Australian Competition and Consumer Commission v Australian Safeway Stores Pty Ltd (No 3)
[2001] FCA 1861
•21 DECEMBER 2001
ACCC v Australian Safeway Stores Pty Limited (No 2) [2001] FCA 1861
Evidence - Trade practices - Corporations - Estoppel
ACCC v Australian Safeway Stores Pty Limited (No 2) [2001] FCA 1861
FEDERAL COURT OF AUSTRALIA Australian Competition and Consumer Commission v
Australian Safeway Stores Pty Ltd & Others
VG 762 of 1996
GOLDBERG J
21 DECEMBER 2001
MELBOURNE
SUMMARY
1. This summary accompanying the reasons for judgment delivered today is intended to assist in understanding the outcome of this proceeding and is not a complete statement of the conclusions reached by the Court. The only authoritative statement of the Court's reasons is that contained in the published reasons for judgment which will be available on the internet at together with this summary.
2. The Australian Competition and Consumer Commission ("the Commission") brought this proceeding against Australian Safeway Stores Pty Ltd ("Safeway") and two of its executive officers, Mr Bernie Brookes and Mr Mark Jones. In the course of the trial, the Commission consented to an order that the proceeding, as against Mr Brookes, be dismissed. The trial continued against Safeway and Mr Jones.
3. The Commission alleged that Safeway had contravened various provisions of Pt IV of the Trade Practices Act 1974 (Cth) by its conduct in relation to ten separate incidents which occurred in and between May 1994 and November 1995 and involved the removal, or threatened removal, of bread, supplied to it by bread manufacturers Tip Top, Sunicrust or Buttercup, from display and sale in particular Safeway supermarkets.
4. Central to the Commission's allegations was the claim that Safeway had a policy that if bread products of a manufacturer were being specialled by another retailer, other than Coles or Franklins, in the vicinity of a Safeway store, at a price which was under the price being charged by Safeway at such store, then all that manufacturer's bread products would be removed from display for sale from that Safeway store and other Safeway stores in the vicinity while that manufacturer's bread products were being specialled by that other retailer. The Commission alleged that the purpose of the policy was to punish the bread manufacturers, Tip Top, Sunicrust and Buttercup, for selling bread to independent stores at such a price as would enable the individual stores to sell their bread for a lesser price than Safeway was selling bread.
5. Safeway denied that it had such a policy and claimed that it had a policy which was pro-competitive rather than punitive and involved Safeway asking the bread manufacturers for, what was called in the proceeding, a case deal (effectively an arrangement involving a discount). Safeway said its policy was that where a store was faced with competition from another store selling bread at discounted prices to ask the manufacturer of that bread for the same cost price for the bread the manufacturer was supplying to Safeway as the manufacturer was giving to the competitive store. If such a comparable cost price was not offered then Safeway would delete or remove the bread of that manufacturer from display and cease purchasing it.
6. The Commission put its case in the alternative and said that if Safeway did request a supply of bread at a comparable cost price, it did so knowing that the bread manufacturer would not agree because to sell the bread being supplied to Safeway at prices competitive with the bread being discounted by the competitive store would damage or destroy the goodwill or value attached to the brand name of the branded bread sold by Safeway.
7. The Commission alleged that contraventions of ss 45, 46, 47 and 48 of the Trade Practices Act 1974 (Cth) arose out of ten specific incidents. Nine of the incidents involved competitors of Safeway selling bread at discounted prices. One incident involved a stall operated by Tip Top at the Preston Market where it was alleged that an agreement as to the prices to be charged and the bread to be sold by Tip Top had been reached. The Commission alleged that Safeway's conduct amounted to entering into, or attempting to enter into, a contract, arrangement or understanding for the purpose of substantially lessening competition, attempting to induce the manufacturers to engage in the practice of resale price maintenance and engaging in the practice of exclusive dealing. In addition, the Commission alleged that Safeway had taken advantage of its market power for a proscribed purpose in contravention of s 46 of the Trade Practices Act 1974 (Cth).
8. I have reached the conclusion that the policy Safeway had was in the terms claimed by Safeway and not in the terms alleged by the Commission. I have also reached the conclusion that the purpose of the policy created by Safeway was to enable it to be competitive and was not to punish the plant bakers or deter them from engaging in competitive conduct with independent stores.
9. I have also reached the conclusion that the allegations of contraventions of ss 45, 46, 47 and 48 of the Trade Practices Act 1974 (Cth) in respect of the ten incidents have not been made out.
10. The result is that the application against Safeway and Mr Jones will be dismissed. I publish my reasons for reaching this conclusion.
EVIDENCE - civil standard of proof - allegations of serious misconduct or significant contraventions - reasonable satisfaction is not attained independently of nature and consequences of fact or facts to be proven - application of Briginshaw principle.
EVIDENCE - credibility - reliability of witnesses - attack on credibility - evidence given considerable time after events occurred.
TRADE PRACTICES - allegations of contraventions of Trade Practices Act 1974 (Cth) - policy - purpose of policy - whether purpose competitive or punitive - whether purpose of policy was to procure competitors to stop discounting products - whether requesting supply at a price comparable to price charged to competitors is competitive and not punitive conduct.
TRADE PRACTICES - conduct engaged in on behalf of a body corporate - authority to bind company - actual and apparent authority - contract or arrangement partly oral and partly implied - necessary to identify person or persons who entered into contract or arrangement.
TRADE PRACTICES - taking advantage of market power - whether conduct constituted taking advantage of market power - substantial degree of market power - purpose for which market power used - identification of relevant market - wholesale or retail market - economic theories on market power - barriers to entry into market - monopoly and monopsony power - excess capacity - market power determined by ability of corporation to act in manner that it could not if faced with competition - whether respondent would have acted in same manner if it did not possess its market power.
TRADE PRACTICES - exclusive dealing - refusal to purchase - whether refusal to purchase from manufacturer unless able to buy at price matching the price offered to competitor constitutes exclusive dealing - whether refusal to purchase because supplier has supplied competitor at a particular price constitutes exclusive dealing - meaning of "except to a limited extent".
TRADE PRACTICES - resale price maintenance - prices charged by competitor - whether induced or attempted to induce manufacturer to take action in relation to supply of product to or the prices charged by competitor - request for same wholesale price as competitor - whether refusal to purchase unless manufacturer offers wholesale price matching the price offered to competitor constitutes resale price maintenance - not necessary for specific price to be identified - sufficient if price specified by reference to standard or formula or range by reference to which price is to be determined - price range must be identifiable - whether fait accompli constitutes inducing resale price maintenance.
TRADE PRACTICES - price fixing - whether conduct amounted to agreement to fix prices - necessary to identify persons entering into agreement - authority to bind company - whether conduct amounted to agreement on prices to be charged by manufacturer selling goods in retail market and on particular products to be sold.
TRADE PRACTICES - conduct engaged in on behalf of a company - principles - relevant factors in determining whether acts and knowledge of employees are attributable to the company - actual and apparent authority - whether employee part of the directing mind and will of the company - authority to implement contract, arrangement or understanding.
CORPORATIONS - liability for actions of employees - authority to act on behalf of corporation - authority to enter into contract or arrangement or reach an understanding - actual and apparent authority - acts and knowledge of employees attributable to corporation.
ESTOPPEL - res judicata - consent judgment - defence of consent judgment dismissing proceeding against a co-respondent - defence may be available where party seeking to bar cause of action is different to beneficiary of first judgment - whether respondent privy of beneficiary of first judgment - cause of action to be barred - different causes of action alleged against beneficiary of consent judgment and party seeking to raise defence - defence requires privity of interest between beneficiary of first judgment and person raising defence.
ESTOPPEL - issue estoppel - distinction between res judicata and issue estoppel - consent judgment - consent judgment not bar to defence - whether respondent privy of beneficiary of first judgment - whether defence available where effect of consent judgment was to dismiss proceeding against a co-respondent - causes of action - different causes of action alleged against beneficiary of consent judgment - necessary to identify issues determined in first judgment - claims against beneficiary of consent judgment involved a number of elements - issues must have been necessarily and conclusively determined by consent judgment - reasons for earlier decision considered - estoppel covers only the actual ground upon which the existence of the right was negatived - consent judgment not based on particular finding of fact or conclusion of law.
