Australia Meat Holdings Pty Limited v Trade Practices Commission

[1989] HCATrans 135

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry

Sydney No S32 of 1989

B e t w e e n -

AUSTRALIA MEAT HOLDINGS

PTY LIMITED

Applicant

and

TRADE PRACTICES COMMISSION

Respondent

Application for special

leave to appeal

BRENNAN J
DAWSON J

McHUGH J

Meat

TRANSCRIPT OF PROCEEDINGS

AT MELBOURNE ON FRIDAY, 9 JUNE 1989, AT 3.27 PM

Copyright in the High Court of Australia

Ml T 11 / 1 / RB. 1 9/6/89

MR G.L. DAVIES, QC:  May it please the Court, I appear with

my learned friend, MR R.G. WRIGHT, for the

applicant. (instructed by Blake Dawson Waldron)

MR C.A. SWEENEY, QC: If Your Honours please, I appear with

MR J.S. HILTON, for the respondent. (instructed

by the Australian Government Solicitor)

MR DAVIES:  Your Honours, that part of the judgment on appeal

relevant to this application is concerned with the

correct construction of subsections (1) and (lC) of

section 81 of the TRADE PRACTICES ACT. Those

sections, Your Honours, are conveniently set out in

volume 2 of the application book, cormnencing at

page 177. Your Honours will see at the bottom of

page 177 section 81(1) set out:

The Court may, on the application of the

Minister, the Cormnission or any other person, if it finds, or has in another

proceeding instituted under this Part

found, that a person has contravened

section 50, by order, give directions
for the purpose of securing the disposal
by the person of all or any of the shares

or assets acquired in contravention of

that section.

Then on the following page, at the bottom, subsection (lC):

Where an application is made to the Court

for an order under sub-section (1) or a

declaration under sub-section (lA) -

and we can ignore that -

the Court 1:1ay, instead of making an order
under sub-section (1) for the purpose of

securing the disposal by a person of

shares or assets ..... accept, upon such

conditions (if any) as the Court thinks
fit, an undertaking by the person to

dispose of other shares or assets owned

by the person.

And we accept, of course, for the purpose of our

argument today that there was a contravention of

section 50. Your Honours, the trial judge

Mr Justice Wilcox found that by reason of the relevant acquisition which is, as Your Honours will

have seen, of shares in Thomas Borthwick that the

applicant would be in a position to dominate a

market, the market for fat cattle in North Queensland

which it was not in a position to dominate before

that acquisition.

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Your Honours will have seen that the north

Queensland market geographically was a market which was held tol:e a market north of a line drawn roughly

along shire boundaries which reached the coast at a

point just north of Mackay and it was the subject of

a number of maps which are now before Your Honours.

The only relevance of it, for the purpose of the

submissions we want to make today, is that Mackay was

not in north Queensland and acquired - the Mackay
abattoir acquired only a very small number of cattle

in that north Queensland market.

Can I take Your Honours to two statements where

that appears: first, in the judgment of

Mr Justice Davies who, as Your Honours will recall,

was one of the two majority judges in the Full Court,

at page 199. In the full paragraph commencing at

about half-way down that page His Honour said:

The Mackay abattoir, which was apparently

a modern and efficient abattoir, had in past

years procured only a small part of its

supplies from Northern Queensland.

And he then goes on to say:

In part, this had resulted from geographical

factors, for the principal roads into Mackay

from the cattle producing areas came in from

the south and southwest. In part

it was due to other factors. And the other reference,

Your Honours, is that of Mr Justice Pincus, who was

the minority justice on appeal, at page 242. I am

reading really from the second last and last sentence

in the first paragraph on page 242. His Honour said -

and I realy just take it up in the fourth last line

towards the end. He says:

it must be kept in mind that the Mackay

abattoir purchased only 8,265 cattle in	1986 and only 8,705 cattle in 1987 from	the northern region. In each of those
years, well over 400,000 cattle were
slaughtered by the northern abattoirs.

Just going back then to what the trial judge said

and did, the trial judge then indicated that he would

accept from the applicant undertakings to dispose of

abattoirs instead of requiring the applicant to

dispose of the shares in Thomas Borthwick which it

had acquired and it was agreed by the parties - it

was corrnnon ground by the parties that he could make

such an order under section 81(1C). Then, because

the only undertakings which His Honour was prepared

to accept were not those which were proffered by the

applicant, and because the applicant wished to appeal,

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His Honour then made a conditional order in terms of

the undertaking he was prepared to accept, a

conditional order under section 81(1) instead, so that

in effect the applicant could appeal. And nothing

turns on that in this application today.

The relevant question before His Honour, and

indeed on appeal, and the relevant question which we

say is the important one, concerns the correct

principle upon which an undertaking to dispose of

assets - in this case abattoirs - or an order made

conditional upon the disposal of such assets should

be made. The principle which - - -

BRENNAN J: In substance, the question is was it right to

order the disposal of the Mackay abattoir; that is
the essential question, whether it is done by way

of order or undertaking.

MR DAVIES:  Yes, it is, Your Honour. The principle which was

stated by His Honour the trial judge is stated in the

judgment of Mr Justice Davies - and if I can just

take Your Honours to that while I have volume 2 in

front of me - it appears summarized in Mr Justice Davies'

judgment at page 200 - the relevant passage, I should

say, is set out at page 200 of volume 2. It also

appears in pages 140 -142 of the volume 1 where the

trial judge's judgment is set out. Can I take up

and read only part of the second paragraph which

His Honour quotes from Mr Justice Wilcox's judgment,

that is the passage commencing a little more than

half-way down the page where Mr Justice Wilcox said,

after rejecting some other arguments:

The instant question must, I think, be

determined upon a more principled basis.

