ACCC v Leahy Petroleum Pty Ltd
 FCA 794
Facts & background
The ACCC alleged that several petrol retailers in the Geelong area had made and given effect to price fixing provisions. It was not in dispute that parties had made calls to each other and discussed prices before raising their own, including discussion about the timing and size of possible increases.
Held: Justice Gray
Contract, arrangement or understanding
There was no 'contract, arrangement or understanding' between the parties because there was no ‘commitment’ or obligation to increase prices.
 Section 45(2)(a) of the Trade Practices Act uses the terms ‘contract’, ‘arrangement’ and ‘understanding’. These are plainly intended to represent a spectrum of consensual dealings. The words of the statute themselves so demonstrate. They provide that a corporation is not to ‘make’ a contract or arrangement, or to ‘arrive at’ an understanding, if the contract, arrangement or understanding has a specified content. A corporation cannot ‘make’ a contract or arrangement, or ‘arrive at’ an understanding, without there being at least one other party to the contract, arrangement or understanding. The other party must also participate in the making, or the arriving at, before there can be a contract, arrangement or understanding. Clearly, it is not possible to ‘make’ something, or to ‘arrive at’ something, unless what is made or arrived at exists at the end of the process of making or arriving at. What must exist for s 45(2)(a) to apply is one of the three forms of consensual dealing.
Briefly, his Honour noted that a contract is 'a consensual dealing with a high degree of formality' - however, for purposes of the provision it need not be enforceable in court (otherwise it would have no meaning because a cartel contract would be illegal and thus unenforceable).
 The term ‘contract’ is well understood by lawyers. A contract is the result of the acceptance by one party of an offer made by another, resulting in the minds of the two parties being at one as to the agreement they have made. It must be supported by good consideration, have sufficient certainty of terms that it be possible to determine what has been agreed, and be accompanied by an intention on the part of the parties that a legally binding relationship should be established by it. In ordinary circumstances, the obligations created by a contract are enforceable in a court, but their enforceability is subject to the possibility of defences arising from the nature of the contract itself, or from external circumstances. One defence arising from the nature of the contract itself results from the illegality of its purpose. In using the word ‘contract’ in s 45(2)(a) of the Trade Practices Act, Parliament must have intended to refer to a consensual dealing having the fundamental characteristics of a contract, but not necessarily being enforceable in a court of law, because s 45(2)(a) would itself give rise to the defence of illegality, and thereby prevent enforcement. Thus, the word ‘contract’ for the purposes of s 45(2)(a) describes a consensual dealing with a high degree of formality.
An arrangement is less formal than a contract. There must be some express communication between the parties, even if nothing as formal as a contract.
 The word ‘arrangement’ is less clearly understood, and more susceptible of elasticity as to its meaning. In general, it appears to connote a consensual dealing lacking some of the essential elements that would otherwise make it a contract. For instance, a dealing that would otherwise be a contract may be described as an ‘arrangement’ if the parties to it intended not to create a legally binding relationship, but only to give expression to their intentions as to the obligations that each felt morally bound to adhere to in relation to what was to pass between them, or to be carried out by them. Of course, an arrangement might be a broader concept than this, because it is a term the boundaries of which have not been fixed in the traditional understanding of lawyers. The Oxford English Dictionary gives as the apparently appropriate meaning of the word ‘arrangement’ ‘a settlement of mutual relations or claims between parties; an adjustment of disputed or debatable matters; a settlement by agreement’, or alternatively, ‘disposition of measures for the accomplishment of a purpose; preparations for successful performance.’ The ordinary understanding of what amounts to an ‘arrangement’ makes it difficult to envisage that an arrangement could come about without express negotiations between the parties, although there have been suggestions that an arrangement can be tacit. See Federal Commissioner of Taxation v Cooper Brookes (Wollongong) Pty Ltd (1979) 41 FLR 277 at 301 – 302 per Fisher J, with whom Brennan and Deane JJ agreed, referred to by Franki J in Trade Practices Commission v TNT Management Pty Ltd (1985) 6 FCR 1 at 24 in the context of s 45(2) of the Trade Practices Act. At the very least, there must be some express communication between the parties, although what is said may not amount to offer and acceptance for the purposes of the law of contract. The need for express communication is also suggested by the use of the verb ‘make’ in conjunction with both ‘contract’ and ‘arrangement’ in s 45(2)(a) of the Trade Practices Act. It is hard to see how two parties could ‘make’ an ‘arrangement’ without doing so expressly, at least as to the substance of the arrangement, even if the acceptance by one party of what the other has communicated is implicit in some act, rather than expressed in words.
