Commerce Commission v Visy Board Pty Ltd
[2012] NZCA 383
•31 August 2012
| IN THE COURT OF APPEAL OF NEW ZEALAND |
| CA312/2011 [2012] NZCA 383 |
| BETWEEN COMMERCE COMMISSION |
| AND VISY BOARD PTY LIMITED |
| CA351/2011 |
| AND BETWEEN JOHN RODERICK STEPHEN CARROLL |
| AND COMMERCE COMMISSION |
| Hearing: 18-19 June 2012 |
| Court: Arnold, Stevens and Wild JJ |
| Counsel: F M R Cooke QC, B Hamlin and R J Hart for Appellant in CA312/2011 and Respondent in CA351/2011 |
| Judgment: 31 August 2012 at 3.00 pm |
JUDGMENT OF THE COURT
AThe appeal in CA312/2011 is allowed.
BThe cross appeal by the respondent in CA312/2011 is dismissed.
CThe respondent in CA312/2011 must pay the appellant costs for a complex appeal on a band A basis and usual disbursements.
DThe appeal by the appellant in CA351/2011 is dismissed.
EThe appellant in CA351/2011 must pay the respondent costs for a standard appeal on a band A basis and usual disbursements.
FThe following orders are consequential upon the outcome of the appeals:
(a)If the Commission files and serves a third amended statement of claim, restricted to pleading those causes of action against Visy Board that we have determined can proceed, and to those causes of action against Mr Carroll that Heath J determined can proceed, then the Commission’s applications to set aside the protests to jurisdiction shall be granted. The third amended statement of claim shall be filed and served on or before 28 September 2012.
(b)If a third amended statement of claim complying with order (a) is not filed and served on or before 28 September 2012, the Commission’s applications to set aside the protests to jurisdiction will be dismissed.
(c)The case is remitted to the High Court for further case management.
GBy consent the confidentiality orders made by Heath J in the High Court are to continue provided however that such orders are varied by order of this Court to the extent only that the reasons set out in this judgment may be published in the news media. Any application to vary or set aside such orders is to be made to the High Court.
____________________________________________________________________
REASONS OF THE COURT
(Given by Stevens J)
Table of Contents
Para No
A cartel extending to New Zealand? [1]
Some more background [6]
Jurisdiction – applicable principles [13]
Generally [13]
High Court Rules [15]
Section 90(2)(b) of the Act [19]
Section 4 of the Act [22]
The High Court judgment [35]
Overarching understanding – application to New Zealand [40]
Acts done or occurring in New Zealand [48]
The Goodman Fielder understanding [50]
The Mainland understanding [59]
The apple box price understanding [68]
The Fonterra understanding [74]
Overarching understanding [86]
Jurisdiction concerning the further understandings [87]
Coca-Cola understanding [88]
The Inghams understanding [94]
The PPCS/Richmond compensation understanding [97]
The Huhtamaki understanding [100]
Jurisdiction under s 4 [104]
Carrying on business in New Zealand [104]
Visy Board NZ a division of Visy Board [106]
Visy Board involvement in operations in New Zealand [109]
Visy Board dealing direct with New Zealand customers [111]
Customers’ perspective [112]
Visy Board staff visit New Zealand [115]
Visy Board communicating in New Zealand [117]
Visy Board acting on behalf of Visy Board NZ [118]
Industry practice [119]
Affects a market in New Zealand [121]
Appeal by Mr Carroll [127]
The pleadings against Mr Carroll [128]
High Court judgment [132]
Submissions for Mr Carroll [133]
Our evaluation [136]
Limitation question [139]
Result [149]
A cartel extending to New Zealand?
The respondent, Visy Board Pty Ltd (Visy Board), and Amcor Ltd (Amcor Australia) are the major suppliers of corrugated fibreboard packaging (CFP) in the Australian market. In November 2007 Visy Board and three of its senior executives (including the appellant, Mr Carroll) admitted in proceedings brought in the Federal Court of Australia by the Australian Competition and Consumer Commission (ACCC) participation in cartel conduct between Visy Board and Amcor Australia extending for almost five years.[1] As a result Heerey J granted declarations and imposed pecuniary penalties of $36 million on Visy Board and $500,000 on Mr Carroll. The Judge found that the cartel conduct involved was “inherently likely to cause loss”.[2] He said that this was conduct:[3]
… run from the highest level in Visy, a very substantial company. It was carefully and deliberately concealed. It was operated by men who were fully aware of its seriously unlawful nature.
[1]Australian Competition and Consumer Commission v Visy Industries Holdings Pty Ltd (No 3) [2007] FCA 1617, (2007) 244 ALR 673 [Federal Court judgment].
[2]At [314].
[3]At [315].
These findings were based on an agreed statement of facts (ASOF) detailing the nature of the CFP market in Australia, the nature and scope of an overarching understanding between the two competitors and the conduct giving rise to the 69 contraventions of the Trade Practices Act 1974 (Cth) by Visy Board and 49 contraventions by Mr Carroll.[4] The significance of these contraventions is illustrated both by the size of the pecuniary penalties imposed and the importance of the CFP market in general. Heerey J observed:[5]
Every day every man, woman and child in Australia would use or consume something that at some stage has been transported in a cardboard box. The cartel in this case therefore had the potential for the widest possible effect.
[4]Other senior executives were also the subject of pecuniary penalty orders. Neither Amcor Australia nor any of its executives were the subject of the proceedings, as they had reported the contraventions to the Australian Competition and Consumer Commission [ACCC] and received the benefit of the ACCC leniency programme. Amcor Australia made a request for leniency in New Zealand which was granted by the Commerce Commission in December 2004.
[5]At [312].
A critical question arising in this appeal is whether such cartel conduct was extended by the parties to a market in New Zealand. A proceeding has been brought by the Commerce Commission alleging that Visy Board and Mr Carroll, among others, contravened provisions of the Commerce Act 1986 (the Act). As both of these parties are based in Australia, the Commission was required to serve the proceedings (first launched in November 2007) in Australia. Protests to the jurisdiction of the New Zealand High Court followed. At issue therefore is whether the Court has jurisdiction to hear and determine the alleged contraventions of the Act.
