Adelaide Brighton Cement Ltd v Hallett Concrete Pty Ltd

SUPREME COURT OF SOUTH AUSTRALIA
(Civil)
ADELAIDE BRIGHTON CEMENT LTD v HALLETT CONCRETE PTY LTD
[2022] SASC 34
Judgment of the Honourable Chief Justice Kourakis
PROCEDURE - CIVIL PROCEEDINGS IN STATE AND TERRITORY COURTS - PLEADINGS - STRIKING OUT
PROCEDURE - CIVIL PROCEEDINGS IN STATE AND TERRITORY COURTS - PLEADINGS - STRIKING OUT - GENERALLY
PROCEDURE - CIVIL PROCEEDINGS IN STATE AND TERRITORY COURTS - PLEADINGS - STRIKING OUT - FRIVOLOUS OR VEXATIOUS PLEADING
The Applicant commenced proceedings against the Respondent for an alleged breach of exclusivity obligations under an agreement entered by the parties for the supply of bulk cementitious product. The Respondent filed a defence to those allegations.
This is an application filed by the Applicant seeking orders to strike out paragraphs of the Respondent's defence, on the basis that the pleading is vexatious. In the alternative, the Applicant contends that if the paragraphs of the defence are not struck out, the matter is a special Federal matter under section 6 of the Jurisdiction of Courts (Cross-Vesting) Act 1987 (SA) and should be referred to the Federal Court for consideration.
Held, per Kourakis CJ:
1. The application is dismissed.
Competition and Consumer Act 2010 (Cth) s 47, 86; Jurisdiction of Courts (Cross-vesting) Act 1987 (SA) s 3, 6; Constitution of the Commonwealth of Australia s 75, 76; Judiciary Act 1903 (Cth) s 38, 39, referred to.

ADELAIDE BRIGHTON CEMENT LTD v HALLETT CONCRETE PTY LTD
[2022] SASC 34
Civil: Application

KOURAKIS CJ: Adelaide Brighton Cement Ltd (ABCL) is a manufacturer of cementitious products. Hallett Concrete Pty Ltd (Hallett) is a manufacturer of pre‑mix concrete. In April 2008, they entered into a Cement Supply Agreement (CSA) which was subsequently varied on 1 July 2014. The CSA requires ABCL to supply specified cementitious products to Hallett at a lower price than it supplies those products to other ‘customers’ (the most favoured customer term). In turn, Hallett is required to purchase the ‘bulk cementitious material’ it needs for its business exclusively from ABCL (the exclusivity obligation).
In September 2019, ABCL commenced proceedings against Hallett for breach of the exclusivity obligation. ABCL alleges that from early 2018 Hallett has not purchased its cement exclusively from ABCL. It alleges that Hallett together with other named respondents, entered into arrangements to circumvent the exclusivity obligation by procuring cementitious material in large shipments of two tonne bags. Hallett filed a defence denying ABCL’s claim on the ground, inter alia, that the bagged cement, even of that weight, was not bulk cement material. On 14 February 2020 Hallett filed a cross-claim for breach of the most favoured customer term.
On 17 May 2021 I gave Hallett permission to replead its proposed cross‑claim. Both parties have since revised their pleadings.
This is an application by ABCL filed on 15 November 2021 (FDN 202) to strike out paragraphs A.3, A.4, 24C.2(b), 24C.3(a), 24C.3(b), 24C.7, 24C.8 and 24D of Hallett’s defence to its claim for breach of contract. The application sought an order in the alternative that the determination of those pleadings be stayed on the ground that they plead and raise for determination a special Federal matter within s 6 of the Jurisdiction of Courts (Cross-Vesting) Act 1987 (SA) (the Cross‑Vesting Act). In the alternative, ABCL sought an order that the hearing or determination of those pleadings be separated from the remainder of the proceedings and that this Court reserve for later consideration whether those issues should be referred to the Federal Court of Australia pursuant to s 6 of the Cross‑Vesting Act.
