Arnotts Limited v Trade Practices Commission
[1990] FCA 847
•29 Nov 1990
C A T C H W O R D S
TRADE. PRACTICES - Merger provisions - Acquisition by one biscuit manufacturer of business of a competitor - Whether the acquirer would be, or be likely to be, in a position to dominate a particular market; or, if the acquirer was already in that position, whether the acquisition would, or would be likely to, substantially strengthen its market power - Definition of the product market - Whether wider than biscuits
- Whether there are separate markets for different types of
biscuits - Substitutability - Whether Arnotts dominates Australian biscuit market - Criteria for determination of dominance - Whether acquisition would substantially strengthen Arnotts' position in the market.
EVIDENCE - Expert evidence - Nature of admissible evidence - Necessity to call expert evidence - Evidence of perceptions of facts - Reliance to be placed on statements in documents by
| market research material. | unidentified authors - Admissibility and significance of of unnecessary evidence - Application to call fresh evidence on appeal. | |
| Trade Practices Act 1974, ss.4, 4E, 50 Federal Court of Australia Act 1976, ss.27, 50 Evidence Act 1905, Part IIIA Judiciarv Act 1903, s.79 Federal Court Rules 0.33,52 | ||
|
| D i c k e n s | C o r p o r a t i o n | P t v L i m i t e d v | T r a d e | P r a c t i c e s | C o m m i s s i o n |
1
I
| NO. | 6 7 7 / 6 7 8 / 6 7 9 / 6 8 0 | of | 1 9 9 0 |
| Arnotts | L i m i t e d / A r n o t t s | B i s c u i t s | L i m i t e d / F l e d s p a c | L i m i t e d / T h e |
| D i c k e n s | C o r p o r a t i o n | P t v L i m i t e d | v | T r a d e | P r a c t i c e s | C o m m i s s i o n |
LOCKHART, WILCOX AND GUMMOW JJ
SYDNEY
| 29 NOVEMBER | 1 9 9 0 |
| IN THE FEDERAL COURT OF AUSTRALIA | ) 1 | |
| NEW SOUTH WALES DISTRICT REGISTRY | ) No. ~77/G78/~79/ | |
| ||
| ) | ||
| GENERAL DIVISION | 1 |
ON APPEAL FROM A JUDGE OF THE
FEDERAL COURT OF AUSTRALIA
| BETWEEN: | ARNOTTS LIMITED |
First Appellant
ARNOTTS BISCUITS LIMITED
Second Appellant
FLEDSPAC LIMITED
Third Appellant
THE DICKENS CORPORATION
PTY. LIMITED
Fourth Appellant
| AND: | TRADE PRACTICES COMMISSION |
Respondent
| COURT : | Lockhart, Wilcox and Gummow JJ. |
| DATE : | 29 November 1990 |
| PLACE : | Sydney |
MINUTES OF ORDER
THE COURT ORDERS THAT:
The appeals be dismissed.
| Note : | Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. |
| IN THE FEDERAL COURT OF AUSTRALIA | ) |
| 1 |
| NEW SOUTH WALES DISTRICT REGISTRY ) | No. G77/G78/G79/G80 |
| ) | of 1990 |
| GENERAL DIVISION | 1 |
ON APPEAL FROM A SINGLE JUDGE OF
THE FEDERAL COURT OF AUSTRALIA
| BETWEEN : | ARNOTTS LIMITED |
First Appellant
ARNOTTS BISCUITS LIMITED
Second Appellant
FLEDSPAC LIMITED
Third Appellant
THE DICKENS CORPORATION PTY.
LIMITED
Fourth Appellant
| AND : | TRADE PRACTICES COMMISSION |
Respondent
| COURT | : | Lockhart, Wilcox and Gummow JJ. |
| DATE : | 21 December 1990 |
| PLACE : | Sydney |
CORRIGENDUM
Amendment to the reasons for judgment of the Court delivered
29 November 1990:
Paae 109, woint 5: Delete "yet it was a major reason why the trial took over seven months." and substitute a full stop for a semi-colon after "absurdity".
-- /J
Associate to
Mr Justice Lockhart
| IN THE FEDERAL COURT OF AUSTRALIA | ) |
| 1 |
| NEW SOUTH WALES DISTRICT REGISTR | Y | ) No. G77/G78/G79/ |
|
| l | I | ) |
| GENERAL DIVISION | 1 |
ON APPEAL FROM A JUDGE OF THE
FEDERAL COURT OF AUSTRALIA
| BETWEEN: | ARNOTTS LIMITED |
First Appellant
ARNOTTS BISCUITS LIMITED
Second Appellant
FLEDSPAC LIMITED
Third Appellant
THE DICKENS CORPORATION
PTY. LIMITED
Fourth Appellant
| AND : | TRADE PRACTICES COMMISSION |
Respondent
| COURT | : | Lockhart, Wilcox and Gummow JJ |
| DATE : | 29 November 1990 |
| PLACE : | Sydney |
REASONS FOR JUDGMENT
THE COURT: This case concerns 9.50 of the Trade Practices
Act 1974. On 24 November 1988 Arnotts Biscuits Limited,
("Arnotts"), a wholly owned subsidiary of Arnotts Limited, and
| Fledspac Limited ("Fledspac") | entered into an agreement |
2.
whereby Arnotts was granted by Fledspac an option to purchase
Fledspac's shares in The Dickens Corporation Pty Limited
| ("Dickens"), | a wholly owned subsidiary of Fledspac, and |
Fledspac was granted by Arnotts an option to require Arnotts to purchase those shares. The agreement provided for the exercise of the options between 1 January 1990 and 30 June
1993. Dickens owns all the shares in a company, Cereal Foods
Pty Limited, formerly known as Nabisco Brands Pty Limited, which manufactures biscuits and cereal products. For convenience we shall refer to that company as "Nabisco", the name under which it is best known.
The Trade Practices Commission ("the Commission")
brought a proceeding in the original jurisdiction of this
Court to restrain the acquisition of the shares on the ground
that it would constitute a contravention of s.50 of the Act.
Section 50 prohibits certain mergers and other acquisitions.
The learned trial Judge, Beaumont J, found that the
grant of the option to Arnotts to acquire the shares was a deemed acquisition of those shares: see S. 4(4)(a) of the Act, which provides that a reference in the Act to the
acquisition of shares shall be construed as a reference to an contravened s.SO(l)(b) of the Act and a further declaration that Fledspac and Dickens were involved in the contravention: see s.75B of the Act.
acquisition of any legal or equitable interest in shares. His
3 .
When he delivered judgment on the principal issues
in the case his Honour delivered a second judgment concerning
the admissibility of the evidence of an expert economist
called by the appellants, Dr. Phillip Williams. His Honour
ruled that the evidence of Dr. Williams was inadmissible.
These appeals are brought from the two judgments of
Beaumont J. His Honour's findings that the grant of the option to Arnotts to purchase the shares in Dickens created an equitable interest in the shares, and therefore constituted an "aqquisition" of shares for the purposes of s.50, were not challenged on appeal.
Fledspac and Dickens, the third and fourth
appellants, played no active part in the appeals. They
adopted the submissions of counsel for the first and second
| appellants, Arnotts Limited and Arnotts. | For convenience we |
shall refer to those two appellants as "the appellants". Counsel for the appellants submitted that the trial Judge erred in his three principal findings on substantive issues:
that the relevant market is the Australian biscuit market;
that the concept of dominance which is embodied in s.50
extends to Arnotts' position, and that the effect of the
acquisition would be substantially to strengthen its market
power, Counsel also criticised numerous evidentiary rulings
made by his Honour. We will deal with each of the three
principal issues and the more important evidentiary questions.
Some of the more minor evidentiary matters were disposed of
during argument.
The course of the trial
| Before turning to these issues, it is appropriate to would be likely to, substantially strengthen its market power; it being common ground that the Nabisco biscuit business competes with that of Arnotts. say something about the course of the trial, aspects of which | cause us concern. As we have indicated, the principal issue in the case is whether the acquisition by Arnotts of the biscuit business conducted by Nabisco would contravene s.50 of the Trade Practices Act. That would be so if, as a result of the acquisition, Arnotts would be, or would be likely to be, in a position to dominate a particular market for goods or, if | |
| The investigation of these practical questions of fact involved a trial occupying 110 hearing days, spread over nine months. The hearing generated some 6,500 pages of transcript and 292 exhibits. Most of the exhibits were lengthy documents. Many occupied one or more large ring-bound folders. Stacked side-by-side in folders, the exhibits extend | ||
| ||
| thousands of pages. The trial Judge found it necessary to refer in his reasons for judgment to only a handful of those documents, although no doubt he read them all. But we were not asked to do this. Although, before us, the appellants |
attacked his Honour's findings on almost every significant
factual issue and many of his evidentiary rulings, and
although both parties supplied us with extensive written
submissions supplemented by seven days of addresses, counsel
found it necessary to refer us to only a tiny proportion of
the oral and documentary evidence; perhaps no more than two
per cent of it. We acknowledge that it is usually unnecessary
on appeal for counsel to refer to the whole of the evidence
led, and properly led, at the trial. We also acknowledge that
material which itself has no evidentiary value is sometimes
properly tendered in order to provide a context for other
material. However, making these allowances, the comparison
just made raises immediate doubts about the utility of much of
the evidence tendered at the trial. Those doubts are
abundantly confirmed by examination of the material itself.
A large proportion of the documents tendered in
evidence comes from the records of commercial organisations:
biscuit manufacturers and retailers. In most cases, it would
seem, the person producing the documents to the Court, or
tendering them in evidence, claimed that they contained
commercially confidential information. So the trial Judge
made orders under s.50 of the Federal Court of Australia Act
| 1976 limiting access to those documents. | Access was usually |
confined to the lawyers engaged in the case and any
independent experts advising a party. One result of these
orders was that counsel and witnesses were inhibited in their
references to the contents of documents unless the Court was
b .
closed to the public, as it frequently was. A further result
became apparent when judgment was delivered. The
"confidential" documents included a good deal of information
about the size and structure of the biscuit industry,
including the market shares of the major manufacturers. This
information is basic to a coherent discussion of the case. It
was material which the trial Judge rightly thought necessary
to set out in his reasons. Furthermore, as it happened, his
Honour relied heavily upon these documents for his conclusions
that the relevant market was properly to be described as "the
Australian biscuit marketM and that Arnotts already enjoyed a .
| dominant position in that market. | In an unexpurgated version |
of his reasons, his Honour set out information about the
industry which he had gleaned from the "confidential"
documents. He also quoted the relevant documentary passages
upon which he relied for his findings on the issues of market
and dominance, and explained how they supported his
conclusions. But the unexpurgated version was made available
only to a limited number of people, not even including
executives of Arnotts. In deference to the claims for
confidentiality, the trial Judge felt constrained to issue an
expurgated version of his reasons, for a general audience,
from which all citations from the "confidential" documents
were omitted. That version lacked both basic information and
intelligibility; it is reported, (1990) 93 ALR 657. It is not
until one reads the unexpurgated version that one can gain any
real understanding of his Honour's findings of fact or
processes of reasoning.
