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Melbourne University Law Review |
KATHRYN MCMAHON[∗]
[This article explores the statutory interpretative practices and debates in recent competition law cases considered by the High Court. While these debates appear to centre on ‘textual/literal’ versus ‘contextual/purposive’ interpretative practices, further examination reveals that these theoretical differences do not adequately predict outcomes. Instead, these practices often mask undisclosed policy decisions that give preference to particular economic and political outcomes concerning the role of the state and the market over other desirable goals. This raises important practical and jurisprudential issues concerning legislative supremacy and judicial accountability, which have significance that extends beyond competition law adjudication.]
CONTENTS
Since 2001, there have been more decisions of the High Court of Australia dealing with competition law than in the previous 27-year history of the Trade Practices Act 1974 (Cth) (‘TPA’).[1] These decisions have been the subject of detailed analyses of their contribution to the law’s treatment of a range of anti-competitive conduct.[2] These judgments have also been notable for a fascinating and strident debate between High Court judges on a potentially more important issue to competition law, but one which has received little academic attention. This debate centres on what Kirby J describes as ‘the proper interpretation and application of provisions of the Trade Practices Act 1974’.[3] While the judgments contain multiple and complex approaches to statutory interpretation, they can be broadly characterised as either ‘textual/literal’ or ‘contextual/purposive’. These different approaches are mirrored in a debate which has pitted the views of Kirby J against those of other members of the High Court. While dissenting judgments by Kirby J are not uncommon,[4] it is the force with which these opinions are offered that is extraordinary. Two examples embody the scope and nature of this judicial debate. In the first, Kirby J concludes his judgment in Visy with the observation that ‘[o]ut of politeness, I would not have said this but for the criticism addressed to my endeavour, to which I adhere.’[5] In the second instance, and with similar directness, Kirby J in Rural Press stated:
This is the third recent decision of this Court … in which a majority has adopted an unduly narrow view of s 46 of the Act …
In my view, the approach taken by the majority is insufficiently attentive to the object of the Act to protect and uphold market competition … It is unrealistic, bordering on ethereal … The outcome cripples the effectiveness of s 46 of the Act … Judicial lightning strikes thrice … Effective anti-competitive threats can be made without the redress which s 46 appears to promise. Once again I dissent.[6]
Judicial debates about statutory and constitutional interpretation occur frequently in the current High Court.[7] As in the case of debates in other jurisdictions, they often mask fierce ideological differences regarding the judicial function in a liberal democracy. In a competition law context, these debates are of fundamental importance because they problematise the justiciability of the competition provisions of the TPA and the TPA’s role in the regulation of economic activity. In practice, competition law is often understood as primarily concerned with the achievement of ‘open-ended’ and ‘result-oriented’ purposes — such as ‘competition in a market’, ‘efficiency’ and ‘consumer welfare’ — in complex economic situations where inferences about illegal conduct must be drawn from facts on the basis of often conflicting and evolving economic theories. A rigid adherence to ‘textualism’ and the ‘plain meaning’ of statutory words may result in the defeat of these open-ended legislative purposes. At the same time, others argue that deference to the achievement of such open-ended purposes may too readily result in a misconstruction of the literal and plain meaning of statutory words, thereby raising questions of the nature of the judicial role and of the rule of law in a parliamentary democracy. Both approaches, ‘literal’ and ‘purposive’, can also mask undisclosed policy decisions to prefer one set of economic and political outcomes concerning the role of the state and the market over other desirable and plausible goals.
The purpose of this article is not to determine a correct approach to the interpretation of competition statutes. Rather, this article will explore the debate in recent High Court decisions in an attempt to make more explicit the policy choices underlying the modes of interpretation adopted. It will become clear, on closer inspection, that approaches frequently described as opposing actually invoke similar reasoning and interpretative models. At the same time, judges will sometimes invoke entirely inconsistent interpretative models in apparently ‘like cases’. These inconsistencies can lead to a confused understanding both of the role of law in the regulation of economic behaviour and of the basic jurisprudential understanding that like cases should be treated alike.
The High Court decision in Visy provides a useful starting point for a more detailed examination of the implications of these interpretative differences.
Visy Paper Pty Ltd (‘Visy’) was a vertically integrated business involved in the collection of wastepaper and cardboard, which it also recycled to produce paper and cardboard. Northern Pacific Paper Pty Ltd (‘NPP’) was a competitor in the collection and acquisition of wastepaper which it sold to recycling firms, including Visy. Visy proposed to enter into an agreement with NPP whereby NPP would supply waste to Visy, but would be prevented from acquiring goods and supplying wastepaper services to Visy’s customers.[8]
The Australian Competition and Consumer Commission (‘ACCC’) instituted proceedings against Visy, claiming that it had attempted to make a contract containing an ‘exclusionary provision’ as defined in TPA s 4D, contrary to TPA ss 45(2) and 45(2)(a)(i). Section 4D(1) defines an ‘exclusionary provision’ as:
a provision of a contract, arrangement or understanding … made [or proposed] … between persons any 2 or more of whom are competitive with each other; and the provision has the [substantial] purpose of preventing, restricting or limiting the supply of goods or services to, or the acquisition of goods or services from, particular persons or classes of persons …
At first instance, Sackville J dismissed the ACCC action.[9] On appeal, a majority of the Full Federal Court ruled in favour of the ACCC.[10] Visy’s appeal to the High Court was dismissed.[11] However, the majority joint judgment of Gleeson CJ, McHugh, Gummow and Hayne JJ did so for largely different reasons from those of Kirby J, who delivered a separate concurring judgment.[12] The main differences in their approaches turned on statutory interpretation.
Breach of TPA s 4D is a per se offence where there is no requirement to establish a ‘substantial lessening of competition’. However, on appeal the ACCC claimed that the conduct in question fell under both ss 45 and 47 of the TPA and due to the operation of s 45(6) (the ‘overlap’ provision), the conduct was removed from consideration under s 45.
Section 47(1) prohibits ‘exclusive dealing’, which is defined in s 47(2)–(9). Section 47(10) provides that, for conduct to contravene s 47(1), it must also have ‘the purpose, or likely effect, of substantially lessening competition’.
The central issue in the case was the relationship between the statutory provisions governing an ‘exclusionary provision’ in s 45 (as defined in s 4D) and those governing ‘exclusive dealing’ in s 47. If the conduct was characterised under the former section, it would amount to a per se breach. If under the latter, the conduct would only amount to a breach if it had the purpose of, or resulted in, a substantial lessening of competition. The ACCC had already conceded at trial that the conduct could not be shown to have had a purpose, or the effect, of substantially lessening competition.[13]
The crucial provision was s 45(6) of the TPA, which is intended to prevent overlap between ss 45 and 47 by removing from consideration under s 45 an ‘exclusionary provision’ (conduct as defined in s 4D) which also amounts to ‘exclusive dealing’ under s 47[14] or would do so but for the absence of a substantial lessening of competition.[15]
The relevant ‘exclusive dealing’ provision was s 47(4), which provides that a corporation will be in breach of s 47(1) if it acquires goods or services on condition that the person from whom they are acquired will not supply (as distinct from acquire) goods or services to a particular class of persons. In contrast, an ‘exclusionary provision’, as defined in s 4D, deals with conditions that restrict both supply and acquisition.
Visy argued that the conduct had a double characterisation or dual significance and that s 45(6) removed it from consideration under s 45. The wastepaper collection business involved both the provision of wastepaper services and the acquisition of goods (wastepaper), particularly in instances where the collector paid to acquire the wastepaper. The provisions of the contract proposed by Visy restricted NPP’s freedom to supply services to others (wastepaper collection) and also restricted its freedom to acquire goods (wastepaper) from them.
The majority joint judgment of the High Court dealt with the issue merely as a matter of characterisation of the conduct in question within the literal meaning of the statutory words. Their Honours held that as a matter of formal construction, s 47(4) applied to restrictions on supplying services but did not apply to restrictions on acquiring goods. The latter conduct must therefore be dealt with under s 4D, as s 45(6) removed it from consideration under s 47(4).[16]
Kirby J agreed that the appeal should be dismissed but differed in his characterisation of the agreement and the interpretation of the TPA. His Honour stated that the provisions were not intended to ‘work in a mechanical or artificial way’[17] and that it was important to avoid semantics ‘by identifying the legislative policy behind the applicable sections’.[18] Kirby J argued that it was necessary to characterise the agreements as either a ‘horizontal’ or ‘vertical’ restraint in order to better understand their competitive consequences.[19] His Honour argued that ‘exclusionary provisions’ were horizontal agreements which restricted output with effects substantially equivalent to the elimination of price competition. Such arrangements were ‘inherently harmful to the competitive process’ and ‘without legitimate justification’.[20]
His Honour argued that legislative policy accords ‘greater vigilance towards, and scrutiny of, horizontal arrangements among competitors’[21] than non-price vertical restraints, such as exclusive dealing, which are not always anti-competitive. Kirby J believed that the TPA similarly makes this horizontal/vertical distinction in its different treatment of conduct under ss 45 and 47.
His Honour argued that the crucial question was whether the ‘non-competition’ clauses were primarily referable to the horizontal relationship between the two corporations as competitors, rather than to their vertical supplier–purchaser relationship.[22] Once Kirby J had concluded that the agreement could be characterised as horizontal, he applied s 4D. Thus, s 45(6) did not operate to allow the agreement to be dealt with under s 47.
His Honour made clear that this purposive approach was not only to be invoked when there was ‘ambiguity’.[23] It should also be used in circumstances of poor legislative drafting. That is, where the legislative words ‘constitute a less than perfect example of the drafter’s art’[24] and are ‘neither clear nor elegant’,[25] even if this falls short of ambiguity.[26]
Kirby J pointed out that:
It is in the context of such legislative opacity and unwieldiness that it is essential, in my view, to adopt a construction of the TPA that achieves the apparent purposes of that Act … Keeping such purposes in mind helps to shine the light essential to finding one’s way through the maze created by the statutory language. Even then, there is a substantial danger of losing one’s way in the encircling gloom.[27]
Kirby J suggested that there would be no need to resort to the extra-legal concepts if the statutory words were ‘clear and elegant’.[28] This may be contrasted with the majority joint judgment’s assertion that plain or literal meanings could be gleaned and applied.