I accept that the location of a particular asset is not decisive upon the question

whether it ought to be included in an

undertaking to divest.	The question rather
is whether the retention of that asset,

gained in contravention of s.50(1) will

serve to assist the contravening corporation

to dominate the relevant market.

That is the test which His Honour laid down and he

goes on to say to explain that:

If there is no nexus between the retention of the asset and domination, there is no need to insist upon divestiture. If there

is such a nexus, of more than minimal

proportions, the Court should insist that
the contravening corporation divest itself
of that asset. Only in that way may the

policy underlying s.50(1) be vindicated.

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Now, Your Honours, it is our submission that

that principle is wrong and before going to say why
it is wrong, can I say what His Honour then did.
This was in His Honour's original judgment and

subsequent to that some undertakings - various

undertakings were proffered. His Honour said, first

of all, that that meant, in his original judgment,

because the assets which were acquired were Bowen

than minimal proportion to the question of

abattoir, which was within north Queensland, and more

domination, that therefore both of those assets,

Mackay and Bowerui should be disposed of. That is, that

the applicant should be put back into the pre-acquisition

state. It should be back in the same position it was

as if it had never acquired assets at all.

Then undertakings were proffered and in the course

of dealing with those what His Honour said by way of

alternative is that you can dispose of other assets

instead of Mackay provided that those other assets

are equivalent in terms of throughput, profit-making,

unused capacity, to the Mackay abattoir. Can I just

take Your Honours to briefly what His Honour said

about that. That is going back to the first volume

of the application book - if I can take it up at
about page 149 and I intend to cotillllence reading from

the first full paragraph on page 149 - not all of it but just a little of it. He is there dealing with -

I should say the undertakings which the applicant

tended to His Honour the trial judge were, first, that
the applicant would dispose of Bowen, together with

Mareeba and Mt Isa, which were two abattoirs which

had certain capacities but which were not in fact

operating at the time. He dealt with that in the
previous paragraph and then, in the first full

paragraph, he then deals with undertaking two, that

is proposition number two which added Cape River

which was an operating abattoir to Bowen, Mareeba and

Mt Isa, and His Honour says:

Proposition number two incorporates the terms

of the first proposal but adds to it the

disposal of Cape River.

Then he goes on to say it had been operated, and then

he deals with Cape River's average throughput and

says it is about 35 per cent of Mackay's throughput,

so he is comparing the throughput of Cape River with

Mackay to see whether it was equivalent in terms of

throughput. And that is what he does in that

paragraph and I will not read it all, but I just ask

Your Honours to glance at it. That is what he does in

that paragraph. Then on the following page, page 150,

he then goes on to deal with the third alternative

which includes Cairns, he adds Cairns to it.	He says,
on page 150 in the first full paragraph:

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The combined average kill of Cape River

and Cairns, over the years 1985-1987, has

been 95,609 head per year; a figure equal to

81% of the average Mackay kill.

So again he is comparing the total of those abattoirs

with the total kill at Mackay. And then he says in

the last sentence in that paragraph:

It is apparent that, in terms of profitability,

AMH is likely to be better served by operating

Mackay .. ' •.. No doubt this is the reason why the

company puts forward the present proposition.

Then he talks in the next paragraph about,the third

sentence, about

profitability factors associated with Mackay.

It would be equally wrong to consider only

profitability, overlooking unused capacity.

So he says they are relevant factors, profitability,

unused capacity and throughput. Then on the

following page, 151, reading from the first full

sentence there:

On the whole, and subject to one important

qualification, it seems to me that the
contribution to dominance of the northern

cattle market likely to be made by AMH's

acquisition of Mackay would be likely to be

offset by the disposal of its abattoirs at - and he says those. And he makes the qualification

then in the following paragraph. Then if I could

take Your Honours to the bottom of page 153 where

it appears that - he says, in the second-last

sentence there:

If a suitable undertaking can be framed

regarding the disposal of Bowen and Mackay,

this might be accepted. Alternatively,

Mareeba, Mt Isa, Cape River and Cairns might

be substituted for Mackay; providing that

there is certainty that at least three of
those four abattoirs will be operated by
the purchaser or purchasers during the

foreseeable future. I specify only three

out of the four abattoirs because, on past experience, the combined throughput of any three of these abattoirs would at least

match that at Mackay.

DAWSON J: Is that alternative consistent with what was said in

the other passage? In other words, he seemed to be
suggesting that Mackay and Bowen should be - because

they were the instruments by which the dominance

obtained - - -

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MR DAVIES:	Yes, and he says you have to go back to the equivalent of pre-acquisition stage, he is saying.
Now, you do that either by getting rid of Bowen and Mackay which you acquired-
DAWSON J:	Or the equivalent?
MR DAVIES:	Or the equivalent, yes; so it is Bowen, plus the equivalent of Mackay, and he says, well, three out of these four abattoirs would be the equivalent of Mackay in terms of throughput, and therefore that
would be sufficient.

DAWSON J: That is somewhat of an extension to what is said on

page 200, is it not?

MR DAVIES:  It is an extension in the sense that originally,

at the point one was at before, the alternatives had

not been offered and that is why he extends it to

that. But the point we are making - and the important

point is that he does say one has to go back to pre-

acquisition stage and that is the point in which we

say he is wrong. And we can illustrate it by a

simple example. Supposing - - -

BRENNAN J: Before you develop that point, could I just take

you back to one other factual question. It is on

page 151, fourth line on that page, you have already

quoted it to us. The phrase that took my attention

is "the contribution to dominance of the northern

cattle market likely to be made by AMH's acquisition

of Mackay". Did His Honour develop that at any stage?

