for agreements with collectors of waste, provided for the grant to NPP (referred to as "the Licensed Collector") of an exclusive licence to "undertake Collections, provide Services and make Deliveries during the Term". "Collection" was defined to mean "each collection by the Licensed Collector of Specified Products in the Area". "Services" was defined to mean the "[weighing, sorting and] baling of Specified Products [collected by the Licensed Collector or] supplied by Visy to the Licensed Collector" (sic). The term proposed was five years with the right in either party to terminate on 90 days' notice or on breach without notice. NPP was obliged, inter alia, at its own expense to collect waste from sources identified or sites nominated by Visy, provide the services and deliver the waste to a nominated site or make it available for collection by Visy from NPP's premises for a consideration, referred to in the agreement as a "collection fee" calculated by reference to weight. Visy was to purchase all waste delivered by or on behalf of NPP or made available to be collected by Visy from the facility to be nominated. 27 The non-competition clause on which the ACCC relied was in the following terms: 3.2 Non-Competition 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)

28 NPP was to notify Visy when it identified an opportunity to collect waste in the Area (as defined). Visy was to use all reasonable efforts to enter into an agreement, arrangement or understanding with the person identified and NPP was not to collect waste from that person unless notified by Visy that an agreement, arrangement or understanding had been entered into or reached. 29 This draft was discussed at a meeting held on 5 December 1996 when NPP asked that the non-competition clause be removed. Mr Richards at that meeting indicated that the clause was there to protect Visy's investment in setting NPP up as its agent and allowing NPP to service Visy customers within the ECA region. The only exception was NPP's existing customers. 30 The second draft relied on was sent the day after the meeting of 5 December 1996. The non-competition clause was unaltered. This draft likewise sought to grant an exclusive license to NPP to undertake collections, provide services and make deliveries for a fee and likewise provided for the sale of products collected to Visy. For present purposes its terms are not substantially different from the first draft relied on, save that the provisions relating to new customers were amended so that NPP was entitled to negotiate arrangements with new customers in the Area without interference from Visy. Visy likewise was entitled to negotiate arrangements with new customers in the Area without interference from NPP. 31 A third draft (also relied upon) was sent on 6 January 1997 and discussed at a meeting that day. The fourth draft ECA relied upon by the ACCC was sent on 22 January 1997. For present purposes there is no relevant difference between the second, third and fourth draft ECAs.

The Supply Agreements relied on 32 Negotiations continued throughout late January and early February 1997. NPP objected to the right insisted upon by Visy to terminate the agreement on 90 days' notice. It will be recalled that at this time the 1995 Agreement still had some three years to run and was not capable of termination on notice. There were differences too between the parties in relation to prices to be paid by Visy for certain categories of waste. It seemed as if any prospect of the parties completing an agreement was at an end. NPP continued to negotiate with a number of suppliers of waste, who were or had been customers of Visy, with a view to acquiring waste. 33 On 27 March 1997 Visy sent a fax to NPP containing a "revised proposal". This fax constituted the first of what are described as "Supply Agreements". The agreement proposed was to be for a term of approximately forty-two months. During the term NPP would exclusively sell to Visy and Visy would buy from NPP the whole of NPP's stocks of certain categories of waste and deliver the waste to Visy's premises at Smithfield. No longer was the proposal drafted as involving a licence to "collect". Henceforth, the proposal was merely one for sale. There was no exclusive area. The first draft Supply Agreement contained 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]."