An understanding is less formal again. It requires a consensual dealing but can be 'tacit'- arrived at by words or conduct which signify an intention to act in a particular way. It must, however, involve a meeting of the minds.
 The word ‘understanding’ is obviously intended to connote a less precise dealing than either a contract or arrangement. This is so because of the meaning of the word ‘understanding’ itself, and because, in the terms of s 45(2)(a), the parties to it may ‘arrive at’ it instead of making it. Once again, the Oxford English Dictionary supplies an appropriate definition: ‘a mutual arrangement or agreement of an informal but more or less explicit nature.’ It is the informal and less explicit nature of an understanding that led Smithers J to describe the concept of an understanding as ‘broad and flexible’ in L Grollo & Co Pty Ltd v Nu-Statt Decorating Pty Ltd (1978) 34 FLR 81 at 89.
 However broad and flexible an understanding might be, for the purposes of s 45(2)(a) of the Trade Practices Act it must be a consensual dealing between parties. Like an arrangement, it falls outside the sphere of contractual obligations of a kind normally enforceable in a court. Unlike an arrangement, it can be tacit, in the sense that it can be arrived at by each party, either by words or acts, signifying an intention to act in a particular way in relation to a matter of concern to another party. In order to be a consensual dealing, however, an understanding must involve a meeting of minds. In Top Performance Motors Pty Ltd v Ira Berk (Queensland) Pty Ltd (1975) 24 FLR 286 at 291, Smithers J (with whom Evatt J agreed) referred to what Diplock LJ said in British Basic Slag Ltd v Registrar of Restrictive Trading Agreements  2 All ER 807 at 819 in relation to English legislation in terms different from s 45(2) of the Trade Practices Act, and said:
‘by parity of reasoning it would follow that the existence of an arrangement of the kind contemplated in s. 45 is conditional upon a meeting of the minds of the parties to the arrangement in which one of them is understood, by the other or others, and intends to be so understood, as undertaking, in the role of a reasonable and conscientious man, to regard himself as being in some degree under a duty, moral or legal, to conduct himself in some particular way, at any rate so long as the other party or parties conducted themselves in the way contemplated by the arrangement.
It seems to me also that an understanding must involve the meeting of two or more minds. Where the minds of the parties are at one that a proposed transaction between them proceeds on the basis of the maintenance of a particular state of affairs or the adoption of a particular course of conduct, it would seem that there would be an understanding within the meaning of the Act.’
 Similarly, in Grollo at 89, Smithers J said as to an understanding that:
‘It may arise merely where the minds of the parties are at one that a proposed transaction proceeds on the basis of the maintenance of a particular state of affairs or the adoption of a particular course of conduct’.
 This view as to what is necessary for the formation of an understanding has been followed on many occasions. It is unnecessary to set out all of the authorities in which it has been referred to. I accept the correctness of what Smithers J said without hesitation. It is important, however, not to confuse what is required for the formation of an understanding within the meaning of s 45(2)(a) of the Trade Practices Act with what is required to be the content of an arrangement or understanding for the purposes of s 45(2)(a). Counsel for the ACCC were inclined to rely on authorities describing the formation of an understanding, when attempting to persuade the Court as to the required content.
General discussion - arrangement or understanding
 Section 45(2)(a) of the Trade Practices Act, and the other provisions found in s 45 and s 45A, which are set out above, make a number of things very clear. To fall within s 45(2)(a), an arrangement or understanding must be substantial enough to contain at least one ‘provision’. The Oxford English Dictionary relevantly defines ‘provision’ as meaning:
‘Each of the clauses or divisions of a legal or formal statement, or such a statement itself, providing for some particular matter; also, a clause in such a statement which makes an express stipulation or condition; a proviso.’
 A provision must provide for something to occur, or not to occur. Further, the kind of provision contemplated by s 45(2)(a)(ii) is a provision capable of having a ‘purpose’ or an ‘effect’. This element is supplied by the deeming effect of s 45A(1) if the provision has the purpose, or has or is likely to have the effect, of fixing, controlling or maintaining, or providing for the fixing, controlling or maintaining of, among other things, a price. By s 45A(5), the determination of whether a provision of the required kind exists is not dependent upon form, or upon express description. The requisite provision can be in the form of a recommendation, according to s 45A(6). What is important is its substance. There must therefore be sufficient substance to whatever is the result of the formation of an understanding for it to contain a provision of the required kind.