7.
We do not know what their reactions were, but it would be understandable if the executives of Arnotts felt aggrieved at being denied an intelligible explanation of their
loss of an important case upon which their company must have
spent millions of dollars. Furthermore, the general community
has an interest in knowing the reasons for the outcome of a
major case affecting many people outside Arnotts and into
which substantial public funds have been poured.
We recognise that there are documents which are truly confidential, whose dissemination to competitors or to
the general public might cause irredeemable commercial harm.
Obvious examples are documents containing information about
secret manufacturing processes or ingredients; perhaps future
1
marketing strategies, lists of suppliers, customers and the
like. Where such documents become involved in litigation, the
disadvantages of restricting access may have to be accepted in
order to avoid injustice to their owners or authors. But few
of the documents for which claims of confidentiality were made
in this case seem to have been truly confidential. Neither
before nor during the hearing of the appeal did we carry out
any comprehensive review of the confidentiality orders; we
were not asked to do so. But, from time to time, the matter
of confidentiality did arise. When we asked counsel why
particular documents had been thought to be confidential, the
claims of confidentiality melted away. In the end it was
conceded, not only by the parties to the appeal but also by
| counsel for George Weston Foods Limited ("Weston") | - whose |
9.
commercial litigation: that, when big issues are at stake,
there must inevitably be a long and complicated hearing. This
assumption must be discarded. No matter how much is at stake,
in dollar terms, there is no justification for irrelevant or
unuseful evidence. Moreover, it is in the interests of the
parties to analyse properly the cases which they wish to make
and to restrict themselves to helpful material; and not only
because of savings in costs. The devotion of excessive
attention to peripheral matters, rather than the main issues,
causes the parties to lose sight of the real issues and to
devote insufficient attention to them. The result may be to
leave the Court with insufficient or unsatisfactory material
upon principal factual issues. The essence of counsel's
function is the identification of, and concentration upon, the
critical issues in the case.
A remarkable feature of the present case is that,
when the smoke all clears away, most of the critical facts which we have identified. We will deal with each of these issues separately; but first it may be useful to give a brief account of Arnotts' business.
stand clear and uncontroversial. We are satisfied that
Arnotts' business
The founder of Arnotts was William Arnott, a
Scottish emigrant who established the business of a baker and
10.
pastrycook at West Maitland in 1850. In 1894, a factory was
acquired in Sydney. In 1904 the business was acquired by a
company formed for the purpose, then named William Arnott
Limited. In 1949, the company acquired an established
Brisbane biscuit manufacturer, Morrows Pty Limited.
Subsequently, other established businesses were acquired: the
| Guest and Brockhoff businesses in Melbourne and businesses in | I |
| Adelaide and Fremantle. All of these businesses had been founded in the 19th century as family concerns. In about 1976, Arnotts took over the business of Peek Frean (Australia) |
| Pty Ltd, the Australian subsidiary of a British biscuit | a |
manufacturer.
There has also been a degree of vertical integration
and product diversification. In 1965, the Arnotts group
acquired a controlling interest in a Victorian potato chip
| business. | In the next year a subsidiary was formed to |
manufacture, in Sydney, potato chips for distribution in successful business. A 66% per cent interest was acquired in Cardboard Manufacturing Co. Pty Limited, a company supplying a steadily increasing proportion of the group's requirements for corrugated cartons. In 1971, a controlling interest was acquired in McCorquodale Holdings Pty Limited, a flour milling and stock feed company based at Parramatta in New South Wales. Two years later a controlling interest was obtained in Kingaroy Toasted Peanuts Pty Limited. A manufacturer of pet foods was acquired in 1982.
11,
| By the time of the trial the Arnott commercial empire involved assets of approximately $800m and a share | l , |
capital of $7m. The parent company, Arnotts Limited, has a
large number of subsidiaries in Australia and abroad. The
operating revenue of the group for the year ended 30 June 1988
was $709m. The principal activities of the group are the
manufacture and distribution of biscuits, formula dietary
foods, snack products, cakes, pet foods, confectionery, bread,
| jam, nuts, packaging,materials, | containers, flour milling and |
engineering. Arnotts itself is a major Australian
| manufacturer of food products; including biscuits, cakes and | W . | 1 |
| confectionery. Biscuits represent the major part of Arnotts' business. |
The biscuits manufactured and sold by Arnotts
include a number of well established brand names. The "Milk
Arrowroot" biscuits made their appearance in about 1880.
"S~O", "Assorted CreamsM, "Family Assorted", "Scotch Finger", "Gingernut" and "Shredded Wheatmeal" biscuits have all been
| marketed since at least 1906. | "Monte Carlo" and "Spicy Fruit |
| Roll" were introduced in the 1920's. | The dry cracker |
biscuits known as "Jatz" and "Salada" were introduced more than 25 years ago. The evidence indicates, on the part of consumers, strong recognition of Arnotts' brand, which is
displayed on distinctive packaging. Arnotts' biscuits are
perceived by consumers as the best quality biscuits, but as
more expensive than other brands.
12.
The "Premiere" brand is used by Arnotts for products
specially imported to fill "market gaps" or "niches" in the
"exclusive type market", where the potential volume of sales
appears not to warrant the capital expenditure on
manufacturing equipment that would be necessary for Australian
production. In addition, Arnotts supplies "Sunshine" brand biscuits at the lower-priced end of the market.
The Australian biscuit industrv
| Beaumont J found that there was a "market", | within |
the meaning of ss. 4E and 50 of the Act, being a national Coles Myer Limited (the "New Worldw supermarkets), Franklins Ltd, Woolworths Ltd, and the buyers comprised in Amalgamated Australian Wholesalers Ltd. The evidence included considerable detail about some of the participants in the market determined by his Honour. In other cases, the material was more sketchy. We will set out such of the evidence - none of which was controversial - as is necessary for the purpose of considering the appellantst challenge to the trial Judge's
market for the supply of biscuits to wholesalers and
retailers, and that there were two principal players therein,
in addition to Arnotts, namely Nabisco and Weston. About 90%
of biscuits supplied by the participants in this market are
supplied to the major retail supermarket chains or to large
grocery wholesalers. The four principal purchasers of
| finding | . |
13.
Over the three years ending 30 June 1988, Arnotts
supplied approximately 65% of the biscuits consumed in approximately 148, was divided between imported biscuits (excluding biscuits imported by Arnotts and marketed under the name "Premiere") and the product of other Australian manufacturers.
In 1988, the total Australian biscuit market had gross wholesale sales of about $600m. The total volume in 1985/86, 1986/87 and 1987/88 was 135,720,900 kgs, 135,545,900 ,
kgs and 137,946,000 kgs respectively. There are approximately Pty Limited, which in 1987 successfully launched a range of chocolate biscuits. But none of these other manufacturers has offered a product range comparable to that of Arnotts, Nabisco and Weston.
26 manufacturers and importers of biscuits, in addition to
In some of its "New World" supermarkets Coles Myer
sells biscuits baked on the premises. Further, in 1989, it
launched a range of biscuits, manufactured for it under
contract and marketed under its "in house" brand "Farmland".
The other supermarket chains also sell "generic" biscuits and
"in house" brands at lower prices than Arnotts' biscuits.
However, Arnotts uses its "Sunshine" brand to compete with the
"in house" and generic products sold by the supermarket
chains.
The generic and "in-housew products are manufactured
primarily by Paradise Food Industries Pty Limited ("Paradisew) gave this evidence about the difficulties confronting a new biscuit manufacturer:
and Players Biscuits Pty Limited ("Players"). Paradise
commenced operations in Brisbane in March 1986. The Joint
"Very great difficulties face anybody entrant to the market. Because the capital cost in establishing a biscuit manufacturing plant is high, it is necessary to have a reasonably high level of sales or potential sales to make the capital outlay attractive. Obtaining staff with biscuit production skills and machinery operation skills is also difficult. New product development costs are also significant. There is also a significant cost in maintaining inventory levels which are high in relation to the size of sales. In addition, a new entrant proposing to supply branded biscuit products is also faced with new product listing fees charged by the various wholesalers and retailers of biscuits."
wishing to manufacture biscuits in
Players commenced manufacturing biscuits in 1974 orBefore their expansion into Australia, the companies in the Papua New Guinea for over 30 years. The value of Australian sales grew from $175,279 in 1986 to $3.62m. in 1988; still a small percentage of the $600m. national market for that year.
1975. It commenced to supply the major supermarket chains
with generic or "home brand" biscuits in about 1984. It has a
15.
factory in Sydney which was opened in 1988. The factory has a
floor space of some 120,000 sq. feet. It was constructed and
outfitted at a cost of $12m. This sum includes the cost of
| plant and equipment, said to incorporate "state of the art" | I |
| technology. For the year ended 30 June 1989, the total sales of Players' biscuits amounted to $19.7m. |
| In the late 197Ots, | Arnotts, Nabisco and Weston had |
supplied some 98% of the biscuits consumed in Australia, the balance being highly priced imports. Biscuits imported from New Zealand are now duty free. Duty on other imports is
presently at'a maximum of 2%. The result is a significant
expansion in the volume of imports.
Weston is ultimately foreign owned, being a
subsidiary of Associated British Foods plc, a large, broadly
based food producer. It is a major flour miller and supplies
the Australian food industry with flour, starches, gluten and
| a wide range of bread, cake and pastry mixes. | It also |
manufactures and supplies stock feed, small goods and dairy products. The evidence does not indicate the year in which Weston entered the biscuit market in Australia, but it was
before the advent of Nabisco.
The Australian operations of Nabisco commenced some
20 years ago. In addition to biscuits, Nabisco manufactures
breakfast cereals and processed nuts, This last branch of the
business dates from 1978. Nabisco has always been ultimately
16.
foreign owned. On 1 July 1988 the group was acquired by the
ICM group of companies, which uses the business name "Best
Foods". The group is, in particular, a supplier of cereal foods, principally under the trade mark "Uncle Tobys". In biscuits, the Nabisco strength is dry crackers, flavoured
snacks and chocolate biscuits; whilst Weston is strong in
assortments, cookies and chocolate biscuits. Arnotts covers
the entire range of products. Six to ten new lines are
introduced each year by each of the three major manufacturers.
| . | Retail margins vary, usually between 15% and 20%. |
The size of the margin tends to be related to the volume of products sold. There is a practice among retailers of taking lower margins on top selling lines, often below 10%. The result is to exert price pressure on products having low market shares. The manufacturers of those products need to keep margins slight so as to remain competitive with the leading brands.
Nabiscots biscuit products are manufactured at the
company's plant at Broadmeadows, Victoria. The company has a
warehouse in each capital of the other States, to which the
| biscuits are transported from Broadmeadows. | Arnotts has |
factories in all States except Tasmania. Weston is established
at Camperdown in New South Wales, Kedron in Queensland and
Abbotsford in Victoria.
