Visy Paper Pty Ltd v Australian Competition & Consumer Commission [2005] FCAFC 236 (17 November 2005)

Last Updated: 18 November 2005

FEDERAL COURT OF AUSTRALIA

Visy Paper Pty Ltd v Australian Competition & Consumer Commission
[2005] FCAFC 236

TRADE PRACTICES – restrictive trade practices – contract containing an ‘exclusion clause’ – attempts to enter and attempts to induce a third party to enter such a contract – appeal against pecuniary penalties – whether primary Judge’s discretion miscarried – whether primary Judge’s findings as to the anti-competitive purpose and effect of the appellants’ conduct and the consequent loss or damage were in error – whether primary Judge misapplied the reasoning in Universal Music Australia Pty Ltd v Australian Competition and Consumer Commission [2003] FCAFC 193; (2003) 131 FCR 529 – significance of legal uncertainty and an unanticipated application of the Trade Practices Act 1974 (Cth) – whether appropriate to depart from the level of penalties imposed by primary Judge.


PRACTICE AND PROCEDURE – appeal – role of appellate court in reviewing primary Judge’s imposition of pecuniary penalties – whether primary Judge fell into error by applying a wrong principle, by acting on a misapprehension of the facts, taking into account irrelevant material or failing to take account of relevant material.


Federal Court of Australia Act 1976 (Cth), s 14
Trade Practices Act 1974 (Cth), s 45, 47, 76


Australian Competition & Consumer Commission v Ithaca Ice Works Pty Ltd [2001] FCA 1716 referred to
Australian Competition and Consumer Commission v Universal Music Australia Pty Ltd (No 2) [2002] FCA 192; (2002) 201 ALR 618 referred to
Australian Competition and Consumer Commission v Visy Paper Pty Ltd [2000] FCA 1640; (2000) 186 ALR 731 discussed
Australian Competition and Consumer Commission v Visy Paper Pty Ltd [2001] FCA 1075; (2001) 112 FCR 37 discussed
Australian Competition and Consumer Commission v Visy Paper Pty Ltd (No 2) [2004] FCA 1471 affirmed
Australian Gas Light Company v Australian Competition and Consumer Commission [2003] FCA 1525; (2003) 137 FCR 317 referred to
Dandy Power Equipment Pty Ltd v Mercury Marine Pty Ltd [1982] FCA 178; (1982) 64 FLR 238 referred to
J McPhee & Son (Australia) Pty Ltd v Australian Competition and Consumer Commission [2000] FCA 365; (2000) 172 ALR 532 applied
Melway Publishing Pty Limited v Robert Hicks Pty Limited [2001] HCA 13; (2001) 205 CLR 1 referred to
NW Frozen Foods Proprietary Ltd v Australian Competition and Consumer Commission [1996] FCA 1134; (1996) 71 FCR 285 referred to
Outboard Marine Australia Pty Ltd v Hecar Investments No 6 Pty Ltd (1982) 44 ALR 667 referred to
Stirling Harbour Services Pty Ltd v Bunbury Port Authority [2000] FCA 38; [2000] ATPR 41-752 referred to
Stirling Harbour Services Pty Ltd v Bunbury Port Authority [2000] FCA 1381 referred to
Trade Practices Commission v CSR Ltd (1991) ATPR 41-076 referred to
Universal Music Australia Pty Ltd v Australian Competition and Consumer Commission [2003] FCAFC 193; (2003) 131 FCR 529 applied
Visy Paper Pty Ltd v Australian Competition and Consumer Commission [2003] HCA 59; (2003) 216 CLR 1 referred to





































VISY PAPER PTY LTD and WILLIAM GUTHRIDGE and STEPHEN RICHARDS v AUSTRALIAN COMPETITION AND CONSUMER COMMISSION
NSD 1838 OF 2004

STONE & ALLSOP JJ
17 NOVEMBER 2005
SYDNEY

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	NSD 1838 OF 2004

ON APPEAL FROM A JUDGE OF THE FEDERAL COURT OF AUSTRALIA

BETWEEN:	VISY PAPER PTY LTD FIRST APPELLANT
	WILLIAM GUTHRIDGE SECOND APPELLANT
	STEPHEN RICHARDS THIRD APPELLANT
AND:	AUSTRALIAN COMPETITION AND CONSUMER COMMISSION RESPONDENT
JUDGES:	STONE & ALLSOP JJ
DATE OF ORDER:	17 NOVEMBER 2005
WHERE MADE:	SYDNEY

THE COURT ORDERS THAT:

The appeal be dismissed with costs.












Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	NSD 1838 OF 2004

ON APPEAL FROM A JUDGE OF THE FEDERAL COURT OF AUSTRALIA

BETWEEN:	VISY PAPER PTY LTD FIRST APPELLANT
	WILLIAM GUTHRIDGE SECOND APPELLANT
	STEPHEN RICHARDS THIRD APPELLANT
AND:	AUSTRALIAN COMPETITION AND CONSUMER COMMISSION RESPONDENT

JUDGES:	STONE & ALLSOP JJ
DATE:	17 NOVEMBER 2005
PLACE:	SYDNEY

REASONS FOR JUDGMENT

THE COURT:

1 This is an appeal from the orders of a Judge of this Court imposing pecuniary penalties on the appellants pursuant to s 76(1) of the Trade Practices Act 1974 (Cth) (‘TPA’). His Honour’s reasons are to be found in Australian Competition and Consumer Commission v Visy Paper Pty Ltd (No 2) [2004] FCA 1471. It is convenient to refer to this as the ‘Penalty Judgment’.

