SST Consulting Services Pty Ltd v Rieson & Anor

Case •

[2006] HCATrans 98

No judgment structure available for this case.

[2006] HCATrans 098

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Sydney  No S452 of 2005

B e t w e e n -

SST CONSULTING SERVICES PTY LIMITED

Appellant

and

STEPHEN CHARLES RIESON

First Respondent

SCOTT MURRAY BELL

Second Respondent

GLEESON CJ
GUMMOW J
KIRBY J
HAYNE J
HEYDON J
CRENNAN J

TRANSCRIPT OF PROCEEDINGS

AT CANBERRA ON TUESDAY, 7 MARCH 2006, AT 10.19 AM

Copyright in the High Court of Australia

MR C.J. BIRCH, SC:   May it please the Court, I appear with my learned friend, MS K.W. DAWSON, for the appellant.  (instructed by Henderson Taylor Workplace Lawyers)

MR R.I.M. LILLEY:   May it please the Court, I appear with my learned friend, MR P.R. FRANCO, for the respondent.  (instructed by Synkronos Legal)

GLEESON CJ:   Yes, Mr Birch.

MR BIRCH: Your Honours, the case concerns issues all of which might be described compendiously as the extent to which contracts that are made in part of a practice of exclusive dealing prohibited by section 47 of the Trade Practices Act may nevertheless be enforced. What I would like to do is to go firstly to section 47 and highlight some aspects of the legislation, then look briefly at the facts before turning to the four issues that have been identified in the submissions.

GLEESON CJ:   Which is the reprint of the Trade Practices Act 1974 that we ought to be working from?

MR BIRCH:   Your Honours, the reprint that was last published most recently before the facts occurred was the 8th reprint of the Trade Practices Act.

GUMMOW J:   Of January 1998?

MR BIRCH: Yes, that is correct. Although there were some substantial amendments in very recent times, the crucial sections that this appeal concerns, particularly section 4L, had remained unchanged from their insertion in the Act right up until the conclusion of the Full Court of the Federal Court proceeding. If I could, however, go firstly to section 47, which was the provision that was breached in this particular case, it provided in ‑ ‑ ‑

HEYDON J:   I do not think that is quite correct. Section 4L was amended in 1986. Did you not say it had not been changed from its inception, which was in 1977? Perhaps the amendment is immaterial but it was amended by No 17 of 1986.

MR BIRCH:   Yes, your Honour.  I am not sure whether that was the insertion of 87A but it has not made, as I understand it, a material difference but I may have – yes, I correct that statement. 

Your Honours, if I could go then to section 47(1) which is the general prohibition that was breached by my client. That was a prohibition which provides that:

Subject to this section, a corporation shall not, in trade or commerce, engage in the practice of exclusive dealing.

We highlight the fact that what is prohibited is engaging and it is referred to by the very general term “practice” rather than something more specific such as the making of a contract or the like.  In the present matter it was essentially the making of a contract which was the practice that was engaged in that contravened the section.

KIRBY J:   Is that correct? It is the making of the contract which thereby committed the parties to the practice that followed the terms that you accept were contrary to section 47(1)?

MR BIRCH:   Your Honour is right.  It is a general term, it would envisage parties breaching it by, for example, engaging in conduct which was not pursuant to the legally enforceable contract but could, nevertheless, still constitute ‑ ‑ ‑

GUMMOW J:   Why can we not just stick to the words?  It is 47(6), is it not?

MR BIRCH:   Yes.  That definition there prohibited a corporation that:

supplies, or offers to supply, goods or services -

My client offered to lend money to a company, AFS (USA) Inc, which was a freight forwarding company.  “Services” includes an agreement to lend money, and it did so on a condition, amongst other conditions ‑ ‑ ‑

GUMMOW J:   Well, wait a moment.  “Condition” is defined in subsection 13, is it not:

whether having legal or equitable force or not ‑ ‑ ‑

MR BIRCH:   Yes.  Your Honour, the prime ‑ ‑ ‑

GUMMOW J:   There is a long history going back to the Sherman Act that these mischiefs do not just spring from solemn pacts of a contractual nature.

MR BIRCH:   Your Honour, in this particular case the condition was inserted as a covenant in a letter which set out the agreement between the parties.  It did not set it out in a particularly complete or compendious form - I will take your Honours to that letter in a moment – but it provided what purported to be a term of the agreement ‑ ‑ ‑

GUMMOW J:   It is not what they contracted to do; it is what they were doing, is it not?

MR BIRCH:   Yes.

KIRBY J:   That is why I made the point that the practice is not just incorporating this provision in the agreement; it is everything that followed from there.

GUMMOW J:   Whether what they were doing discharged a contractual obligation is rather beside the point.

MR BIRCH:   Your Honours, in this instance there was ‑ ‑ ‑

GUMMOW J:   Not beside the point in some section 45 cases ‑ ‑ ‑

MR BIRCH:   Your Honours, there was no ‑ ‑ ‑

GUMMOW J:   Because if you look at section 45, there is explicit provision on making contractual arrangements, but even then “contractual arrangement” is defined as something more than a purely legal understanding.

MR BIRCH:   Yes.  Your Honour, we do not have a quarrel with the notion that the practice that would be prohibited by this section would extend well beyond the making of contracts to their performance and to engaging ‑ ‑ ‑

GUMMOW J:   It is not an expression of extending beyond, you see?

MR BIRCH:   It includes ‑ ‑ ‑

GUMMOW J:   If you do not get in the right box at the start you stay in trouble.

MR BIRCH:   Yes.  Your Honour, the material ‑ ‑ ‑

GUMMOW J:   The people will not construe statutes.  They would much rather think about the law of contracts.

KIRBY J:   Exactly.

MR BIRCH:   Your Honours, it is notable though, in this case, that the evidence did not extend to whether the parties had conducted themselves in accordance with the condition that was inserted into the loan agreement.  The loan agreement had a condition that all container‑packing business from two entities was to be directed to a nominee, the lender.  The evidence showed that that agreement had been made.  The evidence did not extend to whether, in accordance with that covenant, business was directed to a nominee of the lender as the parties had contracted.  So the parties in the courts below wrested with evidence that just looked to the agreement that had been made, not to its performance.

KIRBY J:   You want to get this case from up in the clouds down to the fine detail of the level contract ‑ ‑ ‑

MR BIRCH:   Yes.

KIRBY J:   ‑ ‑ ‑ but the starting point, as Justice Gummow has said, is to look at the policy of this Act. It is a policy which is designed to effect very important national objectives and you have to, as it were, understand section 4L in the context of an Act which has very important public purposes which have been affirmed and reaffirmed by successive Parliaments, governments of different political persuasions. It is part of the basic statute law of the country. I think that is the true starting point of construing the statute and none of the judges below really seem to appreciate that, though Justice Brennan, who was very familiar with this area of public law from his time in the Administrative Appeals Tribunal and Administrative Review Council, did.

GUMMOW J:   The first question is how do you get into 4L at all, given the opening word?

MR BIRCH: Your Honours, we would say that where one is concerned with is breach of section 47 - you do not have to resort to 4L if one is enforcing an agreement otherwise in breach of section 47.

HAYNE J: You have wrapped up in that proposition several assumptions about the operation of the Act which the questions previously asked of you were designed to test. Now, if you make all those premises, consequences follow. The making of a contract, it seems to me, is not that which exposes you to contravention of section 47. It is the supply, relevantly, of goods or services. That is the contravention.

GUMMOW J:   They expose you to an injunction.  That is a different matter.  On a quia timet basis that is a different matter.

MR BIRCH:   Your Honour, that might offer a further argument which is not one that has been developed below nor, I would have to say, developed by us, but the parties perhaps ‑ ‑ ‑

GUMMOW J:   It was thrust under your face on the special leave application.

MR BIRCH:   Yes, your Honours, the ‑ ‑ ‑

GUMMOW J:   Obviously not thrust enough.

MR BIRCH: Your Honours, can I just firstly identify what it is that we thought was the prohibited conduct which led to the conclusions in the courts below, identify where that conduct was revealed in the evidence and then I can perhaps deal with the issues that have been raised. The way that I had applied section 47(6) was to identify a supply “or offers to supply, goods or services”. That is in 47(6)(a). The way in which the case had been run before was that the contractual arrangements between the parties included, amongst other things, an offer to supply the service of money lending. That was performed in that the money was lent. Then when one moves down after subsection (c) to:

on the condition that the person to whom the corporation supplies or offers or proposes to supply . . . a body corporate related to that body corporate will acquire goods or services of a particular kind –

The acquisition of services is the acquisition of container packing services by the borrower and a related entity from another person.  In this case the other person was to be a nominee of the lender SST.