The three major biscuit manufacturers operate their
own transport fleets to carry supplies directly from their this way. Other biscuit suppliers depend upon retailers to get their products to the stores. For example, Coles' "New World" distributes the products of other suppliers through its own distribution system. But it requires these suppliers to
plants or warehouses to the supermarkets. They do not use the
central warehousing facilities offered by the supermarket
chains. The reason is that biscuits have a relatively short
shelf life. Direct supply assists the sale of fresh stock.
| allow a distribution discount, equivalent to the cost of | ' |
distributing the goods, which is deducted from the wholesale
price of the biscuits.
The operations of the grocery wholesalers vary
somewhat, but the Queensland Independent Wholesalers Group ("QIW") may serve as an example. QIW supplies most of the grocery retailers in Queensland and northern New South Wales
(some 1,400 stores) with the exception of the Coles Myer, distribution centre in Brisbane. Supplies of biscuits are kept at 13 "cash and carry" warehouses throughout Queensland, QIW biscuit sales being divided equally between the Brisbane facility on the one hand and the "cash and carry" warehouses on the other. The smaller retailers buy their supplies from the cash and carry warehouses. The larger independent retailers place orders on the three major manufacturers, which
| deliver directly to these retailers. | But the manufacturer |
invoices QIW which bills the retailer; then the retailer pays
QIW and QIW pays the manufacturer.
Arnotts, Weston and Nabisco and, to a lesser extent,
the smaller suppliers provide a merchandising service for
their products in the retail stores. Representatives visit
stores. They check the stocks of biscuits on the shelves
(particularly as to the expiration of "use by" dates) and
| furnish promotional material for display. | In recent years, at |
least, Arnotts has had a group of highly effective
representatives. They frequently visit the stores in their
areas and provide the company with detailed and astute "grass-
roots" market intelligence.
A set of statistics, known as the Biscuit Industry
Statistics ("BIS"), is maintained. These statistics relate only to the operations of Arnotts, Weston and Nabisco, The industry treats BIS as a reliable indicator of the performance
of the three leading members of the industry; but, of course,
they cast no light upon the performance of others.
The trial Judae's findinas
In his reasons for judgment Beaumont J stated his principal conclusions in seventeen numbered paragraphs:
"1. There is a national biscuit industry
of which the clear leader is Arnotts. It is, by far, the largest manufacturer, its products are of the highest quality and it
is the only manufacturer to produce the
whole range of biscuits available. 'contain' the competition. As Weston1s management recognised, Arnotts is able 'to influence market situations at will'.
Arnotts manufactures the best selling
product in each of the groups which
constitute the range of biscuits marketed
in Australia. Weston and Nabisco are also
large manufacturers of biscuits in terms
of volume, but the size of the operations
of Weston and Nabisco, relative to
Arnotts, is small. From time to time,
Weston, Nabisco, Cadbury, Players,
Paradise and generic biscuits (or 'house
brands' of some of the large retail
chains) have offered competition to
Arnotts in certain areas in the short
term. But no competitor has even sought
to compete with Arnotts over its whole
range and, even when competition is
offered in a particular product category,
2. Arnotts' major brand in all trading
areas is the 'Arnott' brand. Arnotts has
succeeded in marketing this brand so as
'to equate products with a certain
standard of quality in consumers' minds'.
Arnotts aims to give, and, it seems, has
given, 'meticulous' attention to the
'Arnott' brand so as to 'ensure
competitive advantage in performance,
function and value'.
3. Arnotts' 'Sunshine' brand is used on
products designed to 'contain', and it
appears do contain, 'low price, private
label and generic competition in defence
of the major brand in each trading area.'
4. The 'Premiere1 brand is used for
products specially imported to fill
'market gaps' ('niches') in the 'exclusive
type market' where potential volume does
not warrant capital expenditure for
manufacturing equipment.
5. Arnottsl 'product mix' policies,
which are concerned only with the 'biscuit market1, adopt the following product group definition for its biscuits, based on
production characteristics and historical
measurement: Dry crackers, flavoured
snacks, crispbread, plain assorted, plain
non-assorted, fancy assorted, fancy non-
assorted, cookies, shortbread, and
chocolate coated. The biscuit industry 'miscellaneous' group, neither of which appear to be significant for present purposes.
adopts a similar approach. In addition,
6. An important object of Arnotts' style
of packaging is to enable 'prompt
discovery and identification' of the
| Arnotts | ' brand. |
7. Arnotts' pricing policy is to ensure
that any price increases to offset rising
costs are 'limited to ensure that products
always represent good value to the
consumer, make it difficult for
competitors to offer comparative value and
offer the retailer a better profit/volume
relationship than most grocery store
items.' Arnotts' aim to stabilise prices
and margins'. When 'pricing to contain
competition, whilst [Arnotts] do not aim
to be 'cheaper' than competitors,
[Arnotts'] pricing strategy is always to
ensure that we do not price our major
products to present a significant threat
to our share/volume/profit position
through non-competitive pricing.' The
size and historical position (over 120
years) of Arnotts in the industry puts it
in the position of 'price leaders', a
situation in which 'competitors generally
follow any deviation in price, especially
upward.' Arnotts' ability to maintain a
'price leader' policy is reinforced by its
'strong consumer franchise, consistent
advertising, volume production and
technological leadership.'
8. Arnotts' basic principle is that its
trading terms and conditions are the same
for every retailer and prices and
discounts are 'arranged to enable any
retailer of reasonable size to trade to
maximum margins.'
9. Because of its position as 'market
leader', Arnotts makes a 'substantial
investment' in marketing.
10. Arnottsf national biscuit marketing
objectives for 1987/1988 were:
| (1) To maintain a profitable growth in | total kilogram sales. |
(2) To 'maintain a dominant market
| position'. | The aim was to achieve |
and maintain 'a market share of not
less than 70% of the total Australian
| biscuit market.' | (It is not clear |
| measured by volume or by sales value. | whether the 70% objective was to be by volume and rather more if measured by the value of sales.) A second aim was to achieve and maintain a 'market share of not less than 75% as measured in the B.I.S. figures for | |
| ||
|
(3) To establish and maintain 'profitable
leadership' in each product group.
The first objective was to have 'more
than a 60% market share in any single
group'. (This was substantially
achieved. Taking the B.I.S. national
figures for 1988, the only product
group of Arnotts with less than 60%
were crispbreads - extruded (57.83%)
and crispbreads - non-extruded
(53.63%)). The second objective was
to have the best selling product in
| each group. | (This objective was |
| achieved) | . |
(4) To introduce new products to (a) add
variety to Arnotts' product range
| (this was achieved); | (b) 'overcome |
competitive activity where
competitive new products are seen to
represent a long term threat in
present and new markets' (it appears
that this was achieved); (c) fill
gaps in Arnotts' range: created by
deletions (variety and brands),
'emerging competitive strengths' or
new market development (it appears
that this was achieved).
| high proportion of its biscuits through the major retail supermarket chains or through the large grocery wholesales. | 11. The biscuit industry markets a very 'biscuit barsr in which Arnotts' biscuits are first in the traffic flow and occupy about 50% of the bar. This confers a considerable marketing advantage upon Arnotts. It is very difficult, and very expensive, for a new entrant to the |
biscuit industry to obtain access to Arnotts, but Arnotts has been able, generally speaking, to maintain its position of first in the traffic flow, and occupying 50% of the biscuit bar. The strength of Arnotts' position in this respect has provided a considerable barrier to any new entrant to the biscuit industry.
'facings', or shelf space, in biscuit bars
in supermarkets. There are suggestions in
the evidence that, on occasions, the
retail chains have indicated interest in
encouraging a new entrant (e.g. Players,
12. Biscuits are marketed separately from other processed foods such as snack foods, confectionery and bread. From time to
J. (with the general-agreement of Dawson J. ) pointed out in Queensland Wire [(1989) 167 CLR 177, at 1961, the 'outert limited of a market are likely to be 'blurred'.
time, the management of the biscuit and the discussion of the introduction of sales tax on chocolate biscuits in 1985 show, even in the case of chocolate biscuits, the biscuit industry recognises, and acts upon the recognition, that the biscuit industry should be distinguished from the confectionery industry. Hence the need to package and market a biscuit differently if it is to be sold as confectionery. The general position is that the biscuit industry is self- contained. Generally speaking, as the 'competitive activity' reports indicate, the members of the industry confine their attention, and their conduct, to the biscuit marketing efforts of other biscuit manufacturers. By and large, biscuit producers do not concern themselves with the activities of the manufacturers of other kinds of processed foods. I say 'by and larget because, as Deane
industry has noted the possibility of
threats from, or opportunities in, the
snack food industry, the confectionery
industry and the bread industry. But
these threats, or opportunities, are
unusual and, when they occur, they are
confined to a specific category of
biscuit, e.g. chocolate biscuits, and do
not involve biscuits generally. As the
| in the cracker and savoury segment, with approximately 90% in volume and approximately 95% 'in dollar terms' of biscuit sales in Australia. This explains why the management of Arnotts, Weston and | 13. The B.I.S. figures deal, for instance exclusive, reliance upon these statistics. It also explains why Arnotts' management devotes so much effort to the process of monitoring the trading activities of Weston and Nabisco. | |
| 14. Weston's management recognised that | ||
| Weston's performance was hindered by, | ||
| inter alia, the following: (1) Weston does | ||
| not compete in the cracker, flavoured | ||
| snacks segment ('23% of the total | ||
| market'). (2) Arnotts and their other | ||
| brands have a 'stranglehold on the | ||
| domestic market in relation to range, | ||
| price structure and | ||
| ||
| The advent of generics has weakened its image as the 'value for money' manufacturer. (4) The 1985 sales tax has 'narrowed' the 'differential' between a packet of chocolate biscuits and a block of chocolate. Biscuit sales have 'slowed' in 'almost every segment but particularly in the high priced chocolate range', (5) Chain store 'dominance' of the trade is a 'cause for concern' to all food manufacturers. Their 'dictatorial' attitude in relation to promotional funding and trading terms places 'great strain' on the relationship between manufacturer and retailer. Independent retailers are losing their share of the market as chain store sales increase in volume. | ||
|
chains have a 'dictatorial1 attitude retailers, Coles New World, actually described Arnotts as a 'dominant market
towards Arnotts. This is consistent with
their recognition of Arnotts' position as
the clear leader of the biscuit industry.
| leader | ' . |
16. Nabisco's management recognised, and
acted upon the recognition, that Arnotts
have a 'dominant' share of the 'total
biscuit market'.
17. Over the three years ended March
1986, 1987 and 1988, the 'Arnottl brand
share remained stable, irrespective of
what happened in the case of the
'Sunshine' brand, Weston, Nabisco, imports
and generics."
See (1990) 93 ALR at 695-697.
His Honour held that there is in Australia an area of "close competition" in the supply of biscuits, that there is a "market" for biscuits in the sense explained in the
authorities and that the market is a substantial one. He held
that the "product market" is biscuits and the "geographic
market" is Australia.
The trial Judge dealt with the question of dominance
and found that:
"An enterprise will be in a position to
dominate a market when there is a
probability that the other enterprise or
enterprises in the market will act in a
way calculated not to affect adversely the
dominant concern's short term interest.