34 NPP refused to accept the terms of the first Supply Agreement and indicated it proposed to keep trading under the terms of the 1995 Agreement. Disputes continued between the parties as to the price paid by Visy for waste said to be contaminated when supplied. The approaches made by NPP to customers of Visy continued. Visy asserted that NPP was in breach of the 1995 Agreement in so doing. Visy alleged that NPP by its conduct had repudiated the 1995 Agreement so that Visy, by its acceptance of the repudiation, was no longer bound by it and was entitled to bring it to an end. It was against this background that a draft of a second and final supply agreement was faxed by Visy to NPP. The draft was said to constitute the terms "under which Visy would be prepared to accept deliveries from" NPP. It comprised two pages headed "Terms of Supply". It specified the price for three categories of waste and specified the maximum volume of mixed paper to be delivered to Visy. All waste was to be delivered contaminant free as determined by Visy in its discretion. Visy could terminate the agreement on seven days' notice and revise prices on a similar period of notice. Clauses 7 and 8 were as follows: 7. Non-acceptance Visy will not accept product from Northern Pacfic (sic) Paper which Visy deems is (sic) a customer of Visy. 8. Non-Competition While Northern Pacific Paper is selling waste to Visy, Northern Pacific Paper must not collect, approach or make any attempt or 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." (Emphasis added.)

35 Apart from a challenge to some factual findings made by the learned primary Judge two somewhat interrelated issues arise for decision in the appeal. The first may be said to involve a question of characterisation arising out of the various non-competition clauses. The second gives rise to a question of the construction of ss 45(6) and 47 of the Act.

36 It will be recalled that the non-competition clause of each ECA purported (if executed) to restrict NPP from collecting or endeavouring to collect waste from persons who were customers of Visy or had entered into discussions or negotiations with Visy. It is the submission of the ACCC that each of the agreements should be characterised as prohibiting NPP from acquiring goods (ie waste) from customers of Visy or those in the course of negotiating to become customers of Visy. Thus, no agreement involved the practice of exclusive dealing within s 47 and the provisions of s 45(6) did not provide a defence to the breach of s 45(2). It is the submission of Visy that each such prohibition should be characterised as a prohibition on NPP providing a service to customers of Visy, and thus fell within the definition of "exclusive dealing" in s 47 and outside s 45(2) because s 45(6) operated as a complete defence.

37 The second issue between the parties depends upon the proper construction of s 45(6) and s 47(4) of the Act. It arises only if the first issue is not answered in favour of either the ACCC or the Respondents to the appeal. The issue may be stated to be whether, if the proper characterisation of the non-competition clauses is that the prohibited conduct in each case is both the provision of a service and the acquisition of goods, s 45(6) operates to exclude that conduct completely from the ambit of s 45(2)(a) because s 47 applies once the conduct involves the provision of a service whether or not it also involves the acquisition of goods. It is submitted for the ACCC that where, as here, the prohibition extends both to the acquisition of goods and the supply of services, while s 47 applies to the prohibition to the extent that it involves the supply of services, s 47 would have no application to the extent that there is also involved the acquisition of goods.

The Judgment Appealed From 38 It was common ground between the parties both before the learned primary Judge and before us that the issues now raised for decision in the appeal were to be approached on the basis that the offences of attempt and inducement required the Court to consider whether, if Visy and NPP had in fact entered into contractual relations under each of the ECAs and the Supply Agreements, there would in each case have been a contravention of s 45(2)(a)(i) of the Act. In other words the issue was whether any contract formed between Visy and NPP, if such a contract had been formed on the basis of the drafts submitted, would have resulted in a contravention of s 45(2)(a)(i) by virtue of the fact that Visy and NPP had made a contract containing an exclusionary provision. Likewise the question whether the contract contained an exclusionary provision which would constitute a contravention of s 47 was to be answered by assuming that the parties had entered into contractual relations on the terms of the drafts submitted. 39 In a careful judgment his Honour set out the primary facts as to which there was little dispute, the statutory history of the provisions in question and their interrelationship. In the course of discussing the first of the two issues to which reference has been made his Honour said that it was in Visy's interest 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 from Visy's customers. His Honour noted that NPP had not been paid by customers to collect waste after May 1996. However, his Honour observed that that position could have changed at any time. As his Honour said: "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."