On the hearing of the application on 23 December 2021 ABCL orally amended its application to contend that if the impugned paragraphs of the defence were not struck out then the entire matter was a special Federal matter and should be referred to the Federal Court.
The impugned paragraphs of the defence plead that cement procured by Hallett from a supplier other than ABCL in two tonne (jumbo) bags did not fall within the definition of the product for the purposes of the exclusivity obligation, and rely on the common law and statutory anti-competitive consequences of the exclusivity obligation as a reason for reading it down. Clause 5.1.1 of the CSA requires Hallett to purchase exclusively from ABCL all of Hallett’s requirements ‘for product for use and consumption under and in accordance with the terms and conditions’. Product is defined in the CSA to mean ‘bulk cementitious material, including, but not limited to Type GB Cement, Type GP Cement, Type HE Cement’. The controversy between the parties is whether the cement supplied in jumbo bags is ‘bulk cementitious material’. That question of construction of the definition of product turns on both the text of the CSA and any special meaning ‘bulk cementitious material’ may have in the cement market. The impugned paragraphs of Hallett’s defence plead that insofar as the rules for the construction of the contract and the ascertainment of the objective intention of the parties leave room for any ambiguity in the meaning of bulk cementitious materials then that term should be construed in a way which ensures that the CSA is not an unreasonable restraint on Hallett’s freedom to purchase cementitious material from other suppliers and does not breach the applicable provisions of the Competition and Consumer Act 2010 (Cth) (the CCA). The impugned paragraphs plead that a construction of bulk cementitious materials which includes the two tonne bags is an unreasonable restraint of trade.
In the alternative Hallett pleads that if the definition of bulk cementitious product cannot be read down then the CSA is void because it is an unreasonable restraint of trade at common law.
I set out below the salient parts of the impugned paragraphs:
[…]
A.3Fourth, the Cement Supply Agreement is to be construed on the basis that the parties did not intend to enter into an agreement that may:
(1)     contain an unlawful restraint on trade; or
(2) breach s.47 of the Competition and Consumer Act 2010 (Cth) (CCA),
which would be a risk if, contrary to Hallett’s case, on the proper construction of the Cement Supply Agreement, it (a) required Hallett to purchase all cementitious product (including packaged cementitious products) only from ABCL for its own use and consumption; and/or (b) prohibited Hallett from entering into business dealings with third parties including the provision of toll mixing services using Product other than using cementitious products supplied by ABCL.
A.4Fifth, if contrary to Hallett’s case, the Cement Supply Agreement is so construed, then the Cement Supply Agreement is void to the extent of such prohibition as being an unlawful restraint of trade, with the consequence that such prohibitions are to be severed from the Cement Supply Agreement.
B.    Sixth, the contractual obligations are owed solely by Hallett, not SAPCC, and Hallett has honoured those obligations by purchasing all of its requirements for bulk cementitious materials from ABCL.
C.    Seventh, the Cement Supply Agreement does not prohibit anyone connected with Hallett from competing with ABCL in the sale or supply of cementitious product, nor does it prohibit Hallett from dealing with such a third party.
[…]
24C.7If, on its proper construction, the 2014 CSA provided for the Unlawful Restraints (which is denied), this would risk a breach of s.47 of the CCA by ABCL with the effect that ABCL would be exposed to pecuniary penalties pursuant to s.76 of the CCA and the Unlawful Restraints would be liable to be severed from the 2014 CSA pursuant to s.4L of the CCA, because:
(a) the effect of the Unlawful Restraints is that ABCL would engage in exclusive dealing within the meaning of s.47(2) of the CCA, in that ABCL would have agreed to supply Product to Hallett at the prices and with the rebates provided in the 2014 CSA on condition that Hallett not acquire Product from a competitor of ABCL.
(b)     Such exclusive dealing by ABCL gave rise to a risk of a substantial lessening of competition in the market for the supply of cementitious products and/or the market for the supply of premix concrete in South Australia.
Particulars
…
24C.8In the premises therefore, the 2014 CSA is not to be construed as providing for the Unlawful Restraints, but rather, the correct construction of the 2014 CSA is that pleaded in paragraphs 23, 24, 24A and 24B above.
