Australian Competition and Consumer Commission v Australia and New Zealand Banking Group Limited
[2015] FCAFC 103
•31 July 2015
FEDERAL COURT OF AUSTRALIA
Australian Competition and Consumer Commission v Australia and New Zealand Banking Group Limited [2015] FCAFC 103
Citation: Australian Competition and Consumer Commission v Australia and New Zealand Banking Group Limited [2015] FCAFC 103 Appeal from: Australian Competition and Consumer Commission v Australia and New Zealand Banking Group Limited [2013] FCA 1206 Parties: AUSTRALIAN COMPETITION AND CONSUMER COMMISSION v AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED (ACN 005 357 522) File number: QUD 818 of 2013 Judges: ALLSOP CJ, DAVIES J AND WIGNEY J Date of judgment: 31 July 2015 Catchwords: COMPETITION – appeal – whether conduct of respondent bank entering into an agreement had the purpose, effect or likely effect of fixing, controlling or maintaining a discount, allowance, rebate or credit pursuant to s 45A of the Trade Practices Act 1974 (Cth) – where mortgage broker, Mortgage Refunds Pty Ltd, offered refunds to borrowers if borrower successful in applying for loan – where respondent bank wrote to finance aggregator to limit amount of refund offered by Mortgage Refunds Pty Ltd in relation to respondent bank’s loan products – whether respondent bank’s conduct had the effect of lessening competition between respondent bank and mortgage brokers pursuant to s 45(2)(a)(ii) and s45(2)(b)(ii) of the Trade Practices Act 1974 (Cth) – where market pleaded by ACCC was for the provision of “loan arrangement services” – characterisation of services provided by the banks and mortgage brokers – whether respondent bank and mortgage brokers both provided loan arrangement services and accordingly competed in a market for the supply of loan arrangement services – consideration of features of mortgage broking business model
COMPETITION – cross-appeal – whether refund offered by Mortgage Refunds Pty Ltd could be properly characterised as a rebate in relation to loan arrangement services – construction of s 45A of the Trade Practices Act 1974 (Cth)
Legislation: Federal Court of Australia Act 1976 (Cth), s 27
Trade Practices Act 1974 (Cth), ss 4E, 45, 45(2)(a)(ii), 45(2)(b)(ii), 45(3), 45ACases cited: Arnotts Ltd v Trade Practices Commission (1990) 24 FCR 313
Australian Competition and Consumer Commission v Liquorland (Australia) Pty Ltd [2006] ATPR 42-123; FCA 826
Australian Competition and Consumer Commission v Liquorland (Australia) Pty Ltd [2005] FCA 630
Australian Gas Light Company v Australian Competition and Consumer Commission (No 3) (2003) 137 FCR 317
Boral Besser Masonry Ltd v Australian Competition and Consumer Commissioner (2003) 215 CLR 374
Branir Pty Ltd v Owston Nominees (No 2) Pty Ltd (2001) 117 FCR 424
Cabal v United Mexican States (2001) 108 FCR 311
Minister for Immigration and Multicultural Affairs v Jia (2001) 205 CLR 507
Queensland Wire Industries Pty Ltd v Broken Hill Proprietary Company Ltd (1989) 167 CLR 177
Re Queensland Co-operative Milling Association Ltd; Re Defiance Holdings Ltd (1976) 8 ALR 481; 25 FLR 169
Rural Press Limited v Australian Competition and Consumer Commission (2003) 216 CLR 53
Seven Network Ltd v News Ltd (2009) 182 FCR 160
Singapore Airlines Ltd v Taprobane Tours WA Pty Ltd (1991) 33 FCR 158
Trade Practices Commission v Australia Meat Holdings Pty Ltd (1988) 83 ALR 299
Visy Paper Pty Ltd v Australian Competition and Consumer Commission (2003) 216 CLR 1Date of hearing: 14 and 15 August 2014 Place: Sydney (heard in Brisbane) Division: GENERAL DIVISION Category: Catchwords Number of paragraphs: 316 Counsel for the Appellant: Mr S Couper QC with Ms M Brennan Solicitor for the Appellant: Australian Government Solicitor Counsel for the Respondent: Mr A Archibald QC with Dr M Collins QC Solicitor for the Respondent: Herbert Smith Freehills
IN THE FEDERAL COURT OF AUSTRALIA
QUEENSLAND DISTRICT REGISTRY
GENERAL DIVISION
QUD 818 of 2013
ON APPEAL FROM THE FEDERAL COURT OF AUSTRALIA
BETWEEN: AUSTRALIAN COMPETITION AND CONSUMER COMMISSION
AppellantAND: AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED (ACN 005 357 522)
Respondent
JUDGES:
ALLSOP CJ, DAVIES J AND WIGNEY J
DATE OF ORDER:
31 JULY 2015
WHERE MADE:
SYDNEY (HEARD IN BRISBANE)
THE COURT ORDERS THAT:
1.The appeal be dismissed.
2.The cross-appeal be allowed.
3.The appellant pay the respondent’s costs of the appeal and cross-appeal.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
IN THE FEDERAL COURT OF AUSTRALIA
QUEENSLAND DISTRICT REGISTRY
GENERAL DIVISION
QUD 818 of 2013
ON APPEAL FROM THE FEDERAL COURT OF AUSTRALIA
BETWEEN: AUSTRALIAN COMPETITION AND CONSUMER COMMISSION
AppellantAND: AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED (ACN 005 357 522)
Respondent
JUDGES:
ALLSOP CJ, DAVIES J AND WIGNEY J
DATE:
31 JULY 2015
PLACE:
SYDNEY (HEARD IN BRISBANE)
REASONS FOR JUDGMENT
THE COURT
This appeal concerns the proper characterisation, for competition law purposes, of the activities of and interaction between participants in the market for mortgage loans. Loan providers, such as banks, distribute or “sell” mortgage loans to borrowers through both internal and external distribution channels. The internal or “in-house” channels include, most significantly, bank branches. The external or independent channels relevantly include mortgage brokers. Independent mortgage brokers provide advice and assistance to their clients about the loan products potentially available to them from a range of loan providers. Brokers receive commission from a bank if a borrower successfully applies for a loan from the bank through them. In the course of their interaction with prospective borrowers, bank branch employees also provide a level of advice and assistance, albeit only in relation to their bank’s own loan products. When providing this advice and assistance through its branches, is the bank competing with mortgage brokers in a market for the supply of loan arrangement services? Or are the advice and assistance activities of bank branches in this respect properly characterised as merely activities ancillary to the distribution of loan products in the market for the supply of loan products?
The Australian Competition and Consumer Commission (ACCC) commenced proceedings against Australia and New Zealand Banking Group Limited (ANZ) alleging that it contravened s 45(2)(a)(ii) and s 45(2)(b)(ii) of the Trade Practices Act 1974 (Cth) (the Act) as in force at the relevant time. The ACCC alleged that, in April 2004, ANZ entered into an agreement with a particular mortgage broker, Mortgage Refunds Pty Ltd (Mortgage Refunds), which contained a provision which had the purpose or effect of substantially lessening competition in the market for the supply of loan arrangement services to members of the public by loan providers, franchisees and brokers. The impugned agreement concerned the maximum amount of money that Mortgage Refunds could offer to refund to its customers when its customers successfully applied for an ANZ mortgage loan through Mortgage Refunds. It was alleged that the agreement had the purpose, effect or likely effect of fixing, controlling or maintaining a discount, allowance, rebate or credit in relation to loan arrangement services provided by Mortgage Refunds in competition with ANZ. The ACCC relied on s 45A of the Act, which deemed the agreement, if proved, to have the purpose or effect of substantially lessening competition.
Critical to the ACCC’s case was the allegation that ANZ and Mortgage Refunds competed against each other, and other banks and brokers, in the market for the supply of loan arrangement services.
The ACCC was unsuccessful. The primary judge found that ANZ, through its branches and other internal channels, did not participate in any market in which brokers, such as those engaged by Mortgage Refunds, provided loan arrangement services to potential borrowers. ANZ was not, in any relevant sense, in competition with Mortgage Refunds. Therefore, s 45A of the Act was not engaged.
The ACCC appeals from the judgment of the primary judge. It raises a number of appeal grounds, though most of them are ultimately directed, in one way or another, at his Honour’s rejection of the ACCC’s case that ANZ and Mortgage Refunds relevantly competed in a market for the supply of loan arrangement services. The ACCC challenges that finding primarily on the basis that, in its submission, the primary judge made findings of fact that were contrary to, or against the weight of, the evidence, or failed to make findings that were supported by the evidence.
ANZ cross-appeals against one finding made by the primary judge. That finding was that the refunds paid by Mortgage Refunds to borrowers that were the subject of the agreement with ANZ were “rebates” within the meaning of s 45A of the Act.
UNCONTROVERSIAL FACTS
Most of the primary facts are not in dispute. The factual controversies at trial and on appeal relate mainly to the inferences or conclusions that can or should be drawn from the evidence, in particular statements made in a number of internal ANZ documents tendered by the ACCC and the evidence of so-called “market participants”. The inferences able to be drawn from that evidence were also critical to the probative value of the expert opinion evidence led by the ACCC from an economist in relation to the nature of the relevant market or markets.
ANZ’s banking business includes the provision of finance to borrowers for the acquisition of residential properties. These loans are made or structured in various ways, though repayment is generally secured by a mortgage over the property purchased. At the relevant time, ANZ had a division or department called ANZ Mortgage Group which was responsible for making such loans. That division or department was responsible for, amongst other things, designing particular “loan products”, identifying lending criteria and, importantly, receiving and approving (or declining) loan applications.
At the relevant time, there were a number of different ways that ANZ interacted with prospective borrowers so as to offer its loan products and receive loan applications. To use the industry jargon, it had a number of different “distribution channels” in relation to its loan products, including mortgage loans. Some of the distribution channels were internal or “in-house”. The main internal distribution channel was ANZ’s network of bank branches, where bank officers were available to provide advice and assistance in relation to loan applications from prospective borrowers.
ANZ also appears to have had other internal channels, either in existence or in contemplation at the time of the relevant impugned conduct, though they ultimately appear to have only been marginally relevant to the issues at trial. They included specialist loan officers or sales persons called Personal Mortgage Managers and a call centre called Mortgage Direct. There were references in the evidence to a proposal to appoint franchisees of a “mobile lending” business called “Mortgage Solutions”, though this had not occurred at the time of the impugned conduct. These reasons will primarily refer to the ANZ branches as the main in-house distribution channel.
As one would expect, all the internal or “in-house” channels only offered and provided advice and assistance in relation to ANZ loan products. The ANZ branches and other “in-house” channels were managed by a separate division or business unit of ANZ called Personal Banking Business.
The external distribution channels employed by ANZ were primarily independent finance or mortgage brokers. These brokers offered clients or customers advice and assistance in relation to an often wide range of loan products from a wide range of loan providers. They were not in any respect tied to ANZ or ANZ loan products. Brokers were trained and accredited by ANZ and other loan providers to submit loan applications on behalf of their customers. The brokers derived their income from commissions paid by loan providers, including ANZ, when loan applications by their customers were approved. They were generally not separately remunerated by their customers in respect of any advice or assistance provided to them. They were not rewarded at all unless a loan application submitted by the broker on behalf of a customer was approved by the loan provider. The amount of commission was generally calculated as a percentage of the amount of the approved loan. It was not reflective of the amount of advice or assistance that preceded the submission of the loan application.