2 Regrettably, the third member of the Full Court, Hill J, died following the hearing of the appeal. The parties have consented to the remaining members of the Full Court determining the appeal pursuant to s 14(3) of the Federal Court of Australia Act 1976 (Cth).

BACKGROUND

3 On 18 November 1998, the respondent (‘the ACCC’) commenced proceedings in this Court alleging that the first appellant, Visy Paper Pty Ltd (‘Visy’), attempted to contravene s 45(2)(a)(i) of the TPA. The ACCC also alleged that Visy, Mr William Guthridge, the second appellant, and Mr Stephen Richards, the third appellant, attempted to induce a third party, Northern Pacific Paper Pty Ltd (‘NPP’), to contravene s 45(2)(a)(i) of the TPA. On 20 November 2000, the primary Judge dismissed the proceedings against the appellants: Australian Competition and Consumer Commission v Visy Paper Pty Ltd [2000] FCA 1640; (2000) 186 ALR 731 (‘Primary Judgment’). The ACCC appealed his Honour’s judgment to the Full Court which allowed the appeal on 10 August 2001 and ordered that the matter be remitted to the primary Judge for the determination of pecuniary penalties: Australian Competition and Consumer Commission v Visy Paper Pty Ltd [2001] FCA 1075; (2001) 112 FCR 37 (‘Full Court Judgment’). An appeal to the High Court was dismissed on 8 October 2003: Visy Paper Pty Ltd v Australian Competition and Consumer Commission [2003] HCA 59; (2003) 216 CLR 1.

4 Accordingly, the proceedings were re-listed before the primary Judge to consider what orders should be made and the question of what pecuniary penalties, if any, should be imposed pursuant to s 76(1) of the TPA: see [75] of the Full Court Judgment. However, before considering his Honour’s judgment in respect of pecuniary penalties, it is necessary to understand something about the nature of the proceedings and the judgments referred to above.

Nature of the proceedings

5 At all material times, Visy was a company engaged in, inter alia, the collection and processing of recyclable waste paper and cardboard for supply to its paper mills, including the acquiring of recyclable waste paper (including cardboard) in the Sydney metropolitan region. Mr Guthridge was appointed on 1 May 1996 as Visy’s national general manager and from that time had day-to-day management and control of Visy’s acquisition of recyclable waste paper. From March 1996 Mr Richards was Visy’s national operations manager and from the beginning of 1997 held the position of general manager for the ‘Northern Region’, an area that included New South Wales.

6 At [22]-[23] of the Primary Judgment, the primary Judge commented on the nature of the industry in which Visy operated:

‘Waste paper collected for recycling purposes is destined for companies which recycle the paper in their mills. In Australia, and especially in the Sydney metropolitan area, the two main recyclers are Visy and Amcor Ltd ("Amcor"). Some waste paper is, however, exported and export prices affect domestic prices.
The waste paper collection industry comprises businesses which collect the waste paper from those who generate the waste. Collectors of waste supply recyclers or other collectors who, in turn, supply recyclers. The industry is somewhat unusual in that, although generators of waste paper may sell the waste to a collector, collectors are sometimes paid to remove waste paper or rubbish which contains a significant proportion of waste paper. The supplier may pay the collector, for example, when the supplier has relatively small amounts of waste paper available or the waste product is useful to recyclers only after being decontaminated. The persons from whom waste paper is collected are referred to in the industry as the "customers" of the collector, even when they pay the collector to remove the waste products.’

7 At all material times, NPP was in the business of collecting waste paper products in the Sydney metropolitan region. His Honour described the relationship between Visy and NPP at [25]-[29] of the Primary Judgment:

‘In the latter part of 1995, Visy usually obtained waste paper in metropolitan areas directly from its customers. Depending on market conditions and the "quality" of the waste, Visy either paid its customers for their waste or charged them a fee for the materials collected. Visy had its own collection system, but also relied on contracted collectors. More recently, Visy has come to rely more or less exclusively on contracted collectors.
From September 1995 (when Visy and NPP entered into a contractual arrangement) to May 1996, NPP operated from premises at Silverwater. In consequence of NPP's dealings with Visy, it had acquired the machinery necessary to sort certain kinds of waste products so as to remove contaminants and thereby produce recyclable waste paper. During this period, NPP used self-employed collectors who collected waste paper from their own customers. NPP also used sub-contracted drivers who collected waste paper directly from NPP's customers. The self-employed collectors were paid a set rate per tonne of waste, while sub-contracted drivers were paid a daily rate. Some customers were paid a fee based on the tonnage of recyclable waste collected.
During the period it operated from the Silverwater premises, NPP obtained waste from rubbish collectors. Rubbish collectors provide a general collection service for their customers, rather than one which targets recyclable waste paper. NPP was prepared to accept rubbish if it contained a substantial proportion of recyclable, relatively uncontaminated, waste paper. NPP charged rubbish collectors a fee per load of rubbish delivered. NPP itself never provided rubbish collection services directly to individual customers.
From September 1995 until the closure of the Silverwater premises in May 1996, NPP obtained approximately 25% of its recyclable waste from customers, 50% from collectors and the balance from rubbish collectors. Once Silverwater closed, NPP lost the capacity to sort rubbish to remove decontaminants. From that time onwards, NPP's collectors and sub-contractors delivered waste paper directly to Visy's premises at Smithfield. In general, NPP paid collectors on presentation of the original Visy weighbridge docket.
Since NPP no longer accepted rubbish after Silverwater closed in May 1996, it received no payment after that date from any collector or customer for removing or accepting waste paper. This state of affairs continued until NPP ceased operating in April 1997.’