24D.         In the alternative to paragraphs 23, 24, 24A, 24B and 24C:
24D.1 If on its proper construction the 2014 CSA provides for the Unlawful Restraints, then:
(a)the Unlawful Restraints are void as being unlawful restraints of trade contrary to public policy for the reasons pleaded at paragraphs 24D.2 to 24D.5 below;
(b)as a result, at common law, the Unlawful Restraints are to be declared unenforceable and/or severed from the 2014 CSA by striking from the 2014 CSA the entirety of clause 5.1.
24D.2The Unlawful Restraints are prima facie void as being contrary to public policy because the Unlawful Restraints interfere with Hallett’s liberty of action in trading.
24D.3The Unlawful Restraints were not reasonable as between ABCL and Hallett at the time that the 2014 CSA was entered into, because the Unlawful Restraints offered more protection than was reasonably necessary to protect ABCL’s interests.
Particulars
…
24D.4The Unlawful Restraints were injurious to the interests of the public at the time that the 2014 CSA was entered into as they had the purpose or likely effect of substantially lessening competition in the market for the supply of cementitious products in South Australia with the effect that the price for cementitious products in South Australia was higher than would otherwise have been the case.
24D.5For the reasons pleaded in paragraphs 24D.3 and 24D.4 above, the Unlawful Restraints cannot be justified as in the reasonable interests of ABCL or the interests of the public generally and are therefore contrary to public policy and are to be declared void and severed from the 2014 CSA at common law in the manner pleaded in paragraph 24D.1(d).
The Legislation
Section 47 of the CCA provides:
47 Exclusive dealing
(1)Subject to this section, a corporation shall not, in trade or commerce, engage in the practice of exclusive dealing.
(2)A corporation engages in the practice of exclusive dealing if the corporation:
(a)     supplies, or offers to supply, goods or services;
…
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:
(d)     will not, or will not except to a limited extent, acquire goods or services, or goods or services of a particular kind or description, directly or indirectly from a competitor of the corporation or from a competitor of a body corporate related to the corporation;
…
(10)Subsection (1) does not apply to the practice of exclusive dealing by a corporation unless:
(a)     the engaging by the corporation in the conduct that constitutes the practice of exclusive dealing has the purpose, or has or is likely to have the effect, of substantially lessening competition; or
(b)     the engaging by the corporation in the conduct that constitutes the practice of exclusive dealing, and the engaging by the corporation, or by a body corporate related to the corporation, in other conduct of the same or a similar kind, together have or are likely to have the effect of substantially lessening competition.
…
(13)In this section:
(a)     a reference to a condition shall be read as a reference to any condition, whether direct or indirect and whether having legal or equitable force or not, and includes a reference to a condition the existence or nature of which is ascertainable only by inference from the conduct of persons or from other relevant circumstances;
(b)     a reference to competition, in relation to conduct to which a provision of this section other than subsection (8) or (9) applies, shall be read as a reference to competition in any market in which:
(i)the corporation engaging in the conduct or any body corporate related to that corporation; or
(ii)any person whose business dealings are restricted, limited or otherwise circumscribed by the conduct or, if that person is a body corporate, any body corporate related to that body corporate;
supplies or acquires, or is likely to supply or acquire, goods or services or would, but for the conduct, supply or acquire, or be likely to supply or acquire, goods or services; and
The Strike Out Application
The applicant’s written submissions put the grounds on which Hallett’s pleading of the unreasonable restraint should be struck out as follows. First ABCL notes that it has always accepted that the exclusivity requirement did not extend to small (up to 50 kg) bags of cement and that Hallett accepts that the obligation to buy all of its bulk and loose cementitious material from ABCL was not an unreasonable restraint of trade or a breach of s 47 of the CCA. The dispute is over whether the phrase ‘bulk cementitious materials’ is limited to loose product transported and delivered in road tankers, rail rollingstock or ships’ hulls with no other packaging encasing that material. Of course the consensus of the parties that 50 kg bags of cement are not bulk cementitious material does not mean that only bags of that size fall outside of the definition. Equally their consensus that loose bulk quantities of the products constrained by no more than the walls of the large transport vessels mentioned above are bulk cementitious material does not mean that a large shipment of jumbo bags of cement is not bulk cementitious material.