WORDS AND PHRASES - "except to a limited extent"
Trade Practices Act 1974 (Cth) ss 45(2), 46, 47(4), 47(5), 48, 84(2), 96(3)
Evidence Act 1995 (Cth) s 59
Australian Competition and Consumer Commission v Australian Safeway Stores Pty Ltd (1997) 75 FCR 238 referred to
Briginshaw v Briginshaw (1938) 60 CLR 336 applied
Watson v Foxman (2000) 49 NSWLR 315 applied
Neat Holdings Pty Ltd v Karajan Holdings Pty Ltd (1992) 110 ALR 449 applied
Pascoe v Commissioner of Taxation (1956) 30 ALJ 402 followed
Jones v Dunkel (1959) 101 CLR 298 applied
Jones v Sutherland Shire Council [1979] 2 NSWLR 206 followed
Trade Practices Commission v Bata Shoe Company of Australia Pty Ltd (No 2) (1980) 44 FLR 149 followed
Trade Practices Commission v Mobil Oil Australia Ltd (1984) 3 FCR 168 followed
Top Performance Motors Pty Ltd v Ira Berk (Queensland) Pty Ltd (1975) 24 FLR 286 followed
Trade Practices Commission v Email Ltd (1980) 43 FLR 383 followed
Krakowski v Eurolynx Properties Ltd (1995) 183 CLR 563 followed
Tesco Supermarkets Ltd v Nattrass [1972] AC 153 applied
Hamilton v Whitehead (1988) 166 CLR 121 followed
Meridian Global Funds Management Asia Ltd v Securities Commission [1995] 2 AC 500 distinguished
Trade Practices Commission v Tubemakers of Australia Ltd (1983) 47 ALR 719 applied
Walplan Pty Ltd v Wallace (1985) 8 FCR 27 followed
Director General of Fair Trading v Pioneer Concrete (UK) Ltd [1995] 1 AC 456 distinguished
News Ltd v Australian Rugby Football League Limited (1996) 64 FCR 410 followed
O'Brien Glass Industries Ltd v Cool & Sons Pty Ltd (1993) 48 ALR 625 followed
Beckwith v The Queen (1976) 135 CLR 569 applied
Trade Practices Commission v Legion Cabs (Trading) Co-Operative Society Ltd (1978) 35 FLR 372 applied
The Heating Centre Pty Ltd v Trade Practices Commission (1986) 9 FCR 153 followed
Yorke v Lucas (1983) 49 ALR 672 applied
Giorgianni v The Queen (1985) 156 CLR 473 followed
He Kaw Teh v The Queen (1985) 157 CLR 523 referred to
Trade Practices Commission v Penfold Wines Pty Ltd (1991) 104 ALR 601 applied
Re Queensland Co-Operative Milling Association Ltd (1976) 8 ALR 481 followed
Dowling v Dalgety Australia Ltd (1992) 34 FCR 109 followed
Queensland Wire Industries Pty Ltd v The Broken Hill Proprietary Company Limited (1989) 167 CLR 177 followed
Australian Competition and Consumer Commission v Boral Ltd (2000) 106 FCR 328 followed
Melway Publishing Pty Ltd v Robert Hicks Pty Ltd (2001) 178 ALR 253 applied
Eastern Express Pty Ltd v General Newspapers Pty Ltd (1992) 35 FCR 43 followed
ASX Operations Pty Ltd v Pont Data Australia Pty Ltd (No 1) (1990) 27 FCR 460 followed
General Newspapers Pty Ltd v Telstra Corporation (1993) 45 FCR 164 considered
Re Queensland Independent Wholesalers Ltd (1995) 132 ALR 225 considered
Telecom Corporation of New Zealand Ltd v Clear Communications Ltd [1995] 1 NZLR 385 followed
Jackson v Goldsmith (1950) 81 CLR 446 applied
Blair v Curran (1939) 62 CLR 464 followed
Yorke v Lucas (1985) 158 CLR 661 followed
Trawl Industries of Australia Pty Ltd (in liq) v Effem Foods Pty Ltd (in liq) (1992) 36 FCR 406 followed
In re South American and Mexican Company; Ex parte Bank of England [1895] 1 Ch 37 followed
Isaacs v The Ocean Accident and Guarantee Corporation Ltd & Winslett [1958] SR (NSW) 69 followed
Re Allsop and Joy's Contract (1889) 61 LT 213 at 215 considered
Cross on Evidence, 6th Aust ed, 2000 at p 103
Weinberg, The Consequences of Failure to Object to Inadmissible Evidence in Criminal Cases (1978) 1 MULR 408
Annual Proceedings of the Fordham Corporate Law Institute - International Antitrust Law & Policy, 1992 at p 158
Scherer & Ross Industrial Market Structure and Economic Performance 3rd ed, 1990 at p 479
Spencer Bower, Turner and Handley The Doctrine of Res Judicata 3rd ed, 1996 at p 2-3
AUSTRALIAN COMPETITION & CONSUMER COMMISSION v AUSTRALIAN SAFEWAY STORES PTY LIMITED & ORS (No 2)
VG 762 of 1996
GOLDBERG J
21 DECEMBER 2001
MELBOURNE
IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY VG 762 of 1996
BETWEEN: AUSTRALIAN COMPETITION AND CONSUMER COMMISSION Applicant
AND: AUSTRALIAN SAFEWAY STORES PTY LIMITED (ACN 004 319 939)
First Respondent
GEORGE WESTON FOODS LTD
(ACN 008 429 632)
Second Respondent
MARK JONES
Third Respondent
BERNIE BROOKES
Fourth Respondent
JUDGE:
GOLDBERG J DATE OF ORDER: 21 DECEMBER 2001 WHERE MADE: MELBOURNE
THE COURT ORDERS THAT:
1. The application against the first respondent and the third respondent be dismissed.
2. The issue of costs is reserved for further consideration and determination.
3. The time within which the applicant may file and serve a notice of appeal is extended pursuant to O 52 r 15 of the Federal Court Rules to Monday 18 February 2002.
Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules
IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY VG 762 of 1996
BETWEEN: AUSTRALIAN COMPETITION AND CONSUMER COMMISSION Applicant
AND: AUSTRALIAN SAFEWAY STORES PTY LIMITED (ACN 004 319 939)
First Respondent
GEORGE WESTON FOODS LTD
(ACN 008 429 632)
Second Respondent
MARK JONES
Third Respondent
BERNIE BROOKES
Fourth Respondent
JUDGE: GOLDBERG J DATE: 21 DECEMBER 2001 PLACE: MELBOURNE
INDEX
Paragraph
number
IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY VG 762 of 1996
BETWEEN: AUSTRALIAN COMPETITION AND CONSUMER COMMISSION Applicant
AND: AUSTRALIAN SAFEWAY STORES PTY LIMITED (ACN 004 319 939)
First Respondent
GEORGE WESTON FOODS LTD
(ACN 008 429 632)
Second Respondent
MARK JONES
Third Respondent
BERNIE BROOKES
Fourth Respondent
JUDGE: GOLDBERG J DATE: 21 DECEMBER 2001 PLACE: MELBOURNE
REASONS FOR JUDGMENT
INTRODUCTION AND BACKGROUND
1 In this proceeding the applicant ("the Commission") has sought pecuniary penalties, declarations and injunctive relief against the first respondent, Australian Safeway Stores Pty Limited ("Safeway"), two of its employees, the third respondent, Mr Mark Jones, the fourth respondent, Mr Bernie Brookes, and the second respondent, George Weston Foods Limited ("George Weston") in relation to various alleged contraventions of Pt IV of the Trade Practices Act 1974(Cth) ("the Act"). George Weston made certain admissions in its defence that resulted in it admitting that it contravened the Act in five respects. Safeway and the third and fourth respondents filed defences that in substance denied the allegations pleaded. On 30 May 1997 I ordered that George Weston pay certain pecuniary penalties in respect of those contraventions: Australian Competition and Consumer Commission v Australian Safeway Stores Pty Ltd (1997) 75 FCR 238. The findings contained in those reasons for judgment were based on an agreed statement of facts submitted to the Court by George Weston and the Commission and those facts were not tested by the cross-examination of any witnesses.
2 The trial of the proceeding against Safeway and its two employees commenced on 9 February 1999 and concluded on 20 October 1999. On 17 March 1999 an order was made by consent that the proceeding against Mr Brookes be dismissed and that there be no order as to costs in relation to that dismissal. It was also noted in the order that the Commission and Mr Brookes had agreed that the dismissal would operate as a bar to any further claim by the Commission against Mr Brookes in respect of the ten incidents relating to Safeway stores (referred to hereafter) alleged to involve contraventions of ss 45, 46, 47 and 48 of the Act.
3 The statement of claim was amended on several occasions, and its final form is found in a fifth further amended statement of claim ("the statement of claim") which was filed pursuant to leave granted on 22 June 1999. It raised allegations of contraventions of various provisions of Pt IV of the Act that were said to arise out of a policy of Safeway in relation to its wholesale purchase of bread for the purpose of retail sale, which Safeway implemented in its dealings with wholesalers who supplied bread to it. The Commission contended that this policy, as conceived and implemented, contravened s 46 of the Act. The Commission also contended that in respect of ten separate incidents, involving three different bread manufacturers, Safeway had contravened other provisions of Pt IV of the Act. It was alleged that Mr Jones was instrumental in bringing these particular contraventions about and that, in general terms, he aided and abetted Safeway in those contraventions.
THE PARTIES
4 It is necessary to identify at the outset the principal participants in the events that are alleged to have occurred. Safeway is a wholly-owned subsidiary of Woolworths Limited ("Woolworths"). Woolworths' supermarket business in Victoria at relevant times was carried on through Safeway which in 1994 and 1995 operated over 130 supermarkets in Victoria. Mr Brookes was at relevant times Safeway's Victorian Merchandise Manager. Mr Jones was at relevant times employed by Safeway as a category manager. George Weston carried on the business, inter alia, of a plant baker under the name or style "Tip Top Bakeries" ("Tip Top"). Quality Bakers Australia Limited ("Quality Bakers") (whose ultimate parent was Goodman Fielder Mills Pty Ltd) carried on the business of a plant baker under the name or style "Buttercup Bakeries" ("Buttercup"). Sunicrust Bakeries Pty Ltd ("Sunicrust") carried on the business of a plant baker. In 1994 and 1995 it was owned by Bunge (Australia) Pty Ltd.
Safeway
5 The administration of Woolworths supermarket business was divided into six divisions representing the six Australian States. In 1994 and 1995, Safeway Victoria was the second largest Woolworths division in terms of turnover and net profit. In 1994 Safeway was the largest supermarket chain, and the largest single retailer of bread, in Victoria. There were over 130 Safeway supermarkets in Victoria and Albury with approximately 18,000 to 20,000 employees, 28,000 product lines and 1,500 suppliers.
6 In 1994 the directors of Safeway were Mr Reginald Clairs, Mr Ralph Mead, Mr John Pratt and Mr Paul Simons. Mr Mead was also the General Manager of Safeway Victoria, the senior Victorian executive position. He was responsible to the Chief General Manager of Woolworths. Mr Mel McMillan was the Retail Operations Manager during the period January 1994 to June 1995 and he was responsible for store standards, staff, policies and procedures in the operation of stores and the day to day management of stores.
Mr Brookes
7 From 1 January 1994 to 30 June 1995 Mr Brookes was Safeway's Victorian Merchandise Manager. He was succeeded in July 1995 by Mr Michael Luscombe. In this position Mr Brookes was responsible for all sales made by Safeway stores in Victoria except meat and produce, the management of the range, pricing, shelf management and promotion of all groceries sold through Safeway supermarkets in Victoria. His duties as Merchandise Manager included formulating policies and strategies, overall supervision of a team of category managers, dealing with suppliers about matters not resolved with category and account managers, discussing with category managers issues concerning major brands and products that should be carried by Safeway and the associated impact upon customers and operational division, conducting business reviews on a six monthly basis with all major Safeway suppliers, formulating strategic marketing plans to fulfil profit objectives, and implementation of the national policies as designated by the Board.
8 When the trading terms for products were established by Mr Brookes, the category manager was responsible for purchasing products in accordance with those terms.
9 In July 1995 Mr Brookes became Safeway's Retail Operations Manager in Victoria. He held this position until 1 January 1999 when he became the General Manager of Woolworths, Queensland. A number of employees reported to Mr Brookes including two senior category managers, Mr John Syme and Mr Luscombe, each of whom was responsible for seven or eight category managers, and the merchandise managers for the delicatessen, bakery, seafood and general merchandise departments.