8 As noted in the passage quoted immediately above, Visy and NPP entered into an agreement in September 1995. However, a dispute arose between the parties in relation to, inter alia, the prices to be paid by Visy and quality of the waste paper provided by NPP. The primary Judge stated at [35] of the Primary Judgment that the dispute was relevant insofar as ‘the negotiations between the parties [in respect of the dispute] generated a proposal that NPP should become an exclusive agent for Visy’.

9 The ACCC’s allegations related to the appellants’ conduct between September 1996 and April 1997 in the course of the negotiations with NPP. Both Mr Guthridge and Mr Richards were involved in the negotiations. During the negotiations, Visy proffered to NPP six draft agreements containing so-termed ‘non-competition’ clauses. There were four draft ‘Exclusive Collection Agreements’ (‘ECAs’) and two draft ‘Supply Agreements’. The non-competition clause contained in the draft ECAs was as follows:

‘3.2 Non-Competition Clause
During the Term the Licensed Collector:

(a) must not carry on, provide services to or be engaged, concerned, interested in or associated with any business or activity which is competitive with Visy's business of collection of waste products;
(b) must not, without limiting Clause 3.2(a), collect or make any attempt or offer to collect any Waste Products from persons who are customers of Visy or with whom Visy has entered into discussions or negotiations to become a customer;
(c) ...;
(d) must not deliver or sell any waste products to any person other than Visy,

without the prior written consent of Visy.’

10 The first draft Supply Agreement provided:

‘9. Non Competition
During the Term [NPP]:

(a) must not collect, approach or make any attempt or offer to collect Mixed Paper and White Paper from persons who are customers of [Visy] or with whom [Visy] has entered into discussions or negotiations to become a customer
(b) must not deliver or sell Mixed Paper and White Paper to any person other than [Visy].’

11 Similarly, the second draft Supply Agreement provided:

‘7. Non-acceptance
Visy will not accept product from [NPP] which Visy deems is [sic] a customer of Visy.
8. Non-Competition
While [NPP] is selling waste to Visy, [NPP] must not collect, approach or make any attempt to offer to collect waste from persons who are customers of Visy or with whom Visy has entered into discussions or negotiations to become a customer.’

12 While Visy and NPP did not enter into any of the draft agreements, the ACCC alleged that in negotiating with NPP and, in particular, by proffering each of the six draft agreements Visy attempted to contravene s 45(2)(a)(i) of the TPA; and attempted to induce NPP to contravene s 45(2)(a)(i) of the TPA. The ACCC also alleged that, by their role in the negotiations with NPP, Mr Guthridge and Mr Richards attempted to induce NPP to contravene s 45(2)(a)(i) of the TPA.

THE PENALTY JUDGMENT

13 On remittal to the primary Judge to consider the orders to be made, the only matters of substance in dispute between the parties were; first, the amount of any pecuniary penalty and secondly, one aspect of the order requiring Visy to implement a trade practices compliance program. The appellants only challenge his Honour’s orders in respect of pecuniary penalties.

14 After outlining the history of the proceedings the primary Judge noted that the submissions of all parties had proceeded on the basis of the findings of fact recorded in the Primary Judgment and added that since some further evidence had been given at the penalty hearing, he would record additional findings that might bear on the appropriate penalties to be imposed. Those findings are set out at [14]-[18] of the Penalty Judgment, which we quote in full:

‘First, as I found in [the Primary Judgment] at [162], the draft ECAs were developed with the assistance of Visy’s in-house lawyer, Mr Kaye, and Visy’s external legal advisers. Mr Kaye, who did not give evidence either at the trial or at the hearing on penalty, saw the non-competition clause in the draft ECAs but raised no objection to it. Mr Guthridge communicated with Mr Kaye concerning the draft agreements submitted to NPP, but Mr Kaye gave no indication that there might be a trade practices issue with respect to the non-competition clause. Mr Richards, who reported to Mr Guthridge, also had discussions with Mr Kaye, but again the latter did not suggest to Mr Richards that there was any legal problem with the non-competition clause.
Secondly, at the time the contraventions occurred, Visy provided staff with some training on trade practices issues. Mr Geminder gave evidence of training programs, but it must be said that his description was somewhat vague. However, it appears that Visy did issue a Trade Practices Compliance Manual which dealt, among other things, with the dangers of making agreements with competitors. The relevant section of the Manual pointed out that

‘[a]ll arrangements with competitors may substantially lessen competition. You should never make an arrangement with a competitor without advice from Visy Industries’ Legal Counsel’.

The Manual advised staff to

‘avoid all contact with competitors or their employees other than contact approved by senior management or Visy Industries’ Legal Counsel. All necessary contact with competitors should be conducted in formal settings. If potential infringing behaviour is discussed you must formally state that Visy Industries will not participate and make a record of the meeting’.