Kirby J noted that this purposive approach had now been generally adopted by the High Court as its usual approach to problems of statutory construction.[29] In CIC Insurance, one of the cases cited by Kirby J, the High Court had stated that:
the modern approach to statutory interpretation (a) insists that the context be considered in the first instance, not merely at some later stage when ambiguity might be thought to arise, and (b) uses ‘context’ in its widest sense to include such things as the existing state of the law and the mischief which … one may discern the statute was intended to remedy.[30]
For Kirby J, the ‘plain and literal’ reading preferred by the majority joint judgment had little meaning and utility for the judicial function if it were divorced from ‘context’ and ‘purpose’.
The majority joint judgment cited several cases where the High Court, and Kirby J in particular, had endorsed the literal approach they adopted.[31] For example, in Victorian WorkCover, Kirby J had noted that ‘[t]here is a modern tendency to concentrate on judicial exposition of legal concepts in preference to analysis of statutory provisions that contain the applicable law. This tendency should be resisted.’[32]
The majority joint judgment argued that to adopt the horizontal/vertical classification:
confuses the task of construing the Act’s provisions. It is necessary to pay attention to the text of applicable statutes in preference to judicial or other glosses on that language. Not only does adopting these terms distract attention from the language of the Act, it does so by introducing terms which are, so it seems, intended to convey value or other judgments about the social or economic consequences that are assumed or expected to follow from the making of or giving effect to the arrangement to which one of these descriptions is applied.[33]
Gleeson CJ, McHugh, Gummow and Hayne JJ added that to invoke the horizontal/vertical classification was to invite the adoption of such terms from the ‘wholly different statutory context of United States antitrust law’,[34] where they are ‘jargon’ with no agreed or fixed meaning.[35]
The debate in Visy cannot simply be characterised as one between ‘literal’ versus ‘purposive’ interpretations. Instead, it raises more complex ideas about the role of the judiciary and the intention of the legislature in competition law cases. In the Parts that follow, the implications of these ideas for competition law will be examined, drawing on other recent High Court decisions.
The literal interpretation by the majority in Visy corresponds to a ‘textualist’ approach to statutory interpretation which has been prominent in the US, particularly in the case of constitutional interpretation. Proponents aim to construe words in their ordinary sense,[36] taking account of specialised conventions of statutory interpretation, semantic contexts and linguistic practices pertaining to law.[37] They believe that the text is the best evidence of what is enacted, rather than notions of legislative intent or history which may be unreliable or conflicting and ultimately undemocratic, in that they may not represent the views of the entire legislature.[38] As one of the chief proponents of textualism, Scalia J states that ‘[t]he text is the law, and it is the text that must be observed.’[39]
Another leading textualist, Easterbrook J, stated that ‘[s]tatues are law, not evidence of law’.[40] Textualism is also linked to self-understandings of the legal profession — namely, that legal reasoning is a craft and a distinct discipline.[41]
The primary difficulty with the textual/literalist approach adopted in the majority joint judgment in Visy is that, in competition law, rarely can the proscribed conduct be discerned from a literal interpretation of the statutory words. In identifying the operation to be given to TPA s 45(6), the majority joint judgment stated that it was not useful to adopt the description, favoured by Kirby J, of the relevant arrangement as ‘horizontal’ or ‘vertical’.[42] What the majority joint judgment failed to recognise is that the statutory words they construed — in TPA ss 4D, 47 and 45(6) — can be said to offer no greater ‘agreed or fixed meanings’ than the words they rejected.
A literal interpretation of competition statutes arguably collapses because the meaning of words used in the statute is often deeply embedded in economic concepts such as the notion of a ‘substantially lessening of competition’.[43] Statutory words alone cannot encapsulate fully the myriad of economic conduct under analysis. The textualist’s preference for deciphering obscure legal terms of art or resorting to the ‘lexicographical’ meaning[44]
can only be of marginal assistance. As the High Court had already pointed out in 1989 in Queensland Wire Industries Pty Ltd v Broken Hill Proprietary Co Ltd, the TPA’s objectives are ‘economic and not moral ones.’[45] Deane J stated that the interpretation of statutory words such as ‘market’, which appears in TPA s 4E, involves ‘value judgments about which there is some room for legitimate difference of opinion … The outer limits … of a particular market are likely to be blurred’.[46] More recently, McHugh J noted in Boral that the interpretation of the word ‘market’
must be determined in accordance with economic principles. The terms of the Act have economic content and their application to the facts of a case combines legal and economic analysis. Their effect can only be understood if economic theory and writings are considered.[47]
The view of McHugh J, who was a member of the majority in Visy, is a clear indication that courts do not always adopt a literal interpretation of statutes. The failure to acknowledge that differing interpretations are applied or the justification for their adoption results in confusion.[48]
The application of s 46, the misuse of market power provision, for example, requires the court to draw difficult distinctions between competitive and predatory (or abusive) conduct.[49] When does a firm that cuts its prices — an activity that would normally be regarded as highly competitive conduct — engage in conduct which might amount to predatory pricing and fall foul of s 46? What costs would also be relevant and what about the role of ‘intent’? When does a refusal to license a patent become an abuse of market power?
The statutory words of s 46 which prohibit firms with substantial market power from taking advantage of that power for one of three proscribed purposes[50] do not assist greatly in this determination. In QLD Wire, Mason CJ and Wilson J refused to read in any ‘additional, unexpressed and ill-defined standard’,[51] and declared that the element of misuse was determined by exclusive reference to the three paragraphs of the proscribed purposes.[52]
The proscribed purposes are so widely drawn and ill-defined, however, as to be largely unhelpful in drawing the distinction between competitive and predatory conduct. They deal primarily with injury to competitors — a result which is often the outcome of legally competitive conduct.[53] Yet, the courts in s 46 cases continue to seek to determine whether conduct breaches s 46 by reference to these words.[54]
Stephen F Ross points out that the more detailed structure of the TPA, in contrast to the sparse language of the Sherman Act,[55] may narrow but ‘does not eliminate … the discretion that judges have to craft sensible rules’.[56] Ross cites, in support of this view, the High Court decision in Devenish v Jewel Food Stores Pty Ltd[57]
which held that ambiguities in the TPA are to be interpreted to promote a ‘broad construction’[58] consistent with ‘the wide, remedial and protective ambit’[59] of the TPA and thus require ‘strong reasons … to justify an interpretation of the provision which would narrow the scope of the provision and exclude conduct falling within its literal terms.’[60]
In Visy, the statutory language used in TPA s 4D, to define an exclusionary provision, required an analysis of whether the parties were ‘in competition’ and an assessment of the ‘purpose’[61]
of the agreement proposed by Visy. The interpretations given to the words ‘supply’ and ‘acquisition’ in TPA s 47(4) were in reality very much determined by elements which defied a mechanical ‘textual’ interpretation. As the majority joint judgment pointed out, whether a particular contract was characterised as ‘supply’ or ‘acquisition’ depended on the ‘market’ and the price available for wastepaper:
In every case the collector took title to the waste paper, but in some circumstances it could be said that the collector provided a service to the person from whom it was collected. Who paid whom, and how much, was, at the relevant times, affected by the price obtainable for exporting waste paper.[62]
Whether a fee was collected for the wastepaper was entirely dependant on the current market price. If there was an excess supply (because export prices were low) it would be more likely that the supplier of the wastepaper would have to pay a fee for its collection.[63] Only in these circumstances, according to the High Court, could it be said to be ‘providing a service’ and therefore constitute an ‘acquisition’ in accordance with the TPA. This demonstrates that while the majority joint judgment purportedly applied a ‘literal’ test, their Honours referred explicitly and implicitly to non-textual and variable economic concepts in their characterisation of the circumstances and facts of the case.
The majority joint judgment nevertheless maintained that theirs was the only interpretation available on the basis of a literal statutory construction and that the horizontal/vertical classification adopted by Kirby J ‘inverts the proper order of inquiry because the argument proceeds from classification to a conclusion about the application of the Act’.[64] An examination of the US authorities, however, from which this terminology derives, casts doubt on this view. The classification in the US is merely a starting point for further examination under § 1 of the Sherman Act.[65] If the restraint directly restricts competition on price or output it is treated as per se illegal — a so-called ‘naked restraint’. Alternately, it may be found to be merely ancillary to an otherwise lawful contract.[66] Consideration is then given to the various factors under the ‘rule of reason’, including the presence of market power, possible legitimate business justifications (including efficiencies) and the investigation of whether there is a less restrictive alternative.[67]
For Warren Pengilley, the result in Visy was problematic:
To have important issues of what in the case was a joint venture being decided by minute and illogical distinctions … is unforgivable in a rational competition policy. The result of the Visy case was that a joint venture which the ACCC conceded was not anticompetitive was in fact banned per se because of the inelegant machinations of the draftsperson’s quill.[68]
For Pengilley, the ‘blame’ for the ‘bad result’ was placed on Parliament and the apparent drafting deficiencies of the TPA rather than on the courts, which as Kirby J suggests, have a duty to interpret the TPA and to find ‘one’s way through the maze created by the statutory language’.[69] Pengilley’s view that judicial interpretation cannot save bad drafting is supported in this case by the fact that the application of different interpretative methods by Kirby J also similarly produced this ‘bad result’.