The question of construction does not commence with the parties’ consensus in the litigation but in accordance with orthodox principle to ascertain the objective intention of the parties from the context and commonly known circumstances in which the agreement was made. The subsequent strategic positions of the parties in litigation is not one of those circumstances. The issue of construction is whether jumbo bags of cementitious material, which apparently may be delivered in large ship loads of over 20 thousand tonnes, is bulk cementitious material as ABCL contends or packaged cement as contended by Hallett.
Secondly, ABCL submits that a possible contravention of s 47 of the CCA or common law principles as to unreasonable restraint of trade ‘can have no bearing upon the question of construction’ and that the impugned pleadings raise a purely hypothetical issue. Thirdly, ABCL contends that Hallett’s defence that a restraint on its purchase of cement in jumbo bags was an unreasonable restraint or a breach of s 47 of the ACC is inconsistent with its acceptance that its obligation to purchase bulk loose cement delivered in large transport vessels does not breach s 47 of the CCA nor common law principles.
For the above reasons ABCL contends the pleading is vexatious and should be struck out.
It can be accepted that any relevant distinction which might be drawn in the context of unreasonable restraint of trade between bulk cement which is delivered loose in transport vessels on the one hand and large loads of jumbo bags of cement is a fine one. The distinction might not be sustainable and Hallett’s contention that a restraint on its right to source cement in jumbo bags is unreasonable may ultimately fail. However, there is no necessary inconsistency, on the face of the pleadings, between Hallett’s acceptance that the restraint on its capacity to purchase bulk loose cement is reasonable at common law and does not infringe s 43 of the CCA but that a restraint on its ability to source jumbo bags of cement is an unlawful restraint. The reasonableness of the constraint as to loose cement will be judged against a context which includes ABCL’s position as the predominant supplier of loose cement in South Australia and Hallett being the major producer of ready‑mix concrete. The common industrial and economic imperative for both is a high level of certainty on price and a balance of supply and demand in the quantities their operations require. Another possibly important aspect of the context is that ABCL is alleged to have had a large measure of control of the port and other facilities through which loose cement might be imported from interstate or overseas. In that context an exclusivity requirement if limited to loose cement largely reflected the reality of infrastructure constraints. In that context too, the practicability and economic viability of importing jumbo bags may not have been within the contemplation of the parties or may have been dismissed as unviable. Hallett has since found a source of cement in jumbo bags at a price which apparently justifies the cost of transporting them and making any necessary adaptions to its delivery and manufacturing processes in order to utilise jumbo bags. I accept that precluding Hallett from innovating in that way may be found to be an unreasonable restraint, and/or one which would breach s 47 of the CCA, even though the restraint on procuring bulk loose material is reasonable.
Special federal matter
The Cross-Vesting Act
Section 6 of the Cross-Vesting Act relevantly provides:[1]
[1]    Jurisdiction of Courts (Cross-Vesting) Act 1987 (SA) at [6].
6—Special federal matters
(1)If—
(a)     a matter for determination in a proceeding that is pending in the Supreme Court is a special federal matter; and
(b)     the court does not make an order under subsection (3) in respect of the matter,
the court must transfer the proceeding in accordance with this section to the Federal Court or a court mentioned in subsection (2)(b).
(1a)However, the court must only transfer so much of the proceeding as is, in the opinion of the court, within the jurisdiction (including the accrued jurisdiction) of the Federal Court, or the court mentioned in subsection (2)(b), as the case may be.