Other memoranda distributed to staff at about this time addressed trade practices issues in a general way.
Thirdly, in each of the 1995/96 and 1996/97 financial years, Visy had an operating profit before tax exceeding $120,000,000. Visy’s net assets at that time exceeded $115,000,000. In the last financial year for which information is available (2002/03), Visy earned an operating profit before tax of approximately $174,000,000 and had net assets of about $69,000,000.
Fourthly, after his retirement from Visy in 1998, Mr Guthridge conducted his own business as a consultant in the paper and tissue industry. However, by reason of business reverses in the 2002/03 financial year, his income was drastically reduced. According to Mr Guthridge, his income is presently in the order of $15,000 per annum and his net assets have been reduced to some $12,000.
Fifthly, Mr Richards left Visy in February 2003. Since then, he has worked through his own company as a consultant in the waste and recycling industries. The evidence as to his financial position is incomplete, but his taxable income in 2002/03 was some $244,000, the bulk of which was apparently in the form of severance payments from Visy. Mr Richards and his wife jointly own assets worth slightly in excess of $800,000.’

The penalty provision

15 Section 76 of the TPA provides for the imposition of pecuniary penalties. Relevantly, s 76(1) provides:

‘76 Pecuniary penalties
(1) If the Court is satisfied that a person:

(a) has contravened any of the following provisions:
(i) a provision of Part IV;
(ii) ...;
(b) has attempted to contravene such a provision;
(c) ...;
(d) has induced, or attempted to induce, a person, whether by threats or promises or otherwise, to contravene such a provision;
(e) ...;
(f) ...;

the Court may order the person to pay to the Commonwealth such pecuniary penalty, in respect of each act or omission by the person to which this section applies, as the Court determines to be appropriate having regard to all relevant matters including the nature and extent of the act or omission and of any loss or damage suffered as a result of the act or omission, the circumstances in which the act or omission took place and whether the person has previously been found by the Court in proceedings under this Part or Part XIB to have engaged in any similar conduct.’

16 Section 76(1A)(b) provides that the maximum penalty which may be imposed on a body corporate for each act or omission to which s 76(1) applies is $10 million. In the case of an individual, the maximum penalty is $500,000: s 76(1B).

Primary Judge’s consideration

17 The primary Judge identified the matters that should be taken into account in determining a pecuniary penalty as those mentioned in s 76(1) as well as those put forward by French J in Trade Practices Commission v CSR Ltd (1991) ATPR 41-076 (CSR’). His Honour noted that French J’s list was endorsed by Burchett and Kiefel JJ in NW Frozen Foods Proprietary Ltd v Australian Competition and Consumer Commission [1996] FCA 1134; (1996) 71 FCR 285 (‘Frozen Foods’) at 292. Their Honours observed that the considerations in s 76(1) do not exhaust the content of ‘all relevant matters’ as referred to in s 76(1) and commented that in CSR French J added to the list of factors expressly mentioned in s 76 a checklist of matters to which judges have since frequently made reference. As set out in Frozen Foods at 292 that list is:

• The size of the contravening company.
• The degree of power it has, as evidenced by its market share and ease of entry into the market.
• The deliberateness of the contravention and the period over which it extended.
• Whether the contravention arose out of the conduct of senior management or at a lower level.
• Whether the company had a corporate culture conducive to compliance with the Act, as evidenced by educational programs and disciplinary or other corrective measures in response to an acknowledged contravention;
• Whether the company has shown a disposition to co-operate with the authorities responsible for the enforcement of the Act in relation to the contravention.

18 Of particular relevance to this appeal is the primary Judge’s consideration of the significance to be attached to any legal uncertainly surrounding the application and operation of s 45(6) of the TPA. His Honour found that the draft ECAs were developed with the assistance of Visy’s in-house lawyer and Visy’s external legal advisors. His Honour stated at [33]:

‘The present case is apparently one in which Visy’s legal advisers, although they saw and indeed presumably drafted or settled the non-competition clauses, did not appreciate that an attempt to secure NPP’s agreement to a non-competition clause would or might involve a contravention of s 45(2)(a) of the [TPA]. Be that as it may, there is no evidence that Visy received or acted on affirmative advice that its conduct, or that Mr Guthridge or Mr Richards, would not contravene the [TPA]. The evidence merely suggests that Mr Guthridge and Mr Richards were not informed by the lawyers that the draft agreements might contravene the TPA. The case is therefore not one in which Visy acted in the belief, supported by specific legal advice, that its conduct was not in breach of the [TPA].’

19 The primary Judge considered the judgment of the Full Court in Universal Music Australia Pty Ltd v Australian Competition and Consumer Commission [2003] FCAFC 193; (2003) 131 FCR 529 (‘Universal Music’). In Universal Music, the Full Court was concerned with, inter alia, the adequacy of a penalty imposed by Hill J which his Honour had discounted by reference to the fact that the company in question, Universal, had been advised by its solicitors that the relevant conduct would not involve contravention of the TPA. Hill J found that the advice was unqualified ‘save for the fact that the advisers assumed (correctly) that the relevant market was for CDs rather than particular CDs’. Hill J also held that the question whether the relevant conduct contravened the TPA was ‘a most difficult one on which minds could differ and a question which had not been previously agitated in a court’; Australian Competition and Consumer Commission v Universal Music Australia Pty Ltd (No 2) [2002] FCA 192; (2002) 201 ALR 618 at [20]. While accepting that ignorance of the law is no excuse, Hill J expressed the view that existence of the legal advice obtained by Universal was clearly relevant to the penalty to be imposed, ‘so far as it makes clear that Universal did not deliberately engage in conduct it knew to be an offence’.