 In Federal Commissioner of Taxation v Lutovi Investments Pty Ltd (1978) 140 CLR 434, the High Court was dealing with the meaning of the word ‘arrangement’ in legislation other than the Trade Practices Act. In a passage that has often been cited in judgments dealing with arrangements or understandings under the Trade Practices Act, Gibbs and Mason JJ (with whom Murphy J agreed) said at 444:
‘It is, however, necessary that an arrangement should be consensual, and that there should be some adoption of it. But in our view it is not essential that the parties are committed to it or are bound to support it. An arrangement may be informal as well as unenforceable and the parties may be free to withdraw from it or to act inconsistently with it, notwithstanding their adoption of it.’
 This passage cannot be relied upon to suggest that an arrangement or understanding under s 45(2)(a) of the Trade Practices Act need have no substance at all. Plainly, it contemplates that there must be something of substance from which the parties can withdraw, or with which they can act inconsistently. By their ‘adoption’ of whatever matter of substance is part of the arrangement or understanding, the parties will necessarily have adopted a provision that they see as an appropriate way to regulate their future conduct. To say that they are able to withdraw from the adoption of such a provision, or to act inconsistently with it, is to say nothing more than that an arrangement or understanding is not enforceable in a court of law in the way that a contract is. The notion of an arrangement or understanding that each party will act as it sees fit on every occasion is entirely foreign to s 45 of the Trade Practices Act.
Requirement of commitment
 Counsel for the ACCC found it necessary to grapple with the use of the word ‘commitment’ in the judgment of the Full Court in Apco Service Stations Pty Ltd v Australian Competition and Consumer Commission  FCAFC 161 (2005) ATPR 42-078 (‘Apco Service Stations’) at  – . In that case, which concerned allegations that dealers in the Ballarat retail petrol market had been involved in an arrangement or understanding to fix the price of petrol, and which involved some of the parties to the present case, the trial judge had declined to make a finding that one dealer became committed to any price increase agreed on by the other dealers. In addition, his Honour had made a finding that the other dealers had no expectation that the uncommitted dealer’s readiness to receive telephone calls about prices meant that the uncommitted dealer would substantially match those prices. The Full Court expressed the view that these findings led to the unavoidable conclusion that the uncommitted dealer was not a party to any understanding that it would fix its prices at the same level as the other dealers or at any particular level, or even that it would increase its prices at all. In expressing this view, at , the Full Court pointed out that the appellants in that case had not disputed that the trial judge had enunciated the correct legal principles. The trial judge had referred, and the Full Court also referred, to observations of Lindgren J in Australian Competition and Consumer Commission v CC (NSW) Pty Ltd  FCA 954 (1999) 92 FCR 375 at , which were specifically endorsed by a Full Court in Rural Press Ltd v Australian Competition and Consumer Commission  FCAFC 213 (2002) 118 FCR 236 at . Lindgren J said:
‘The cases require that at least one party “assume an obligation” or give an “assurance” or “undertaking” that it will act in a certain way. A mere expectation that as a matter of fact a party will act in a certain way is not enough, even if it has been engendered by that party. In the present case, for example, each individual who attended the Meeting may have expected that as a matter of fact the others would return to their respective offices by car, or, to express the matter differently, each may have been expected by the others to act in that way. Each may even have “aroused” that expectation by things he said at the Meeting. But these factual expectations do not found an “understanding” in the sense in which the word is used in ss 45 and 45A. The conjunction of the word “understanding” with the words “agreement” and “arrangement” and the nature of the provisions show that something more is required.’
 In Apco Service Stations at , the Full Court said that the trial judge’s findings amounted to no more than what Lindgren J described as a ‘factual expectation’, falling short of an ‘understanding’. The Full Court then referred at  to the judgment of Lockhart J in Trade Practices Commission v Email Ltd (1980) 31 ALR 53 as a practical illustration of the proposition that a mere hope or expectation that a party will act in a particular way is insufficient to constitute an ‘understanding’ for the purposes of s 45(2) of the Trade Practices Act. The Full Court pointed out that Lockhart J in Email held that, whilst sending price lists to a competitor assisted the competitor to follow the sender’s prices if it chose to do so, and to do so more quickly than might otherwise be the case, in the absence of any commitment such communications were not sufficient to give rise to the meeting of minds essential to an arrangement or understanding. The Full Court held that the same principle was applicable in the Apco Service Stations case. Information conveyed by some dealers to the uncommitted dealer may have been useful to the uncommitted dealer in enabling him to have his franchisees check competitors’ prices and know when to raise his own prices if he chose to do so, but the absence of any expectation that he would do so was fatal to the existence of any understanding.