The protests to jurisdiction were heard by Heath J, who dismissed significant parts of the Commission’s application to set aside such protests by Visy Board and Mr Carroll.[6] Only two central allegations made by the Commission were allowed to continue. Otherwise the protests to jurisdiction were upheld. The Commission has appealed against the upholding of the protests by Visy Board. There is a cross-appeal by Visy Board against the ruling that the two central allegations were allowed to continue.[7] Mr Carroll has appealed against the decision not to uphold the protest by him in respect of the central allegations. There is no appeal by the Commission against the upholding of the protest on the other causes of action against Mr Carroll.
[6]Commerce Commission v Visy Board (New Zealand) Ltd (No 2) (2011) 13 TCLR 166 (HC) [High Court judgment].
[7]Visy Board also seeks to uphold the decision of Heath J on the protests upheld on grounds other than those relied upon in the judgment.
We begin by detailing the broad background facts. We then expand upon the possible avenues by which the Commerce Commission may establish jurisdiction. Those are r 6.27(2) of the High Court Rules (HCR), and ss 90 and 4 of the Act. We then consider the facts relating to the CFP markets in New Zealand, as ascertained from the ASOF filed in the Federal Court proceeding, the second amended statement of claim filed in the New Zealand proceeding,[8] the affidavits filed by the Commission and the annexed exhibits. Finally, we consider which, if any, of the jurisdictional avenues apply in relation to each cause of action. The issues before us turn largely on our assessment of the evidence said to support the Commission’s claims.
Some more background
[8]Filed on 8 October 2010 on the eve of the protest to jurisdiction hearing.
The customers of both Visy Board and Amcor Australia include a number of major customers who themselves transact business on both sides of the Tasman. They include well known companies like Lion Nathan Ltd, Goodman Fielder Ltd and Coca-Cola Amatil Ltd, conveniently referred to as trans-Tasman purchasers of CFP. Both Visy Board and Amcor Australia have New Zealand subsidiaries, Visy Board (NZ) Ltd (Visy Board NZ) and Amcor Packaging New Zealand Ltd (Amcor NZ) respectively. There are three major suppliers of CFP in New Zealand, the Visy Board interests, the Amcor interests and Carter Holt Harvey Ltd (CHH). Mr Carroll was the general manager of Visy Board from early 2000 until December 2004; previously he had been the general manager of Visy Board NZ.
In the late 1990s there had been a price war in Australia for the supply of CFP products. Competition between Visy Board and Amcor Australia was intense resulting in depressed prices and low margins for both suppliers. As a result of a series of private meetings in Melbourne between January and April 2000 involving Mr Debney, the chief executive of Visy Board, and Mr Brown, the managing director of Amcor Australia, a market sharing and price fixing agreement was entered into. In the Federal Court judgment this agreement is referred to as the overarching understanding. It applied, according to the ASOF, to the Australian CFP market. It contained the following provisions:
(a)Visy Board and Amcor Australia would permit each other to maintain approximately their then current share of the CFP market;
(b)Visy Board and Amcor Australia would not seek to enter into contracts for the supply of CFP with each other’s principal CFP customers;
(c)if, for one reason or another, Visy Board did enter into a contract for the supply of CFP with a principal CFP customer of Amcor Australia, then Visy Board would not prevent or seek to prevent Amcor Australia from entering into a supply contract with a customer or customers of Visy Board in order to replace the share of the CFP market that it had lost as a result of losing the supply contract to Visy;
(d)the converse would apply when Amcor Australia entered into a contract with a principal CFP customer of Visy Board;
(e)Visy Board and Amcor Australia would, in future, collaborate with each other in order to increase the prices at which they supplied CFP;
(f)Visy Board would appoint Mr Carroll as its nominated contact person with Amcor Australia to effect the implementation of the overarching understanding; and
(g)Amcor Australia would appoint Mr Laidlaw as its nominated contact person with Visy Board.[9]
[9]The terms are taken from the Federal Court judgment at [41].
The overarching understanding therefore manifested cartel conduct of various types including market allocation, price fixing/controlling, tender-rigging and measures to ensure compliance. The commercial purpose behind this collusive conduct was to ensure that Visy Board and Amcor Australia would continue to enjoy the same market share held by each in early 2000. The agreement was that neither would poach the other’s customers and prices for CFP would be gradually increased from their then current unsustainable levels.
From mid 2000 Visy Board and Amcor Australia gave effect to the overarching understanding. Mr Carroll met with Messrs Laidlaw and Hodgson of Amcor Australia to discuss how the understanding would be implemented. The flavour of how the cartel operated is demonstrated by the following findings of Heerey J:
[51] Between July 2000 and November 2004 Mr Carroll and Mr Laidlaw met some 30–40 times to discuss issues or matters arising from the over‑arching understanding. These meetings were held at Rockman’s Regency Hotel in Melbourne, the Tudor Motel in Box Hill, the Elizabethan Lodge in Blackburn North, Westerfolds Park on Fitzsimons Lane, Templestowe, the Templestowe Park on Porter St, Templestowe, the Cherry Hill Tavern in East Doncaster and Myrtle Park on Severn St, North Balwyn. Mr Carroll and Mr Laidlaw also discussed matters arising from the over‑arching understanding by telephone on numerous occasions. The telephone discussions were generally initiated from public telephones and received on Mr Carroll’s or Mr Laidlaw’s mobile telephones. …
[52] In late 2000 Mr Carroll provided Mr Laidlaw with an Optus pre-paid mobile telephone and the telephone number for it and a new mobile number on which Mr Laidlaw was to contact him. Mr Carroll told Mr Laidlaw he should use the Optus mobile for the purpose of contacting him in relation to the over‑arching understanding.
In Australia the overarching understanding was given effect to in a number of ways. Between 2000 and 2003 Visy Board and Amcor Australia arrived at annual price increase understandings whereby regular price increases were implemented.[10] In addition customer price understandings were arrived at and given effect to. Examples involving major customers included Goodman Fielder and Nestlé in 2001–2002[11] and Fosters and Coca-Cola in 2001.[12] The provision concerning maintaining of market share resulted in several “compensation understandings” between the two competitors. An example of this type of contravention arose following the loss by Visy Board of its major customer Lion Nathan to Amcor Australia in early 2001. It gave rise to a compensation understanding entered into and given effect to with Inghams Enterprises Pty Ltd.[13]
[10]Federal Court judgment at [61]–[92].
[11]At [93]–[108].
[12]At [109]–[122].
[13]At [194]–[207].