The nature of the advice and assistance provided by both the internal ANZ channels and the external brokers is addressed in more detail later in these reasons. Suffice it to say at this stage that a critical issue is whether the services provided to prospective borrowers by the internal and external channels were substantially similar such that there was, or was likely to be, close substitution between them.
On 7 July 2001, ANZ entered into an agreement, called the “originator agreement”, with a company named Australian Financial Group Ltd (AFG). AFG carried on an independent finance broking business in which it acted for clients in arranging mortgage loans and other financial transactions. Under the originator agreement, ANZ appointed AFG to market certain ANZ loan products as an independent contractor. AFG was not to represent that it was acting in any capacity other than as an independent contractor and had no authority to bind, or purport to bind, ANZ without ANZ’s prior consent in writing.
AFG’s obligations under the originator agreement included ensuring that applications from its clients to ANZ were in an approved form and accurately recorded the customer’s instructions. AFG was obliged to exercise care and skill in marketing ANZ’s loan products.
Importantly, a clause in the originator agreement prohibited AFG from inducing, or causing anyone to induce, any person to apply for any loan products by “offering gifts or prizes or other inducements of whatever kind, without the prior written approval of [ANZ]”.
Whilst AFG was able, under the originator agreement, to market ANZ loan products and submit loan applications to ANZ on behalf of its customers, the terms of the originator agreement made it clear that AFG was not prevented from engaging in any other business or undertaking, or transacting any business with any other bank, insurance company or other financial institution.
The originator agreement provided that only “authorised officers” of AFG who had been approved by ANZ were able from time to time to act on behalf of AFG in performing AFG’s obligations under the agreement. The authorised officers, being employees, contractors or agents of AFG, were named in a schedule to the agreement. The schedule was able to be amended from time to time by agreement between ANZ and AFG.
In March 2004, AFG entered into an agreement with Mortgage Refunds. Under this agreement, persons nominated by Mortgage Refunds were to be accredited for the purpose of receiving and processing loan applications to ANZ Mortgage Group for its loan products. The primary judge inferred that these nominated persons were to be authorised officers of AFG for the purposes of the originator agreement with ANZ. It was these individual brokers who dealt directly with, and acted as intermediaries between, prospective borrowers and ANZ in relation to the submission of loan applications to ANZ.
AFG, Mortgage Refunds and the individual brokers all ultimately derived their income, directly or indirectly, from commission paid by ANZ and other loan providers when loan applications submitted by customers through them were approved. Insofar as ANZ was concerned, where a successful loan application was lodged through a broker associated with Mortgage Refunds, the general method of paying commission was that it first paid the commission in respect of the successful loan application to AFG. AFG then paid a share of that commission to Mortgage Refunds and Mortgage Refunds paid a share to the individual broker who had assisted the customer to lodge the successful loan application.
Mortgage Refunds attracted customers by offering a deal whereby it agreed to refund to the customer part of the commission that was otherwise payable by the loan provider to Mortgage Refunds’ broker in respect of successful loan applications lodged through its brokers. Whilst the individual brokers associated with Mortgage Refunds were the main point of contact between the borrowers and ANZ, the agreement to refund part of the commission if the loan application was successful was between Mortgage Refunds and the borrower. When Mortgage Refunds received its share of the ANZ commission from AFG, it would deduct the refund amount from it and pay it to the customer before paying the individual broker, who dealt with the customer, his or her share of the commission.
It would appear that in early 2004, ANZ became aware of, and took exception to, the “mortgage refund” offer. On 22 March 2004, ANZ wrote to AFG advising AFG that it had become aware that a business accredited under AFG was promoting a “mortgage refund” offer involving the rebate to the customer of part or all of the commission paid by ANZ. The letter identified a number of individuals accredited under AFG who were involved in this business. These individuals were all mortgage brokers associated with Mortgage Refunds. The letter referred to the clause in the originator agreement between ANZ and AFG which provided that an approved originator must not induce any party to apply for any loan products by offering gifts, prizes or other inducements without the prior written approval of ANZ. The letter pointed out that no written approval had been provided by ANZ to the named individuals to offer such a refund or rebate and that, as a result, ANZ was cancelling their accreditation. The result was that the individual brokers were no longer eligible to submit applications to ANZ.
Following this letter, discussions ensued between representatives of ANZ, AFG and Mortgage Refunds. Following these discussions, ANZ wrote to the directors of Mortgage Refunds. The letter, which is dated 29 April 2004, should be set out in full because, on the ACCC’s case, it recorded or evidenced the impugned agreement which had the purpose, effect or likely effect of fixing, controlling or maintaining a discount, allowance, rebate or credit.
Re Mortgage Refunds Pty Ltd
I refer to our recent discussions regarding accreditation with ANZ of third party introducers who operate under your company.
Under the terms of the agreement held between ANZ and the Australian Finance Group, an Approved Originator must not “induce or cause to induce any party to apply for Loan Products by offering gifts or prizes or other inducements of whatever kind, without the prior written approval of the Bank”.
We consider that the current business model that you advertise and operate to be in breach of this agreement and we have not given prior written approval. On this basis accreditation was cancelled.
After our discussion of this matter with yourself and representatives from AFG, we hereby give specific agreement to the following in regards to ANZ Loan Products:
Ÿ The maximum refund that can be provided to the customer in relation to an ANZ Loan Product is to be no greater than the amount of the Loan Approval Fee as determined by the ANZ Bank. The amount of this fee may be altered at anytime and at the Bank’s sole discretion.
Ÿ You may not advertise this refund in any form without the specific written agreement of the ANZ Bank, this is to include use of the ANZ logo in any advertisement. At this time agreement is not given.
Ÿ ANZ retains the right to withdraw or amend this agreement, at it’s sole discretion, at anytime.
We trust that the above accurately reflects our discussions and would ask that the enclosed duplicate of this letter be signed by the relative officers of your company as acceptance of the terms above.
Upon receipt of the signed acceptance we will reactivate the accreditation of your loan writers.
Should you have any queries regarding this matter please do not hesitate to contact me.
ANZ’s proposal in this letter was accepted by Mortgage Refunds and as a result the brokers named in the earlier letter, all of whom were associated with Mortgage Refunds, were re-accredited.
Accepting, for present purposes, that this letter evidenced an agreement which fixed the level of discount that Mortgage Refunds could pay to a person who successfully applied for an ANZ loan through it, three important questions relevant to the issues raised by this appeal arise.
First, can the discount properly be characterised as a “rebate” for the purposes of s 45A of the Act? The primary judge found that it could. This finding is the subject of ANZ’s cross-appeal.
Second, if the refund was a rebate for the purposes of s 45A of the Act, what precisely were the “goods or services” to which this rebate related? Specifically, did the rebate relate to the supply of loan products, or did it relate to the supply of services comprising advice and assistance to prospective borrowers? The significance of this question is to the third and more fundamental question.
The third question is, did Mortgage Refunds and ANZ compete in a market for the supply of the goods or services to which the rebate related? If the rebate related to the supply of services by Mortgage Refunds, did Mortgage Refunds compete with ANZ in a market for the supply of such services?
As will be considered in more detail later in these reasons, the ACCC characterised the services the subject of the agreement as a suite of services, described as “loan arrangement services,” that were provided by loan providers (and their agents and franchisees) and independent mortgage brokers to persons seeking to acquire loan products. The ACCC claimed that ANZ and Mortgage Refunds competed with each other and other loan providers and brokers in the market for the supply of such loan arrangement services.
As will also be considered in more detail later in these reasons, the primary judge rejected the ACCC’s characterisation of the relevant market and rejected the contention that ANZ and Mortgage Refunds competed in any market for loan arrangement services. The essential question that needs to be addressed in this appeal is whether, having regard to the evidence, the primary judge erred in rejecting the ACCC’s case in this regard.
RELEVANT STATUTORY PROVISIONS
At all times relevant to this matter, ss 45(2) and (3) of the Act, as then in force, provided as follows:
(2) A corporation shall not:
(a) make a contract or arrangement, or arrive at an understanding, if:
(i) …
(ii)a provision of the proposed contract, arrangement or understanding has the purpose, or would have or be likely to have the effect, of substantially lessening competition; or
(b)give effect to a provision of a contract, arrangement or understanding, whether the contract or arrangement was made, or the understanding was arrived at, before or after the commencement of this section, if that provision:
(i) is an exclusionary provision; or
(ii)has the purpose, or has or is likely to have the effect, of substantially lessening competition.
(3)For the purposes of this section and section 45A, competition, in relation to a provision of a contract, arrangement or understanding or of a proposed contract, arrangement or understanding, means competition in any market in which a corporation that is a party to the contract, arrangement or understanding or would be a party to the proposed contract, arrangement or understanding, or any body corporate related to such a corporation, supplies or acquires, or is likely to supply or acquire, goods or services or would, but for the provision, supply or acquire, or be likely to supply or acquire, goods or services.
Section 45A(1) of the Act, contained a deeming provision for the purposes of s 45. It provided as follows:
Without limiting the generality of section 45, a provision of a contract, arrangement or understanding, or of a proposed contract, arrangement or understanding, shall be deemed for the purposes of that section to have the purpose, or to have or to be likely to have the effect, of substantially lessening competition if the provision has the purpose, or has or is likely to have the effect, as the case may be, of fixing, controlling or maintaining, or providing for the fixing, controlling or maintaining of, the price for, or a discount, allowance, rebate or credit in relation to, goods or services supplied or acquired or to be supplied or acquired by the parties to the contract, arrangement or understanding or the proposed parties to the proposed contract, arrangement or understanding, or by any of them, or by any bodies corporate that are related to any of them, in competition with each other.
As clearly spelt out in s 45(3), “competition” for the purposes of ss 45 and 45A, means competition “in any market”. Section 4E of the Act provides a limited inclusive definition of “market” in the following terms:
For the purposes of this Act, unless the contrary intention appears, 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.
ACCC’S CASE AT TRIAL
To properly consider both the primary judge’s findings and the ACCC’s challenge to them, it is necessary to have close regard to the ACCC’s case as pleaded and to the evidence it led at trial.
The ACCC’s pleading
In its pleading (the Further Amended Statement of Claim or FASC), the ACCC alleged (at paragraph 6) that at all material times there had been a demand from persons throughout Australia seeking to acquire loan products (“customers”) for services to assist them in choosing and acquiring loan products (“loan arrangement services”). Paragraph 7 of the FASC contains critical particulars of the so-called “loan arrangement services”. It is in the following terms:
7. Loan arrangement services:
7.1.are supplied in relation to either the loan products of a single loan provider, or the loan products of more than one loan provider;
7.2.at all material times comprised:
7.2.1.advice as to the respective features of available loan products;
7.2.2.advice as to which loan products were available to persons in the customer’s circumstances;
7.2.3.advice as to which loan products best suit the customer’s needs;
7.2.4.assistance to complete and lodge applications in a manner that meets the requirements of a loan provider;
7.2.5.facilitation or liaison in the transaction for the acquisition of a loan product between the customer and those sections or divisions of a loan provider responsible for providing loan products; and
7.2.6.submission of an application for a loan product for a customer to a loan provider, or the relevant section or division of the loan provider.
