SST Consulting Services Pty Limited v Rieson

SST Consulting Services Pty Limited v Rieson - [2006] HCA 31 - HCA 2006 case summary — Zoe

[14]

It is desirable to say something about how the agreements now in question came about, and to set out some of the principal provisions of the loan agreement and the guarantee.
At the relevant times, the directors of the appellant were Messrs Peter Sweeney, Paul Sweeney and Denys Truman. Before late 1998 or early 1999 (the exact date does not matter) these three men had carried on business through various companies referred to collectively as the Port Botany Group. The business included packing and unpacking shipping containers. The Port Botany Group dealt with Australian Freight Services Ltd ("AFS"), a company which, until the late 1990s, acted as a local agent for a United States freight forwarder called Brennans. When Brennans was taken over by a competitor of AFS, AFS decided to set up its own American operation and AFS USA was formed to carry on that activity.
In January 1999, the assets of the Port Botany Group were acquired by the Mayne Nickless group of companies. A company associated with Messrs Sweeney, Sweeney and Truman (it matters not which company) had a management agreement with Mayne Nickless.
In June 1999, the first respondent asked Mr Peter Sweeney to provide about $1 million, by instalments, to be used as additional working capital for AFS USA and he offered what he described as "certainty in relation to the work". Mr Sweeney's contemporaneous notes recorded, as the first proposition agreed, that all packing and unpacking work and "LCL" (consignments less than a full container load) transport in Sydney, Melbourne and Brisbane, and Sydney air freight, would be directed to "Port Botany/MPG/Pitkin facilities during the life of loan". The second note he made was that "[i]f any work directed away from the above facilities, the loan becomes due and payable". It seems that the "Port Botany/MPG/Pitkin facilities" were in some way associated with Mayne Nickless and it may be that directing this work to those facilities was of advantage to the appellant or its associated interests. Nothing turns on the accuracy of either of these propositions.
During June and July 1999, the parties agreed upon the terms of the loan to AFS USA and the guarantee to be given by the respondents. The loan was to be made by instalments between July 1999 and June 2000 and to be repaid by payments in August 2000, 2001 and 2002 with the balance, together with compounded interest at the rate of 20 per cent, in September 2003.
The terms of the proposed loan agreement were recorded in a document headed "Special Terms for Inclusion in Agreement". One of the terms thus recorded was "[i]f any work is directed away from those facilities [ie the 'Port Botany/MPG/Pitkin facilities'], this is a default event". Another matter recorded in the document was the proposal that if AFS, or any subsidiary of AFS, was sold or otherwise disposed of, subject to some exceptions whose content was to be agreed later, the lender could require repayment of the loan and interest. In the event of non‑compliance with any condition of the loan or a default event, the whole amount of the loan became due and payable "together with interest that would otherwise have been payable at the end of year four". This record of the terms of the loan agreement was signed by the first respondent and by Mr Truman on 7 July 1999.
On 10 September 1999, solicitors for the appellant wrote to the directors of AFS USA setting out the terms of the loan agreement. A copy of the letter was signed on behalf of AFS USA and it is this letter that was later treated in argument as constituting the loan agreement. The letter contained a provision about AFS USA directing work which was expressed differently from the way that provision was set out in the earlier documents, but nothing was said to turn on the differences. The letter provided that:

[31]

The appellant commenced an action in the Supreme Court of New South Wales against the respondents claiming payment of the balance of the loan and interest. By an amended defence the respondents pleaded that the loan agreement was "[a]n agreement to effect the illegal purpose of exclusive dealing" as defined in s 47(6) of the Trade Practices Act and accordingly was "void and unenforceable". The respondents further alleged that, if they had entered into a guarantee in favour of the appellant, that guarantee was "void and unenforceable having been given to effect and maintain the illegal purpose of third line forcing". The respondents sought leave to deliver a cross‑claim seeking a "declaration pursuant to s 87 of the [Trade Practices Act] that the guarantee is void and/or unenforceable".
On the appellant's application to a single judge (Sully J), the cross‑claim and those parts of the respondents' amended defence relying on the Trade Practices Act and alleging illegality were struck out[3]. They were struck out on the basis that, because the unlawful provision of the loan agreement could be severed, the matters alleged in the defence and cross‑claim were unarguably bad, provided no arguable answer to the appellant's claim, and pleaded no arguable cross‑claim. The respondents' application for orders transferring the proceedings to the Federal Court pursuant to s 6(1) of the Jurisdiction of Courts (Cross‑vesting) Act 1987 (Cth) was dismissed[4].
The respondents sought leave to appeal to the Court of Appeal of New South Wales. Leave was granted, the appeal allowed, and the orders made at first instance set aside[5]. The Court of Appeal held that the points sought to be raised by the impugned pleadings were not unarguable. The Court ordered that the proceedings be transferred to the Federal Court.
In the Federal Court, amended pleadings were filed. The respondents alleged that the loan was made "pursuant to an overall agreement to provide for a loan to ... [AFS USA] and related Australian performance arrangements". They further alleged that this "overall agreement" and the guarantee (whose making was no longer put in issue):

[37]

