did the arrangement contain an exclusionary provision?
85 It will be recalled that by virtue of s 4D(1)(b) of the TP Act a provision of a contract, arrangement or understanding is an exclusionary provision if, inter alia,
"the provision has the purpose of preventing, restricting or limiting
(i) the supply of … services to, or the acquisition of … services from, particular persons or classes of persons; or
(ii) the supply of … services to, or the acquisition of … services from, particular persons or classes of persons in particular circumstances or on particular conditions".
86 The words "or classes of persons" were added to s 4D(1) by the Trade Practices Revision Act 1986 (Cth) ("the 1986 Act"). The appellants' argument on this branch of the case commenced with an attack upon the identification of the class of persons who, on the finding made by the primary Judge, would have been deprived of services. It was put that the effect of the primary Judge's finding was to define the class by reference to those who were excluded by the alleged provision. This was said to be a circular identification which did not result in a class of persons as required by s 4D. It was submitted by Mr Douglas that if the observations of the Full Court in ASX Operations Pty Ltd v Pont Data Australia Pty Ltd (No 1) (1990) 27 FCR 460, at 487-488, stand in the way of this argument, the Court should reconsider that decision.
87 The appellants advanced an alternative argument to the effect that, even if a "particular" class of persons can be defined by reference to those excluded from the supply of services, the provision nonetheless must be aimed at the relevant class. That requires, so they argued, that the parties to the contract, arrangement or understanding have the purpose of targeting the relevant class at the time the contract, arrangement or understanding is made or reached.
88 As the argument for the appellants developed, it quickly appeared that identification of the class of persons was one aspect of a fundamental question as to the application of s 4D. Section 4D, picked up by s 45(2)(a)(i) and s 45(2)(b)(i) of the TP Act, is one of the two per se prohibitions of arrangements between competitors (or horizontal arrangements). The other is price fixing (s 45A). Any arrangement caught by s 4D is prohibited regardless of how insignificant the effect or likely effect of it upon competition in any market. These per se prohibitions were introduced together in 1977, following the 1976 Trade Practices Review Committee Report ("the Swanson Report").
89 The following extracts from the Swanson Report are relevant to an understanding of s 4D:
"4.14 In our view, the competitive effects of most agreements and practices should be tested by reference to a market for goods or services (the present test of sub-sec 47(5))…. We consider that there are certain agreements in respect of which competitive effects will basically be felt between parties to the agreement, or particular competitors thereof (eg collective boycotts, which often affect small business). These latter-mentioned competitive effects should, in our view, be tested according to effect on competition between the parties and other persons (the present test of sub-sec 45(4)). We consider that unless the Trade Practices Act recognizes these distinctions it will be ineffectual and discredited in many circumstances in which it should have force.
…
4.59 The Committee recommends that, subject to exceptions relating to joint venture and joint acquisition pricing (see para 4.63), there should be an absolute prohibition of agreements between competitors, having the purpose or effect, or likely to have the effect, of fixing or controlling, or providing for the fixing or controlling of the price for, or any discount, allowance, or rebate, in relation to, any goods or services supplied by the parties, or any of them, in competition with each other, to persons not being parties to the agreement. They should be incapable of authorisation. The Committee considers that these price agreements between competitors are at the very heart of anti-competitive behaviour and should be clearly prohibited. It is our firm belief that such agreements will so rarely be in the public interest that the costs in time and money, both for industry and Government, involved in allowing attempts to justify such agreements far outweigh the social benefits which might flow from the possibility of an occasional successful justification in terms of the de minimis exception stated in the present sub-sec 45(3).
…
4.116 We consider that a collective boycott, ie an agreement that has the purpose of or the effect of or is likely to have the effect of restricting the persons or classes of persons who may be dealt with, or the circumstances in which, or the conditions subject to which, persons or classes of persons may be dealt with by parties to the agreement, or any of them, or by persons under their control, should be prohibited if it has a substantial adverse effect on competition between the parties to the agreement or any of them or competition between those parties or any of them and other persons.
4.117 In our view such matters are appropriate to be tested by reference to their competitive effect between parties and other persons, and not by reference to a market.
