News Ltd v Australian Rugby League Ltd (No 2) (Superleague)

(1996) 64 FCR 410

Facts

The ARL, NSWRL and affiliated clubs conducted a rugby competition. Each club applied annually to the NSWRL to play in its competition. News Ltd and other companies proposed to start a rival rugby competition known as SuperLeague. In response, ARL and NSWRL requested clubs in the existing competition sign ‘Commitment Agreements’, essentially committing themselves to play with the NSWRL competition for a period of 5 years. They each signed the commitment agreements. They also subsequently signed ‘loyalty agreements’ having substantially the same effect.

SuperLeague managed to sign a number of top players and coaches which were formed into clubs (the rebel clubs). News Ltd claimed the Commitment Agreements contravened sections 45 and 46 of the (then) TPA. ARL, NSWRL and the clubs who remained with the League cross claimed against those who had moved to SuperLeague for breach of the Commitment Agreements and against News for inducing breach of contract.

Trial judge (Burchett J)

ARL succeeded at first instance before Justice Burchett.

Justice Burchett accepted the following propositions that were not challenged on appeal:

'An exclusionary provision must have that character at the time it is made.' It can’t subsequently acquire the character of an exclusionary provision.
The competition requirement in s 4D includes likely competition as well as actual competition.
Section 4D 'is not satisfied by mere proof that two or more parties to the alleged arrangement are in competition. They must be in competition in relation to the very goods or services the subject of the alleged exclusionary provision: Eastern Express v General Newspapers.'
A corporation may 'give effect to the terms of a contract, arrangement or understanding which do not involve exclusionary provisions.'

The TJ rejected News’ case first on the basis the clubs were not in competition but rather were engaged in a ‘joint activity’, second that there was no ‘proscribed purpose’ and finally that there was no ‘contract, arrangement or understanding between the clubs – only between the individual clubs and the League (a series of vertical agreements). In relation to this last point the TJ had found that the clubs had no more than a hope or expectation that the other clubs would execute the agreements.

Discussion on the market

Justice Burchett had a bit to say on market definition, including the following:

124. The approach to market delineation adopted in the Australian cases discussed earlier in these reasons would suggest that if a practice appears anti-competitive when scrutinized within confined market limits, but pro-competitive once the boundaries of the market are enlarged, the market may have been too narrowly delineated in the first place. I am not asserting that a particular case might not be better explained otherwise. But the paradox of a practice or arrangement being both anti-competitive and pro-competitive at the same time may fairly lead to a reconsideration of the market within which the practice or arrangement ought properly to be seen as operating. The Australian cases emphasize that the market is an instrumental concept (see, for example, Eastern Express Pty Limited (supra) at 59), the application of which involves a value judgment, as Deane J put it in Queensland Wire Industries Pty Limited (supra) at 195-196, a passage adopted by the Full Court in Arnotts Ltd (supra) at 331-332. It would be perverse not to remember, when selecting the market boundaries appropriate to a particular case, that the purpose of the Act is the preservation and promotion of competition. That is the purpose in the implementation of which the choice of a market is to be instrumental. Therefore, situations where an American court would apply the Rule of Reason because a restriction would actually strengthen a sports league in its endless competition with other sports are cases where an Australian court should consider whether both realism (see Arnotts Ltd at 328) and policy require the selection of a wider sports market. I think there is great force in Dr McEwin's view that the effect of the challenged commitment and loyalty agreements is to "increase the level of economic competition in an entertainment market or a sporting entertainment market". On that basis, as he says: "If the relevant entertainment or sporting market is defined too narrowly this will give the false appearance that competition is being restricted when in fact it is being enhanced."

View full decision

Appeal to the Full Federal Court (before Lockhart, Von Doussa and Sackville JJ)

News succeeded in their appeal against Justice Burchett's judgment on the issue of exclusionary provisions. For this reason their Honours did not consider it necessary to deal with the appeals relating to agreements substantially lessening competition in a market (s 45) or the alleged misuses of market power (s 46) because success on these issues would have made no difference to the result.

[para 28]: It will be seen that we have not considered the argument put forward by the appellants that the League and the ARL contravened s 46 of the TP Act .... Nor have we considered the appellants' claim that the Commitment and Loyalty Agreements were contracts, arrangements or understandings which contained provisions having the purpose or effect, or likely effect, of substantially lessening competition in a market, thereby contravening s. 45 of the TP Act. The extensive arguments before us on these issues raised many difficult questions, in particular the definition of the relevant market. We consider it unnecessary to resolve these questions, having regard to our conclusion that the appellants must succeed on the appeal on other grounds. Whatever view we might have taken on the market issues would not have altered the result.