(2)If the court orders that a proceeding or part of a proceeding be transferred, the proceeding or part of the proceeding must be transferred—
(a)     if the matter for determination in the proceeding is a matter mentioned in paragraph (a), (b), (c), (d) or (e) of the definition of special federal matter in section 3(1) of the Jurisdiction of Courts (Cross-vesting) Act 1987 of the Commonwealth—to the Federal Court; or
(b)     if the matter for determination in the proceeding is a matter mentioned in paragraph (ab) of that definition—to whichever of the Family Court, the Family Court of Western Australia or the Supreme Court of the Northern Territory, in the opinion of the court, is appropriate in the circumstances.
(3)The Supreme Court may order that the proceeding be determined by that court if it is satisfied that there are special reasons for doing so in the particular circumstances of the proceeding other than reasons relevant to the convenience of the parties.
(4)Before making an order under subsection (3), the court must be satisfied that—
(a)     a written notice specifying the nature of the special federal matter has been given to the Attorney‑General of the Commonwealth and the Attorney‑General of the State; and
(b)     a reasonable time has elapsed since the giving of the notice for the Attorneys‑General to consider whether submissions to the court should be made in relation to the proceeding.
(5)For the purposes of subsection (4), the court—
(a)     may adjourn the proceeding for such time as the court thinks necessary and may make such order as to costs in relation to an adjournment as it thinks fit; and
(b)     may direct a party to the proceeding to give a notice in accordance with that subsection.
(6)In considering whether there are special reasons for the purposes of subsection (3), the court must—
(a)     have regard to the general rule that special federal matters should be heard by the Federal Court or a court mentioned in subsection (2)(b), whichever is appropriate in the particular case; and
(b)     take into account any submission made in relation to the proceeding by an Attorney-General mentioned in subsection (4).
(7)Nothing in this section prevents the court granting urgent relief of an interlocutory nature if it is in the interests of justice to do so.
(8)If, through inadvertence, the Supreme Court determines a proceeding of the kind mentioned in subsection (1) without—
(a)     the court making an order under subsection (3) that the proceeding be determined by the court; or
(b)     a notice mentioned in subsection (4) being given,
nothing in this section invalidates the decision of the court.
(9)This section does not apply to a proceeding by way of an appeal that is instituted in the Full Court of the Supreme Court if the court the decision of which is the subject of the appeal had made an order under subsection (3), or under section 6(1) as in force before the commencement of Part 3 of the Statutes Amendment (Attorney‑General's Portfolio) Act 1993, in relation to the special federal matter.

The expression special federal matter is defined by s 3 of the Cross-Vesting Act to have the same meaning as that term has in the Jurisdiction of Courts (Cross‑Vesting) Act 1987 (Cth) which defines that term to mean:
(a)a matter arising under Part IV of the Competition and Consumer Act 2010 (other than under section 45D, 45DA, 45DB, 45E or 45EA);
…
being a matter in respect of which the Supreme Court of a State or Territory would not, apart from this Act, have jurisdiction.
Section 47 of the CCA is a provision of Part IV.
The federal jurisdiction of State and Territory courts is conferred by Commonwealth legislation in accordance with the power and constraints conferred and imposed by Chapter III of the Constitution. Pursuant to s 75 of the Constitution, the High Court has original jurisdiction in all matters arising under treaty, effecting the representatives of other countries, in which the Commonwealth is a party between the States and the residents of different States and in which the remedies of mandamus prohibition or injunction are sought against an officer of the Commonwealth. Section 76 of the Constitution confers a legislative power on Parliament to make laws including conferring original jurisdiction on the High Court in any matter arising under the Constitution or any law made by Parliament which may be conferred. Federal jurisdiction is the jurisdiction conferred directly by s 75 of the Constitution and bylaws of the Commonwealth made pursuant to s 76 of the Constitution. Pursuant to s 77 of the Constitution, Parliament may define the jurisdiction of any Federal Court, other than the High Court, and define the extent to which the jurisdiction of any Federal Court shall be exclusive of that which belongs to, or is invested in, the courts of the States.