One of the main difficulties with the majority joint judgment in Visy[70] is that its practical outcome undermines the jurisprudential justification for a strict adherence to statutory words: legal formalism. Unenacted pronouncements, it is argued, threaten the requirements of the rule of law — namely, the demands of generality, publicity, prospectivity, clarity, capability of being followed, stability and congruence between official action and a declared rule.[71] Only formalism, it is argued, provides private actors with clear prescriptions to guide behaviour.[72] In reality, however, competition law deals with and regulates the formulation of economic incentives. Bruce Owen argues that ‘antitrust law must operate chiefly through its effects on the expectations and incentives of economic actors rather than through the direct regulation of each transaction’.[73]
One interpretation of the majority joint judgment is that whether or not the conduct of the parties came within the relevant provision was entirely dependent not on their contractual promises, but on whether there was a market demand for wastepaper. If, as Pengilley argues, Visy allowed important issues to be ‘decided by minute and illogical distinctions’,[74]
it must be questioned whether the interpretative practices employed by both the majority joint judgment and Kirby J will have an adverse effect on the practical expectations of economic actors concerned with the legal consequences of their behaviour.[75]
Another approach to the proposed agreement in Visy would have been to examine the economic incentives for entering into the agreement: was it primarily to ensure the restriction of output and competition (referable to a horizontal agreement) or to facilitate the efficient downstream (vertical) supply of services? If the appropriate characterisation was horizontal, it should also be asked what NPP sought to gain from an agreement which restricted the customers with whom it could deal. Could any pro-competitive elements of the agreement be balanced against apparent anti-competitive ones? This would be comparable to the US ‘rule of reason’ analysis.[76] All of these questions are consistent with the Australian statutory language, in particular the proof of the requirement ‘in competition’ and the purpose requirements in s 4D. The majority joint judgment did not undertake this assessment but focused on the omission of the term ‘acquiring’ in s 47.[77] In other words a different outcome may have been possible in the case, without resorting to legislative redrafting, by ‘construing the Act’s provisions’ and paying ‘attention to the text’.[78] The language did not compel the result at which the majority arrived.
Competition law adjudication generally moves from an analysis of a ‘contract’ to one of its effects on a ‘market’, often requiring the answer to complex counterfactuals concerning ‘as if’ competition. This exposes the futility of attempting to transpose the operation of the statutory language onto the formal terms of the contract without placing this analysis within the wider context of the effect of the contract on the market. This narrow approach is evident in Visy when Gleeson CJ, McHugh, Gummow and Hayne JJ asked whether the conduct in question met the description given in TPA s 45(6) and noted that: ‘It does not invite or permit any distributive application of that part of the sub-section in which giving effect to the contract in some ways falls within the sub-section and giving effect to it in other ways does not.’[79]
Hugh Collins points out that:
In the private law of contract, for instance, it is argued that judicial decisions involve the weighing-up of competing rights according to a scheme of principles, and that courts do not need to refer to social policy goals in order to determine the outcome of a case.[80]
The private law of contract, however, does not provide an entirely useful model for the interpretation of competition statutes that regulate for public purposes. It is essential to understand that when competition law moved away from its foundations in traditional common law definitions of ‘restraint of trade’ and the constitutive rights which may flow from ‘private bargaining’ to an analysis of the effects of conduct on a market, this ideal of legal autonomy and analytical coherence was ruptured.[81] Competition law adjudication is forever struggling to balance the private law of property with the promotion of competition in a market (which may require fair and non-discriminatory access to a private facility or licensing of a patent).[82]
The argument that only a literal construction of the legislative words will retain this ‘legal autonomy’, promote legal certainty and enhance business confidence ignores an empirical reality. That is, the majority joint judgment and Kirby J in Visy applied opposite modes of interpretation, but came to the same substantive outcome. Moreover, in Visy First Instance, Sackville J applied a different interpretative rule from that of both the majority joint judgment and Kirby J to dismiss the ACCC’s claim.[83] Sackville J determined that, had any of the proposed agreements been made, TPA s 45(6) would have removed them from consideration under TPA s 45(2).[84] His Honour did not agree that the non-competition provisions could be divided into discrete components: not to supply services to, and not to acquire goods from, third parties. Sackville J also rejected the ACCC’s ‘narrow’ construction that the words, ‘by reason that’, in s 45(6) were to be understood as equivalent to ‘if and in so far as’.[85] His Honour gave importance to Parliament’s intention in drafting the provisions, as evidenced by the legislative words and the legislative history, and in particular, to the different choice of words used in ss 45(5) and 45(7) (‘in so far as’) and in s 45(6) (‘by reason that’).[86] His Honour argued that s 45(6) was ambiguous and therefore demanded the application of the rule of statutory construction that resolves ambiguity in favour of the respondent to proceedings.[87]
This interpretative rule may be contrasted with Kirby J’s view that in the face of ‘legislative opacity’[88] the judicial challenge is to adopt a construction of the TPA which achieves the legislative objectives of competition law. In Visy, this included a statutory construction which applied the per se provision in s 4D against the interests of the respondent.[89]
The application of different interpretive practices may have little explanatory value regarding the outcome in many cases. As McHugh J argued in South Sydney Football Club, it probably would have made little difference to the matter in issue in that case whether the word ‘purpose’ in s 4D was construed ‘objectively’ or ‘subjectively’: ‘Questions of construction are notorious for generating opposing answers, none of which can be said to be either clearly right or clearly wrong. Frequently, there is simply no ‘right’ answer to a question of construction.’[90]
This does not indicate that competition law adjudication is entirely indeterminate.[91] It does mean, however, that competition law interpretation is not always aided by the ultimately sterile ‘literal’ versus ‘purposive’ debate regarding the interpretation of statutes. The challenge for decision-makers is to make more transparent the foundations and sources of their ultimate decisions. As Duncan Kennedy indicates:
If the judges are wrong in their claims that their reasoning process and the pre-existing materials determine the rules, you might search for determination ‘above’ or ‘below’ them. If you are going ‘above’, you might be interested in normative or descriptive determination.[92]
Efforts to promote the ‘plain meaning’ of the words of the TPA in the interests of legal and business certainty can lead to interpretations which are over-inclusive of anti-competitive conduct and which ultimately defeat the apparently clear legislative purposes of the ‘promotion of competition’ and consumer welfare. The legislature itself has acknowledged that the ‘total answer’ must be sought elsewhere by explicitly including economic concepts in competition statutes.[93]
The failure to recognise the inability of statute to encapsulate the broad ranges of conduct in regulatory provisions has, as Kirby J pointed out in Boral, ‘led to the retaliatory enactment of legislation of intolerable detail and complexity.’[94] These constant legislative amendments often remain merely symbolic gestures. As Gunther Teubner argues, ‘[t]he legislature is constantly producing amendments to indicate changes of direction. However, these signals no longer appear on the internal screen of the legal system; they vanish without trace.’[95]
Other jurisdictions which have attempted more prescriptive formulations of competition statutes have often failed and reverted to broadly worded statutes where wider discretion is vested in the decision-maker.[96] This is the approach adopted in the US where both §§ 1 and 2 of the Sherman Act are formulated in broad terms.[97] Articles 81 and 82 of the Consolidated Version of the Treaty Establishing the European Community[98] contain more lengthy non-exhaustive lists of abusive practices, but it remains for the decision-maker to specify the elements of these offences in the circumstances of each case.[99]
The majority joint judgment’s view in Visy, that ‘[i]t is necessary to pay attention to the text of applicable statutes in preference to judicial or other glosses’,[100] is not a view of the judicial function that is shared by the committees which, from time to time, have been established to review the TPA. The committees relied on the courts to particularise the broad terms of the legislative words.[101] For example, the Dawson Report commented with regard to s 46 that ‘reliance is necessarily placed upon the courts to refine the broad terms in which the legislation is cast in order to achieve its object.’[102]
It was a preference for judicial interpretation or common law development of these rules rather than legislative change which led to the Dawson Report’s recommendation against any amendment of TPA s 46.[103]
The Dawson Report indicated that since amendments to s 46 in 1986, a number of decisions ‘have contributed to the development of the jurisprudence relating to the misuse of market power’ thereby reducing the uncertainties surrounding its operation.[104]
Such jurisprudential developments were expected to continue in several decisions that were then pending on appeal.[105] The Dawson Report warned that this newly developed jurisprudence would be of no consequence if an ‘effects test’ were introduced. It advised that legislative change should not take place where it would create the risk of uncertainty.[106]
In addition, the proposed alternative test ‘focusing on the effect or likely effect of substantially lessening competition in a market’ would necessitate a redrafting of the section so that pro-competitive behaviour could be distinguished from anti-competitive behaviour.[107]
While the Dawson Report referred specifically to TPA s 46, its confidence in judicial interpretation rather than reliance on legislative amendment to reduce uncertainties may have been a little premature with respect to competition law more generally, as we have seen from the differing approaches between the majority joint judgment and Kirby J in Visy.
The importance attached to the actual language of the TPA in Australian competition law cases is puzzling to commentators in the US, such as George A Hay, who contrasts the Australian approach with that taken by the American judge who rarely refers to the statutory language in an antitrust case.[108] Hay calls this approach excessively ‘lexicographical … as if the answer to the question of what constituted a substantial degree of market power could really be found in the dictionary.’[109] He goes on to argue that excessive reliance on statutory words has important (and not always benign) consequences for how judges receive economic evidence and how they arrive at conclusions.[110]
In Boral, Kirby J compared the excessively literal interpretation of the misuse of market power provision to attacking s 46 ‘with scissors’.[111] His Honour argued that dissecting the concepts of s 46 in this way offended ‘the orthodox approach to the interpretation of legislation.’[112] His Honour argued that the statutory concepts of ‘take advantage’, ‘for the purpose of’ and the ‘proscribed purposes’ were separated out for proof by similar or conflicting evidence rather than through an integrated economic approach to the analysis of predatory conduct.[113]
This method has practical consequences and produces outcomes which are not always consistent with a finding of a predatory purpose.[114] For example, the court may determine that the firm engaged in conduct for a proscribed purpose but did not take advantage of its market power. If the firm did not engage in predatory conduct contrary to s 46, however, it should be impossible to find a proscribed purpose.[115] These findings have little meaning and can lead to a confusing rather than an illuminating understanding of what should always be the central question — namely, the establishment of a standard to distinguish illegal predatory behaviour from lawful competitive conduct. This in turn detracts from the broader questions warranted by an economic approach: does this conduct harm consumer welfare? Is the behaviour profit-maximising or is it output-reducing? Can the conduct only be explained by an anti-competitive purpose?