At first instance[6], Emmett J entered judgment for the amount claimed (which, by then, amounted to $1,514,890) and dismissed the cross‑claim. To the extent that there was an unlawful provision in the overall agreement the appellant was held[7] "entitled to treat that provision as severed from the arrangement, so as to permit the enforcement, as against [AFS USA], of its obligations in respect of the advances". It was held[8] that it followed that the obligations in respect of the advances that were guaranteed by the respondents were valid and enforceable obligations.
It does not appear that any argument was advanced at trial (and no point was pleaded) to the effect that severance of a provision of the loan agreement presented separate questions about the enforceability of the guarantee. In particular, there was no argument advanced at trial (or subsequently on appeal to the Full Court of the Federal Court or in this Court) based on considerations of the kind discussed in Ankar Pty Ltd v National Westminster Finance (Australia) Ltd[9], Chan v Cresdon Pty Ltd[10] or Andar Transport Pty Ltd v Brambles Ltd[11]. Those considerations may be noted but put aside from further consideration as not put in issue in the courts below or in the appeal to this Court.
On appeal to the Full Court of the Federal Court (Wilcox, Sackville and Finn JJ), the appeal was allowed, the orders of the trial judge set aside and the appellant's application dismissed[12]. The Full Court held that it was not possible to sever the offending provision which obliged AFS USA to direct work to corporations nominated by the appellant from the balance of the loan agreement and that, accordingly, the agreement as a whole was illegal and void. This was said[13] to follow from the conclusion that the parties had structured their contractual arrangements in such a way as to evince a mutual understanding that the obligations assumed by the parties under the contracts constituted an indivisible whole such that severing the offending provision would fundamentally alter the character and nature of the agreement they had made.
The central focus of the reasons of the Full Court was upon the application of what were understood to be the common law rules governing the consequences of illegality[14]. There was, therefore, a deal of reference to the decisions of this Court in Brooks v Burns Philp Trustee Co Ltd[15], Yango Pastoral Company Pty Ltd v First Chicago Australia Ltd[16] and Humphries v Proprietors "Surfers Palms North" Group Titles Plan 1955[17] as well as to McFarlane v Daniell[18] and Brew v Whitlock [No 2][19]. But as these reasons will later demonstrate, whether the principles stated in those cases find application in the present matter depends upon first construing the relevant provisions of the Act.
The Full Court concluded that to excise the obligation to direct "all work of pack and unpack LCL nature" to the corporations nominated by the appellant "would be to alter the nature of the contract notwithstanding that what remained of the arrangement would embody a loan obligation"[20]. The validity of that conclusion need not be examined. Nor is it necessary to consider what significance should be attached to the course of negotiations between the parties in deciding questions of the kind that lie behind that conclusion.

[38]

Both at trial[21], and on appeal to the Full Court[22], the construction of s 4L acted on by the Full Court of the Federal Court in News Ltd v Australian Rugby Football League Ltd[23] was adopted and applied. In News Ltd, the effect of s 4L was understood[24] to be that "the invalidity of an exclusionary provision of a contract, if severable, does not affect the validity or enforceability of the balance of the provisions" (emphasis added). The Full Court in the present case rejected the construction of s 4L preferred by Emmett J, but not applied by his Honour in deference to the decision in News Ltd. What Emmett J said[25] was that the effect of s 4L was that "even if the making of a contract involves a contravention of the Act, the contract would be valid and enforceable except to the extent that the provision of the contract that renders the contract a contravention can be severed" (emphasis added).
For the reasons that follow, s 4L does not bear the meaning or effect given to it in News Ltd. Emmett J was right to construe s 4L as providing that where the section is engaged the contract in question is valid and enforceable except to the extent that the offending provision is severed. It is, however, not right to say that the section is engaged where the making of a contract involves a contravention. The condition for engagement of s 4L is more precisely stated. Further, the operation of s 4L is to require severance of the offending condition of the contract. Severance of the offending provision is not predicated upon the separate application of common law rules governing severance. It is, therefore, not right to speak of the contract being valid and enforceable except to the extent that the offending provision can be severed.
In order to make good those propositions it is necessary to begin by considering the statutory context in which s 4L takes its place.
The Trade Practices Act proscribes certain forms of conduct. Those proscriptions take several different forms. Some[26] hinge upon the making of a "contract, arrangement or understanding". Some[27] hinge upon requiring the giving of, or giving, a "covenant" which is defined[28] as "a covenant (including a promise not under seal) annexed to or running with an estate or interest in land (whether at law or in equity and whether or not for the benefit of other land)". Others, like the exclusive dealing provisions now in issue, focus upon the supply or acquisition of, or the refusal to supply or acquire, goods or services, and the conditions of supply or acquisition or the reason for refusal. Making a contract may, as here, constitute a contravention of the exclusive dealing provisions, but those provisions encompass many other kinds of conduct. Because the exclusive dealing provisions encompass the making of certain kinds of contract, the Act provides in s 45(6) for the way in which the otherwise overlapping provisions of s 45 and s 47 are to operate[29]. The construction of s 45(6) was considered by this Court in Visy Paper Pty Ltd v Australian Competition and Consumer Commission[30]. Issues of that kind do not arise here.
Still other provisions of the Act[31] prohibit the acquisition of shares in or assets of a corporation, if the acquisition would or would be likely to have a particular effect. Provisions found in Pt IVA prohibit unconscionable conduct; the provisions of Pt V prohibit various other forms of conduct including, of course, misleading or deceptive conduct.
Some of the conduct otherwise proscribed by the Act may be authorised under Pt VII. Further, conduct, and in particular conduct constituting the practice of exclusive dealing, may be notified to the Australian Competition and Consumer Commission. If exclusive dealing conduct is notified, engaging in the conduct will not, in the circumstances identified in the Act, constitute a contravention.
The Act does much more than proscribe (with the elaborations mentioned) certain forms of conduct. It contains detailed provisions, in Pt VI, dealing with the enforcement of the Act and providing remedies for past or proposed contraventions of the Act. In addition, particular provision is made for the extent to which certain contractual provisions are enforceable. Thus, s 45(1) provides:

[42]

Section 4L takes its place in this statutory framework: a framework of legislation that makes elaborate provision not only for the creation of norms of conduct but also for the consequences that are to follow from the contravention of those norms[32]. It is not readily to be supposed that the consequences of contravention are to be determined by resort to principles hinging upon inferences about legislative intention or the imputed intentions of contracting parties.
Section 4L was inserted in the Act following the Swanson Committee Report[33] and both sides in this appeal sought to turn the legislative history of the provision to their advantage. It will be necessary to say something about that history and those arguments but it is necessary to begin by considering the text of the provision.
Section 4L is engaged only "[i]f the making of a contract after the commencement of this section contravenes this Act by reason of the inclusion of a particular provision in the contract". It is, therefore, engaged (a) only if there is a contract (as distinct from an arrangement or understanding), (b) only if the making of that contract contravenes the Act, and (c) only if the making of the contract contravenes the Act by reason of the inclusion of a particular provision in the contract. It follows that s 4L cannot be engaged in respect of a number of kinds of contravention of the Act because it cannot be said that they turn on the making of a contract which contravened the Act by reason of the inclusion of a particular provision.
As explained earlier in these reasons, the making of the loan contract in this case contravened the Act by reason of the inclusion of the provision in the loan contract requiring AFS USA to direct certain work to the corporations that the lender directed. Making the contract with that condition constituted engaging in the practice of exclusive dealing. It was the inclusion of the condition obliging AFS USA to direct its work in that way that brought the lender's supply of services within s 47(6). It is that condition with which s 4L deals in the second part of its provisions, namely: "subject to any order made under section 87 or 87A, nothing in this Act affects the validity or enforceability of the contract otherwise than in relation to that provision in so far as that provision is severable" (emphasis added).
It is important to recognise the way in which this second part of s 4L is constructed. It sets out what may be identified as its central proposition - "nothing in this Act affects the validity or enforceability of the contract". That central proposition is qualified in two respects. First, it is "subject to any order made under section 87 or 87A"; secondly, different consequences are to follow in relation to the offending provision "in so far as that provision is severable". But it is to be noted that, subject to those qualifications, what we have called the "central proposition" is that the contract, the making of which contravened the Act, is valid and enforceable. That central proposition is the direct opposite of the ordinary rule that a contract whose making is illegal will not be enforced. As was said in Yango Pastoral[34]:

[44]

The second qualification to the central proposition hinges about the words "in so far as". The offending provision is not valid and is not enforceable "in so far as" that provision is severable. The words "in so far as" describe the extent[35] of invalidity and unenforceability that is to follow from the contravention that engages the section. Much of the argument in this Court and in the courts below (informed as it was by what was said in News Ltd) treated the words "in so far as that provision is severable" as stating a condition for the engagement of s 4L. In particular, the assumption which lay behind the consideration, by the Full Court in the present matter, of cases concerning what were understood to be the common law rules governing the consequences of illegality was that if, according to those rules, the offending provision could not be severed, s 4L had no work to do. Thus, because the Full Court concluded that the offending provisions in this case could not be severed, it was held that the contract of guarantee was wholly unenforceable.
It is important to recognise that this is a conclusion that stands sharply at odds with the recognition that the central provision of s 4L is that (subject to certain qualifications) nothing in the Act affects the validity or enforceability of the contract. The conclusion that the loan contract was wholly unenforceable was seen as following from the second of the two qualifications to the central provision of s 4L. But as noted earlier, that qualification is that different consequences follow in relation to the offending provision.
That the construction which underpinned the Full Court's decision is not the proper construction of s 4L is revealed by substituting "if" or "if, and to the extent that," for the words "in so far as". That is the sense given to the concluding words of s 4L both in News Ltd and by the Full Court in this case. What that substitution reveals is that to treat the reference in s 4L to severance of the offending provision as a condition for the section's engagement leads to an unresolvable contradiction. On the one hand, the central provision says that "nothing in this Act affects the validity or enforceability of the contract"; on the other, if a condition for engaging that central provision is that the offending provision is severable, the general rule is said to be that the contract is not valid and not enforceable. There is no such contradiction if "in so far as" is given its ordinary meaning as an expression of extent.
As noted earlier, both sides sought to draw some advantage from reference to the legislative history of s 4L. Little can be gleaned, however, from the very short references made to severance in the Swanson Report[36]. The essence of the recommendation made by the Committee is sufficiently captured by what was said in par 4.32 of the Report:

[51]

