Australian Retirement Communities Pty Ltd v Port Phillip Pty Ltd [2000] VSC 30

39. Section 47 of the Trade Practices Act proscribes the practice of "exclusive dealing". Section 47(6) forms part of the Trade Practices Act concerned with preventing "third line forcing" (see J.D. Heydon, Trade Practices Law Ch. 6; also F.H. Callaway, "third line forcing" (1979) 53 ALJ 125). In essence, third line forcing arises when seller one says to A: "If you want good X from me, you must buy good Y from seller two" (F.H. Callaway, op cit, p.125). Specifically, s.47(6) proscribes the supplying of goods or services on condition that the purchaser acquires other goods or services from a third party. "Services" is defined in s.4(1) of the Trade Practices Act to include rights granted under a contract. Section 47(6) provides:

"(6) A corporation also engages in the practice of exclusive dealing if the corporation - (a) supplies, or offers to supply, goods or services; (b) supplies, or offers to supply, goods or services at a particular price;

or (c) gives or allows, or offers to give or allow, a discount, allowance, rebate or credit in relation to the supply or proposed supply of goods or services by the corporation, on the condition that the person to whom the corporation supplies or offers or proposes to supply the goods or services or, if that person is a body corporate, a body corporate related to that body corporate will acquire goods or services of a particular kind or description directly or indirectly from another person."

43. With respect to his first submission, Mr Nugent argued that s.47(6) of the Trade Practices Act did not prohibit ARC from compelling Port Phillip to acquire services from Daly rather prohibited ARC from compelling a corporation ("related to" Port Phillip) to acquire services from Daly as a condition of supply to Port Phillip. Mr Nugent submitted for Daly that s.47(6) of the Act required ARC to make the offer of supply to Port Phillip conditional upon a body corporate related to Port Phillip acquiring goods or services of a particular kind. Such a construction involves treating the words in sub-s.(6) as requiring a condition to have been imposed on Port Phillip that it acquire services from a body corporate related to ARC. As Daly was not a "body corporate" or related to ARC, ARC and thereby Daly were not caught by the statute. In my view the submission cannot succeed on a proper construction of s.47(6) of the Act. The authorities and writers in the field have not construed the provision in the manner submitted on behalf of Daly. The circumstances whereby exclusive dealing might arise was conveniently described by Deane J in Re Ku-ring-gai Co-operative Building Society (No. 12) Limited (1978) 35 FLR 134):

"The practice of exclusive dealing does not necessarily involve the imposition of any condition. It involves supply upon a condition. The condition may well have been imposed by the recipient of supplies. It may have been imposed by some third party. It may arise, by implication, from all the circumstances in which the goods or services were supplied. ... The section does not look to the origin of the condition upon which there is a supply of services. The section looks to the supply of services upon that condition."

47. The courts have taken the approach of examining all the circumstances of supply. In my view the circumstances of clause 5.1 of the management agreement may be open to a number of constructions. It is not appropriate, therefore, to dismiss the defence and counterclaim as sought by Daly. To put the matter simply, at this point the "untenable" principle stated in Dey and Coles Myer cannot be made out.

2. Submission that the requisite condition was not imposed for the purposes of s.47(6)

51. Generally the authorities that have considered s.47(6) of the Act have been concerned with circumstances, for example, where a supplier has refused to supply goods or services on the condition that the person to whom the goods or services are to be supplied will acquire goods or services from another person. A typical example is where a car dealer might offer a larger trade-in to a buyer if the buyer obtained finance through the car dealer's preferred credit provider (see Trade Practices Commission v Tepeda Pty Ltd (1994) ATR 41-319).

54. On its face clause 5.1 of the management agreement provided for the appointment of a solicitor by ARC, such solicitor to be nominated by Port Phillip and approved by ARC. Clause 5.1 provided, further, that approval of the solicitor nominated by Port Phillip would not be unreasonably withheld by ARC in the event that the solicitor so nominated was associated with Daly. It is arguable that in applying s.47(6) of the Act to clause 5.1 of the management agreement it is not immediately apparent that clause 5.1 imposed a condition upon Port Phillip with respect to the retainer of Daly. However, the fact that a position is arguable is insufficient. The proper test for summary dismissal is that the position must be untenable.