Paragraph 7.1 is important. It is not in dispute that one difference between the services that were supplied to prospective borrowers by loan providers, such as ANZ, and the services provided by brokers, such as the brokers associated with Mortgage Refunds, is that, as one would expect, ANZ only advised and assisted customers in relation to ANZ loan products. Brokers, on the other hand, provided advice and assistance, at least in the first instance, in relation to the loan products supplied by many different loan providers. A critical issue at trial, and on appeal, is the importance and significance of this difference.
The ACCC’s pleading acknowledged this difference. Paragraphs 9 and 10 of the FASC stated that when loan providers and their agents and franchisees supply loan arrangement services, they do so only in relation to their own products or those of associated companies. Paragraph 13 of the FASC stated that when brokers supply loan arrangement services, they generally do so in relation to all loan products of those loan providers for which they are accredited.
As has been said, the significance of this difference was an important issue at trial. It is an important issue on appeal. It goes to the question whether any services provided by ANZ branches to prospective borrowers, its customers, were close substitutes for the services supplied by independent brokers. That, in turn, is relevant to determining whether the respective services were provided in the same or different markets, and whether ANZ and Mortgage Refunds competed in any market for such services. The ACCC’s case was that, despite this difference, the loan arrangement services supplied by loan providers were close substitutes for the services supplied by brokers. They were accordingly supplied in the same market.
The ACCC’s pleaded case was that ANZ supplied loan arrangement services to customers “through ANZ branches and franchises in Australia” (paragraph 17.2 of the FASC). The loan arrangement services supplied by ANZ included services of the sort pleaded in paragraph 7.2 of the FASC, though again it was acknowledged in the pleading that the services related only to ANZ loan products (paragraph 17.3 of the FASC).
Likewise, the ACCC alleged that Mortgage Refunds itself, or its employees or agents, supplied loan arrangement services of the sort pleaded in paragraph 7.2 of the FASC (paragraph 18.3 of the FASC). The services supplied by Mortgage Refunds or its “engaged persons” were in relation to loan products generally, not just in relation to ANZ loan products (paragraph 18.3 of the FASC).
It was, however, only when Mortgage Refunds offered loan arrangement services “in respect of ANZ loan products” that the ACCC alleged that the services offered by Mortgage Refunds were direct substitutes for the services offered by ANZ (paragraph 19.4 of the FASC).
Despite this, the ACCC alleged (in paragraph 20 of the FASC) that ANZ was in competition with Mortgage Refunds in relation to the supply of loan arrangement services generally. It would follow that it was the ACCC’s case that ANZ competed with Mortgage Refunds even when Mortgage Refunds was offering loan arrangement services in respect of loan products offered by other banks, such as Westpac or the Commonwealth Bank. It would also appear to follow from the ACCC’s case, as pleaded, that ANZ competed with other suppliers of loan arrangement services, such as other loan providers (see 8.1 of the FASC) even where the other loan providers did not provide any such services in respect of ANZ loan products.
Thus, on the ACCC’s case as pleaded, ANZ competed with, for example, Westpac and the Commonwealth Bank, in relation to the supply of loan arrangement services, even though the services provided by Westpac and the Commonwealth Bank related only to their respective loan products, and ANZ’s loan arrangement services were only in respect of ANZ loan products.
Perhaps recognising the possible incongruity or implausibility of this proposition or allegation, the ACCC’s pleading also alleged (additionally or in the alternative) that ANZ only competed with Mortgage Refunds in relation to the supply of loan arrangement services in respect of ANZ loan products (paragraph 21 of the FASC). It was not, however, pleaded, or at least not in clear terms, that there was a separate market or sub-market for the supply of loan arrangement services in respect of ANZ loan products. The only market pleaded by the ACCC was “an Australia-wide market for the supply of loan arrangement services to members of the public by loan providers, franchisees and brokers” (paragraph 15 of the FASC).
The only other point to note about the ACCC’s pleading concerns the agreement that was alleged to fall within the terms of s 45A of the Act. As already indicated, the ACCC’s case was that the agreement between ANZ and Mortgage Refunds was contained in, or evidenced by, the 29 April 2004 letter from ANZ to Mortgage Refunds. The ACCC’s case, as pleaded, was that the term of the agreement between ANZ and Mortgage Refunds that fixed the maximum refund allowed to be offered by Mortgage Refunds to its customers had the purpose, effect or likely effect of fixing, controlling or maintaining a discount, allowance, rebate or credit “in relation to loan arrangement services” supplied by Mortgage Refunds in competition with ANZ (paragraph 30.1). Therefore, the alleged rebate (or discount, allowance or credit) was tied to the supply of a service supplied by Mortgage Refunds to its customer. It was not alleged that the refund was “in relation to” the supply of the ANZ loan product to the customer.
Evidence relied on by the ACCC at trial
The focus here is on the evidence relied on by the ACCC to make good its allegations in relation to the relevant market.
The evidence relied on by the ACCC essentially fell into five categories.
First, the ACCC relied on some answers ANZ gave to the ACCC’s interrogatories.
Second, reliance was placed on the evidence of a number of so-called “industry witnesses”. These were people who had worked both at banks and as, or with, mortgage brokers. They included Mr Jason King, the principal of Mortgage Refunds, Mr Leon Stark, a broker associated with Mortgage Refunds, Ms Manuela Zacka, a business development manager with AFG, Mr Paul Lahiff, the managing director of Mortgage Choice Limited (Mortgage Choice), a leading mortgage broker group, and Mr Damian Percy, an officer of Bendigo and Adelaide Bank Ltd who had worked in that bank’s mortgage business.
Third, the ACCC relied on evidence called from two so-called “market participants” or customers. Both of these individuals, Mr Roger O’Malia and Mr John Black, had been customers or clients of Mortgage Refunds, as well as customers of banks.
Fourth, the ACCC relied on the contents of a number of internal ANZ documents.
Fifth, the ACCC relied on the opinion evidence of an experienced and highly qualified economist, Dr Vincent FitzGerald.
The judgment of the primary judge contains a detailed summary and analysis of the evidence. There is ultimately no utility in including an equally detailed summary here. Attention will, instead, be given to those parts of the evidence that are directly relevant to the ACCC’s grounds of appeal, or were emphasised by the ACCC in its oral and written submissions on appeal.
Answers to interrogatories
Paragraphs 7.2 and 17.3 of the ACCC’s pleading specified six types of advice and assistance that comprised loan arrangement services generally, and loan arrangement services provided by ANZ specifically. In paragraph 11 of ANZ’s verified statement in answer to the ACCC’s interrogatories, the following questions and answers appear:
11Did ANZ, in the period November 2002 to May 2004, in responding to enquiries from persons seeking to apply for an ANZ home loan product, undertake any of the following activities and if so, which:
11.1advising enquirers as to the features of the respective loan products available from ANZ;
Yes.
11.2advising enquirers which of ANZ’s loan products are available to persons in the enquirer’s circumstances;
Yes.
11.3advising the enquirer which of ANZ’s loan products are best suited to the enquirer’s needs.
Yes.
11.4assisting the enquirer to complete and lodge applications for the loan product selected in a matter that meets the requirements of the Mortgage Division.
Yes.
11.5acting as liaison or otherwise facilitating the transaction for the acquisition of the loan product between the enquirer and the Mortgage Division, and
No. Mortgages is a business unit of ANZ.
11.6submitting, or arranging for the submission, of the enquirer’s application for the loan product to the Mortgage Division.
No. Mortgages is a business unit of ANZ.
The reference to “Mortgages” in answers 11.5 and 11.6 is a reference to ANZ Mortgage Group, the business unit of ANZ which was responsible for administering the lending of money by ANZ to its customers secured by residential properties (see interrogatory 2). The significance of the existence of this separate business unit is considered later in these reasons. ANZ’s negative answers to questions 11.5 and 11.6 were perhaps a product of the way the questions were framed. It is difficult to see how ANZ could act as a liaison between a customer and ANZ’s Mortgage Division. It could, however, perhaps be said that branch officers (or Personal Banking) acted as a liaison.
In any event, the ACCC submitted that these answers to the interrogatories provided evidence that ANZ supplied four out of the six services said to constitute “loan arrangement services” as defined in its pleading.
The industry witnesses
The evidence of the so-called industry witnesses was relied on by the ACCC in three ways. First, the evidence of Mr King and Ms Zacka about their discussion with an employee of ANZ about ANZ’s objections to Mortgage Refunds’ payment of refunds was said to demonstrate relevant competition or rivalry between ANZ and Mortgage Refunds. Second, their evidence was said to demonstrate that loan providers and brokers competed with each other in respect of loan arrangement services. Third, the evidence was said to show that the services provided by bank branches were effectively the same, and therefore were close substitutes for, the services supplied by brokers.
In relation to the evidence concerning the relevant discussions with ANZ, the evidence of Mr King, who was the principal of Mortgage Refunds, was that, on 30 March 2004, he and a senior ANZ bank manager, Mr Tim Carroll, met and discussed ANZ’s objection to Mortgage Refunds providing refunds to its customers. Mr King recalled Mr Carroll said words to the following effect (at [58] of his affidavit):
We have a problem with your refund model. I’m not sure what we can do about it.
Wayne Ormond [of Refund Home Loans] has rocked the boat. He has been giving refunds to customers. He has pointed the finger at you and we have had to take a stand.
We could look at you not giving any refunds to ANZ customers, or limiting the refund to a certain level for ANZ loans. But I’d have to go back to my guys and see about it.
We’d need you to be offering something the branches could offer as well so it’s a level playing field. If your refund was the same as the $600 establishment fee, then your refund would be matching what the branch staff can waive.
It’s not like you negotiate with the customers in an ad hoc way what amount of refund you’re giving. For example it’s not like you offer them $1000 refund, and they negotiate with you to get $1500.
Ms Zacka, who was an employee of AFG, and who was at the same meeting, recalled that Mr Carroll said words to the following effect (at [20] of her affidavit):
I want to get Mortgage Refunds back on board. We need to find a way around this. I need something to take back to Joe Sirianni.
The problem is you’re offering something the branches can’t offer. We need a level playing field.
You could limit your refund for ANZ loans to the amount of the $600 establishment fee, because the ANZ branches can waive that fee. Then you’d be offering the same deal as the branches.
The ACCC submitted that Mr Carroll’s statement was both an indication of competition between ANZ branches and Mortgage Refunds’ brokers and the anti-competitive effect of the relevant agreement or arrangement. The ACCC asked rhetorically, if the branches and the brokers did not compete, or were not in the same market, why would the bank seek to limit the refund offered by Mortgage Refunds? Why was there a need for a “level playing field”?
ANZ’s, and ultimately the primary judge’s, answer to this rhetorical question is dealt with later in the context of ANZ’s case.