I must say the way the parties had previously dealt with this matter, as had the Full Federal Court, was to treat the words “will acquire” as referring to a promise to acquire in the future. What the borrower did and one of its guarantors was to promise to acquire the services of container packing services in the future. That was the manner in which the courts below, and I must say certainly the appellant here, have treated the arrangements between the parties as bringing them into breach of section 47. If I could then turn perhaps from those matters to just look briefly at the documentary evidence.

GLEESON CJ:   Could you just repeat that – identifying the party in each case who engages in the act in question.

MR BIRCH:   The corporation is the appellant, SST –

engages in the practice of exclusive dealing if the corporation:

(a)      . . . offers to supply . . . services –

It offered to supply money-lending services:

on the condition that the person to whom the corporation supplies, or offers or proposes to supply –

It offered to supply money-lending services to the company, AFS –

if that person is a body corporate, a body corporate related to that body corporate will acquire goods or services of a particular kind or description –

The body corporate acquiring the goods or services was both AFS and the guarantor corporation – sorry, the borrower was AFS (USA) Inc and also a guarantor corporation, AFS, also covenanted to acquire container packing services.

KIRBY J:   Where did Mayne Nickless come into this?

MR BIRCH:   Mayne Nickless was no party to the arrangement.  It was merely contemplated to be the person who would be the provider of the services because the person from whom they were to be acquired, “another person” in the final words of the section, is expressed in the parties’ agreement as a nominee of the appellant.

GLEESON CJ: I am sorry to nag about this but this time, without your explanations and interpolations, could you go through section 47(6) and identify, by reference to the conduct and the party carrying out that conduct, the breach.

MR BIRCH:   Yes.

A corporation –

that is SST –

(a)      supplies . . . goods or services . . . 

on the condition that the person to whom the corporation supplies –

that is the borrower, AFS (USA) Inc –

will acquire goods or services of a particular kind or description directly or indirectly from another person -

that other person being the nominee of SST.

GLEESON CJ:   That is a little different from what you said the first time.  The first time you said it was an offer to supply.

MR BIRCH:   The agreement was an offer to supply the money lending‑services - that was performed – and then on condition that the person to whom the offer is made:

will acquire goods or services of a particular kind or description directly or indirectly from another person.

I accept there is no reference to offering in that final passage where one is looking at the acquisition of the second category of service.

GLEESON CJ:   What I would like you to do is to particularise the charge of contravention of section 47. A corporation, SST, engages in the practice of exclusive dealing if the corporation, SST, what? Supplies or offers to supply? Which?

MR BIRCH:   Either, but it did both.  It both offered and supplied ‑ ‑ ‑

GLEESON CJ:   Both.  Okay.  “Both” is an answer to my question.  It both supplied and offered to supply.  Now, continue to particularise the breach, if you would not mind.

MR BIRCH:   Yes.  On condition that the person to whom it supplied, being the borrower, acquired:

services of a particular kind or description directly or indirectly from another person.

GLEESON CJ:   The services of a particular kind being?

MR BIRCH:   Those of shipping container unpacking.

GLEESON CJ:   And the other person being?

MR BIRCH:   It was contemplated to be a company nominated by the lender, SST.

GLEESON CJ:   That never happened.

MR BIRCH:   There is no evidence of it ever having happened.

GLEESON CJ:   Does that affect whether the breach, whether the contravention, was a supply or an offer to supply?

MR BIRCH:   The section contemplates two commercial processes.  The supply or offer to supply of an integral service in this instance ‑ ‑ ‑

GLEESON CJ:   How many contraventions were there?  One or two?

MR BIRCH:   Just one, as I understood the way the case was conducted.  That is the making of the arrangement, in effect.

GLEESON CJ:   Was it a contravention of the prohibition on supplying or was it a contravention of the prohibition on offering to supply?

MR BIRCH: I must say, it is not altogether clear but it would appear to be breached by the agreement to acquire the container packing services. The inclusion of that in the covenant was what brought it into contravention of section 47 by way of 47(6). So far as the container packing covenant is concerned that is an acquisition covenant whereby ‑ ‑ ‑

GLEESON CJ:   To how many penalties was SST liable?  One or two?

MR BIRCH: Your Honour, the evidence never pursued the nature of the breach to this level of depth and I certainly would not want to suggest that there had been any more than one but it is not a matter that has been delved into in the evidence because what happened before his Honour Justice Emmett was that there was a concession that section 47(1) had been breached so that the matter was not the result of express findings other than to accept that on the evidence it could well have been the case and the matter then proceeded on the agreed basis between the parties.

GLEESON CJ:   You identified or particularised the services involved in the contravention as money-lending services.

MR BIRCH:   Yes.

GLEESON CJ:   Money-lending services.  Did SST agree to become a money lender?

MR BIRCH:   It did.  It lent just under $1 million to ‑ ‑ ‑

GLEESON CJ:   That was one loan.  That sounds like a supply of money.

MR BIRCH:   It was.  It was provided in a series of instalments over a period of months, so there was an account and a number of tranches were drawn down by the borrower.

GLEESON CJ:   The making a loan is a supply of services?

MR BIRCH:   Your Honour, there is a definition of “services” which includes money lending, if I could take your Honours to section 4 of the Act in the interpretation provision.

GLEESON CJ:   Is it paragraph (d) of the definition?

MR BIRCH:   Yes.

GLEESON CJ:   Well, “services” includes a contract “in relation to the lending of moneys”.  Why do you have to paraphrase that as money‑lending services?  Would it not be the corporation supplies services; that is to say, the corporation contracts in relation to the lending of moneys?

MR BIRCH:   Your Honour, I would certainly accept that that is a neater way of putting it.  That is what I intended to say.

GLEESON CJ:   So the contravention of 47(6), the engaging in the practice of exclusive dealing, was making a contract in relation to the lending of moneys, is that it?

MR BIRCH:    That was the provision of or offering of services in the opening sections of 47, yes.

GUMMOW J:   This case started off, as we see at page 32, as a claim for money, did it not?  How was that in the Federal Court?  What was the ‑ ‑ ‑

MR BIRCH:   It was commenced initially in the Supreme Court of New South Wales and it was a straightforward claim in debt and there was a defence put on alleging the agreement was unenforceable – the guarantees were unenforceable because the money‑lending agreement was unenforceable.

KIRBY J:   It was cross-vested, was it not?

MR BIRCH:   It was.  There was an application to strike out ‑ ‑ ‑

KIRBY J:   That is from the State court to the Federal Court.

MR BIRCH:   Yes, there was an application to strike out the trade practices defence.  That was granted initially by Justice Sully who struck it out.  There was an appeal to the New South Wales Court of Appeal and they reversed the decision of Justice Sully and they also ordered that the proceedings be cross-vested to the Federal Court.  We have included the decision of Justice Sully in the appeal book.  It commences at page 2 and that is a decision only on the pleading issue.  Then we have also included the Court of Appeal decision which commences at page 24 in the appeal book.

GUMMOW J:   But there was a cross-claim, was there not?

MR BIRCH:    Yes, for relief.

GUMMOW J:   Relief under sections 87 and 80.  That appears at page 49 and 50.

MR BIRCH:   Yes, that is right.

GUMMOW J:   That is undoubtedly federal, and in addition to that, or in advance of that, there was a defence at 48 and 49, in particular, at paragraph 11, that the guarantee was “void and unenforceable”, in particular, because of paragraph 9:

the overall agreement and the guarantee:

(a)      Were Agreements to effect the illegal purpose . . . 

(b)      Are void and unenforceable as illegal –

as proscribed by 47(1)(a).

MR BIRCH:    Yes, and so ‑ ‑ ‑

KIRBY J:   I see Justice Meagher gave a ringing endorsement of the News Limited decision.

MR BIRCH:    Yes, it is very mild by his Honour’s standards.  But it was the result of those orders made by the Court of Appeal the matter then was transferred to the Federal Court and then there was a trial in front of Justice Emmett before it went to the Full Federal Court.

GUMMOW J:   But on the pleadings we see, starting at page 32, the amended application ‑ ‑ ‑

MR BIRCH:   Yes, that is right, those were the ‑ ‑ ‑

GUMMOW J:   ‑ ‑ ‑ defence and cross-claim.

MR BIRCH:   Yes, there were fresh pleadings filed in the Federal Court.  Your Honours, could I refer briefly to the facts which provided the basis for the trade practices defence which was pleaded.

GLEESON CJ:   I am sorry, just before you move to that, I still want to get clear the particulars of the contravention.

GUMMOW J:   Paragraph 9 on page 49 does not really tell one.