There is a market for CFP in New Zealand. CFP is used as a primary packing medium for the bulk supply of products like fresh meat, fruit and vegetables. It is also a secondary packaging medium for the supply of products like beverages, processed foods, consumer goods and manufactured products. At the relevant time the New Zealand participants on the manufacturing and supply side were Visy Board NZ, Amcor NZ and CHH. We are not concerned with any question of market definition, save to observe that the pleaded markets are alternatively the North Island CFP market, the South Island CFP market, the market in New Zealand for the manufacture and supply of CFP to national multi site customers and the New Zealand trans-Tasman customer market.[14]
[14]We note that there is in the second amended statement of claim no pleading of a “New Zealand trans-Tasman market”. It is not therefore necessary for us to consider the legal question addressed by Heath J whether s 27(1) of the Commerce Act 1986 [the Act] extends to a trans-Tasman market: High Court judgment at [40]–[48]. None of the parties before us sought to support the Judge’s analysis on this issue.
As we will later describe, the CFP market in New Zealand was, like Australia, unprofitable in 1999–2000. It was in the interests of the major suppliers to take steps to address that problem. In that context the Commission has alleged that Visy Board and Amcor Australia entered into an overarching understanding in relation to trans-Tasman customers operating in any one or more of the New Zealand CFP markets. Such understanding is said to be in terms broadly similar to those described at [7] above, except that it related to markets and customers in New Zealand. It is said to give rise to various contraventions of the Act, including breaches of s 27(1) and (2) of the Act though conduct entering into and giving effect to such overarching understanding. The Commission also alleges Visy Board and Amcor Australia entered into and/or gave effect to eight further price fixing understandings in respect of major customers in the New Zealand market including Coca-Cola, Goodman Fielder, Inghams, Mainland and Fonterra.[15]
Jurisdiction – applicable principles
Generally
[15]A more detailed review of the pleadings will be necessary when we assess the evidence against the Commission’s allegations to determine questions of jurisdiction.
As a company, Visy Board must act through human actors comprising its directors or officers, and servants or agents of the body corporate. In each case the company will be responsible for such conduct where the representative is acting within the scope of his or her actual or apparent authority.[16] Establishing jurisdiction for alleged contraventions of the Act depends, as we will explain, upon the existence of acts or omissions related to conduct in New Zealand. Where the liability of a body corporate is in issue, it will be necessary for the Commission to show that persons for whose conduct the company is responsible acted or engaged in conduct in one of three distinct ways.
[16]This concept of corporate responsibility through human actors is recognised in the provisions of the Act. For example, s 90(1) relates to proof of the state of mind of a body corporate and s 90(2)(a) deals with vicarious liability of the body corporate for the conduct of its directors, employees and others.
The first involves an act or omission that was done or occurred in New Zealand. This may found jurisdiction under the provisions of r 6.27 of the HCR. But because such conduct will have been carried out by directors, employees or agents, this will also engage the provisions of s 90(2)(a) of the Act.[17] The second basis of jurisdiction could be through the application of s 90(2)(b) where a body corporate may be liable for conduct engaged in on its behalf by another person or legal entity at the direction or with the consent or agreement of the body corporate.[18] The third possibility involves the application of s 4(1) of the Act to conduct that occurred outside New Zealand. We will now elaborate on each of these possible bases for founding jurisdiction.
High Court Rules
[17]Section 90(2)(a) provides that any conduct engaged in on behalf of a body corporate by a director, servant or agent of the body corporate acting within the scope of actual or apparent authority shall be deemed to have been engaged in also by the body corporate.
[18]An example of jurisdiction arising on this basis is seen in the decision of this Court in Kuehne + Nagel International AG v Commerce Commission [2012] NZCA 221.
Where proceedings are served out of New Zealand without leave and the parties protest the Court’s jurisdiction under r 5.49 of the HCR, r 6.29(1) applies. The Court must dismiss the proceeding unless the party serving the proceedings, here the Commission, establishes first that there is a good arguable case that the claim falls wholly within one or more of the paragraphs of r 6.27 of the HCR and second that the Court should assume jurisdiction by reason of the matters set out in r 6.28(5)(b) to (d). These include whether there is a serious issue to be tried on the merits.[19] Counsel for both Visy Board and Mr Carroll realistically accepted that, if the Court found that any of the claims fell wholly within one or more of the types of claim in r 6.27, then the further test of whether there was a serious question to be tried on the merits of such claims would also be satisfied.
[19]This is the two-stage inquiry described in Kuehne + Nagel International AG v Commerce Commission at [11]-[16].
The Commission relies first on r 6.27(2)(j)(i). This rule provides for service outside the jurisdiction where a claim arises under an enactment and the act or omission to which the claim relates was done or occurred in New Zealand. In determining whether there is a “good arguable case” that the claim falls within one of the paragraphs of r 6.27, the test described by this Court in Wing Hung Printing Co Ltd v Saito Offshore Pty Ltd applies:[20]
It is clear … that the good arguable case test does not require the plaintiff to establish a prima facie case. This recognises that disputed questions of fact cannot be readily resolved on affidavit evidence. On the other hand, there must be a sufficiently plausible foundation established that the claim falls within one or more of the headings in r 6.27(2). The Court should not engage in speculation.
[20]Wing Hung Printing Co Ltd v Saito Offshore Pty Ltd [2010] NZCA 502, [2011] 1 NZLR 754 at [41] (footnotes omitted).
This Court also stated in Stone v Newman:[21]
What is a good arguable case is a straightforward test which comes down to a matter of judgment, in all the circumstances, having regard to the principle of restraint concerning a foreign citizen resident overseas.
[21]Stone v Newman (2002) 16 PRNZ 77 (CA) at [26].
Applying the two-stage inquiry in this case requires us to determine whether there is a good arguable case that the overarching understanding (admitted in the Federal Court proceedings) extended to New Zealand markets and trans-Tasman customers operating in those markets. If the answer is yes, the next step is to determine whether there is a good arguable case in relation to allegations that Visy Board acted directly in New Zealand in the sense that an act or omission to which the claim relates was done or occurred in New Zealand.[22] Where it is alleged that Visy Board gave effect to the overarching understanding in New Zealand, this may or may not occur through qualifying conduct by Visy Board or its servants in New Zealand (relying on s 90(2)(a)). Where there is evidence to show a good arguable case of direct action in New Zealand by Visy Board, the Commission does not need to rely on conduct by attribution under s 90(2)(b) of the Act or s 4 dealing with the application of the Act to conduct outside New Zealand.