MR DAVIES:  No, he did not, Your Honur, and the way in which he

gave judgment makes it clear that what he is saying

is that to remove dominance, one has to get back to

pre-acquisition state and he then says, "Well, to

get the equivalent of Mackay's dominance, you look at the whole of Mackay's throughput, unused capacity and

profitability" - in the end it seems to be throughput

the major factor - "but you look at Mackay and you

say what is the equivalent of Mackay".

BRENNAN J: 

I understand that latter argument may be a question

of fact but if it also be a fact that Mackay
contributed to the dominance of the north, even

though it is not geographically within the north, it

seems to me that different questions of principle

might arise here.

MR DAVIES: 

On his conclusion, Your Honour, it contributed to

dominance to more than a minimal extent, but it was

very very slight.

BRENNAN J: But is he talking simply about the 8000 head of

cattle or the buffer effect of Mackay as against

protecting, as it were, the northern enclave?

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MR DAVIES:  The buffer effect he really seemed to reject,

Your Honour. It was really put to him by our

learned friends below that Mackay had a great

potential once it was in our hands and Bowen had

gone to be used in a different way. Just prior to

the passage which I quoted from the judgment of the

trial judge in the passage in Mr Justice Davies'

judgment His Honour had rejected - His Honour

Mr Justice Wilcox had rejected that other approach.

Perhaps I should really take Your Honours back to that to show Your Honours what he rejected. If you go to

page 140 - and he sets out at page 140 what our

above half-way he says - you see a little earlier	learned friends' arguments were before him, and just
than that he says:

Counsel point out that, although Mackay is

within the central region, as defined by

most of the witnesses, it immediately

adjoins the southern boundary of the

northern region. The Mackay abattoir does

in fact draw cattle from the northern region.

Notwithstanding that such cattle constitute

only a small proportion ..... the consequence,

say counsel, is that control of the Mackay

abattoir gives to AMR some additional strength

in the northern market.

And he goes on to set out those submissions in some

detail, going over to the end of the paragraph on

the following page. Then in the next paragraph he

puts our competing submissions, then at the end of it

he says, down the bottom of the page:

I see the force of both sets of submissions

regarding future competition. But they are

essentially speculative. So much depends upon

unknown factors: particularly the identity

of the purchaser of Bowen. The instant

question must, I think, be determined upon And then he goes on to the principle which I have a more principled basis.

already read.

BRENNAN J: What does that mean, "the identity of the purchaser

of Bowen"? Was Bowen going to be sold?

MR DAVIES:	Bowen, it seemed to be common ground, had to be disposed of because it was either - it was Bowen and
something else. It was eoing to be Bowen and something else, even on our undertakings it was going to be Bowen and something else. So His Honour really
rejected the potential argument about - the argument
about the potential of Mackay and so he was really
talking about, in the end, the fact that it really
had a small thing but then he really took the whole
o.f Mackay.

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I was about to go on, I think, to give

Your Honours an exampl3 to show how we say His Honour's

principle is clearly wrong. Suppose company A has

10 per cent of a market. It then acquires all the
shares of company B which has 60 per cent of the

market, thereby giving it dominance with 70 per cent

of the market. Now, on His Honour's principle that

would require company A to dispose of 60 per cent of

the market. Now, it could do that, according to

His Honour, by disposing of all of the assets it had

acquired - that is the whole 60 per cent it acquired -

or it could do that by disposing of 50 per cent that

it had acquired plus the 10 per cent it originally had.

But it would require that. Whereas we say that dominance could be effectively removed in that case

by requiring that company to dispose of only 30 per
cent of the market, which would then bring its

percentage of the market from 70 per cent of the market

back to 40, and thereby removing dominance.

In our respectful submission, that clearly shows

that the principle requiring the acquirer to go back
to a pre-acquisition state is a penalizing principle;

it is not a principle which puts an end to dominance

which is, in our respectful submission, the proper

purpose of section 81, it is a principle which goes

much further than that.

BRENNAN J: In its factual application to the principle for

which you contend, it is not necessary to dispose of

Mackay in order to be satisfied that you will not be

in a dominant position in the market in north

Queensland.

MR DAVIES: That is right.

BRENNAN J:  Is there any finding of fact which would support

that, affirm it or deny it?

MR DAVIES:  Your Honour, it really follows from which principle

one applies. If you apply our principle, it is

correct, because Mr Justice Pincus reached the

conclusion which we say was the correct conclusion in

the case. But applying His Honour's principle, you

cannot get the result which we say is correct, of

course. Applying his principle, which is getting the
acquirer back to the pre-acquisition state, you have
to dispose of either Mackay or equivalent, which he

said was all these othe~ aaattoirs put together.

BRENNAN J:  I appreciate the way in which you are putting it,

Mr Davies, but I must say, reading Justice Davies

and Justice Sheppard, it seemed to me they were

taking it far more on the broader basis of saying,

"Well, on the facts of this case Mackay should go."

MR DAVIES:  I will take Your Honours to their judgment. They

c_ertainly did seem to be saying - but what they were

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saying and what they were clearly doing was they

were applying Mr Justice Wilcox's principle and we

can demonstrate that, we submit with respect, by

looking at their judgments. Can I take Your Honours

to those judgments now. Can I take Your Honours

first of all to Justice Davies' judgment and my

purpose in taking Your Honours to his judgment is to

show Your Honours - and it is at page 202, that like

Mr JusticeWilcox, Mr Justice Davies thou~ht that the object of the section was to take the parties back to the

pre-acquisition position.	Now, we say that is the
principle which is wrong.	It is not necessary to

take the parties back to pre-acquisition position and

to apply that principle is wrong.