Consequently, the following extracts deal only with the issue of exclusionary provisions.

On the issue of whether there was a contract, arrangement or understanding

On the issue of whether there was a contract arrangement or understanding the court noted that for an arrangement or understanding to be found there must be a ‘meeting of the minds’ – that is a ‘consensus and not just a mere hope as to what might be done’.

The trial judge found that this was not satisfied – there was no more than hope or expectation; a horizontal agreement could not be inferred from the series of vertical agreements in the absence of ‘direct and express communications between the parties’.

On appeal the court found that the circumstances that existed prior to the meeting of 14 November 1994 (execution of Commitment agreements) provided powerful support for the proposition that there was an arrangement or understanding among the clubs.

The Agreements, with minor exceptions, were executed by the clubs in ‘substantially identical form … within a short time of each other, in response to approaches of the club made by [League representatives].’ The context in which these were executed strongly supported the conclusion there was ‘mutual consent to carry on a common purpose’.

[para 654] 'The Commitment Agreements were executed by the clubs in substantially identical form (with some minor exceptions). The clubs also executed those agreements within a short time of each other, in response to approaches to each club made by Mr Quayle and Mr Arthurson. These circumstances, of themselves, may not be enough to establish mutual consent to carry out a common purpose. However, the context in which the agreements were executed strongly supports that conclusion. '

In particular, the court noted, the club officials could ‘hardly fail to understand’ before the meeting that they were ‘being asked to join all other clubs in undertaking not to participate in an unauthorised competition’, specifically SuperLeague. It is ‘difficult to resist the conclusion that the clubs were consenting, through the [League representatives] to carry out a common purpose. They were not merely hoping that the other clubs would join in; what they were doing made sense only as a common undertaking.’ [para 656]

Even if that wasn’t sufficient, the meeting of 14 November ‘provided both the opportunity and the occasion for "horizontal" communications among the clubs.’ [para 657] NSWRL argued that 16 of the clubs had already signed by this point and others had indicated a willingness to do that, so that those agreements had already been finalised by the date of the meeting. The Court considered that ‘such a conclusion would be inconsistent with the course of events. …’ [para 658]

There was evidence that at the meeting there were references by the participants of the need for clubs to ‘stick together’. The ‘threat’ of Superleague was explained. All clubs bar the Auckland club attended the meeting. The Court held:

[659] ‘The relationship between that threat and the Commitment Agreements, to the extent that there was any doubt, was made quite clear. In these circumstances to suggest … that what occurred was mere "conscious parallelism", fails to pay due regard to the undisputed facts: …’

[660] ‘The Loyalty Agreements were executed after the meeting of 6 February 1995. Once again, Super League was at the forefront of discussion. Mr Arthurson reiterated the importance of the clubs sticking together. Each club stated its position, expressing its commitment to and support for the ARL. A motion was passed requiring all clubs to sign the Loyalty Agreement on pain of expulsion. In our view, these events make it clear that there was a common understanding of the clubs, evidenced by communications among them at the meeting, to take concerted action to adopt the provisions of the Loyalty Agreements.’

On the issue of consequences of breach (including common law illegality)

The Court noted the Commitment and Loyalty Agreements contravened s 45(2)(a)(i) which provides the prohibition against making an exclusionary provision. Section 45 also prohibits the clubs giving effect to any of the exclusionary provisions.

In addition, section 87(2)(a) gives the court power to declare a contract void (ab initio or in futuro or from a specified date). This provision, the Court held, did not ‘alter the ordinary rule, that where a statutory provision such as s 45 … provides that a contract is contrary to law, the contract is void …’.

Thus, while s 87(2)(a) of the TPA confers upon the court the ability to make such a declaration it is not essential – if the provision is one contravening the TPA it will be void at common law by virtue of the fact that it does contravene s 45 (contract law illegality consequences).

Here, News was entitled to a declaration the agreements were void, subject to possible severability. On that issue the court observed that a provision of an agreement ‘can be severed only if the severance of the invalid or void term does not materially change the intent of the contracts’. Here the court found that the exclusionary aspects of the agreement were indivisible from the whole. If the relevant terms were excluded, the Court held, ‘the nature of the contract is altered in a fundamental way.’ [688] Thus, severance was not possible and the agreements were declared void.

[more extracts to follow]