4.118 Lastly, with respect to all other restrictions on competition which may be accepted by parties to an agreement, we consider that there should be a general prohibition upon an agreement which prevents or restricts or is likely to prevent or restrict, the engaging in of competitive conduct by all or any of the parties to the agreement, whether among themselves or with other persons, where that agreement has, or is likely to have, a substantial adverse effect on competition in the market or markets in which any of the parties to the agreement operate or, but for the existence of the agreement, would or would be likely to operate.
4.119 It will be seen from the recommendation of the preceding paragraph that for the remainder of matters presently within sec 45, we consider that the test of effect on competition in a market is the appropriate test."
90 The Second Reading Speech by the Minister for Business and Consumer Affairs for the Trade Practices Amendment Bill 1977, when first introduced, included the following:
"The law on anti-competitive agreements is altered by this Bill, substantially as recommended by the review committee. … The Bill prohibits collusive price agreements and collective boycotts. However, except for price agreements for goods, which are prohibited outright, these matters may be granted authorisation if a net public benefit is shown to exist."
When reintroduced, the Minister said:
"Boycotts
The Government has given close attention to the problems of both primary and secondary boycotts. It has decided that the provisions in the previous Bill dealing with these matters were not appropriate. The Government's views on this matter are based on two fundamental principles. First, it is considered that boycotting the commercial activities of particular persons is generally undesirable conduct, and that the Trade Practices Act should take a firm line on these matters. Accordingly, the Bill prohibits collective primary boycotts where they have the purpose of restricting or limiting the trade of particular persons. Collective secondary boycotts are prohibited where they have both the purpose and effect of either substantially damaging a particular business or substantially lessening competition in a market. Secondly, the Government believes that the Trade Practices Act should take an even handed approach to secondary boycotts and apply, so far as possible, to both business and employees alike. Primary boycotts by employees are not, of course, dealt with by this Act."
91 Paragraph 10 of the Explanatory Memorandum said this:
"The Bill contains special provisions for the prohibition of collective boycotts. Collective primary boycotts (where the boycott seeks to restrict the dealings of the parties with the target person) are prohibited as 'exclusionary provisions' (defined in new section 4D (clause 6) - new section 45(2)(a)(i) and 45(2)(b)(i). Collective secondary boycotts (where the boycott seeks to restrict the dealings of persons, other than the parties, with the target person) are prohibited where they have or are likely to have a prescribed effect - new section 45D."
92 It is worthy of note that Parliament did not follow the Swanson Report recommendation in one important respect. The Committee had recommended that the prohibition relate to arrangements having the relevant purpose or effect. The legislation only refers to purpose, and not to effect. We shall return to the significance of this distinction later ([104] below).
93 What is the special feature marking out this particular form of restraint between competitors for such draconian treatment, compared with the myriad of other anti-competitive agreements that might be arrived at between competitors, which are to be judged according to their effect upon competition in a market? It must, we think, lie in the abhorrence of a boycott, namely, an intentional shutting-out of particular persons or classes of persons from access to goods or services, where that is the aim or object of the agreement.
94 This notion, which is consistent with the extrinsic material to which we have referred, is well expressed by Clarke and Corones, Competition Law and Policy (1999), at 253:
"One reason for this strict approach to boycotts may be that they are seen as objectionable on non-economic grounds as well as because of their potential to have an adverse impact on competition. In particular, they are disliked because they can be used to take away the freedom of firms and individuals to trade as they wish and because they can be used to threaten the very existence, commercially or professionally, of targets having little or no countervailing economic power. The potential for boycotts to generate and exploit power is seen as inherently objectionable, regardless of whether or not they are used to lessen competition. For this reason, they are seen as being properly the subject of a per se prohibition."
95 The rationale which we favour is pellucid in relation to s 4D as originally framed, since it required the target to be a particular person or persons who would obviously need to be individually identified at the time the prohibited provision came into effect. The issue only arises in the present case because of the addition of the words "or classes of persons" by the 1986 Act.
96 The Explanatory Memorandum for the 1986 Act explained the amendment as follows:
"Clause 6: Exclusionary provisions
15. Difficulties arose in TPC v TNT Management Pty Ltd & Ors (1985) ATPR 40-512 [(1985) 6 FCR 1], whether primary boycotts of identified classes of persons are prohibited as distinct from boycotts of particular persons. A primary boycott is, in essence, collective refusal to deal by competitors to the detriment of another competitor or a person from whom the parties to the collective action could or do supply or acquire goods or services."
