#7177 - Exclusionary Provisions - Competition Law

• A boycott is an agreement between two or more parties not to deal with a third party or to do so only upon certain terms. It is a primary boycott because the target of the boycott and the firm actually being boycotted are on and the same.

• Secondary boycott: When an agreement is designed to affect or influence a fourth party by preventing the third party from dealing with that firm in the normal course business, the agreement is known as a secondary boycott. This is because the firms refuse to deal with another firm that is not their Target. The other firm is merely a way of getting to the Target. They are rare and used by Unions mainly (thus will not be considered further).

ASX Operations Pty Ltd v Pont Data Australia Pty Ltd (No 1)

• There was an agreement between the parties for the supply by ASX Operations of stock exchange information. This agreement restricted Pont Data’s ability to sell this information to its customers in competition with ASXO. According to the Full Court, this was the customers boycotting.

News Ltd v Australian Rugby Football League Ltd

• The League devised an attempt to prevent News from entering the market to establish a rival rugby competition. It deprived News of clubs and players it needed to conduct competition. It was found that this was a boycott that contravened the TPA.

Devenish v Jewel Food Stores Pty Ltd

• A number of milk suppliers agreed to boycott Jewel Stores in order to pressure it into not acquiring milk from a competitor. This was used to persuade the Target.

• A boycott may be used to encourage individuals/firms to join a professional or trade association by limiting the opportunities available to non members to pursue a particular trade or profession.

McCarthy v Australian Rough Riders Association Inc.

• Rules were put in place by the ARRA so that non members could not participate in events conducted by members. It was found that these rules were a boycott of those non rodeo rider members.

• A boycott will often be an integral part of the price fixing agreement between competitors, as that agreement is likely to be ineffective unless firms undertake not to supply to customers or to buy from suppliers who will not support the price fixed.

• When it cannot be proved that there has been price fixing, the fact that there was a boycott will be important.

• Commercial boycotts are sometimes motivated by a desire to promote a cause, parties see as a public interest.

Hughes v WA Cricket Association (Inc)

• The boycott of clubs affiliated with the Association was directed against cricket players who participated in ‘rebel’ cricket tours of South Africa. It was organised as an international cricket community’s ban against playing cricket in that country (to end the government’s apartheid). Yet the Association had not got authorisation for the boycott and so Hughes (a rebel player) succeeded.

Gallagher v Pioneer Concrete

• Illustrates the use of a boycott to equalise the earnings of the parties. Ere the lorry owners/drivers engaged by Pioneer to carry concrete, entered into an agreement to restrict the number of lorries they made available for this purpose and prevent Pioneer engaging third parties. This was to ensure they did not compete with each other for more than an equal share of the business generated by Pioneer.

• Primary boycott does not appear in the CCA. But the forms of conduct that are associated with primary boycotts are called an ‘exclusionary provision.’ This phrase is defined in s 4D.

• S 45(2)(a)(i) and (b)(i) then prohibit a corporation from making a contract, arrangement or understanding that contains an exclusionary provision, or gives effect to such a provision.

• Primary boycotts are not prohibited but s 45(2) prohibits exclusionary provisions instead.

• This distinction is important because s 4D does not only deal with traditional boycotts and should not be read down by reference to the concepts associated with them.

4D(1) Exclusionary provisions

1. A provision of a contract, arrangement or understanding, or of a proposed contract, arrangement or understanding, shall be taken to be an exclusionary provision for the purposes of this Act if:

   1. the contract or arrangement was made, or the understanding was arrived at, or the proposed contract or arrangement is to be made, or the proposed understanding is to be arrived at, between persons any 2 or more of whom are competitive with each other; and

   2. the provision has the purpose of preventing, restricting or limiting:

      1. the supply of goods or services to, or the acquisition of goods or services from, particular persons or classes of persons; or

      2. the supply of goods or services to, or the acquisition of goods or services from, particular persons or classes of persons in particular circumstances or on particular conditions;

by all or any of the parties to the contract, arrangement or understanding or of the proposed parties to the proposed contract, arrangement or understanding or, if a party or proposed party is a body corporate, by a body corporate that is related to the body corporate.

45(2) Contracts, arrangements or understandings that restrict dealings or affect competition

(2) A corporation shall not:

1. make a contract or arrangement, or arrive at an understanding, if:

   1. the proposed contract, arrangement or understanding contains an exclusionary provision; or

   2. a provision of the proposed contract, arrangement or understanding has the purpose, or would have or be likely to have the effect, of substantially lessening competition; or

2. give effect to a provision of a contract, arrangement or understanding, whether the contract or arrangement was made, or the understanding was arrived at, before or after the commencement of this section, if that provision:

   1. is an exclusionary provision; or

   2. has the purpose, or has or is likely to have the effect, of substantially lessening competition.

• Entering into or giving effect to a contract, arrangement or understanding that contains an exclusionary provision is prohibited by s 45(2) without regard to whether this conduct lessens competition, or has the potential to do so. Thus making or giving effect to an exclusionary provision is prohibited per se. Thus boycotts are seen as inherently objectionable – explained by Gummow, Hayne and Heydon JJ in Rural Press Ltd.

• But not all boycotts lessen competition. But in these cases authorisation is possible.

76C Defence to proceedings relating to exclusionary provisions

Defence

(1) In proceedings against a person in relation to a contravention of subparagraph 45(2)(a)(i) or (b)(i) in relation to an exclusionary provision, it is a defence if the person establishes that the provision:

(a) is for the purposes of a joint venture; and

(b) does not have the purpose, and does not have and is not likely to have the effect, of substantially lessening competition.

Application of subsections 45(3) and (4)

(2) Subsections 45(3) and (4) apply for the purposes of subsection(1) in the same way as they apply for the purposes of section45.

• A boycott that does not come within the definition of exclusionary provision in s 4D may still contravene the CCA if the conduct involved is caught by other sections in the Act. It may be cartel conduct (Div 1 Part IV), be anti competitive (contrary to s 45(2)(a)(ii) or (b)(ii)), constitute the practice of exclusive dealing (contrary to s 47), involve a misuse of market power (contrary to s 46) or amount to resale price maintenance (contrary to s 48).

• For a primary boycott to constitute an exclusionary provision, the following requirements in ss 45(2) and 4D must be satisfied:

  • There must be a contract, arrangement or understanding (or a proposed one) between 2 or more parties containing an exclusionary provision;

  • At least 2 or more of the parties to the CAU must be competitors;

  • The provision must have the 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, either generally or in particular circumstances or on particular conditions by all or any of the parties to the CAU or a related body corporate.

• A boycott will come within the scope of ss 45(2) and 4D only if there is a CAU between the persons alleged to be party to that boycott. Thus there must be some form of agreement between them not to deal with the target – or no exclusionary provision will exist.

Stationers Supply Pty Ltd v The Victorian Authorised Newsagents Association

• There was an ‘expectation’ when they joined that they would not acquire stationary from the applicant but no agreement to this effect was established. (this is therefore an important requirement). There must be an explicit agreement to be a contract, agreement or understanding between the parties or contained in rules or regulations they have developed for other purposes.

News Ltd v Australian Rugby Football League Ltd (1996) – page 313

• News Ltd proposed to start a rival rugby competition to that of the respondents. In response the League asked its clubs to sign Commitment Agreements that they...