This confusion often surrounds the interpretation of ‘take advantage’ and its relationship to other elements in s 46. To ‘take advantage’ of market power has been interpreted as the requirement of establishing a linkage between the market power and the conduct by examining the ‘counterfactual’: whether a firm in a competitive position would have acted in exactly the same way as the firm with market power.[116]
In Melway,[117] the High Court expressed difficulties with the counterfactual and preferred to ask whether the market power ‘materially facilitated’ or ‘made it easier’ for the corporation to act for the proscribed purpose than otherwise would be the case.[118] The establishment of this linkage as an element of the offence under s 46 is arguably superfluous and confusing to the issue at hand, namely whether the conduct is exclusionary. It is not a requirement demanded by the statutory language. As the cases and commentary demonstrate, any conduct by a monopolist, whether exclusionary or competitive, can be linked to its monopoly power. For example, the charging of a monopoly price is the exercise of monopoly power, but is not exclusionary conduct under US or Australian competition law.[119] Whether such conduct is an abuse of market power under the law of each jurisdiction is ultimately dependent on the economic theory the court applies and a debate about whether the law should regulate the extraction of monopoly rents. The answer to these more complex questions is given little assistance by the statutory language.
A preferable test, which would be consistent with the statutory language, might focus on the rationality of the conduct — similar to the test in § 2 of the Sherman Act — adopted by the recent US Supreme Court decision in Verizon Communication Inc v Law Offices Curtis V Trinko.[120] This ‘profit-sacrifice’ test relies on ‘a willingness to forsake short-term profits to achieve an anticompetitive end.’[121] The ‘profit-sacrifice’ test examines the employment of business practices that would not be considered profit-maximising except for the expectation that rivals are to be driven from the market or chastened. Others suggest the appropriate test is a ‘no economic sense’ one which requires proof that the challenged conduct would not be rational for the defendant absent a tendency to eliminate or lessen competition.[122] Within this test, business justifications may be examined but evidence demonstrating that the actor or firm did not have this state of mind is not sufficient to avoid liability.
The focus in the US on the economic rationality of the conduct in question is potentially a far more useful test for the analysis of predatory behaviour. Determining what amounts to predatory conduct under TPA s 46 is not assisted by scissoring up the section into ‘take advantage’, ‘purpose’ and the ‘proscribed purposes’. It is also an interpretation of s 46 which is not necessarily demanded by the statutory words. Kirby J highlighted the importance of such an interpretation in Boral, where he stated that if s 46 is read as a whole, then
the mind of the decision-maker is released from the artificial categorisation which the splitting of s 46(1) into separate ideas involves. No longer is it appropriate to think separately of a ‘corporation’ of the qualifying kind; of a ‘market’ for the particular purposes; of ‘taking advantage’ of ‘power’; and of the ‘purposes’ of such conduct and whether they are proscribed. Instead, the ideas interrelate. Each helps to inform the meaning of the others.[123]
There are inherent limitations in any textual/literal approach to statutory interpretation that only takes meaning from the statutory words. This is because it is impossible to set with precision the conduct to be proscribed in a competition statute. One alternative approach, advanced by Kirby J in Visy, stresses the importance of giving ‘effect to the identified legislative policies’.[124] His Honour highlighted in Boral that:
The old days of adopting a purely textual or verbal construction of legislation have given way, in this country and in others, to a purposive approach. By this I mean that courts seek to ascertain, and give effect to, the object of the legislature.[125]
A purposive approach assumes that legislative objectives can not only be identified, but that they can be specified to a sufficient degree so that legal rules can be formulated and applied to the facts in issue. The identification of legislative objectives is therefore crucial to the formulation and interpretation of the rules governing the conduct which competition law seeks to regulate. Robert H Bork alludes to the prerequisite nature of objectives in stating that ‘[o]nly when the issue of goals has been settled is it possible to frame a coherent body of substantive rules.’[126]
There is often little agreement, however, about these purposes notwithstanding that they are informed by differing ideological approaches to the role of law in the regulation of economic activity. The identification of multiple intents or purposes also gives rise to the ‘textualist’ objection that attempts to give effect to legislative intent is ultimately an incoherent and indeterminate exercise. This is because judges will merely select those aspects of legislative debates and histories which support their conclusions.[127]
The object of the TPA, stated in s 2, is ‘to enhance the welfare of Australians though the promotion of competition and fair trading and provision for consumer protection.’ In the High Court decision in QLD Wire, Mason CJ and Wilson J stated that the object of s 46 was to ‘protect the interests of consumers, the operation of the section being predicated on the assumption that competition is a means to that end.’[128] Their Honours specifically rejected the purpose of protecting individual competitors.[129] Yet, the promotion of consumer welfare has not always been consistently identified as a goal for the provision.[130] For example, the then Attorney-General, Lionel Bowen, stated in his Second Reading Speech to the Trade Practices Revision Bill 1986 (Cth) that an amendment to s 46 was ‘most important to ensure that small businesses are given a measure of protection from the predatory actions of powerful competitors.’[131]
Similarly, in the international context, the goals of competition law have not remained constant over time. An examination of the legislative history of antitrust statutes in the US provides an important example of these changes.[132]
Early interpretations stressed the importance of freedom to compete and de-concentration, revealing a distrust of larger firms. Similar to the goals suggested by Bowen, small enterprises were to be protected in the competitive process from the predatory actions of larger firms with whom they dealt. These goals also had a political dimension with a preference for small rather than large concentrations of economic (and therefore political) power.[133]
The ascendancy of the Chicago School of economic theory during the late 1970s signalled a movement in the interpretation of antitrust statutes from a distrust of concentrated economic power to a commitment to liberty and freedom of contract and a distrust of government intervention.[134]
The Chicago School emphasises the importance of promoting consumer welfare through productive efficiencies (which often may only be realised by larger enterprises that may take advantage of economies of scale and scope) and an ideological preference for the ‘market as regulator’. This belief in the self-correcting nature of markets leaves a limited role for statutory or judicial intervention.[135] Chicago School economists argued that consumer welfare (in the form of productive efficiencies) was the only goal consistent with the original intent of the Sherman Act. For example, Bork states that only the goal of consumer welfare ‘is consistent with congressional intent, and, equally important, only that goal permits courts to behave responsibly and to achieve the virtues appropriate to law.’[136]
On further examination of the legislative debates, however, the argument that consumer welfare represents ‘congressional intent’ has become increasingly suspect.[137]
The Chicago School promotion of ‘economic efficiency’ coincides more with the application of a particular view of modern liberal economic theory (pro-market competition) than with the ‘original intent’ of the framers of antitrust statutes, which was essentially concerned with controlling the political and economic power of large businesses.
The Chicago School version of the historical arguments about legislative intent succeeded, however, in influencing judicial decision-making.[138] Judges and economists have developed this economic theory and have turned it into predictive rules that can be applied by the courts. They have argued that the broad commands in the Sherman Act give power to courts through the development of the common law to determine the line between acceptable cooperation and illegal collusion and between vigorous competition and unlawful monopolisation: ‘The Sherman Act adopted the term “restraint of trade” along with its dynamic potential. It invokes the common law itself, and not merely the static content that the common law had assigned to the term in 1890.’[139]
This ‘dynamic potential’ understanding of the Sherman Act also increased the role for economics in competition law adjudication. As John E Lopatka and William H Page note, economics has been permitted to enter the courts’ deliberative process ‘directly and indirectly through the legal and economic literature, not through expert testimony’.[140]
US judgments in antitrust cases now rarely include any statutory analysis of the legislative text.[141]
This is partly because the legislation is sparsely written and contains general admonitions. Where does this leave strong supporters of ‘textualism’ such as Scalia and Easterbrook JJ, who in some contexts, interpret antitrust statutes from the viewpoint of contemporary economics and economic efficiency[142] and in other contexts, reject non-textual interpretations as undemocratic? While Easterbrook J would say in one situation that ‘[l]aw does not change in meaning as the political culture changes’,[143]
he would also claim that the Sherman Act ‘does not contain a program; it is instead a blank check’[144] which authorises ‘courts to create new lines of common law’.[145] Daniel A Farber and Brett H McDonnell refer to these contradictory standpoints and claim that ‘textualists like Scalia and Easterbrook cannot both have their cake and eat it: they should either rethink their textualism or seriously consider jettisoning their approach to antitrust law.’[146]
These interpretative inconsistencies are complicated further when it is understood that not all Chicago School judges adopt this ‘textualist’ approach. Posner J, unlike Easterbrook J, adopts the more pragmatic approach to statutory interpretation espoused by William N Eskridge Jr, among others.[147]
It is a more dynamic approach to statutory interpretation which takes into account arguments and (mainly ‘public’) values reflected in judicial practice over time rather than original legislative intent to reach a decision which best advances current values.[148]
It maintains that decisions are supported by a number of sources beginning with the statutory text but also drawing on context, legislative purpose and history (including the views of antitrust agencies). Posner J argues that the pragmatist judge does not regard the maintenance of consistency with past decisions as an end in itself but only as a means for bringing about the best results in the present case.[149]
What influence do differing theories of statutory interpretation have on the outcome of particular cases? As was evident from Visy, adherence to a particular theory is a poor predictor of the outcome. In the US, Farber has examined this issue by comparing the outcome of judgments by Posner J (a ‘pragmatist’) with those of Easterbrook J (a ‘textualist’).[150] Both judges sit on the Seventh Circuit Court of Appeals and Farber only examined the cases where they disagreed to determine how closely theories of interpretation were linked to outcomes.[151]
Farber concluded that theoretical differences seemed to have only a marginal relationship with outcomes:
Thus, our case studies do not establish any strong connection between theory and outcome. (They also show that pragmatist arguments can support apparently formalistic results, and vice versa) … Posner and Easterbrook’s starkly conflicting jurisprudential views do not lead to any great disparity in their votes.[152]
If it is correct that theoretical interpretative differences are not a good predictor of outcomes, then this raises important practical and jurisprudential issues which have a significance beyond competition law adjudication.
