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Seafolly Pty Ltd v Madden Analysis

1st Issue

Whether by the termination of the distribution agreement with Spector, Beagles is in contravention of section 47, that is Exclusive dealing under the Competition and Consumer Act 2010 (Cth)[1].

1st Rule of Law

Section 47 of the Competition and Consumer Act 2010 (Cth), deals with Exclusive dealing and states that when someone in the process of trading, places restrictions in such a way that, the other party’s freedom becomes confined and is at stake, thereby lessening competition in a substantive way.

1st Application and Analysis

The Competition and Consumer Act 2010 (Cth) is applicable for the businesses where the goods or that of the services are provided to the consumers, however, the transactions which are done with the competitors are also inclusive within this legislation, was opined in case of Seafolly Pty Ltd v Madden [2012][2]. There is no exact definition provided under the legislation for the distribution agreement. However, distribution agreement falls under the commercial contract, where one contracting party distributes goods or services to consumers, from other suppliers. There are pitfalls, where the infringement of Competition and Consumer Act 2010 (Cth), can surface from either distributor or supplier or both of them. When the arrangements are made in such a way that there is exclusive dealing, then that has the potential of infringing the Competition and Consumer Act 2010 (Cth), from the perspective of the supplier. On the other hand, when onerous targets are provided by the supplier then also it infringes the legislation stated above. In the instant facts of the case, Beagles have terminated the distribution agreement with Spector, on the ground that, another distribution agreement was entered where the right of selling was made exclusive with George. Section 47 of the Competition and Consumer Act 2010 (Cth), deals explicitly mentions and prohibits Exclusive dealing, as was opined in case of Australian Competition and Consumer Commission v Fila Sport Oceania Pty Ltd (Administrators Appointed) [2004][3], so, when Beagles through trading process imposed restrictions on Spector thus confining the freedom and at the same time is lessening healthy competition in a substantive way, as was held in cases of Australian Competition and Consumer Commission v Cement Australia Pty Ltd [2013][4], Universal Music Australia (Universal) and Warner Music Australia (Warner) in Universal Music & Ors v Australian Competition and Consumer Commission [2003][5], and Melway Publishing Pty Ltd v Robert Hicks Pty Ltd (t/as Auto Fashions Australia) [2001][6].

1st Conclusion

The issue can be answered in affirmative and hence through the termination of the distribution agreement with Spector, Beagles is in contravention of section 47, that is Exclusive dealing under the Competition and Consumer Act 2010 (Cth).

2nd Issue

Whether by the termination of the distribution agreement with Wilsun, Beagles is in contravention of section 48, that is dealing or engaging in such conducts which signifies resale price maintenance as a prohibited conduct under the Competition and Consumer Act 2010 (Cth), along with section 96(3)(b) where the actions of engagement in resale price maintenance on the goods or services are categorised to be illegal.

2nd Rule of Law

Section 48 of the Competition and Consumer Act 2010 (Cth), strictly prohibits the practice of resale price maintenance. Section 96(3)(b) on the other hand, specifically prohibits the attempt or inducement by the supplier where a specified price is determined by the supplier, and the other person must be fulfilling that to keep the contract alive.