40 The finding that NPP might have reverted to the pre-May situation of being paid by customers to take waste away is challenged by the ACCC. 41 On one view of the judgment it may be said that his Honour did not find in favour of either the ACCC or Visy interests on the first of the two issues involved in the appeal. Certainly his Honour did not do so explicitly. 42 His Honour noted that the language of the non-competition clauses was wide enough to encompass collection of waste by NPP whether it paid customers to collect that waste or whether it was paid by them to collect it. His Honour noted a concession made by the ACCC, on any view correctly, that the language used did encompass collection for which NPP would be paid and that such collection would constitute the supply of services by the collector. His Honour also appeared to accept that the language used did encompass the acquiring of waste by NPP. 43 His Honour accepted a submission made by the ACCC (it was not disputed by Visy or the individual respondents) that in considering the operation of s 47 regard should be had not only to the language of the contract but also to the actual conduct of parties in their business dealings and the commercial realities of business dealings: see per Lockhart J in Castlemaine Tooheys Ltd v Williams & Hodgson Transport Pty Ltd (1985) 7 FCR 509 at 531-2. However, his Honour then continued at [115]: "… 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."

44 Although the passage quoted may suggest that his Honour was not prepared to categorise the non-competition clauses as either involving the acquisition of goods or the provision of services, but rather categorised them as encompassing both, the passage quoted in the next paragraph may suggest to the contrary. 45 His Honour then turned to consider the second issue. In his Honour's view the "provision" to be considered was each non-competition clause. Indeed that was what the ACCC had pleaded. His Honour continued at [118] to [119]: "In my opinion, there is no warrant for notionally breaking up the alleged exclusionary provision into what Mr McClintock [Senior Counsel for the ACCC] 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). 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. … 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."

46 In the course of the judgment his Honour considered and rejected a submission of the ACCC as to the construction of s 45(6) namely that the words "by reason that" used in the subsection should be construed as meaning "if and insofar as". In his Honour's view the expression should not be so read if the consequence was that a single exclusionary provision in a contract was subjected to 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". The construction sought to be advanced by the ACCC resulted, in his Honour's view, in too narrow a construction of s 45(6). His Honour pointed out that both ss 45(5) and 45(7) actually use the very words "in so far as" but that these words are absent from s 45(6). Further, in his Honour's view, the legislative history suggested an interpretation that is contrary to the ACCC submission. Finally, on this point his Honour expressed the view that there was room for operation of the principle that where proceedings involve a penalty a construction should be adopted which removes ambiguity or resolves it in favour of the person against whom the penalty is sought. His Honour concluded: "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 [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."

47 His Honour referred to, but did not need finally to consider, two further submissions advanced by the ACCC before his Honour, and before us on the appeal, as to the construction of s 45(6), viz that the word "would", where used, meant "would necessarily" and that the word "provision" referred not to a particular term or clause of a contract but to a "discrete legal obligation".