20 On appeal in Universal Music the Full Court observed at [307] that these factors were either wholly or substantially responsible for Hill J’s decision to discount the penalty to one ‘clearly at the bottom of the range’. However, their Honours stated that if these factors were relevant at all, they were entitled to minimal weight. The Full Court continued at [308]-[310]:

‘As we have said, the contravening conduct was plainly and deliberately anti-competitive in its intent. It was conduct which, at least, ran a serious risk of being in breach of the Act. If this was appreciated, then the fact that the risk came home against expectations does not entitle the perpetrator to a discount. If the existence of the risk was not appreciated, then the company concerned misunderstood the law applicable to an important area of commerce and would not be entitled to any discount.
The fact that legal advice was obtained by one of the parties is also of little consequence. It illustrates that risk was appreciated. However, legal advice is obtained for the benefit of the company and only for the benefit of the company. It is not a discounting factor. If legal advice is wrong, that is a matter between the company and the legal adviser.
In our opinion, to give a substantial discount for these factors sends the wrong signal to the commercial community. It will encourage risk-taking and pushing the boundaries of anti-competitive conduct. If, nonetheless, a proceeding is instituted, it will encourage the most vigorous possible defence, in an endeavour to demonstrate the supposed complexity and uncertainty of the law. Many cases of contravening conduct can be described as complex and uncertain as to result. As submitted for ACCC, the court has recognised in many cases that the difficulty of detecting and proving contraventions of Pt IV of the Act requires adequate penalties to be imposed when contravening conduct is detected and established...’

21 In the Penalty Judgment, the primary Judge noted that the object of the relevant provisions of the draft agreements was to prevent NPP collecting waste paper from persons who were or might become customers of Visy. His Honour accepted the submission of the ACCC that ‘the clauses, by their very headings, should have at least indicated that their inclusion in an agreement might involve a contravention of the [TPA]’.

22 Referring to Universal Music, his Honour held that even if Visy had received legal advice that the relevant provisions did not contravene the TPA, the erroneous advice, even in relation to complex legal issues, would not constitute a basis for Visy receiving a substantial discount on penalty. His Honour continued at [37] stating:

‘The argument for a discount on penalty in the present case would seem to be even weaker, since Visy’s lawyers, so far as the evidence goes, apparently did not appreciate the risk that proffering the draft agreements to NPP would contravene the TPA. The reasoning in Universal Music makes it clear that if Visy did not appreciate the legal risk, that fact does not entitle it to any discount on penalties that would otherwise be imposed. I therefore do not accept Mr Young’s submission that the [appellants] should receive a lesser penalty because they fell victim to an unexpected application of the TPA to the circumstances of their industry. Accordingly, I approach the question of penalties on the basis that the legal uncertainty surrounding the operation of s 45(6) of the TPA does not constitute a basis for allowing Visy a substantial discount on penalty.’

23 Turning to consider the other factors relevant in determining the appropriate penalty to be imposed on the appellants, the primary Judge made a number of findings which we now summarise.

(a) Visy sought to persuade NPP to accept the non-competition clause in order to bring NPP’s competitive activities to a halt. The effect, if the non-competition clause had been implemented, would have been to prevent NPP from competing with Visy to obtain supplies of waste paper products, or to provide waste paper removal services to, Visy’s customers or potential customers.
(b) The total volume of waste paper collected in the Sydney metropolitan area at the relevant time was about 600,000-650,000 tonnes annually, of which Visy collected about 200,000 tonnes and NPP, prior to its withdrawal from the market, about 6,000-7,000 tonnes. There was therefore considerable potential for NPP to make inroads into Visy’s customer base and the non-competition clause, if implemented, would have prevented that potential from being realised. The clause ‘plainly would have had an anti-competitive effect on the market for the acquisition of waste paper and for the supply of waste paper removal services in the Sydney metropolitan area.
(c) The non-competition clause, even though never part of a concluded agreement, did have an adverse effect on competition in the market as for a time NPP voluntarily suspended its attempts to obtain waste paper products from Visy’s customers in the expectation that a satisfactory agreement with Visy could be finalised and such an agreement would include a non-competition clause. Therefore it was not accurate to say that there was no loss or damage by reason of Visy’s conduct. NPP also lost the opportunity to negotiate a contract with Visy that did not contain the non-competition clause.
(d) This was a case of deliberate contravening conduct on Visy’s part and could not be described as ‘an isolated transaction’.
(e) Although Mr Guthridge and Mr Richards did not engage in this conduct covertly or dishonestly, their intention was to stop NPP from acquiring waste paper from or supplying waste paper collection services to Visy’s customers.
(f) The fact that s 45(2)(a)(i) of the TPA creates a per se contravention does not make the appellants’ conduct ‘particularly reprehensible’. Although the seriousness of the appellants’ conduct was not to be judged solely be reference to the extent to which the conduct is likely to lessen competition, the effect or potential effect of the contravention conduct is a material factor.

24 His Honour also referred to a number of other factors, such as Visy’s size and position in the market, relevant to the determination of penalty. As I understand the parties, none of these latter considerations are challenged on appeal.

25 The primary Judge imposed a pecuniary penalty on Visy of $500,000. As to Mr Guthridge and Mr Richards, his Honour imposed penalties of $10,000 and $15,000 respectively, the former discounted to take account of his financial situation.