Now, on page 202, His Honour says - I will just

read the last sentence in the first paragraph there

first, because it leads into the next paragraph:

He says:

I am not persuaded that a purchaser of the

Bowen abattoir alone would have such

strength and provide such competition.

Well, we really accept that, that we need to dispose

of a little more than Bowen, for the purpose of

the argument anyway. He says:

I think there was no error in his Honour's

view that the Mackay abattoir should be

encompassed by the divestiture ordered.

It is the next paragraph which really explains why

he said that was so because he says:

As the sale of the Mackay and Bowen

abattoirs to different purchasers, which

His Honour's orders permit, would not restore the pre-acquisition position, I can see reasons why AMH should not have been given

an opportunity to arrange the disposal of the	abattoirs but should have been ordered simply	to divest itself of the shares in Borthwick,
thus maintaining the two abattoirs in the
same ownership. However, I do not understand
the Commission's grounds of appeal or submissions to raise this point.

So he lets it go. But the point we quote the passage

for is to indicate that His Honour clearly thought

that the purpose of section 81 was to restore the

parties to the pre-acquisition position.

BRENNAN J:  No doubt His Honour did use those words as you

quoted them, but at the first paragraph of 202 where

he is dealing precisely with the problem of the

Mackay abattoir, the reason which His Honour assigns

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there for upholding the order that was made is that

he was -

not persuaded that a purchaser of the Bowen

abattoir alone would have such strength and

provide such competition.

MR DAVIES:  Yes, we accept that; we accept we need a little

more than Bowen, but the real question is - - -

BRENNAN J: But what was the strength and competition to which

His Honour was referring? Was it not the strength

and competition which would remove dominance?

MR DAVIES:  Yes, indeed, but the question is, what is that,

Your Honour, and we say we remove dominance by

getting the parties back to a position where their

share of the market is less than a dominant share.

BRENNAN J: Yes.

MR DAVIES:  Now, what he is saying is, in our respectful

submission, when one goes to the next paragraph,

getting the parties back to a pre-acquisition stage

is the way in which you remove dominance. I mean,

certainly he uses the phrase "removal of dominance"
and no doubt Mr Justice Wilcox did too, but they each

of them thought the way in which the dominance would

be removed, and the only way in which it would be

removed, would be by getting parties back to the

pre-acquisition state. And that, we say, is the

principle where they have gone wrong.

BRENNAN J:  Mr Davies, as this is the part that concerns me

most I will trouble you a little longer.	The first
sentence on page 202:

On his Honour's findings, it was the strength

and vigour of the competition rather than the

quality of cattle which was processed by the

Bowen abattoir which made the difference

between -

and he posits it quite in clear dichotomy -

the position of dominance after the acquisition
of Borthwick and the lack of dominance prior

to that acquisition. I am not persuaded that

a purchaser of the Bowen abattoir alone would

have such strength and provide such competition.

Does that not mean simply to remove the position of

dominance?

MR DAVIES:  Of course the position of dominance must be

removed. We do not- - -

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BRENNAN J: Yes, of course, but simply that, not to go back

to pre-acquisition stage.

MR DAVIES: But the position cannot be because His Honour - let

us just go back to Mackay. The position with

Mackay, Your Honours, is this: first, it was outside

the market, purchased only a small quantity of cattle

in the market; secondly, His Honour rejected as

speculative the potential of Mackay to have a nruch

greater effect after the abattoirs were in different

hands. Now, he rejected as speculative,

Mr Justice Pincus quoted this passage and said that

he had rejected it as speculative and he clearly did.

So Mr Justice Davies cannot be talking about either

of those - sorry, cannot be talking about that as

the - what he was saying was that Borthwick was a

vieorous competitor and therefore one needs to be

sure that market dominance is removed. And we

accept that. We accept Borthwick was a vigorous

competitor and we accept that it is important to have

market dominance removed and clearly removed.

What we say does not follow from any of that

that the whole of Mackay or its throughput or its
equivalent must be taken into account.

McHUGH J: This is only a question of application of principle,

is there?

MR DAVIES:	No, Your Honour, there ar~ two quite different principles.
McHUGH J:	I must say I still do not understand what is wrong with the statement at 142. As a principle, what is
the matter with what Mr Justice Wilcox says there?
His Honour says:

The question rather is whether the retention of that asset, gained in contravention of

s.50(1), will serve to assist the

contravening corporation to dominate the

relevant market. If there is no nexus

..... there is no need to insist upon

divestiture.

MR DAVIES:  But our example proves that, Your Honour. I

mean, take - - -

McHUGH J: This is a very different sort of example, is it not?

MR DAVIES:  No, Your Honour, it is not, because Mackay is

outside the market. Mackay has a large turnover,

a large throughput of cattle of which only a very

small percentage comes from the relevant market.	I
mean, take any case-

McHUGH J: But that only means His Honour is wrong on the facts.

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MR DAVIES:	No, it does not, with respect, Your Honour.	We

submit it means that the principle stated is wrong

and the example shows how it is wrong, that in fact

to say that all assets acquired having more than

a minimal nexus with the question of domination must

be disposed of must be wrong as a matter of principle;

that just cannot be a principle.

McHUGH J:	As long as the retention of a particular asset will
serve to assist the contravening corporation to

dominate the relevant market.

MR DAVIES:  Yes, to greater than a minimal extent, he said.