The Appeal on the Factual conclusions 48 In so far as his Honour meant in the passage set out above that it was open to NPP to recommence providing collection services to customers for reward, that is clearly correct. There was nothing that would legally prevent NPP from doing so. Practically there was an impediment if NPP had no premises, such as it had had in Silverwater, at which it could process contaminated waste, although it was open to it at any time to obtain a lease of new premises and the machinery necessary to process waste if that was needed. Indeed, at least in the initial stages of the negotiation, it was contemplated that there would be a lease of such premises and that Visy would provide machinery for use in them. 49 The real complaint by Senior Counsel for the ACCC was his Honour's conclusion that what Visy wanted, and intended the non-competition clauses to effect, was to prevent NPP from actually providing a collection service to Visy's customers, as well as preventing NPP from purchasing waste from such customers. 50 There was surprisingly little evidence before his Honour as to the financial consequence, either to Visy or to NPP (in the case of the latter during the time it did provide for a fee a waste removal service), of providing waste removal services, collecting waste for no fee or otherwise contracting to purchase waste from the premises of a major generator of waste. There was some argument before us as to whether the respondents had the burden of proving that s 45(6) and s 47 applied so as to constitute a defence to the offences of attempt or inducement as the case may be. However, it is unnecessary to decide the question for in our view no question of onus arises. 51 Mr Lurie's evidence as to the activities of NPP was that NPP had never provided a service of removing general rubbish from the premises of customers for which it was paid a fee. Approximately 50% of the waste which it onsold to Visy was obtained from collectors who, it may be assumed, acquired it by providing collection services to customers, whether for a fee or otherwise or whether they were paid to acquire waste, and as to the remaining 50% approximately one half was acquired from rubbish collectors and the other half from "customers". Rubbish collectors were persons with their own vehicles who provided a general rubbish collection service to their customers and delivered waste to NPP which until the closure of the Silverwater facility charged the collectors a fee per load of rubbish delivered. The fee was slightly less than the rubbish collectors would have to pay if dumping the rubbish at rubbish tips. The rubbish was then processed by NPP and waste extracted. Collectors were self-employed persons or companies who collected waste from their own customers and on-sold it to NPP. Sub-contractors drivers also collected waste directly from customers of NPP. The collectors were paid a set rate per tonne for waste delivered and the sub-contractors were paid a daily rate for collecting waste. NPP paid a consideration to some of its "customers" and it may be inferred was paid a fee by others. There was no evidence as to the arrangements that NPP had with its customers, other than that some were paid. 52 After the Silverwater lease terminated NPP was unable to process rubbish and so acquired the whole of its waste from either collectors or sub-contractors. 53 In so far as the motive of Visy in securing the non-competition clauses is relevant (and Visy submits that it is not) there is little doubt that overall Visy had little interest in the sources from which NPP acquired waste or the manner it went about doing so. Mr Guthridge in his affidavit referred to the interest Visy had in growing its share of waste materials by taking customers away from its substantial competitor in recycling Australian Paper Limited (owned by Amcor). Mr Guthridge was concerned that NPP was trying "to persuade Visy's customers to sell low quality waste already contracted to Visy and then flood Visy with supplies of these substandard waste materials…". In cross examination Mr Gutheridge referred to wanting to stop NPP "buying the paper and selling it to us … Where they bought the paper really didn't bother me very much." Mr Richards in the course of his cross examination agreed that the purpose of including the non-competition clauses in the drafts submitted was to stop NPP both collecting waste from persons who were customers of Visy and purchasing waste from Visy customers. 54 It is clear that Visy's commercial interest was in the end product, namely the waste it needed for its recycling activity. That is not to say, however, at least while the contemplated arrangement involved Visy supplying equipment such as a baler, permitting NPP access to Visy's computer system and Visy granting an exclusive licence to NPP to collect by providing removal services for which it was paid a fee or for which it received no consideration, that Visy had no commercial interest in NPP acquiring waste by providing a waste collection service to persons who were customers of Visy. Anything which maximised Visy's ultimate source of waste can be said to have been of commercial interest to it. 55 There is, in our view, no reason to disturb the inference drawn by the learned primary Judge that Visy had a real interest in preventing NPP supplying services by collecting waste from customers, so long as it is clear that Visy's main interest was not so much in the manner whereby NPP would go about collecting waste (whether, for example, by providing removal services or direct acquisition from other collectors or sources of large supplies such as the Co-operative) but rather in NPP acquiring waste that was available to be sold to Visy for use in its recycling facility.