GLEESON CJ:   The contravention consisted in supplying or offering to supply services, is that right?

MR BIRCH:   No, that is not quite the way we understand.  I am, of course, formulating an argument that is put against me, but the way I apprehended it was that it was the coupling together of two promises which contravene the Act.

GLEESON CJ:   By reference to the Act, by reference to the terms of the Act, a contravention of section 47(6) consists relevantly in supplying or offering to supply services on a certain condition.

MR BIRCH:   Yes, on a certain condition.

GLEESON CJ:   Yes, so the contravention is offering to supply or supplying on that condition?

MR BIRCH:   Yes.

GLEESON CJ:   Having regard to the definition of “services” in section 4, the relevant services that were supplied or the subject of the offer to supply consisted of the grant of benefits under a contract for the lending of moneys.  Is that right?

MR BIRCH:   Yes, indeed. 

GLEESON CJ:   So the supplying or offering to supply services in this case consisted in the granting or offering to grant benefits under a contract for the loan of moneys?

MR BIRCH:   On a condition, yes.

GLEESON CJ:   On a condition.  That was the contravention.  The existence of the condition made the supply or the offer to supply a contravention of the Act.

MR BIRCH:   Indeed, it was the attachment of the condition which is what attracted the Act.

GLEESON CJ:   Yes.  The contravention of the Act was in supplying or offering to supply upon a certain condition.  That is what the words of the Act say.

MR BIRCH:   I see the thrust of your Honour’s question to me.

GLEESON CJ:   Can there be any doubt about that?

MR BIRCH:   We would make this point, that if one removes the condition then there is no longer anything unlawful remaining about the contract for the supply of services.  It is the conjunction of the two and it is a prohibition against the entire practice.  I would certainly accept that proposition.

GUMMOW J:   I do not know why you embrace the conjunction.

MR BIRCH:   Only that what we say, of course, is that if the condition of acquiring services is severed from the agreement then there is nothing exceptional about the lending of money that remains.

KIRBY J:   Yes, but that is the question, whether you can sever it or whether, without it, the agreement would not have gone ahead.  That is the question.  The question will not go away.

MR BIRCH:   Yes. Your Honour, can I put it this way. We certainly accept that what was prohibited was the supply of services on a condition. So it is the package; it is entering into or providing that package which attracts the prohibition of the Act. But it does not, we say, constitute a breach simply because one focuses on the provision of the money‑lending services, only because one has done that on a condition that one has breached section 47(1).

GLEESON CJ:   By the provision of money‑lending services, you mean agreeing to lend money?

MR BIRCH:   Yes.  Your Honours, if I could just refer to those ‑ ‑ ‑

KIRBY J:   You told us that the money was provided over a period.

MR BIRCH:   Yes.

KIRBY J:   Is that referred to either in Justice Emmett’s reasons or in the Full Court?

MR BIRCH:   Yes, in Justice Emmett’s judgment his Honour sets out the history of those aspects of the transaction.

KIRBY J:   I did not remember noticing the periodicity of the lending.

MR BIRCH:   Yes, if your Honour goes to page 227 of the appeal book, at paragraph 16 his Honour there sets out the advances that were made and the dates on which they were made.

KIRBY J:   I see, yes.

GLEESON CJ:   Is it any different from a bank saying “I will grant you an overdraft provided you agree to use the bank’s travel service for all your travel arrangements”?

MR BIRCH:   Well, we would not suggest there is any material difference, no.

HEYDON J:   It depends who owns the travel service, does it not?  If the bank owns it, 47(6) does not apply.

MR BIRCH:   That is true.

HEYDON J: Section 47(2) might.

MR BIRCH:   Yes, it might be prohibited conduct, but not under 47(6), yes.

KIRBY J:   What is the object of forbidding exclusive dealing?

MR BIRCH:   Your Honour, the underlying principle is to ensure that someone who has the ability to provide a service does not operate to exclude other service providers in a related area by using their economic power to force people to purchase collateral services.

KIRBY J:   So like other provisions of this part of the Act, it is designed to protect competition or the availability, access to competition and thereby consumers?

MR BIRCH:   Yes.

KIRBY J:   And to reduce prices, ensure that deals are not tied?

MR BIRCH: It does, but, your Honour, the Act does not encapsulate an assumption that every example of this form of conduct is wrong because the Act contemplates the possibility of approval being given to some transactions that would otherwise breach section 47. So there is ‑ ‑ ‑

KIRBY J:   No a priori approval was sought or given?

MR BIRCH:   Correct.

KIRBY J:   I understand from an earlier case that that is relatively rare that it is given.  Is that correct, or is my memory playing tricks?

MR BIRCH:   Your Honour, I would not be able to tell you how likely one would have been to have got approval.

KIRBY J:   Rarely asked and rarely given.

HEYDON J:   You do not have to ask.  You just file a notice.

MR BIRCH:   I think the way the Act operated was that you could ‑ ‑ ‑

HEYDON J:   And you get protection until the Commission decides to revoke the matters.

MR BIRCH: I think that was not the mechanism for 47(6). Section 47(6) was in a special category where you have to actually obtain permission, but if you breached most of the other provisions of section 47, then it is true that if you filed the notice you got automatic protection unless the notice was disallowed.

HEYDON J:   You are referring to section 93(3A)?

MR BIRCH:   Yes.

KIRBY J: I asked the question because this is the way Justice Brennan approached these problems. You first have to get clear the high public policy of the Act in order to understand whether in the particular case you can sever a particular provision without undermining what is inherent in the public policy of the Act. So that is why, as Justice Gummow pointed out at the very beginning and in the special leave hearing, you have to get very clear in your mind your starting points, which are the public policy of the Act. These things are hard to detect, hard to find, hard to enforce, expensive to enforce and therefore, when you get the case, you have to be careful that you do not, by your construction of section 4L, undermine the public policy of the Act in which there are third party interests, namely, the public.

MR BIRCH:   Your Honour, we accept that but we would say though there is a competing policy issue in that while the primary purpose of the legislation is obviously to further competition and advance the public interest in that regard, we would suggest that the principal mechanism for ensuring that is the various enforcement provisions contained within the Act itself and then there is a competing issue, the extent to which one should allow agreements to be rendered unenforceable by the common law doctrine of illegality.

KIRBY J:   This will be developed, but that does seem to elevate the exception into the rule.  The exception must be viewed exceptionally.  If you take a view that your starting point is the high public policy of the statute to protect consumers who are not here in this Court, the Court has to protect them.

MR BIRCH:   Your Honour, we would say that the primary mechanism for vindicating that public policy are the enforcement provisions, including the provisions for civil penalties, which can be very substantial.

GLEESON CJ: Would a simple example of a contravention of section 47(6) be a loan to a publican by a brewery’s finance company on condition that the publican buy all the beer for the hotel from the brewery?

MR BIRCH:   Yes, that is what we would understand would be another straightforward example of a breach.

GLEESON CJ:   It is a long time since I have looked at the detail of this, but contraventions of that kind were also capable of falling within section 45 except for some provisions that sorted out the interrelationship, were they not?

MR BIRCH:   They could certainly constitute exclusionary provisions by in effect prohibiting the publican from entering into contracts with various other parties to acquire goods.  Your Honour, I cannot for the moment tell you whether there was a provision which sought to deal with priorities between 45 and 47.

GLEESON CJ:   But brewery ties or oil company ties were capable of falling within a number of provisions of the Act, were they not?

MR BIRCH:   Yes.

GLEESON CJ:   That is an issue that was sorted out by specific provisions.

MR BIRCH:   It would be the case, for example, that if it was just a 47 breach, it might have been possible to have it approved, but if it was a 45 breach as well, it might have been more difficult to obtain.  I do not know whether one would have been able to obtain approval of that at all, so that would be perhaps one difference.

GUMMOW J: Section 47 itself has a detailed regime, does it not? It tells you ‑ ‑ ‑

MR BIRCH:   Indeed.  Of course ‑ ‑ ‑

GUMMOW J:   Section 10, for example.

MR BIRCH: Yes. The other point that Justice Gummow perhaps is alluding to is that some provisions of section 47 depended upon demonstrating that they had an anti-competitive effect as well as simply breaching per se the provisions of the Act, whereas that was not the case with all breaches of section 45. So one might be caught by 45 without being caught by 47 because of the absence of an uncompetitive effect.

HAYNE J:   We looked at some of the problems of the relationship between 45 and 47, did we not, in Visy Paper 216 CLR 1? I am not suggesting that Visy Paper is immediately and directly engaged in the present matter, but the general topic of relationship between the two sets of provisions was touched on in some respects in that case.