57. In SWB Family Credit Union Limited v Parramatta Tourist Services Pty Ltd (1980) 48 SLR 445 a credit union reached agreement with a travel agent pursuant to which the travel agent paid the credit union a commission for travel booked by its members with the agent. The credit union credited the amount received to the accounts of the members to whom the travel payments related. Another travel agent failed in an application for an injunction for breach of s.47(6) of the Trade Practices Act because the services of crediting the rebates was not provided by the credit union "on condition" in the requisite sense. The Full Court of the Federal Court held that the imposition or performance of a condition was pivotal to the construction of s.47(6) of the Trade Practices Act. Northrop J (at 464-5) observed:

"The Act relates to trade practices and Pt IV is headed 'Restrictive Trade Practice'. Section 47, which is within Pt IV, prescribes the practice of exclusive dealing. The purpose of the section is to proscribe conduct which creates a restrictive trade practice which may affect adversely persons competing with the favoured person. This is illustrated by Re Kur-ring-gai Co-operative Building Society (No. 12) Ltd. (7) and Trade Practices Commission v. Legion Cabs (Trading) Co-operative Society Ltd. In the former case the building society required members to whom it lent moneys on the security of an interest in real estate to insure that interest with a person nominated or approved by the society. In the second case, the operative society required members who received the benefit of radio services provided by it in purchase petrol and oil from designated service stations. In each case the requirement by the societies 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. In each case the arrangement was in the form 'If the society does this (supplies the service or offers to supply the service) then you will (must) do that (acquire services from a nominated insurer or acquire goods from nominated service stations)'. In each case the requirement can be said to be a condition which has attributes of compulsion and futurity. In each case persons competing with the nominated insurer or the nominated service station were affected adversely since the person upon whom the obligation was imposed was not free to acquire services or goods from them. In the present case, the alleged condition or obligation has neither of the attributes of compulsion or futurity. Persons competing with Alliance are not affected adversely in the requisite sense. A member of the credit union desirous of acquiring travel services is free to deal with any person engaging in the travel agency business. He is not required to perform a series of acts over an extended period. He is not required by a condition or obligation to acquire the services of Alliance and Alliance only. If he does acquire the services of Alliance he need not disclose his membership of the credit union. If he does acquire the services of Alliance and discloses that he is a member of the credit union, then upon him paying the full costs of the travel services, and upon him entering on his travels, Alliance is required under its arrangement with the credit union to make a commission rebate to the credit union and the credit union then supplies its services to the member. This arrangement is in the form: 'If you do that we will (must) do this.' No condition in the nature of an obligation is imposed upon the person dealing with the corporation. At no time is that person under any obligation to perform or observe the alleged condition. Any obligation that may arise is imposed upon the corporation. This conduct does not come within the conduct described by s. 47(6) of the Act. It is not to be analysed in the same form as in the society cases."

61. I adopt the analysis of Northrop J. It follows, therefore, that in order for Port Phillip to succeed against Daly it must be able to establish that ARC offered services to Port Phillip on the condition that Daly be retained as solicitor. In its further amended defence and counterclaim filed on 6 October 1999 Port Phillip purports to allege that there was such an obligation under clause 5.1 of the management agreement (see paragraphs 24G-24J). The pleading makes references to "the obligation" contained in clause 5.1 of the management agreement that Port Phillip use the services of Daly. The "obligation" is not described or particularised. It is arguable that on a proper reading of clause 5.1 of the management agreement there was not any obligation or, for that matter, a condition such as to satisfy the test laid down by the Full Court of the Federal Court in SWB Family Credit Union Limited v Parramatta Tourist Services Pty Ltd, supra. However, the determination of this issue would involve a proper consideration at trial of the construction of clause 5. Furthermore, it would appear from an affidavit sworn by one Eduard Sent on 28 January 2000 on behalf of Port Phillip that there will be circumstances alleged at trial surrounding the negotiation, drafting and execution of clause 5 of the management agreement that arguably may affect the interpretation of any obligation under clause 5.1. As the pleading stands the matters adverted to by Mr Sent in his affidavit are not pleaded or the subject of particulars. In my view the mere assertion in the pleadings of an obligation arising under clause 5.1 of the agreement is insufficient. The pleading should allege all facts relied upon to support the allegation of the relevant obligation.

64. Further, in its counterclaim Port Phillip alleges that Daly by virtue of acting for ARC in the negotiation of the terms of the agreement and by virtue of writing all or part of that agreement aided, abetted, counselled or procured ARC to contravene s.47(6) of the Trade Practices Act and by reason thereof Port Phillip is entitled to relief against Daly pursuant to s.75B of the Act and that, therefore, Daly is liable to Port Phillip pursuant to s.82 of the Trade Practices Act. Section 82 of the Act permits a person who has suffered loss or damage as a result of the conduct of another person done in contravention of a provision of Part IV or V to recover loss or damage against that other person or, significantly for present purposes, against any person involved in the contravention. Section 75B of the Act provides that a person is involved in a contravention of a provision of Part IV, IVA or V who, among other matters, has aided, abetted, counselled or procured the contravention (s.75B(1)(a)). In order for Port Phillip to make out its claim that Daly aided, abetted, counselled or procured a breach by ARC of s.47(6) of the Act it would be necessary for Port Phillip to be able to prove that ARC itself breached s.47(6) (see Stationers Supply Pty Ltd v the Victorian Authorised Newsagents Association Limited & Ors (1993) 44 FCR 35, 36). For the reasons already expressed it may be arguable that ARC could not have breached s.47(6) of the Trade Practices Act as no requisite condition was imposed in clause 5.1 of the management agreement. If it was held that there was no such condition it would follow that a breach of s.47(6) could not have occurred, Daly could not have aided and abetted a contravention of the section and be liable to Port Phillip pursuant to ss.75B and 82 of the Trade Practices Act if it was found as a fact that a contravention by ARC had not occurred. Again the ultimate determination of this matter turns upon a full consideration of the construction of clause 5.1 of the management agreement and the surrounding circumstances. It appears, further, that from the matters deposed to by Mr Sent in his affidavit that there are other matters that Port Phillip will wish to allege against Daly at the trial. It follows the second submission relied on to support dismissal of the defence and counterclaim is not made out.