Dominance, unlike control, is not
primarily concerned with the formal
relationship between entities but rather
with their conduct towards each other competition but enables the undertaking which profits by it, if not to determine, at least to have an appreciable influence on, the conditions under which the competition will develop and, in any case, to act largely in disregard of it so long as such conduct does not operate to its detriment."
within a particular market environment.
If the size or strength of a particular
entity is such that, in practice, other
entities are unable or unwilling actively
to compete with it in a particular market,
that entity is dominant in that market.
The dominant position relates to a
position of economic strength enjoyed by
an undertaking which enables it to prevent
effective competition being maintained in
the relevant market by affording it the
power to behave to an appreciable extent
independently of its competitors, its
customers and ultimately of the consumer.
See (1990) 93 ALR at 668.
His Honour found that Arnotts was in a position to
dominate the market, that it has held for many years a very
large market share and that it has had some, but not much,
competition in the supply of biscuits. He said that the
members of the biscuit industry and the members of the grocery
trade act upon the belief that Arnotts is in a position to
exercise, and does exercise from time to time, a commanding
influence in the market. The size and strength of Arnotts is
such that in practice other entities are unable or unwilling
to offer any significant competition to Arnotts in the biscuit
market in the medium or long term. Even in the short term,
there is an obvious reluctance to meet Arnotts "head-on" or
directly. Instead, other suppliers of biscuits seek to find
26.
| "gaps" or "niches" in the market. | Beaumont J held that this |
conduct is an indication that Arnotts holds a commanding
influence in the market.
His Honour dealt with the meaning of the word
| "substantially" in s.SO(l)(b)(ii). | He said that, in his |
opinion, it suggests a degree of strengthening of power that is "real or of substance and not insubstantial or nominal", relying upon Tillmann's Butcheries Ptv L t d v Australasian Meat
| Industrv Em~lovees' | Union (1979) 42 FLR 331 per Bowen CJ at |
| 338-9 and Deane J at 348. Reference was also made by his | * |
Honour to B. v Hudson (1985) 63 ALR 257 at 270.
Beaumont J concluded that Arnotts' acquisition of
Nabisco would, or would be likely to, substantially strengthen cited two considerations in support of that conclusion.
First, his Honour said that Nabisco has about 8% of
share. In two important sections of the market - dry crackers
and flavoured snacks - Nabisco is Arnotts' only competitor.
the total Australian biscuit market and about 9% of the BIS "sheer volume" and the "growth rates being achieved disproportionately to the total biscuit market". His Honour accepted evidence that, if Arnotts had no significant competitor in these segments of the market, its power to bargain with retailers in these areas, at least, would be
27.
considerably enhanced. Secondly, Beaumont J thought that this size.
Having concluded that Arnotts is in a position todominate the market in Australia for biscuits and that the
acquisition of the shares in Nabi-sco by Arnotts would
substantially strengthen the power of Arnotts to dominate that
market, his Honour said that it followed that the deemed
"acquisition" of shares under the option agreement contravened
s.SO(l)(b).
The trial Judge found that Fledspac and Dickens were
also "involved" in the contravention within the meaning of S.
7SB(1) of the Act. He said it further followed that any
actual, as distinct from any deemed or notional, acquisition
of the shares by virtue of the exercise of any option granted
by the option agreement would also contravene s.SO(l)(b).
Counsel for the appellants criticised the
sufficiency of the factual findings made by Beaumont J, one
submission being that - for this amongst other reasons - there
ought to be a new trial. In response to this submission we
feel bound to say that, whilst it would be unreasonable to
expect his Honour to have made findings relating to all the
matters of fact put before him, his findings were rather
sparse. We would have benefitted from a much fuller account
of the effect of the evidence in relation to the critical
issues. In the situation we encountered, we have had to spend
more time winnowing the primary facts from the mass of
I
evidence than we would have expected, Fortunately, we have
had considerable assistance from counsel in this task, leading
us to feel satisfied about the accuracy of the matters of fact
stated in these reasons which were not the subject of findings
by his Honour.
Section 50 of the Trade Practices Act, so far as
presently relevant, provides:
"50(1) A corporation shall not acquire,
directly or indirectly, any shares in the
capital, or any assets, of a body
corporate if -
| (a) | as a result of the acquisition, the corporation would be, or be likely to be, in a position to dominate a market for goods .or services; or |
| (b) | in a case where the corporation is in a position to dominate a market for goods or services - |
|
the body corporate or another to that body corporate is, or is likely to be, a competitor of the corporation or of a body corporate that is related to the corporation; and
| (ii) | the acquisition would, or would be likely to, substantially strengthen the power of the corporation to control or dominate that market. |
(3) In this section -
| (a) | a reference to a market for goods or |
services shall be construed as a
| reference to a substantial market for goods or services in Australia in a State or Territory; and | |
| (b) | a reference to dominating a market |
for goods or services shall be
| construed as a reference to dominating such a market either as a supplier or as an acquirer of goods or services in that market." |
Section 4E provides:
"For the purposes of this Act, 'market'
means a market in Australia and, when used
in relation to any goods or services,
includes a market for those goods or
services and other goods or services that
are substitutable for, or otherwise
competitive with, the first-mentioned
goods or services."
"Competition" is defined in S. 4(1) as including:
"Competition from imported goods or from
services rendered by persons not resident
or not carrying on business in Australia."
Market definition
We turn to the definition of the "market". Part IV of the Trade Practices Act is designed to foster competition. The role of 9.50 is to maintain competitive markets by
restraining monopolisation and prohibiting mergers that will
produce a non-competitive market.
30.
The identification of the relevant market and the
assessment of dominance, in the sense of market power, cannot
be separated. This point was made by Mason CJ and Wilson J in
Queensland Wire Industries Ptv Limited v The Broken Hi14
| Com~anv | Prowrietarv Limited (1989) 167 CLR 177 at 187-8 in |
these terms:
"In identifying the relevant market, it
must be borne in mind that the object is
to discover the degree of the defendant's
market power. Defining the market and
| a | evaluating the degree of power in that | |
| market are part of the same process, and | ||
| it is for the sake of simplicity of | ||
| analysis that the two are separated. | ||
| Accordingly, if the defendant is | ||
| vertically integrated, the relevant market for determining the degree of market power will be at the product level which is the | ||
| source of that power ... After identifying | ||
| ||
| defendant's product competes: too narrow a description of the market will create the appearance of more market power than in fact exists; too broad a description will create the appearance of less market power than there is." |
See also Australia Meat Holdinas Ptv Limited v Trade Practices
Commission [l9891 ATPR 40-932 (Full Court) at 50, 091 and 50,
104.
In the area of restrictive trade practices law it is
impossible to provide an absolute definition of "market". As was observed by Professor Maureen Brunt in her article, "Market Definition Issues in Australian and New Zealand Trade
Practices Litigation" (1990) 18 Australian Business Law Review
"It must be constantly borne in mind that
market definition is but a tool to
facilitate a proper orientation for the
analysis of market power and competitive
processes - and should be taken only a
sufficient distance to achieve the legal
decision. There may be more than one
relevant market for a particular case in
the sense of markets that would attract
liability."
Deane J observed in gueensland Wire at 195 that the
word "market" is not susceptible of precise comprehensive
definition, when used as an abstract noun in an economic
context. He thought that the most that can be said is that
"market" should, in the context of the Act, be understood in
the sense of an area of potential close competition in
particular goods and/or services and their substitutes (cf.
G. & M. Stevens Cartaae Contractors Ptv. Limited [l9771 ATPR
| 17,445 at 17,460). | In the same case, at 200, Dawson J struck |
| a cautionary note: |
"Too rigid an approach in defining a market .is apt to lead to unrealistic
| results. | " |
See also the discussion, with reference to some academic
| writings, in Mark Lvons Ptv Ltd v Bursill S~ortsaear | Ptv Ltd |
| (1987) 75 ALR 581 at 588-591. |
However, the authorities provide some assistance to
32.
those concerned to define the relevant market in a particular
case. The following passage from the Trade Practices
| Tribunal's decision in Re Oueensland CO-o~erative | Millinq |
Association Ltd; Re Defiance Holdinas Ltd (1976) 25 FLR 169 ("QCMA") at 190 has frequently been cited. But it is worth
repeating, as it bears on the delineation of the market in the
| present | case : |
"A market is the area of close competition
between firms or, putting it a little
differently, the field of rivalry between
them ... Within the bounds of a market
there is substitution - substitution
between one product and another, and
between one source of supply and another,
in response to changing prices. So a
market is the field of actual and
potential transactions between buyers and
sellers amongst whom there can be strong
substitution, at least in the long run,
given a sufficient price incentive ...
Whether such substitution is feasible or
likely depends ultimately on customer
attitudes, technology, distance, and cost
and price incentives.
... in determining the outer boundaries of the
market we ask a quite simple but fundamental question: If the firm were to 'give less and charge more' would there be, to put the matter
colloquially, much of a reaction?"
The concept of substitutability of products is
heavily relied upon by the appellants in this case.
Substitutability affects the definition of markets. As Mason
CJ and Wilson J observed in Queensland Wire at 188:
"Section 4E directs that a market is to be
described to include not just the defendant's
product but also those which are
'substitutable' for, or otherwise competitive
with, the defendant's product."
A11 the judgments in the High Court in that case
emphasised the importance of the consideration of
substitutability, as required by S. 4E. Accordingly, the
process of defining a market involves both including products
which compete with the defendant's product and excluding those
which, because of differentiating characteristics, do not
compete.
L
The two main arguments advanced by counsel for the appellants against the correctness of the trial Judge's
| delineation of the relevant product market are: | first, that |
there are categories of biscuits which are not competitive
with other categories of biscuits; and, second, that there is
competition between certain types of biscuits on the one hand
and certain types of non-biscuit products on the other. The
first matter is said to support the conclusion that there is
not one overall biscuit market but a series of biscuit
markets. The second matter is argued to require a finding, if
aggregation be appropriate, that the market is wider than
biscuits themselves.
As to the first argument, the appellants submit that
his Honour failed to deal with oral evidence to the effect
that retailers do not consider some categories of biscuits to
| be competitive with other categories of biscuits. | There was |
34.
| a new line of biscuit products, take no account of the possible impact this will have on sales of, or current marketing practices with respect to, biscuit products in other categories. For example, retailers consider that chocolate biscuits compete with other chocolate biscuits, but not with dry crackers or sweet biscuits. Secondly, there was evidence that retailers avoid promoting biscuit products of different manufacturers, within the same category, at the same time (for example, both a Cadbury and Arnotts chocolate coated biscuit); but retailers frequently run simultaneous promotions of biscuits produced by different manufacturers which are within different categories. For example, an Arnotts chocolate biscuit promotion may run simultaneously with a | evidence that retailers, when deciding whether or not to stock this evidence is that biscuits are competitive with each other only within well defined categories. |
There is evidence each way upon the first matter.