MR BIRCH:   Your Honours, I wanted to turn in a moment to some relationships and comparisons between 45 and 47 but I was not intending to touch upon the possibility of 45 also applying to these facts.  I have to say it had never been suggested that 45 had been breached, so we have proceeded this far on the assumption that 47 alone was the prohibition.

KIRBY J:   Is there a flaw in 45 or something missing that gives a very simple reason why it does not apply to this case, do you know?

HEYDON J:   Section 45(6) in effect moves exclusive dealing conduct out of 45 and into 47.  If 45 and 47 could apply to the same conduct, it would be a great surprise to the people who drafted these provisions in the 1970s.

MR BIRCH:   I think that is the answer I should give to your Honour Justice Kirby’s question.

KIRBY J:   Yes, thank you.  Because a lot of this was exclusive to the Federal Court in the time that I was on the Court of Appeal we did not have the pleasure.

MR BIRCH:   Your Honours, if I could then just simply refer briefly to the documents that I mentioned earlier that harbour the covenants that were pleaded in the defence.  If I could take your Honours to page 130 in the appeal book, what happened was that there was a discussion between ‑ ‑ ‑

GUMMOW J:   Yes, 45(6) is the whole subject of Visy Paper 216 CLR 1. It is not much good coming here without having that sort of thing at your fingertips, frankly. Yes, go on.

MR BIRCH:   If your Honours go to page 130, they set out the notes that were made at the initial meeting between a director of SST and a representative of the borrower company and paragraph 1, the first paragraph on page 130, provided that:

ALL PACK, UNPACK, LCL TRANSPORT IN S M & B –

that means Sydney, Melbourne and Brisbane –

AND SYDNEY AIR FREIGHT TO BE DIRECTED TO PORT BOTANY MPG PITKIN FACILITIES -

The evidence revealed – it is recorded in Justice Emmett’s judgment - was that not long before these discussions, while SST and those associated with it had been involved in container packing and unpacking, they had disposed of that business but they had still a continuing business relationship with the purchaser of the business and they therefore had a commercial interest, if I can put it that way, in still securing container packing business.

The notes that were made at that discussion were then drafted into a set of special terms by a solicitor and they appeared at pages 136 and 137 but the agreement ‑ ‑ ‑

KIRBY J:   Actually, the agreement was rather faithful to those notes, was it not?

MR BIRCH:   It was.  There was very little alteration to anything following those discussions and had made arrangements.  The two letters of agreement appear firstly at page 138 in the appeal book ‑ ‑ ‑

KIRBY J:   There were handwritten notes.  Are they reproduced?  I think Justice Sackville refers to that.

MR BIRCH:   There is the handwritten note at pages 130 and 131 of the appeal book and it was redrafted and appears again at 132 and 133.

KIRBY J:   I think the joint reasons in the Full Court made the point that number one, the tie is the first provision and suggested that by putting it first that revealed its importance.

MR BIRCH:   Your Honour, we cannot deny that there was evidence to show it had significance to my client.  The letters appear at 138 to 142.  The first letter is in fact to AFS which was a guarantor of the loan but it gave a covenant to direct container packing business in the second paragraph in the letter, towards the bottom of page 138.  The letter that recorded the agreement with the borrower is at 140 of the appeal book. 

At the bottom of 140 it records that:

Default events which render within 7 days of demand, payment of principal and interest calculated to end of term in relation to the loan include –

and then over on page 141E –

The failure to direct all pack and unpack –

et cetera, and then the direct covenant to do that is in paragraph 6 of that letter on page 141.  The letter refers implicitly to the loan, rather than expressing it to be on condition, but we cannot dispute the parties’ arrangements or the lending of the money and the giving of those covenants as a single arrangement, and the record of payments that were contemplated is at page 143 of the appeal book.  The two respondents to this appeal were guarantors of the loan.  Their guarantee was given in a deed which appears at page 145.  Although, as the case turned out, it was not material in that there was not a finding that it was a clause of the deed that was invalid, at page 146(vii) at the top recorded that the deed was not otherwise impaired by:

any part of this Deed being unenforceable, void or voidable.

The way the matter was dealt with by Justice Emmett was to approach the question by asking whether the loan was enforceable.  In the Full Court they proceeded on the same basis and if the loan itself was not enforceable, then the guarantors were simply not indebted, and because the ‑ ‑ ‑

GUMMOW J:   Well, a smartly drawn guarantee makes an alternative primary obligation, does it not?

MR BIRCH:   Yes.

GUMMOW J:   Is there one here?

MR BIRCH:   Well, I do not think it produces a primary obligation.

GUMMOW J:   You may be right.

KIRBY J:   Is that the purpose of (vii)?

MR BIRCH:   Well, we would have assumed that was probably just to ensure that we could proceed against one guarantor independently of a proceeding against the other.

GLEESON CJ:   Did any question of United States law intrude into this argument at all?

MR BIRCH:   No, your Honour, not that I recall.

GLEESON CJ:   There is a reference to “the loan” on page 140, for example, at line 40.  Where is the most convenient source of information as to the terms and conditions of what is there described as “the loan”?

MR BIRCH:   Your Honour, there is no document called “loan agreement”.  The document at page 143 sets out the schedule, records in handwritten notes on the bottom at 20 per cent per annum calculated on monthly rests and bears signatures of the parties.

GLEESON CJ:   Well, is the borrower, AFS Freight Management (USA) Inc?

MR BIRCH:   Yes.

GLEESON CJ:   And the lender is your client?

MR BIRCH:   SST, correct.

GLEESON CJ:   The guarantors are Messrs Rieson and Bell?

MR BIRCH:   That is correct, yes.

KIRBY J:   AFS (USA) is a subsidiary formed in Australia to establish freight handling on the west coast of the United States, as I understand it.  Is that correct?

MR BIRCH:   Your Honour, I am not sure whether it was a subsidiary.  It was certainly a related corporation, as we understood it, but quite whether it was wholly owned or likely owned I cannot tell you.

GUMMOW J:   Do we know what the commercial interest of the guarantors was?  It is recited in recital B on page 145.

MR BIRCH:   They were directors of the companies, as I understood it, and people who stood behind the companies, but exactly what the shareholding was, I do not believe that was in evidence.

GUMMOW J:   Of the Californian company?

MR BIRCH:   I understood them to be principals of that as well, but I do not think that is touched on by the evidence.

GUMMOW J:   Yes, thank you.

HAYNE J:   See page 144, see page 140 clause 1.

MR BIRCH:   Yes, I am indebted to your Honour, yes.  That shows them as directors.

GUMMOW J:   Yes, thank you.

GLEESON CJ:   The expression “any of its obligations” on page 145, line 36 includes the obligation on page 141, line 35, is that right?

MR BIRCH:   Yes, it would.  Your Honours, if I could then finally go to page 232 where his Honour Justice Emmett set out the way the issues were presented before him.  He sets out on page 231 under the heading “TRADE PRACTICES DEFENCE” a summary of the pleadings.  At line 30 on page 232 his Honour there records one of the pleadings which was that:

By the overall agreement the service of money lending was provided by SST to the Borrower only on condition that the Guarantee contained terms of default as required by the overall agreement.

Those terms of default were then as set out above and that is a reference to the pleading above of the condition regarding container packing.

GUMMOW J:   Does the record disclose why there was no action against the principal debtor?

MR BIRCH: It does not, no. I do not think that is revealed anywhere. Then those paragraphs which come from the pleading reflect the way in which we understood the contravention of section 47 was put against us which I was seeking to explain a short while ago. Then finally at line 50 his Honour recorded that:

Each of those assertions was admitted by SST . . . Further, SST conceded in the course of the hearing that, by reason of those matters, there was a contravention of s 47(1) of the Act.

Then the parties effectively drew issue on the consequences that flowed from that admitted contravention.

KIRBY J:   The joint reasons in the Full Court, paragraph 32, set out a conversation between Mr Rieson and Mr Sweeney.

MR BIRCH:   Yes.  Your Honour, that evidence was led to establish that the inducement of container packing business was not immaterial or so insignificant as to therefore lead to the conclusion that it ought be simply disregarded and hence severed.

KIRBY J:   It is the last response:

If you provide the funds you can have certainty in relation to the work.

That sounds like exclusive dealing and you accept that it is ‑ ‑ ‑

MR BIRCH:   We did.

KIRBY J:   ‑ ‑ ‑ and the integration of the lending in the dealing seems to be accepted by that statement.

MR BIRCH:   Your Honour, we admitted it below and I am not seeking to resile from that admission here.

GLEESON CJ:   It is a common or garden trade tie secured by the making of a loan.  There is nothing unusual about that, is there?

