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Wednesday, 14 August 1974
Page: 916

Senator MURPHY (New South WalesAttorneyGeneral) -No one seeing or listening to Senator Greenwood would think that he would be cruel or unjust, but it does seem to us that the proposal that he is making is very cruel and unjust in the commercial sense. I would ask him to reflect upon what he is really putting. He is putting, to use a simple case, that if some part of a contract is illegal you should strike out the illegal part and leave everything else. This could produce some very unjust results. Let me illustrate the position with a simple case without all the legal formulations. Imagine that Senator Greenwood and I had some arrangement to get rid of the problem of consideration. Imagine that we had an arrangement by deed under seal under which the honourable senator was to give me$1m and I were to do something which would be in contravention of this provision. We do not have the problem of consideration. The arrangement stands up because it is under seal. Really what Senator Greenwood would say, to put it in its simplest terms, is that you strike out the obligation which I have because that is illegal, but I can still demand my $ 1 m from him. I am putting a very simple case, but this is a horrifying thought to industry or commerce. If you have an arrangement which comes in conflict with this enactment, such harsh and uncommercial results could be produced.

Over the years the law has dealt with illegal contracts or contracts or arrangements which may be partially illegal, and some very careful rules have been worked out in order to avoid such harsh and unjust results. Those rules, I think, are set out fairly clearly in the judgment of Chief Justice Jordan in the case of McFarlane v. Daniell, which is reported in 1938 New South Wales State reports, at page 345. I refer the Committee to that judgment. Chief Justice Jordan said:

When valid promises supported by legal consideration are associated with, but separate in form from, invalid promises, the test of whether they are severable is whether they are in substance so connected with the others as to form an indivisible whole which cannot be taken to pieces without altering its nature. If the elimination of the invalid promises changes the extent only but not the kind of the contract, the valid promises are severable. If the substantial promises were all illegal or void, merely ancillary promises would be inseverable.

The High Court has applied that test to a contract tainted with illegality in the case of Thomas Brown and Sons Ltd v. Dean, which is reported in 1963 Argus Law Reports at page 378. What we have tried to do is to meet the situation by allowing those rules which have been evolved to operate. They are rules of common sense. They have operated, I suppose, for a century, and probably even longer. If you are faced with a contract which has an element of illegality in it, what is the fair and just thing to do? Our provision is aimed at dealing with the situation in the traditional manner- that is, the court would, if necessary, solve it in an equitable fashion. I would think that that, with respect, ought to be acceptable to the Opposition.

We do not want some kind of rule which could produce some very harsh and unjust results. This would be, I think, intolerable commercially. We do not want that to happen. I suggest, with respect, that the Government's proposal should be accepted.

Senator Wright - What do you mean by the Government's proposal'? You have not explained that yet.

Senator MURPHY - We have circulated the amendments which we propose to move. We suggest that there should be several changes in this clause. They arise as a result of lengthy discussions. I indicated that the Government would bend and endeavour to meet the wishes all round in order to get something that was generally acceptable. Even if we were satisfied that what we were doing was right, if we could get something which would allay fears and express things to people in a more acceptable way, we would do it. That is why we will put forward proposals in relation to clause 45. Sub-clause 2 (b) of clause 45 contains the words: 'give effect to a contract, arrangement or understanding'. We propose to insert the words: 'to the extent that it is'. We propose to delete sub-clause (3) and insert subclauses (3) and (3a) as circulated. These subclauses maintain the provision that it is not in restraint on trade if it has such a slight effect on competition as to be insignificant. We seek to maintain the arrangements dealing with prices, discounts, allowances and rebates, which are really price fixing arrangements.

In sub-clause (3a) in relation to a contract, arrangement or understanding, leaving aside the test of such a slight effect on competition as to be insignificant, in effect we are saying that we will switch the onus and require that it be shown that there is some significant effect. The proposed sub-clause reads as follows:

A contract, arrangement or understanding that is not of the kind referred to in sub-section ( 3 ) -

That is, not of a price fixing category- is not in restraint of trade or commerce for the purposes of this Act unless the restraint has or is likely to have a significant effect on competition between the parties to the contract, arrangement or understanding or on competition between those parties or any of them and other persons.

The Government feels that one could live with the proposition that in areas other than price fixing arrangements- I use that term in a general sense- one could show that there was some significant effect or that there was likely to be.

I accept that some might say that the amendment is a watering down. It is not one that would trouble the Government and yet it seems to have produced a degree of acceptability in those in commerce who are concerned with the legislation. I understood that the proposals which the Government has circulated were acceptable to the Opposition. There has been a great deal of discussion and drafting of clauses over the last day or so. I am not saying that in any way the Opposition is at fault, but I understood that this had in some way been communicated to the Opposition and that it would probably accept as reasonable the proposals the Government is putting forward. Perhaps Senator Greenwood has not had that understanding communicated to him. These modifications to the original proposals have been carefully thought out. I believe that what the Opposition is putting forward would produce unexpected results. I ask the Senate not to accept the Opposition's amendments. If they are rejected I will propose what have been circulated as the Government's modifications to clause 45.

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