Mr Jones
10 Mr Jones commenced employment with Safeway in 1989 as an Inventory Control Manager. On 3 December 1992 he was appointed a category manager. From 1 June 1993 to 10 March 1994 he was responsible for buying products in the categories of cleaning, cleansing and pet food. On 11 March 1994 he took over from Mr James Aylen the responsibility for the proprietary bread category (in addition to fourteen other product categories that are not relevant for the purposes of this proceeding). In June 1995 and until December 1996, his responsibility expanded to include products sold in Safeway's in-store bakeries. He did not formulate any policies or procedures but rather gave effect to, and implemented, policies and procedures devised by others.
11 As category manager in 1994 and 1995 Mr Jones was responsible for buying and merchandising the designated products sold by Safeway in Victoria, negotiating promotions, recommending whether new products should be ranged and existing products should be discontinued or deleted, and the marketing issues affecting products in the category such as pricing and shelf management.
12 Mr Jones reported to Mr Brookes from March 1994 to 30 June 1995 and to Mr Luscombe from July 1995 when Mr Brookes was promoted to the position of Retail Operations Manager. Mr Jones had an assistant who was given the title "Category Manager's Assistant". I refer to this assistant from time to time as Mr Jones' "CMA". From 5 July 1993 to 30 May 1994, his assistant was Ms Carlene Lewis, later Mrs Carlene Stosic. From 30 May 1994 to April 1995 his assistant was Ms Felicity Austin. From the end of April 1995 to November 1995 his assistant was Ms Elissa Miller.
13 The Category Manager's Assistant carried out a number of administrative tasks. In March 1994 Mr Brookes carried out a policy review of all categories within the grocery department. Part of that review contemplated an intention to expand the role of category manager's assistants into activities involved in category management, buying administration and new technologies and relieving category managers. This expanded role did not ultimately eventuate.
THE BREAD INDUSTRY
The Structure of the bread industry
14 The facts and circumstances that are referred to in these reasons are as they existed in Victoria in and around 1994 and 1995 except where otherwise stated. In 1994 and 1995 there were a number of wholesale bread bakers in Victoria. Some bread bakers operated on a small scale and supplied local areas. The three largest bread bakers were Tip Top, Buttercup and Sunicrust. They supplied large supermarket chains, small supermarket chains and independent retailers such as small supermarkets, convenience stores and milk bars. The major supermarket chains were Coles, Safeway, Franklins, Davids and Composite Buyers. Bread was also baked and sold in hot bread shops which were either part of chains such as "Bakers Delight" and "Brumbys" or were independent.
15 Tip Top, Buttercup and Sunicrust were known and described as "plant bakers". Each of them operated a number of bread baking plants. Tip Top had a number of depots to which bread was transported and from which it was distributed.
16 Each of the three plant bakers distributed their bread products statewide and together were the source of approximately 75% to 80% of all plant-baked bread sold in Victoria. Subject to one exception, a stall operated by Tip Top at the Preston Market (to which I shall refer to in more detail later in these reasons), the three plant bakers' entire production was sold by wholesale.
17 Some statistics are relevant to the issues in the proceeding, particularly in relation to the extent to which the plant bakers sold their production to the large supermarket chains. The statistics used in these reasons have been compiled from a number of sources and are necessarily approximate. However they are an adequate guide to the relative position in the market generally of each of the three largest plant bakers. Tip Top sold approximately 19.2% of its production of bread products to Safeway in Victoria. Sunicrust supplied approximately 50% of its Melbourne metropolitan production of bread products to Safeway and 33% of its Victorian production to Safeway. Buttercup sold approximately 17% of its production of bread products to Safeway in Victoria. Approximately 27% of Buttercup's sales of bread and rolls to the major supermarket chains were made to Safeway, 30% were made to Coles, 19.7% to Davids and 12.1% to Composite Buyers.
18 Tip Top, Sunicrust and Buttercup baked approximately 75%-80% of the proprietary bread products baked in Victoria. Safeway acquired approximately 21.5% of the aggregate of the bread production of Tip Top, Sunicrust and Buttercup and was their largest retail customer.
19 In 1994 and 1995 there was substantial over-capacity in the bread baking industry. In 1994 Buttercup was under-utilising its production facilities by approximately 20%-40%.
Safeway's relationship with the plant bakers
20 Mr Brookes was responsible for the terms on which Safeway bought products from suppliers ("trading terms"). The wholesale price at which Safeway bought bread from the plant bakers was affected by a number of factors such as discounts, settlement discounts, "one-off" discounts negotiated on an ad hoc basis, bonus or free stock, promotional allowances and competitive rebates. An expression commonly used by plant bakers for the wholesale price after all trading term allowances and rebates were calculated was "net net price".
21 Safeway had written trading terms with the plant bakers, which were negotiated by Mr Brookes. Once trading terms were established, the category manager was responsible for purchasing products in accordance with those terms. The terms included a term that Safeway would always buy at the best price which the plant baker offered any customer as well as other terms relating to discounts and allowances from the plant baker's list price or invoice price. Mr Brookes said this encouraged bakers to give it the same case deal (explained in par 43 post) as a competitor was given to ensure that it was not disadvantaged. In determining whether Safeway was buying at the best price Mr Brookes said that he would look to the "net net price", that is to say the price that was quoted after all relevant allowances had been taken into account.
22 Safeway purchased premium proprietary branded bread on terms that included various allowances. Special allowances or deals were also given from time to time for particular promotions. Home Brand bread and price-fighting bread such as Captain Cutless was purchased by Safeway from Sunicrust on a net net price.
23 In order to understand what was the effective cost to Safeway of premium proprietary branded bread, it is necessary to take into account co-operative allowances which Safeway required suppliers to pay as part of its trading terms. This allowance was generally 5% of total sales and was a contribution to the cost of Safeway advertising the products for promotions in Safeway stores. The co-operative allowance was significant for Safeway as it was an important contributor to the gross profit that Safeway sought to achieve from its sales. The level of Safeway's gross profit was given in confidential session and its quantum is not relevant for present purposes. What is relevant is that, according to Mr Brookes, Safeway's gross profit rates were generated by a combination of the bill-out gross profit made on the buy and sell price of products and the amount generated from the co-operative allowances paid by manufacturers. The ability to secure funds from manufacturers was a very important element of Safeway's business. In the context of the bread category co-operative allowances were only paid to Safeway in respect of premium branded bread, not in respect of Home Brand or price-fighting bread.
Tip Top
24 Mr Christopher Gunton, Mr William Guthridge, Mr Timothy Maine and Mr David Kadir, were at relevant times executive employees of Tip Top. From November 1994 to October 1995 Mr Guthridge was the General Manager of the Victorian Operations of Tip Top and was responsible for all operations of Tip Top in Victoria. From February 1995, Mr Guthridge's subordinate was Mr Gunton who took over from Mr Gary Ward as Tip Top's Victorian State Sales Manager. Mr Gunton had previously been employed by Tip Top (from September 1994) as its Metropolitan Operations Manager. As Metropolitan Sales Manager he was responsible for the management of the sales and operations employees such as vendor-drivers and area managers and for arranging promotional activities with customers. In his role as Victorian State Sales Manager, Mr Gunton was involved in the negotiation of promotional activities for Tip Top's major customers such as Safeway, Coles and Franklins.
25 Safeway was Tip Top's largest customer. It purchased only branded bread from Tip Top. According to Mr Gunton, Safeway was, in comparison to other retailers, very demanding, particularly in relation to stock weight and deliveries to the stores. He said that Tip Top had to go to "a lot of extremes to ensure that they had the stock" in the Safeway stores and made more frequent deliveries to ensure this. There were some Safeway stores to which Tip Top made four or five deliveries a day. As well as delivering bread to the stores, Tip Top staff placed the bread on the shelves or racks and monitored when stock was running low. The cost of the extra services that Tip Top provided to Safeway was borne by Tip Top. Mr Gunton said that it did this because Safeway was a very good retailer in the grocery industry - it had good traffic flow through its stores and it was therefore important to Tip Top to have stock availability in Safeway stores.
26 Each day the Safeway store managers would complete a form or stock list of the products out of stock at certain times of the day. Mr Gunton said that when he first started at Tip Top Mr Ward would tell him from time to time that Tip Top bread had been deleted from a particular Safeway store because it could not keep its stock levels right. Mr Gunton said that this usually occurred without any prior discussion and that he would then have to come back to Safeway with a plan of how Tip Top was going to rectify the problem. However when he became State Sales Manager either Mr Jones or one of the area managers would contact him and tell him of out of stock situations. Mr Gunton said that by March or April 1995 a relationship had developed between Safeway and Tip Top so that Mr Jones adopted a practice of contacting Mr Gunton and advising him of the out of stock problem prior to deleting its products.
27 During 1994 Tip Top was operating its bakery business at a loss, and when Mr Guthridge commenced employment with Tip Top he was told by Mr Ward that Tip Top had embarked on a policy of increasing support for Tip Top's branded products and was prepared to do so at the expense of unbranded products. Mr Guthridge, as State manager for Tip Top, negotiated the trading terms between Tip Top and Safeway at a state level. Mr Kadir, George Weston's marketing director, negotiated the trading terms on a national level. Mr Guthridge met approximately once a month with senior management of Safeway, Coles or Franklins to discuss issues such as promotional strategies, the level of service provided by Tip Top to the supermarkets and the rebate price available to supermarkets on promotional lines. He usually met with Mr Jones, and less frequently with Mr Brookes, as the representatives from Safeway as well as meeting with the in-store bakery manager and other promotional staff.
28 Tip Top's trading terms fell into three main categories - promotional allowances, rebates and varying discounts. Safeway charged Tip Top for promotional rights which charge in Victoria in 1995 was higher than in other States. This high promotional charge meant that it was sometimes not commercially viable for Tip Top to participate in a promotion and this was one of the reasons why the business was losing money. The decision by Tip Top to participate in promotions was based on a number of factors. First, to protect the brand and its penetration in the market on a regular basis and secondly, to protect the volume of flour that the company would sell so that another flour bakery did not take up the opportunity.
29 Mr Guthridge said that a national rebate was paid to the national office of the parent company of Safeway and that Tip Top also received a settlement discount - a condition of which was that Tip Top pay its invoices within an agreed time frame.
30 There was also what was known in the trade as a "co-operative allowance" which was an amount set aside by Tip Top and expended upon purchasing certain types of promotional activity from Safeway, such as the location of products in the store, in-store advertising and promotions.
31 Mr Guthridge said that Safeway's trading terms were very different from those of an independent retailer and while the price offered to an independent retailer might be perceived to be cheaper, quite often it was not because there were other rebates and allowances that were given to Safeway that were not given to an independent retailer. Both Mr Guthridge and Mr Gunton were aware that Safeway wanted the best price possible from its suppliers.
