...theoretical differences 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 I Introduction II The Debate in Context: Visy A The Approach of Kirby B The Majority Joint Judgment III The Literal Interpretation of Competition Statutes A 'Textualism' and Competition Statutes B From 'Contract' to 'Market' C Interpretation as an 'Attack with Scissors' IV Legislative Purpose, Economic Theory and Foreign Judgments A The Goals of Competition Law B Economic Analysis as Authority C 'Judicial or Other Glosses' V Boral A Cost-Based Tests and Legislative Purpose B The Recoupment Approach and Judicial Precedent C Choice of Economic Theory D The Australian Market Context VI Rural Press VII NT Power Generation VIII Conclusion

I INTRODUCTION

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.

II THE DEBATE IN CONTEXT: VISY

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)

A The Approach of Kirby J

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'.

B The Majority Joint Judgment

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.

III THE LITERAL INTERPRETATION OF COMPETITION STATUTES

A 'Textualism' and Competition Statutes

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 Pry 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 [section] 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'.

B From 'Contract' to 'Market'

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)...

NOTE: All illustrations and photos have been removed from this article.



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