The second aspect of the industry witnesses’ evidence was said to be their evidence that lenders and brokers compete.
In his affidavit evidence, Mr King stated as follows (at [89]):
It was part of my duties to try to refinance Westpac loans that were originated by brokers. Although the first loan would have a “break fee” to either stop or compensate for early repayment, Westpac would waive this if I churned a broker-originated loan to another Westpac loan. All lenders with a retail presence, in my sixteen year experience with residential lending, employ specialists to bring customers to them and to do so directly rather than through brokers. In all my jobs as a lending specialist and as a broker, I was competing against brokers and other lending specialists to attract and service customers. My incentives when employed by others reflected this and the incentives to Mortgage Refunds contractors reflected this. I am not aware of it ever being suggested by any bank or employer that lending specialists did not compete with brokers for customers’ business.
When cross-examined in relation to this statement in his affidavit, however, Mr King appeared to accept that he was speaking about competing to sell loan products. He agreed that his function or duty, initially as a sales and service representative in a Commonwealth Bank call centre and then as a personal lending officer at a branch, was to “sell” as many Commonwealth Bank loans as he could. He regarded himself as competing with other distribution channels who were selling home loans at the same time.
In his affidavit evidence, Mr Lahiff stated that the two strongest “channels” for all lenders with a retail presence were the lenders’ “retail branches” and the “broker channel”. By “channel” Mr Lahiff appeared to mean distribution channel. Mr Lahiff referred to the respective competitive strengths of the lenders’ retail network and the broker channel. He then stated (at [87]-[89] of his affidavit):
Over the years, brokers and lenders with retail networks have of course modified their offerings and practices to use their competitive advantages and address relative disadvantages.
Retail banks have either introduced (or where they existed, strengthened) more customer-friendly service providers to match the brokers, such as mobile lenders, mortgage specialists within branches and franchised lenders, so that the superior convenience and service of brokers is countered. Most have success based incentives which echo those of brokers.
Brokers also have taken steps to counter the retail lenders’ advantages, Mortgage Choice and other broker groups have invested heavily in advertising to establish a brand and the sort of trust that major banks have from some customers. Brokers also often invest heavily in sponsorship of, or involvement in, community groups and events, both to generate awareness for the brand and to counter the bank’s ability to profit from existing customer relationships.
The suggestion was, or appeared to be, that lenders and brokers changed their practises because they were in competition with each other. Mr Lahiff’s apparent suggestion that lenders and brokers competed was challenged in cross-examination by reference to statements made in the 2006 annual report of Mr Lahiff’s company, Mortgage Choice. This challenge, and the primary judge’s finding in relation to Mr Lahiff’s evidence, are addressed later in these reasons in the context of the ACCC’s appeal grounds.
It may immediately be observed, however, that to the extent that Mr Lahiff maintained that lenders competed with brokers, the weight to be attributed to that assertion is at best questionable. It may be that, in a general sense, brokers and lenders compete to be the one to submit a loan application on behalf of a prospective borrower. The broker wishes to earn commission. The lender may wish to avoid the cost of paying commission. But does that mean that the branches and the brokers are competing in a market for the provision of loan arrangement services? Or is that rivalrous behaviour merely an incident of activity between different distribution channels of a lender in the market for the supply of loan products by loan providers?
The third aspect of the industry evidence relied on by the ACCC concerned the similarity of the services provided by internal channels, such as branches, and external channels, such as brokers. In this regard, the ACCC relied, in particular, on the evidence of Mr Lahiff, Mr King and Mr Stark.
Mr Lahiff had worked at Westpac prior to becoming managing director of Mortgage Choice. In his affidavit evidence, he expressed the following opinion (at [69]):
In my opinion, the only significant difference between the services offered by a Mortgage Choice broker and a Westpac mortgage specialist was that the Westpac employee could offer information and advice about, and assistance in applying for, only Westpac mortgage products, whereas the Mortgage Choices broker could do so in relation to a range of lenders.
In cross-examination, it was put to Mr Lahiff that there were three features of the services offered by brokers that the internal distribution channels of the lenders could not offer. They were: first, access to a wide range of lenders and lenders’ products; second, advice free of any pressures or elements of favouritism relating to any one or more lenders; and third, a “path through a … maze of lenders and [their] products”. Mr Lahiff’s evidence was as follows:
Yes. All right. Thank you. And I want to put to you that those features of what brokers offered were features which the distribution channels, the internal distribution channels of lenders, could not offer, do you agree with that?---Certainly in terms of the wide range, I would agree with that.
Yes?---As to the third, of the complexity, I believe that most financial institutions were at pains to describe all of the product features in comprehensible language.
Yes?---And of the second, about being independent, unbiased, you and I are at disagreement about that issue, so certainly the first and the third.
Mr Lahifff’s disagreement with the proposition that the services offered by brokers was “unbiased” was based on the fact that the Australian Securities and Investments Commission had told Mortgage Choice that it was not permitted to represent that the advice it gave was unbiased because it did not have all potential lenders on its “panel”.
Mr King’s affidavit evidence concerning the services offered by Mortgage Refunds included the following (at [21]):
Mortgage Refunds’ service was an alternative to a borrower seeking a loan directly through a lender. A broker such as Mortgage Refunds distinguished itself from the service offered by a lender by offering access to a wide range of loans and lenders and independent comparative information, whereas a bank would only offer access to, and advice about, its own products. In addition, a broker usually offered a more convenient, flexible and personalised service than a lender, such as being available after hours and travelling to the customer’s home to meet with them.
Mr King’s evidence on this topic during cross-examination at trial was as follows:
Well, I want to suggest three particular differences to you and see if you agree with these. This is differences between the broker offering and the in-house channel offering. First, and perhaps foremost, offering access to the wide range of lenders and loan products. Do you agree with that?---Brokers?
Brokers, yes?---Yes.
Thank you. Secondly, independence of lenders and therefore independent advice and information?---Well, yes, we weren’t getting paid by an individual bank, you know, we got paid regardless of what loan you went through, you know, what loan you took.
Yes, but you treated Mortgage Refunds loan writers and understood Mortgage Refunds loan writers to be agents for their clients, not agents for the lenders, didn’t you?---That’s right.
Yes, and the third feature that I want to suggest to you is convenience, flexibility and personalisation of service. Is that something you agree with or disagree with?---No, definitely.
Thank you. And not only were those features features [sic] offered and provided by Mortgage Refunds in its broking activities or those of its loan writers, but you would regard those three features as generally proffered by mortgage brokers throughout the industry, wouldn’t you?---By good mortgage brokers, yes.
Yes?---Yes.
Yes, in 2004 to 2006?---Yes.
Yes, thank you. So is this the position, while a number of the things that both the branches and the brokers were doing coincided, such as providing information, such as helping with application forms, although there was overlap in activity, there was significant difference in the elements of the service offering which differentiated brokers on the one hand from branches on the other hand?---Well, I would say the only difference, really, would be the fact that if you walk into a bank, unless they’re writing other peoples’ paper, you’ve only got the option of writing their home loans so you’re tied into their policies, their procedures, their costs, their interest rates and so forth.
Their products?---The only difference between that and being a broker is the fact that you’ve got 30 or 40 different lenders and all those different policies and procedures and so forth that you can work with to tail it to the individual customer’s needs.
Plus the independence which you agreed to a few minutes ago?---Yes.
Plus the convenience you agreed to a few minutes?---Yes.
Prior to joining Mortgage Refunds, Mr Stark worked as a mortgage lender at Suncorp Banking Corporation (Suncorp). Mr Stark’s affidavit evidence concerning the work he did at Suncorp as compared to the work he did at Mortgage Choice was as follows (at [18]):
In my view, the work that I did for Mortgage Refunds was almost identical to the work I performed in my mortgage lending role at Suncorp. The main differences in my view were that I was acting now as a broker who had access to loan products from a whole range of lenders, as opposed to acting ‘in-house’, and so I was able to offer loan products from other lenders in addition to Suncorp products. The other difference was that, as a broker for Mortgage Refunds, I did not have access to the lender’s internal credit department as I did in my role at Suncorp.
Like the other industry witnesses, Mr Stark readily agreed, in cross-examination that there were differences between the role he played as a broker and the role he played as a bank officer. He agreed that when he was at Suncorp he was working for and to advance Suncorp, whereas at Mortgage Refunds he understood his function was to act on behalf of the customer or client, rather than to act on behalf of the lender. He also agreed that a borrower who comes to a broker wants advice about a range of options that are available in the marketplace. When a borrower goes directly to a bank “they have obviously done their own research … they have pretty much taken their own matters into their own hands”.
The customer evidence
The ACCC also relied on evidence of customers of Mortgage Refunds in support of the proposition that the services offered by lenders or bank branches were fundamentally the same as the services offered by brokers.
Mr O’Malia had obtained mortgage finance from Suncorp at a time when Mr King worked as a mobile lending manager at Suncorp. Later, after Mr King had left Suncorp and established Mortgage Refunds, Mr O’Malia approached Mr King at Mortgage Refunds in relation to potential mortgage finance for the purchase of two properties. Mr O’Malia’s evidence was that “Mortgage Refunds provided essentially the same services” as had been provided by Suncorp “except that with Mortgage Refunds we were offered access to loans from more than one lender.” In cross-examination, Mr O’Malia agreed that it was an advantage to him to get comparative information about the available choices from various lenders and it saved him the trouble of doing the comparative shopping himself “by going from one bank to the next, to the next”.
The evidence of Mr Black was very similar. Mr Black had obtained mortgage finance from HSBC when Mr King was employed at that bank. He later dealt with Mr King when Mr King was at Mortgage Refunds. Mr Black’s evidence was that (at [13] of his affidavit):
The service Jason [King] provided me at Mortgage Refunds was fundamentally the same as that which he had provided at HSBC. The only difference was that Jason could now offer me information and assistance with a broader range of loan products from a number of lenders and not solely HSBC products.
It would appear from Mr Black’s evidence during cross-examination that the difference he identified was of some significance, at least to him. Like Mr O’Malia, Mr Black saw it as a significant advantage that Mortgage Refunds was able to “shop the market” and save him the time and effort of having to research the advantages and disadvantages of loans offered by different lenders himself.
The ANZ documents
The documentary evidence was and is significant to the ACCC’s case. The ACCC relied heavily on statements made in a number of ANZ’s internal documents as supporting the inference or conclusion that ANZ saw its branches as being in competition with external brokers. The documents were also the basis for a number of inferences or assumptions relied on by the ACCC’s expert economist, Dr FitzGerald, in expressing his opinions concerning competition in the relevant markets.
Following is a brief summary of the key documents highlighted by the ACCC, in its written and oral submissions on appeal.
In a document recording a presentation given by Mr Chris Cooper, the chief executive officer of ANZ Mortgage Group on 16 September 2003, the following statements were made:
·The key elements of the Mortgage Group’s “distribution strategy” included establishing “a franchised mobile specialist salesforce that will replicate broker performance to win new customers”.
·“ANZ’s proposed franchise mortgage distribution, in part, will counter broker growth”.