There is certainly evidence which supports the appellants. However, there is also evidence which suggests that retailers do take into account other categories of biscuits when deciding whether to stock a new line of biscuits. This evidence includes the testimony of Mr H Sidler, Senior Merchandise Manager - Food of Woolworths, and M r E R Bender, a consultant who has had a 30 years association with Franklins.
As to the second matter, it is conceded by the Commission that the evidence does establish that retailers
l
avoid the simultaneous promotion of two products within the
same category; but it was argued that this is but one factor
amongst the many which should be considered in defining the
relevant market.
We were referred to a large amount of evidence, both
oral and documentary, concerning the question whether biscuit
manufacturers identify only other biscuit manufacturers as
providing any real degree of competition. There are
references to biscuit manufacturers being aware that biscuits
compete with some non-biscuit products; for example, Weston1s
"Wagon Wheel" product - which is a chocolate coated biscuit
marketed as a confectionery; Nabi.scols "Rum Slice"; certain
after dinner mints which compete with mint flavoured chocolate
biscuits; "Snowballs" which are chocolate coated marshmallow
confections rolled in desiccated coconut and which compete
with sweet biscuits. However, an examination of the evidence
establishes that biscuit manufacturers do not usually concern
themselves with the activities of' the manufacturers of non-
biscuit products. The Arnottsr records which are in evidence
include the sales representativesr regular reports. Those
reports are analysed and summarised at State offices. The
summaries ultimately go to the Arnotts' directors. Other such
records include what are described as "competitive activity
release reports", which are documents kept by Arnotts in which
it identifies products released into the market that, in its
36.
view, compete with its own products. Both the sales concerned with competition, on a day-to-day basis, see themselves as being part of a biscuit industry, within which there is competition but which is little troubled by products sold as confectionery; even products which have characteristics and uses similar to those of some biscuits. The same situation applies to the other two major
representatives' reports and the "competitive activity release
reports" refer almost exclusively to other biscuit products.
| manufacturers. Weston keeps monthly sales and marketing | L |
reports, monthly action statements and what are described as "business plans". Nabisco maintains similar records. These records relate almost entirely to biscuit products. They
strongly support the conclusion that, essentially, only other biscuit manufacturers are identified by biscuit manufacturers as providing any real degree of competition to their biscuit
products.
The evidence also supports the following
conclusions :
wholesale purchasers - that is, the retailers -
tend not to take into account non-biscuit products
when purchasing, or promoting the sale of, biscuits;
retailers display biscuits in a location separate
to those in which snack foods and confectionery are
displayed;.
in large supermarkets the biscuit buyers are not
necessarily responsible for buying snack foods or
confectionery;
salesmen engaged by manufacturers to sell biscuit
products are generally not responsible for the sale
of their employer's non-biscuit products;
salesmen employed by biscuit manufacturers generally
do not take non-biscuit products into consideration
when selling biscuits; and
suppliers of confectionery and snack foods tend not
to take into account biscuits or their prices when
setting prices for their snack foods and
confectionery.
In evaluating the appellants' submissions relating
to the definition of the product market it is important to (1976) 50 Australian Law Journal at 89-92. Dr Walker pointed out that, in one sense, all goods and services compete for the buyer's custom; and, in that sense, are within the same market. In another sense, most items being distinct in some respect, each item has its own market. In the application of
bear in mind that substitutability involves matters of degree.
the concept to provisions such as s.50, an intermediate
position is appropriate.The Court of Justice of the European
l
Community made a similar point in Hoffmann - La Roche Co AG v it said at 272:
"The concept of the relevant market ...
implies that there can be effective
competition between the products which
form part of it and this presupposes that
there is a sufficient degree of
interchange'ability between all the
products forming part of the same market
in so far as a specific use of such
product is concerned,"
Conversely, in determining, in United Brands v
Commission of the EuroDean Communitieg [l9781 1 CMLR 429, whether other fruits should be excluded from the market which bananas serve, the European Court said at 482:'for the banana to be regarded as forming a market which is sufficiently differentiated from other fruit markets it must be possible for it to be singled out by such special features distinguishing it from other fruits that it is only to a limited extent interchangeable with them and is only exposed to their competition in a way that is hardly perceptible."
It is relevant to recall the observation of Deane J
in Oueensland Wire at 195-196:
"The identification of relevant markets and the
definition of market structures and boundaries
for the purposes of determining whether B.H.Prs
refusal to supply Y-bar to Q.W.I. contravened
s.46(1) involves value judgments about which
there is some room for legitimate differences
of opinion. The economy is not divided into an
identifiable number of discrete markets into
one or other of which all trading activities
can be neatly fitted. One overall market may
overlap other markets and contain more narrowly
defined markets which may, in their turn,
overlap, the one with one or more others. The
outer limits (including geographic confines) of
a particular market are likely to be blurred:
their definition will commonly involve
assessment of the relative weight to be given
to competing considerations in relation to
questions such as the extent of product
substitutability and the significance of
competition between traders at different stages
of distribution."
This observation was made in the course of a
| discussion which referred to s.4E of the Act. | Deane J was |
making the point that the application of the concept of
substitutability requires the making of a value judgment. The
question of substitutability is not to be disposed of merely
by showing that, upon some occasions, some people consume one
product rather than another or that some products within a
claimed market do not directly compete with some other
products in that market; or do compete with some products
outside that claimed market.
The same point was made, in different language, by
Mason CJ and Wilson J in Queensland Wire at 188. Their
Honours did so by their quotations from Hoffmann-La Roche and
United Brands. Both quotations include words which indicate
| that substitutability is a matter of degree: | "sufficient |
degree of interchangeability" and "only to a limited extent
interchangeable".
40.
In the present case, emphasis is placed upon the
fact that, upon some occasions, a consumer might select a non- biscuit product ihstead of a biscuit; for example, corn crisps might be served with a savoury dip rather than dry biscuits;
chocolate mints might be offered as an after-dinner sweet,
rather than chocolate biscuits. But the fact that, upon some
occasions, some consumers select one product rather than
another does not establish that the two products are
| "substitutable", so as to be within a single market. | No doubt |
there are many people who sometimes drink tea and, at other
| times, coffee. But if, for example, a particular company | L |
dominated the sale of tea within Australia, it would thwart did not dominate the "hot beverage market". The fact is that tea and coffee are distinct beverages, for each of which there is a distinct demand. To adopt the test applied in pCMA, a rise in the price of tea would probably cause few consumers to abandon tea for coffee. It is important to remember that the notion of substitutability adopted in s.4E is one which looks to the market itself, not to the habits of individual consumers. The section speaks of "goods or services that are
the objectives of provisions such as ss.46 and 50 of the Trade
| substitutable for, or otherwise com~etitive | with, the first- |
| mentioned goods or services", |
This point emerges clearly from United Brands. The
applicant in that case was a major distributor of bananas.
But it argued that it was not in a dominant position since the
relevant market was not the banana market but the fresh fruit
market, It submitted that bananas compete with other fresh
l
fruit - in the same shops, on the same shelves - at prices
that can be compared and to satisfy the same needs:
consumption as a dessert or between meals. Moreover,
statistics showed that consumer expenditure on the purchase of
bananas dropped during that part of the year when there was a
plentiful supply of other fresh fruit. Yet the European Court
of Justice held that ,it was appropriate to speak of a banana
market. This conclusion was partly based on the fact that
| bananas were available throughout, | the whole year, and |
therefore substitutability had to be considered on a year- round basis. But it was also based upon the fact that the banana is a distinct product with a distinct demand:
"The banana has certain characteristics,
| appearance, taste, soft~ness, | seedlessness, easy |
handling, a constant level of production which
enable it to satisfy the constant needs of an
important section of the population consisting
of the very young, the old and the sick. As
far as prices are concerned two FAO studies
show that the banana is only affected by the
prices - falling prices - of other fruits (and
only of peaches and table grapes) during the
summer months and mainly in July and then by an
amount not exceeding 20 per cent. Although it
cannot be denied that during these months and
some weeks at the end of the year this product
is exposed to competiti.on from other fruits,
the flexible way in which the volume of imports
and their marketing on the relevant geographic
market is adjusted means that the conditions of
competition are extremely limited and that its
price adapts without any serious difficulties
to this situation where supplies of fruit are
plentiful, It follows from all these
considerations that a very large number of
consumers having a constant need for bananas
are not noticeably or even appreciably enticed
away from the consumption of this product by
the arrival of fresh fruit on the market and
that even the seasonal peak periods only affect
it for a limited period of time and to a very
limited extent from the point of view of
substitutability. Consequently the banana
market is a market which is sufficiently
distinct from the other fresh fruit market."
| See | 4 8 3 - 4 8 4 . |
In the same way, it may be said that biscuits have
distinct characteristics which set them aside from other
products. As we have pointed out, manufacturers recognise
this. They speak of "the biscuit industry". They concentrate
their competitive attention upon other biscuit manufacturers;
not concerning themselves with those who distribute corn
crisps or chocolates. Retailers recognise this; displaying
biscuits - as a distinct range of products, whether savoury or
sweet - on separate shelves, away from the corn crisps and
chocolates. Most importantly, although some consumers may be
fickle, there must be many for whom no other product provides
an acceptable substitute; who routinely consume biscuits,
throughout the year and with little regard for price
variations or alternatives. We cannot accept the suggestion
that the relevant product market is wider than that for
biscuits.
| The argument that the relevant market is narrower than the "biscuit market" has rather more appeal. | Scqe types |
of biscuits are not interchangeable with others. A host who
has run out of dry biscuits is unlikely to serve cheese on
chocolate biscuits. But interchangeability of function is
43.
| only one element in determining the extent of a market. | It is |
not necessary that each product in a particular market serve
precisely the same function as each other. For example, it is
usual to speak of "the motor car market". Yet there is no
real competition between a Mercedes Benz 500SL and a Nissan
Pulsar or between a Ford Fairlane and a Toyota Land Cruiser.
Each vehicle is pitched at a particular segment of the market, to serve people who have particular needs or financial limits. Some people might describe the clusters of vehicles which do
compete with each other as being within a particular sub-
| market. But, whether or not that course is taken, it remains | , |
.
| cars are sold by a limited number of manufacturers, each of which produces a range of models, has a reputation transcending any particular product and whose prosperity is significantly affected by common external factors such as general economic conditions, labour costs, tariff levels etc. | rational to speak of the "motor car market" in which new motor market" enjoyed by European or Japanese imported cars, or by | |
| ||
| if it appeared that the volume of car sales was affected by housing interest rates, it would not be sensible, in s.46 or s.50 terms, to place motor cars within the same market as houses or mortgage finance.] | ||
| It is noteworthy that the industry itself sees biscuit products, considered as a whole, as constituting a discrete class of foods. We have already referred to the |
4 4 .
internal reports of the three major manufacturers. Even more telling is the practice of "blocking" the biscuit products of one particular manufacturer on supermarket shelves, rather
than dividing the products into categories, each of which
contains the similar products of each stocked manufacturer.