The Characterisation Issue 56 It is against the factual background to which reference has already been made that characterisation must be made. 57 Senior Counsel for Visy submitted that, in considering the issue of characterisation, there should be put aside the dispute that had arisen between Visy and NPP as a result of NPP purchasing or attempting to purchase large supplies of waste from the Co-operative and other suppliers of large amounts of waste and on-selling that waste to Visy. Rather it was said that the draft agreements provided to NPP should be construed in the context that Visy was seeking to appoint NPP its exclusive licensee for collecting waste. 58 Clearly the question of characterisation requires regard to be had to the background in which the drafts were submitted, just as the interpretation to be given to the non-competition clauses will require consideration of that background. Characterisation is but another side to interpretation. And in characterisation, just as in interpretation, evidence of surrounding circumstances will be admissible in aid of the process, cf Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337 at 348. So, for example, an understanding of the term "collect" in the industry requires evidence of the usage in the industry. And, in our view, the meaning of the non-competition clauses and the effect they have will require consideration of evidence of the circumstances which led to the drafts being submitted. It would be misleading to look at the ECAs as merely the grant of a franchise to NPP to collect from Visy's customers without reference to the circumstance that the grant of an exclusive licence was conceived by Visy as a way to stop NPP from purchasing waste from Visy customers such as collectors or large suppliers like the Co-operative and on-selling it to Visy under the terms of the 1995 Agreement. No doubt it would be correct to say that the subjective intention of Visy would be irrelevant to the issue of characterisation, just as it would be irrelevant to any question of interpretation of the agreement which might arise. What is clearly significant in the present case is the evidence of how the industry operated, what NPP in particular did in the industry and what it was contemplated it would do if the relevant drafts had been executed. The issue ultimately to be considered is what conduct the non-competition clauses prohibited, looking at the business substance and commercial reality of the prohibition. 59 In our view it is clear both from the background to which reference has been made and the language which the non-competition clauses use that they were intended to operate to prohibit both the acquisition of waste from persons who might sell it directly to NPP (such as persons who might themselves be waste collectors, the Co-operative or like organisations) and NPP itself engaging in collecting waste directly from those who produce it. In saying this we should not be thought to draw the distinction sought to be drawn by the ACCC between collecting waste from persons who wished to rid themselves of it at a fee or collecting waste from such persons without a fee. Both such cases would involve the performance of a service and should be so characterised, even if the end result of that service is that the service provider has acquired the waste. But there is a clear distinction between those two cases on the one hand and a straight purchase and sale of waste to NPP by a collector on the other. No service at all is performed by NPP in such a case. On any view there is an acquisition of goods. We see no difference between that case and the case where the person who generates waste is paid an amount for the sale of that waste, but on terms that the waste will be taken away, ie that the title to the waste will pass at the premises of the supplier. That transaction will no doubt provide to the supplier a benefit in having the waste taken away, but the transaction takes the form of sale and purchase and there is no reason why it should not be characterised as an acquisition of goods, reflecting the form in which the parties have cast the transaction. 60 In our view, therefore, although the non-competition clauses use the word "collect" as the touchstone of the prohibition, when one takes into account the kinds of transaction which that word contemplates it is clear that the non-competition clauses should neither be characterised as clauses relating to the acquisition of goods simpliciter, nor as relating to the provision of a service simpliciter, but as encompassing both. Hence the question whether the non-competition clauses fall within s 47 and thus outside s 45(2) calls for the determination of the construction issue. We turn to deal now with that.

The construction of ss 45(6) and 47 of the Act 61 Before resolving the construction issue it is useful to refer briefly to the legislative history of these provisions. 62 In its original form, s 45(2) of the Act prohibited the making of a contract, arrangement or understanding in restraint of trade or commerce. Section 45(5) provided that, inter alia, the provisions of s 45 were not to apply to a contract, arrangement or understanding "in so far as" the contract, arrangement or understanding fell within s 47(2) or otherwise constituted the practice of exclusive dealing within ss 47(3) and (4). Section 47(2) referred, inter alia, to a prohibition on supplying goods or services on condition that the person supplied would not, or to a limited extent would not, acquire goods or services from a competitor. The phrase "in so far as" suggests that the exclusion of the making of a contract, arrangement or understanding from s 45 effected by s 45(5) operated only to the extent that the contract, arrangement or understanding fell within s 47 and so far as it did not the conduct was still within the reach of s 45. 63 The Trade Practices Act Review Committee ("the Swanson Committee") examined the legislation and reported on it in its Report to the Minister for Business and Consumer Affairs (August 1976). It noted that, for the most part, conduct which fell within s 47 would otherwise fall within s 45. It expressed the view that the consequences of the distinctions thereby created were in some cases harsh. It gave only one example, namely "the usual grant of an exclusive franchise". It recommended that the most appropriate way to deal with restrictions imposed by an exclusive franchise was in the context of s 47, rather than s 45 (para 4.106). This would allow the question of effect on competition to be taken into account. Its ultimate recommendation was that s 47 encompass within exclusive dealing, inter alia, the making of a contract etc involving the acquiring of goods or services on condition that the person from whom the goods or services are acquired will not, inter alia, acquire goods from, or supply services to, particular persons or classes of person. 64 The recommendation was not accepted at least to the extent that the conduct within s 47 as amended did not cover both supply and acquisition. When the Trade Practices Amendment Act 1977 (Cth) was enacted s 45 was altered so as to remove the concept of restraint of trade or commerce. Subsection (2) then took its present form as did subs (6) save that, as then amended, it did not include the words "but for the operation of subs 47(10)". The present subs (6) which replaced the previous subs (5) adopted the language "by reason that" in place of the former phrase "in so far as". There is nothing in the extrinsic material which otherwise explains why subs (6) took the form it did. The words "but for the operation of subs 47(10)" were added in 1986 by the Trade Practices Revision Act (1986) (Cth). The Explanatory Memorandum which accompanied the Bill, says this was done: "… so that [the exclusion in s 45(6)] 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))."