Section 90(2)(b) of the Act
[22]Rule 6.27(2)(j)(i) of the High Court Rules [HCR].
The second method of establishing jurisdiction is by demonstrating that there is a good arguable case that Visy Board acted in a manner through Visy Board NZ to attract liability under s 90(2)(b) of the Act. This subsection provides:
90 Conduct by servants or agents
…
(2) Any conduct engaged in on behalf of a body corporate—
…
(b)by any other person at the direction or with the consent or agreement (whether express or implied) of a director, servant, or agent of the body corporate, given within the scope of the actual or apparent authority of the director, servant or agent—
shall be deemed, for the purposes of this Act, to have been engaged in also by the body corporate.
The views of this Court on s 90(2)(b) were discussed in Kuehne + Nagel International AG.[23]
[23] Kuehne + Nagel International AG v Commerce Commission at [37]–[40].
The principles enunciated there were not debated before us. Rather the focus was on factual issues and whether the Commission could show a good arguable case on the evidence presently before the Court that Visy Board NZ was acting on behalf of Visy Board. We accept the principle that a subsidiary, such as Visy Board NZ, does not carry on business as an agent for its parent merely as a result of the legal and commercial capacity of a parent to control the subsidiary and the fact that the parent is involved in a cartel arrangement.[24] But this does not detract from the purpose of s 90(2)(b) as a statutory provision aimed at facilitating the proof of the responsibility of a company for the acts of others acting at the direction or with the consent or agreement of the company. Put another way, the issue is whether there is a good arguable case of conduct being engaged in in New Zealand on behalf of the company sought to be made liable.[25] Thus liability under the Act may be attributed to a company such as Visy Board where conduct in New Zealand on its behalf is engaged in by an agent such as Visy Board NZ.
Section 4 of the Act
[24]As discussed by Harrison J in Bomac Laboratories Ltd v F Hoffman-La Roche Ltd (2002) 7 NZBLC 103,627 (HC) at [67]–[70].
[25]See Walplan Pty Ltd v Wallace (1985) 8 FCR 27 at 37: “The phrase “on behalf of” is not one with a strict legal meaning and it is used in a wide range of relationships. The words are not used in any definitive sense capable of general application to all circumstances which may arise and to which the subsection has application. This must depend upon the circumstances of the particular case ... In the context of s 84(2) [of the Trade Practices Act 1974 (Cth)] the phrase suggests some involvement by the person concerned with the activities of the company. The words convey a meaning similar to the phrase “in the course of the body corporate’s affairs or activities”. The words “on behalf of” also encompass acts done by a corporation’s servants in the course of their employment, but those words are not confined to the notion of the master/servant relationship. Section 84(2) refers to conduct by directors and agents of a body corporate as well as its servants. Also, the second limb of the subsection extends the corporation’s responsibility to the conduct of other persons who act at the behest of a director, agent or servant of the corporation. Hence the phrase “on behalf of” casts a much wider net than conduct by servants in the course of their employment, although it includes it.”
The above passage was cited with approval by Lindgren J in NMFM Property Pty Ltd v Citibank Ltd [2000] FCA 1558, (2000) 107 FCR 270 at [1242]. The Judge in that case held: “an act is done “on behalf of” a corporation for the purpose of s 84(2) if either one of two conditions is satisfied: that the actor engaged in the conduct intending to do so “as representative of” or “for” the corporation, or that the actor engaged in the conduct in the course of the corporation’s business, affairs or activities.”
The third method of establishing jurisdiction is under s 4 of the Act whereby the provisions of the Act extend to conduct outside New Zealand if certain statutory requirements are met. It is s 4 that demarcates the extraterritorial reach of the Act. As Tipping J said in Poynter v Commerce Commission:[26]
It is important to recognise that the Act is a code and, for extraterritoriality purposes, the court should confine itself to the express terms of the Act and any additional extraterritorial effect which flows as a matter of inevitable logic from those express terms read contextually in the light of the purposes of the Act.
[26]Poynter v Commerce Commission [2010] NZSC 38, [2010] 3 NZLR 300 at [46]. Tipping J was speaking on behalf of a plurality of four Judges.
Section 4(1) of the act provides:
4 Application of Act to conduct outside New Zealand
(1) This Act extends to the engaging in conduct outside New Zealand by any person resident or carrying on business in New Zealand to the extent that such conduct affects a market in New Zealand.
The interpretation of s 4 was the subject of comprehensive submissions from counsel for the Commission and Visy Board. We set out our views below. We approach the task of analysing the interpretation and scope of s 4 in the light of the “key principle” identified by the Supreme Court in Poynter v Commerce Commission that:[27]
… the courts should not treat legislation as having extraterritorial effect unless and then only to the extent Parliament has made that clear by means of express words or necessary implication.
[27]At [38].
That said, the Supreme Court was not required to address the meaning of s 4(1) of the Act because the Commission did not rely on that section as a basis for jurisdiction of the New Zealand courts over Mr Poynter’s conduct.[28] The scope of s 4 turns on the words used read contextually in the light of the purposes of the Act. This requires analysis in the present case of the words “carrying on business in New Zealand” and the phrase “to the extent that such conduct affects a market in New Zealand”. On each of these two points, there is limited authority addressing the use of such language in the Commerce Act context.
[28]As confirmed by Elias CJ at [4]. We respectfully disagree with the suggestion of Heath J (High Court judgment at [10]) that the Supreme Court in Poynter v Commerce Commission authoritatively determined the scope of s 4.
Section 4(1) extends the jurisdiction of the Act only to persons who are resident in New Zealand or are “carrying on business” there. Counsel for the Commission submitted that whether a company is “carrying on business” in New Zealand is a question of fact involving a wide variety of factors, not one of which is essential for making a positive finding.[29] Such factors would include conducting business in New Zealand, dealing directly with customers here, regular visits by staff and communicating directly with customers and the local division. Counsel for Visy Board, however, submitted that a continuous and systematic physical presence in New Zealand is needed before a company is found to be “carrying on business” here.
[29]Citing Matt Sumpter with Ben Hamlin and James Mellsop New Zealand Competition Law and Policy (CCH, Auckland, 2010) at 432 as an authority.