The supermarkets do not place the Arnotts' dry biscuits
alongside the Nabisco dry biscuits or Arnotts' sweet biscuits
with Weston's. All Arnotts' biscuits, for example, are
| generally presented together, emphasising the significance of | i |
| biscuits at the behest of the manufacturers, especially | |
| Arnotts as a "biscuit" manufacturer. The supermarkets "block" to the various suppliers with reference to their total volume of biscuits, not on the basis of separate categories of biscuits. This is significant because shelf space is critical in the sale of biscuits. Speaking generally, Arnotts has 50 percent of biscuit bar space, whilst Weston and Nabisco enjoy about 15 percent and 10 percent respectively. | |
| A further factor telling against the submission that there is a multiplicity of biscuit markets is the form of | , |
| l | |
| Arnotts' advertising. This advertising is extensive. It has | , |
| contributed significantly to the market share which Arnotts | |
| enjoys. Arnotts' advertising stresses that there is "no | ~ |
| substitute for quality" and Arnotts' name commands strong brand loyalty. Although references are sometimes made to particular products, the focus of the advertising is on the | |
| name "Arnotts"; in connection with biscuits, rather than |
45.
particular varieties of biscuits,
l
For the above reasons, we are of the opinion that
the definition of "market" adopted by the trial Judge was
correct.
Dominance
The next question is whether Arnotts is in a
position to dominate the market defined by the trial Judge,
within the meaning of s.50(l)(b) of the Act.
As we have already indicated, Beaumont J found that it was. Much of the material upon which he relied is set out in the seventeen numbered paragraphs which we have already
quoted. Towards the end of his judgment his Honour expressly
referred to some matters which, he thought, indicated
dominance (93 ALR at 707-8):
'Arnotts has had, for many years, a very large
market share. True, Arnotts has some
competition in the supply of biscuits, but not
much. The evidence shows that the members of
the biscuit industry and the members of the
grocery trade, being the 'players' in the
market, act upon the belief that Arnotts is in
a position to exercise, and does exercise, from
time to time, a commanding influence in the
market. The evidence establishes that the size
and strength of Arnotts is such that, in
practice, other entities are unable or
unwilling to offer any significant competition
to Arnotts in the biscuit market in the medium
or long term. Even in the short term, there is
an obvious reluctance to meet Arnotts 'head-on'
or directly. Instead, other suppliers of
biscuits seek to find 'gaps1 or 'nichesf in the
market. All of this conduct is an indication
that Arnotts holds a commanding influence in
the market."
The appellants challenge these findings, contending
that the evidence showed fierce competition within the biscuit industry. Counsel submit that the existence of competition is incompatible with dominance, the essence of which is the
unwillingness of other market participants actively to compete
with the market leader. They also submit that there are no
| significant barriers preventing new suppliers of biscuit | 6 |
products commencing business within Australia, that new viable suppliers have in fact recently entered the field and that the major supermarket chains - notably Coles Myer, Woolworths and
Franklins - exercise such power as purchasers of biscuits that they prevent the possession or acquisition of any dominant market power by any supplier, including Arnotts.
| The word "dominance" is not defined in the Act. | Its |
natural and ordinary meaning is "having a commanding influence
onM: see Trade Practices Commission v Ansett Trans~ort
| Industries (O~erations) | Ptv Limited (1978) 32 FLR 305 at 325. |
A dominant firm has a high degree of "market power", a term
| defined in Queensland Wire. | Mason CJ and Wilson J said at |
| 188: |
"Market power can be defined as the
ability of a firm to raise prices above
the supply cost without rivals taking away
customers in due time, supply cost being
the minimum cost an efficient firm would
incur in producing the product ..."
At 200 Dawson J said:
"The term 'market power1 is ordinarily
taken to be a reference to the power to
raise price by restricting output in a
sustainable manner ... But market power
has aspects other than influence upon the
market price. It may be manifested by
practices directed at excluding
competition such as exclusive dealing,
tying arrangements, predatory pricing or
refusal to deal ... The ability to engage
persistently in these practices may be as
indicative of market power as the ability
to influence prices."
His Honour then quoted from Kaysen and Turner, Antitrust
Policv (1959) at 75:
"A firm possesses market power when it can
behave persistently in a manner different
from the behaviour that a competitive
market would enforce on a firm facing
otherwise similar cost and demand
conditions."
Dawson J also referred to pCm at 188-189 and continued:
"Market power is thus the advantage which flows from monopoly or near monopoly ..."
Queensland Wire was concerned with S. 46 of the Act,
but what their Honours said with respect to markets and
market power in that statutory context is relevant also to the
concept of market power underlying 9.50.
The decided cases have stated criteria to which
l
regard may be had in determining whether a participant enjoys
a dominant position in a market. But those criteria vary
according to the facts and circumstances of each case. No
inflexible rule can be laid down, except perhaps in the case
of barriers to entry.
A useful list of criteria was given in QCW at 189:
"Competition is a process rather than a situation. Nevertheless, whether firms compete is very much a matter of the
structure of the markets in which they no doubt the most important is ( 2 ) , the condition of entry. For it is the ease with which firms may enter which establishes the possibilities of market concentration over time; and it is the threat of the entry of a new firm or a new plant into a market which operates as the ultimate regulator of competitive conduct."
operate. The elements of market structure
which we would stress as needing to be
scanned in any cases are these: (1) The
number and size distribution of
independent sellers, especially the degree
of market concentration; (2) The height
of barriers to entry, that is the ease
with which new firms may enter and secure
a viable market; (3) The extent to which
the products of the industry are
characterized by extreme product
differentiation and sales promotion;
(4) The character of 'vertical relationships'
with customers and with suppliers and the
extent of vertical integration; and (5) The
nature of any formal, stable and fundamental
arrangements between firms which restrict bheir
ability to function as independent entities.
4 9 .
Some of the European cases provide assistance in the
resolution of questions of market power and dominance. similar economic concepts.
| In Euro~emballaae | Corworation and Continental Can |
| Com~anv | Inc v Euro~ean | Communities Commission [l9731 CMLR 199 |
("Continental Can") the European Court appears to have taken
into account, on the question of dominant position: market
share for the products in question; the size of the new unit
created by the merger in relation to the size of competitors
in the market; the economic strength of customers in !relation
to the new unit and potential competition either from
manufacturers of the same products situated in other
geographical markets or from manufacturers of other products
situated in the common market.
United Brands, a case of high barriers to entry,
adopted what was said in Continental Can. There the factors which, when taken together, were said to give United Brands an unchallengeable ascendancy over its competitors: its market share; the diversity of its sources of supply; the homogeneous nature of its product; its distribution system; its marketing system and publicity campaigns; the diversified nature of its operation and its vertical integration. The Court said that "dominant position" relates to a position of economic strength enjoyed by an undertaking which enables it
to prevent effective competition being maintained on the
relevant market by giving it the power to behave to an
I
appreciable extent independently of its competitors, customers
and, ultimately, its consumers. The European Court pointed
out that, speaking generally, a dominant position derives from
a combination of factors: the company's structure; the
situation on the market so far as competition is concerned;
whether a trader has succeeded in winning a large market share
(a trader does not have to eliminate all opportunity for
competition to be in a dominant position); and barriers to
| entry, which may include any exceptionally large capital | * |
investment required for the creation and running of a
competitive business enterprise. The decision stressled that
it is the cumulative effect of these matters which determines
whether an enterprise has a dominant position in the relevant
market.
Hoffman-La Roche was also a barrier to entry case.
The European Court acknowledged that the importance of market share might vary from one market to another; but it slaid that the view might legitimately be taken that very large market
shares are in themselves, save in exceptional circumsltances,
evidence of the existence of a dominant position. The Court
went on at 275:
"An undertaking which has a very large market share and holds it for some time, by means of the volume of production and the scale of the supply which it stands for - without those
having much smaller market shares being able to
meet rapidly the demand from those who would
like to break away from the undertaking which
has the largest market share - is by virtue of
that share in a position of strength which
makes it an unavoidable trading partner and
which already because of this secures for it,
at the very least during relatively long
periods, that freedom of action which is the
special feature of a dominant position."
In Hoffmann-La Roche the Court rejected reliance on
mere market share, saying that, on the facts of that case,
this might just as well result from effective competitive
behaviour as from a position which ensures that the company
can behave independently of competitors. But the Court
thought it always to be relevant to consider the relationship
between the market share of the undertaking concerned and that
of its competitors, especially those of the next largest, the
technological lead of an undertaking over its competitors, the
existence of a highly developed sales network and the absence
of potential competition; the first because it enables the
competitive strength of the undertaking in question to be
assessed, the second and third because they represent in
themselves technical and commercial advantages and the fourth
because it is the consequence of the existence of obstacles
preventing new competitors from having access to the market.
A little more should be said about the concept of
barriers to entry. In Queensland Wire Mason CJ and Wilson J
said at 189:
"A large market share may well be evidence
of market power ... but the ease with
which competitors would be able to enter Professor F.M. Scherer has written, 'significant entry barriers are the sine qua non of monopoly and oligopoly, for ... sellers have little or no enduring power over price when entry barriers are non- existent': Scherer, Industrial Market Structure and Economic Performance, 2nd ed. (1980) p. 11. Barriers to entry may be legal barriers - patent rights, exclusive government licences and tariffs for example.' Barriers to entry may also be a result of large 'economies of scale'. Where the economies of scale in a market are such that the minimum size for an efficient firm is very large relative to the size of the market, it may be that potential competitors will be dissuaded from entering the market by the apprehension that only one firm would
"A properly designed and conducted survey
may overcome all these problems. The
number of witnesses will be considerably
reduced. Probably it should only be
necessary to call the persons responsible
for designing and administering the survey
and an expert witness to verify the design
and methodology employed. The survey, if
so verified, should provide objective
results, with no opportunity for those
questioned to be briefed as to their
answers. Equally, the respondents to the
survey will give answers that are
realistic in the sense that they will not
be exposed to lengthy cross-examination as
to the rationality of their beliefs, a
matter which is surely irrelevant and
which if raised can only go to undermine
the continued holding of the belief
itself. In general, therefore, such
evidence will be more representative, more
objective, and hence more trustworthy and
reliable. This is not to say that survey
evidence is infallible. It is only as
good as the state of the science ... and
as the quality of the particular survey
used. Nevertheless statisticians require
little convincing that such evidence will
give considerably more reliable results
than that traditionally employed."
| See also Zi~wo | Manufacturina CO v Roaers Im~orts |
| 216 F.Supp.670 (1963) where, at 683-684, ~einberg | J of the |
| United States District Court said this: |
"Even if the surveys did not fit within this exception, well reasoned authority justifies their admission under the
following approach: the determination admissibility of a survey. Necessity in this context requires a comparison of the probative value of the survey with the evidence, if any, which as a practical matter could be used if the survey were excluded. If the survey is more valuable, then necessity exists for the survey, i.e., it is the inability to get 'evidence of the same value' which makes the hearsay statement necessary. When, as here, the state of mind of the smoking population (115,000,000 people) is the issue, a scientifically conducted survey is necessary because the practical alternatives do not produce equally probative evidence. With such a survey, the results are probably approximately the same as would be obtained if each of the 115,000,000 people were interviewed. The alternative of having 115,000,000 people testify in court is obviously impractical. The alternatives of having a much smaller section of the public testify (such as
that a statement is hearsay does not end
the inquiry into admissibility; there must
still be a further examination of the need
for the statement at trial and the
circumstantial guaranty of trustworthiness
surrounding the making of the statement.
eighty witnesses) or using expert
witnesses to testify to the state of the
public mind are clearly not as valuable
because the inferences which can be drawn
from such testimony to the public state of
mind are not as strong or as direct as the
justifiable inferences from a scientific
| survey. | M |
These two quotations touch also our second reason: both of the alternative methods of proving consumers' habits and attitudes are unacceptable. One theoretical possibility,
in a case like the present, would be for a party to call such
of the 1,200 respondents to the Roy Morgan survey as were
contactable. This course would have the advantage of
providing a fairly selected group of witnesses; subject to any
distortion which might be caused by difficulties in locating
respondents. But it would add enormously to the cost and
duration of a trial.