65 One thing that is quite clear from the language of ss 45(6) and 47 is that conduct falling within s 47 would, but for s 45(6), always fall within s 45. Section 45(2)(a)(i) involves what is often referred to as a "per se" violation. That is to say an offence will be committed when conduct falls within s 45(2)(a)(i), whether or not it is shown that the conduct has an effect on competition. Another way of stating that is that the legislature assumed that conduct which fell within s 45(2)(a)(i) would have an effect on competition and should, therefore, be proscribed. On the other hand conduct which constitutes exclusive dealing within s 47 (other than third line forcing) is not per se prohibited unless it has the purpose or effect of substantially lessening competition and does not fall within ss 47 (10) or (10A). The purpose of s 45(6) is, inter alia, to remove from s 45(2)(a)(i) conduct which constitutes exclusive dealing within s 47 and apply to that conduct the purpose or effect on competition test applicable other than to third line forcing. 66 It is obvious, therefore, that s 45(2)(a)(i) and s 47 are mutually exclusive. 67 When one comes to construe s 45(6), the reference to "provision" should not be construed to mean a "clause". Had this been what Parliament intended it could have said so. The word "provision" is not used in any technical sense. It may, in a particular case, mean "clause" or in another case "term" cf Saunders v Inland Revenue Commissioners [1956] Ch 283. The question whether a contract contains a provision prohibiting particular conduct involves looking to see whether there is any prohibition of the particular kind in the contract, whether the prohibition is to be found in a clause of the contract or in some part of a clause of the contract. If the question were asked of Visy whether the drafts, if they had become contracts, would have contained a provision which prohibited NPP from acquiring goods from those persons who were customers of Visy, it is hard to see that any answer would be possible other than in the affirmative. Conversely, it may be said, if the question were asked whether the drafts if executed would have contained a provision which prohibited NPP from supplying services to customers of Visy, the answer would likewise be in the affirmative. 68 The next question is the meaning of the phrase "by reason that" which replaced, it will be recalled, the words "in so far as". If the present facts had arisen under the original 1974 legislation there would be little difficulty in concluding that Parliament intended that to the extent that the conduct was not conduct within s 47 it remained to be considered under s 45. To the extent that the conduct fell within s 47 it would fall to be considered under that section. There is nothing in the extrinsic materials that would suggest that Parliament intended a different result as a consequence of the 1977 amendments. Indeed, it would be remarkable if Parliament had intended a different result. 69 There would be little doubt if each of the drafts had contained separate clauses or subclauses, one of which operated to prohibit NPP from supplying waste removal services to persons and the other of which operated to prohibit NPP from purchasing waste from persons, the making of the contract would fall to be tested within s 45(2)(a)(i) so far as it dealt with the purchase of waste, but would fall to be tested within s 47 so far as it dealt with the supply of waste removal services. Why should a different result accrue merely because the contract used the word "collect" which, in the sense used in the industry, would cover both such prohibitions, rather than set out each prohibition in a separate clause or subclause? 70 The construction sought to be advanced on behalf of Visy has the consequence that where an activity prohibited by s 45(2)(a)(i) has, as here, a dual character, s 47 operates to take the contract which contains the exclusionary provision wholly outside the prohibition of per se conduct in s 45, notwithstanding that if the activity prohibited had been solely of the character not covered by s 47, s 45(2)(a)(i) would have continued to apply. It is hard, as we have already indicated, to see why that would have been what Parliament intended. Far from giving s 45(6) a narrow operation as the learned primary Judge suggested, the construction we favour gives s 45(6) an operation which accords with a national legislative policy, so far as that may be ascertained from the words which Parliament has used, and far from being a narrow construction produces a sensible result. 71 It is submitted on behalf of Visy that the clear words, "by reason that", should not be replaced, as Senior Counsel for the ACCC submitted, by the words "if and in so far as", particularly where those actual words appear in different contexts in both ss 45 and 47. We agree that there is a danger in substituting one set of words for another set of words which Parliament has used. In our view there is no reason to do so. This is because we are of the view that the words "by reason that" can and do here bear a meaning that would operate to apply the provisions of s 47 (to the exclusion of s 45(2)(a)(i)) to the making of a contract which contains a provision falling within s 47 but continue to apply s 45(2)(a)(i) to the making of that contract other than so far as the terms of a provision of that contract fall within s 47. After all, s 47 does not apply to each and every provision of the contract or, indeed, to each and every provision in a contract which is an exclusionary provision but only to an exclusionary provision which falls within s 47 by reason that the provision is of a kind that when given effect to it would constitute conduct that would contravene that section. 72 There is no authority which has needed to consider the question which arises here. In dicta, contained in an interlocutory judgment, Hely J said in South Sydney District Rugby League Football Club Ltd v News Ltd (1999) 169 ALR 120 at 135: "The expression 'by reason that' has a meaning equivalent to 'if and in so far as'. If the expression is read in that way, there is harmony between the two parts of the section, and the legislative intention of subjecting exclusive dealing to s 47 regulation, rather than regulation under s 45, is effectuated."