Section 4 distinguishes “residence” from “carrying on business” in New Zealand. Jurisdiction can be founded on one or the other. One relevant factor is that the word “business” is given a broad definition in s 2(1) of the Act. It means any undertaking that is carried on for gain or reward, or any undertaking in the course of which goods or services are acquired or supplied, or any interest in land is acquired or disposed of, otherwise than free of charge. A further factor is that the second requirement of s 4(1) – that the conduct must affect a market in New Zealand – limits the extra‑territorial reach of the Act, meaning that there is less need to interpret “carrying on business” narrowly. Case law from Australia supports the proposition that whether or not a company is “carrying on business in New Zealand” requires a contextual analysis. In Bray v F Hoffman-La Roche Ltd[30] Merkel J in the Federal Court of Australia commented on the interpretation of s 5(1) of the Trade Practices Act, which extended the application of parts of the Trade Practices Act to conduct outside Australia by bodies “carrying on business in Australia”. Merkel J reasoned that the phrase should be given “its ordinary or usual meaning”[31] and that whether a corporation is carrying on business within Australia is “very much a question of fact”.[32] He found that it did not require a foreign company to have a place of business in the jurisdiction.[33] The Judge signalled, however, that the test was not open-ended, in that “carrying on business” will usually involve a series or repetition of acts.[34]
[30]Bray v F Hoffman-La Roche Ltd [2002] FCA 243, (2002) 118 FCR 1. As noted in Poynter v Commerce Comission, the decision of Merkel J in Bray was appealed, but the decision of the Full Court of the Federal Court did not affect the relevant aspects of Merkel J’s reasoning regarding the carrying on business point (see Bray v F Hoffman-La Roche Ltd [2003] FCAFC 153, (2003) 130 FCR 317).
[31]At [60].
[32]At [62].
[33]At [63].
[34]At [62], citing Thiel v Commissioner of Taxation of the Commonwealth of Australia (1990) 171 CLR 338 at 350.
Observations of Croft J in Sunland Waterfront (BVI) Ltd v Prudentia Investments Ltd (No 2) support this proposition.[35] The ordinary and natural meaning of “carrying on” also suggests that the conduct in question must have some degree of continuity or repetition. We agree that such a limit on the phrase is necessary as it would run counter to the policy of the Act if jurisdiction extended to those who had only a transitory or tangential connection with New Zealand.
[35]Sunland Waterfront (BVI) Ltd v Prudentia Investments Pty Ltd (No 2) [2012] VSC 239 at [380]. The Judge cited R T & Y E Falls Investments Pty Ltd v New South Wales [2001] NSWSC 1027 at [78]. Sunland involved consideration of legislation concerning fair trading practices that also extended jurisdiction to those “carrying on business”. There is also an extraterritoriality provision in the New Zealand Fair Trading Act 1986 that extends jurisdiction to those carrying on business in New Zealand: s 3.
In summary, we consider that whether or not a person is “carrying on business in New Zealand” is a question of fact where a number of factors are relevant. But the analysis is not confined to whether or not the company maintained a systematic and continuous physical presence in New Zealand; that states the test too highly and does not serve the purpose of the Act. We add that the approach to be taken requires recognition of the practical modes of transacting business. The reality of modern day commerce necessitates dealing with consumers through a variety of methods of communication including the internet. Inevitable developments in globalisation of commerce are also relevant. The definition of market in s 3(1A) underscores these factors.
The interpretation outlined also accords with the purpose of the Act. This is “to promote competition in markets for the long-term benefit of consumers within New Zealand”.[36] The promotion of competition is, as this Court has previously said,[37] based on the premise that society’s resources are best allocated in a competitive market where rivalry between firms ensures maximum efficiency in the use of resources. This purpose of the Act is arguably not well served by Visy Board’s interpretation of “carrying on business”, which would significantly narrow the reach of the Act by insisting on continuous and systematic physical presence.
[36]Section 1A of the Act.
[37]Tru Tone Ltd v Festival Records Retail Marketing Ltd [1988] 2 NZLR 352 (CA) at 358, cited in Giltrap City Ltd v Commerce Commission [2004] 1 NZLR 608 (CA) at [76] per McGrath J.
The second limb of the test under s 4(1) provides that the Act only extends to conduct outside New Zealand to the extent that such conduct “affects a market in New Zealand”.[38] Counsel for the Commission argued that “affects” in s 4(1) requires the conduct in question to “relate to” a market in New Zealand. This would ensure that the Act does not apply to issues that only concern a foreign market. Counsel for Visy Board, however, submitted that conduct “affects” a market in New Zealand only if a demonstrable effect on that market can be shown.
[38]An equivalent provision does not appear in s 5(1) of the Competition and Consumer Act 2010 (Cth), formerly the Trade Practices Act 1974.
One consequence of Visy Board’s interpretation is that it only allows s 4(1) to be used in conjunction with provisions of the Act that require an actual effect to be produced. It would not cover conduct that is purposive only, such as simply entering into an anti-competitive agreement that is directed at New Zealand markets (under s 27(1)) but without any actual immediate effect on a New Zealand market. Such an interpretation would in our view introduce an unwarranted restriction on the scope of this method of establishing jurisdiction.[39] Cartel conduct has a damaging impact upon society: it results in high prices, misallocation of resources, and corrodes the incentive for firms to innovate.[40] As Heerey J observed about the conduct in this case:[41]
Cartel behaviour of the kind with which this case is concerned is extremely destructive of the competition on which the prosperity of a free market economy depends. Often the profits can be immense, and the risk of detection slight. Of its nature, cartel behaviour is likely to occur in secret and between parties who seek mutual benefit.
[39]We acknowledge that there might arguably be good reason for Parliament to have limited the extended jurisdiction to conduct which actually affects a market in New Zealand rather than including conduct which has that purpose but has no effect. The argument would be that if jurisdiction is to be extended there must be proper justification for doing so, and the fact that the conduct has an actual effect on a market in New Zealand is a good reason. The same imperative does not apply where there is purpose but no direct effect. But we are not persuaded that a contextual interpretation supports this approach.
[40]New Zealand Competition Law and Policy at 127. See also Alix Boberg “Fixing the Price at Liberty: The Case for Imprisoning Price-Fixers in New Zealand” (2010) 16 Auckland U L Rev 81 at 81–82: “The modern international consensus is that hard-core cartels are severely detrimental to economic welfare; labelled the most ‘egregious violations of competition law’ by the Organisation for Economic Co-operation and Development (OECD), as the ‘supreme evil of antitrust’ by the United States Supreme Court, and as a ‘major and largely invisible drain on the world’s economy’ by the United Kingdom Department of Trade and Industry in its 2001 White Paper. By inflating prices, cartels deceitfully transfer wealth from consumers to the producer, to the detriment of the consumer surplus and allocative efficiency”. (Footnotes omitted.)
