On 2 December 2009, the Full Court of the Federal Court of Australia handed down its decision in Seven Network Limited v News Limited, the appeal from the widely publicised ‘C7’ decision in 2007. One issue on the appeal was the construction of ‘purpose’ in the context of determining whether a contravention of section 45 of the TPA had occurred. Section 45 concerns whether a provision of a proposed contract, arrangement or understanding has the purpose, or would have or be likely to have the effect, of substantially lessening competition.
The TPA recognises that there may be multiple purposes behind including a contractual provision. A provision will be held to have been included for an anti-competitive purpose if that purpose was a ‘substantial purpose’ for including the provision.
Previous decisions of the Federal Court have decided that where only one of two parties to a contract is responsible for the insertion of a particular provision, the subjective purpose of the inserting party is determinative. The present case required the court to consider the situation of a multi-party contract where multiple parties (but not all the parties to the contract) are responsible for inserting the alleged anti-competitive provision. The question was whether all the parties responsible for including the provision must be proved to have shared the anti-competitive purpose.
In a majority decision, the court held that it is not necessary that all inserting parties share the anti-competitive purpose. Rather, it is enough that one party had the purpose of substantially lessening competition in a relevant market, provided that such purpose was a substantial purpose for its inclusion.
This decision places ‘innocent’ parties (ie. those who were not responsible for including the provision or those who sought to include it for purposes that were not anti-competitive) in a difficult position. The fact that a party’s own purposes are not anti-competitive does not prevent a contravention of section 45 of the TPA. These parties will still have contravened section 45 if the anti-competitive purpose was a ‘substantial purpose’ for the inclusion of that provision.
The upshot of the majority’s decision is that parties must be vigilant in their commercial dealings. In particular, parties should as far as practicable be aware of the purposes of other parties when they seek to include a contractual provision. According to the majority decision, this may require parties ‘to consider, and if necessary, enquire as to, other parties’ anti-competitive purposes.’