STORY BY MATT CROUCH
Bartier Perry Solicitors
In this article Matthew Crouch looks at an issue that causes more than its fair share of controversy in the meetings and events sector: the issue of “forcing” additional goods or services on a client.
There is a lot of confusion out there about this. It’s time to clear the air, without the emotion that so often accompanies discussion of these issues.
While “forcing” is by no means confined to venues, it is fair to say that most of the controversy that arises does so in the context of a venue hire agreement – and so forgive me venue sector, but I will use a venue contract as my example.
Assume that an event manager or host (the “hirer”) wants to hire a venue but also wants audio-visual services for the event.
Venue says to event manager or event host (hirer): “We will make the venue space available to you the hirer on the condition that you must obtain audio-visual services direct from a nominated third party.”
The other way of saying this is “If you buy our space, you must buy A/V services from “Smith”, ie two separate transactions, the second being required (“forced”) by the first.
It is illegal because it prevents the hirer from choosing (based on quality and price) its own supplier.
What if, instead of forcing a nominated third party’s services on the hirer, the venue said “We will make the venue space available to you the hirer on the condition that you must obtain other services (for example, audio-visual services) direct from one of a list of nominated third parties.”
In my view this also will constitute third line forcing, even though a specific third party supplier is not named, and despite the fact that the hirer has some choice (depending on how long the list is and whether those named on the list have the wherewithal to provide the services wanted).
What if, instead of nominating a single A/V supplier or even a list of suppliers, the venue says “We will let you have the space if you acquire audio-visual services from an A/V supplier approved by the venue.”? This is more likely to be third line forcing as the tenor of the deal is to give the venue the power to approve the hirer’s choice of A/V supplier. In a further variation on this, in one decided case, a supplier required buyers to insure with a “reputable” insurance company – the court held this wasn’t third line forcing.
What if the venue says: You can have our space and you don’t have to take audio-visual services, but if you do, you must get them from Smith, or from one of a list, or from an approved supplier?
There are some statements by the ACCC to suggest that this is not third line forcing if the hirer has genuine choice whether to purchase the space alone or accept the third line package. It is, however, arguably third line forcing because in cases where the hirer wants A/V services the hirer will have no choice but to use the nominated supplier – this is the gist of the prohibition.
Even if it’s not third line forcing – because of a subtlety of statutory interpretation, such conduct can nonetheless be a breach of the general prohibition against anti-competitive contracts in section 45 of the Act – if the effect or likely effect is a substantial lessening of competition!
Third line forcing is outright illegal as a breach of section 47 of the Competition & Consumer Act, 2010 (Cwth) (the “Act”). Severe penalties apply, up to $10 million for the business and heavy personal fines for individual business persons involved in the offence. In addition, if you are guilty of third line forcing, anyone who suffers a loss as a result (such as an “excluded” competitor of the nominated third party) can sue you for damages.
It is possible to obtain a form of “approval” from the ACCC (the Commonwealth body that administers the Act) by using procedures known as “notification” or “authorisation” – but both procedures involve “fessing up” to the ACCC that you want to engage in conduct that would ordinarily be illegal and trying to persuade the ACCC that there will not be a sufficiently anti-competitive effect of the conduct to allow it to proceed.
You will have noticed that this article does not deal with the more common arrangement that is seen in the events industry – where the venue says to the hirer – “You can have our space if you also buy the A/V services that we, the venue, supply.” This isn’t third line forcing and isn’t outright illegal – but it can be illegal, so stay tuned to the next exciting instalment.