 In the present case, counsel for the ACCC recognised that the judgment in Apco Service Stations was binding on me. They made the formal submission that the Full Court was in error when it required that there be some commitment, before there could be an understanding for the purposes of s 45(2)(a) of the Trade Practices Act. The reality is that the previous authorities dealing with the content of an understanding, as distinct from its formation, provide ample support for what the Full Court said in Apco Service Stations. More than ample support is also found in the analysis of the relevant provisions, which I have already set out in  – . As I have said, for the purposes of s 45(2)(a) there can be no such thing as an understanding that leaves each party to it free to do whatever it wishes. Whatever word may be chosen to represent the essential element of an understanding for the purposes of the relevant statutory provisions, it is clear that element involves the assumption of an obligation, unenforceable in any court of law, but merely morally binding or binding in honour. Any reservation that may have existed about this has been dispelled by the High Court, which dismissed the ACCC’s application for special leave to appeal from the Full Court in Apco Service Stations on 2 June 2006. See ACCC v Apco Service Stations Pty Ltd & Anor  HCATrans 272. At line 619, giving the judgment of himself and Hayne J, Gleeson CJ said:
‘The decision of the Full Court of the Federal Court turned not upon any controversial view of the meaning of the relevant provisions of the Trade Practices Act but upon the Full Court’s view of the facts in the light of the case as pleaded and argued by the Commission. In the light of the facts as found, the case does not raise any issue of law suitable to a grant of special leave to appeal. The application is dismissed with costs.’
 For all of these reasons, quite apart from its binding effect on me, the correctness of the Full Court’s judgment in Apco Service Stations cannot be doubted.
 As I have said, the concepts of contract, arrangement and understanding relevant to the application of s 45(2)(a) of the Trade Practices Act are concepts representing points on a spectrum of consensual dealings. It is possible that the spectrum might be extended in one direction beyond contract, to include even more solemnly binding consensual obligations, such as deeds under seal. It is difficult to see that the spectrum of consensual dealings could extend in the other direction beyond the concept of ‘understanding’, whilst still remaining relevant for the purposes of s 45(2)(a). That end of the spectrum, therefore, lies somewhere between the outer limits of what constitutes an ‘understanding’ and the closest form of non-consensual dealing that could be imagined. It is possible that this closest form is the expectation that a party will act in a particular way, engendered by that party, to which Lindgren J referred in CC (NSW) Pty Ltd at . It may be in the realm of parallel conduct, even conscious parallel conduct, such as the adoption of identical prices for homogeneous products, which clearly lies beyond the realm of ‘understanding’. See the American authorities cited by Lockhart J in Email at 56 – 57.
 The line between what amounts to an ‘understanding’ for the purposes of s 45(2)(a) and what falls outside the spectrum of consensual dealings relevant to that provision will always be difficult to draw. This is particularly so in a case such as the present, in which there is an absence of evidence of express communications from which arrangements or understandings might have been derived, and a consequent reliance upon courses of conduct, coupled with circumstantial evidence, as the only means by which the existence of arrangements or understandings can be established. The crucial question in this case is on which side of the shadowy line delimiting ‘understanding’ the conduct of various parties fell.
 Counsel for the ACCC cited numerous authorities on the question whether, for an arrangement or understanding to exist, it is necessary for the parties to have assumed mutual obligations, or whether an arrangement or understanding can exist where only one party assumes an obligation towards the other party. It is unnecessary to cite these authorities, or to refer to them in detail, because the question is academic so far as the present case is concerned. The ACCC has pleaded a series of arrangements or understandings to the effect that both (or all three in the case of one alleged arrangement or understanding) parties to each of them would increase their prices to the same or a similar amount at or about the same time. It is unnecessary to consider what would have happened if the allegation had been that only one party would so increase its prices, whilst the other party was free to do whatever it saw fit. Apart from anything else, it is obvious that it would be more difficult to sustain an allegation of an arrangement or understanding of that kind than it is to make good an allegation of the existence of an arrangement or understanding involving mutual obligations. ...