What this debate highlights is the necessity of making more transparent the interpretive sources for the adjudication of competition law disputes. For Chicago School judges, the primary interpretative reference is Chicago School economic theory rather than the statutory text. Thus, Posner J argues that ‘antitrust law has become a branch of applied economics’.[153] Farber and McDonnell acknowledge that ‘[i]t is a view of the common law that allows Scalia to summarize the reasoning of one of his own antitrust opinions as follows. In sum, economic analysis supports the view [of the lower court], and no precedent opposes it’.[154]
What are the consequences for the autonomy of judicial reasoning and the respective roles of the judiciary and the legislature of the view that ‘economic analysis supports the view, and no precedent opposes it’?[155]
This idea of ‘economic analysis as authority’ has become commonplace in competition adjudication in many jurisdictions. In the European Communities, the formalist assessment of certain categories of conduct has been replaced by a willingness to undertake a contextual analysis of the economic impact of the conduct.[156] In announcing an internal review of art 82 of the EC Treaty,[157] the European Commission’s Director-General of Competition, Philip Lowe, stated ‘[a] credible policy on abusive conduct must be compatible with mainstream economics.’[158]
In Australia, the High Court was aware of the utility of ‘economics’ as an interpretative tool in QLD Wire, where it characterised the TPA as an ‘economic not a moral statute’.[159] The ‘literal/textualist’ interpretation preferred by the majority in Visy, may be interpreted as judicial resistance to the use of this economic theory. Yet McHugh J, who formed part of the majority in Visy, observed in Boral that ‘[t]he terms of the Act have economic content and their application to the facts of a case combines legal and economic analysis. Their effect can only be understood if economic theory and writings are considered.’[160] In Visy, Kirby J argued that:
Reliance upon the writings of legal scholarship, other disciplines (such as economic science in the context of the TPA), the law of other countries, or international law, represents an intellectual contribution to judicial reasoning and judgment. It is not normative. Nor is it prescriptive. But such learning can help a court better to understand the nature of the problem presented for its decision.[161]
Kirby J’s observation that these economic theories are not prescriptive or normative but merely assist the reasoning process is correct. At the same time, economic theory should not be considered an objective, scientific, non-ideological system. The choice of economic theory by the decision-maker is not value neutral. Rather, the decision-maker must not only be aware of different approaches to economic analysis but also of the particular ideology they may represent. Imelda Maher explains this as follows:
The first issue to be addressed by those enforcing competition law is which theoretical paradigm is to be applied. This choice is itself political with decisions about which economic theory to adopt involving important value judgements as to the role of competition law in public ordering.[162]
Competition statutes must be sufficiently malleable to permit the discussion of these various competing economic theories.[163] Developments in economic measurements which permit, for example, residual demand analysis, also affect the application of economic rules. This is because they allow more accurate measurement of concepts such as market power and the unilateral effects of a merger.[164] More recently, monopolisation provisions in competition statutes have been applied to deal with complicated issues such as the role of asymmetric information,[165] as well as network effects and technological dependency in high technology industries.[166] Developments in industrial economics and game theory have also demonstrated how the strategic practices of individual firms[167] could be profitable and therefore predatory.[168] This evolution in the various disciplines within economics has led some commentators to argue that we are seeing the emergence of a post-Chicago School interpretation of the competition statutes.[169] This approach is characterised by a richer factual analysis of individual cases and the application of more complex rules based on strategic models rather than reliance on more theoretical models[170]
and per se tests.[171] For others, this increased complexity and discretion raises the problem of false positives[172]
and wrongful convictions, and can be detrimental to consumer welfare and the expectations of rational economic actors.[173]
Where does the consideration of these competing economic theories in competition law cases leave our understanding of the adjudication process in Australia? This article does not suggest that the statutory text should be ignored. To do so would introduce the very anti-democratic complaints voiced by ‘textualists’ in the US. Rather, one may argue that judges have a number of interpretative tools to deal with the task of statutory interpretation and that a strict adherence to the ‘text’ has as little utility in Australian cases as it does in the US or the European Communities. It is also clear that judicial claims that competition decisions are based on a strict adherence to the statutory words, but at the same time embrace economic approaches to the determination of the legality of conduct, raise the same objections as those levelled at textualist or Chicago School proponents, such as Scalia and Easterbrook JJ.[174]
One further feature of the approach to statutory interpretation found in Visy merits examination. The majority joint judgment argued that to adopt the horizontal/vertical classification of conduct favoured by Kirby J was to pay attention to ‘judicial or other glosses’.[175] These glosses invite criticism that such terms derive from the ‘wholly different statutory context of United States antitrust law’[176] where ‘horizontal’ or ‘vertical’ have no fixed meaning and are even considered as ‘jargon’.[177]
This rejection of so-called ‘foreign glosses’ has become a common theme in Australian competition decisions. The Full Federal Court in Eastern Express Pty Ltd v General Newspapers Pty Ltd rejected the US tests for predatory pricing by refusing to adopt foreign terms:
Caution is required in translating United States judgments, which place glosses upon the text of the United States antitrust laws, to the interpretation of the Australian law. Our law evinces a somewhat different approach to legislative drafting.[178]
Whether this approach derives from exaggerated judicial nationalism or some other form of narrow parochialism, it is another manifestation of an interpretative position which prefers literalism/textualism.
The apparent rejection of foreign judgments can be seen to be contradicted by the interpretative practice adopted in the seminal Trade Practices Tribunal[179] decision on market definition, QCMA,[180] and also in the High Court’s decisions in QLD Wire,[181] Melway[182] and Boral,[183] which are littered with references to US and European Communities decisions.
This inconsistent approach to the reception of foreign judgments is even apparent within Kirby J’s judgments.[184] For example, in South Sydney Football Club, Kirby J agreed with the other High Court judges when they warned against the use of the term ‘boycott’ — considered to be a particularly US concept — to limit the scope of an ‘exclusionary provision’ as defined in TPA s 4D.[185]
The Dawson Report, on the other hand, stressed the importance of having ‘regard to international developments in the area of competition’ when considering possible legislative amendments and of examining whether interpretations have been ‘informed by comparative provisions in foreign jurisdictions’.[186]
The courts appear to have grasped this significance in only a few instances. Reliance on foreign materials to elucidate legislative purposes and economic concepts has not been consistent and has been insufficiently theorised. It remains unclear whether they will be regarded as ‘jargon’ and mere ‘glosses’ on the statutory words or as aids to an economic and legal understanding of the nature of the conduct under review.[187]
The rejection of foreign concepts also contrasts with efforts by the ACCC to internationalise Australian competition law through bilateral and multilateral agreements and the exchange of information with other competition authorities.[188] The ACCC’s guidelines on anti-competitive behaviour and mergers also reflect international approaches to these issues.[189] The ACCC’s new Immunity Policy for Cartel Conduct[190] is closely modelled on approaches to this issue in the US and the European Communities.[191] As Maher argues:
The influence of US antitrust can thus be seen as an integrating mechanism facilitating doctrinal consistency where competition law(s) are jurisdictionally fragmented. … Competition law is self-referential with American antitrust law a main source of reference.[192]
It would be erroneous, however, to equate the global harmonisation of competition law with ‘Americanisation’. There is considerable international resistance to the ‘importation’ of US antitrust laws without a more contextual understanding of regional and national markets and legal frameworks.[193] While it is true that US antitrust decisions have provided useful interpretative tools for the application of competition law in a number of jurisdictions, they must not be accepted uncritically.[194] The political implications of the economic theory implicit in these decisions should always be acknowledged.
The discussion about the relevance and acceptance of foreign judgments for Australian competition law really centres on their ‘legitimacy’ as interpretative models. Perhaps they are, along with expert evidence, merely ‘analogies’, as Allsop J suggested in Baxter First Instance.[195]
The litigation in Boral provides further examples of apparent inconsistencies in the approaches to statutory construction and the reception of foreign judgments as aids to the interpretation of competition statutes by the High Court.