Sunicrust
32 In 1994 and 1995 the relevant managerial staff of Sunicrust who dealt with Mr Jones and Mr Brookes about trading terms were Mr Simon McDowall, the Victorian Divisional Sales Manager and his subordinate Mr Charles McLeish, the Metropolitan Sales Manager/Account Manager. Mr McDowall and Mr McLeish had regular meetings with Mr Brookes and Mr Jones on issues such as service and delivery problems, product launches and out of stock issues.
33 In 1994 and 1995 Sunicrust had seven bakeries in Victoria and one in New South Wales. Sunicrust provided bread for different retailers and although it had one wholesale price list in Victoria it had different trading terms depending upon the identity of its customers. Sunicrust sold proprietary branded and generic bread. It supplied Safeway with its "Home Brand" bread. Safeway was Sunicrust's largest customer. Sunicrust supplied bread to Safeway on the best terms available. Safeway received a statement discount, a settlement discount, a co-operative spend discount and a State rebate. Safeway was also given from time to time, particular discounts for specified periods.
34 In 1994 and 1995 some Safeway stores were experiencing out of stock occurrences of proprietary bread in the late afternoon or early evening. Safeway asked Sunicrust to resolve the problem and as a result Sunicrust introduced a twice daily delivery so that an afternoon delivery was made to certain Safeway stores. In mid-1994 the twice daily delivery was extended to the majority of Safeway stores.
Buttercup
35 Mr Ronald Linton, General Manager of Quality Bakers Victoria and Mr Ray Cooper, Buttercup's Victorian Sales Manager, were the Buttercup staff with whom Mr Jones and Mr Brookes negotiated trading terms. Mr Linton's position involved responsibility for profit including local sales, local marketing, operations and finance while Mr Cooper had the day to day dealings with the customers.
36 Safeway was Buttercup's largest proprietary bread customer although it was not its largest customer. Buttercup had a standard wholesale price list but it also offered a number of volume discounts depending on the size of the business of the purchaser. Safeway's trading terms included a volume discount, a co-operative rebate, a State rebate and a national rebate.
37 According to Mr Cooper, Mr Jones was someone who was always "after as much as he could possibly get" because he was always anxious that Safeway appear to be as competitive as possible in the retail area and particularly the bread area. Mr Cooper regularly had discussions with Mr Jones about prices and discounts in relation to bread supplied by Sunicrust to Safeway.
38 Like the other plant bakers there were a number of instances in 1994 when Buttercup products were deleted from Safeway stores because of problems with service or supply. Such deletions occurred less frequently after the early part of 1994 because, according to Mr Cooper, Buttercup endeavoured to do a better job servicing the Safeway stores. There were occasions when Buttercup products were permanently deleted but these were in relation to products that Safeway was not successful in selling such as crumpets and muffins.
Terminology used in the bread industry
39 There are a number of expressions commonly used in the bread industry that were used in the proceeding which require explanation. They did not necessarily bear the same meaning for all witnesses. In particular the terms "branded" bread and "proprietary" bread were often used interchangeably by witnesses. Proprietary bread is bread contained in a wrapper which displays a brand name owned and promoted by the bread manufacturer. Proprietary premium bread or premium branded bread was regarded by almost all witnesses as the premium or top of the range bread that was sold. It attracted the highest price and consumers were perceived to associate a higher value with it. It attracted the most advertising. It also attracted co-operative advertising and marketing financial support from the manufacturer when advertised by retailers. Premium bread was available for sale to retailers every day of the week throughout the State. Sometimes witnesses referred to proprietary branded bread as branded bread but such a description has the potential to be misleading as there was also reference to secondary brands, generic brands and price-fighting brands.
40 A secondary brand of bread was bread contained in a wrapper that bore a brand name owned by the brand manufacturer but that did not have the advertising or promotion exposure of a premium brand. A generic brand was bread contained in a wrapper that bore a brand name that was owned by the retailer and which usually was a brand used by a retailer across a wide range of products. It carried the perception of being a cheaper product rather than a premium branded product. Examples were Safeway's "Home Brand" brand and David's "Black & Gold" brand. Each of these brands was associated with a retailer rather than a manufacturer. A price-fighting brand was contained in a wrapper which bore a brand name owned by the manufacturer and which was usually not the subject of significant advertising. It was not available for sale to retailers every day of the week and was rather available for particular promotions or on particular occasions. Secondary, generic and price-fighting bread did not attract advertising or financial support from the plant bakers.
41 Notwithstanding the different brands produced by a bread manufacturer the bread constituting the different brands was produced on the same production line, that is (with minor exceptions in some cases) with the same ingredients. Thus a white 680g premium brand loaf was the same bread as a white 680g secondary brand when made by the same manufacturer although the secondary brand might be produced earlier in the day than the premium brand and would therefore be some hours older when delivered to the retailer. The only difference between them was the cost price of the product and the manner in which each was marketed.
42 Bread was categorised by reference to a designation of a particular code. For example, the most popular loaf of bread sold at relevant times was a Code C 680g white sandwich loaf. A Code D loaf was a more expensive loaf and was usually a 900g loaf.
43 A common expression used was "case deal". When a Safeway buyer was looking to a supplier for a discount or rebate, the buyer tried to negotiate a "case deal". This referred to the manner in which a retailer would seek a discount, rebate or special deal from a manufacturer. The expression "case deal" means no more than a deal or arrangement involving a discount. Although bread was not sold in cases the expression was used as a hangover from those situations where products could be purchased by the case or the carton. The expression finds its origin in the grocery industry where almost all products are sold by the case, such as Coca Cola. In that context a case deal can be translated into a particular discount for each unit in the case or carton. In the case of bread a case deal, stated as such, meant a discount per loaf or unit of bread.
44 The term "deletion" featured prominently in documents and oral evidence. Bread was "deleted" from a supermarket when Safeway withdrew the bread from display on its shelves, asked the relevant plant baker to take the bread away and said that it would not stock that bread until further notice. Thus Safeway's deletion policy was a policy relating to its decision not to stock, display and sell particular bread.
45 In-store bakeries were segregated areas within a supermarket store which had ovens to bake or partly bake various ranges of bread and cakes. There were three types of in-store bakeries:
• "full production facilities" where the raw material was brought into the in-store bakery and mixed and baked on the premises;
• "warm spots" where half-baked bread manufactured by a baker was delivered into the store and the cooking process was completed in the store;
• "cold spots" where the bakery delivered fully prepared, wrapped bread ready to be placed in the store.
In 1994 and 1995 most of the in-store bakeries were cold spots.
46 Hot bread shops were retail premises in which generally the bread sold was made on the premises by the retailer. There were two classes - franchises such as "Brumby's" and "Bakers Delight" and single stores. In 1993 hot bread shops provided about 33% of the bread consumed in Victoria and in 1994 that share increased to 40% and continued to increase.
Significance of Bread
47 Bread has a significance for a supermarket that goes beyond its character as a staple food to be purchased for consumption. It is a "communicable" product, that is to say it is a product that has a significant profile with consumers and in a consumer's mind is indicative of a retailer's general price competitiveness. Communicable products are products such as bread, tea, eggs, margarine, sugar, coffee, bacon, dog food and milk. They are products that are purchased frequently and in high volume. The significance of communicable products is that consumers tend to remember their prices and use the products to evaluate the comparative prices of different retailers. Accordingly, it is important for a retailer to give consumers the impression that the retailer is quite competitive with respect to communicable products. Put shortly, the price of a communicable product sends a signal into the marketplace as to the general level of pricing in a supermarket and as to its competitiveness.
48 For example, Mr Hollan Morrell, the proprietor of Bob's IGA supermarket in Albury in 1995, said that bread was a very important product in a supermarket because a competitive, keenly priced loaf of bread could mean the difference between success and failure in the supermarket business. If priced competitively, it could change people's shopping habits.
Types of Bread
49 The most popular loaf of bread sold in 1994 and 1995, and the largest seller, was the white 680g sandwich loaf, given the designation "Code C". All plant bakers produced a wide range of bread, in differing wrappers, styles, ingredients and weights. Their flagship products were white bread, brown bread and rye bread. There were 450g loaves, 680g loaves and 900g loaves.
Tip Top bread
50 Tip Top's premium or flagship brand was "Sunblest". An example of a secondary brand or a price-fighting brand was "Eureka". It was a brand owned by a Tip Top company but it did not bear the Tip Top logo. The product was a standard 680g sliced white, wholemeal or multigrain loaf of bread. It was a brand that had been promoted to some extent in country areas. Eureka bread was not baked by Tip Top every day. When it was baked depended on the competitive activity in the area. It was baked to match any competitive activity that was happening in the Victorian market.
Buttercup bread
51 Buttercup's premium or flagship brand was "Wonder White". An example of a generic brand was the "Black & Gold" brand manufactured by Buttercup. It was associated with the Davids banner group and was advertised both statewide and locally on this basis. In 1994-1995 a joint venture of Australian Amalgamated Wholesalers was established by Davids, Composite Buyers, Foodland and QIW which created the Black & Gold label as a common house brand for all their banner stores. A store had to be a customer of the Davids warehouse to be able to purchase the Black & Gold generic products.
Sunicrust bread
52 Sunicrust's premium or flagship brand was "Suni". The "Captain Cutless" brand was owned by Sunicrust and had been sold to Safeway since about 1994. It originated in Albury-Wodonga in the early 1990s as a cut price product to be sold in fruit markets and independent stores in Northern Victoria. It was later taken off the market and not manufactured again until 1994 as a "price-fighting" bread for Safeway. From the time it re-commenced supplying Captain Cutless bread to Safeway, Sunicrust ceased supplying Captain Cutless to other customers.
53 Mr Brookes called Captain Cutless a "value brand" or a "price-fighting bread" which was not on regular sale in Safeway stores. Rather it was brought in when it was needed for price-fighting purposes at whatever price was sufficient to meet the competitive action in the area, even if this resulted in a loss. It had no brand value to Safeway or to Sunicrust because it did not have a recognisable name that was frequently seen.
Thwaites
54 In the 1990s Sunicrust acquired Thwaites bakery in Colac. The bread produced from this bakery was packaged as a branded product in the local Colac area, because the Thwaites bakery had been a local town bakery for many years and therefore the brand had premium value. However it was sold as a generic product in the Geelong market because it had not been previously sold there.