The Explanatory Memorandum indicates that the 1986 Act was not intended to change or expand the basic conception underlying s 4D(1) of the TP Act. Particular targets were still to be required, but they could be defined by class.
97 Breach of the alleged exclusionary provision is assessed at the time at which the provision comes into effect (South Sydney District Rugby League Football Club Ltd v News Ltd (2001) 111 FCR 456 ("South Sydney v News Ltd (No 2)")at 477, per Heerey J). The prohibited purpose must exist at that time. Regardless of the definition of a particular class of persons, the class of persons who are the object of the provision must be identified by all parties to the provision at that time and "aimed at specifically" (News Ltd v Australian Rugby Football League Ltd (1996) 64 FCR 410 ("News Ltd v ARL") at 577, per curiam). Mr Hilton SC, who appeared with Mr Renehan for the ACCC, accepted in principle that s 4D can properly be described as a primary boycott provision, and that breach of it requires that there be a target aimed at by the provision. He submitted, however, that the section should not be read down on this account, but must be given full effect according to its terms. If that is done, so he argued, the class identified by the primary Judge could be said to be the target of a boycott.
98 It was accepted by the parties that the weight of current authority favours the view that the purpose referred to in s 4D is subjective. We have not been invited to reconsider that conclusion. The appellants, however, formally took the point that purpose is to be judged objectively in order to preserve their position in the event of an appeal. In this connection, we merely observe that there are particular difficulties in applying a subjective test to the purpose of a provision and to an arrangement that involves more than one party: see Robertson, "The Primacy of Purpose in Competition Law - Part 1" (2001) 9 Competition & Consumer Law Journal 101, at 124-125; McMahon, "Church Hospital Board or Board Room?" (1997) 5 Competition & Consumer Law Journal 129, at 134-135, 149-150. There has also been much inconclusive debate about the proper construction of "substantial" in s 45(2), taking account of s 4F (eg News Ltd v ARL, at 576; Merkel J in South Sydney v News Ltd (No 2), at 519), but we need not consider that issue in the present case.
99 It will be apparent from what we have said that we agree generally with the construction of s 4D outlined by Finn J at first instance in South Sydney District Rugby League Football Club v News Ltd (2000) 177 ALR 611 ("South Sydney v News Ltd (No 1)") at 659-661, an approach which broadly accords with that taken by Heerey J in the Full Court (South Sydney v News Ltd (No 2), at 471-474). In particular, we agree with the comments of Finn J at 661:
"For the class to have significance for s 4D purposes it must be the intended object of the discrimination envisaged by the section. If it is not so 'aimed at' specifically (News Ltd v [ARL], at FCR 577) the members of the alleged class do not constitute a 'particular class' for s 4D(1) purposes though they may otherwise be said to constitute a class because they happen to share some differentiating characteristic be this the fact of exclusion or otherwise."
100 This passage is consistent with the judgment of the Full Court in News Ltd v ARL, esp at 558, 576-580. Although Heerey J was in dissent in the Full Court in South Sydney v News Ltd (No 2) as to the result and the decision of Finn J was reversed by the Full Court, nothing in the majority judgments is inconsistent with the approach of Finn J and Heerey J on this point. Moore J preferred (at 505) a construction of the word "particular" in s 4D(1), when qualifying "persons", as intended
"to limit the operation of s 4D to an apparently exclusionary provision which is proposed by the colluding competitors to operate on identified or identifiable persons known to the competitors although it would not be material whether it might operate on other persons as well". (Emphasis added.)
Merkel J spoke of a class "aimed at" by those who give effect to an exclusionary purpose (at 531).