In Boral,[196] the ACCC claimed that Boral Ltd (‘Boral’), through its subsidiary Boral Besser Masonry Ltd (‘BBM’), had engaged in predatory pricing in breach of s 46 of the TPA. The ACCC claimed that between 1994 and 1996, Boral had offered to supply concrete masonry products in Melbourne below their avoidable cost in order to drive out its competitor, C & M Brick (Bendigo) Pty Ltd (‘C & M’) and a related company. It was further claimed that Boral engaged in strategic practices designed to discourage future entry into the market, including increasing capacity by acquiring a plant and upgrading facilities during a period of recession.[197]
Heerey J at first instance found in favour of Boral, notwithstanding a determination that BBM had priced throughout the relevant period below avoidable or variable cost. His Honour found that Boral did not have a substantial degree of market power and therefore did not meet the threshold requirements for a breach of s 46.[198] Nonetheless, Heerey J assessed in obiter the predatory pricing claim under TPA s 46. His Honour applied the concept of ‘recoupment’,[199] as adopted in the US authorities on predatory pricing, to find that BBM had no prospect of being able to recoup its losses by charging supra-competitive prices even if its two competitors left the market. His Honour also found that the pricing and strategic practices to increase capacity were ‘legitimate business decisions’ in a competitive and recessed market.[200] The ACCC appealed to the Full Federal Court which found in its favour.[201] Boral then appealed to the High Court which upheld the appeal, with Kirby J dissenting.[202]
In upholding the appeal, a majority of the High Court[203] once again commenced with a textual rather than a purposive analysis. Gleeson CJ and Callinan J stated: ‘We are concerned with the language of s 46.’[204] Gaudron, Gummow and Hayne JJ appeared to prefer a purposive approach,[205] but ultimately applied a textual analysis: ‘It is necessary to look first to the text and structure of the Act, particularly s 46.’[206]
The problem with relying on text and structure is that s 46 ‘does not refer specifically to predatory pricing’.[207] Gleeson CJ and Callinan J noted that ‘there is nothing in s 46 that, as a matter of law, requires a distinction to be drawn between pricing below or above variable or avoidable costs’.[208] Any purely text-based approach rejects cost-based and recoupment standards for predatory pricing. The interpretation must rely on extra-textual concepts. Unfortunately, an attempt to do so is readily dismissed as the importation of foreign concepts.[209] Gleeson CJ and Callinan J declared:
There is a danger that a term such as predatory pricing may take on a life of its own, independent of the statute, and distract attention from the language of s 46. There is also a danger that principles relevant to the laws of other countries may be adopted uncritically and without regard to the context in which they were developed.[210]
While the establishment of a cost-based distinction ‘as a matter of law’ within the statutory words is difficult on a ‘textual’ reading of the TPA, the distinction may be drawn if a purposive interpretation is applied. Faced with the same dilemma in the US — specifically, how to establish a bright line test for predatory pricing under the broadly drawn § 2 of the Sherman Act — Phillip Areeda and Donald F Turner argued that a price could only be conclusively considered predatory if it fell below reasonably anticipated short-run marginal costs (average variable cost (‘AVC’) as a proxy) because only pricing below this measure has the potential to eliminate equally efficient rivals or potential entrants.[211]
Areeda and Turner considered this to be a conclusive and objective test for predatory conduct. The test was characterised as a ‘legal’ rather than an ‘economic’ test because it was deliberatively under-inclusive. It did not capture all instances of predation as determined by economic theory. Rather, it was a rule which judges (and juries) could apply. Although subsequent courts argued about the appropriate allocation of costs (fixed or variable) and the appropriate measure of cost (AVC or average total cost) in the application of the test, it was the accepted approach under § 2 of the Sherman Act until the promotion of the recoupment standard by the Chicago School.[212]
A below-AVC or ‘avoidable cost’ standard could therefore be applied as a matter of law under TPA s 46 if the objective of the provision was understood as being to ‘protect the interests of consumers’.[213] Such a standard, however, cannot be elicited from a purely textual interpretation of the section, as Gleeson CJ and Callinan J stated in Boral: ‘Predatory pricing is a concept that was examined in the evidence of economists, and in the judgments in the Federal Court. Ultimately, however, it is the language of the Act that must be construed and applied.’[214]
The High Court dismissed the cost-based data as being of ‘limited utility’.[215] Although the facts clearly acknowledged that BBM’s prices for the relevant period were below its AVC (a clear instance of predatory pricing based on the Areeda and Turner standard), the majority regarded this as inconclusive.[216]
This rejection in Boral of any standard of cost for the determination of predatory pricing is consistent with Federal Court cases under s 46 of the TPA. The Full Federal Court in Eastern Express said it would be an ‘error to translate into the operation of s 46 the US decisions’ and went on to state that:
No pre-ordained and fixed categories as to the level of pricing or economic theory or practice of costing necessarily controls the drawing of that inference [as to proscribed purpose] in any particular case. Whether the finding as to purpose which is sought against the corporation should be inferred from the evidence as to pricing must be judged by considering not only the logic of the matter; the court must also consider whether ‘general human experience’ would be contradicted if the conduct which occurred were unaccompanied by the purpose sought to be proved.[217]
This approach arguably left the law of predatory pricing under s 46 in a state of flux where no particular categories could be determined and applied as a standard for identifying predatory pricing without further clarification. The Court suggested that even ‘above-cost’ pricing could be predatory and offered the seemingly non-justiciable standard of ‘general human experience’.[218] What is clear is that while these standards are not derived from an interpretation based on economic theory or foreign glosses, they also cannot be derived from a merely textual reading of the section. The Court in Eastern Express failed to recognise and problematise this apparent inconsistency.
The rejection of any ‘standard of cost’ is also contradicted by what the courts actually do. The courts in Eastern Express and Trade Practices Commission v CSBP & Farmers Ltd[219] did grapple with cost-based data and in Eastern Express the case was dismissed at first instance because the newspaper in question was not being published at a loss: ‘If there is no loss, it would be difficult to infer a proscribed purpose.’[220] This is a clear indication at least that the Areeda and Turner standard was relevant to the question of liability under s 46.
The textual approach and apparent rejection of foreign concepts and economics was also contradicted by Heerey J in Boral First Instance and by McHugh J in Boral, both of whom ultimately accepted, to the benefit of the ACCC, the foreign concept of the current US approach to predatory pricing, and its Chicagoan notion of recoupment.[221]
Recoupment as a separate or even threshold test for predatory pricing is based on a recognition that low prices benefit consumers and that it is undesirable to punish such conduct unless there is a likelihood that the losses incurred by the defendant will be later recouped by higher prices. Any other rule runs the risk of deterring pro-competitive pricing. The Chicago School argues that given the rarity of predatory pricing, the risks of under-deterrence far outweigh the risks of over-deterrence.[222]
This view of the marginal impact of predatory pricing upon consumer welfare is consistent with the Chicago School’s understanding of the self-regulation of the market. The only circumstance where below-cost pricing could be considered rational is when the sacrifice of profits in the period of predation can be recouped by a stream of monopoly profits in the future.[223]
The recoupment standard in predatory pricing could therefore be incorporated under s 46 through an interpretation which gives effect to the statutory purpose defined as the ‘protection of consumers’.[224] Consumer welfare is only damaged if a firm can recoup losses though future monopoly pricing. If losses cannot be recouped, then consumers have gained and benefited from the period of low prices. McHugh J wrote that ‘[t]reating recoupment as a fundamental element in determining a claim of “predatory pricing” provides a simple means of applying s 46 without affecting the object of protecting consumer interests.’[225]
The statutory purpose of the protection of consumers is equally consistent however with the application of the Areeda and Turner ‘cost-based’ test for predatory pricing.[226]
The choice between these economic theories cannot easily be resolved by a purposivist interpretation which asks how ‘reasonable persons pursuing reasonable purposes reasonably’[227]
would decide the issue. The application of cost-based standards over recoupment standards is not resolved by a debate about the statutory purpose or by the text, but by a political preference for intervention in the market or the self-regulation of the market.[228]
How the shift was made from a clear indication of the statutory interpretation of s 46 in the decision in Eastern Express — which refused to read in any foreign concepts and rejected any ‘pre-ordained and fixed categories as to the level of pricing’[229] — to Heerey J’s clear acceptance and application of the recoupment approach in Boral First Instance, raises interesting interpretative questions within the context of Australian competition law. It is curious that Heerey J did not feel constrained nor find a need to grapple with the precedents set by the Full Federal Court’s decisions in this area.[230] This is even more problematic given that his Honour found that BBM had priced below avoidable cost for an extended period. This is a clear instance of predatory pricing on the Areeda and Turner standard and ‘a prima facie violation’.[231] Yet, as Heerey J had already determined that the appropriate standard was that of recoupment, the level of pricing was of little relevance, because below-avoidable cost pricing, even for a prolonged period, can amount to a rational business decision.[232] In support, Heerey J cited the Full Federal Court’s statement in Eastern Express that ‘[n]o pre-ordained and fixed categories as to the level of pricing or economic theory or practice of costing’ necessarily permits the drawing of an inference of predatory pricing.[233]
This statement merely avoids setting a cost standard for predatory pricing. It does not necessarily rule out the relevance of below-cost pricing because it is equally consistent with the view that even above-cost pricing can be predatory.[234]
Heerey J, relying on the definition offered by an expert witness, Professor George Hay,[235] and US decisions under § 2 of the Sherman Act,[236] defined predatory pricing as ‘selling below cost plus recoupment by supra-competitive pricing’:[237]
The term ‘predatory pricing’ does not appear in s 46 or in its nearest counterpart in United States anti-trust law, s 2 of the Sherman Act. Nevertheless, the term forms part of the discourse of courts, lawyers and economists in both countries … It is not suggested that the term has some different or qualified meaning in Australia. Therefore it will be helpful to examine the concept, to see how it is applied in the United States, and to consider its application in the context of s 46.[238]
Is the ‘discourse of Courts, lawyers and economists in both countries’ a legitimate source of authority? Are the views of economists equivalent to precedent as an interpretative source? Which economists’ views are relevant? What is the justification for preferring the Chicago School test over that of Areeda and Turner? How does this interpretation fit within the text of s 46? In what way could the text qualify the meaning of recoupment in Australia?
A similar issue concerning competing theories of economics and the role of precedent was raised in the US decision of State Oil Co v Khan.[239] An issue of maximum vertical resale price-fixing came before Posner J in the Court of Appeals. Posner J was willing to find for the defendant on the basis that maximum resale price-fixing should not be treated as per se illegal under § 1 of the Sherman Act because it can amount to pro-competitive behaviour. His Honour suggested that it should be treated similarly to non-price vertical restraints under the ‘rule of reason’.[240] Nonetheless, his Honour found for the applicant because he was bound by the clear Supreme Court precedent in Albrecht v Herald Co[241] which declared that maximum resale price-fixing was illegal per se. On appeal, the Supreme Court decided to overrule Albrecht v Herald Co and based its reasoning on Posner J’s analysis of the pro-competitive effects of maximum resale price maintenance in the Court of Appeals and decided that this type of agreement should be dealt with under the ‘rule of reason’.[242] For Posner J, the relevant interpretative tools were not just what he decided was the best economic theory to apply to the particular facts, and nor was the text of the Sherman Act to be treated as a ‘blank cheque’.[243]
Rather, the constitutional interpretative constraints imposed by precedent and stare decisis determined and constrained the nature and extent of his Honour’s interpretive freedoms as a lower court judge.