McHUGH J: Yes. Well, what is the matter with that?

'

MR DAVIES:  Because the acquisition of an asset may contribute to

only one per cent of the market whereas in fact that

asset may have - then he says, well, you have to

dispose of the whole of that asset or its equivalent,

even though, in this case the way he did it, the

throughput of that asset may be mainly taken from

some quite different market.

BRENNAN J: But is that the way in which it is properly to be

read? His Honour is speaking there, is he not, about

two things: first of all, there has been the

acquisition of an asset which contributes to the

dominating position and then he is speaking about the

nexus between the retention of the asset - not its

acquisition, but its retention and domination. Now,

is it not the fact that what His Honour is saying is

that if you have an asset which, if retained, will

have a nexus to domination- - -

MR DAVIES:  Of more than minimal extent.

BRENNAN J: More than minimal extent - in other words, it is the

substantial contribution to the domiantion which you

will have.

MR DAVIES:  But that does not mean, in our respectful submission,

that you have to dispose of the whole of that asset

or its equivalent, it cannot be that - - -

BRENNAN J: No, His Honour is not saying that.

MR DAVIES:  But that is the way he applied it. Clearly that is

what he said, that is what he did. That is the way

the principle worked.

McHUGH J: It wight have been very difficult; he mip-,ht have said you can sell

half the asset of }'ackay, but it is a practical matter.	But the
principle itself must be right, must it not, stated in that form?

MR DAVIES:	No, Your Honour.	In our respectful submission it
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is wrong. The principle is, and is no more, than

what you must do is sell sufficient assets, wherever

they come from, to remove dominance. Now, in this

case, take Mackay, let us suppose Mackay contributed

to dominance of this market to the extent of, say,

five per cent or four per cent. What he made the

applicant do in this case was dispose of the whole

of Mackay; that is five plus 95 per cent of Mackay or

its equivalent, whereas what he should have done was

require it to dispose of what represented that five

per cent of dominance.

DAWSON J: So it is not Mackay, but some other abattoirs.

MR DAVIES:  Yes.

DAWSON J: But of course the alternatives are fairly limited,

looking at the map; there are not all that many

abattoirs to play around with, are there?

MR DAVIES:  Oh, there were in this case, in the sense - if

you accept our argument that Mackay did contribute to

say, the only five per cent, all you really needed was·

Bowen plus one other abattoir, and indeed we were

offering more than one if necessary, in the alternatives,

but Mr Justice Pincus concluded, in accordance with

our submission, that all one needed was to dispose of

Bowen plus one other. Because although Mackay contributed to more than a minimal extent, that minimal extent was more than offset by the disposal

of, in this case, Cape River.

BRENNAN J:  If you have difficulties with 142, if you come to

Mr Justice Davies at 202, is it not there seen that at

least the way in Mr Justice Davies was understanding

it was that what had to be done was to ensure that

there was substantial competition. Bowen was not

enough to secure it, Mackay had to go too.

MR DAVIES:  It is just that ·last step, Your Honour. We agree

with the first part, but we say that the reason he

said Mackay had to go too was because he accepted the

principle of getting back to the pre-acquisition state.

And that, in our respectful submission, appears from

the passage that I read to you on page 202, and indeed,
that is the way we would submit Mr Justice Sheppard

understood Mr Justice Davies' judgment and, indeed, it

seems the way in which our learned friends understood

the judgment - or at least their solicitor in his

affidavit, and I will mention that in a moment.

McHUGH J: Well, it is an able argument, Mr Davies, but I must

say I do not see any great question of principle

involved here of general application. I do not see

how this case can be used - or these statement can be

used as - - -

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MR DAVIES: Well, if Mr Justice Wilcox's principle is correct,

Your Honour, it means that in every case where there is an acquisition, in the example I gave you of

acquiring 60 per cent, that that 60 per cent must be

disposed of, bringing the acquirer back to 10 per cent- - -

McHUGH J:	But it is a statement made in the context of this -
MR DAVIES:	I can give you the same illustration in this case,

Your Honour. I can apply it to this case by saying

let us assume thatMackay contributed to dominance

of this market to the extent of five per cent. Let

us assume that. Now, if that is so, then the

obligation to bring the parties back to remove dominance

is to get rid of Bowen plus five per cent of the market,

wherever that might come from, whereas he did not say

that, he said Bowen plus Mackay. That is the five per

cent Mackay got from this market, and the 95 per cent

it got from some quite different market.

BRENNAN J:  Mr Davies, I have difficulty in following a

five per cent notion in relation to this dominance. the cattle market in north Queensland. What you are

talking about is people in the sale yard or people

going around acquiring cattle for slaughter. Now,

obviously to produce any effective competition in that

area one would need to have at least two strong
competitors and is not what was being said here that

unless you can produce two strong competitors up here,

you are not going to have that competition? It is

not a question of saying what proportion of slaughtering

was going on at Mackay, it is how can you produce

competition in the sale yards. Justice Davies at all events is saying, it is not enough to give somebody a

Bowen abattoir, he will only go out as far as

Hughenden and you will never see him at Mt Isa. You

have got to have at least two people with substantial

capacities to do this.

MR DAVIES:

We do not mind that, Your Honour, we do not mind

giving something other than Bowen away, we do not

object to that at all. What we object to is a
principle which requires us to give away Mackay or its

equivalent notwithstanding that, on the example I have

given Your Honours, Mackay contributed to dominance

in this market to only a small -more than minimal -

but only a small extent - on His Honour's finding.

DAWSON J: But it must be in accordance with the particular

facts. If your argument were right, the order that

could be made in each case would be only to get it

down to 49 per cent, for instance.