·The evolution of the Australian mortgage industry included, in 2004, “[l]enders’ sales forces compete more closely with brokers (potential to offer product choice)”.
·“With the specialist business model, the natural next step for the Group is to move to a specialist distribution model in order to compete with the external specialists (the brokers)”.
·ANZ has an “over reliance on brokers … exposing the business to sustainability risk and margin pressure”.
In a document that records a presentation by an ANZ officer entitled “Channel Neutrality” on 21 March 2005, the following statements were made:
·“ANZ Mortgages sells mortgage products simultaneously through a number of channels. In many instances, these channels are competing to reach the same set of customers.”
·“To ensure all distribution channels compete on an equal footing for customers, ANZ Mortgages has a strict policy of channel neutrality, where all channels receive the same pricing and fee structures”.
In an email exchange in early 2004 between an external broker and an officer of ANZ Mortgage Group, the broker and the ANZ officer discussed a complaint made by another external broker that they had been “undermined” by an ANZ officer offering “discounted terms”. In one of his emails, the ANZ Mortgage Group officer stated:
ANZ’s guiding principal [sic] is that we are channel neutral to all our distribution channels re: product, credit & pricing.
…
No one owns the customer except the customer. ANZ and also the broker have equal rights to market to the client.
What is offered by the channel as an inducement to secure the business in [sic] not my concern. In fact it is extremely common for brokers to offer significant incentives to the client to win the business. This is outside my control and recognise that this is a market factor.
In an email exchange in April 2004 between ANZ Mortgage Group officers concerning an issue that had arisen concerning an external broker offering a customer a rebate of $2,800 if the customer secured an ANZ loan of $700,000 through the broker, one of the officers stated:
One observation could be that Brokers are capturing too much of the Mortgage Value Chain if they can afford to to [sic] this … This has potential to further erode value in the market place, depending of course how much market share they capture. How do we compete with this sort of stuff?
The economist’s opinion
The ACCC tendered two reports of Dr FitzGerald. The second report responded to a report prepared by an economist retained by ANZ, though ultimately ANZ called no evidence from that or any other economist.
The judgment of the primary judge contains a detailed summary of Dr FitzGerald’s evidence. It is unnecessary to repeat that detailed summary here. It is sufficient to identify the substance of the critical opinions of Dr FitzGerald recorded in his reports. They are as follows:
(1)There is a market in which mortgage brokers compete. It is “a market providing services to participants in the market for mortgage loans”.
(2)“Brokers provide both loan arrangement (or broking) services to prospective borrowers and distribution services to loan providers”. The market is accordingly a two-sided market.
(3)Brokers compete in a market for intermediary services, essentially a “functional market”. To the loan providers, predominantly the retail mortgage lending arms of banks, brokers represent a channel through which the business of eligible borrowers is brought to them. That is, “a distribution channel for their loan products.”
(4)In relation to the market for loan arrangement services (as defined in the ACCC’s pleading), brokers compete with the following categories of parties:
(a)other brokers in the same geographic market who are accredited in respect of loan products that differ from the loan products in respect of which the broker in question is accredited;
(b)other brokers in the same geographic market which are accredited only in relation to the loan products of a single loan provider;
(c)persons franchised by a particular loan provider to provide loan arrangement services or broking services, in the same geographic market, in respect of the loan products of that loan provider;
(d)loan providers which, in respect of their own loan products, engage or employ persons to provide, and who specialise in providing, the following advice and assistance to persons seeking home loans: advice as to the features of the respective loan products available from that loan provider; advice as to which of that loan provider’s loan products are available to persons in those person’s circumstances; advice as to which of that loan provider’s loan products are best suited to the person’s needs; and assistance to complete and lodge applications for the loan product selected in a manner that meets the requirements of that loan provider.
(5)Brokers did not compete with lenders themselves in respect of loan products, but only with other intermediaries providing loan arrangement services to the lenders, including lenders’ tied channels.
An important aspect of Dr FitzGerald’s analysis was that banks, such as ANZ, were generally divided into separate business or economic units (or cost and profit centres). In the case of ANZ, ANZ Mortgage Group was the business unit that was effectively the lender. It developed and provided the mortgage products. It did not, however, generate referrals of eligible prospective borrowers or provide advice or assistance to them. That function was mainly performed by the Personal Banking Business unit which managed the ANZ branch network.
The recognition of these separate business units was important to Dr FitzGerald’s opinion because otherwise it made no sense to regard the services provided by ANZ branches as services provided by an intermediary. ANZ could not provide intermediary services to itself unless the Personal Banking division of ANZ was accepted as being, from an economic perspective, a distinct economic entity that provided intermediary services to ANZ Mortgage Group, another separate business unit, as lender.
Critical also to Dr FitzGerald’s opinion was the conclusion or opinion that the services provided by a lender’s in-house or tied channel (for example a branch) were not significantly or fundamentally different to the services provided by an independent broker. Dr FitzGerald maintained that, in economic terms, the services provided by branches and brokers were relatively close substitutes. That was the case, according to Dr FitzGerald, even though the branches were only able to, or likely to, provide advice or assistance in relation to the bank’s own products, whereas brokers were able to provide comparative advice concerning the products of numerous lenders.
As will be seen, the primary judge rejected this aspect of Dr FitzGerald’s evidence. His Honour found that the services provided by branches and brokers were not close substitutes. This finding is the subject of a ground of appeal and is considered later in these reasons in that context.
ANZ’S CASE AT TRIAL
ANZ’s case at trial was, in short, that there was no loan arrangement services market as contended by the ACCC. The fact that there may have been some common features of the advice and assistance ANZ branch officers provided to prospective ANZ loan applicants, and the services provided by brokers to their clients or customers, did not mean that there was a relevant market for the supply of services comprising those common features. It was ANZ’s case that the advice and assistance provided by ANZ branch officers was provided as part of the sales process in the market for the supply of loan products by loan providers. The services provided by brokers were provided in a different market, being the market for the supply of broking services. ANZ’s internal distribution channels did not compete in that market.
ANZ’s defence to the ACCC’s pleading made the following assertions or denials, expressed below in summary and simplified terms, in relation to the matters relevant to the issues that arise in this appeal:
·ANZ’s business included supplying ANZ loan products (paragraph 1).
·Applicants for ANZ loan products (including ANZ home loan products) applied either directly to ANZ, or through, inter alia, accredited mortgage brokers (paragraph 4).
·Mortgage brokers provide broking services (“broking services”) to their customers, namely:
(a)“the provision of advice and services to assist customers to identify an appropriate or preferable credit supplier or suppliers (which may or may not be or include ANZ) and loan products (which may or may not include ANZ Loan Products or ANZ Home Loan Products) suitable for the needs of that customer; and
(b)otherwise represent their customer’s interests in dealings with the credit suppliers to whom any loan applications are made” (paragraph 6).
·Where a successful applicant for an ANZ loan product (including an ANZ home loan product) was introduced by a mortgage broker, ANZ paid the broker a fee irrespective of what broking services were provided to the broker’s customer (being the successful loan applicant), calculated as a percentage of the loan (paragraph 7).
·Mortgage brokers do not supply loans, including ANZ loans (paragraph 9(a)).
·ANZ does not provide broking services of the sort provided by mortgage brokers and does not provide “loan arrangement services” as defined in the ACCC’s pleading (paragraph 9(b)).
·ANZ is not, and has not at any time, been in competition with providers of broking services or loan arrangement services (paragraph 9(c)).
·Specifically, ANZ was not in competition with Mortgage Refunds, or any of the brokers allegedly engaged by it, either in relation to the supply of loan arrangement services or loan arrangement services in respect of ANZ loan products (paragraph 27).
·Mortgage Refunds (as opposed to the individual brokers associated with it) did not supply either loan arrangement or broking services to customers in respect of ANZ loans. The individual brokers were not employees or agents of Mortgage Refunds (paragraph 26B).
·The individual brokers associated with Mortgage Refunds were not parties to any agreement recorded in or evidenced by the 29 April 2004 letter from ANZ to Mortgage Refunds (paragraph 35).
ANZ did not call evidence from any witness. It did, however, rely, in a positive sense, on some of the evidence given by the ACCC’s witnesses in cross-examination. It also relied on parts of the documentary evidence tendered by the ACCC, as well as additional documents tendered by ANZ.
It is unnecessary to detail here the particular oral or documentary evidence relied on by ANZ at trial. Much of it is referred to later in the context of the ACCC’s appeal grounds. It is sufficient to note two aspects of the evidence relied on by ANZ.
The first point to note is that ANZ contended at trial, as it does on appeal, that the evidence of both the industry witnesses and Mortgage Refunds’ customers reveal three important differences between the services supplied by mortgage brokers and the activities engaged in by ANZ bank officers.
First, the services provided by brokers offered potential customers choice, in that they assisted potential borrowers to select and apply for loan products from a wide range of lenders. The internal distribution channels of banks, on the other hand, only provided advice and assistance in relation to their own loan products. The activities of bank employees, including ANZ employees, therefore could not offer or provide choice to customers.
Second, the advice and assistance provided by brokers was independent, in the sense that the brokers were not tied to a single lender. Brokers acted for and on behalf of the customers to find the best loan for the customer’s needs. Bank officers, including ANZ officers, on the other hand, acted primarily in the interests of their bank by selling the bank’s own loan products.
Third, the services offered by brokers gave the customers the convenience of a “one-stop shop” where the customer could be provided with advice comparing the advantages and disadvantages of a wide range of products from a wide range of lenders. Bank officers could not reasonably provide this comparative advice service.
The second aspect of the evidence to note concerns the documentary evidence. As already indicated, the ACCC’s case relied fairly heavily on statements in various ANZ internal documents that referred to competition between ANZ branches and external brokers.
ANZ’s case at trial was, as it was on appeal, that these passages from the ANZ internal documents, when read in context and not in isolation, did not relate to competition between branches and brokers in relation to the supply of loan arrangement services. Rather, they referred or related either to competition in the market for the supply of loan products, or to ANZ’s intention or desire to maintain “channel neutrality” between the various internal and external distributors of its loan products. Channel neutrality meant that, when “selling” or distributing ANZ loan products, the internal and external channels were to receive the same pricing and fee structures in relation to the loan products. ANZ’s policy was to provide a “level playing field” to its distribution channels, both internal and external.
In this respect, the documents also showed, in ANZ’s submission, that ANZ and the brokers were not competitors, but rather were partners or collaborators. It was in ANZ’s interests to keep them happy with the relationships because they introduced customers to ANZ that may not necessarily have otherwise presented to ANZ branches. Whilst ANZ may have preferred to distribute more loans through its branches, because it did not then have to pay commission to an external entity, brokers were nonetheless seen as a “necessary evil”.