2nd Application and Analysis

The facts state that the distribution agreement with Wilsun is terminated by Beagles and it is also mentioned that, Wilsun disagreed to sell at the price recommended by the former. Section 48, covers the dealings and specifically signifies resale price maintenance as a prohibited conduct. However, Australian Competition and Consumer Commission for certain pro-competitive reasons are likely to authorise resale price maintenance, provided that the act becomes beneficial for the public at large, provided that the authorisations are taken in advance. Maintaining the recommended resale price is in itself not illegal, but when the pressure is exerted in such a way that charging the listed price is the only option made available by the party, then that type of conduct becomes prohibited. In certain situations, it is normal that the competitors create a consensus towards price fixation under cartel provisions of the Competition and Consumer Act 2010 (Cth), but without it, the act is subjected to prohibition. However, decisions in cases of Australian Competition and Consumer Commission v Colgate Palmolive Pty Ltd (No 2) [2016][7], Australian Competition and Consumer Commission v Cement Australia Pty Ltd [2016][8], highlights that cartel conditions can also create anti-competitive agreements if they share the information which is both confidential as well as commercially sensitive. As Beagles induced Wilsun and threatened the cancellation of the distribution agreement, so according to the opinions in cases of Australian Competition and Consumer Commission v High Adventure Pty Ltd [2005][9], Australian Competition and Consumer Commission v Hobie Cat Australasia Pty Ltd (ACN 095 150 413) [2008][10], and also in case of Australian Competition and Consumer Commission v IGC Dorel Pty Ltd [2010][11], it is a contravention of the provision stated above. On the other hand, section 96(3)(b) specifically prohibits the attempt or inducement by the supplier where a specified price is determined by the supplier, and the other person must be fulfilling that to keep the contract alive. As Beagles threatened cancellation of the distribution agreement with Wilsun, so in accordance with the decisions provided under cases of Australian Competition and Consumer Commission v Colgate-Palmolive Pty Ltd [2002][12], Australian Competition and Consumer Commission v TEAC Australia Pty Ltd [2007][13], Commodore Business Machines Pty Ltd v Trade Practices Commission [1990][14], Australian Competition and Consumer Commissioner v Telwater Pty Ltd [2009][15], and also as opined in case of Australian Competition and Consumer Commission v Jurlique International Pty Ltd [2007][16].

2nd Conclusion

It is concluded that, by the termination of the distribution agreement with Wilsun, Beagles is in not only contravened section 48 but is also liable for contravening section 96(3)(b) under the Competition and Consumer Act 2010 (Cth).

3rd Issue

Whether by the termination of the distribution agreement with Li, Beagles is in contravention of section 47(3)(f), that is Exclusive dealing and offering a rebate to a fixed category of person under the Competition and Consumer Act 2010 (Cth).

3rd Rule of Law

Section 47(3)(f) of the Competition and Consumer Act 2010 (Cth), highlights Exclusive dealing and categorises it as Third line forcing, where a third party is selected and supplied or offered certain price or a fixed discount with an underlying condition to the purchaser that only the goods or services can be purchased from the selected third party.

3rd Application and Analysis

The Competition and Consumer Act 2010 (Cth), mandates strict prohibition on such offerings which considers the exclusive dealings, provided that the act the exclusive dealing is detrimental to the healthy competition and thus have the potential to lessen or to entirely stop the overall competition within a stated market. In the case of Australian Competition and Consumer Commission v Baxter Healthcare Pty Limited [2007][17], where the issue before the Court was about the bundled price which was only for a fixed party. The Court while highlighting section 47(3)(f) of the Competition and Consumer Act 2010 (Cth), in case of Australian Building and Construction Commissioner v Construction, Forestry, Mining and Energy Union [2017][18] and Australian Competition and Consumer Commission v Oakmoore Pty Ltd (No 2) [2018][19], opined that the selection of preconceived third party and the supply to them at a fixed discounted price is prohibited since it is in actuality lessening the overall healthy competition. In the same case, the Court also denied the allegation set forth by Australian Competition and Consumer Commission about the derivative immunity based on the decision in case of Bradken v Broken Hill Proprietary Co Ltd (1979)[20]. In the instant facts of the case, Li’s distribution agreement was terminated by Beagles on the grounds that, the former did not agree in offering a rebate to Van, as demanded by Beagles. To deal exclusively is prohibited in cases of Australian Competition and Consumer Commission v Bill Express Limited (ACN 090 059 564) (In Liq) [2009][21], Australian Competition and Consumer Commission v Black and White Cabs Pty Ltd [2010][22], Australian Competition and Consumer Commission v IMB Group Pty Ltd (in Liq) [2002][23], Pampered Paws Connection Pty Ltd (on its own behalf and in a Representative Capacity) v Pets Paradise Franchising (Qld) Pty Ltd (No 10) [2012][24] and most importantly third line forcing with provision for particular advantage is detrimental to healthy competition.

3rd Conclusion

It can be concluded that, while terminating of the distribution agreement with Li, Beagles is in contravention of section 47(3)(f) under the Competition and Consumer Act 2010 (Cth), since fixing a particular third party to offer rebate is third line forcing and hence is in contravention of the stated provision.