MR BIRCH:   Only that it might ‑ ‑ ‑

GLEESON CJ:   Breweries and oil companies have been doing it for ages.

MR BIRCH:   ‑ ‑ ‑ still be a breach.

KIRBY J:   They might have, but the Trade Practices Act does not like it and seeks to stop it.

GLEESON CJ:   That is right.  That is what the Act is about.

MR BIRCH:   It was an extremely common practice until the Act came into play and it is ‑ ‑ ‑

KIRBY J:   You see, if you permit severance and you have to give 4L meaning, you do thereby undermine the very purpose of the public policy of the prohibition.

MR BIRCH:   We would not necessarily accept that proposition, your Honour.  The punishment of parties, so to speak, by simply invalidating contracts can operate in a very erratic fashion.  If, for example, the agreement had been detected to have been in breach prior to the moneys being advanced, then my client could have simply ignored the loan agreement and never advanced the moneys.  The other party would have been the one punished, so to speak, for the unenforceability of the arrangement.

KIRBY J:   It is not punished as such.  It is seeking to stamp out these sorts of agreements, which are, as the Chief Justice says, common.

MR BIRCH:   Your Honour, we would pose the policy issue in this fashion.  The vindication of the public interest through the prohibitions of the Act is achieved by the Act’s pecuniary penalty and other enforcement provisions and the question of whether contracts that have been made that were made in a fashion that breached the Act should be capable of enforcement is a matter of statutory construction.  If one discerns in the Act the legislative intention to permit the contracts to be enforced according to their terms and leave the parties to be dealt with under the pecuniary penalty provisions in section 76 or other remedy provisions, then that is the consequence.  So the first issue is whether one discerns in the Act an intention to invalidate contracts.  That was the next issue ‑ ‑ ‑

GUMMOW J:   The question is:  how does the common law doctrine fit with the Act when the Act itself has a very sophisticated system of consequences?

MR BIRCH:   Yes.  Look, that is the point ‑ ‑ ‑

GUMMOW J:   Whereas the common law is rather a blunt instrument.

MR BIRCH:   Yes.  Your Honours, what we say is this ‑ ‑ ‑

KIRBY J:   Justice Brennan would say that the question is:  what is the meaning of the Act?  He was very consistent in this.  It also came up in the question of whether you import common law notions of procedural fairness into administrative law.  His theory was no, you interpret the statute, you remember common law principles but your object is to give meaning to what Parliament has said.  This Court has been repeatedly saying that is the duty in construing statutes in many, many areas.  That was Justice Brennan’s theory and he applied it in this area.  Our object is not to find the common law and graft it onto the statute but to see what the statute means and how it operates and we remember the common law principles but we are not here to, as it were, graft them onto the statute.

MR BIRCH: Your Honour, we are embracing that approach because on our view when one engages in a sufficiently sophisticated analysis, we say it is clear that the legislative intention is not to invalidate contracts that have been entered into in breach of section 47. If I could pick it up in our written ‑ ‑ ‑

GLEESON CJ:   What is the difference?  Is not the common law principle that it is all a question of statutory intention?

MR BIRCH:   Your Honour is right, indeed.

GLEESON CJ:   The common law points you to the statute.

MR BIRCH:   It points you back to ‑ ‑ ‑

GLEESON CJ:   It says interpret the statute and decide whether Parliament intended that a contract made in breach of the statute is unenforceable – Yango Pastoral.

MR BIRCH:   Indeed.  We have set out the passage from Justice Jacobs’ judgment in paragraph 37 of our written submissions where ‑ ‑ ‑

KIRBY J:   But the common law is not only concerned with statutory invalidation of course.  It has its own rules for invalidating contractual stipulations.

MR BIRCH:   There are obviously contractual public policy grounds for invalidating contracts.  We come to those at the very end of the case through my learned friend’s notice of contention, but so far as the court below was concerned ‑ ‑ ‑

GUMMOW J:   The method of approach Justice Kirby was putting to you is exemplified in Fitzgerald v Leonhardt, is it not?

MR BIRCH:   Yes, with this slight difference, that in Fitzgerald v Leonhardt ‑ ‑ ‑

GUMMOW J:   About the drilling contract.

MR BIRCH:   Yes.  In that case the contract was capable of being performed lawfully if an appropriate licence was obtained.  The difference in this instance was that the contractual arrangements entered into by the parties was simply exclusive dealing and there was not a way in which one could lawfully perform the parties’ arrangements.  So we would have to accept that we are, if you like, in a worse category than Fitzgerald v Leonhardt.

GUMMOW J:   Yes, you are.

MR BIRCH: We say nevertheless that the principle is the same. It is the one Justice Jacobs referred to that we set out at paragraph 37, and that is one asks whether the statute, whether expressly or by implication, “prohibits the making of a particular contract” and renders it “illegal, void and unenforceable”. Your Honours, if I could just quickly point to the textual materials which we say allow the implication to be drawn that that is not the effect of section 47. If I could go to section 45 as my starting point, section 45(1) provides – and it is by reference to a contract rather than in a practice:

If a provision of a contract made before the commencement . . . 

(a)      is an exclusionary provision; or –

has the purpose in (b), the section then provides:

that provision is unenforceable ‑ ‑ ‑

KIRBY J:   What is this analysis leading to?  What is the proposition?

MR BIRCH: The proposition is that the Act in several sections – 45, 45B and 45EA – expressly speaks of contracts which will be unenforceable where they have breached the Act. The contrast is with section 47 which has no provision rendering unenforceable contracts made in breach or pursuant to a practice of exclusive dealing.

GUMMOW J:   Is 45(1) talking about contracts stricto sensu as distinct from arrangements?

MR BIRCH:   Your Honour, I think there is an extended definition.  I cannot answer that question just at the moment but I will come back to it.

HEYDON J:   The answer to Justice Gummow’s question is yes, 45(1) is talking about contracts only, whereas 45(2) is talking about contracts, arrangements and understandings, for example.  An arrangement is unenforceable, an understanding is unenforceable.  There is no need for subsection (1) to have said so.

MR BIRCH:   Yes.

GUMMOW J:   But the reason is the temporal one.

GLEESON CJ:   Exactly, and that applies to all the three provisions that you mention.  If you look at 45(1), 45B and 45EA, they are all dealing with the problem of contracts that were not in contravention of the Act because they were made before the Act came into force.

MR BIRCH:   Your Honour, I accept that they have that temporal limitation.  Could I go though to 45(2)(b).  Section 45(2)(a) provides not just in regard to contracts, but arrangements or understandings, the point just made by Justice Heydon, and then 45(2)(b) provides that a corporation shall not “give effect to a provision of a contract, arrangement or understanding” and that ‑ ‑ ‑

GUMMOW J:   Yes, but that is bound up with exclusionary provisions.

MR BIRCH:   Well, it would be our submission though that one way of giving effect to it would be to seek to legally enforce it by court process.  So what 45(2)(b) contains is, amongst other things, a prohibition against legal enforcement where ‑ ‑ ‑

HEYDON J:   You cannot legally enforce the provision of an arrangement in a court of law unless it has some other compelling force on the law of contract.

MR BIRCH:   Well, that would be why, rather than simply refer to things being rendered unenforceable, I think the point your Honour made to me a short moment ago was that understandings are, in effect, unenforceable in any event.  The Act uses a broad formula “giving effect to”.  That will prevent conduct other than legal enforcement conduct in regard to, say, an arrangement or understanding but, in our submission, it is sufficiently broad that it would also encompass legal enforcement conduct where that is in regard to a contract, strictly speaking.  So what one finds in 45(2)(b) is, in effect, an express prohibition against taking enforcement action.

GLEESON CJ:   But the argument that is put against you, as I understand it, is that you cannot draw any support from the specific reference to unenforceability in section 45(1) or section 45B or section 45EA because they are aimed at a problem of contracts made before the legislation came into force.

MR BIRCH:   Your Honour, I cannot do it on that provision alone, but the way I would explain it is that the Act prohibits contracts that are before the commencement date and they are rendered unenforceable.  When one goes after the commencement date, the prohibition has now expanded.  It will include not just contracts but arrangements or understandings and one needs a broader term than merely something being rendered unenforceable and so the Act then adopts the formula “give effect to a provision”. 

The formula “give effect to a provision” does the same work as the rendering something unenforceable in subsection (1) but it also is now broader and encompasses ways one would give effect other than by legal process where they are not legally enforceable, such as arrangements or understandings.  So when one looks at it in putting both the sections together, what one discerns here is a regime which seeks to prevent any means, whether by legal enforcement or otherwise, of any of the prohibited contracts, arrangements or understandings.