Home Brand
55 In 1994 and 1995 Sunicrust manufactured a generic bread exclusively for Safeway under the name "Home Brand". There was no reference on the bag to Sunicrust being the manufacturer of the bread. Mr Brookes said that one of the things that made it a generic brand was its basic packaging. In 1994 and 1995 it was available in seven varieties and its price was established by looking at the price of Jewel's "No Frills" product and Coles "Savings" brand. It was initially introduced to compete with Franklins "No Frills" and was part of a whole range of Home Brand products. In 1994 and 1995 the main form of advertising of Home Brand products was in-store posters, banners and shelf tickets. As part of Safeway's sales plan the Home Brand range of products was advertised at least once a quarter.
Price sensitivity of bread - brand loyalty and brand equity
56 A substantial issue in the proceeding was the extent to which there was brand equity in proprietary or premium branded bread and brand loyalty among consumers of bread. Associated with these issues was the extent to which bread was price sensitive as between different brands and different types of bread. A substantial body of evidence was led to demonstrate what happened to the sales of particular brands when another brand of bread was sold at a discounted price.
57 Although the extent of brand equity in proprietary or premium branded bread was in issue, there was no dispute as to the concept of brand equity. Professor Widing, an expert in the field of marketing (called by the Commission), said that brand equity:
"is the value that is added to the product by the brand. In short, it can be thought of as the additional value added by the brand, for both seller and consumer, over and above the same product if it were not branded. This can take the form of more favourable consumer response and less sensitivity to price increases ... The effect of brand equity for the seller can be defined as the added sales volume and/or higher price that can be achieved by virtue of the brand alone".
Mr McGregor, a market research expert (called by Safeway), said that the major premium bread brands had little or weak brand equity. He said that the Tip Top, Sunicrust and Buttercup brands had been substantially devalued because of the selling of the premium brands at regularly significantly discounted prices. In this respect it is important to note that in 1994 and 1995, 86%-87% of the major branded bread of the three plant bakers sold in the eighteen Safeway supermarkets, where the deletions in issue occurred, was sold on promotion, that is at discounted prices. These promotions occurred on a three weekly cycle, with one of the three plant bakers' premium brands being discounted each week.
58 However, Mr McGregor agreed that each of the three plant bakers' premium brands had more brand equity than the price-fighting breads Captain Cutless (Sunicrust) and Budget Family Fresh (Buttercup). He also agreed that advertising was a factor that assisted in creating brand equity and that other factors that contributed towards brand equity were consistency of quality, consistency of availability and the familiarity that consumers have with a product. These factors applied to the plant bakers' premium brands. However the price-fighting brands were not advertised, they did not have consistency of availability and they were products with which consumers were not familiar.
59 It was apparent that when the premium brand of one of the plant bakers was discounted, its sales went up and the sales of the premium brand of the other two plant bakers went down. Similar situations also occurred when price-fighting or generic brands were offered for sale at substantial discounts. There was a corresponding decrease in sales of premium brands.
60 The movements in quantities sold relative to prices could be determined quite easily by reference to scan data which was reproduced on sheets that recorded each day the quantities of each product sold by the supermarket and the price at which it was sold. The scan data only showed one price each day, so that it would not record different prices if the price was varied during the day, but rather showed the average price for the day. Nevertheless, overall, the scan data provided a relatively accurate record of prices each day.
61 There was always a core of brand loyalty sales of premium brands that did not alter when either a particular manufacturer's premium brand, or a secondary generic brand, was discounted or a price-fighting brand was introduced. Nevertheless significant price variations caused significant movements in sales between premium brands of different manufacturers and between premium brands and generic, secondary or price-fighting brands.
62 The movement away from premium brands to generic or non-proprietary brands was a matter of concern to the plant bakers as it rendered the advertising and promotion of premium brands less effective and reduced profits because the margin on the non-proprietary brands was less. Numerous witnesses agreed that the significant discounting of secondary or generic brands resulted in a significant movement by consumers from premium brands to the secondary or generic brands. A number of witnesses said that there was limited brand loyalty in relation to premium branded bread and that, overall, bread was price sensitive and consumers were influenced in their purchases of bread by price.
63 For example, Mr Maine from Tip Top said that it was possible to sell plain wrap bread without affecting the sales of branded products because there was a core user group that would always buy a recognised brand such as Sunblest and who would never change. He said there was another broad group of consumers who were more interested in price rather than brand and another group of consumers in the middle who could be swayed either way if the price was correct. Mr Brookes gave similar evidence.
64 Although the factors which dictated what type of consumer would purchase any particular type of bread at a given price was complex, it was still possible to identify particular groups of consumers. Mr Kennedy, a market researcher experienced in the retail and supermarket areas (called by Safeway), identified five groups of consumers in the following terms:
"There is one group of consumers who will buy Tip Top bread at $1.99 irrespective of the price at which other 680gm Code C bread is being sold. There is a second group which will immediately switch to the lowest priced product irrespective of the brand of the product or the manufacturer. A third will switch between branded products to whichever branded product is on promotion; but not purchase a product such as Captain Cutless. A fourth group is loyal to a particular brand but knows that every third week the brand to which the consumer is loyal will be promoted. For example, a consumer may be loyal to Tip Top Sunblest but buys that product every third week, in quantities which may be frozen. A fifth (but small) group is a consumer who is loyal to Tip Top who knows that, if the Tip Top product is not on promotion in a Safeway store, then it will be on promotion in either Coles or Franklins."
Mr Kennedy did not agree that there was little brand loyalty by retail consumers of bread and said that the difficult question was to determine the extent of the brand loyalty that did exist. He said it depended on the type of consumer and the extent of any price discount.
65 In 1994 and 1995 consumers were extremely price sensitive in relation to bread products and many consumers showed little loyalty to any particular brand. Where the price of one plant baker's bread was priced as a special below the price of a similar bread manufactured by another plant baker consumers would purchase the brand of bread on promotion.
66 Mr Guthridge from Tip Top said that the brand loyalty in proprietary brands had been eroded over a period of ten years since the introduction of house brands. As a result, by 1994 and 1995 there were a number of methods used to promote the proprietary branded breads. Special promotions were undertaken, usually for no more than one week, where the price was reduced to $1.50-$1.59 per loaf. Sometimes for store openings, store refurbishments, birthdays or anniversaries, proprietary bread was reduced to as low as 99c per loaf. Another method of increasing sales was adding value to the product such as offering cards with pictures of footballers.
67 This analysis of the evidence shows that in 1994 and 1995 the sale of bread, whether premium brand, secondary brand or generic, was price sensitive and that there was a significant amount of substitutability in that consumers would change their purchasing habits depending on the extent of the price discounting offered.
STANDARD OF PROOF
68 Before turning to the controversial evidence it is appropriate to address the issue of the applicable standard of proof.
69 In considering and evaluating the evidence led in the proceeding, in particular the evidence in relation to conversations that were said to have occurred some years before the trial commenced, it is important to bear in mind the standard of proof applicable to the issues before the Court. The Commission sought the imposition of civil penalties for contraventions of the Act. Accordingly, the applicable standard of proof requires findings to be made on the balance of probabilities. But that is not the end of the matter. The allegations made were allegations of serious misconduct and significant contraventions of the Act and, if established, warranted the imposition of substantial pecuniary penalties.
70 I consider that I should not make findings against Safeway or Mr Jones, particularly in relation to conversations that are disputed, unless I have reached the degree of satisfaction, identified by Dixon J in Briginshaw v Briginshaw (1938) 60 CLR 336. His Honour said at 362:
"But reasonable satisfaction is not a state of mind that is attained or established independently of the nature and consequence of the fact or facts to be proved. The seriousness of an allegation made, the inherent unlikelihood of an occurrence of a given description, or the gravity of the consequences flowing from a particular finding are considerations which must affect the answer to the question whether the issue has been proved to the reasonable satisfaction of the tribunal. In such matters `reasonable satisfaction' should not be produced by inexact proofs, indefinite testimony, or indirect inferences."
I also adopt the approach taken by McLelland CJ in Eq in Watson v Foxman (2000) 49 NSWLR 315. His Honour said at 319:
"Each element of the cause of action must be proved to the reasonable satisfaction of the court, which means that the court `must feel an actual persuasion of its occurrence or existence'. Such satisfaction is `not ... attained or established independently of the nature and consequence of the fact or facts to be proved' including the `seriousness of an allegation made, the inherent unlikelihood of an occurrence of a given description, or the gravity of the consequences flowing from a particular finding': Helton v Allen (1940) 63 CLR 691 at 712."
Approaching making findings and drawing conclusions this way is not to adopt a standard of proof other than a standard on the balance of probabilities. I bear in mind the approach of the majority of the High Court (Mason CJ, Brennan, Deane and Gaudron JJ) in Neat Holdings Pty Ltd v Karajan Holdings Pty Ltd (1992) 110 ALR 449 at 450:
"... the strength of the evidence necessary to establish a fact or facts on the balance of probabilities may vary according to the nature of what it is sought to prove."
I have paid particular regard to the Briginshaw principle in making findings as to which version or account of disputed conversations I should accept and as to whether I should accept versions or accounts of conversations that occurred some years prior to their being recalled by the witnesses.
71 As I have observed earlier, many of the conversations that at trial became critical to the issues raised and, indeed, were an integral part of the contraventions alleged, occurred at a time, and in a context, when there was no need for any documentary record of them to be made and when there was no circumstance that warranted the need to store up in the mind a recollection of the conversation. I therefore approach the evidence of conversations by witnesses with caution bearing in mind that the nature of memory is such that, more often than not, evidence of conversations long since past is by way of reconstruction (albeit unwittingly) rather than by way of independent recollection.
72 This view of the evidence raises a further difficulty in relation to the conversations the subject of evidence in this proceeding. That is, that particular words used may have different meanings depending on the nature and ebb and flow of the conversation. This difficulty calls to mind an observation made in relation to evidence of conversations said to constitute misleading and deceptive conduct. In Watson v Foxman (supra) McLelland CJ in Eq said at 318:
"Where the conduct is the speaking of words in the course of a conversation, it is necessary that the words spoken be proved with a degree of precision sufficient to enable the court to be reasonably satisfied that they were in fact misleading in the proved circumstances. In many cases (but not all) the question whether spoken words were misleading may depend upon what, if examined at the time, may have been seen to be relatively subtle nuances flowing from the use of one word, phrase or grammatical construction rather than another, or the presence or absence of some qualifying word or phrase, or condition. Furthermore, human memory of what was said in a conversation is fallible for a variety of reasons, and ordinarily the degree of fallibility increases with the passage of time, particularly where disputes or litigation intervene, and the processes of memory are overlaid, often subconsciously, by perceptions or self-interest as well as conscious consideration of what should have been said or could have been said. All too often what is actually remembered is little more than an impression from which plausible details are then, again often subconsciously, constructed. All this is a matter of ordinary human experience."