MR DAVIES:  Oh no, I accept it would vary. I accept the

application of that principle would vary. What I am

saying is that a rigid principle such as His Honour

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has set for this case and for other cases in the

future, and which was adopted by the other members

of the Full Court of the Federal Court would require

always getting back to pre-acquisition position and

that cannot be right.

DAWSON J:  The use of the word "always" is the thing that is

in contention because it may be that in this particular

situation they did think that you had to get back to

the pre-acquisition state or its equivalent in order

to remove the dominance. And if that was the

conclusion that they came to, that is all right.

MR DAVIES:  I accept that. It is not a question of how the

principle is applied, Your Honour, and if it was just a

question of that, then there could not be a special

leave point. It is as to the principle, we say.

DAWSON J: And you say they are enunciating a principle and

some doubt has been expressed as to whether they

were, rather than just deal with a particular case.

MR DAVIES: Yes, I say that clearly Mr Justice Wilcox was

enunciating a principle.	He thought he was, the
members of the -

DAWSON J:	He said he was, actually.
MR DAVIES:	He said he was; Mr Justice Pincus, the dissenting

judgment, in the clearest way said he was;

Mr Justice Sheppard, majority judgment, said he was and said he accepted the principle; Mr-Justice Davies

does not say, but clearly in our respectful

submission seems to be stating the same principle in

the paragraph we read, and, in our respectful

Tll submission, that principle just cannot be right.

Your Honours, can I take Your Honours from

there to Mr Justice Sheppard. I should have said,

before going to Mr Justice Sheppard for any other

purpose, that he does seem to be saying - I do not	put great reliance on this but he does seem to be	saying that there is nothing inconsistent between
what Mr Justice Davies said and what the trial judge
has said in terms of principle because he says on
page 223:

As to whether disposal of Mackay was an

appropriate requirement, I have nothing to

add to the reasons of the learned primary

Judge and Davies J. on this matter.

So he really seems to be saying that the trial judge

and Justice Davies are saying much the same thing.	I
mention also Mr Alexander's affidavit.	He was my

instructing friend's solicitor and at page 297, it

is in paragraph 7 of his affidavit but on page 297,

Mr Alexander said, stating the effect of Justice Davies judgrrent:

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Davies J. held that the divestiture of

Mackay had been rightly required by the

trial judge because Mackay "assisted (the

applicant) to dominate the Northern

Queensland market".

Now, in our respectful submission, that is really

the test His Honour applied, that anything which assists in dominance or its equivalent has to be

disposed of. And in our respectful submission that

just cannot be right.

BRENNAN J:	Do you find anything to cavil with in the statement at page 222 by Justice Sheppard, in the last sentence of that first paragraph?
MR DAVIES:	Yes, I do, when one takes it in context, Your Honour.

Can I just take Your Honour into that context by

taking Your Honours back to the previous page.

His Honour says, in the first sentence in the previous

page, that there is -

a first question is whether there is there
disclosed any error of principle. In the

context in which he decided the matter I

do not find any such error.

So His Honour is saying that Justice Wilcox's

statement of principle is correct. But then he says,

after quoting the passage from Justice Wilcox:

I agree that that statement of principle,

if expressed in absolute terms, may cause

a court dealing with a problem of this

kind to fall into error because it would

require divestiture of assets acquired by

reason of the subject transaction to be

disposed of even where the market dominance

could be removed by a requirement that

existing assets of the acquiring company be

disposed of instead. But his Honour did not

his orders show quite clearly that he was	conditions which he imposed in para. 3 of look at the matter in this way. The
alive to the fact that the dominance of the company could be overcome by an order
which would require the disposition of
abattoirs, some already held and some
acquired as the consequence of the
acquisition of the shares.

Now, that is really only part of the problem, and

the major part of the problem is not whether

dominance can be removed by disposing of only assets

acquired or also of some assets acquired and some
previously held, the question is whether the assets

which have previously been held which are required

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to be disposed of must be equivalent to those assets

acquired, and it is clearly implicit in His Honour's

judgment that His Honour thought that the answer to

that last question was in the affirmative, that is

that where in lieu of assets acquired what was
required to be disposed of included some assets already

held, that those assets must be equivalent, in terms of

throughput and so on, with the assets acquired. In

other words - - -

DAWSON J:  He was not saying that as a matter of absolute

principle, he was saying that in the context of this

case.

MR DAVIES:  I accept that he was talking about the context of

this case and he said so, but he is clearly enough

accepting as the guiding principle the principle which

Mr Justice Wilcox stated and what we say is that in

any context, that cannot be the right principle.	One
cannot start from that premise.	One must, in our

respectful submission, start from the premise that all

that is required is something which will remove

dominance, however that is done.

So we submit, with respect, that both

Justices Davies and Sheppard stated and applied the

principle which Justice Wilcox stated and applied.

We say it is incorrect for the reasons we have

stated and they are perhaps also conveninetly set out
in the judgment of Mr Justice Pincus, and could we

take Your Honours to that at page 244 where His Honour

said, in the middle of that page:

It will be noted that the principle is

applied only to retention of assets gained

in contravention of the section; that

distinction is, in my respectful opinion,

difficult to justify -

and he goes on to say, and then at the bottom of the

page he says:  Adoption of the principle just criticised

led the learned primary judge to consider the

various proposals -

and so on. Your Honours can see that what he did

then in the first full paragraph on page 245 is

accept the submission which we make to Your Honours now,

that is that the question ordinarily is whether the

proposed disposition will clearly eliminate the

unlawful dominance and no other principle need intrude.