4th Issue

Whether by the termination of the distribution agreement with Norris, Beagles is in contravention of sections 45E(2)(a) and 46, that is the creation of arrangements so as to restrict dealings and abuse of market power, respectively, thereby affecting competition, under the Competition and Consumer Act 2010 (Cth).

4th Rule of Law

Section 45E(2)(a) of the Competition and Consumer Act 2010 (Cth), have specific wordings and prohibits any kind of contract or any kind of arrangement with anyone if that arrangement prevents and hinders the supply to some other person. Again, section 46 of the same legislation highlights that, when a firm with market power with some defined purpose acts in such a way that, the competition is lessened in a substantial way in the process of supply the goods or services.

4th Application and Analysis

A business like that of Beagles possessing the market power to some substantial degree if becomes engaged to such conducts which having the purpose or can affect or have the potential to affect the competition to lessen in a substantial way then that very action is prohibited under the legislation. Having market power is not in itself an illegal thing, but the misuse of it will be considered as contravention and hence an infringement of section 45E(2)(a) of the Competition and Consumer Act 2010 (Cth). In the instant facts of the case, Beagles terminates distribution agreement with Norris, and in misusing its market power prohibits Norris to sell only the products of Salt and Peppers and furthermore affixes a condition to bundle that with previous albums is contravention according to decisions in cases of Australian Competition and Consumer Commission v Cascade Coal Pty Ltd [2019][25], Obeid v Australian Competition and Consumer Commission [2014][26], Australian Competition and Consumer Commission v Channel Seven Brisbane Pty Ltd [2009][27], and is held to be anti-competitive conduct.

4th Conclusion

Beagles while misusing its market power have contravened section 46 and have also infringed section 45E(2)(a) for uplifting anti-competitive practices.

5th Issue

Whether the liability accrued by Beagles could be avoided under section 85 of the Competition and Consumer Act 2010 (Cth).

5th Rule of Law

Section 85 of the Competition and Consumer Act 2010 (Cth), provides the defences that can be opted for contravention of Part IV, provided that the person claiming defence must have acted in a fair and reasonable way with utmost honesty.

5th Application and Analysis

While in contravention of the sections 45E(2)(a), 46, 47(3)(f), 48, and 96(3)(b) of the Competition and Consumer Act 2010 (Cth), by Beagles, the only possible defence that can be availed by them lies in section 85 of the same legislation. In order to avail the defence, the Beagles must prove that they have acted honestly with utmost fairness and in a reasonable manner. But the above-mentioned provisions highlight lessening of competition, so if Beagles can satisfy that they have not lessened competition in a substantial way as held in case of Stirling Harbour Services Pty Ltd v Bunbury Port Authority [2000][28], John S Hayes & Associates Pty Limited v Kimberly-Clark Australia Pty Limited (1994)[29] and Australian Competition and Consumer Commission v Pfizer Australia Pty Ltd [2015][30], then the onus will lie on the other party bringing allegations.

5th Conclusion

For avoiding liability Beagles needs to prove that they acted in a fair way with reasonableness and honesty. Beagles must also satisfy that their actions were not a significant cause for lessening competition in a substantial way.

6th Issue

Whether personal liability can be attached to John, Paul, George and Bingo, being the members of Beagles, under Competition and Consumer Act 2010 (Cth).

6th Rule of Law

Section 76 and 137(5) of the Competition and Consumer Act 2010 (Cth) details about the liabilities that can be assigned to the members of the body corporate.

6th Application and Analysis

The instant facts of the case, nowhere mention Beagles as a company. So, for this part, it is presumed that Beagles is a body corporate and that John, Paul, George and Bingo being framed as musicians of the band, Beagles, are members of it. As for the assignment of the liability, it is inevitable that they are treated as members. The fact is silent as to that. So, if it can be presumed that, all four of them are members of Beagles, then only the liability can be attached to them. Section 137(5) of the Competition and Consumer Act 2010 (Cth), defines occupational liability as to the civil liability which can arise by direct action or omission, or vicariously. So, when some person does not act in the required manner and thereby omits to do things, they are responsible for, within the same trade or occupation, can be held to be occupationally liable. As the Part IV of the Competition and Consumer Act, 2010 (Cth) deals with the prohibitions for the anti-competitive practices, so, pecuniary impositions for the individuals can be $500, 000, in according with section 76 of the legislation. So, the liability of John, Paul, George and Bingo are joint and severable irrespective of the fact that John and Paul had full knowledge and participation, while George having knowledge of everything omitted to act in a reasonable manner and Bingo neither having knowledge not having participated in the actions of the body corporate. All the members have consented directly or have omitted to act in a reasonable manner for the actions of body corporate in exclusive dealings, or for abusing market power and for making such actions which are prohibited under the Competition and Consumer Act, 2010 (Cth), due the fact that they are detrimental to a healthy market competition.