Not least is that so because questions of "severance" arise in different circumstances. In public law, what have been called common law rules of severance were devised to preserve valid portions of subordinate legislation after textual surgery to remove the invalid portions[39]. The term "severance" is also used to describe what is done when a contractual term is ignored as being too uncertain to admit of enforcement but other promises in the contract are enforced[40]. Further, "severance" is a term employed in considering the enforceability of provisions of contracts other than provisions whose making or enforcement is illegal[41] or contrary to one of the heads of public policy[42]. Different considerations arise in these various cases.
The origin of what came to be known as the "blue pencil" test[43] lay in the treatment by the common law of illegal conditions in bonds and other instruments under seal. This was a field where matters of form were paramount and the concern was with whether what remained was a valid instrument rather than with the implication of a promise to take effect if part of the bargain was illegal[44].
The "blue pencil" test was imported into the treatment of covenants in restraint of trade even though in that field, at least following the general adoption of the approach of courts of equity to such restraints[45], the emphasis has been upon questions of substance and of public policy[46].
The modern law respecting severance in relation to covenants in unreasonable restraint of trade may be seen as turning on three questions. The first question is whether the covenantee can enforce the restraining covenant to the extent to which it would have been valid had it been narrowly drafted. The answer is that the covenantee can do so if the parts which are too wide can be removed without altering the nature of the contract and without having to add to, or modify, the wording in any way other than by excision. The second question is whether the covenantor can enforce the promise in consideration of which the restraining covenant was given. The answer is that the covenantor can enforce the promise if the main consideration provided for it is not illegal. The third question is whether, if a contract is unenforceable because it contains a covenant in restraint of trade, transactions connected or associated with it are also unenforceable. The answer is that the unenforceability of the contract may affect the enforceability of other transactions with which it is closely connected.
Thomas Brown and Sons Ltd v Fazal Deen[47] concerned not a covenant in restraint of trade but a contract of bailment for certain gold bars and a parcel of gems. Performance of the contract, so far as concerned the gold bars, contravened a law of the Commonwealth and was illegal; but this Court held that an action lay to recover the value of the gems because the terms of the bailment relating to the gold were severable. Kitto, Windeyer and Owen JJ held[48] that the test of severability was that stated by Jordan CJ in McFarlane[49], a restraint of trade case.
In McFarlane, Jordan CJ stated the applicable rule as being[50]:

[56]

Further, in the circumstances in which s 4L is engaged (making the contract is a contravention of the Act) there is a more deep‑seated problem. It is that the making of the contract is contrary to law[54]. As was noted[55] by Sackville J in the present case, Trade Practices Commission v Milreis Pty Ltd[56] demonstrates that "the ordinary rule is that if Parliament prohibits the making of a contract, the contract does not give rise to an enforceable right or obligation". What then would be the basis upon which more general rules, intended to give effect to what is inferred to be "the legislative intention regarding the extent and the effect of the prohibition which the statute contains"[57], are to be regarded as relevant to, and delineating the field of operation of, a statutory provision expressly dealing with that very subject? That is reason enough to reject a construction of s 4L that would require resort to common law rules of severance.
Even putting these difficulties to one side, there are at least two further reasons for concluding that common law "rules" relating to severance are not engaged by the reference made in s 4L to the extent of severance of the offending provision. First, while s 4L identifies the relevant contravention of the Act as resulting from the inclusion of a particular condition in the contract whose making contravenes the Act, and singles that condition out for different legal consequences from those attaching to the contract otherwise, the cases in which the offending condition did not constitute consideration for the promise that it is sought to enforce, or was not to be understood as an important and inseparable element in the contract, would be rare indeed. There would, in that event, be very few cases in which common law "rules" about severance would permit the severance of the offending condition. Section 4L would thus have little effective work to do. The cases in which provisions of a contract, apart from the offending condition, could be enforced would be few and far between.
The second, and a determinative, consideration which requires the rejection of a construction of the section requiring resort to such a body of rules is that, upon analysis, it is apparent that marking out the bounds of severance by reference to some set of common law "rules" as to severance would treat severability as the condition for the operation of s 4L. It would treat severability as the condition for the operation of s 4L because, if the offending condition is not severable, the consequence is said to be that the contract as a whole is unenforceable. For the reasons given earlier, that construction of the section should be rejected.
What follows is that s 4L, on its proper construction, requires rather than permits the severance of offending conditions. The phrase "in so far as" marks the limit of the severance that must be undertaken. In many cases that would be achieved by a "blue pencil" approach to severance. But that may not always be the case. If it is not, the phrase marks the limit of invalidity and unenforceability of the offending condition. The working out of those limits in each case will depend upon the particular contractual provisions that are to be considered. In the present case, no such difficulty arises. So much of the provisions of the loan agreement as required repayment of the loan with interest are valid and enforceable. It follows that the answer which the respondents sought to make to the claim against them on the guarantee they had given was not made out.
This outcome is wholly consistent with the purpose, text and structure of the Act. It is an outcome that recognises that the consequences of contravention are prescribed by the Act, not by resort to a general and all‑embracing principle whose application in this case would favour one group of parties knowingly concerned in the contravention over another party in like contravention of the Act. AFS USA and the respondents were all knowingly concerned in the appellant's contravention of the Act. It was the first respondent who, on behalf of AFS USA, offered "certainty in relation to the work". Yet on the respondents' arguments, the debt which AFS USA owed would be irrecoverable. That result would not advance any purpose of the Act. Nor, for the reasons given earlier, is it a result that is consistent with either the Act's text or its structure.
No separate issue was raised (whether by notice of contention or otherwise) about the respondents' cross‑claim for a declaration under s 87 of the Act that the guarantee "is void and/or unenforceable". It is, therefore, not necessary to examine whether or what relief would be available under s 87 to a party who was knowingly concerned in the contravention which founds the claim, under that section, as a party likely to suffer damage by the conduct of the other in contravention of Pt IV.