That observation is apposite to many of the conversations I have to consider in this proceeding.
CREDIBILITY ISSUES
73 The Commission made a substantial attack on the credit of Mr Brookes and Mr Jones and the reliability of their evidence. It submitted that their evidence should not be accepted on critical issues. I am satisfied that both Mr Brookes and Mr Jones did not deliberately give untruthful evidence although in a number of respects each of them gave evidence which is more appropriately described as reconstruction rather than recollection.
74 There were a number of respects in which Mr Jones' evidence was not credible or was demonstrably wrong. I refer by way of example to the following matters:
• Mr Jones prepared notes for a presentation of the policy to Safeway managers in May 1994. The notes (par 163 post) referred to core lines including flagship brands. However he said that in 1994 and 1995 he did not know what the expression "flagship brands" meant. His explanation as to what he regarded as flagship brands was unconvincing. Although Mr Timothy Bray may have prepared part of the notes, Mr Jones approved of them and Mr Bray said that he discussed core products and flagship brands with Mr Jones at the time the notes were prepared. I find it very difficult to accept that a person occupying Mr Jones' position in 1994 and 1995 and undertaking the work he did could not know what the expression "flagship brands" meant. His evidence in this respect was not credible.
• A telephone conversation Mr Jones claimed to have had with Mr Raynor Feldgen, the manger of Safeway Preston, which must have occurred around July 1995 on Mr Jones' version. For the reasons set out in pars 787-789, I reject Mr Jones' evidence that when he referred to Buttercup bread he was referring to 680g bread. It was not credible.
• Mr Jones' evidence as to when and how he received a fax message from Mr McDowall of Sunicrust. For the reasons set out in pars 691-695, I reject Mr Jones' evidence that he received the fax through the post. It was not credible.
• Mr Jones' evidence that in November 1995 he had a telephone conversation with Mr Maine from Tip Top about 9 Grains bread. Mr Jones persisted in maintaining that this conversation occurred until he was confronted with scan data which demonstrated that he must have been mistaken. Only then did he accept that he was mistaken (see pars 846-849).
• Mr Jones' evidence as to the preparation and contents of a memorandum to Mr Luscombe in relation to the Ferntree Gully incident dated 6 December 1995 which he signed (par 919). According to his witness statement, he prepared it but in evidence he said he was in error and that Mr Luscombe prepared it in its final form. Mr Jones sought to disassociate himself with some of the statements in the memorandum and said it contained errors. His evidence in relation to the contents of and errors in the memorandum was not credible.
75 An example of Mr Brookes giving incorrect or reconstructed evidence is found in par 134(c) of his witness statement in which he says that the packaging of "West End" bread showed Sunicrust's name. Exhibit A35, which was a photocopy of a West End bread bag shown to Mr Brookes before signing his witness statement, does not have a Sunicrust name on it. Mr Brookes acknowledged his error.
76 In a number of other respects, to which I shall refer, I am not satisfied that the evidence of Mr Brookes and Mr Jones should be accepted or that it was reliable. The difficulty facing Mr Brookes and Mr Jones and, indeed, which faced other witnesses, was that they were being asked to recall and recount conversations which had occurred between three and five years earlier in respect of which there was no contemporaneous documentation and which, at the time, were not necessarily seen as having any long-term significance, or as having an importance, which made it necessary to remember them with any degree of particularity. It is inevitable in such situations that there will be elements of reconstruction, albeit unwittingly or in good faith. The finding of Fullagar J in Pascoe v Commissioner of Taxation (1956) 30 ALJ 402 is apposite in the present context. His Honour said at 405:
"I do not think that the appellant and his partners have set out deliberately to mislead me in the evidence which they have given. I am prepared to accept a large part of that evidence, but on some vital matters it does not altogether satisfy me. It is given some years after the material time, and I am disposed to think that, as often happens, it represents at some points reconstruction rather than recollection."
77 Notwithstanding the particular respects in which I have found Mr Jones' evidence to be demonstrably wrong or not credible, I have not reached the conclusion that the whole of his evidence is unreliable. In a number of respects to which I refer, his evidence was corroborated and confirmed by the evidence of other persons, in particular plant baker witnesses, and in such instances I am satisfied that his evidence should be accepted.
SAFEWAY'S BREAD POLICY
78 At the core of the issues in the proceeding lay a policy developed by Safeway in 1994, and implemented thereafter, in relation to its stocking and sale of bread manufactured by particular bread manufacturers. The Commission contended that the policy and its implementation constituted a contravention of s 46 of the Act whereas Safeway contended that the policy had no anti-competitive purpose or overtones but was rather a competitive response to market conditions. The Commission said further that on particular occasions when the policy was implemented and carried into effect, Safeway also contravened, or attempted to contravene, ss 45, 47 and 48 of the Act.
79 The policy, as submitted by the Commission, involved Safeway deleting a manufacturer's bread from a Safeway store in the vicinity of an independent retailer of bread (not Coles or Franklins) where the retailer was discounting bread supplied to it by that manufacturer to a level below the price at which Safeway was offering for sale comparable bread of that manufacturer. The Commission's case was that the policy was punitive in the sense that it was created to punish the bread manufacturers if they gave other retailers wholesale prices which allowed them to undercut Safeway's retail prices. It was said that the purpose of the policy was to cause the manufacturers to take steps to ensure that the independent retailer stopped selling bread at discounted prices.
80 In par 6D(h) of the statement of claim the Commission alleged that:
"Safeway had a policy that if bread products of a manufacturer were being specialled by another retailer other than Coles or Franklins in the vicinity of a Safeway store at a price which was under the price being charged by Safeway at such store, then all that manufacturer's bread product would be delisted from that Safeway store and other Safeway stores in the vicinity while that manufacturer's bread products were being specialled by that other retailer."
81 The Commission contended that Safeway implemented that policy from time to time and that as a consequence, in each of the nine incidents involving independent retailers, Safeway either induced or attempted to induce the plant baker to induce, or attempt to induce, the retailer to stop discounting. In the alternative, the Commission contended that by the implementation of the policy the bread manufacturer was discouraged from supplying bread products to the retailer at prices which enabled the retailer to discount the bread products, or was discouraged from supplying bread products to retailers who were likely to retail the bread at prices cheaper than Safeway's prices. These allegations were denied by Safeway and Mr Jones. Their case was that the policy, created in terms different to those alleged by the Commission, was intended to be competitive in the sense that it was designed to enable it to meet the prices of its competitors and was not intended to be punitive.
82 The change that occurred in Safeway's bread marketing strategy in 1994, and brought about the policy that lies at the core of this proceeding, must be looked at in the context of Woolworths' overall marketing strategy. In the mid to late 1980s Woolworths' profitability was declining. This was seen to be caused by Woolworths (in Victoria "Safeway") not being competitive on price with other supermarkets, both the independents and the large chains. Before 1987 Woolworths did not have a consistent pricing policy. When Mr Simons rejoined Woolworths as chairman in 1987 he established a uniform competitive pricing policy that required Woolworths to be competitive with Coles, Franklins and independent supermarkets. The effect of the policy was that Woolworths would not be undersold by Coles and its prices would be within 1% of Franklins' prices.
83 On 5 August 1994 the policy was confirmed by the Board of Woolworths as a "new pricing policy" to be "applied as a minimum level in all states". In a memorandum dated 10 August 1994 from Mr John Brunton, the General Manager of Woolworths, the policy was set out as:
"HomebrandAll Homebrand products will be priced cent for cent with the low cost operators nominated as competition in each state.
Grocery and Perishables
1% above the nominated low cost operator with a maximum of 2c on any product.
Fresh Foods
We will be competitive with all major sellers of Fresh Foods. Each State will nominate their competition. We will however, not be undersold on the top 10 major lines.
Coles Supermarkets
Despite the rules set out above we will at no time be undersold by Coles Supermarkets."
84 Prior to 1994, the retail bread market was volatile in the sense that discounting was prevalent. Retail prices for a Code C 680g loaf fluctuated from 89c to $2.15. Competition between supermarkets was vigorous in relation to bread. This situation carried through into 1994 and 1995. Woolworths held the view that being competitive on all prices was imperative to its long-term viability.
85 Each Safeway store had a list of "nominated competitors" to which the competitive pricing policy applied. Each Safeway store nominated the stores that the store manager considered as the major competitors in relation to particular product categories. A local competitor's pricing handbook was prepared and given to each Safeway store. It specified Safeway's major aim as "To be competitive", and it required the store manager to identify his store's nominated competitors in a number of categories such as cigarettes, fresh eggs, milk, bread (described as proprietary bakery) and in-store baking.
Mr Brookes' Queensland experience prior to 1994
86 Mr Brookes was influenced in the way in which he changed Safeway's policy in relation to the merchandising of bread as a result of his experience in Queensland. He was Woolworths' Queensland Merchandise Manager from 1989 to 1993. Mr Brookes' experience in Queensland was that proprietary bread was frequently offered for retail sale at discounted prices, down to levels between 69c to 99c a loaf when the normal retail price of premium proprietary branded bread was between $1.39 and $1.69. He said that there were many occasions when the following situation occurred:
• a plant baker sold bread to a competitor of Woolworths enabling it to sell the bread at a discounted price;
• Woolworths approached the plant baker and obtained the same cost price for bread supplied to it.
Mr Brookes produced a folder of documents and invoices that recorded instances when a case deal was obtained from a plant baker to match a competitor's retail price.
87 Mr Brookes used his Queensland experience to justify his explanation for the policy that he conceived and implemented in Victoria. However, his evidence in this respect and his supporting documentation must be considered with caution. To compare his Queensland experience with the policy he said he conceived and implemented is not necessarily to compare like with like. The policy implemented in Victoria, according to Mr Brookes, related to seeking to obtain discounts from manufacturers, or case deals, that enabled Woolworths to match discounted prices offered by competitors who had been given a discount by the bread manufacturers. The policy did not include seeking discounts so as to match discounted prices offered on store openings, store anniversaries or short-term specials.