[41] Federal Court judgment, above n 1, at [306].
Visy Board submitted that its interpretation of “affects” accords with the dictionary meaning of the word. In the Oxford English Dictionary the word “affect” means “to have an effect on, either materially or otherwise” or “to have a material effect on; to make a material impression on; to influence, move, touch”. But “affects” is not a legal term of art and in our view may also bear the meaning “relates to”. Visy Board’s interpretation essentially seeks to read words into s 4(1) that are not there: an effect does not need to be “demonstrable” in order for it to have affected an object, namely, a market in New Zealand. If non-authorised anti-competitive behaviour is to be properly enforced in New Zealand for the benefit of consumers, then an interpretation of “affects”, which attaches to conduct that is both effects-based and purposive, is warranted. This is consistent with the fact that the Act is a code.[42]
[42]Poynter v Commerce Commission at [46].
A requirement that the conduct should relate to a market permits s 4(1) to be used in conjunction with all substantive provisions of the Act, even if the conduct in question is only directed at a market in New Zealand.[43] That accords with the purpose of the Act.[44] However, we accept that overseas conduct would only “relate to” a market in New Zealand to the extent that it impacts or will likely impact upon competition in the market in New Zealand in which a contravention of the Act is alleged to have occurred.[45] In other words, prohibited conduct overseas would not be amenable to jurisdiction if it only had a derivative or “ripple down” effect on a different market in New Zealand.[46]
The High Court judgment
[43]See Legislation Advisory Committee Legislation Advisory Committee Guidelines: Guidelines on Process and Content of Legislation – 2001 edition and amendments (May 2011) at 344–345, which states that while considerable care must be taken in applying legislative provisions that extend jurisdiction to overseas conduct on the basis of effects produced in New Zealand, it is generally preferable to limit the application of such laws of this kind to “cases involving an element of conduct directed at New Zealand, or at the least to conduct where it is foreseeable that effects will result in New Zealand”.
[44]A similarly broad view was taken by Williams J in the context of the application of s 4 to the business acquisition provisions in ss 47 and 48 of the Act: see Commerce Commission v British American Tobacco Holdings (New Zealand) Ltd (2001) 10 TCLR 320 (HC) at [73]. The Judge held that “any affecting suffices”.
[45]See Commerce Commission v Air New Zealand Ltd (2011) 9 NZBLC 103,318 (HC) at [260]–[261], which is on appeal to this Court.
[46]We also note that there are proposed amendments to the jurisdictional reach of the Act in a current government bill, the Commerce (Cartels and Other Matters) Amendment Bill, introduced on 13 October 2011. The proposed amendment to s 4 – a new subsection saying that a breach of the Act is deemed to occur in New Zealand if either an act or omission, or event necessary for the completion, that forms part of the breach occurs in New Zealand – would greatly expand the Act’s jurisdiction.
The result of the judgment was that the protests to jurisdiction by Visy Board and Mr Carroll were upheld on all of the causes of action brought against them, except for nine – six against Visy Board and three against Mr Carroll.[47] The Judge suggested that some of these causes of action might need repleading and his orders allowed for that.[48] These causes of action related only to the overarching understanding in relation to New Zealand markets and allegations resulting from dealings with the Fonterra group of companies in early 2004 (the Fonterra understanding). The allegations in relation to seven other transactions concerning Coca-Cola, Goodman Fielder, Inghams, Mainland, apple boxes, PPCS/Richmond and Huhtamaki could not proceed.
[47]These comprise the first, second, third, thirty-first, thirty-third and thirty-sixth causes of action against Visy Board and the fourth, thirty-second and thirty-fourth causes of action against Mr Carroll.
[48]At [85].
The basis upon which the protests were upheld in relation to the Coca-Cola, Goodman Fielder, Inghams and Huhtamaki transactions was that the claims in each case concerned a “New Zealand trans-Tasman market” and “there [was] no arguable case for a s 27 infringement in respect of the alleged trans-Tasman markets”.[49] The Judge appears to have overlooked the fact that alternative markets were pleaded in each case relating to the North Island, South Island and New Zealand CFP markets. Counsel for all parties accepted that we would need to approach our analysis on the basis of all the pleaded New Zealand markets.
[49]At [48].
In respect of the Mainland, apple boxes and PPCS/Richmond transactions, the Judge concluded:[50]
I am not satisfied there is any plausible foundation for the proposition that Visy New Zealand acted as Visy Australia’s agent in respect of all of the transactions into which it entered in New Zealand that are alleged to be caught under s 27. No safe inference to that effect could be drawn, even if all pleaded facts were true.
The Judge also added that he was not satisfied that there is a good arguable case that the claim falls within r 6.27(2)(j) or any of the other paragraphs in r 6.27.[51]
[50]At [82(b)].
[51]At [83].
The Judge does not seem to have assessed the conduct of Visy Board against the specific requirements of s 4(1) of the Act. That provision was mentioned by the Judge in his analysis of the conduct of Mr Carroll as follows:[52]
Save for his involvement in the Fonterra transaction, Mr Carroll was not resident in New Zealand at any time when acts were undertaken by him in Australia that might otherwise be regarded as giving effect to the “overarching understanding” reached in Australia. Based on the terms of s 4(1) of the Act, as interpreted in Poynter, no additional claim may be brought against him.
[52]At [82(a)] (footnotes omitted).
For the reasons appearing in the previous section we propose to analyse the Commission’s allegations against Visy Board and Mr Carroll in a manner somewhat different from the methodology used by Heath J.
Overarching understanding – application to New Zealand
The first and second causes of action[53] allege that Visy Board and Amcor Australia entered into an overarching understanding between January 2000 and April 2001 in relation to trans-Tasman customers. In summary it is alleged that the terms included an agreement not to compete for each other’s customers, to compensate one another if they did secure the other’s customers, and to price offers accordingly. The third cause of action alleges that Visy Board and Amcor Australia gave effect to the overarching understanding in New Zealand from mid-2000.
[53]All references to the pleading are to the second amended statement of claim filed by the Commission on 8 October 2010, unless otherwise specified.