[58]

The appeal should be allowed with costs. The consequential orders sought by the appellant should be made. The orders of the Full Court of the Federal Court of Australia made on 15 February 2005 should be set aside and, in their place, there should be orders that the appeal to that Court is dismissed with costs.
KIRBY J. The reasons of Gleeson CJ, Gummow, Hayne, Heydon and Crennan JJ ("the joint reasons") conclude that this appeal[58] should be allowed. I disagree. My disagreement reflects considerations that I have identified in earlier decisions of this Court involving the meaning and operation of the Trade Practices Act 1974 (Cth) ("the TPA")[59].
Having correctly insisted that the resolution of this appeal is to be found, not in common law doctrines of severability, as such, but in the applicable statutory provisions, the majority has then faltered. It has failed to apply one of the most important rules for the ascertainment of statutory meaning. I refer to the rule that obliges meaning to be assigned by reference to the purpose of the Parliament in enacting the provision. It is not enough to subject the words to "metaphysical analysis"[60].
When giving meaning to the TPA, decision-makers with the responsibility of interpretation should do so by reference to the Act's purposes, ascertained with the assistance of available tools. These might include the background to, and history of, its enactment; the entire context and structure of the legislation; the course of relevant amendments to the text; and the content of sources that throw light on the issues, such as law reform and like reports, admissible parliamentary speeches and applicable supplementary materials.
This appeal is ultimately concerned with giving effect to the command of the Parliament, expressed in the TPA. When that command is clarified, it sustains the unanimous conclusion of the Full Court of the Federal Court of Australia, now before us. The section of the TPA providing for severability of a provision must be given effect, but in a way that conforms to the large, national objectives of the Act. When this extra element is added to the reasoning of the other members of the Court, and the severability provisions are viewed in that context, the result is the opposite to that reached without due regard to it. It requires an order that the appeal be dismissed. That is the order which I favour.

[62]

A conjoined arrangement: The background facts are summarised in the joint reasons[70]. However, at the outset it is essential to understand the full context of the dispute. SST Consulting Services Pty Limited (the appellant) sued Messrs Stephen Rieson and Scott Bell (the respondents) as guarantors of a loan made by the appellant to AFS Freight Management (USA) Inc ("AFS USA"). The respondents' guarantee was not disjoined from the exclusive arrangement under the TPA in issue in this appeal. The appellant is not a banker, a finance house or some other disinterested financial intermediary, now concerned with the recoupment of a loan made to AFS USA. The uncontested facts show that all of the parties were, in their different ways, involved, directly or indirectly, individually or by the acts of their directors, in trading and carrying on business involved in the packing and unpacking of shipping containers at ports, in Australia and elsewhere.
The directors of the appellant (Messrs Sweeney and Truman), through corporations trading as the Port Botany Group, formerly acted as agents for a United States freight forwarder whose activities AFS USA was created to secure. For this purpose, in 1999, AFS USA needed to raise capital. The parties then formulated the "deal" by which the appellant would lend approximately $1 million to AFS USA. In return for this loan, Mr Rieson, for the respondents, not only guaranteed the discharge by AFS USA of the loan. He also guaranteed "certainty in relation to the work". This was affirmed by Mr Rieson in a conversation with Mr Peter Sweeney. The primary judge in the Federal Court, Emmett J, found that the conversation included the promise: "If you provide the funds you can have certainty in relation to the work"[71].
The "work" envisaged was the flow of work to the company that had succeeded the Port Botany Group. Messrs Sweeney and Truman were interested in that company. Some of the judges below made heavy weather of the interests of the respective parties in the "deal" that led to the contract challenged under the TPA. However, as I approach the case, that interest was really quite simple. The lender (the appellant), the borrower (AFS USA) and the guarantors (the respondents) all shared a common interest in the arrangement to which they severally agreed. The appellant lent a fund of capital at a "somewhat usurious"[72] rate of interest to AFS USA, the borrower. The borrower's directors Messrs Rieson and Bell (who had an interest in the commercial success of the borrower) became guarantors of the repayment of the loan by the borrower. They offered (and the appellant accepted) not only the promise of the agreed interest but also the tied arrangements constituting an exclusive dealing prohibited by s 47 of the TPA.
The clear consequence of the exclusive dealing was that members of the Australian public were deprived of the operation of the market forces of competition that would tend to drive down the costs of the packing and unpacking of containers, and improve the quality of the services that AFS USA would perform. The appellant secured high interest, a closed market with the borrower and the prospect of both repayment and a steady flow of work. The respondents secured the loan and the prospect that AFS USA would prosper. Had things not gone sour before the loan was repaid, the parties would have furthered their respective economic interests. But the Australian public, dealing with AFS USA, would have borne the disadvantages that flowed from the exclusive dealing.
A loan and mutual interests: The agreement that led to the impugned "contract" was effected as contemplated. Mr Sweeney made notes during his conversation with Mr Rieson. Those notes were subsequently reflected in the formal documents prepared by the solicitors. Thus, the notes included:

[65]

The "facilities" nominated, and the venues for transport named[73], were those in which companies associated with the Sweeney and Truman interests were involved. To demonstrate even more clearly the attractiveness of the tied dealing, in a further conversation involving Messrs Sweeney, Truman and Rieson, Mr Rieson explicitly affirmed the mutual advantages proposed. They arose because of the then recent alteration in the position of the United States freight forwarder which AFS USA was hoping to replace. Because of this prospect, Mr Rieson pointed out that "your Port Botany container depot will suffer a short term loss of FAK containers ex the States"[74]. All in all, the replacement of the United States freight forwarder during the shortfall with the new Australian company, tied to interests with which the appellant was associated, would be a very attractive one all round. The only deficiency was that the contemplated contract of loan, entered into on such conditions, would breach s 47 of the TPA. The purpose of the loan was to maintain and assure the exclusive dealing, because, in the event that the borrower ceased to acquire packing and unpacking services from the third party, default would occur, entitling the appellant immediately to recover the loan principal.
Nonetheless, the parties pressed on. The loan agreement and the deed of guarantee were finalised and executed. Apparently oblivious to the requirements of the TPA, the parties took steps to formalise the "deal". "Special Terms" were prepared by solicitors and sent to the appellant. These referred to "default events" that would apply during the life of the loan "[i]f any work is directed away from [the specified] facilities"[75]. The parallel deed of guarantee was executed in December 1999. It contained the identical provision obliging the borrower (AFS USA) to conform to the exchange of letters representing the loan agreement. Thus, in terms, the borrower agreed that, if it defaulted on the payments of interest and principal, or the "positive acts to be done", the respondents, as guarantors, would "pay on demand to the lender the principal amounts advanced with interest … up to the time of payment under the Guarantee"[76].
The "positive acts" and "default events" referred to in the exchange of letters were clear. Relevantly, the "default events" included the failure to direct all pack and unpack in Sydney, Melbourne and Brisbane and Sydney air freight to the specified venues, as agreed. The sixth clause contained the express promise of the borrower, AFS USA, to "direct all work", which was to include transport, in the same language as the expression used for the relevant "default event"[77]. The breach of s 47 of the TPA could not have been more brazen.
To strengthen the assurance still further, an additional exchange of letters was procured. It contemplated a further guarantee of the loan obligations of AFS USA by its holding company, Australian Freight Services Limited ("AFS"). This letter specifically contemplated that AFS would itself also enter into a deed "whereby they will cause all their pack and unpack LCL transport in Sydney, Melbourne and Brisbane and Sydney air freight to be directed to [the specified facilities in which the appellant was interested]"[78]. Before this could occur, default by AFS USA in the payment of interest took place. That default occasioned demand on the respondents upon their guarantee. It also gave rise to these proceedings.
Unenforceability of the loan: I have included this detail of the oral and written exchanges that were formalised in the impugned loan "contract" for a reason. It adds to the bare bones contained in the joint reasons. It shows how the several parties (the appellant, the respondents and AFS USA) were, and had been for some time, associated. Those parties were all interested in the exclusive dealing upon which they mutually agreed. Imprudently as it transpired - but candidly, reflecting their agreements - each had a reason to want the terms for the exclusive dealing to be contained both in the loan agreement and in the deed of guarantee. The terms did not slip into these documents by accident or oversight. As I have shown, from the beginning, they were essential conditions of each "contract". They were a direct affront to s 47.
The language containing these terms survived through several drafts. It remained essentially the same from the moment of its first formulation in the telephone conversation between Mr Rieson and Mr Peter Sweeney, noted down by the latter and acknowledged by the primary judge[79]. There was no relevant disparity between the reproduction in the letters which were treated as constituting the loan agreement, and the terms of the deed of guarantee. By law, to enforce the deed of guarantee, the appellant was obliged to establish default by the borrower on a legally valid and enforceable loan. The ultimate question was therefore whether, given the language and purpose of s 47 of the TPA, read with the provision as to severability in s 4L, the appellant was entitled to take this course.

[79]