Your Honours, in our respectful submission, the

principle which Mr Justice Wilcox stated does not give

effect to the true purpose of those provisions. We

say the true purpose of the provisions is to allow

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flexibility, so that that flexibility will allow the

court to accept economically rational solutions which

will remove dominance but not, at the same time,

stifle commercial activity and competition. In our

respectful submission, if a corporation is required

to make divestiture of all it acquires once it

contravenes section 50, or the equivalent as a matter
of general principle, then, in our respectful

submission, the purpose of the section alters from

that obvious purpose to a penal one and in our

respectful submission, that is not its purpose.

Your Honours, just on the question Your Honour Justice Brennan asked me earlier, I am reminded the

only express finding on that question of how

dominance of the market would be removed is that

which is made by Justice Pincus on appeal at page 247

where he said, in the last paragraph, after taking

away Bowen and Cape River:

It would still be strong in that market -

by far the strongest participant - but I

cannot see how it can rationally be denied

that without Cape River and Bowen it would

probably be a no more powerful competitor

in the northern market than it was before

the Borthwick share purchase.

BRENNAN J: Well, that is a finding of fact that His Honour is

prepared to make.

MR DAVIES:  It is a finding of fact but it is a finding of fact

which can only be made, as I said earlier, on the

acceptance of the principle which we make. It is not

a finding which can be made on the principle which

Justice Wilcox stated.

BRENNAN J:  Mr Davies, if special leave were to be granted to

you, what is the material which you would want to
have included in the appeal book, in other words,
how far would the Court be concerned with questions

of fact leading to the consideration of the question

of principle that you seek to agitate?

MR DAVIES:	Not a great deal, Your Honour, because there are a number of issues which Your Honour appreciates were
litigated below which are not litigated here; a
great deal of the evidence in the case concerned with, for example, the identification of the market of which we are not concerned, the geographical market. A great deal of evidence in the case concerned
what the categories of cattle which came into that
market, whether there were store cattle and other sorts of cattle which came into it, and again the
evidence with respect to that.

M1Tl2/4/RB	19	9/6/89
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BRENNAN J: What I have in mind is:  let it be assumed that

the Court, in your favour, found first that the

principle that you submit the court below acted upon

was in fact acted upon; secondly, that it was an

erroneous principle and that the correct principle

is one which should lead to a divestiture order

designed to remove simply the dominance which was

acquired in contravention of section 50(1), the

Court would then be faced with the question of what

order it should make.	How then would it address that
problem?

MR DAVIES:  In our respectful submission, the Court would be in

as good a position as the Full Court of the Federal

Court was. Mr Justice Pincus felt able to reach the

conclusion that the appropriate order was to order

divestiture of Bowen and Cape River alone.

BRENNAN J: Yes; what I was wondering is does that require

this Court then to consider the whole of the material
in order to reach a conclusion as to what the

appropriate order would be?

MR DAVIES: We would submit it does not, Your Honour, but if

there were views to the contrary which were accepted,

then the appropriate course could simply be to send

it back to the trial judge to make the appropriate
conditional order or accept the appropriate

undertaking in accordance with the principles laid

down by this Court.

BRENNAN J:  If that course were acceptable to you, would the

appeal book then need to consist of anything more

than the judgments in the court below?

MR DAVIES:  I do not think so, Your Honour.

BRENNAN J: In order to make the point that there is a

question of principle, that the principle is wrong

and that the correct principle is as you contend for.

MR DAVIES:  I think that is right, Your Honour.

BRENNAN J: Yes. Yes, Mr Sweeney.

MR SWEENEY:  Your Honours, the context in which the issue

arises as to whether the statement is one of principle

or the workings of and the factual result of an

adverse finding in the case is this: there was a

closely run issue before the trial judge about

whether Australian Meat Holdings was already dominant

in the north.em market and we lost that closely run

issue and Mr Justice Wilcox dealt with the

circumstances in which we lost that issue at page 111

of the appeal book and His Honour said, after talking

about some of the evidence given by various very

senior officers of Australian Meat Holdings of their

MlT12/5/RB	20	9/6/89
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perception that they already enjoyed dominance, His Honour said this at the middle of the page:

Having regard to the views ..... it may

seem that I am being too cautious; but I

am not prepared to find that AMR was

already in a dominant position in the

northern market before its acquisition of

Borthwick. In so saying, I am particularly

influenced by the evidence of Borthwick's

market aggressiveness. Although Borthwick's
market share, during recent years, has been

comparatively small, it appears to have had

an influence upon prices -

and so on. So His Honour found against us on the

issue of existing dominance but if I may put it this

way, we only just lost that point. Now, in those

circumstances, it is not at all surprising to find

that Mr Justice Wilcox, when he turned to consider

the question of what to require in the way of an

undertaking, should do so from the standpoint that

whatever was to be given by way of undertaking would
have to be the equivalent of Bowen and Mackay. Why,

Your Honours? Because it is perfectly clear that in

the factual circumstances of this case, to leave

Australian Meat Holdings with part of or the

equivalent of part of Mackay would be a result which

would leave them dominant.

Now, the other thing that bears saying, of course,

is that to speak of Mackay in the same breath as

making an analogy with an example where an extra
market asset contributed as to five per cent to

dominance is to discount entirely the factual analysis

which both the trial judge and the majority in the

Full Court applied in relation to Mackay. Mackay was

important not because it took a small number of

northern cattle but because Mackay and Bowen together

took the fight sufficiently to AMR to just induce

the trial judge to find that AMR were not dominant

before the acquisition. And as is pointed out, it is

not solely or even principally that one looks to the

proportion of cattle taken from the north but apart

from the fact that Mackay gave Borthwick its

aggressive price leading character in the market, Mackay's

profitability was the platform which enabled Bowen and

Mackay to be the factors that stood between Australian
Meat Holdings and existing dominance before this

acquisition.