THE JUDGMENT OF THE PRIMARY JUDGE
After setting out the broad context and summarising the uncontentious facts (at [4]-[14]), including the facts surrounding the impugned conduct (at [16]-[22]), and outlining the ACCC’s contentions in relation to the relevant market and competition (at [23]-[31]), the primary judge examined the evidence in considerable detail. His Honour considered the evidence of each witness (at [32]-[477]). Within that detailed discussion, his Honour examined some of the relevant documentary evidence. His Honour also gave separate detailed consideration to the internal ANZ documents and emails (at [478]-[520]). Within this detailed consideration and analysis of the evidence of the individual witnesses and the documents, his Honour made a number of findings or observations concerning the effect of, or weight to be given to, parts of the evidence. It is unnecessary to set out all of those findings in detail here, but it will be necessary to consider some of them in the context of the ACCC’s appeal grounds.
At [521]-[552], the primary judge summarised the evidence and some of his findings in relation to it. His Honour’s summary included the following:
·With some minor qualifications, the witnesses were accepted as being honest and reliable so far as matters of fact were concerned: see [521].
·To the extent that witnesses made assumptions or drew inferences, those assumptions were not necessarily accepted. His Honour said that he would test the “validity” of the assumptions and inferences having regard to the evidence. His Honour referred, in this context, specifically to Dr FitzGerald: see [521]. His Honour’s findings relating to Dr FitzGerald’s evidence are a significant issue on this appeal and will be addressed in detail later in these reasons.
·His Honour did not give “great weight” to the evidence of Messrs O’Malia and Black (the Mortgage Refunds customers) concerning the similarity of the services provided by Mr King when he was employed by a lender and when he operated as an independent broker: see [522].
·In relation to the “industry witnesses” (Messrs King, Stark, Lahiff and Percy) to the effect that the “only difference” between the services offered by brokers and the services offered “in-house” was that the brokers’ services related to a wider range of lenders and products, his Honour concluded that “[t]hat proposition tends to conceal the extent of the relevant difference”. His Honour concluded that the industry evidence “demonstrates that access to a wide range of products supplied by a wide range of lenders, including the major banks, was essential to the success of a broking business”: see [524].
·On this point, his Honour also expressed the view that Dr FitzGerald failed to appreciate the full range of services offered by brokers. As will be seen, the inference or assumption made by Dr FitzGerald concerning the equivalence of the services provided by brokers and “in-house” or “tied” channels was important to his market opinion. His Honour’s findings in relation to this inference or assumption were critical to his Honour’s rejection of Dr FitzGerald’s market opinion: see in particular [524].
·Mr King’s evidence suggested that the services offered by brokers were significantly different from those offered by in-house and tied channels: see [527]. Brokers offered services which in-house and tied channels did not provide: see [528].
·Mr Stark also acknowledged the differences between the services offered by brokers and the services offered in-house by lenders, in particular in relation to the range of products, the choice of different lenders, and independence: see [529].
·In relation to the evidence of the industry witnesses to the effect that brokers competed with lenders, his Honour noted that “it is not at all clear that they recognised ACCC’s distinction between the supply of loan arrangement services and the supply of loan products.” His Honour inferred that they were speaking of the latter: see [526].
·His Honour did not accept Mr Lahiff’s evidence that brokers (such as those engaged by his company, Mortgage Choice) competed with lenders. That was in large part because Mortgage Choice’s contemporaneous documentation did not support the view that it was in close competition with lenders rather than other brokers: see [532].
·Mr Percy’s view was that the internal channels of Bendigo and Adelaide Bank Ltd competed with brokers in the provision of loan products, not loan arrangement services or broking services: see [533].
·Ultimately, the industry witnesses, in the view of the primary judge, offered little support for the ACCC’s case: see [534].
·The industry evidence also did not support many of Dr FitzGerald’s assumptions and conclusions: see [535]. His Honour identified four examples:
(a)First, one of Dr FitzGerald’s reasons for concluding that the products (the services provided by lenders and brokers) are substitutable is that the loan products themselves are not significantly differentiated, with the result that “competition will focus largely on the accompanying services.” The industry evidence, however, showed that there were differences between the lending criteria, and that lending criteria and product characteristics vary over time.
(b)Second, his Honour expressed doubts about the inferences drawn, or the reliance placed on, Dr FitzGerald’s belief that many borrowers obtain significant amounts of information from the internet. Issues relating to the use of the internet were either not explored, or suggested that brokers’ services were significantly different from those provided by a lender’s in-house or tied channels: see [536]-[537].
(c)Third, Dr FitzGerald seems to have discounted the importance to potential borrowers of a broker’s independence from potential lenders: see [538].
(d)Fourth, his Honour had difficulty with Dr FitzGerald’s approach to a potential borrower’s purpose when he or she approaches either a broker or a lender. A potential borrower approaches a broker in order to obtain advice and assistance for the purpose of applying for a loan. When a potential borrower approaches a lender directly, he or she will generally be simply seeking a loan from that lender. Brokers offer an alternative to the time-consuming task of borrowers visiting multiple lenders to obtain advice and assistance about available products: see [539].
·His Honour did not accept that the internal ANZ documents relied on by the ACCC were “all one way” as the ACCC contended: see [552]. His Honour concluded that a number of the documents showed that ANZ wanted to increase market share in the lending market, rather than in any market for loan arrangement services or broking services: see [551]. Whilst they also showed that ANZ wanted to reduce reliance on brokers, they equally revealed that ANZ did not want to risk broker support by departing from the principle of channel neutrality: see [551].
At [553]-[561], his Honour outlined some principles concerning competition and markets by reference to passages from the reasons or judgments in some of well-known authorities, including Re Queensland Co-operative Milling Association Ltd; Re Defiance Holdings Ltd (1976) 8 ALR 481 at 514-516; 25 FLR 169 at 187-189; Queensland Wire Industries Pty Ltd v Broken Hill Proprietary Company Ltd (1989) 167 CLR 177 at 187-188, 195-196, 198-200; and Arnotts Ltd v Trade Practices Commission (1990) 24 FCR 313 at 331-332.
Neither party contended that his Honour’s statement of the relevant principles relating to market definition and competition was in any way, erroneous or deficient.
At [562]-[615], the primary judge summarised the submissions of the parties. In the course of so doing, his Honour repeated or referred to a number of factual findings either made earlier in the judgment or elaborated on later. It is unnecessary to rehearse here his Honour’s summary of the submissions. It is also unnecessary to refer to, or repeat, all of the findings made by his Honour in this part of the judgment. The most important findings were as follows:
·His Honour rejected the ACCC’s submission that the agreement between ANZ and Mortgage Refunds recorded or evidenced in the 29 April 2004 letter was motivated by an anti-competitive purpose which showed that ANZ and Mortgage Refunds were in competition. His Honour said (at [581]) that “[h]aving regard to the apparently isolated nature of the conduct and the limited nature of the restraint imposed, I am inclined to the view that ANZ was trying to keep the branches happy rather than seeking to restrain perceived competition.”
·His Honour effectively rejected the ACCC’s submission that the payment of commission was in respect of the service supplied by the broker to the customer. His Honour said (at [589]) that it “would be more realistic to say that the payment of the commission is in respect of services supplied to the lender by the broker” and that “[o]ne might say that the commission was for effectively bringing about a sale of an ANZ loan product.” It is but a short step from this finding to conclude, as his Honour ultimately did, that the relevant market in which the conduct occurred was the market for the supply of loan products, not any market for the supply of loan arrangement services.
·The primary judge rejected ANZ’s submission that the relevant agreement between ANZ and Mortgage Refunds concerning the maximum refund did not relate to any discount, rebate, allowance or credit within the meaning of s 45A of the Act. His Honour held that it was “at least arguable” that the refund fell within the ordinary (dictionary) meaning of “rebate”, which included a deduction from a sum of money to be paid, or a partial refund of money paid (at [610]). His Honour’s finding in this regard is the subject of ANZ’s cross-appeal.
At [616] to [657] of the judgment, the primary judge set out his dispositive findings and reasoning. His Honour made five critical findings that were effectively fatal to the ACCC’s case.
The first critical finding was that his Honour was not satisfied that ANZ branches supplied loan arrangement services (as defined in the ACCC’s pleading) to potential borrowers: see [631] and [634]. It is common ground that the reference to “lenders” in [631] should be read as “borrowers”. Rather, his Honour concluded that they supplied sales services to ANZ Mortgage Group and/or to ANZ.
There are a number of important points that should be emphasised in relation to this finding. These points are elaborated on later in these reasons in the context of the ACCC’s challenge to this finding and his Honour’s reasons for making it. It is sufficient here to make four short points.
First, the finding is a finding of fact concerning the nature or proper characterisation of the services provided by ANZ branch staff in the course of their interaction with prospective borrowers.
Second, his Honour was not saying that ANZ branch staff did not provide, at various times, some or all of the things that the ACCC alleged constituted “loan arrangement services”. His Honour found, in effect, that ANZ staff and employees did do some or all of those things from time to time: see [622] and [630]. The issue was the proper characterisation of those things.
Third, his Honour characterised the things done by ANZ branch staff, which the ACCC described as “loan arrangement services”, as functions or duties performed in the course of selling or distributing ANZ’s loan products: see in particular [619]-[620].
Fourth, whilst his Honour said that one could (perhaps loosely) describe the things done by the branch staff as “sales services” provided to ANZ or ANZ Mortgage Group, they could not properly be characterised as the provision of services to prospective customers, as distinct from the performance of functions associated with the supply by ANZ of loan products. His Honour characterised the interaction between an ANZ branch officer or franchisee and a prospective borrower in the following terms (at [625]):
Thus the process does not resemble the supply of a service. Rather, it resembles an interactive procedure between the potential borrower and a representative of the lender, anterior to the making of a loan. It is a process in which a potential borrower must participate in order to obtain a loan product. To characterize it as the provision of services would lead to the similar characterization of any pre-contractual negotiations.
His Honour also inferred that the other industry witnesses were also referring to competition in that broad sense. This was not, as the ACCC submitted, a conclusion that was reached by extrapolation from Mr Percy’s evidence. His Honour carefully analysed the evidence of each of the industry witnesses. His Honour had the advantage of hearing all their evidence and considering it together with the evidence as a whole. There is no basis for the ACCC’s contention that the primary judge erred in his assessment of this evidence.
Ground 5 - Did the primary judge err in failing to find that ANZ’s internal documents demonstrated ANZ’s opinion that it competed with brokers in relation to the provision of loan arrangement services?
The ACCC submitted that ANZ’s internal documents “consistently” demonstrated ANZ’s opinion that its internal distribution channels, comprising its branches, employees, agents and franchisees, were in competition with brokers to attract customers and, therefore, in competition to provide loan arrangement services for the purposes of attracting customers. The ACCC raised specific complaints in relation to the primary judge’s findings and reasoning concerning the internal documents. In particular, it attacked the primary judge’s observation that the particular parts of the documents relied on by the ACCC needed to be considered in context and that, in most if not all instances, the context was competition in the market for the supply of loan products. The ACCC also submitted that his Honour’s finding that these documents did not assist the ACCC’s case was based on findings or reasons that were not “valid”, “justified” or open on the evidence.
The important passages from the documents highlighted by the ACCC in its submissions are extracted earlier in these reasons. His Honour’s key findings in relation to the documents and what inferences or conclusions could be drawn from them are also detailed earlier. It is unnecessary to rehearse these matters here.