73 On the next page of the judgment, his Honour, however, said in a passage referred to by the learned primary Judge: "It 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". [As extracted from the judgment of the learned primary Judge.]

In the absence of full argument, Hely J refrained from expressing an opinion on that matter. 74 The question did not arise for decision when the matter came on for final hearing at first instance before Finn J, the judgment in which is reported at (2000) 177 ALR 611 (see at 680-681). 75 For the reasons indicated we are of the view that the tentative construction suggested by Hely J was correct and the learned primary Judge erred in holding that the respondents could not have committed the offences of attempt or inducement which the ACCC alleged they had having regard to the operation of s 46. The appeal should accordingly be allowed with costs and the matter remitted to the learned primary Judge to consider the question of what, if any, pecuniary penalty should be imposed for the breaches which have been committed by the respondents. I certify that the preceding seventy-five (75) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justices Hill and North.

CONTI J: 76 The circumstances giving rise to the proceedings below have been comprehensively set out in the Reasons for Judgment of Hill and North JJ, along with the full text of ss 45(2) and (6) and 47(4) and (10), and the s 4D(1) definition of "exclusionary provisions" contained in the Trade Practices Act 1974 (Cth) ("the Act"). I will adopt the abbreviations used by their Honours in their Reasons for Judgment. 77 The Primary Judge (see Australian Competition and Consumer Commission v Visy Papers Pty Ltd [2000] FCA 1640) found that the non-competition clauses of each of the draft agreements were wide enough in expression to encompass NPP collecting waste paper from Visy customers, whether NPP paid customers for the paper or was paid to collect the same (see [112]), and further that none of such clauses distinguished between the acquisition of goods from and the provision of services to Visy's customers (see [118]). To adopt his Honour's expression, "It would do violence to the language of the clauses to divide eachsingle prohibition into 'discrete' components for the purposes of applying s 45(6)". 78 The commercial background to the preparation of the draft agreements containing the non-competition clauses included the circumstances that both Visy and NPP had been collectors of recyclable waste paper products, and that whether or not the customer suppliers thereof paid for such collection services to be undertaken, Visy and NPP provided services to their respective customers by way of such collection activity (see [22-29]). So much was specifically conceded by the ACCC (see [112]). Furthermore, there subsisted at all material times, that is to say, at the respective times of preparation and submission of the draft agreements, and of ensuing negotiations for finalisation thereof, a concurrently binding five year agreement between Visy and NPP, whereby Visy was obliged to buy all NPP's stocks of waste paper (see [31-32]) at price structures or levels which gave NPP the incentive to intrusively collect waste paper from Visy outlets for the purpose of sale to Visy pursuant to the five year agreement at prices higher than those which had since become open market prices (see [33], [67] and [114]). 