GUMMOW J:   Is there any judicial discussion of the relation between 45(1) and (2)?

MR BIRCH:   Not that I have been able to uncover along those precise lines.  There is discussion in some of the texts and there is brief discussion in the decision of Justice Lusher that we have referred to, in our written submissions.

GUMMOW J:   Yes, but beyond that?

MR BIRCH:   No, not that we have been able to identify.

GUMMOW J:   You surprise me. 

MR BIRCH:   Your Honours, if one goes to 45(B), 45(B)(1) provides:

A covenant, whether the covenant was given before or after the commencement of this section is unenforceable in so far as it confers rights –

Again, we just say that is an example of the Act explicitly addressing the issue of unenforceability.  We also refer to 45EA and that uses again the formula:

A person must not give effect to a provision of a contract, arrangement or understanding if . . . 

it contravened 45E.

GLEESON CJ:   But you can contravene section 47 by giving effect to a provision of a contract, can you not?

MR BIRCH:   Yes. The point, of course, is simply this that when one goes to section 47 the general prohibition or what one ought not do is simply in 47(1):

Subject to this section, a corporation shall not, in trade or commerce, engage in the practice -

So there is not a separate provision which says, “One shall not give effect to an arrangement, contract, understanding or the like entered into in the course of a practice of exclusive dealing”, and we say that is an important and material absence from the legislation. 

Your Honours, there are a number of provisions in the Act which appear to distinguish between sections, on the one hand, which do prohibit enforcement and those, on the other hand, that do not.  We have identified them, in our written submissions ‑ ‑ ‑

GUMMOW J:   You cannot read Part IV without Part VI.

MR BIRCH:   Yes, I was about to go to section 87.

GUMMOW J:   Part IV creates various norms, Part VI tells you how those norms work out in terms of remedy.

MR BIRCH:   One of the key general provisions of the Act, which appears to distinguish between the unenforceability consequences, if I can call it that, is section 87(3) which speaks of:

a provision of a contract made, or a covenant given, whether before or after the commencement of the Trade Practices Amendment Act1977 -

and these are the ones which inserted 4L and then it speaks of:

(i)       a contract, is unenforceable by reason of section 45 . . . 

(ii)      a covenant, is unenforceable by reason of section 45B -

and then, we say importantly, in (b) it says:

the engaging in conduct by a corporation in pursuance of or in accordance with a contract made before the commencement of the Trade Practices Amendment Act 1977 would constitute a contravention of section 47 -

So what the Act is doing is it identifies two provisions, 45 and 45B, where it speaks of contracts unenforceable by reason of contraventions of those sections but when it speaks of conduct in contravention of section 47, it does not use any formula which suggests that contracts made engaging in section 47 conduct are unenforceable.

GUMMOW J:   What is subsection (3) doing?

MR BIRCH:   It is giving the court a general power to remake the rights and obligations of the parties in cases where contracts have been made and there have been breaches of either 45, 45B or 47.

GUMMOW J:   Well, 87(3)(d), how does that work out?  Is that just parties to the contract, is it?

MR BIRCH:   Well, that is a person who could take a benefit under a 45B contract where there is conduct that is sought to direct benefits in favour of third parties or ‑ ‑ ‑

GUMMOW J:   Or restrictive covenant, Quadramain v Sevastapol.  That is the area, is it not?

MR BIRCH: Yes, but it is not a matter that alters the point, which was that so far as 87(3) is concerned the formula shows a clear distinction between the unenforceability provisions, if I can call them that, and section47.

HAYNE J:   Well, that is rather too broad a brush to apply, is it not? Is 87(3)(b) engaged in respect of all kinds of section 47 contraventions?

MR BIRCH:   Well, your Honour, we have certainly made that assumption ‑ ‑ ‑

HAYNE J:   Well, read it.

MR BIRCH:   Yes.

HAYNE J:   What effect are you giving to the words, “in pursuance of or in accordance with a contract made before the commencement of the Trade Practices Amendment Act 1977”? None, I think.

MR BIRCH:   Yes, I take your Honour’s point.  It is certainly limited just to that.

HAYNE J:   Which brings you back to a rather narrower point that may be open – it may not be; I just do not know.  If you go to section 45, you find that the making of certain contracts is forbidden – 45(2).  Section 45(1) deals separately with pre‑1977 contracts as distinct from contracts, arrangements or understandings.  It deals only with contracts, does it not?

MR BIRCH:   Indeed, yes.

HAYNE J:   The provision we have just been looking at – 87(3) – is concerned in paragraph (a) with section 45 matters, but also 45B, which perhaps we may put to one side, perhaps not.  Section 87(3)(b) is concerned with pre‑1977 Act contracts which would constitute exclusive dealing.  When you go to 4L, the engagement of which in the particular matter seems to me to be open to at least some doubt, 4L is concerned with the event of “the making of a contract after the commencement of this section”, a contract of a particular kind, namely, a contract after commencement that contravenes the Act.  Then it provides, in a way that may be open to dispute, for the preservation of validity or enforceability of other aspects of the contract in certain events.

Now, hitherto much of your argument has proceeded from the broad assumption that the making of the contract that gave rise to the proceedings in the courts below was itself a contravention of section 47. It is not instantly apparent to me that that is so. The contravention of section 47 was the supply or the offer to supply on condition. But from the broad assumption that the making of the contract is unlawful, you then in the courts below went off into section 4L on the hypothesis that the making of the contract contravened the Act – a hypothesis that seems to me to be open to challenge – and in this Court you seem to dive into the problem at the point of saying, “Well, the making of the contract was unlawful, therefore notions of illegality are engaged”.

Now, you may be right but each of those steps contains contestable propositions, the validity of which is not self-evident to me.  Now, I know I am being slow, very slow, but at some point in your argument the validity of those assumptions has to be checked.

MR BIRCH: Your Honour, we actually make a further distinction in this Court that we did not make clearly in the court below and I think it picks up the point that you have just put to me and it is this. We do not accept that 4L is necessarily engaged in this case. Section 4L represents a second line of defence for us. Our first argument is that when one looks at the structure of 4L, 47 and indeed the provisions of section 87 that I was just referring to, one obvious implication, we say the correct implication to draw from the Act is this, that the Act is proceeding on the assumption that where one has made a contract and it contains a particular provision which triggers one of those sections, such as section 45, then in those circumstances the concept of illegality may have rendered the particular provision void and section 4L operates to provide severance.

The question, however, that we pose is whether that is the way one approaches conduct where there has been a breach of section 47. If there has not been a particular provision of the contract rendered void simply because it was made as part of a practice that breached section 47 then the principle of illegality will not have rendered that contract void. When one looks at the machinery of the Act it fits more easily with an assumption that contracts that breach section 47 are not unenforceable at all. For example, section 4L speaks of:

the making of a contract after the commencement of this section contravenes this Act by reason of the inclusion of a particular provision -

and those words “particular provision” fit neatly with the terms of section 45 which speaks of “If a provision of a contract” in (1) or in (2) ‑ ‑ ‑

GUMMOW J:   It is “by reason of”.  The words “by reason of” are important for you, are they not?

MR BIRCH:   Yes.

GUMMOW J:   Is that looking to a textual matter?

MR BIRCH:   I suppose it is the point that Justice Hayne was putting to me ‑ ‑ ‑

GUMMOW J:   Text of the Act.

MR BIRCH: It looks to whether it is the inclusion of the provision in the contract making process which has triggered the invalidity but that fits with the structure of section 45 which speaks about the making of a contract with a provision, an exclusionary provision, for example, so the label “provision” which is being used in 45 to describe what one must not do - insert such a provision in the Act - fits neatly with section 4L.

Can I go back to section 87 and section 87(3), where conduct has breached section 45 or 45B - that is before or after the commencement of the Act in regard to sections 45 and 45B - the court is now given power to sever – more than sever – remake the rights and obligations of the parties under the arrangement.

GLEESON CJ:   Have you given consideration, bearing in mind that historically trade ties were often associated with loans of money in certain kinds of industry, to the sort of problem that would arise if this loan had been secured by a mortgage over property?  How would the Act operate then in relation to the charge on the property – a mortgage over a hotel, for example?

MR BIRCH:   Your Honour, there would be at least the possibility that the giving of security could operate as a further service either being offered or being acquired.

GLEESON CJ: What would happen to the mortgage? What is it in the Act that says the mortgage disappears? Let us suppose that a brewery made a loan to a publican on condition of getting a trade tie and in favour of another corporation, if you like, to make section 47(6) work and the loan was secured by a mortgage over the hotel. On the approach adopted by the Full Court of the Federal Court in the present case, what is it that makes the mortgage disappear?