The loan agreement breached s 47: I agree in the analysis in the joint reasons, indicating that the appellant's grant to, or conferral upon, AFS USA of the right to borrow money from the appellant was a supply of "services" to AFS USA on "the condition that [AFS USA] will acquire … services of a particular kind or description"[93], namely the specified "pack and unpack LCL" work in designated ports, "includ[ing] transport"[94]. For the reasons there given, I agree that the appellant, by entering into the loan agreement and providing the loan, thereby engaged in the practice of "exclusive dealing" within s 47(6) of the TPA, a course prohibited by s 47(1)[95].
The initial instalments are included: I also agree with the joint reasons[96] that the initial two instalments advanced by the appellant to AFS USA, before the right to the loan was formally created, should be treated as having been paid in anticipation of the loan agreement and pursuant to the Special Terms to which I have referred[97]. Those instalments do not cast doubt on the existence, and provisions, of the loan agreement ultimately entered into. In any case, as I have shown, the Special Terms included, in the provision for "default events", express reference to the tied arrangements.
The loan and the guarantee: The case has been approached on the footing that no additional questions arise in respect of severance of a provision of the loan agreement, separate from the enforceability of the deed of guarantee. I agree that such questions can be disregarded by this Court[98].
The primacy of statutory severability: I also agree that the obligation of the courts below was to address any question of severability presented by the circumstances, by giving effect to the requirements of s 4L of the TPA. At most, the earlier doctrines of severability at common law were available by analogy to assist in the application of s 4L. To the extent that the judges of the Supreme Court of New South Wales and of the Federal Court, who considered this case, thought it appropriate to apply the common law rules as such, they were mistaken. Their duty was to apply the statutory provisions and to give effect to the requirements of the TPA, including any requirement imported by s 4L, providing a statutory remedy of severance.
In the past, severability has arisen in many different contexts. Some of those contexts[99] have involved the operation of statutory provisions. Such cases might afford useful analogies for s 4L. But as this Court has had occasion to say repeatedly in other contexts, where statutory provisions are engaged, attention must primarily be addressed to those provisions and to their terms, and not to earlier judicial elaborations of the common law or of other statutory provisions[100].
Applying the language of s 4L: The language of s 4L makes it clear that the provision is only engaged in respect of a "contract", the "making" of which contravenes the Act, by reason of the inclusion of a particular "provision". This confines severability to cases of the specified kind[101]. The loan agreement was such a case. Ultimately, this was undisputed.
The importance of context and objectives: To the extent that the reasoning of courts in the past, concerning severance of contractual provisions that would otherwise render a contract invalid or unenforceable at law, may be useful by analogy to the task presented by s 4L of the TPA, it must be recognised that there are no universal "set rules which will decide all cases"[102]. Whether severability is applicable depends on the considerations expressed or implied in the statutory provision; the terms of the contract; the extent and seriousness of the breach of the TPA; the policy evident in the legislation; and the judgment of the decision-maker. The lastmentioned consideration necessitates recognition of the part that values play in such decisions, and the importance of harnessing such considerations to the context in which they are invoked. Here, that context is the TPA as a whole, with its significant social and economic objectives. The language of s 4L should not be construed in isolation from that context.
Common law restraint of trade: I am content, as the joint reasons hold[103], to treat as inadmissible the respondents' belated attempt to raise an alternative complaint that the appellant had engaged in unreasonable restraint of trade at common law, providing a different basis for unenforceability of the loan agreement. Whilst I have some doubts that any procedural unfairness to the appellant would flow from this Court's deciding that issue, raised by a notice of contention, I can put it aside. The proper application of the TPA's exclusive dealing provisions will be sufficient to bring me to the orders that I favour.

[88]

In Menaka, the Privy Council went on to elaborate the correct approach by reference to earlier decisions in which, as here, a statute rendered the contract invalid or unenforceable. Their Lordships cited Cornelius v Phillips[112], a case involving the application of the Money-lenders Act 1900 (UK), as stating that the application of the general rule (voidness and unenforceability) might be modified "if there had been a special context in the statute demonstrating an intention to exclude the general rule [and there is no] doubt that such a context could be provided either by express words or by necessary implication"[113].
In the past, courts have struggled with what appear to be the disproportionate and unjust consequences of denying any effect to a contract merely because it contains provisions that are prohibited by statute. It was to afford relief against this outcome that the common law doctrine of severance arose. In the present case, there is no need, as such, to resort to the common law doctrine because the Parliament has provided specifically for severability in the context of the TPA by s 4L.
However, it should not be assumed that the earlier judicial rationalisations are completely irrelevant, so long as they are compatible with the language and purposes of s 4L; and so far as considering them does not detract attention from the primary duty to apply the statute. It is essential for a court, considering severance in this context, to apply s 4L of the TPA. But the fact that that section uses the word "severable" suggests that the statutory remedy is not entirely divorced from the common law that preceded it. For more than a century prior to the enactment of the TPA, judges explored the concept of severability. They developed a range of considerations that could be taken into account when applying the concept. These considerations are not irrelevant to the application of what is now a statutory remedy.
It follows that where "trading practices provisions"[114] prohibit certain kinds of conduct, "the effect upon contractual relationships is consequential upon the prohibition". The approach of Brennan J in Milreis was approved by this Court in Carlton & United Breweries Ltd v Castlemaine Tooheys Ltd[115]. The approach is applicable to the present appeal.
Here, a provision for exclusive dealing was included in the subject contract. As a result, the making of the contract contravened the TPA. In the circumstances, the contract was, at the least, rendered unenforceable. This was so because s 47 is not simply addressed to inter partes interests. It is designed for the protection of the public[116]. The public interest in invalidating the practice of exclusive dealing (and deterring others from engaging in such practices) demanded a sanction.
Sanctions and hard cases: If this result is thought to produce "harsh" consequences in the particular case[117], the TPA affords several justifications. First, the social and economic purposes of provisions such as s 47 are concerned, on a macroeconomic level, with the protection of the public generally. Because such agreements are usually entered into secretly, detection of exclusive dealing arrangements is very difficult. When they are discovered, the available sanctions must reflect this fact. Section 87 of the TPA provides remedies to an innocent party who suffers loss as a result of a contract being found void or unenforceable, for example, where it contains provisions for exclusive dealing. Further, in cases to which it applies, a party might seek severance of the offending provisions under s 4L. But the starting point for analysis is an appreciation of the importance of the policy expressed in s 47. Where that section applies, it has serious consequences for the validity and enforceability of the affected contract. So much is the clearly expressed command of the Parliament. It applies to the loan agreement in the present case.