The second possibility would be for a party to call
evidence from a lesser number of selected witnesses. This
course was taken in Ritz. The plaintiff there called 152
| members of the public. | The majority of these witnesses were |
stopped in a public place by a representative of the plaintiff
and questioned as to the significance to them of the word
"Ritz". It seems that those who gave answers favourable to
the plaintiff's case were asked to give evidence. Those who
did not, were not. As a result, the evidence of these persons
was of negligible value. All that it established was that,
with the expenditure of sufficient effort and money, 152
people could be found somewhere in Australia who claimed to
109.
| associate the word "Ritz" with the plaintiff. | The 152 |
| that, as McLelland J noted at 215, there was "no ground in the evidence for any extrapolation on a statistical basis, or on the basis of any mathematical or logical probability, of the views of the 'public' witnesses (or any selection from them) as representing the views of the relevant class of the Australian public or a significant section of that class". | witnesses were not a fair sample of the general public; so of persons interviewed; for all the judge knew, the persons | |
| ||
| been a tiny minority. The tender of such partisanly selected evidence was an absurdity; yet it was a major reason why the trial took over seven months. |
A further possibility is that there will be no
evidence about matters such as public recognition of names or use of a particular name or trade mark would constitute misleading conduct or cause confusion, the court must make its own assessment of the situation. The position is similar where the question is whether one product is substitutable for another. But information is preferable to intuition. Where the state of public knowledge of, or attitudes to, some subject is a relevant factor in the court's adjudication of an issue, it is better to admit than to preclude evidence on those matters.
attitudes to products. Perhaps this would not matter greatly.
110.
For the above reasons, we would not uphold the respondent's objection in point of principle to the Roy Morgan
I
survey evidence. But there remain other objections, related expert to report on the reliability of the Roy Morgan report,
to the nature of this particular survey. First, it is said
that the training given to the interviewers was insufficient.
One of the three interviewers who was called said that his
training amounted to the completion of a trial questionnaire
and a thirty minute interview with someone from Roy Morgan.
Mr E Brinkley, a statistical consultant attached to the
| thought that "fairly substantial" training was necessary. | He | l |
had in mind a two or three day training course and supervision
of interviewers during their "first few" interviews.
Secondly, Mr Brinkley made criticisms of the form of many of
| the questions. We need not set them all out. It is | I |
| ambiguities. For example, the interviewees were asked to identify things that they "sometimes" ate between meals. But no guidance was given as to the meaning of "sometimes". Some respondents may have mentioned things eaten two or three times a week; some, things eaten once a year. As substitutability is a concept of degree, the difference is significant. | |
| sufficient to say that many of the questions contained words "not available". But it was not explained whether this meant available in the home or available at the local supermarket; so, in terms of market behaviour, it is difficult to see what use may be made of the answers. Mr Brinkley also |
111.
noted the difficulties of recall posed by some questions; for
example, a question which invited respondents to list the
foods eaten by themselves and all members of their households
over the preceding seven days. He commented that the best way
of obtaining such information is to ask interviewees to keep a
diary during the period surveyed.
In addition to the criticisms made by Mr Brinkley,
counsel draw attention to an exhibit containing the comments
of some of the interviewers. These comments contain
references to the length of the interview - it involved many
questions other than those commissioned by the appellants -
the repetitious nature of many of the questions, including the
subject questions, and the difficulty interviewers experienced
in maintaining the interviewees' interest. Another exhibit, a
bundle of reports from 111 interviewees, suggests that more
than half the interviews took more than 20 minutes, some over
50 minutes.
As indicated, Beaumont J accepted the admissibility
of the Roy Morgan report. But he was impressed with the
respondent's criticisms of the questions. He held that "it
would not be safe to give any real weight to the results of
the survey". We agree with this view. We add that we are
also troubled by the paucity of the training given to the
interviewers, by their reports as to the attitudes of
interviewees and the difficulty of maintaining interviewee
interest over such a long period.
112.
We have already indicated our opinion that
Australian law should follow the American lead in acknowledging that market survey evidence may play a useful
| role in cases such as the present. | In so doing, we do not |
mean to suggest that survey evidence will always, or even
usually, be decisive. It will be merely one element in the
overall picture, its importance varying from one case to
another: see the stimulating recent article by an American practitioner, Peter Weiss, "The Use of Survey Evidence in
| Trademark Litigation: | Science, Art or Confidence Game?" in |
| (1990) 80 Trademark Reporter at 71-86. | But, for reasons which |
this article emphasises, it is also important to follow the of the survey. We speak, of course, of a survey tendered at a final hearing. A less stringent attitude may be appropriate at an interlocutory hearing where the issue is whether there is a serious issue to be tried.
We have already quoted the criteria listed in theJudicial Conference Handbook. They seem to be equally
| appropriate for Australia. | In our opinion, any exercise of |
discretion, as under 0.33 r.3, to admit survey evidence should
depend upon compliance with those criteria. Where survey
evidence which does not satisfy those criteria is admitted, it
would ordinarily be entitled to little weight. That is the
present case.
Surveys are expensive. So it may be prudent for
113.
parties in future cases to raise these matters with their opponents and the Court before any survey is carried out:
| see, by way of warning, Associated News~a~ers | ~ l c | v Insert |
Media Ltd [l9901 2 All ER 803 at 805-806. The course which we suggest was taken in an early case in this Court, Grevnell
| Investments Ptv Ltd v Hunter Doualas Ltd: | see para.15-140 of |
the Australian Trade Practices Reporter where the directions
are set out. If the form of the relevant questions is agreed
by the parties after expert advice, or settled by the Court,
the results ought not to suffer the fate of the subject
report.
Other market survev re~orts
| The parties tendered other market survey reports. August 1980 regarding confectionery. Another was a survey by | One was a report of a survey made by Rowntree Hoadley in reports were commissioned by Arnotts. |
| All of these reports were admitted into evidence as business records - cf. Shoshana - but the trial Judge placed little weight upon them. He commented: |
"In no case was the person who
commissioned the report called. Nor was
the person who carried out the survey
called. The persons whose views were
sought in the course of the survey were
not called. In these circumstances, it
would be unsafe to rely upon the opinions
or conclusions expressed in these reports.
In my view, these are entitled to little
| weight. | " |
We would not regard the failure to call the
interviewees as affecting the weight of these various reports. tendering market survey evidence. And the criteria adopted by the Judicial Conference of the United States, which we have already suggested are appropriate for Australian use, do not include the calling of all of the interviewers. But we agree with the Judge's criticism of the lack of evidence as to how these various surveys were conducted. Even more importantly, the reports do not provide real assistance on any relevant issue. Questioned on this, counsel for the appellants offered one example of the utility of the reports. They referred to the finding of the 1980 Rowntree Hoadley survey that 64.4% of all interviewees regarded "Kit Kat" as a "biscuit" or "chocolate-coated biscuit". The question included in the survey invited the interviewees .to choose between two
| descriptions of the product: | "chocolate-coated bar" and |
"chocolate-coated biscuit". As counsel for the respondent says, given that the description "chocolate-coated bar" is hardly appropriate, it is not surprising that many people
chose the alternative. But the answer proves nothing about
market definition. Rqwntree Hoadley has always marketed "Kit
Kat" as confectionery.
The "Kit Kat" question was offered only as an example. But it seems to be the best example which counsel
115.
can muster. That fact strengthens our impression that there
is nothing in these reports which assists the appellants1
case.
Mrs Svmonds' evidence
Finally, in relation to evidentiary matters, the
appellants complain of the trial Judge's reaction to evidence led from Mrs Nicole Symonds, a solicitor employed by the firm acting for the appellants. Beaumont J dealt with her evidence
in this way:
"Mrs. Symonds, a solicitor employed by during the course of the trial, she purchased from several retail outlets in Sydney many items of biscuits, snack foods, confec,tionery and breakfast cereals. More than one thousand items were tendered through Mrs. Symonds; The items were purchased in an endeavour to comply with an instruction, given to her by the solicitor with the conduct of Arnottsl defence, 'to purchase biscuits and any like products'.
It is not suggested that Mrs. Symonds has should be given to her views as a consumer to indicate the range of processed foods available in this general area.
any experience in the biscuit industry.
Accepting that Mrs. Symonds may be regarded as a consumer of processed foods,
I am of the view that, because of Mrs.
Symonds' professional association with evidence should be given little weight.
Even if this factor were not present, Mrs.
Symondsl evidence was necessarily limited
in its scope. It cannot, for instance,
tell us the volume of the trade in the
products tendered, in what areas they are
marketed and over what period they have
been marketed. Without knowing these
details, very little could be inferred
from Mrs. Symonds' testimony."
| We agree with these comments. We add that it is not apparent to us that there was any need to call Mrs Symonds at all. We appreciate that the appellants wished to prove the range of products available to retail customers and the type of stores where they might be purchased. But we would have expected that, if Mrs Symonds had prepared a list of her | I | I |
| admission. The purchases could then have been tendered. If the respondent declined to make an admission, Mrs Symonds might have been briefly called to prove the purchases. The list and the purchases could have been tendered through her. | purchases, the respondent would have made an appropriate the appellants had wished the trial Judge to examine the purchases, he could have done so at his convenience, not necessarily in court time. As it was, Mrs Symonds was in the witness box for most of three days. Her evidence extended over 185 pages of transcript. This was partly because senior counsel for the appellants took the course of asking her numerous unnecessary questions. For example, counsel spent many hours taking her descriptions of the packaging of each of the products which she had purchased; something which the trial Judge was capable of seeing for himself. Mrs Symonds gave evidence on such esoterica as her reasons for preferring |
salted cashews and walnuts to pecan nuts and the order of the
various layers in a mint stick. The course taken by counsel
I
for the respondent was equally irresponsible. Senior counsel
spent hours cross-examining the witness on such minutiae as
the progress of her trolley through the stores where she made
her purchases, the precise location of various items, who
helped her place the goods in the trolley etc.