In the High Court Heath J approached his analysis of the overarching understanding by referring first to the allegations regarding the Fonterra understanding that developed out of, and comprised one part of, the overarching understanding. The Judge found that there was a good arguable case that deliberate engagement in a preparatory meeting for the tenders for the supply of CFP to six members of the Fonterra Group occurred in breach of s 27 of the Act, bringing the claim within r 6.27(2)(j) of the HCR. He also found that there was a serious question to be tried on the merits.[54]
[54]High Court judgment, above n 6. at [74].
The Judge then referred to the overarching understanding, noting an apparent paucity of evidence of activities undertaken in New Zealand by representatives of Visy Board or Visy Board NZ that could be seen as entry into or the giving effect in New Zealand of an overarching agreement of the type agreed in Australia.[55] The Judge concluded:
[78] The existence, however, of a tenable cause of action based on the Fonterra transaction means that an allegation can legitimately be made that the overarching understanding reached in Australia was given effect in New Zealand by Mr Carroll, acting on behalf of both Visy Australia and Visy New Zealand in January 2004 while preparing for the Fonterra tender. The pleading and evidence against Mr Carroll on that issue has already been the subject of analysis. Visy Australia can be placed in the mix as a potential tenderer in respect of that particular transaction, though not as an active participant in the tender process itself.
[79] Based on what occurred in the course of that transaction, I am satisfied there is a good arguable case that Visy Australia entered into, and either attempted to give effect or did give effect to the overarching understanding reached in Australia through its participation in the meeting attended by Mr Carroll in January 2004. Likewise, there is a good arguable case that Mr Carroll aided and abetted that conduct. I also consider there is a serious issue to be tried on the merits, in respect of those claims. Those conclusions mean that the first, second, third and fourth causes of action can proceed.
(Footnotes omitted.)
[55]At [77].
Our analysis first considers whether there is evidence to show a good arguable case that the overarching understanding extended to New Zealand. We have no doubt that there is. Despite statements by a number of witnesses that as far as they were concerned the overarching understanding applied only to Australia, there is ample evidence that the executives of both Visy Board and Amcor Australia applied it to major customers who required CFP for their operations in New Zealand. It was implemented in relation to trans-Tasman customers such as Fonterra, Goodman Fielder and Coca-Cola. There is also evidence that, when the arrangements under the overarching understanding were being implemented, in relation to compensation when one of the competitors secured a customer from the other (as occurred for example in the case of Lion Nathan in 2001), New Zealand customers were treated as part of the compensation package. Mr Laidlaw of Amcor Australia prepared handwritten notes setting out his analysis of various Amcor accounts that he thought could be offered to Visy Board to make up for the loss of the Lion Nathan account. This document refers to at least three trans-Tasman customers, Nestlé, Inghams and Goodman Fielder, in respect of which the New Zealand business of each was to be included as compensation pursuant to the overarching understanding. Further customers, including Sanitarium New Zealand and Hansells New Zealand, were also proposed as part of the compensation package.
There is other evidence of collusive dealings between Visy Board and Amcor Australia executives in relation to the trans-Tasman customer Goodman Fielder. The two competitors knew that in early 2001 Goodman Fielder would be issuing a request for a proposal (RFP) seeking tenders for CFP products. In or about February 2001 senior executives of Visy Board and Amcor Australia held discussions confirming that Amcor Australia should retain the Goodman Fielder account, as well as the Smiths and Nestlé accounts. The position was that Visy Board would “cover” Amcor Australia for these customers. In other words, Visy Board would allow Amcor Australia to secure the tender thereby protecting its existing business. In the case of Goodman Fielder a significant part of the Goodman Fielder business was in New Zealand.
Further evidence of implementation of the overarching understanding in New Zealand occurred in 2003 when Amcor Australia learned that it was being undercut by Visy Board in apple box pricing in this country. Discussions between Mr Laidlaw of Amcor Australia and Mr Carroll of Visy Board followed. Mr Carroll was told that feedback from New Zealand suggested there was undercutting going on in the apple sector. Mr Laidlaw explained that this was his “understanding of the list price, and your guys are quoting below that level”. Mr Carroll indicated that he was not aware of any problems but would investigate. Having made inquiries Mr Carroll subsequently contacted Mr Laidlaw advising that Visy Board NZ had sold below list price to some of its own major customers but that it was not trying to poach Amcor’s customers. This evidence strongly suggests that the New Zealand market was being treated as part of the overarching understanding. There is no other basis upon which to explain what was occurring between senior executives of the two competitors in the exchange just described.
The evidence of Mr Brown, managing director of Amcor Australia, records that the business of Amcor NZ in the period 1999 to 2003 was unprofitable. Given this commercial reality for suppliers it is inherently likely that the overarching understanding (which was directed to ceasing intense competition and increasing CFP prices to more realistic levels) would also extend to the New Zealand market. There is further evidence of collusive behaviour from conversations recorded by Mr Hodgson, group general manager of Amcor Australia, with Visy Board executives (including Mr Debney) and Amcor executives discussing competition in the New Zealand market. These references include statements that “we fixed New Zealand” and the market being “all under control”.
This evidence is sufficient for us to conclude that the Commission has a good arguable case that the overarching understanding applied to a CFP market in New Zealand. We will refer below to further evidence supporting the existence of a good arguable case (as well as a serious issue to be tried on the merits on this issue) when considering the various pleaded transactions said to have arisen under the umbrella of the overarching understanding. We accept the submission of counsel for Visy Board that such an understanding probably did not underpin the whole of the New Zealand CFP market. But we do not consider that it needs to go that far. It is sufficient that trans-Tasman customers and major customers of CFP products acquiring product for the New Zealand market were plainly affected by the terms of the overarching understanding applicable to the New Zealand market.
Acts done or occurring in New Zealand
In this section we examine the pleadings and the evidence to determine whether the Commission has a good arguable case that an act or omission by Visy Board to which the claims concerning the overarching understanding (and associated transactions) relate was done or occurred in New Zealand.[56] In this context, the observations of this Court in Kuehne + Nagel International AG are apposite:
[67] It is also important to note that at the preliminary stage of protest to jurisdiction the Court is not engaged in a mini trial. That is not the purpose of this procedural step. First, as was said by this Court in Harris v Commerce Commission, how much material is required to persuade the Court will depend in part upon the stage the case has reached. Second, the relevant tests are to be measured against the need for a plausible and not speculative case. Hence the Court will not normally determine credibility issues, even where there is a contest on affidavits.