6th Conclusion

Body corporate acts through its members, so the liability is joint and severable for John, Paul, George and Bingo.

[1] Competition and Consumer Act 2010 (Cth)

[2] Seafolly Pty Ltd v Madden [2012] FCA 1346

[3] Australian Competition and Consumer Commission v Fila Sport Oceania Pty Ltd (Administrators Appointed) [2004] FCA 376

[4] Australian Competition and Consumer Commission v Cement Australia Pty Ltd [2013] FCA 909

[5] Universal Music Australia (Universal) and Warner Music Australia (Warner) in Universal Music & Ors v Australian Competition and Consumer Commission [2003] FCAFC 193

[6] Melway Publishing Pty Ltd v Robert Hicks Pty Ltd (t/as Auto Fashions Australia) [2001] HCA 13; 205 CLR 1; 178 ALR 253; 75 ALJR 600

[7] Australian Competition and Consumer Commission v Colgate Palmolive Pty Ltd (No 2) [2016] FCA 528

[8] Australian Competition and Consumer Commission v Cement Australia Pty Ltd [2016] FCA 453

[9] Australian Competition and Consumer Commission v High Adventure Pty Ltd [2005] FCAFC 247

[10] Australian Competition and Consumer Commission v Hobie Cat Australasia Pty Ltd (ACN 095 150 413) [2008] FCA 402

[11] Australian Competition and Consumer Commission v IGC Dorel Pty Ltd [2010] FCA 1303

[12] Australian Competition and Consumer Commission v Colgate-Palmolive Pty Ltd [2002] FCA 619

[13] Australian Competition and Consumer Commission v TEAC Australia Pty Ltd [2007] FCA 1859

[14] Commodore Business Machines Pty Ltd v Trade Practices Commission [1990] FCA 84

[15] Australian Competition and Consumer Commissioner v Telwater Pty Ltd [2009] FCA 263

[16] Australian Competition and Consumer Commission v Jurlique International Pty Ltd [2007] FCA 79

[17] Australian Competition and Consumer Commission v Baxter Healthcare Pty Limited [2007] HCA 38. 232 CLR 1; 81 ALJR 1622; 237 ALR 512

[18] Australian Building and Construction Commissioner v Construction, Forestry, Mining and Energy Union [2017] FCAFC 113; (2017) 254 FCR 68

[19] Australian Competition and Consumer Commission v Oakmoore Pty Ltd (No 2) [2018] FCA 1170

[20] Bradken v Broken Hill Proprietary Co Ltd (1979) 145 CLR 107

[21] Australian Competition and Consumer Commission v Bill Express Limited (ACN 090 059 564) (In Liq) [2009] FCA 1022

[22] Australian Competition and Consumer Commission v Black and White Cabs Pty Ltd [2010] FCA 1399

[23] Australian Competition and Consumer Commission v IMB Group Pty Ltd (in liq) [2002] FCA 402

[24] Pampered Paws Connection Pty Ltd (on its own behalf and in a Representative Capacity) v Pets Paradise Franchising (Qld) Pty Ltd (No 10) [2012] FCA 25

[25] Australian Competition and Consumer Commission v Cascade Coal Pty Ltd [2019] FCAFC 154

[26] Obeid v Australian Competition and Consumer Commission [2014] FCAFC 155

[27] Australian Competition and Consumer Commission v Channel Seven Brisbane Pty Ltd [2009] HCA 19

[28] Stirling Harbour Services Pty Ltd v Bunbury Port Authority [2000] FCA 38

[29] John S Hayes & Associates Pty Limited v Kimberly-Clark Australia Pty Limited (1994) ATPR 41-318

[30] Australian Competition and Consumer Commission v Pfizer Australia Pty Ltd [2015] FCA 113

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