THIS APPEAL

Appeal from discretionary judgments

26 As noted above at [13], the appellants only challenged the primary Judge’s orders in respect of pecuniary penalties imposed on each of the appellants. We note, at the outset, that the orders imposing penalties on the appellants involved an exercise of the primary Judge’s discretion. An appellate court may only interfere with such a penalty if the trial judge fell into error by applying a wrong principle, by acting on a misapprehension of the facts, taking into account irrelevant material or failing to take account of relevant material; J McPhee & Son (Australia) Pty Ltd v Australian Competition and Consumer Commission [2000] FCA 365; (2000) 172 ALR 532 at [151]. See also, Australian Competition & Consumer Commission v Ithaca Ice Works Pty Ltd [2001] FCA 1716 at [24]- [25].

Issues on appeal

27 Consistent with these principles, the appellants contended that the primary Judge’s discretion miscarried in that his Honour acted upon wrong principles, was mistaken as to the relevant facts and failed to take account of material considerations and the penalties were, in all the circumstances, excessive. There are two main aspects to their challenge: the first is based on the alleged misapplication of the reasoning of the Full Court in Universal Music; the second is based on alleged errors in his Honour’s findings as to the anti-competitive purpose and effect of the appellants’ conduct and the loss or damage that resulted from, or was likely to result from, the appellants’ conduct.

Preliminary issue: evidence on penalty

28 A preliminary issue in this appeal is whether the appellants are permitted to rely on evidence presented in the primary hearing. As indicated above (see [14] et seq), in the Penalty Judgment the primary Judge proceeded on the basis of the findings of fact recorded in the Primary Judgment together with additional findings based on evidence given at the penalty hearing.

29 The appellants submitted that, in addition to the findings of fact referred to in [28] above, the primary Judge made a number of additional findings concerning the competitive purpose and effect of Visy’s conduct that were not supported by, and which were inconsistent with the evidence at trial. The ACCC submitted that the appellants could not rely on the evidence adduced at the trial but were confined to the findings of fact referred to in [28].

30 We do not accept the ACCC’s submission. In remitting the matter to the primary Judge for the determination of penalties, the Full Court was directing the primary Judge to do what, in the light of its decision, was necessary to complete the trial. As such the evidence that had been adduced at the primary hearing was before the Court. It was for the appellants, however, to make relevant submissions as to that evidence and the legal propositions they wished the Court to accept.

The challenged findings

31 The additional findings that the appellants claim are not supported by the evidence at the trial were said to be:

(a) the non-competition clause would have had an anti-competitive effect on the market for the acquisition of waste paper and for the supply of waste paper removal services in the relevant market;
(b) Visy’s conduct was not an ‘isolated transaction’;
(c) the purpose and effect of the non-competition clause, if implemented, would have been to terminate the competitive activities of NPP in the relevant market, and that Visy sought to persuade NPP to accept the non-competition clause in order to bring NPP’s competitive activities to a halt;
(d) there was considerable potential for NPP to make inroads into Visy’s customer base; and
(e) NPP lost the opportunity to negotiate a contract with Visy that did not contain the non-competition clause.

32 The appellants accepted that the primary Judge found at trial that the purpose of the relevant provision, if implemented, was to prevent NPP from acquiring goods from or supplying services to Visy’s customers. However, the appellants contended that such a finding is not synonymous with a finding that the purpose of the provisions was to terminate the competitive activities of NPP in the relevant market or, that Visy sought to persuade NPP to accept the non-competition clause in order to bring NPP’s competitive activities to a halt.

33 To the contrary, the appellants submitted that the evidence at the trial was that Visy was seeking to establish NPP as its exclusive agent in the relevant area in order to increase competition with Amcor (see [6] above). Visy was seeking to focus NPP’s competitive activities on Amcor’s customers or potential customers. A component of this arrangement was the provision of assistance to NPP in the form of support for NPP’s lease obligations, the provision of equipment, access to Visy’s customer database and marketing support. A condition of such support was the non-competition clause, which was to prevent NPP from competing for Visy’s existing customers. The appellants argued that the evidence at trial clearly establishes that the purpose of the non-competition clause was not to ‘terminate NPP’s competitive activity’, rather it was to enhance NPP’s competitiveness with the object of increasing competition between Visy and Amcor.

34 We do not accept the appellants’ submissions on this issue. It is clear from the Primary Judgment that his Honour found that the purpose of the anti-competition clause was to prevent NPP from acquiring goods from or supplying services to Visy’s customers: see Primary Judgment at [143], [165]. Moreover, the primary Judge’s findings at trial were not limited to this finding. In particular, his Honour expressly found that Visy and NPP were competitors and that Messrs Guthridge and Richards saw the non-competition clause as ‘the means by which NPP’s irksome competitive activities would be brought to an end’: see Primary Judgment at [157]. In our view each of the findings was available to his Honour and properly made on the basis of the evidence at the penalty hearing or on findings made on evidence presented at the primary hearing. It may well be that there is a different perspective from which one can view the facts. The appellants asserted that the whole picture can only be viewed by appreciating that Visy was seeking to have NPP be a sole supplier, actively competing (on Visy’s behalf) with Amcor. Put in that light the competitive restriction between Visy and NPP is to be understood as for what might be said to be the wider competitive good. That is not how the facts struck the primary Judge. He focussed on the fact that there was an anti-competitive purpose, albeit not substantial. That was a perspective entirely open to his Honour.