101 The specific argument of the appellants which was addressed by the primary Judge was that the alleged arrangement did not infringe s 45(2)(a)(i) because it was an arrangement for market sharing on a geographic basis. This was said not to be an exclusionary provision, as such an arrangement did not have the purpose of preventing, restricting or limiting the supply of the services to particular classes of persons. Prior to making findings relevant to that submission, the primary Judge set out the important passage from the judgment of the Full Court in ASX Operations v Pont Data at 488, per curiam as follows:
"However, in a submission having an unpleasing resonance of the class-closing rules and of distinctions between general, special and 'hybrid' powers of appointment, the appellants contended that the restraints upon the use of the Signal C information by persons other than those bound into the Dynamic Agreement as 'Licensees' could not have the purpose of preventing, restricting or limiting the supply of services to a 'particular' class of persons, or the acquisition of services by a 'particular' class of persons. It was said that the persons or classes excluded must still be 'identified' if s 4D is to apply. That may be conceded, but they are identified, in the present case, by the characteristic that they may not be supplied with the information in question, unless they accept and become bound by the restraints imposed by the Dynamic Agreement. Such persons come within a particular category or description defined by a collective formula: cf Pearks v Moseley, Re Moseley's Trusts (1980) 5 App Cas 714 at 723. They ordinarily would be treated as constituting a particular class, even though at any one time the identity of all the members of the class might not readily be ascertainable. What distinguishes the class and makes it particular is that its members are objects of an anti-competitive purpose, with which s 4D is concerned."
102 We have already referred to the relevant paragraphs of the primary judgment. It is apparent that the primary Judge's findings were based upon the view that if there were an arrangement for geographic market sharing (or, more particularly, zoning), that would be a breach of s 45(2)(a)(i) because it would deprive persons in that area of services otherwise available to them from one of the participants. His Honour came to that view because of his reading of the relevant passage from the judgment in ASX Operations v Pont Data quoted above.
103 There was no discussion by his Honour of any evidence which would point to any of the persons involved in the arrangement having the actual purpose of specifically targeting the persons in the nominated geographic area or communicating such a purpose among themselves. We have not been referred to any evidence to that effect. On the findings of fact made by the primary Judge, the purpose of Rural Press and Bridge Printing was to maintain their market power in Murray Bridge by preserving the absence of competition in that market. They also intended to preserve their general position in the industry by demonstrating to observers elsewhere that they could not be trifled with by competitors, who should "keep off their grass". Waikerie Printing and Paul Taylor succumbed to the pressure exerted by Rural Press and Bridge Printing, and went along with the geographic zoning in order to prevent an attack by Rural Press and Bridge Printing upon their commercial position elsewhere. It would not be expected that those involved in making such an arrangement would give a thought to the interests of the residents of the Mannum area in coming to the arrangement, and certainly not a second thought. It is hardly surprising that there is no finding that the arrangement was aimed at the class of persons defined by his Honour, or that they were specifically targeted by any of the parties to the arrangement. For the parties to act in this way would make no sense. The class of persons identified by the primary Judge simply consisted of customers or potential customers of the River News. They were not direct or indirect competitors of either party to the arrangement. There is no reason to suppose that either party should have had any purpose to injure or disadvantage those persons.
104 It is, of course, obvious that the provision for geographic zoning would limit the ability of persons in the area to have access to a second local newspaper. But that is the effect of the arrangement rather than its purpose. The potential customers suffered what, in other contexts, is called collateral damage. In this field of discourse there is a clear distinction between purpose and effect, recognised in the express terms of s 45 itself. The difference is not eliminated in the case where the effect either is or could be predicted (Robertson, [98] above, at 120-121). Indeed, as we have pointed out, Parliament chose not to adopt the recommendation that s 45 should prohibit collective boycotts having the effect of restricting etc the supply of services. It needs to be borne in mind that any market sharing, zoning or other "non-compete" provision will be a breach of s 45(2)(a)(ii) if it has the purpose, or would be likely to have the effect, of substantially lessening competition in a market. If a provision does not have that effect, it may be assumed that competing substitutable goods or services will be actually or potentially available in that market. The TP Act does not guarantee that customers will have access to the goods or services provided by a particular supplier. Pushing the concept of an exclusionary provision too far will have that consequence. In our opinion, market sharing or zoning of the kind involved in the present case, without more, is not an exclusionary provision, and the primary Judge fell into error in rejecting the appellants' argument to that effect.
105 The question of the definition of the particular class is an aspect of the proper understanding of s 4D as a boycott provision. As we have discussed, at the time the arrangement is entered into the parties must have a common purpose which is aimed at a particular class of persons which is the target. As the test is subjective, it is hardly possible to define that class unless the parties at least advert to the question at that time. The passage from ASX Operations v Pont Data to which we have referred has caused much controversy, illustrated by the difference of opinion as to its effect in South Sydney v News Ltd (No 2). There is, no doubt, a question mark as to the reasoning of the Full Court in ASX Operations v Pont Data in that passage, particularly if it is looked at in isolation from the facts of the case.