Heerey J was not faced with the application of a per se precedent; his Honour was instead confronted with differing interpretations of TPA s 46. Competing economic approaches to predatory pricing, judicial interpretation and the failure of previous Australian case law to adopt a recoupment standard should have been given greater weight or more careful discussion. At the very least Heerey J should have been at pains to establish how the recoupment approach was consistent with these previous decisions and the text of s 46, especially as the choice of one economic theory over another raises important questions concerning the role of competition law in market regulation.[244]
These same interpretative inconsistencies can be discerned in the High Court’s decision in Boral, which clearly stated its preference for a textual approach and a rejection of foreign concepts. Yet the High Court upheld the appeal by Boral, with McHugh J explicitly agreeing with Heerey J on the recoupment issue.[245] McHugh J believed that the text of s 46 placed no obstacle to the application of the term ‘recoupment’ as it was understood in foreign judgments to be an aid to interpretation:
Even when one allows for the differences between the Australian Act and the United States legislation, no valid reason justifies rejecting the United States jurisprudence as an aid in developing the law relating to ‘predatory pricing’ in this country.[246]
It is useful to recall here that it was McHugh J who argued as part of the majority joint judgment in Visy that to adopt the horizontal/vertical classification of conduct favoured by Kirby J amounted to a ‘gloss’ which ‘distract[ed] attention from the language of the Act’.[247] This apparently contradictory approach by the High Court is never appropriately theorised or problematised as an interpretative practice. Kirby J identified this anomaly in Visy:
For example, in Boral, members of this Court were of the opinion that the concept of ‘recoupment’, as developed in antitrust decisions and literature in the very different statutory context of the United States, could be used to shed light on the circumstances in which, in this country, a corporation ‘take[s] advantage’ of a substantial degree of market power for the purposes of s 46 of the TPA. In Boral, the joint reasons of Gaudron, Gummow and Hayne JJ even made reference to ‘horizontal price-fixing arrangements’. Knowledgeable readers of Boral would have understood what their Honours were getting at by their use of that expression. Such readers would not have mistaken that reference to horizontal arrangements for jargon or slogans. I am willing to assume that readers of my reasons in this case would bring the same appreciation to my use of the same adjective.[248]
By referring to ‘knowledgeable readers’, Kirby J recognises that meaning is very much determined and informed by an ‘interpretative community’.[249]
The text is informed by the reader’s knowledge of competition law and policy and when Kirby J refers to the terms ‘vertical’ and ‘horizontal’ he relies on that interpretative community to understand his meaning. While this implies a departure from ‘textualism’, it does not require or assert that all meaning is indeterminate. Meaning is bound or constrained by what this ‘interpretative community’ (which includes the economic expert) decides is the meaning, by reference to competition policy, and how this policy has been incorporated within precedent.
The application of economic principles to identify anti-competitive behaviour is not ideologically neutral. Competing economic theories of predatory pricing represent differing views of the state (laissez-faire or interventionist) and the market. A theory that permits any level of pricing to be potentially predatory is willing to undertake a more dynamic contextual analysis of the actual competitive impact of the particular pricing practice in the market. The recoupment theory, approved by Heerey J in Boral First Instance, is clearly consistent with deference to the self-regulating capabilities of the market. It is founded on the idea that predatory schemes rarely occur and that the risk of false positives is high. The ideological origins of Heerey J’s reasons for preferring one theory over another, especially one which was arguably more consistent with precedent, should perhaps have been more transparent. As Lopatka and Page point out, judges do not have boundless discretion in this area:
antitrust must be a body of law that integrates economics into its rules over time so that the rules can provide an efficient system of incentives for businesses … courts should take steps to help ensure the legitimacy of their decisions. First, the reliance on economic authority should be as transparent as possible. Where a court has surveyed the literature in a contentious area, it should acknowledge the controversy and justify its reliance on one viewpoint. Where a court formulates a rule or standard, it should identify not only the economic theory on which it relies, but also the institutional considerations that affect its decision.[250]
Recoupment should have been identified as a particularly Chicagoan approach that rejects cost standards as the sole determinant of predatory pricing conduct. This fact was recognised by Finkelstein J in Boral Federal Court Appeal when he discussed the Chicago School origins of the recoupment standard. Finkelstein J noted that the standard had not been accepted uncritically[251] and recognised that the practical implications of adopting the standard may frustrate the objects of the provision.[252]
The ideological origins of these theories is not debated or elucidated by Heerey J at first instance, nor by McHugh J in the High Court. The economic principles are simply applied as scientifically neutral. Yet, the sources used to support the theory are all Chicagoan in origin. For example McHugh J, citing Posner J, puts forward a particularly Chicago School view of the duties of the dominant market player: ‘Even a firm with a substantial degree of market power “has no general duty to help its competitors, whether by holding a price umbrella over their heads or by otherwise pulling its competitive punches”.’[253]
But how does adopting this approach square with the opposing view that firms with substantial market power may have a ‘special responsibility’[254] not to distort competition or the way in which ‘take advantage’ has been defined under s 46 to include an examination of how market power can ‘facilitate’ anti-competitive conduct?[255]
This is a debate about the reception and interpretation of economic evidence and imperfect information. A clear choice to apply certain economic theories will screen the relevance of certain evidence over other proof.[256]
If recoupment is the operative economic theory to be applied, the court will give precedence to facts concerning market structure over facts concerning ‘cost data’.[257]
The complicated cost-based data which are often presented to the courts in predatory pricing cases and its uncertain effect on consumer welfare are used as justifications by the Chicago School not to develop tools for the better assessment of that data but to caution against legal intervention altogether. Both Heerey J[258] and the High Court gave little probative value to the evidence of below-cost pricing because it was of ‘limited utility’[259] to the recoupment question which is determined solely by an examination of market structure. McHugh J again cited Posner[260] to support his view of the inadequacy of the pricing or cost standards (which would be highly relevant to the Areeda and Turner test) for predatory pricing:
In my view, what is required is not a bright line rule about costs but a more sophisticated analysis of the firm, its conduct, the firm’s competitors, and the structure of the market not only at the time in which the firm has engaged in conduct allegedly in breach of the Act but also before and after that conduct.[261]
Recoupment is clearly an economic approach to predatory pricing which was open to the court. However, in failing to problematise the origins of the theory, perhaps Heerey J shares the view of proponents of the Chicago School regarding the application of their theory by the courts. Easterbrook J has stated, referring to a number of US Supreme Court decisions[262] which have applied Chicago School interpretations, that ‘[n]one can be said to “adopt” the Chicago School … because the Chicago School is not a “school” so much as it is a method of asking questions.’[263]
The presentation of recoupment as the only possible interpretation also ignores the ‘judicial fact’ that it is an approach which has not been universally accepted in comparative jurisdictions.[264] For various reasons, UK and European Communities courts have not applied recoupment as a standard or test in recent predatory pricing decisions.[265]
McHugh J does not refer to these UK or European Communities decisions, preferring the ‘sound economic reasoning’ of courts in the US and the Office of Fair Trading in the UK which, he says, ‘regard the concept of recoupment as a fundamental element of a successful “predatory pricing” claim’.[266]
More importantly, there is no discussion in Boral of how the recoupment standard has benefited from recent economic research that has questioned the Chicago School assumption regarding the rarity of predatory pricing schemes.[267]
More recent studies, employing developments in industrial economics, argue that recoupment can be established in a number of ways. Predation is examined in the context of a more dynamic market and from a strategic perspective, with the view that firms take into account how their behaviour will affect the behaviour and expectations of existing and potential rivals.[268]
Any account of the expected profit from such behaviour should therefore take into consideration the indirect profits that result from the reactions of these other firms.[269] These strategic theories take account of such variables as imperfect or asymmetric information, transaction costs and time lags, and argue that a firm can develop a ‘reputation’ for predation. Although predatory pricing may not be profitable in the context of a single entrant, it may be so in the long run due to the effect it has on existing and potential rivals. The predatory campaign can be observed by potential entrants who may be deterred from entering the market through fear of meeting an aggressive response[270] or who are led to believe that they cannot compete with the monopolist.[271]
Neither Heerey J nor McHugh J considered this more nuanced reading of ‘recoupment’.
When applying economic theory, decision-makers must also be mindful of the highly concentrated Australian market in which they are applying the rules. A more interventionist approach by the courts may be required to protect consumer welfare in a smaller market which is dominated by oligopolies. In these conditions, market forces cannot always be relied upon to regulate and erode market power.[272]
US antitrust policy and its enforcement mechanisms are arguably designed for a very large economy in which economies of scale do not limit the number of competitive alternatives available to most buyers and may not always readily apply to small economies with non-tradable goods and services.[273]
A contextual analysis of the nature of the competitive constraints within the Australian market may have allowed greater prominence to be given to the ACCC’s arguments regarding collective dominance and strategic predation in Boral, rather than deference to the market response of a competitor to depressed conditions and competitor price-cutting.[274] Such an examination may have rejected the relevance of Posner’s account of a firm with substantial market power having ‘no general duty’ and the ability of the competitive market to prevent recoupment through the exercise of market power.[275] Instead, the High Court was not willing to accept the Full Federal Court’s view that the upgrade of facilities by BBM during the period of recession was intended to signal to others in the market that BBM was willing to continue the price war for some time and that it could absorb whatever losses resulted (a strategically erected barrier to entry).[276]
Kirby J argued that a more interventionist approach may indeed have been more consistent with a textual reading of TPA s 46. The 1986 amendments to the threshold test required for the establishment of market power in s 46 were made to ensure that the test applied to firms in situations where there is less than market dominance and to major participants in an oligopolistic market where ‘more than one firm may have a substantial degree of power in a market’.[277] Kirby J adopted recoupment as the appropriate mode of analysis, but believed its meaning was constrained by the wording of s 46.[278] His Honour also thought that the requirement for a dangerous or high probability of supra-competitive prices would involve judges writing an ‘effects’ element into the section.[279]
But the consideration of recoupment arguably makes little sense without some consideration of the likelihood of success of the pricing scheme — which is determined in economic theory not by an assessment of actual success, but from the market conditions and structure. The difficulty with this approach is that Kirby J applies a recoupment standard which he believes is more consistent with the ‘text’, yet it is also arguably inconsistent with economic literature on the subject. Another approach would perhaps have made more explicit how the strategic theories Kirby J discusses could also permit recoupment.[280]
Like McHugh J’s embrace in Boral of foreign concepts,[281]
Kirby J’s view contrasts with his non-textual interpretation in Visy.[282] Both approaches raise problems of interpretative consistency, but more importantly they signal the need for a more transparent discussion of the actual economic or statutory justifications for preferring one interpretation over another.