35 The appellants have not pointed to any evidence that ought to have been admitted that was excluded. They have not pointed to any submissions as to evidence that were ignored (as opposed to rejected) by the primary Judge. In our view the appellants have not identified any error made by his Honour in considering the evidence or any cogent reason why the findings made by his Honour should be disturbed in this appeal. In the long run, nothing that the appellants have submitted would lead us to the conclusion that the primary Judge erred in finding that Visy’s purpose was to bring NPP’s competitive activities to an end. Further, the fact that the appellants may have intended to increase competition with Amcor, as an additional or underlying purpose, does not detract from this finding.

36 The appellants, however, also took issue with the primary Judge’s assessment of the anti-competitive effect of appellants’ conduct. At the trial the ACCC had conceded that the appellants’ conduct could not be shown to have had the purpose or the effect of substantially lessening competition in the relevant market; Primary Judgment at [79]. This did not, however, exclude the possibility that the conduct, if carried into effect, would have had some effect on competition; a proposition that was accepted by the appellants.

37 The appellants submitted that in order to assess the likely effect on competition that would have resulted from the implementation of the non-competition clause, it is necessary to compare the nature and extent of future competition in the market with and without the non-competition clause. The Court was referred to Stirling Harbour Services Pty Ltd v Bunbury Port Authority [2000] FCA 38; [2000] ATPR 41-752 per French J at [113]; Stirling Harbour Services Pty Ltd v Bunbury Port Authority [2000] FCA 1381 per Burchett and Hely JJ at [12]; Dandy Power Equipment Pty Ltd v Mercury Marine Pty Ltd [1982] FCA 178; (1982) 64 FLR 238 per Smithers J at 259; Outboard Marine Australia Pty Ltd v Hecar Investments No 6 Pty Ltd (1982) 44 ALR 667 per Bowen CJ and Fisher J at 669-670; and Australian Gas Light Company v Australian Competition and Consumer Commission [2003] FCA 1525; (2003) 137 FCR 317 per French J at [352]. On this basis, the appellants stated that absent the conduct (that is, without implementation of the non-competition clause) NPP withdrew from the relevant market as it was, according to the appellants, not a viable and independent competitor without the support of Visy. In contrast, the appellants contended that if the non-competition clause had been put into effect, NPP would have remained in business and thereby increased competition between Visy and Amcor. As a result, on this argument, the relevant market would have been no less competitive and, perhaps, more competitive with the contravening conduct than without it.

38 The appellants submitted that the primary Judge erred in approaching the likely effect on competition in the relevant market by setting up a hypothetical market in which NPP and Visy entered into an exclusive collection agreement which did not contain the non-competition clause. The appellants submitted that there was no factual basis for this assumption as the evidence clearly establishes that Visy was unwilling to enter into any such agreement with NPP without a non-competition clause. The Court was referred, by way of analogy, to Melway Publishing Pty Limited v Robert Hicks Pty Limited [2001] HCA 13; (2001) 205 CLR 1 at [58] where Gleeson CJ, Gummow, Hayne and Callinan JJ stated that:

‘The only purpose of the hypothesis is to seek to test whether Melway has taken advantage of its degree of market power. It is one thing to compare what it has done with what it might be thought it would do if it lacked that power. It is a different thing to compare what it has done with what it would do in circumstances that are completely divorced from the reality of the market.’

39 The appellants submitted that absent the non-competition clause, there was no potential for NPP to make inroads into Visy’s customer base because Visy would not have contracted with NPP on that basis and NPP ceased to carry on business.

40 The appellants further argued that the primary Judge erred in concluding that Visy’s conduct resulted in NPP losing the opportunity to negotiate a contract with Visy that did not contain the non-competition clause. It was the appellants’ position that as Visy was never willing to contract with NPP on this basis, and this was not alleged to be a breach of the TPA, NPP did not lose this opportunity as the opportunity never existed. It was submitted that the only anti-competitive effect in this context was the harm arising from the implementation of the non-competition clause. On the basis of the appellants’ argument set out above at [37], the market would have been, at worst, no less competitive if a contract containing the non-competition clause was entered into by NPP and Visy.

41 In our view, the appellants’ submissions on the effect of the contravening conduct confuse what is required to determine if, contrary to s 45(2)(a)(ii), there has been conduct that has the effect of substantially lessening conduct in the relevant market, and what is a relevant consideration in the assessment of a penalty; see [15]-[17] above. The effect or probable effect of an exclusionary provision is a relevant consideration both within s 76(1) and the criteria listed in CSR; see [17] above.

42 Moreover, we accept the ACCC’s submission that, to the extent a comparison is required to assess the extent of the effect of the contravention, the logical comparison is between the position if there had been no attempt and the position if the attempt had succeeded. The primary Judge found that, in the absence of a non-competition clause, there was ‘considerable opportunity’ for NPP to compete with Visy and ‘to make considerable inroads into Visy’s customer base’ and, by inference, that if no attempt had been made NPP would not have ceased its competitive activities. His Honour also found that NPP also lost the opportunity to negotiate an agreement without the relevant non-competition clause: see Penalty Judgment at [46]-[48]. We also accept the ACCC’s submission that the appellants’ submissions erroneously focus on the conduct of the victim (NPP) rather than on the contravening conduct of the appellants.

43 The ACCC further submitted that Visy’s argument that Visy and NPP would not have negotiated an agreement without the non-competition clause was not put at the penalty hearing and, as such, should not be permitted to be pressed on appeal. In any event, the ACCC contended that although each draft agreement up until April 1997 contained a non-competition clause, that is a different issue from whether Visy would have negotiated an agreement without it.

