SST Consulting Services Pty Limited v Rieson

This case dealt with an exclusive dealing claim and related remedial claim that contract was void as a result of illegality. This further raised issues of severability.

The majority of the Court allowed the appeal; Justice Kirby dissented.

The majority

The majority (Gleeson CJ, Gummow, Hayne, Heydon and Crennan JJ) summarised the relevant facts as follows:

[para 2] The appellant lent money to AFS Freight Management (USA) Inc ("AFS USA"), a company of which the respondents were directors. The respondents guaranteed repayment of the loan. The loan agreement obliged AFS USA to direct all work of packing and unpacking shipping containers at certain ports "to the corporations that the lender shall direct". The appellant, by lending or agreeing to lend money on that condition, engaged in the practice of exclusive dealing, contrary to s 47(1) of the Trade Practices Act. AFS USA repaid some but not all of the money lent.

The relevant exclusive dealing conduct contrary to s 47(1) involved third line forcing under s 47(6) (a per se prohibition) with the result that it was not necessary to demonstrate anti-competitive purpose or effect.

The respondents sought a declaration pursuant to s 87 that the guarantee was void and/or unenforceable (para 14).

On the construction of section 4L

Section 4L provides:

If the making of a contract after the commencement of this section contravenes this Act by reason of the inclusion of a particular provision in the contract, then, subject to any order made under section 51ADB or 87, nothing in this Act affects the validity or enforceability of the contract otherwise than in relation to that provision in so far as that provision is severable.

The majority interpreted this provision as follows:

[para 24] ... s 4L [provides] that where the section is engaged the contract in question is valid and enforceable except to the extent that the offending provision is severed. It is, however, not right to say that the section is engaged where the making of a contract involves a contravention. The condition for engagement of s 4L is more precisely stated. Further, the operation of s 4L is to require severance of the offending condition of the contract. Severance of the offending provision is not predicated upon the separate application of common law rules governing severance. It is, therefore, not right to speak of the contract being valid and enforceable except to the extent that the offending provision can be severed.

Extensive discussion of the justification for this interpretation followed.

Dissent

Justice Kirby dissented on the issue of severence (he agreed with the majority that the conduct constituted exclusive dealing).

On section 4L his Honour noted [footnotes omitted]:

[para 66] Section 4L of the TPA is not a general code for the common law of severance. Still less is it a statutory consolidation of the rules of severance, applicable in a multitude of contexts. It is a particular provision, applicable only to particular contracts, having legal consequences in the context (relevantly) of restrictive trade practices. One form of restrictive practice, prohibited by s 47 of the TPA, is the practice of exclusive dealing. A fundamental purpose of the TPA is to discourage and impose sanctions on that practice.

[107] The joint reasons: The majority in this Court, rejecting past authority in the Full Court of the Federal Court, reads s 4L as a provision that "requires rather than permits the severance of offending conditions". That interpretation could only be adopted by overlooking the context in which s 4L appears in the statute. It is a context designed to provide exceptional relief from the provisions of the TPA dealing with invalidity and unenforceability. The approach of the majority also involves disregarding the overall purpose of the statute (relevantly, to redress anti-competitive and unfair trading practices). Whilst apparently approving what was said by Brennan J in Milreis, the majority fails to apply the approach established by that case for the application of s 4L.

[108] Contrary textual arguments: It would be remarkable if, in the language of s 4L, the exceptional cases of severability were given such predominance as to undermine the important work of the exclusive dealing provisions in protecting competition and fair trade practices. Self-defeating provisions may arise in legislation. But one would expect such a deep flaw to have been discovered a long time before this case; and the language of the TPA, said to justify that conclusion, to have been much clearer.

[109] That severance was intended as an exceptional solution is evident from the language of s 4L, which provides for severability, but only "subject to any order made under section 87 or 87A". The explicit mention of those provisions makes it clear that s 4L operates on a micro level, by reference to the particular provisions of the contract. This particularity is reinforced by the reference in the preconditions for the attachment of s 4L to the "inclusion of a particular provision in the contract". The particularity of s 4L is not consistent with the construction favoured in the joint reasons, which requires (rather than exceptionally permitting) the severance of offending conditions. By the majority's construction, the more an agreement is tainted by illegality (due to non-compliance with the TPA) the more likely it is that the agreement will be rescued by s 4L. This is a counterintuitive result which the Parliament could not have intended.

[116] Conclusion on approach and meaning: I accept the conclusion of the joint reasons that the proper approach to deciding issues of severability is to apply s 4L and not the common law rules that preceded the enactment of that section. Nonetheless, some of the old common law principles may still be helpful to an understanding of the work that s 4L was adopted to perform.

[117] Once this is acknowledged, and the provisions of s 4L are read in the context of the TPA as a whole, it becomes clear that the proper way to read s 4L is in the manner urged by the respondents. This means that the operative provision of s 4L should be read, effectively, by placing certain words in parentheses: Thus:

"Nothing in this Act affects the validity or enforceability of the contract (otherwise than in relation to that provision) in so far as that provision is severable."

This approach maintains the intended focus on the severability of the offending provision; and it requires severability to be determined in the context of the TPA, an Act concerned with large social and economic objectives.

[118] Reasons for non-severance: When the foregoing approach is adopted, it becomes apparent that the Full Court was correct to conclude that the "particular provision" in the impugned contract, namely, the exclusive dealing provisions in the loan agreement, should not be severed from that agreement pursuant to s 4L of the TPA. ...

[119] Conclusion on the application of s 4L: When the foregoing considerations are given their proper weight, it becomes plain that this was not an occasion for the severance of the offending provisions of the loan agreement. In my respectful view, it is only by ignoring the context in which severance occurs under s 4L that the contrary conclusion could be reached in the present case. The Full Court was correct to decide as it did.

 

SST Consulting Services Pty Limited v Rieson [2006] HCA 31 (High Court)

SST Consulting Services Pty Limited v Rieson [2006] HCA 31 (AustLII)

SST Consulting Services Pty Limited v Rieson [2006] HCA 31 (JADE)