79 In such context, Hill and North JJ postulate that a different result should not accrue for purposes addressed by s 45(6) of the Act, merely because a contract (or an "attempted" contract, as here) relates to an activity having a dual character, one means of implementation whereof being prohibited by s 45 as relevantly constituting an exclusionary provision, and the other means of implementation whereof constituting exclusive dealing prohibited by s 47. The difficulty which the Primary Judge would identify with that approach is that the former restriction may well be, as here, the quid pro quo for the latter: see [123] where his Honour said as follows: "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' 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.' Of course different considerations may well apply where contracting parties do not choose to employ a contractual expression of prohibition or restriction embodying a dual character, as was the case here. 80 Moreover the Primary Judge's analysis of the implications of the 1986 amendment to s 45(6) lends support to his conclusions subject to appeal. Having regard to the context of events leading to the amendment of s 45(6) by the substitution of "by reason that" for the previously existing "in so far as", and having further regard to the absence of effectuation of any corresponding substitution within the text of s 45(5) and (7), it is I think rightly to be inferred that the legislature intended that "by reason that" in s 45(6) should be understood differently to an expression equivalent to "the extent that", as the Appellant now contends. The care applied by the Legislature to its framework of amendments made in 1986 implies to my mind significant support for the view of the Primary Judge (see [126]) that to read the phrase "by reason that" in the sense propounded by ACCC results in too narrow a meaning being attributed to s 45(6). To use his Honour's postulation in that regard, "had Parliament intended the phrase to be read in this way, it would have been simple to say so." I would infer from the purport of the legislative change so made, that in circumstances involving restraints having a dual character, such as the present, what I would describe as the practical task of establishing a purpose or effect or likely effect of substantially lessening competition within s 47(1) was intended by the legislature to be a pre-requisite. In expressing that opinion, I observe his Honour's reference in [125] of his judgment to what was earlier said by Hely J at the interlocutory stage of South Sydney District Rugby League Football Club Ltd v News Ltd (1999) 169 ALR 120 at 135. 81 The approach to construction adopted by Sackville J carries the virtue of conformity with the so-called traditional view that s 45 does not apply to exclusive dealing arrangements, a view seemingly reinforced in particular by the presence of s 47(4). Unintended results may well follow in circumstances where the test of substantially lessening competition will apply to one element of the dual character of a restraint between contracting parties, but not to the other. 82 In the result, I am of the view that the appeal should be dismissed, essentially for the reasons postulated by Sackville J for dismissal of the proceedings below. I would add the incidental observation that I have encountered conceptual difficulty in applying the notion of attempting to commit a contravention of s 47 in a context, such as here, of negotiations for the formation of a contract having taken place, but nothing materially more, especially where such negotiations have taken place between the solicitors for the respective parties in circumstances where it may be referred that contractual consensus was not to be imputed unless and until a written contract would be entered into. Particularly is such difficulty likely to be heightened, if the issue involved is not the making of a contract but the giving of effect thereto, and the negotiations occur in the context of a subsisting binding agreement which will be modified or brought to an end by the intended new contract the subject of such negotiations. I certify that the preceding seven (7) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Conti.

Counsel for the Appellant: B R McClintock SC with V F Kerr

Solicitor for the Appellant: Australian Government Solicitor

Counsel for the Respondents: N J Young QC with P D Santamaria