44 As the ACCC pointed out, there was no evidence of a causal connection between Visy terminating the 1995 agreement and NPP ceasing business. As such, it was argued that the primary Judge was entitled to draw the inference that NPP would have continued to operate under a new agreement and as a consequence to conclude that, absent the appellants’ conduct, NPP could have made inroads into Visy’s customer base.

45 In respect of the primary Judge’s finding that the conduct was not an ‘isolated transaction’, the appellants submitted that this characterisation misstates or overstates the extent of the conduct. According to the appellants, the relevant conduct occurred in the context of negotiations in respect of the dispute over the operation of the 1995 agreement. The conduct was said by the appellants to involve a single non-competition clause in a single proposed agreement between NPP and Visy. Thus, although the conduct continued over an extended period, the appellants contended that the conduct was an isolated transaction as the extended period merely reflected the length of time during which NPP and Visy sought to negotiate the single agreement. Whether it is more appropriate to view the contravening conduct as a single episode that extended over a period of time or a series of isolated incidents is, in our view, immaterial. On either view this factor is relevant to the assessment of penalties.

The significance of motive behind the appellants’ conduct and legal uncertainty

46 The appellants submitted that his Honour misapplied the reasoning of the Full Court in Universal Music in that he failed to distinguish the facts of Universal Music from the present circumstances. In Universal Music there was an appreciation of the risk of contravention of the TPA and a decision nonetheless to proceed with the conduct based on an assessment of competition in the market. The appellants also referred to the fact that Universal’s conduct was ‘plainly and deliberately anti-competitive in its intent’ and the Full Court’s concern to ensure that ‘risk-taking’ in this context was not encouraged: see Universal Music at [308]-[310] quoted above at [20].

47 In contrast, it is submitted, here there was no evidence that Visy appreciated that there was any risk of contravention of the TPA and the finding that the TPA had been contravened resulted from an unanticipated application of a per se provision of the TPA to Visy’s conduct. In addition the appellants submit:

(a) Visy’s conduct was not ‘plainly and deliberately anti-competitive’ and no assessment of the competitive effect of the conduct was, or needed to be, undertaken;
(b) the ACCC had conceded that Visy’s conduct could not be shown to have the purpose or effect or likely effect of substantially lessening competition in the relevant market;
(c) the application of this per se prohibition to the conduct in this case was both unusual and unanticipated because:

(i) the relevant business is unusual in that it involves both the supply of services and the acquisition of products;
(ii) the parties did not distinguish in the draft agreements between these two activities; and
(iii) the practice of exclusive dealing in s 47(4) of the TPA encompasses the acquisition of goods or services on condition that the supplier will not supply goods or services to particular persons or classes of persons (or to persons other than a particular person or classes of persons) and does not encompass a condition that the supplier will not acquire goods or services.

48 It was further submitted, by implication if not expressly, that in Universal Music the Full Court was concerned to ensure that ‘risk taking’ in relation to contravention of the TPA was not encouraged, however, where there is no appreciation of the risk of contravention, the deterrent element is not relevant. The appellants therefore submitted that, in the circumstances of this case, the legal uncertainty as to the operation of s 45(6) of the TPA is a reason for allowing the appellants a substantial discount of penalty.

49 In our view this issue can be dealt with briefly. As the extract from Universal Music quoted at [20] above makes clear, the Full Court was quite explicit that whether or not a party appreciates that there is a risk of contravening the TPA (and therefore whether or not there is an assessment of its anti-competitive nature) is irrelevant or of minimal weight in determining the penalty. The primary Judge not only applied that principle but, to the extent that he distinguished between the present circumstances and those in Universal Music, he said that the argument for a reduction of penalties in this case was even weaker than in Universal Music; see the comment quoted above at [22]. In our view his Honour correctly identified and applied the principle in Universal Music and this challenge to the penalties imposed must be rejected.

The appropriate penalty

50 For the reasons given above we are of the opinion that the primary Judge did not make any of the errors referred to in [26] above. It follows therefore that there is no basis on which this Court would be entitled to interfere with his Honour’s exercise of discretion. Consequently, the appeal must be dismissed with costs.

51 Further, even if we were to accept the arguments of the appellants, in particular (a) the asserted failure of the primary Judge to look at the wider commercial purpose of the conduct, (b) the proposition that it was not open for the primary Judge to conclude that there had been any actual effect on competition and (c) what was said to be the unusual and unanticipated construction of the TPA, we would not consider it appropriate to depart from the level of penalties that his Honour decided upon. Taking into account all the appellants’ submissions, we are of the view that penalties of the amount ordered are otherwise entirely appropriate. Sentencing is not a precise science. Minds can legitimately differ as to seriousness of conduct and amount of penalty. Even assuming that we are wrong and that his Honour erred as alleged, we are of the view that the circumstances of the contraventions as reflected in the Primary Judgment and the Penalty Judgment (the latter viewed on this hypothesis in the light of the appellants’ submissions) warrant penalties of the amounts ordered.

I certify that the preceding fifty-one (51) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justices Stone and Allsop.

Associate:

Dated: 17 November 2005

Counsel for the Appellants:	Mr N Young QC and Mr M O'Bryan
Solicitor for the Appellants:	Minter Ellison
Counsel for the Respondent:	Mr BR McClintock SC and Mr VF Kerr
Solicitor for the Respondent:	Australian Government Solicitor
Date of Hearing:	2 May 2005
Date of Judgment:	17 November 2005