88 A number of the Queensland examples produced by Mr Brookes did not fit the terms of the policy for Victoria as explained by Mr Brookes. Some of them related to store openings, some of them could not be related to specific situations of discounts offered by competitors and some of them related to bread that was not appropriately described as proprietary branded bread. Further, of the eighty-seven or thereabouts documented examples produced by Mr Brookes, about thirty of them occurred after he left Queensland, and he acknowledged that they were irrelevant to the experience that he brought to Victoria and upon which he based his Victorian policy. Further, only eight of the examples involved Woolworths getting a deal from the same baker who was supplying Woolworths' competitor.
89 The Commission challenged Mr Brookes' evidence as to his reliance on his Queensland experience and submitted that I should reject it. I am not prepared to do so. It may well be that the circumstances of his Queensland experience were not replicated in Victoria because of the nature of the brands marketed and the occasions on which case deals were obtained. But that is not to say that Mr Brookes did not believe that his Queensland experience did not have some relevance to the Victorian scene. The Commission submitted that Mr Brookes knew and conceded that his Queensland experience was irrelevant and that he agreed that there was nothing in that experience which enabled him to conclude that in Queensland plant bakers would give competitive deals on their premium brands to enable Woolworths to compete with a competitor selling the same baker's secondary brands at everyday low prices. I do not accept this submission. Mr Brookes did not agree to this proposition in these terms. He did not concede or agree that his Queensland experience was irrelevant. He did agree that his Queensland experience did not indicate that plant bakers would sell premium bread at the same price as their secondary brands. The reason for that was because in the examples he gave of his Queensland experience the plant baker did not market a primary and a secondary brand. The Queensland plant bakers had offered case deals on their premium brands to enable Woolworths to compete with sales of another baker's bread.
90 In short, Mr Brookes' Queensland experience, as the Commission submitted, was not an exact fit for the Victorian market. But although the Victorian situation of a plant baker manufacturing premium and secondary brands had not occurred in the course of Mr Brookes' Queensland experience, that did not mean that Mr Brookes was not entitled to take it into account in devising his policy, which is what he did. As Mr Brookes put it:
"My Queensland experience told me that firstly the manufacturers would provide case deals for us to be competitive and good sizeable case deals so that we can maintain our margin or not lose money and [the documents relating to the Queensland transaction] evidenced the large number of case deals."
91 Mr Brookes' Queensland experience entitled him to conclude that bread manufacturers were prepared to provide case deals to enable Safeway to be competitive but not in the circumstances that faced Safeway in Victoria. However even if I reject Mr Brookes' Queensland experience as a valid justification for the policy he created for Victoria, it does not follow that I should reject his other evidence as to the terms of his Victorian policy or the purpose for which it was created. Although the rejection of the relevance of his Queensland experience removes one explanation or justification for the terms and purposes of the Victorian policy for which Mr Brookes contended, there is other evidence to which I shall refer that supports Mr Brookes' evidence as to the policy which he conceived, put into place and sought to have implemented.
92 During his time in Queensland Mr Brookes introduced policies based on Woolworths' competitive pricing policy. These policies were never reduced to writing. One of the policies introduced was that the decision whether bread was to be discounted in response to competitors' prices was to be made by head office rather than by store managers. Mr Brookes also introduced a planogram technique (to which I shall refer) for the location of proprietary bread in each Safeway store.
1112 But it is still necessary to consider whether Safeway has taken advantage of its market power having regard to the factual findings I have made as to what occurred in each of the nine incidents involving independent stores. Although contraventions of s 46(1)(c) have not been made out having regard to my findings as to what occurred in each of those nine incidents, it is still necessary to determine whether contraventions of s 46(1)(a) have occurred as such contraventions are open, on the basis of those findings, if I am satisfied that Safeway has taken advantage of its market power and has done so for the purpose of substantially damaging the independent stores.
1113 For the reasons to which I shall refer, I do not consider that Safeway has taken advantage of its market power in the wholesale market for the acquisition of bread in the sense in which the expression "take advantage" has been construed in Queensland Wire and explained in Melway. Although Safeway has "used" its market power in the sense that it has engaged in conduct that is available to it there is no necessary connection between its market power and the conduct in which it has engaged with the plant bakers.
1114 If the question is asked whether Safeway in a competitive environment in the wholesale market without its market power could have acted as it did and have a policy of deletion, it is necessary before answering the question to make assumptions as to the nature of the competitive environment. To repeat the observation of the majority of the High Court in Melway at 267:
"It is one thing to compare what it has done with what it might be thought it would do if it lacked that power. It is a different thing to compare what it has done with what it would do in circumstances that are completely divorced from the reality of the market."
If Safeway were in a competitive environment in the wholesale market then it would be constrained by its competitors in relation to the terms of trade it could impose on its suppliers. But would it act any differently than it would if it had its market power?
1115 If I assume for the moment that the term of trade alleged by the Commission has been made out and that the policy for which the Commission contended existed, I would still not reach the conclusion that, by imposing that term of trade and saying to the plant bakers - if you sell or continue to sell cheap bread to a competitive independent store, Safeway will not stock your products until the independent store ceases selling its discounted bread below Safeway's prices - Safeway was taking advantage of its market power. Consistently with the approach of the majority in Melway, I should consider what Safeway might have done if it did not possess its market power.
1116 I reach a similar conclusion if I proceed on the alternative basis that either Safeway said to a plant baker: Safeway is deleting your bread because you have sold, or are selling, cheap bread to a competitive independent store, or that Safeway said to a plant baker: if you do not give me the same cost price on the branded bread you sell Safeway as you are giving to a competitive independent store on secondary branded or generic bread, Safeway will delete your bread from its store while that store buys its bread for that price. Again, consistently with the approach of the majority in Melway, I should consider what Safeway might have done if it did not possess its market power.
1117 In Queensland Wire, it was concluded that in a competitive environment BHP would not have offered, in a commercial sense, to withhold supply of Y-bar to Queensland Wire, because one of its competitors would have obtained the business and presumably made a profit denied to BHP. There is no analogous conclusion to be reached in the present case.
1118 The reality of a competitive wholesale market in which Safeway did not have substantial market power would be that Safeway would still have alternative sources of supply available if a plant baker refused to stop selling bread to an independent store and Safeway stopped buying that plant baker's bread. The other plant bakers, who were not supplying the particular independent store with cheap bread would no doubt be willing to supply the particular Safeway store with bread, or with increased quantities if they already supplied it with bread. In particular, Safeway would have access to the supply of the Sunicrust and Buttercup price-fighting brands. Safeway would still have the same number of retail outlets and there is no reason to assume that it would not receive the same tenders as it did from Sunicrust and Buttercup. If it sought to impose the same term of trade and policy upon the plant bakers and the plant bakers resisted, it would still delete the plant bakers' products and bring in a price-fighting brand. In such circumstances, it would not act any differently, as it would not, unlike BHP in Queensland Wire, be faced with a competitive situation in which it would be expected, according to accepted principles of commercial practice and reality, to act differently from the way it acted in circumstances where it possessed a substantial degree of market power in the wholesale market.
1119 In a competitive situation Safeway might still try to impose its terms of trade and policy upon the plant bakers. If it failed, as it did in a number of the incidents under consideration, would it forget about the deletion and abandon the idea of bringing in the bread of other plant bakers or the Sunicrust or Buttercup price-fighting brands? I consider the answer to be in the negative. It would act in exactly the same way as it did in the situation where it possessed market power. It would not (unlike BHP in Queensland Wire) be faced with any commercial imperative different from that which it faced whilst possessing a substantial degree of market power in the wholesale market.
1120 The Commission submitted that Safeway could not, in a competitive market, have used its buying power to induce, or attempt to induce, the plant bakers to alter the terms on which they dealt with the independent stores. That may be so in the sense that it could not have achieved the result it set out to achieve. But I do not consider that it is the appropriate question to ask. Rather, the appropriate question to ask is whether, in a competitive environment, where it did not have a substantial degree of market power, it would have acted differently. I have answered that question in the negative. The issue is not whether, in a competitive environment, Safeway could have imposed on the plant bakers a requirement that they stop selling bread to an independent store, or increase their selling price to an independent store, or that they supply Safeway proprietary premium bread at the same cost price, but rather, whether Safeway would have deleted a plant baker's bread from one of its stores when it could not achieve the result of the plant baker stopping selling bread to an independent store or increasing its selling price to that independent store or of obtaining the same cost price for proprietary premium bread. There was no commercial imperative to act in a way different than it would have acted where it possessed a substantial degree of market power.
1121 The conclusion that Safeway did not "take advantage" of its substantial market power can be reached by another approach. In this context it is important to keep a consideration of whether Safeway has engaged in conduct that may be said to be taking advantage of its substantial market power separate from a consideration of the purpose for which it has taken such advantage. This other approach focuses substantially on the allegations of the Commission which rely upon contraventions of ss 45, 47 and 48 of the Act and implementation of the policy alleged by the Commission. A contravention of those sections can occur whether or not a corporation has a substantial degree of market power. Market power is not required in order for contraventions of those sections to be established. Similarly, implementation of the policy of deleting products can be achieved by any supplier or wholesaler who cannot get its customer to agree to his terms, particularly where alternative products are available for purchase.
1122 The findings I have made, and the analysis I have undertaken, results in the conclusion that Safeway has not contravened, or attempted to contravene, s 46 of the Act in relation to any of the incidents in respect of which a contravention of s 46 was alleged.
Did Safeway take advantage of its market power for a purpose proscribed by s 46(1)?
1123 I turn to the final integer in the equation of a contravention of s 46, the purpose for which it is said that Safeway took advantage of its substantial degree of market power. In the light of my conclusion that Safeway has not taken advantage of its market power, it is not necessary to address the issue of Safeway's purpose. However, as the issue of Safeway's purpose loomed large in the proceeding, it is appropriate to make findings on that issue.
1124 The Commission submitted that Safeway had three purposes:
• Deterring or preventing the plant bakers from engaging in competitive conduct in the wholesale market for bread: s 46(1)(c) of the Act;
• Deterring or preventing the independent retailers from engaging in competitive conduct in the retail market for bread: s 46(1)(c) of the Act;
• Substantially damaging the independent retailers as competitors of Safeway in the retail market: s 46(1)(a) of the Act.
1125 The purpose and intention that the Commission alleged against Safeway was pleaded in the following terms:
"The purpose [of the conduct] was to -(a) maintain retail prices for bread products in the said retail markets at levels that would not otherwise be sustainable in a competitive environment
(b) cause loss and injury to consumers of bread products in the said retail markets by requiring them to pay higher prices
(c) preserve to Safeway or enhance its market share for the supply of bread products in the said retail markets
(d) prevent Safeway's competitors (including the said other retailers) in the said retail markets from maintaining or increasing their market share in the said retail markets."