MR BIRCH:   The mortgage would be securing moneys owing if those – it might be that the mortgage was capable of being treated as a separate interest but there might be nothing owing under the mortgage or nothing could ever be owing under the mortgage because the underlying transactions that it secures could be void and unenforceable for reasons of the sort the Full Court discussed.  So that, even if the mortgage was not rendered itself void and unenforceable as part of an overall arrangement or transaction, it would become a dead letter.

GUMMOW J:   Do we know what happened to the fixed and floating charge to which Justice Hayne draws attention at page 139?

HAYNE J:   Such benefits that they were charging what was it, 20 per cent, 25 per cent per annum, a small rate of interest.

MR LILLEY:   A small rate of interest, but in addition to that one does not know what amount of competition they did not have to meet in the market, to put the question badly, and how they could deal with their prices accordingly.

HEYDON J:   I thought Mr Birch said the condition had never been enforced?

MR LILLEY:   No, the position was, there was no evidence as to whether the condition was enforced.  His Honour was prepared to infer, I think, to use his terms, the trial judge was prepared to infer that it had been.  At page 237, paragraph 48, line 15 his Honour said:

There was no evidence of the extent to which the tying arrangement was given effect to, following the making of the advances.  It was not the failure to direct work pursuant to the tying arrangement that gave rise to the early demand for payment.  Rather, it was the sale . . . It may be that an inference should be drawn that there was, in fact, compliance with the tying arrangement –

We would differ from my learned friend’s submission that the practice went, if it went on at all, went on for six months.  On the statement of claim it appears to have gone on for 12 months, the loan having been agreed in July 1999 and the event of default having occurred in August 2000. 

HEYDON J:   Do you mean the defence and cross‑claim?

MR LILLEY:   No, on the statement of claim, sorry.  In the amended statement of claim at page 92 of the appeal book, your Honour.

HEYDON J:   Yes.

MR LILLEY:   Paragraph 4:

On or about 1 July 1999 the –

loan was agreed.  Then in paragraph 5 you will see the first drawn down of the loan is on 9 July.  Then in paragraph 10 on 1 September the applicant demanded.  But in paragraph 6, page 94:

In or about August 2000 there happened certain events as referred to at paragraph 4(d) –

which are the events of default.

GLEESON CJ:   Sometimes severability is approached in a fairly physical sense involving a blue pencil.

MR LILLEY:   Yes, your Honour. 

GLEESON CJ:   What if you have a situation, as here, where you could apply the blue pencil to the offending provisions and there was nothing inconsistent with the statutory purpose in leaving the rest of the contract standing after you have applied the blue pencil?

MR LILLEY:   My understanding of the blue pencil test is that after you have applied it you must be left with a contract, substantially the same as or not substantially ‑ ‑ ‑

GUMMOW J:   Substantially the same having regard to the statutory purpose.  I think you agreed that that is what we have to look at. 

MR LILLEY:   With respect, no.

GUMMOW J:   I thought you agreed with me about 10 minutes ago.

MR LILLEY:   Your Honour, in talking about the blue pencil test, if you are going to blue pencil these conditions, then you would have to look at what was left of the contract and whether the parties would have entered into it.  Certainly the statutory purpose would not then be offended but also you would not have a contract where the provision of the loan purchased the third line forcing arrangements.

HAYNE J:   Asking whether the parties would have entered the agreement but for this condition has a real and delicious air of unreality and the subject matter of what is being excised is something that was intended for their commercial benefit, contrary to the intent of the Act.  That is why you end up chasing your own tail if you are applying ‑ ‑ ‑

MR LILLEY:   It was not in the agreement for my client’s commercial benefit.  It was certainly in the agreement for ‑ ‑ ‑

HAYNE J:   Just so.

KIRBY J:   In Carney the Privy Council in laying down its attempt to deal with these problems in the common law context propounded a test, the third element of which was that justice of the case required severance and there is no public policy objection.  Now, leave aside the latter part because I understand your argument about the public policy objection.  That is, as I understand it, the very essence of your argument but, their Lordships in the passage which was read to us earlier and in their test have said that the justice of the case is a relevant matter to take into account.

MR LILLEY:   Yes.

KIRBY J:   Have you anything else to say about the justice of the case of your walking away from an obligation of a million dollars?

MR LILLEY:   Yes, your Honour.  If one wants to rely on the justice of the case to avoid severance, at the very least, my submission is that evidence should have been given by the appellants as to whether or not the provision was given effect, what benefit they got from it, and so that raises directly the point we make as to whether it is executed or executory.

KIRBY J:   You have to put into the scales a lot of justice to outweigh an obligation of $US1 million.

MR LILLEY:   Of course, the fact is that the parties did not walk away from the million dollars.  Over half the loan, or approximately half the loan was repaid.

KIRBY J:   That is a chance event.  I mean that is as it works out in this particular case but ‑ ‑ ‑

MR LILLEY:   Yes.  It is a chance event but it is a fact which occurred but that would have to be taken into the considerations of the justice of the case as well.

KIRBY J:   What if it had been a guarantee for $100 million?

MR LILLEY:   With respect, I do not think the situation would change.  If the justice of the case was that they had made more than that they would still have to satisfy the question of the justice of the case.

GUMMOW J:   Wait a minute.  You pleaded never indebted, did you not?  You sued on the guarantee.

MR LILLEY:   Yes, your Honour.

GUMMOW J:   Well, did that not bring with it a lot of evidentiary baggage on your side?

MR LILLEY:   I think we admitted ‑ ‑ ‑

GUMMOW J:   Including exploring what happened in practice to clause 6 on page 141.  Was clause 6 in fact on it, or was the direction of the work something that happened or – we are told there is no evidence about it, and you seem to rely on that in your favour in some way.

MR LILLEY:   We rely on that and we also rely on ‑ ‑ ‑

GUMMOW J:   But you rely on the absence of evidence as to 6, do you not, I thought?

MR LILLEY:   Well, we do not see that it matters very much, but if the other side had wanted to show that the justice of the case favoured severance, they would have to show, in my submission, what the result was of the provision being there.  If they wanted relief under section 87(1A) they would have to show what the result was of the ‑ ‑ ‑

GUMMOW J:   I am just dealing with “never indebted” at the moment.

MR LILLEY:   I am sorry, your Honour, can your Honour take me to that part of the pleading that you are referring to?

GUMMOW J:   Well, there is an action on the guarantee.  What was the defence to the action on the guarantee?  Page 46, is it?

MR LILLEY:   Page 46.

HAYNE J:   It is paragraphs 6 and 9 at pages 48 and 49.

GUMMOW J:   Leading to paragraph 11.

MR LILLEY:   Yes, that the agreement was illegal.

HEYDON J:   One small matter.  We have the amended statement of claim, which is no doubt in more places than one, but it is on page 41, filed in April 2004.  The defence we have was filed on 15 May 2003.  Was there ever an amended defence put on to the amended statement of claim that coped with, for example, paragraph 6A, which was a new part, or was it simply treated as being denied?  I do not think the appeal book contains any document which answers the amended statement of claim filed on 19 April 2004.

MR LILLEY:   Your Honour, I think that amendment was put on, it looks to me, like the first day of trial, or even on the second day of trial, in fact.

HEYDON J:   Was an answer to it put on at that time?

MR LILLEY:   I do not believe that there was a specific pleading to 6A.  I do not think I can take that any further.

KIRBY J:   The problem with the justice of the case being a criterion, is it is a very slippery criterion and just as you can say 4L is there in order to give a degree of flexibility for (the justice of the case) then it is there because there will be cases where it is harsh, but that is the public policy option.  So that you cannot draw from the presence of 4L, well it is just a fix up provision - every time it seems a bit harsh you can fix it up - because the reason for having it there is that there will be cases where you cannot fix it up properly except by resort to some very nebulous expression such as the justice of the case and whether there is a public policy objection.

MR LILLEY:   Certainly.  I would urge your Honours to ‑ ‑ ‑

KIRBY J:   That is, in a sense, stating the problem rather than solving it.

MR LILLEY: Just because the respondent, or for that matter the company that borrowed the money, might not have had to repay this money because of the conduct is no basis for how section 4L and the prohibitions of Part IV should be construed. That is by the by. The Act is by section 2 for the benefit of the Australian public. It may be that some people in the respondent’s situation do have that benefit and that may be the harshness of the case.