3. Submission that Daly lacked the requisite knowledge under ss.47(6) and 75B(1)(a)

68. The third submission is not a matter that can be determined on a summons brought under Order 23 for summary dismissal. It was submitted by Mr Nugent on behalf of Daly that as Daly had deposed on affidavit in support of his summons that he did not have knowledge of the matters alleged against ARC with respect to the asserted breach under s.47(6) of the Trade Practices Act and as such statement by Daly was not rebutted by Port Phillip it was open to find the allegations or facts alleged by Daly as made out. Such approach would involve shifting the burden from the applicant, Daly to the respondent, Port Phillip. In my view such an approach does not accord with the principles expressed in Dey v Victorian Railways Commissioners and Coles Myer Limited v Bowman. It follows that the third submission for Daly fails.

4. Submission that there was never a nomination for the purposes of clause 5.1 of the management agreement

72. The remaining submission was that there was never a nomination pursuant to the management agreement of Mr Daly as the solicitor for the purposes of clause 5.1 of that agreement and that, therefore, there could not have been a breach of s.47(6) in any event.

75. There was a clear dispute on the facts before me as to whether or not there had been a nomination pursuant to the management agreement. Daly in an affidavit deposed that there had not been such a nomination. The allegation by Daly was not rebutted in any way by or on behalf of Port Phillip. Mr Nugent for Daly submitted that as there was no rebuttal of the facts by Port Phillip I was entitled to accept the statement by Daly in his affidavit with respect to nomination as a correct fact. I was also urged by Mr Nugent to draw an adverse inference from the fact that Port Phillip had not filed any affidavit to rebut the assertions by Daly and, furthermore, had not sought to cross-examine Daly on this matter. In my view the submission entirely misconceives the obligations upon an applicant for summary dismissal under Order 23.01 or 23.03. If I adopted the approach urged by Mr Nugent it would involve shifting the burden from the applicant Daly to the respondent Port Phillip. For the reason of the obvious principles expressed in Dey v Victorian Railways Commissioners and Coles Myer Limited v Bowman it would be an entirely inappropriate course to embark upon. Ultimately, the issue of whether or not there was a nomination for the purposes of clause 5.1 of the management agreement is a matter that will be determined on evidence at trial. It is not a matter appropriate for determination on an application under Order 23.01 or 23.03.

78. The summons filed on behalf of Daly seeks relief by way of dismissal of the counterclaim pursuant to Rule 23.03 or pursuant to the discretion under Order 23.01. Further relief is sought by way of the striking out of the further amended defence and counterclaim dated 27 September 1999 pursuant to Order 23.02. This proceeding has a long history and is quite complex. So much is borne out by the pleadings and the schedules thereto together with the various affidavits filed in support of and in opposition to the summons before me. It may be that upon having the benefit of reading these reasons the second defendant by counterclaim, Daly, may wish to re-visit the pleadings. I observe that there are a number of allegations contained in the further amended defence by Port Phillip against Daly. Those allegations are repeated in the counterclaim but do not appear to be relied upon for the purposes of seeking relief by way of loss or damage by Port Phillip against Daly. As matters presently stand I consider it would be appropriate to give Port Phillip the opportunity to reconsider its pleading against Daly. Accordingly, for the reasons stated I have reservations as to paragraphs 24I, 24J, 24K and 24L of the further amended defence and paragraphs 56, 57, 58 and 59 of the counterclaim. I make the additional observation that insofar as paragraph 24L of the further amended defence and paragraphs 56 and 59 of the counterclaim relate to allegations outside the claim made under s.47(6) of the Trade Practices Act such paragraphs should be reconsidered in any event.

81. The appropriate course in this matter is for Port Phillip to be given the opportunity to re-plead its amended defence and counterclaim insofar as it relates to Daly. I indicate that in the absence of amendments being made, in particular, in response to these reasons and so as to allege the relevant facts deposed to in the affidavit of Mr Sent Port Phillip will be at risk of orders pursuant to Order 23.02.