There were undoubtedly some statements in ANZ’s internal documents that suggested that some senior officers of ANZ considered, in a broad sense, that ANZ’s internal distribution channels competed with brokers and that it was in ANZ’s interests to have its internal channels replicate the services provided by brokers so that ANZ could reduce its level of reliance on brokers. Those statements, however, unquestionably needed to be considered in context. The relevant context included not only the nature and content of the documents in which the particular statements were made, but also the evidence in its entirety.
The ACCC complained that his Honour did not identify what the context was. That submission is untenable. The primary judge’s reasons analysed the documents in painstaking detail so as to place the statements relied on by the ACCC in context, both in terms of the particular documents from which the statements were extracted, but also the overall impression conveyed by the totality of the documentary evidence.
In the course of his detailed analysis of the documents in the judgment, the primary judge made numerous observations, comments and findings concerning particular statements in particular documents, and the inferences or conclusions that could be drawn from them. Ground 5 in the notice of appeal, and the ACCC’s submissions in relation to it, identify some, albeit only a small fraction, of his Honour’s findings in relation to some of the documents and contends that those findings were not valid, justified or open. This approach to the judgment and findings of the primary judge is neither fruitful nor to the point. Even if it was accepted, which it is not, that some of these individual findings and observations by his Honour were not open on the evidence, that would not undermine in any material way his Honour’s ultimate findings or conclusions on the evidence.
The primary judge’s overall conclusions, in relation to the ANZ’s documents are summarised in the judgment at [549]-[551] in the following terms:
My consideration of the ANZ documentation leads me to conclude that a number of matters were under consideration by ANZ Mortgage Group in 2003-2004. They included:
Ÿ increasing market share in the lending market;
Ÿ providing customers with the convenience of mobile lenders, as did other lenders;
Ÿ reducing reliance on the brokers;
Ÿ maintaining the support of the brokers;
Ÿ avoiding retaliation from brokers; and
Ÿ improving customer management and relations.
Despite the occasional references to competing with brokers, little attention was given to the implementation of such “competition”. There was no suggestion that ANZ should abandon the use of brokers, or that future accreditations should be limited. There was no suggestion of an advertising campaign focussing on the advantages of in-house or tied channels over brokers. Although brokers’ methods were to be emulated, there was no suggestion that ANZ could neutralize the advantages of choice and relative independence which brokers enjoyed. There was no suggestion that there be a quota regulating the amount of business to be accepted from brokers.
As I have said, at least one, and perhaps the dominant aim in establishing the franchise model was to remedy a perceived shortcoming in ANZ’s distribution channels as compared to those of other lenders. No real attempt was made to identify potential borrowers who might be tempted away from the brokers. Clearly, the expectation was that the brokers would retain existing levels of custom, even if their overall share of the ANZ “book” were to be reduced. ANZ was aware that its share of the lending market was only 11%. Thus there was plenty of room for expansion, by brokers and by ANZ in-house channels. Indeed, in the early stages, it was thought that ANZ’s plans might result in extra business for the brokers. In any event, ANZ did not want to risk broker support. Any attempt to depart from the principle of channel neutrality was seen as fraught with the risk of retaliation by the brokers. Finally, any expansion of market share seems to have been sought in the lending market rather than in any market for loan arrangement services or broking services. ANZ simply wanted to sell more mortgages in the lending market, preferably through in-house and tied channels.
These conclusions were open on the evidence. Indeed, they were supported in many respects by other evidence concerning the nature of the relationship between loan providers, such as ANZ, and mortgage brokers. The ANZ documents did not, as the ACCC effectively contended, compel a conclusion that ANZ competed with brokers in relation to the provision of “loan arrangement services”.
The primary judge did not err in his consideration of the documentary evidence or the inferences and conclusions he drew from it.
Ground 6 - Did his Honour err in finding that the services provided by bank branches were not close substitutes for the services provided by brokers?
This ground has already been addressed earlier in these reasons in the context of ground 3. The primary judge did not err in concluding that the services provided by the bank branches and brokers were not close substitutes. His Honour’s conclusion was based, in large part, on his finding that the different nature and attributes of the services provided by bank branches and independent brokers were significant. He concluded (at [643]) that the choice consumers would make between the different services would depend on their particular needs at particular times. They were not close substitutes because the choice would not be influenced in any material way by price changes. There is no demonstrated error in that reasoning or the factual findings underlying it.
It should also be emphasised that this was an alternative and independent basis for dismissing the ACCC’s case. The main basis for the decision was his Honour’s finding that the “in-house and tied channels” did not provide loan arrangement services to potential borrowers. It follows, that even if this ground was made out, it would not necessarily result in the appeal being allowed.
Ground 7 - Did the primary judge err in characterising the services by reference to rights, duties and liabilities as between bank branch and customer?
This ground challenged parts of the primary judge’s reasoning relating to the characterisation of the activities carried out by staff of ANZ branches for the purposes of identifying what market those activities related to. His Honour’s reasons for characterising the activities as he did are outlined earlier in these reasons, including in the context of ground 1.
The ACCC’s specific criticisms that are the subject of this ground related to the reasoning in the primary judge’s judgment at [622]-[628], where his Honour analysed the activities by reference to the duties and obligations of the ANZ bank officers. The ACCC’s submissions were primarily directed at [622] of the judgment, which was in the following terms:
Whilst it may accurately be said that ANZ provided banking services, including the supply of loan products at its branches, it does not follow that everything done at a branch, or even each interaction with a potential borrower involved the supply of a service to that person. Branch employees were employees of ANZ. They performed duties as directed by ANZ for the purposes of its banking business. Some branch employees, from time to time, performed duties in connection with the supply of loan products on behalf of ANZ Mortgage Group, including those duties identified in para 7.2 of the statement of claim, or similar duties. They performed such functions at the direction of ANZ and as an aspect of their employment. Such functions were, prima facie, steps taken at the request of, and for the benefit of ANZ Mortgage Group, and at its expense. In a sense the performance of such functions may have benefited potential borrowers, but again, it does not follow that the branch staff provided services to them. In effect, branch staff dealt with potential borrowers on behalf of ANZ Mortgage Group. Neither it, nor any branch staff member undertook a duty to a potential borrower to perform the functions identified in para 7 of the statement of claim. Nor did any obligation arise out of the performance of those functions, subject only to consumer protection and similar legislation, and the law relating to misrepresentation. It may not be necessary, in order that there be a supply of services, that there be accompanying or resulting legal consequences. Nonetheless the presence or possibility of legal rights, duties and liabilities may say much about the nature of a particular transaction or class of transactions.
The ACCC contended that this analysis of legal rights, duties and liabilities was a “significant criterion” in respect of the distinction drawn by the primary judge between the services provided by bank staff and the services provided by brokers. It submitted that the reasoning is incorrect for two reasons. First, the ACCC contended that if correct, it would have the result that no vertically integrated firm could compete with a firm operating over only one functional level. Second, the ACCC submitted that there was no evidence that the bank employees’ duty was to advance the interests of ANZ Mortgage Group without regard to the provision of appropriate advice and assistance to the customer.
These arguments may be dealt with shortly. In relation to the first argument, the inferences and conclusions drawn by his Honour in relation to the characterisation of the activities of branch officers related solely to the facts and evidence in this matter. His Honour did not suggest that, as a matter of general principle, ANZ, as a vertically integrated firm, cannot compete with non-integrated firms. His Honour did not analyse or characterise the activities or arrangements by reference to economic concepts such as vertical integration. Perhaps his Honour was mindful of the admonition or warning given by the High Court in Visy Paper Pty Ltd v Australian Competition and Consumer Commission (2003) 216 CLR 1 at [23]-[27] concerning the use of such economic terms and analysis in relation to contraventions under the Act in circumstances where those economic terms are not replicated in the relevant provisions of the Act.
There may well be cases where a division of a vertically integrated corporation provides goods or services which are close substitutes for goods or services provided by an external supplier. In such a case there may be competition between the vertically integrated firm and the external supplier. But, on the evidence, this matter was not such a case.
As for the second argument, there was ample evidence from which the primary judge could infer that branch officers owed a duty, as ANZ employees, to advance the interests of ANZ and to therefore offer advice or assistance only in relation to ANZ’s loan products. In contrast, there was considerable evidence that a particular selling point for brokers was that they were independent of particular lenders. They had no duty to advance the interests of any one lender. It is also wrong to characterise his Honour’s reasoning as including the proposition that branch officers could act without regard to the provision of appropriate advice and assistance to the customer. His Honour recognised, in [622], that branch officers were subject to “consumer protection and similar legislation, and the law relating to misrepresentation.”
His Honour’s analysis in terms of rights and duties was also not critical to his characterisation of the activities of the branch employees, though it was plainly an important consideration. His Honour recognised, at [622], that “[i]t may not be necessary, in order that there be a supply of services, that there be accompanying or resulting legal consequences.” His Honour also accepted, at [630], that to describe a particular function as an employee’s “duty” to his or her employer did not necessarily exclude the possibility that services were also supplied. In the particular circumstances of this case, however, his Honour considered that this was a significant point of distinction between the activities or services provided by a branch officer and the services supplied by a broker. There is no error involved in that reasoning.
Accordingly, ground 7 has no merit and is rejected.
Ground 8 - Did the primary judge err by relying on his own understanding or own views about the interaction between bank staff and customers?
This ground again may be disposed of shortly. It again relates to some of the reasons of the primary judge in relation to the characterisation of the activities of ANZ branch officers. That reasoning concerned the fact that ANZ branches only provided advice and assistance in relation to ANZ loan products, whereas brokers could and did provide comparative advice concerning loan products.
At [539], his Honour made the following observations:
Finally, I have difficulty with Dr FitzGerald’s approach to a potential borrower’s purpose when he or she approaches either a lender or a broker. Clearly, a potential borrower approaches a broker in order to obtain advice and assistance for the purpose of applying for a loan. When a potential borrower approaches a lender directly, he or she will generally be simply seeking a loan from that lender. There may be some people who go to bank branches or other lenders’ internal channels to obtain information as to available and suitable products, intending to visit other lenders for the same purpose, and then to compare the outcomes. There is no suggestion that many people do so. In any event brokers offer an alternative to that time-consuming task.
The ACCC submitted that this was his Honour’s own view and was unsupported by evidence. That submission is rejected. Two points should be made. First, this is an inference, indeed a fairly obvious inference, that could be drawn from the different features of the activities of the services provided by bank branches and brokers. More significantly, it was supported by evidence adduced from Mr O’Malia and Mr Black in cross-examination. Second, the impugned observations by the primary judge were made in response to some statements made in Dr FitzGerald’s report concerning a potential borrower’s purpose when he or she approaches either a broker or a lender. This was an example of fact-finding or fact evaluation by Dr FitzGerald that was outside his area of professional expertise as an economist. His Honour was in no worse position than Dr FitzGerald to draw such inferences.
The primary judge’s findings and reasoning at [622]-[628] relating to the interaction between a bank officer and a customer have been addressed earlier in the context of other grounds of appeal, including ground 7. It is sufficient to say that his Honour’s reasoning was not based on his own understanding or his own views, but was based on inferences able to be drawn from the whole of the evidence.
