ACCC loses another major case

Paper recycler Visy scored a win when it took the corporate regulator to court.

One of the tasks of the Australian Competition and Consumer Commission is to ensure that competition is not unduly reduced and that by and large business does an excellent job. But at times the ACCC gets carried away with its own propaganda about how important and successful it is. Clearly the ACCC has a vital role in different areas of commerce. Recently, for example, it was given the task of ensuring that introduction of the GST did not lead to cases of price exploitation. One case about to be fought in the Federal Court involves a company alleged to have engaged in price exploitation. The fact that the company has stood up to the ACCC's claims is rare. Often, when the ACCC finds that a breach of the Trade Practices Act (TPA) has occurred the targeted companies "cave in" and negotiate an agreed penalty. But, from time to time the ACCC finds its match. I am a great fan of the Trade Practices Act, believing it is appropriate for the ACCC to test the limits of this legislation in appropriate cases. But, as the recent decision in ACCC v Visy Paper Pty Ltd ([2000] FCA 1640) (judgment handed down on 20 November 2000 by Sackville J) the ACCC is not infallible, and sometimes makes some strange tactical mistakes in the way it fights its cases.

The case is also an excellent illustration of the fact the TPA adopts a dual approach to evaluating what might generally be regarded as anti-competitive behaviour. Some conduct is regarded as so bad by Parliament that it introduced what are known as per se breaches of the law. Price fixing in relation to goods or services is regarded as so heinous that it is unnecessary for either the ACCC, or a civil litigant, to establish that the price fixing results in a lessening of competition (indeed under the TPA you have to show a substantial lessening of competition). Similarly in what are known as primary boycotts or exclusionary provisions you do not have to show that the conduct is anti-competitive – just that the parties have tried to exclude others from the supply or acquisition of goods or services. Many agreements or practices which may look as though they may be what you could call a horizontal arrangement – between competitors – in fact involve what are also covered by the TPA under the heading of exclusive dealing. So, a company may decide that it wishes to supply goods (or services) but only through one person who is at a different level of the distribution chain. The company supplies the distributor on an exclusive basis. Is this a boycott – that is are the two entities in competition with each other and agree not to compete with others or is it an exclusive dealing arrangement? If it is the former it may be covered by section 45 of the TPA and the per se approach in that context will be relevant; if it is an exclusive dealing arrangement then it is covered by section 47 of the TPA and the agreement has to be assessed (from a TPA viewpoint) by virtue of whether competition has been lessened in this case in a significant way.

This classification exercise is vital. Because, if you do not classify the arrangement properly you could be up for a penalty of up to $10,000,000 (in the case of a corporation) and $500,000 (in the case of an individual). So you want to make sure that the arrangement is classified appropriately. In the Visy case the ACCC chose to challenge certain arrangements on the basis that a primary boycott was involved and therefore covered by the per se breach of the TPA in section 45 dealing with this issue. Visy argued that it was an exclusive dealing arrangement, the ACCC had pleaded the wrong section and the agreement had to be assessed by reference to its impact on competition. The more detailed facts are briefly these: Visy collects and processes recyclable waste paper and cardboard and supplies this to its paper mills. Using self-employed or sub-contracted collectors, a company known as Northern Pacific Paper (NPP) also collected waste paper products from its customers. It was alleged by the ACCC that in September 1995 NPP offered to supply Visy with waste paper collected from office buildings in Sydney. Visy considered this was advantageous to its business and offered to provide NPP with a conveyer to allow products to be decontaminated. It was further alleged by the ACCC that subsequently, in 1996, a number of agreements between Visy and NPP were drafted (but never executed). These were known as Exclusive Collection Agreements (ECAs) and Supply Agreements.

One clause of the draft ECA apparently provided that NPP "would not collect or make any attempt or offer to collect any waste products from persons who are customers of Visy or with whom Visy has entered into negotiations to become a customer ... [and] must not deliver or sell any waste products to any person other than Visy ..." The ACCC alleged that if Visy and NPP had executed any of the draft ECAs or the draft Supply Agreements, Visy's conduct would have constituted the making of a contract containing an exclusionary provision in breach of section 45(2)(a)(i) of the TPA. The ACCC alleged that Visy and NPP were competitive with each other in the market for the acquisition of waste paper and for the supply of waste paper removal services in the Sydney metropolitan area; alternatively, it alleged that but for the agreement between them, it was likely that NPP and Visy would have been competitors in the market. It further alleged that if they had been executed, the draft agreements would have had the purpose of preventing NPP from supplying services (removal of waste paper) to, or acquiring goods (waste paper) from, a particular class of persons, ie. customers or potential customers of Visy. In such circumstances, Visy would have contravened section 45(2)(a)(i) of the TPA.

The ACCC submitted that in taking steps towards what it alleged to be the commission of a prohibited act, Visy's conduct amounted to an attempt to enter into an agreement containing an exclusionary provision. As noted earlier, if an agreement (or an alleged agreement) can be dealt with under sections 45 or 47, the provisions of the TPA indicate that it should be dealt with under the latter – that is subject to an anti-competitive test. This is provided for by section 45(6) of the TPA. (There is a similar provision that indicates that if a contract can be evaluated under the merger provisions of the TPA rather than under section 45 but the merger provisions have pre-eminence. This used to be more important than it is now (when there was a different test under section 50 of the TPA), but it still is important because only the ACCC can seek an injunction for a breach of the merger provisions of the Act.) In this context, Visy argued that its conduct, in so far as the ACCC's allegations were relevant, a matter which Visy denied, ought to be characterised as exclusive dealing. This was covered by section 47 of the TPA. The ACCC had failed to plead this section and therefore its claim failed.

Sackville J in a very important judgment agreed with Visy and therefore threw out the ACCC's prosecution. Sackville J also doubted whether the draft agreements had actually ever been entered into. But in any case the ACCC had pleaded the wrong section and lost its case. Until quite recently the ACCC has been reluctant to run what are known as competition cases – that is, it finds it rather difficult (as do most litigants) to establish that an agreement is anti-competitive or the practice lessens competition in a significant way. The ACCC has recently run a series of cases involving section 46 of the TPA – misuse of market power. The ACCC has lost the most significant of these cases but has appealed and is awaiting the result of that appeal. If the ACCC loses, this may serve as a disincentive to the ACCC to pursue such cases in the future. This would be most unfortunate because in many situations the ACCC is the only party with the resources to run such cases. But at the same time the ACCC may have to consider pleading its cases more generally (that is plead them in the alternative) in order to avoid the difficulty (and embarrassment) that occurred in the Visy case.

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