At the trial, as before us, counsel for the
appellants sought to use Mrs Symonds' evidence to show what
products were substitutable for biscuits. The argument is
that, Mrs Symonds having been instructed "to purchase biscuits
and any like products", her selection constituted evidence of
the available "like products". Counsel contend that "like
products" are substitutable products, so the relevant market
must include all of the items which she selected.
Leaving aside its other difficulties, this line of
argument depends entirely upon Mrs Symonds' assessment of what constitutes a "like productw to biscuits. But, in what sense, "like"; in composition, appearance, taste, nutritional value,
calorific value, price? Or some only of those matters; and,
if so, which of them? Without a definition of the word
| "like", the exercise was fundamentally flawed. | But, even if |
there had been a precise definition, Mrs Symonds was a
solicitor working on the case, She was hardly a typical
consumer. Even assuming that the views of a single consumer were worth having on the issue of substitutability, without
118.
reflecting on Mrs Symondsf sincerity it was ludicrous to
expect his Honour to give weight to the views on that issue of
a solicitor involved in the case. She could not possibly put
herself in the position of a "typical consumer", if such a
person exists. His Honour was plainly correct in declining to
place any weight on this evidence.
We are of the opinion that most of the complaints
made by the appellants in respect of the trial Judge's rulings
on evidence are ill-founded. To the limited extent that we
are persuaded that his Honour wrongly rejected evidence, that
evidence is not shown to be significant. Even if it were
admitted, and taken into account, it would make no difference
to the view we have formed about the principal issues in the
case. Accordingly, there is no justification for a new trial.
| The a~~lication | to call fresh evidence |
Shortly after we reserved judgment on the appeal,
their clients desired to file a notice of motion seeking leave
to reopen their case in the appeal and tender fresh evidence.
the solicitors for the appellants informed the Court that returnable on 2 November 1990. The motion was made pursuant to 0.52 r.36 of the Rules of Court. The Commission opposed the motion. After hearing argument, we dismissed the motion, indicating that our reasons would be included in our reasons for judgment in the appeal generally. What follows are those
reasons.
The evidence which the appellants asked the Court to
receive was of facts in existence at the time of the hearing before Beaumont J. But the appellants said that evidence of these facts was not available to them despite their
conscientious efforts to obtain it. The relevant evidence
consists of certain paragraphs (9 and 15(b)) of a draft
affidavit of a Mr G E M Falk, a solicitor in the employ of a
Sydney firm of solicitors, Phillip Parbury and Associates, and
| annexures | "D", "E", "F", "H" and "I" thereto, Annexure "DM |
g .
is a facsimile dated 15 May 1989 from H J Campbell Pretty & of Phillip Parbury & Associates. Campbell Pretty is a marketing research company which, together with The Ball Partnership (Australia) Pty Limited and Mattingly Pty Limited, two advertising and marketing companies, was employed by United Biscuits Holdings Plc or United Biscuits (UK) Limited (referred to collectively as "United Biscuits") in 1989 to undertake research and prepare reports concerning the possible entry of United Biscuits into the Australian biscuit market. United Biscuits is an international company with its head
| office in England. | It is one of the world's principal |
manufacturers and suppliers of biscuits. Annexure "E" is a
facsimile sent by Campbell Pretty to Mr Parbury on 8 May 1989
enclosing a facsimile from United Biscuits to Campbell Pretty
dated 5 May 1989. Annexures *Fw and "Hw are facsimiles, dated
15 May 1989 and 23 May 1989 respectively, from United Biscuits
120.
to Mr Parbury. Annexure "Iw is a facsimile dated 23 May 1989 from Anderson Hughes Ball W.C.R.S. Limited to Phillip Parbury
l
& Associates.
In support of the motion, counsel for the appellants
argued that if these documents were admitted into evidence
they would establish that:
prior to the date of the judgment of Beaumont J in Australia and had incurred substantial costs - at least $100,000 - in the preparation of market research reports with respect to such a launch;
by 8 May 1989 United Biscuits had decided to market
biscuits in Australia, intended that millions of
dollars would be invested by it in that marketing
and was preparing for a.major product launch of
biscuits in Australia.
Counsel for the appellants submitted that:
other evidence which was admitted at the trial establishes that United biscuits is one of the world's largest manufacturers of biscuits and is a
corporation far larger than Arnotts;
the fact that United Biscuits planned to launch a
121.
range of ,biscuits in Australia, after assessing the
market, is conclusive, or at least highly
significant, evidence of the lack of significant
barriers to entry;
the proposed evidence directly traverses several
allegations made in the amended statement of claim;
if the evidence had been available, the trial Judge
would have been compelled to a finding to the
contrary to that which his Honour came; namely, that
there "is no evidence either direct or
circumstantial, that the party in question " - that
is, United Biscuits - " proposes, or for that matter
does not propose to launch its products in Australia
at this stage". Hence, so it was argued, his Honour
would have found that there were no significant
barriers to large scale entry; and, therefore, that
Arnotts could not be dominant.
The Court has power in its discretion to receive
further evidence, either on affidavit or by oral examination:
see 9.27 of the Federal Court of Australia Act and 0.52
r.36(5), which requires that the evidence which a party wants
the Court to receive on the hearing of an appeal be given by
affidavit.
Counsel for both the appellants and the Commission
agreed that, in determining whether fresh evidence should be
introduced on the hearing of an appeal, the established
principle is that such evidence should not be allowed unless
it is almost certain that, if the evidence had been available
and had been adduced at the trial, an opposite result would
have been reached by the primary judge. Reference was made to
| the judgment of Dixon J in | v Holmeg (1948) 76 CLR 632 at |
"But the evident purpose of all of them is to existence of the fact it tends to prove that a finding to the contrary, if it had been given, would, upon the materials before the court, appear to have been improbable if not unreasonable."
ensure that new trials will not be granted
because of fresh evidence unless it places such
a different complexion upon the case that a
reversal of the former result ought certainly
to ensue. The fact which the new evidence
tends to prove, if it does not itself form part
of the issue, must be well nigh decisive of the
state of facts upon which the issue depends.
The only relevant material in annexures "D", "E",
"F", "H" and "I" to the draft affidavit of Mr Falk are
statements of a hearsay nature. Moreover, they were each
"made or obtained for the purpose of, or in contemplation of,
any judicial ... proceeding" within the meaning of s.7C(1) of
the Evidence Act. Accordingly, none of them would be
admissible under Part IIIA of that Act as business records.
Counsel for the appellants accepted that position, but argued
| that Part IIC of the Evidence Act | 1898 (NSW) applied to |
permit their reception into evidence. In that connection,
123.
they relied on s.79 of the Judiciarv Act 1903 which provides:
| " 7 9 . | The laws of each State or Territory, |
including the laws relating to procedure, be binding on all Courts exercising federal jurisdiction in that State or Territory in all cases to which they are applicable."
evidence, and the competency of witnesses,
shall, except as otherwise provided by the
Counsel argued that 55.79 of the Judiciarv Act
required in this case 'the application of Part IIC of the New the annexures to be received into evidence. Counsel sought to meet s.l4CF(1) of the New South Wales Evidence Act, which restricts the admissibility of business records, with an argument that it has a substantially different meaning from s.7C(1) of the Commonwealth Evidence Act and does not render the annexures inadmissible in this case. Section 14CF(1) provides :
"Notwithstanding section 14CE, a statement made
or obtained for the purpose of, or in
contemplation of, a legal proceeding or any
other legal proceeding arising out of the same
or substantially the same facts is not
| admissible. | " |
Counsel contended that the subject documents arose
out of a legal proceeding different from the principal
proceeding because it related to compliance with subpoenas
issued in the principal proceeding.
124.
We need not pause to examine the correctness of this
argument. It is plain that there is no room for the are not in precisely the same terms is not to the point. The Commonwealth Evidence Act makes extensive provision for the admission into evidence of business records and effectively covers that field. It has "otherwise provided" within the
application of Part IIC of the New South Wales Act in this
case. The Commonwealth Evidence Act addresses the
admissibility of business records. The fact that the
| meaning of s.79 of the Judiciarv Act: | cf. DeQutv Commissioner |
of Taxation v Moorebank Ptv Limited (1988) 165 CLR 55 at 64. provisions of the New South Wales Evidence Act relating to the admissibility of business records.
| In Su~etina | Spender J considered the interaction of |
| with respect to business records. His Honour held that s.92 of the Queensland Act, insofar as it relates to documents which come within Part IIIA of the Commonwealth Evidence Act, is inconsistent with that Part and is, to that extent, invalid by virtue of the operation of s.109 of the Constitution. | the Commonwealth Act and the Queensland Evidence Act 1977, conclusion on our construction of s.79 of the Judiciarv Act; rather than on the notion of inconsistency within the meaning of s.109 of the Constitution. |
125.
Unless the Court were to resort to 0.33 r.3 - a
course plainly inappropriate in relation to such controversial and imprecise material as this - none of these documents would be admissible. And what remains, paras.9 and 15(b) of Mr
Falkfs draft affidavit, has no separate probative value.
There are other reasons which led us to dismiss the
appellantsf motion. The evidence before Beaumont J
established that United Biscuits was contemplating a test
launch in Australia of its biscuit products. But it did not
establish whether United Biscuits, even if it did carry out a
test launch, would or would not make a general launch of
biscuit products into the Australian market or, if it did,
whether such a launch would have the effect of placing any
constraint upon Arnotts. The fresh material which the
appellants sought to adduce in evidence before us adds little,
if anything, to the inferences which may be drawn from the
material already before the trial Judge, in particular exhibit
85. Certainly this further material falls far short of
esgablishing, even with the aid of existing evidence, the
conclusions for which the appellants contend.
At its highest, this additional evidence shows no
more than that, in mid 1989, United Biscuits contemplated products intended to be marketed, the scale of the launch or, of course, its likely success, In particular, it says nothing
launching some of its biscuits into the Australian market.
126.
about the likely effect, if any, of the United Biscuits launch
| on Arnottsf position in the Australian market. | In short, if |
this additional evidence were admitted, it would not meet the
| test propounded by Dixon J in | v Holmes. |
| Conclusion |
The appeals should be dismissed.
I certify this and the one hundred and twenty five (125)
preceding pages to be a true copy of
the Reasons for Judgment of
the Court.
| Associate: | "(---z |
| Date : | 29 November 1940 |
Counsel for the First and
| Second Appellants: | C A Sweeney, QC and C P Comans |
| Solicitors for the First and | |
| Second Appellants: | Clayton Utz |
| Solicitors for Third and | |
| Fourth Appellants: | Minter Ellison |
| Counsel for the Respondent: | B C Oslington, QC, D G Staehli and M R J Ellicott |
| Solicitor for the Respondent: | Australian Government Solicitor |
| Counsel for George Weston Foods | |
| Limited: | P M Jacobson |
| Solicitors for George Weston | |
| Foods Limited: | Allen Allen & Hemsley |
| Dates of Hearing: | 30 July 1990, 1, 2, 3, 6, 7, 8, 9 August 1990, 2 November 1990. |
8