So, Your Honours, that is the background. Now,

the next thing that we want to put is this:	in the
context of the judgment and the broken way in which	this issue arose, what Mr Justice Wilcox said is
perfectly orthodox. The first thing that needs to be said is that Mr Justice Wilcox relevantly in these

M1Tl2/6/RB	21	9/6/89
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passages was·dealing only with Mackay and that is

why he used the expression "an asset gained in

contravention of section 50). The starting point

is page 138 of the appeal book where His Honour

identifies the fact that there was a dispute

following the adverse finding under section 50.

Page 138 point 5:

there is a dispute between the applicant

and AMH regarding Mackay.

Then he goes on to consider that and at page 141 and page 142, part of which has been already read, he summarizes the competing submissions put by counsel for the various parties and then goes on to say: I have to deal with it on a more principled basis.

I accept that the location of a particular

asset is not decisive -

and so on.	Then His Honour, talking about Mackay,
says:

The question rather is whether the retention of

if I may interpolate a little bit, "The question rather

is whether the retention of the asset constituted by

the Mackay abattoir" -

gained in contravention of s.50(1) -

and so on. And thus understood, that statement on

page 142 is absolute orthodoxy. Then for the first

time after judgment this issue which is now being

agitated arose. The profit undertaking was given

after judgment. It was the occasion of the

supplementary reasons for judgment and at page 145,

in those supplementary reasons, Mr Justice Wilcox

says this, Your Honours, 145 point 3:

I took the view that, notwithstanding

that this abattoir -

Mackay -

lay outside the boundaries of the northern region of Queensland, as they were defined

by most of the witnesses, the acquisition

by AMH of Mackay would assist AMH to

dominate the northern market; accordingly,

that it was appropriate that the undertaking

include reference to the Mackay abattoir.

Then, over on 146, there is a critical passage,

146 point 5:

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The disposal of Cape River would be a

small price for AMR to pay for the

advantage of obtaining Mackay, assuming

that it was otherwise appropriate that the

company dispose of the latter facility.

Conversely, the disposal of Cape River would

do little to mitigate the increased

dominance enjoyed by AMH as a result of the

acquisition of Mackay. Because all of this

seemed to me to be obvious, I did not

canvass the merit of the proposal in my

earlier reasons.

Now, Your Honours, the finding of Mr Justice Pincus

to which my learned referred just before he sat

down is flat in the teeth - it is a finding of fact,

of course - it is flat in the teeth of this statement

of fact by Mr Justice Wilcox. One of the problems

in the whole case is that these undertakings were
not telegraphed during the trial, they were not

raised as issues to be addressed by evidence; they

were relevantly raised after judgment and one of

the great problems that the raising of them after

judgment represents is the problem of how do you

make a judgment of the factual questions thrown up
by the issue of whether, for example, Cape River is
an adequate substitute for the very profitable Mackay.

There was lots of concentration on Mackay in the case, because it was one of the things said to have

been acquired in contravention, but Cape River was

just one of many abattoirs. Then, Your Honours,

Mr Justice Wilcox goes on:

Although in my reasons of 15 July 1988 I

indicated a view that AMH ought to dispose of

Mackay, counsel for that company have not put

to me a series of alternatives to that course.

BRENNAN J:  Mr Sweeney, I think we need not trouble you any

further. We will hear Mr Davies in reply.

MR DAVIES:  Your Honours, only two matters in reply. My

learned friend said that Mackay's profitability was

the platform from which Borthwick was able to

provide effective competition. There does not, on

our reading of the judgments, seem to be anything

in the judgments which would support that and we

do not know of anything anywhere else which would. Your Honours, the on:ly other point we wish to

make really out of what our learned friend has said

is that our learned friend himself just said that

the question really was, in the end, whether Cape

River was an adequate substitute for the very

profitable Mackay, and that really, in our respectful

submission, makes our point that the trial judge and,

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indeed, the members of the Court of Appeal in this

case were determined to consider only that one

question, that is whether Mackay should go because

it was required in contravention and having more

than a minimal nexus to dominance, or whether something

equivalent to it should go.

I have nothing further.

BRENNAN J: In this case the applicant draws attention to

passages in the judgments of Mr Justice Wilcox at	first instance and of Mr Justice Davies and
Mr Justice Sheppard in the Full Court of the Federal Court in order to demonstrate, if possible,
that Their Honours made an error of principle in
formulating a divestiture order under section 81(1) or (lC) of the TRADE PRACTICES ACT 1974, Commonwealth.
The erroneous principle was said to be that divestiture should restore the pre-acquisition
position and not merely to remove the market
dominance which a party has acquired in contravention
of section 50(1).
We do not read the judgments in that way. judgment must, of course, be read in the context of A
the facts of the particular case. In our view, appropriate order which would remove the market
dominance acquired, not an order which would return
the northern cattle market to its position before the applicant acquired the Borthwick shares.

We do not understand Their Honours to have

embraced a principle in the terms which the applicant

seeks to impugn. The foundation for the grant

of special leave thus disappears. The application

for special leave is therefore refused.

MR SWEENEY:  I ask for costs, Your Honours.

MR DAVIES: There is nothing we can say, Your Honours.

BRENNAN J: The application is refused with costs.

AT 4.28 PM THE MATTER WAS ADJOURNED SINE DIE

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