Plainly enough, matters arising under Part IV of the CCA are matters arising under a law made by Parliament and therefore within the Federal jurisdiction described in s 76(ii) of the Constitution. Section 38 of the Judiciary Act 1903 (Cth) (the Judiciary Act) renders the jurisdiction conferred on the High Court by s 75 exclusive of the jurisdiction of the Courts of States over those matters. Section 39 makes the jurisdiction of the High Court, so far as it is not exclusive by reason of s 38, exclusive of the jurisdiction of the Courts of the States other than insofar as the Courts of the States are by s 39(2) invested with Federal jurisdiction in all matters in which the High Court has or may be conferred with original jurisdiction. Section 39(2) of the Judiciary Act confers jurisdiction on the Courts of the States within the limit of their several jurisdictions over all matters in which the High Court has or may be conferred with jurisdiction save for those matters reserved by s 38 of the Judiciary Act. Section 39 therefore confers jurisdiction on this Court in all matters arising under the laws of the Commonwealth and there is no relevant limitation on this Court’s jurisdiction in the context of these proceedings.
However, s 86 of the CCA confers jurisdiction on the Federal Court in any matter arising under the CCA and s 86(4) renders that jurisdiction exclusive of any other Court unless another subsection of s 86 of the CCA otherwise provides. No such exemption is made by s 86 in respect of matters arising under s 47 of the CCA.
A matter is the matrix of laws and factual circumstances within which all the incidents of connected legal controversies may be finally and completely determined. The scope of a matter may extend beyond the particular cause of action on which a party relies and the particular relief it claims, if it is proper to address those causes of action and relief in order to finally and completely determine the legal controversies. A matter arises under a law of the Commonwealth if the law operates on the factual circumstances out of which the controversy arises to confer rights, obligations, powers, interests or privileges on a party or parties to the controversy. However a party may conduct litigation so as to eschew any reliance on a particular cause of action and disavow any rights or interests arising out of a law or laws applicable to the factual circumstances of the controversy in a way which removes that cause of action, and the laws on which it is based, from the justiciable matter.
Hallett’s contention that the jumbo bags do not fall within the definition of bulk cementitious product in the CSA is a denial of ABCL’s contractual claim that bulk cementitious products include jumbo bags of cement. ABCL’s claim and Hallett’s defence arise out of the common law of contract and not under any law of the Commonwealth.
In contending that the contractual definition of bulk cementitious product must be read down in order to save it from invalidity either because it is a common law unreasonable restraint of trade, or a breach of s 47of the CCA, Hallett relies on the common law principles by which contracts are construed. The particular rule of construction on which Hallett relies is that in the case of ambiguity a construction which saves the contract from invalidity should be preferred. That is a principle of contractual interpretation which is based on the common law presumption that parties who enter into a contract with an apparent intention to create legal relations, and to be bound by it, should not lightly be taken to have intended an operation which would result in invalidity thereby rendering their intention to be legally bound inutile.
Hallett by the impugned pleas, contends that on a construction which includes the jumbo bags within the definition of product, the CSA would, at least in some circumstances which are likely to occur in the relevant market, be an unreasonable restraint of trade or infringe s 47 of the CCA. It contends therefore the phrase ‘bulk cementitious materials’ should be construed not to include jumbo bags so as not to invalidate the CSA. The issue so articulated is not a matter arising under a law of the Commonwealth because, far from relying on a Commonwealth law to found a right, obligation or interest, Hallett’s contention is that the CSA should be construed in accordance with common law principles, in a way which avoids the potential application of s 47 of the CCA.
Moreover, Hallett has clearly and repeatedly eschewed any reliance on s 47 of the CCA. I find that it has done so in a way which excludes any such claim from the scope of the matter in these proceedings.
If I am mistaken in my conclusion, insofar as such a claim may theoretically be made in the future, it is unnecessary to stay the hearing and determination of these proceedings. If the scope and nature of Hallett’s reliance on s 47 of the CCA changes so as to constitute the subject matter of these proceedings as a matter arising under s 47 of the CCA, ABCL may, of course, renew its application under the Cross-Vesting Act.
Conclusion
I dismiss ABCL’s application made in FDN 202. I will hear the parties as to any consequential orders.

[2022] SASC 34

12 April 2022