[92]

The phrase "that provision" is a reference back to the statement, earlier in s 4L, identifying "the inclusion of a particular provision in the contract" which renders the making of the contract a contravention of the TPA. In the present case "that provision" is the provision by which the parties to the loan agreement agreed to an exclusive dealing, and to the inclusion of that provision as a term of the contract. It was the inclusion of the provision that resulted in the appellant's breach of the TPA.
The joint reasons: The majority in this Court, rejecting past authority in the Full Court of the Federal Court[118], reads s 4L as a provision that "requires rather than permits the severance of offending conditions"[119]. That interpretation could only be adopted by overlooking the context in which s 4L appears in the statute. It is a context designed to provide exceptional relief from the provisions of the TPA dealing with invalidity and unenforceability. The approach of the majority also involves disregarding the overall purpose of the statute (relevantly, to redress anti-competitive and unfair trading practices). Whilst apparently approving what was said by Brennan J in Milreis[120], the majority fails to apply the approach established by that case for the application of s 4L.
Contrary textual arguments: It would be remarkable if, in the language of s 4L, the exceptional cases of severability were given such predominance as to undermine the important work of the exclusive dealing provisions in protecting competition and fair trade practices. Self-defeating provisions may arise in legislation. But one would expect such a deep flaw to have been discovered a long time before this case; and the language of the TPA, said to justify that conclusion, to have been much clearer.
That severance was intended as an exceptional solution is evident from the language of s 4L, which provides for severability, but only "subject to any order made under section 87 or 87A"[121]. The explicit mention of those provisions makes it clear that s 4L operates on a micro level, by reference to the particular provisions of the contract. This particularity is reinforced by the reference in the preconditions for the attachment of s 4L to the "inclusion of a particular provision in the contract"[122]. The particularity of s 4L is not consistent with the construction favoured in the joint reasons, which requires (rather than exceptionally permitting) the severance of offending conditions. By the majority's construction, the more an agreement is tainted by illegality (due to non-compliance with the TPA) the more likely it is that the agreement will be rescued by s 4L. This is a counterintuitive result which the Parliament could not have intended.
Inconsistent legislative history: To confirm that this is so, one has only to look at the history that lay behind the enactment of s 4L. The provision arose out of recommendations of the Review Committee appointed by the Minister for Business and Consumer Affairs ("the Swanson Committee"), which reported in August 1976[123]. That Committee was established to consider problems that had arisen in the early operation of the TPA. It produced a report containing recommendations for the Act's amendment. Although the report did not include a draft of proposed legislative amendments, it expressed clearly the objectives that the Committee set out to attain.
On the subject of severance, the Swanson Committee noted a number of submissions that had requested amendment of the Act to deal with "the problem known as 'severance'". It described that problem as relating to "the enforceability of a contract which contains, as only a part of the contract, an unlawful term or condition, such as a term or condition that is prohibited by section … 47 … of the Act"[124]. It described the issue for decision as being "whether, assuming that the part of the contract that is in restraint of trade can be isolated from the rest of the contract, the rest of the contract is still legally enforceable". It described the common law rule (which would apply in default of express legislative provisions) as permitting such severance "provided that it does not alter entirely the scope and intention of the contract". It addressed the question of whether the TPA permitted the operation of the common law doctrine of severance. It acknowledged the uncertainty "felt by the community"[125] as to whether this was so.
It was against this background that the Swanson Committee concluded that it was[126]:

[94]

When the stated purpose of the Swanson Committee is taken into account, it contradicts the construction now adopted by the joint reasons in this Court. It makes it clear that s 4L of the TPA was intended as an exceptional, ameliorative provision designed to save individual contracts in special cases from total unenforceability. In fact, it was intended to operate much in the way that the common law rules of severance had done but, of course, according to the statutory formula enacted by the Parliament.
This Court should not adopt an unnatural interpretation of that formula that would significantly alter the character of s 4L and the remedial work that the section was enacted to perform. That work was to save particular contracts from the consequences of invalidity and unenforceability occasioned by a "particular provision". It was to do so only "in so far as" that provision was "merely ancillary to, and not the core of, the contract".
It follows that there is no occasion to press s 4L into a much larger, proactive and obligatory function beyond that which the words of the section would ordinarily bear. Especially is this so where the purposes of the TPA, the internal textual features of s 4L, the revealed object of enacting s 4L, and the harmonious operation of s 4L in the context of the entire Act, suggest the contrary.
Conclusion on approach and meaning: I accept the conclusion of the joint reasons that the proper approach to deciding issues of severability is to apply s 4L and not the common law rules that preceded the enactment of that section. Nonetheless, some of the old common law principles may still be helpful to an understanding of the work that s 4L was adopted to perform[127].
Once this is acknowledged, and the provisions of s 4L are read in the context of the TPA as a whole, it becomes clear that the proper way to read s 4L is in the manner urged by the respondents. This means that the operative provision of s 4L should be read, effectively, by placing certain words in parentheses: Thus:

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