(Footnotes omitted.)
[56]As required by r 6.27(2)(j).
There are four transactions namely, Goodman Fielder, Mainland, apple boxes and Fonterra, in respect of which there is evidence of conduct occurring in New Zealand by executives of Visy Board. If such conduct occurred in the context of the overarching understanding it would also support jurisdiction in relation to those causes of action against Visy Board.[57]
The Goodman Fielder understanding
[57]The first, second and third causes of action.
Three causes of action are pleaded[58] against Visy Board in respect of Goodman Fielder alleging conduct occurring between early 2001 and April 2001 that breached s 27(1) and (2) of the Act (including via s 30) (the GFL understanding). The contraventions involve the entering into and giving effect to the GFL understanding whereby Visy Board and Amcor Australia agreed that Visy Board would not seek to enter into contracts for the supply of CFP to Goodman Fielder, a trans-Tasman customer of Amcor Australia. Further, if Goodman Fielder requested Visy Board to provide a quote for supply of CFP, Visy Board would quote prices higher than the prices Amcor Australia quoted to Goodman Fielder. This is one of the transactions which involved contraventions of the Australian Trade Practices Act of arriving at, and giving effect to, customer price understanding in the Australian CFP market.[59]
[58]The eleventh, thirteenth and sixteenth causes of action.
[59]Federal Court judgment, above n 1, at [93]–[108].
The Goodman Fielder contract, which related in part to Bluebird Foods in New Zealand, was due to expire on 30 June 2001. Goodman Fielder issued a RFP in March 2001 for submission by late April 2001. The affidavit evidence of Mr Laidlaw, general manager, sales and marketing for Amcor Australia (and the counterpart to Mr Carroll for implementation of the overarching understanding in Australia) describes what then took place:
58.In or about late January or early February 2001, Mr Hodgson had a discussion with me in relation to upcoming major accounts, in which, to the best of my recollection, he said to me words to the following effect:
Brown has spoken with Debney about AFPA retaining Goodman Fielder, Smith’s and Nestle accounts and the need for Visy to cover us. In turn, we will need to cover Visy on Coca-Cola and Foster’s.
59.Shortly after my discussion with Mr Hodgson, Mr Carroll confirmed to me that he had been told that Amcor and Visy would be providing coverage for each other in upcoming negotiations and tenders for the major accounts referred to in paragraph 58 above.
60.In or about March or April 2001, I spoke to Mr Carroll again, and said words to the effect that I wanted his assurance that Visy was not doing anything to encourage GFL to change suppliers from Amcor to Visy. Given that GFL was one of Amcor’s biggest accounts, I was concerned that Visy did not submit prices to GFL that were lower than the prices that Amcor submitted. While I cannot recall his exact response, I recall that Mr Carroll said that Visy was proceeding on the basis that he expected that the account would remain with Amcor (or words to that effect).
In late April 2001 Amcor Australia submitted its tender for supply of CFP in Australia and New Zealand. In early June 2001 Amcor Australia and Goodman Fielder informally agreed on the supply of CFP products in Australia and New Zealand. In December 2001 a formal supply agreement for a term of five years was agreed upon.
Critical to the jurisdiction question is what occurred involving Visy Board executives in New Zealand. Mr Peter Lloyd was the national sales and marketing manager for Australia and New Zealand based in Victoria. He, together with Mr Carroll, was responsible for setting the pricing of products for tenders for large accounts and determining prices payable by major customers.[60] As part of Visy Board’s preparation for the tender, Visy Board executives were to visit Goodman Fielder factories to form a view of the business being tendered for. Visits to New Zealand (to the Bluebird Foods and Meadow Lea businesses) were scheduled for 18 April or earlier. Mr Lloyd sent an email to Mr Gleason, general manager of Visy Board NZ, saying “I will come over for reasons we discussed”. A further email confirmed that the visitors to the New Zealand business would include Mr Lloyd and other Visy Board representatives plus a “state representative” meaning an executive from the New Zealand operation. Mr Carroll was copied into the email and the entire file was to go to him in preparation for the Visy Board tender submission.
[60]Agreed statement of facts at paragraphs 66 and 69.
Visy Board subsequently provided a tender to Goodman Fielder dealing in part with the supply of CFP into the New Zealand market.[61] As noted the Visy Board tender was unsuccessful. But we are satisfied that the steps taken by Mr Lloyd and others from Visy Board, as part of their preparation for compiling and submitting the tender to Goodman Fielder, comprised acts done or occurring in New Zealand to which the contravention claims relate sufficient to ground jurisdiction under r 6.27(2)(j) for these three causes of action. Such acts included the emails referred to, both sent to New Zealand together with (we infer) associated telephone contact with Visy Board NZ personnel and no doubt Goodman Fielder representatives in New Zealand. As well there was the visit of Mr Lloyd and others to the Goodman Fielder New Zealand business units. Information gleaned from such visits in New Zealand would have been an important step in deliberations between Mr Lloyd and Mr Carroll as to where pricing in the tender proposal would be pitched in the light of the acknowledged overarching understanding and its (admitted) application to the Goodman Fielder transaction.
[61]The tender document demonstrates Visy Board’s willingness to, and capacity for, carrying on business in New Zealand. A point to which we return later.
The existence of communications between Mr Carroll and Mr Lloyd and the general manager of Visy Board NZ, Mr Gleason, is confirmed in Mr Gleason’s affidavit. He deposed that when Australian and New Zealand business was included in an RFP Visy Board took on the responsibility for tendering for both countries. But this occurred in consultation with Mr Gleason himself for the New Zealand element of the work. Communication between Mr Carroll in head office in Australia and Mr Gleason in Auckland was usually by telephone, both as required for any particular transaction and through regular Friday management teleconference meetings led by Mr Carroll.
We agree with counsel for Mr Carroll, Mr Mills QC, who accepted that email or telephonic communications (even where they were initiated outside New Zealand) to Visy Board NZ representatives in New Zealand were properly to be regarded as acts taking place in New Zealand. Communications initiated by Mr Lloyd or Mr Carroll in Australia but directed to Visy Board NZ executives (or customers) in New Zealand are received in this country. They are thus characterised as acts done or conduct occurring in New Zealand for jurisdictional purposes.[62]
[62]See Merkel J’s decision in Bray v F Hoffman-La Roche Ltd, above n 30, at [147].
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