KIRBY J:   You put this agonising picture of your client but, on the other hand, there is the other client which is before us as appellant and, in a sense, had that client been properly advised when it went to the solicitor and showed the handwritten document, the solicitor ought to have said, “You certainly can’t put that in the contract.  If it works out that you provide the tie or you provide the services, that will be all well and good ‑ ‑ ‑

MR LILLEY:   And, at that stage, approximately 200,000, I think, had been advanced.  Some money was advanced before 11 September on the basis of the handwritten document which was exhibit A – if I could just identify that for you at page 130 in the appeal book and page 131 is the first version of the arrangement.  It is followed by the memorandum of understanding on pages 132 and 133 and I think that is still July, 1999 and then that was followed by another document which is at 136 to 137, which was executed by the parties on 7 July 1999 and it is not until about 10 September that the solicitors then documented. 

Your Honours, just as a final matter can I say that if the finding of this Court is against the respondents on a basis to do with the construction of section 4L, or whether or not the common law consequences of illegality flow from the Act, I would ask your Honours to consider a certificate for my client under section 6 of the Federal Proceedings (Costs) Act 1981, possibly of the whole of the Federal Court proceedings since they have proceeded on the basis really, that that was the law in Australia and we have the finding of the Full Court in relation to section 4L.

GUMMOW J:   Do we deal with certificates under that Act?

MR LILLEY:   Yes, I understand your Honours can.  There was a matter – I think I have a case reference for your Honours where the court considered that.  Justice Brennan, I think as he was then, wrote one of the judgments:

“Federal appeal” means:

(a)      an appeal to the Full Court of the High Court from a judgment of the High Court constituted by a single Justice; or

(b)      an appeal to the High Court from a judgment of the Federal Court; or

(c)      an appeal to the High Court from a judgment of the Supreme Court ‑ ‑ ‑

KIRBY J:   What is the reference?

MR LILLEY:   I am sorry.  That is the Federal Proceedings (Costs) Act 1981, section 3.

KIRBY J:   You say Justice Brennan has decided ‑ ‑ ‑

MR LILLEY:   Sorry, I can give your Honours three references in the High Court - Sanders v Snell (No 2) 174 ALR 53 and State of Victoria v Australian Building Construction Employees 43 ALR 693. The question there was ‑ ‑ ‑

GUMMOW J:   There was an attack on the validity of the Act at one stage, was there not?

MR LILLEY:   There was an attack on the validity and Justice Brennan having held it as valid then ordered that he would provide a certificate in those circumstances.  Thank you, your Honours.

GLEESON CJ:   Thank you, Mr Lilley.  Yes, Mr Birch.

MR BIRCH:   Your Honour, there are two brief matters I wanted to refer to.  There was discussion about the extent to which this Court in the Carlton decision in referring to the ‑ ‑ ‑

HEYDON J:   Can I be so impolite as to interrupt you, Mr Birch.  Mr Lilley, are you relying on paragraphs 46 to 49 of your written submissions, the fourth issue?

MR LILLEY:   Your Honour, in relation to that, we suspect the problem is the Restraints of Trade Act (NSW).

KIRBY J:   I am not hearing you.

MR LILLEY:   Sorry.

HEYDON J:   Are you relying on it, or are you not?

MR LILLEY:   Yes, we are, your Honour.

HEYDON J:   Just those six or seven lines?

MR LILLEY:   Yes, your Honour.

HEYDON J:   I see.

GLEESON CJ:   Yes, Mr Birch.

MR BIRCH:   I should say, your Honours, in response to the point that was just raised by Justice Heydon, we rely in answer to those passages on what has been put in our submissions in reply, paragraphs 13 and 14 of the document, the second supplementary submission in our submission in reply filed on 2 March.

GUMMOW J:   That raises section 4M, which itself is a bundle of tricks, is it not?

MR BIRCH:   Well, your Honour, we would not, at this time of the afternoon, wish to unpack everything, but we have spelled out the basis upon which we seek to extract benefit from 4M.

GUMMOW J:   Was this dealt with below?

MR BIRCH:   No, what happened was my learned friend was given leave to file a notice of contention which raised common law ‑ ‑ ‑

GUMMOW J:   What, in the Federal Court?

MR BIRCH:   No, in this Court, at the special leave application, your Honour.

GUMMOW J:   Yes, that is right.

MR BIRCH: As a result of them raising the common law restraint argument on their notice of contention we have responded by what we have put in paragraphs 13 and 14. We raise 4M in paragraph 13 and then in paragraph 14, in the four Roman subparagraphs, briefly the reasons why we say even if it can operate concurrently where conduct is otherwise under section 47, it does not help them for those reasons.

HEYDON J:   The standard card that would be played by someone in your position would be the last sentence in (i).  You had no opportunity to lead evidence addressing these issues.

MR BIRCH:   Indeed.

HEYDON J:   Suttor v Gundowda.  You make that point?

MR BIRCH:   Indeed, we do, because the way one would normally respond to the allegation of common law restraint of trade is to respond that it was reasonable, that the reasonableness inquiry is a broad one which simply was not conducted before Justice Emmett.

HEYDON J:   It does not sound a very optimistic one but it may be available.

GUMMOW J:   Where is the leave to file the notice of contention?  Where did you get that?  Maybe it should be withdrawn, that is what I am getting to.

GLEESON CJ:   It was given this morning at the commencement of the hearing on the basis that it was unopposed.

MR BIRCH:   Yes, that is true, your Honour.

HEYDON J:   That was an extension of time.  Leave was given on lines 318 to 320 of the special leave application.  That was leave to revise the draft notice of appeal and to put on any notice of contention.  You do not normally need leave to put on the notice of contention.

MR BIRCH:   Yes.  Your Honours, I have to say this, that I was present at the special leave application and what I understood was contemplated in the notice of contention was effectively what was filed, albeit late, so we certainly cannot take any point that what was done was other than what we were expecting and we were provided with a submission, albeit a very brief submission, to which we then responded in reply.  It does not seem to have been pressed energetically, we say, but it is there.

GUMMOW J:   But was it pressed in the Full Court?  That is what I am trying to find out.

MR BIRCH:   No, sorry, it was not raised.  The issue was simply not addressed in any fashion at all in the Full Court.

GUMMOW J:   Was there any pleading in the Full Court, any ground of appeal?

MR BIRCH:   Your Honour, my understanding is that the only basis upon which the agreement was said to be unenforceable was the breach of the Act and the point of the notice of contention was to permit it to be raised in this Court afresh and for the first time in addition to breach of the Trade Practices Act there was common law ‑ ‑ ‑

GUMMOW J:   The notice of contention is incompetent, is it not?  If it is agitating the matter for the first time that was not open to the Full Court, how could the Full Court have decided it on that ground?

MR BIRCH:   They did not.

GUMMOW J:   But how could they have decided it on that ground, I am trying to get out of you.

MR BIRCH:   They could not have.  Your Honour is absolutely correct.

GUMMOW J:   Do you say the notice of contention is incompetent?

MR BIRCH:   I have not put the submission before, your Honours, but there are certainly ‑ ‑ ‑

GUMMOW J:   At the moment it is not part of the matter in this Court, if I can put it to you.

MR BIRCH:   It was not part of the matter until it was raised by the summons for leave to file the notice of contention and that might well lead to the conclusion that it is incompetent.  I mean, I do not wish to trick my opponent, so to speak.  It is not something I have indicated I would be taking against him.  It has that difficulty. 

GLEESON CJ:   Yes.

MR BIRCH:   Your Honour, that deals with that issue.  There was just two other points.  I said that this Court’s decision in Carlton was discussed and it was said that it had adopted, so to speak, the reasoning of the Full Federal Court in the Milreis decision.  The only point I wish to make is that when one goes to the passage at 554, point 9 in the Carlton decision we say it is very clear that what was being adopted was so much of it as applied to issues concerning section 45 and it was not, we say, on a proper reading of that decision, intended to have a scope beyond that.

The next point was that it was said that the findings of the trial judge were that the pack and unpack provision was important to the parties.  What the finding was – and it is at appeal book 236, line 30 – it was important to my client.  It had “significance” was the word used, and we do not dispute that there was that finding of significance but it was a significance to my client, not a significance to the borrower.  Those were the points I wished to raise.

GUMMOW J:   Do not go away.  Is there any defence relying upon common law restraint of trade doctrine, pages 46 to 49?  It does not seem to be there.

MR BIRCH:   Your Honour, my belief is that there is not.  I have read them and I do not recall it.  I could have overlooked a line, but it is certainly my understanding that it was raised fresh by the notice of contention and that was its intended purpose.

GLEESON CJ:   Thank you.  We will reserve our decision in this matter and we will adjourn until 10 15 tomorrow morning.

AT 4.30 PM THE MATTER WAS ADJOURNED

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