106 One of the difficulties in ASX Operations v Pont Data was that the trial Judge in that case did not deal with the exclusionary provision aspect of the matter. The Full Court came to that aspect of the case de novo, in a situation where it had already upheld findings of liability on other bases. The point was dealt with in a fashion which was concise, and, to some extent, cryptic. The facts fell within s 4D because ASX Operations and Pont Data were competitors in the reseller market. A critical earlier finding of the Full Court was as follows (at 488):
"(iii) Having regard to the finding of the primary judge as to purpose, when dealing with s 46(1)(c), it is clear that those provisions had the purpose of preventing or restricting or limiting the supply of services by Pont to any person other than a Licensee who was a party to the agreement in question. In this connection, Pont pointed to cl 3(2), and 3(6) of the Dynamic Agreement; no complaint was made as to the provisions dealing with price."
That incorporated by reference what their Honours had earlier said about the findings in relation to breach of s 46, to the following effect (at 484):
"Further, we accept the submissions for Pont that it was well open to his Honour to find, as he did, the existence of the purpose of preventing the 'wholesaling' of the Signal C data and of deterring competition to JECNET. His Honour's finding in this respect was in the following terms ((1990) 21 FCR 385 at 417-418):
'As I have already pointed out, this purpose was expressed by Mr Udovich and the members of G4. It is the explanation, in whole or in part, for several of the contractual terms. It is no doubt true, as their counsel submit, that [ASX and ASXO] were motivated by self-interest rather than by malice towards their competitors. But that does not matter. If one of the purposes of the relevant conduct was to deter or to prevent competitive conduct, s 46(1)(c) is offended. If follows that, once it appears that a purpose of the imposition of particular contractual terms was to prevent competition by others with JDS in the wholesale information market, or to deter competition with JECNET in the retail market, this aspect of the case is established.'
We have dealt with the earlier passages in the judgment in which his Honour explained that in the setting of this case, wholesaling and retailing were treated as different aspects or sub-markets of the information market.
His Honour's conclusion as to purpose, in relation to the stock exchanges market, was expressed as follows ((1990) 21 FCR 385 at 417):
'The evidence clearly shows that it was a purpose of [ASX and ASXO] to prevent anyone else entering the stock exchanges market. As the background documents show, this is a matter which exercised both Mr Udovich and G4 from time to time. The desire to prevent such an entry was conceded to be a reason for insisting upon a tripartite agreement. It is the only logical explanation for the drastic limitations on data use set out in cl 3(2)(b)(i) and the prohibitions contained in cl 3(5). Having regard to the fact that ASX was able to impose those terms only because of its market power, a breach of s 46(1)(b) is established.'
Whilst s 46(1)(c) speaks of 'deterring or preventing a person from engaging in competitive conduct in that market or in any other market', par (b) speaks of 'preventing the entry of a person into that market or into any other market'." (Emphasis added.)
107 Viewed in this way, the circumstances in that case can be seen as a conventional boycott situation where competitors come to an arrangement in order to prevent other competitors entering the market. Whilst this does not dispose of all of the difficulties inherent in attributing the purpose of ASX Operations to Pont Data (or to the provision), or in what is said as to the definition of the class, it clearly distinguishes that case from the present.
108 In our opinion, the lack of any finding by the primary Judge that the parties agreed upon a particular class at the time the arrangement came into effect, and the lack of any evidence upon which such a finding could have been based, means that no particular class was identified as required by s 4D of the TP Act. It follows that the primary Judge's findings that breaches of s 45(2)(a)(i) and s 45(2)(b)(i) of the TP Act had been established cannot be sustained. In view of this conclusion, it is unnecessary for us to come to a final view as to the argument that there is a lack of particularity in the class of persons identified by the primary Judge by reason of circularity. That issue, and related issues, are likely to be addressed in the forthcoming appeal to the High Court in News Limited & Ors v South Sydney District Rugby League Football Club Limited & Ors, S 164/2001 (special leave granted 15 February 2002). It is therefore not appropriate for us to undertake a comprehensive review of the issue ourselves, including the reconsideration of ASX Operations v Pont Data, which was suggested by the appellants.