Many of the interpretative issues raised in Boral and Visy concerning the role of the text, legislative intent and the application of economic theory continued in the two later High Court competition law decisions of Rural Press[283] and NT Power Generation.[284]
Rural Press Ltd (‘Rural Press’) was a publisher of regional newspapers in South Australia. A rival wanted to publish a newspaper in one of Rural Press’ markets. Rural Press sought the cessation of the rival newspaper in return for an agreement not to compete in the prime circulation area of the rival publisher. The ACCC claimed the agreement substantially lessened competition in the market and/or contained an exclusionary provision contrary to ss 45(2)(a)(ii) and 4D of the TPA. The ACCC also claimed that Rural Press’ actions amounted to a misuse of market power in breach of s 46. Mansfield J, at first instance, found Rural Press in breach of all three provisions.[285] On appeal, the Full Federal Court upheld Rural Press’ appeal on ss 4D and 46.[286] A majority of the High Court (Kirby J dissenting) upheld the claims on ss 4D and 45, but dismissed the s 46 claim.[287]
Again the High Court cautioned against the interpretation of ‘exclusionary provision’ within s 4D by reference to a gloss, such as the concept of a ‘boycott’ which lacked ‘precise meaning’,[288] and could not ‘be permitted to divert attention from the text’.[289] Gleeson CJ and Callinan J noted that the use of the term boycott has ‘driven courts to the unproductive and inappropriate task of seeking to construe the parliamentary materials and speeches rather than the statute.’[290] In particular, their Honours argued that the term ‘boycott’ fostered the assumption of a requirement for some form of animosity towards the object or objects of an exclusion.[291]
While the need for proof of animus was correctly rejected, the failure to read into ‘purpose’ within s 4D some idea of a ‘purpose of injuring or disadvantaging’ the particular person or class of person may exclude the main issue for analysis in competition cases — namely, whether there was an anti-competitive ‘purpose’.[292] As s 4D is a per se provision, the section must be interpreted in a manner to avoid an operation which would capture potentially pro-competitive conduct and defeat the objectives of the TPA.[293]
The conduct should be analysed from the perspective of whether it restricts output, and ultimately price competition, to the detriment of consumers. This approach may allow the consideration of pro-competitive arguments regarding market-sharing (for example, a limitation on competition to prevent free-riding).[294]
On the question of ‘take advantage’ under s 46, the majority again seemed to construe the provision narrowly. They agreed with the Full Federal Court that Rural Press had not taken advantage of its market power but rather had taken advantage of its access to a printing press and professional structure to threaten to publish a competing newspaper.[295] Rural Press could have entered the rival market whether or not it had a substantial degree of market power. The majority joint judgment employed the terminology for the determination of ‘take advantage’ from the High Court’s decision in Melway[296] to test whether the conduct was ‘materially facilitated by the market power’.[297] The majority observed:
Section 46(1) distinguishes between ‘taking advantage’ and ‘purpose’ … To reason that Rural Press and Bridge took advantage of market power because they would have been unlikely to have engaged in the conduct without the ‘commercial rationale’ — the purpose — of protecting their market power is to confound purpose and taking advantage.[298]
This is another example of separating (‘scissoring up’) the issues within s 46 which may arise from a literal reading of the provision rather than a reading which is contextually consistent with the statutory objective. An overly literal reading may ultimately diminish or confuse the essential judicial enquiry under s 46 — that is, finding the distinction between competitive and anti-competitive conduct. This distinction is determined by a number of interpretative factors which inform a textual reading.
In dissent, Kirby J once again despaired at what his Honour perceived to be an excessively narrow interpretation of s 46 by the majority, which effectively defeated the ‘large national’ and ‘beneficial’ purposes of the TPA to ‘protect and advance competition’.[299] His Honour rejected the narrow approach to the interpretation of ‘take advantage’ preferred by the majority, which merely determined whether the firm ‘could’[300] have engaged in the same conduct in the absence of market power in the sense of mere physical possibility as a ‘narrow, formalistic and substantially verbal ground’.[301] Kirby J perceived this, along with the approach in Melway and Boral, to be a construction of s 46 which is
insufficiently attentive to the object of the Act to protect and uphold market competition. It is unduly protective of the depredations of the corporations concerned. It is unrealistic, bordering on ethereal, when the corporate conduct is viewed in its commercial and practical setting. The outcome cripples the effectiveness of s 46 of the Act … Effective anti-competitive threats can be made without the redress which s 46 appears to promise.[302]
His Honour preferred to focus on the commercial considerations of the firm and applied a test similar to the US ‘profit-sacrifice’ test.[303] Kirby J argued that there was no business or economic reason for the conditional threat. Rather, ‘Rural Press and Bridge were indicating a willingness to forego potential revenue and the expansion of their business.’[304]
In adopting an interpretation which sought to promote the TPA’s ‘large national’ purpose and ‘beneficial’ objectives, Kirby J seems to have adopted a pragmatic approach to statutory interpretation.[305]
No doubt his Honour believed, although the links were not clearly identified, that these ‘national purposes’ were best served by an application of an economic ‘profit-sacrifice’ test which focused on the commercial context of the firm’s behaviour.
The practical consequences of the differing approaches of the majority and Kirby J were not politically neutral. For Kirby J, the application of the purely textual approach of the majority was ‘unduly protective of the depredations of the corporations concerned’ and ultimately defeated the ‘national purposes’ of the TPA.[306] The problem with a purposive interpretation however is that broad goals such as ‘national purposes’, without further elaboration, do not adequately dictate contextual rules.
The political consequences of these interpretative practices for the role of the courts in the regulation of the state and the market were once again evident in the High Court decision in NT Power Generation.[307]
The Power and Water Authority (‘PAWA’) is a statutory authority under s 4 of the Power and Water Authority Act 1987 (NT). It is a vertically integrated monopoly involved in the generation and distribution of electricity in the Northern Territory. NT Power Generation Pty Ltd (‘NT Power Generation’) is a private company that generates electricity. It requested access to the transmission grid owned by PAWA in order to distribute and sell electricity to selected consumers in the Darwin–Katherine area.[308] NT Power Generation argued that it could do so at a price cheaper than that charged by PAWA.
The Northern Territory Government was in the process of commercialising the state-owned electricity industry with a view to privatisation. It was also in the process of introducing a statutory scheme for the provision of access to its transmission infrastructure as demanded by its obligations following the implementation of the Hilmer Report. PAWA was reluctant to provide access to NT Power Generation because it argued that this would allow NT Power Generation to ‘cherry pick’ the more profitable customers in advance of the implementation of a more equitable, negotiated access regime. PAWA also had statutory universal service obligations, including the provision of cross-subsidised services to remote areas. The introduction of a competitive market through the access regime would permit PAWA to restructure tariffs to avoid cross-subsidisation.[309]
An action for breach of s 46 against PAWA by NT Power Generation for refusal to grant access was dismissed at first instance[310] and by a majority on appeal to the Full Federal Court.[311] However, the High Court upheld an appeal (Kirby J dissenting),[312] finding that PAWA had taken advantage of its substantial market power in the transmission/distribution markets for the purpose of injuring NT Power Generation in the downstream electricity supply market.
The initial jurisdictional issue concerned whether the statutory authority was ‘carrying on a business’ under TPA s 2B and therefore unable to claim Crown immunity to avoid the application of the TPA.[313] The majority of the High Court appeared to adopt a purposive interpretation of the TPA and to reject a more narrow interpretation of s 2B, that PAWA’s refusal to grant access was not part of ‘carrying on a business’:
The Act is seeking to advance the broad goal of promoting competition. Certain provisions of the Act, particularly in Pt IV, necessarily turn to a significant degree on expressions which are not precise or formally exact. One example is ‘market’: there can be overlapping markets with blurred limits and disagreements between bona fide and reasonable experts about their definition, as in this case. Other examples are ‘substantial’, ‘competition’, ‘arrangement’, ‘understanding’, ‘purpose’ and ‘reason’ (which need only be a ‘substantial’ purpose or reason: s 4F). It is not appropriate to subject the application of this type of legislation to a process of anatomising, filleting and dissecting in the fashion advocated by PAWA.[314]
The majority’s interpretation, which sought to advance ‘broad goals’ in preference to an interpretation that would amount to ‘anatomising, filleting and dissecting’ the TPA, contrasts with the strict textualist approach of the majority in Visy (of which McHugh and Gummow JJ also formed a part) and the narrow interpretation of s 46 in Rural Press (of which Gummow, Callinan and Heydon JJ formed a part). In what way does the ‘text’ justify these differing interpretations? To what extent can the differing interpretative practices be explained by the public (NT Power Generation) versus private context (Visy, Rural Press and Boral) of the defendant’s conduct in issue? Were apparently contradictory interpretative practices adopted in different decisions to achieve consistent political outcomes concerning the appropriate role of the courts in the regulation of (private) economic actors?
The majority’s interpretation of ‘take advantage’ and ‘purpose’ in NT Power Generation arguably provides another example of ‘scissoring up’ the section (but not it seems ‘anatomising, filleting and dissecting’). Their Honours construed taking advantage of market power separately from ‘purpose’[315] and applied the counterfactual to determine if PAWA had taken advantage of its market power.[316] The majority found that if there had been a competitive market with other suppliers of infrastructure services, PAWA would not have been able to withhold access.[317] But the use of the counterfactual of a highly competitive market to impose liability is arguably not helpful (and is in fact unrealistic) in a transmission market which was a statutory natural monopoly.[318]
The majority arguably failed to give appropriate consideration to PAWA’s purpose in withholding access. Legitimate goals could include the carrying out of statutory public purposes, the provision of universal services and the introduction of an access regime.[319] An examination of these purposes could have permitted the conclusion that there was no anti-competitive ‘purpose’ under s 46. The majority argued that it would be more appropriate to consider these ‘public purposes’ under a ‘public benefit’ test as part of an authorisation argument under s 88, which cannot be obtained for conduct prohibited under s 46:
Section 46 does not permit the drawing of a distinction between short-term anti-competitive purposes (here keeping NT Power out of the market) and long-term pro-competitive objectives (establishment of an access regime), and does not permit the former to be nullified or excused by the latter. Nor is it relevant that, in PAWA’s submission, entry by NT Power might cause such losses to PAWA that it would cease to subsidise services to remote communities.[320]
A purely textual interpretation would surely have permitted the contrary conclusion to be drawn. The absence of an authorisation procedure under TPA s 88 may have evidenced a legislative intention that legitimate and anti-competitive purposes could be balanced under s 46. This is especially true when purpose under s 46 has been interpreted subjectively.[321] Section 4F also provides that if there is more than one purpose, the proscribed purpose must be the ‘substantial purpose’. Under s 46, ‘legitimate business purposes’ have always been balanced against apparently anti-competitive ones.[322] In Melway, a majority of the High Court found that a manufacturer’s refusal to supply in order to maintain a distribution system did not always manifest an anti-competitive purpose as