Ground 8 has no merit and is rejected.
Ground 9 - Did the primary judge err in failing to find that ANZ provided loan arrangement services in competition with Mortgage Refunds?
This ground has been effectively addressed in the context of other specific appeal grounds. No error in his Honour’s findings or reasoning has been demonstrated by the ACCC.
Ground 10 - Did the primary judge err in failing to find that the evidence of Mr King and Ms Zacka concerning the agreement between ANZ and Mortgage Refunds was consistent with the existence of competition between ANZ branches and brokers?
The evidence of Mr King and Ms Zacka concerning their conversation with Mr Carroll of ANZ in relation to the impugned agreement between ANZ and Mortgage Refunds is extracted earlier in this judgment. This evidence was not challenged. Mr Carroll was not called as a witness by ANZ.
There is no doubt that, in some circumstances, inferences relevant to market identification and competition can be drawn from the views and actions of those within an industry, including the nature of an agreement between alleged competitors: Rural Press Limited v Australian Competition and Consumer Commission (2003) 216 CLR 53 at [45]; Boral Besser Masonry Ltd v Australian Competition and Consumer Commissioner (2003) 215 CLR 374 at [257]. The ACCC submitted, in effect, that the evidence of the arrangement in this matter, and the terms of the conversation between the senior ANZ officer and the representatives of AFG and Mortgage Refunds, compelled a finding that ANZ competed with Mortgage Refunds in respect of loan arrangement services. The ACCC, in its submissions, asked rhetorically: “what was the need for a level playing field if ANZ management did not have the view that it competed with Mortgage Refunds and other brokers in the provision of customer services?”.
The primary judge gave an answer to that rhetorical question. The answer was that a level playing field was needed for the purposes of channel neutrality. In his Honour’s words “Mr Carroll was simply seeking to quell branch dissatisfaction, as his statement in fact suggests” (see [596]). This answer to the rhetorical question was based on the whole of the evidence. His Honour’s reasoning is explained further at [581] in the following terms:
I should make one other point. ACCC’s submission assumes that channel neutrality is inevitably motivated by an anti-competitive purpose. Yet there is logic in the proposition that an up-stream supplier may simply wish to avoid damaging and pointless conflict between distribution channels. In taking action in response to Mortgage Refunds’ conduct, ANZ initially sought to enforce, as against AFG, the terms of the originator agreement. The subsequent “re-instatements” were, in fact, on more favourable terms than those contained in that agreement. ANZ approved the offering of a not-insubstantial refund which, as far as the evidence goes, the branches would not generally match. In order to demonstrate the existence of a competitive relationship by reference to conduct, one must show that a desire to hinder competition is a likely reason for such conduct. For what it is worth, I am simply unconvinced that ANZ’s conduct was so motivated. Having regard to the apparently isolated nature of the conduct and the limited nature of the restraint imposed, I am inclined to the view that ANZ was trying to keep the branches happy rather than seeking to restrain perceived competition. That view is, of course, based on all of the evidence in the case. It does not dispose of the case. However it disposes of one basis upon which ACCC relies in order to establish that ANZ and Mortgage Refunds were providing services in competition with each other.
There is no error in this reasoning. His Honour’s refusal to answer the rhetorical question in the way the ACCC would have liked was open on the evidence.
Grounds 11 and 12
These grounds are effectively “catch-all” grounds. They assert that the primary judge erred in not finding that ANZ contravened s 45(2)(a)(ii) and s 45(2)(b)(ii) of the Act. To the extent that the ACCC advanced any separate submissions in support of these grounds, they have been dealt with in the context of other specific grounds, or elsewhere in these reasons. His Honour did not err in finding that the ACCC had not made out the contraventions as pleaded on the evidence.
A final observation in relation to the appeal
It remains to make one final observation. The resolution of this matter turned on the evidence and the unique facts and circumstances, including the particular way the ACCC framed its case in relation to the alleged market and competition. Ultimately, the evidence did not support the existence of the particular market pleaded by the ACCC and failed to establish competition between ANZ and Mortgage Refunds in the particular defined market. It does not necessarily follow that there can never be a case where a manufacturer (or product originator) which has its own distribution division (or separate economic unit) competes with external distribution channels in the market for the supply of the particular product. No such general principle can or should be extracted from the outcome of this matter, including this appeal. Each case needs to be considered on its own facts and circumstances.
ANZ’S CROSS-APPEAL
Given that the ACCC’s appeal has been determined adversely to it, it is strictly unnecessary to consider ANZ’s cross-appeal. Nevertheless, since it raises only a short point concerning the construction of s 45A of the Act and its application to the facts of this case, the better course is to resolve this aspect of the controversy.
For the purposes of resolving the cross-appeal it must be assumed, contrary to the primary judge’s findings that have been upheld, that Mortgage Refunds supplied loan arrangement services to borrowers in competition with ANZ.
The agreement between ANZ and Mortgage Refunds contained the following term:
The maximum refund that can be provided to the customer in relation to an ANZ Loan Product is to be no greater than the amount of the Loan Approval Fee as determined by the ANZ Bank. The amount of this fee may be altered at anytime and at the Bank’s sole discretion.
There is little doubt that this term of the agreement had the effect of fixing, controlling or maintaining the amount of money that Mortgage Refunds could pay, or could offer to pay, its clients if they successfully applied for an ANZ loan through Mortgage Refunds. But could the amount paid by Mortgage Refunds, however it was described by it, be properly characterised as “the price for, or a discount, allowance, rebate or credit in relation to” the loan arrangement services supplied by Mortgage Refunds?
The primary judge held that the payment could not be described as a discount, allowance, or credit. It could, however, be described as a rebate. In so concluding, his Honour gave a broad construction to s 45A holding (at [610]) that the use of the words “price”, “discount”, “allowance”, “rebate” and “credit” in s 45A “suggests an intention to cover all payments or reductions in payments due.” The relevant “payment due” was, in his Honour’s view, the amount to be paid to the lender (ANZ) by the borrower as part of the loan transaction. This would include the loan approval fee and/or the first interest instalment payable by the borrower.
His Honour also held that the payment by Mortgage Refunds to the borrower was “in relation to” the loan arrangement services supplied by Mortgage Refunds to the borrower. His Honour reasoned as follows (at [612]):
The refund was in relation to such services in the sense that the availability of the refund was used as a “hook” to attract potential borrowers to avail themselves of the whole range of the brokers’ services. I consider that the refund was a rebate in relation to the supply of the brokers’ services. Whether those services were loan arrangement services as pleaded is another matter.
ANZ submitted that the Mortgage Refunds payment could not properly be characterised as a “rebate” for the purposes of s 45A for two related reasons. First, however it may be described, the payment was not “in relation to” the loan arrangement services provided by Mortgage Refunds. Because Mortgage Refunds did not charge the customer any fee for the services it provided, in ANZ’s submission there was no nexus between the “refund” and the service. If anything, the refund was “in relation to” the supply of the loan product by ANZ.
Second, ANZ submitted that even if the payment was “in relation to” the supply of loan arrangement services by Mortgage Refunds, it could not be characterised as a discount, allowance, rebate or credit. That is because the common feature of all of these words is the notion that the payment was in some way a reduction in, or offset to, the cost to the consumer of the relevant goods or service. Here, it is common ground that the relevant service was free. It therefore makes no sense, as a matter of construction of the ordinary language, to consider the payment as a reduction of a nil amount.
There is some merit in ANZ’s submissions. They expose, it must be said, an apparent tension or inconsistency in his Honour’s reasoning in relation to this aspect of the matter. On the one hand, his Honour found that the payment was a rebate because it reduced the amount payable by the borrower to ANZ, being the loan approval fee or an interest payment. That would suggest that the rebate was “in relation to” the supply of the loan product by ANZ. On the other hand, however, his Honour found that the payment was “in relation to” the supply of loan arrangement services by Mortgage Refunds because it was, in effect, offered as an inducement to prospective borrowers to use the services of Mortgage Refunds.
The primary judge’s characterisation of the Mortgage Refunds’ payment as a “hook” or inducement to attract prospective customers to utilise the services of Mortgage Refunds is an accurate characterisation of the payment. The offer of a refund was Mortgage Refunds’ key selling point in the market for broking or loan arrangement services. The services offered by Mortgage Refunds included lodging loan applications and effectively liaising between the loan provider and the borrower.
In these circumstances, it was correct for the primary judge to conclude that the payment was “in relation to” the loan arrangement services provided by Mortgage Refunds.
That conclusion, however, makes it difficult to characterise the payment as a rebate or, for that matter, a discount, allowance or credit. Even accepting the primary judge’s broad construction of these words in s 45A as encompassing any “reductions in payments due”, the payment was not a reduction of any payment due by the borrower to Mortgage Refunds. And, having accepted that the payment related to the services provided by Mortgage Refunds, it is difficult to see how or why it was open to characterise the payment as if it in some way related to the supply of the loan by ANZ, in the sense that it reduced some amount otherwise payable by the customer to ANZ.
The proposition that the payment reduced either the loan approval fee or the first interest payment by the borrower is also inconsistent with the characterisation of the payment as an inducement to use the services of Mortgage Refunds. There is no suggestion in the evidence that the payment was made otherwise than straight from Mortgage Refunds to the customer. It was not directed to ANZ to meet any of the borrower’s commitments to ANZ. Nor was the borrower required to use the funds in any particular way. The borrower was not required to use the funds to reduce any amounts otherwise payable to ANZ. It was, in this respect, no different to his Honour’s metaphorical “set of steak knives” (cf. [607]). The customer was obliged to pay the loan application fee and first interest payment to ANZ whether or not Mortgage Refunds made the refund payment and however the customer chose to use that payment.
The effect of the ACCC’s submissions on this point was that, so long as any limitation or fixing of the payment could be considered to be anti-competitive because it limited the capacity of Mortgage Refunds to compete on price in the relevant loan arrangement services market, it is unnecessary to give close attention to the words used in s 45A. Those words were designed to “cover the field” and not leave some sort of “incidental gap” through which such competitive behaviour could be squeezed.
That submission is rejected. Section 45 is a penalty provision. Section 45A can operate to create a per se contravention by deeming a contract to have the purpose or effect of substantially lessening competition. In the circumstances, there is no warrant for construing s 45A as broadly as the ACCC contended, or in a way which effectively ignores the text.
His Honour erred in finding that the Mortgage Refunds payment could be considered to be a “rebate” in relation to any services supplied by Mortgage Refunds in competition with ANZ. Nor, as the ACCC contends, could the payment be characterised as a discount, allowance or credit in relation to those services. This finding alone would have warranted the dismissal of the ACCC’s case.
ANZ’s cross-appeal should be allowed.
CONCLUSION AND DISPOSITION
The ACCC has failed to demonstrate any error on the part of the primary judge.
The appeal should be dismissed with costs. The cross-appeal should be allowed with costs. There is no need for any further or consequential orders on the cross-appeal.
I certify that the preceding three hundred and sixteen (316) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Chief Justice Allsop, and Justices Davies and Wigney. Associate:
Dated: 31 July 2015
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