The reference to "the said retail markets" was a reference to each of the markets in which the relevant independent store was a participant. Such purposes were denied by Safeway. Section 46(7) enables the Court to reach a finding of the existence of a proscribed purpose even though the existence of the purpose is only ascertainable by reference from the conduct of Safeway and its employees.
1126 As noted earlier, it is not necessary, in order to establish a contravention of s 46, to find that the proscribed purpose was the sole purpose for the conduct; it is sufficient that it be one of a number of purposes so long as it was a substantial purpose: s 4F(1)(b) of the Act.
1127 The Commission submitted that both Mr Brookes and Mr Jones formulated the policy and implemented it in each of the relevant incidents with the sole or dominant intention or purpose of inducing the relevant plant baker to cease supplying cheap secondary branded or generic bread to the independent retailers. The formulation of the policy was solely the province of Mr Brookes and the implementation of it was left to Mr Jones although Mr Brookes participated in its implementation from time to time.
1128 I have already found that the purpose of the policy as formulated by Mr Brookes was not to punish the plant bakers, but rather, to enable Safeway to be competitive in its sales of bread. It was for that reason that it included the element of Safeway requesting case deals. When considering the implementation of the policy it is important not to focus simply on what Mr Brookes and Mr Jones said was the purpose of the policy and the reason why it was implemented in a particular way. As s 46(7) makes clear purpose can be inferred from conduct.
1129 The Commission submitted that Mr Brookes' and Mr Jones' evidence as to the purpose of the policy, when measured against the objective facts, should not be accepted as the purpose for the conduct that in fact occurred, in particular, because the conduct that in fact occurred was not consistent with the policy as formulated. This occurred in two principal respects - more products were deleted than the policy required and the deleted products were not replaced with a price-fighting brand of the plant baker deleted.
1130 In short, it was submitted that no evidence had been given as to the purpose for which the particular conduct that had occurred did occur. For example, in the context of the Frankston incident, there was no evidence as to the purpose for the over-deletion of all Buttercup products, without a case deal being first sought, when the price-fighting brand introduced was not Buttercup's Budget Family Fresh but rather Sunicrust's Captain Cutless. It was not in issue in the Frankston incident that the deletions which occurred went beyond what was required by the policy. I have rejected Mr Jones' explanation for the over-deletion, namely that when referring to "Buttercup bread" he was referring to 680g bread. Mr Brookes agreed that the instruction to the two store managers was to withdraw all Buttercup bread other than Atlantic bread and specialty rye.
1131 The Frankston incident is an incident which warrants the adoption of the approach to determining the purpose of a participant in a transaction taken by Fullagar J in Pascoe v Commissioner of Taxation (supra). An issue in that case, which involved a contested assessment to income tax, was the purpose for which a syndicate of three persons had acquired certain real estate. Fullagar J said at 403, in relation to the evidence given by the syndicate members as to their intention at the time of the acquisition of the real estate:
"Where a person's purpose or object or other state of mind in relation to a given transaction is in issue, the statements of that person in the witness box provide, in a sense, the `best' evidence, but, for obvious reasons, they must, as Cussen, J., observed in Cox v. Smail ((1912) V.L.R. 274, at p. 283), `be tested most closely, and received with the greatest caution.' In that case Cussen, J., after pointing out that states of mind in relation to acts done were generally complex, elaborately analysed the factors to be considered in determining whether an assignment of property by a bankrupt to a creditor had been made `with a view to' giving that creditor a preference. In the present case, the statements to which I have referred must be examined in the light of a number of circumstances. The Commissioner puts it that these circumstances raise a high degree of probability that the purpose of the acquisition of the property in St. George's Terrace was the making of a profit by sale."
His Honour concluded that the evidence given as to intention was in part reconstruction rather than recollection, and he did not accept it.
1132 In ASX Operations Pty Ltd v Pont Data Australia Pty Ltd (No 1) (supra), the Full Court of the Federal Court, at 482-483, accepted as quite appropriate, the position taken by the trial judge that the best evidence of the purpose of the participants involved was provided by looking at what was actually done.
1133 I am satisfied that the purpose of the Frankston deletion was not to implement the policy as formulated by Mr Brookes, but rather, was to punish Buttercup for selling bread to Quadara at a discounted cheap price and to deter or attempt to deter Buttercup from continuing to do so. I have been able to reach that finding because of the findings I was able to make in relation to:
• the fact that the decision was taken to make the deletion without a case deal being sought;
• the extent of the over-deletion;
• the manner and form in which the instruction for the deletion, and its extent, was given.
1134 However, for the reasons to which I have already referred, the finding of that purpose does not result in the Frankston incident constituting a contravention of s 46 as Safeway did not take advantage of its substantial degree of market power for that purpose. In a competitive environment, in which it did not have a substantial degree of market power, it would have been open to Safeway to have engaged in precisely the same conduct and it would not have been inhibited in doing so for any commercial reason which did not exist in the circumstances where it possessed a substantial degree of power in the wholesale market for the acquisition of bread. It would have brought in other bread or a price-fighting bread or reduced the price of other bread which it sold.
1135 My findings in relation to the other incidents do not enable me to reach a similar finding in relation to the purpose for which the relevant conduct was undertaken in those incidents other than the Albury May 1995 incident. In the Cheltenham and Vermont incidents, the evidence did not enable me to reach a finding as to the circumstances in which the deletion occurred. In the Traralgon incident there was evidence that a case deal was sought before the deletion and that there was a deletion of all Buttercup products whilst Mr Jones was negotiating to get the same cost price as the competitor.
1136 In the Lalor/Thomastown incident, Mr Jones asked for a case deal before the deletion occurred. In the Geelong incident, Mr Jones asked for a case deal before he gave instructions for the deletion of Sunicrust products from seven Safeway stores in Geelong. However, after complaint from Mr McLeish that only the Highton store could be affected by Costa's pricing, he agreed to the reintroduction of Sunicrust products to all stores except Highton.
1137 In the Albury May 1995 incident, I found that the purpose of the deletion was to deter Tip Top from, or influence it against, selling bread to Bob's IGA at a price that enabled Bob's IGA to sell bread at retail prices less than the prices for which Safeway Albury was selling bread. As with the Frankston incident, that finding does not result in a contravention of s 46.
1138 In the Albury November 1995 incident, Mr Jones asked for a case deal before the deletion occurred. In the Ferntree Gully incident, Mr Jones asked for a case deal before giving instructions for the deletion of all Tip Top products. Mr Parker, the store manager, refused to do so.
DEFENCE OF RES JUDICATA AND ISSUE ESTOPPEL
1139 Safeway and Mr Jones have raised a defence of issue estoppel and res judicata based on the dismissal of the claims against Mr Brookes. On 17 March 1999 I ordered by consent that the proceeding against Mr Brookes be dismissed. Safeway submitted that the defencearose in relation to the policy alleged against it by the Commission in relation to the incidents involving Tip Top, namely the Preston Market incident, the Albury May 1995 and November 1995 incidents and the Ferntree Gully incident.
1140 Safeway relied on the following facts and circumstances:
• Prior to 17 March 1999 (the date of the consent judgment) the Commission sought penalties against Mr Brookes on the basis of his involvement and participation in the Preston Market incident, which constituted a contravention of s 45 of the Act.
• The order on 17 March 1999 dismissing the proceeding against Mr Brookes constituted a final judgment in respect of the claims made by the Commission against Mr Brookes and therefore gave rise to:
- a res judicata in favour of Mr Brookes against the Commission in respect of all causes of action on which the claim against Mr Brookes was brought,
- issues estoppel in favour of Mr Brookes against the Commission in respect of all issues fundamental to the judgment in his favour.
• The issues fundamental to the judgment in favour of Mr Brookes were:
- whether Tip Top and Safeway made an agreement in relation to Tip Top's supply of bread at the Preston Market stall;
- whether that agreement contained provisions as to the type of bread and the prices at which Tip Top would sell bread at the Preston Market stall which provisions were exclusionary provisions within s 4D(1)(b) of the Act or had the purpose or effect of substantially lessening competition;
- whether the agreement was carried out;
- whether Safeway engaged or attempted to engage in the practice of exclusive dealing in contravention of s 47(1) of the Act in its involvement in the Albury May and November 1995 incidents and the Ferntree Gully incident;
- whether Safeway had the policy alleged by the Commission;
- whether as a consequence of the policy the plant bakers induced or attempted to induce retailers to stop discounting or were discouraged from supplying bread to retailers at discounted prices;
- whether Safeway implemented the policy in relation to Tip Top's Preston Market stall and thereby contravened ss 46 and 48 of the Act;
- whether Mr Brookes intended on behalf of Safeway to make the agreement and knew the fundamental issues;
- whether Mr Brookes' intention was to be imputed to Safeway.
• The Commission made claims in the proceeding against Safeway founded upon Mr Brookes' conduct, knowledge or purpose and alleged that Mr Brookes' conduct was Safeway's conduct and resulted in Safeway contravening ss 45, 46 and 47 of the Act.
• Safeway was a privy of Mr Brookes.
1141 I do not consider that a defence of res judicata can be maintained by Safeway or Mr Jones in respect of any of the causes of action alleged against them as a result of the judgment dismissing the proceeding that was entered in favour of Mr Brookes. The relevant principle to be considered and applied is that where an action has been brought and judgment has been entered in that action, no other action or proceeding can be maintained on the same cause of action: Jackson v Goldsmith (1950) 81 CLR 446 at 446-448; Effem Foods Pty Ltd v Trawl Industries of Australia Pty Ltd (Receivers and Managers Appointed) (in liq) (1993) 43 FCR 510.
1142 In Jackson v Goldsmith (supra), Fullagar J (who dissented on the application of the relevant principles to the facts in issue) explained the difference between res judicata and issue estoppel, at 466:
"The rule as to res judicata can be stated sufficiently for present purposes by saying that, where an action has been brought and judgment has been entered in that action, no other proceedings can thereafter be maintained on the same cause of action. ...The rule as to issue estoppel is generally stated in the words of Lord Ellenborough in Outram v Morewood. ... His Lordship said that parties and privies are `precluded from contending to the contrary of that point, or matter of fact, which having been once distinctly put in issue by them ... has been, on such issue joined, solemnly found against them'."
(See also Blair v Curran (1939) 62 CLR 464 at 532: Spencer Bower, Turner and Handley, The Doctrine of Res Judicata 3rd ed 1996 at p 2-3)
1143 Although Mr Brookes was alleged to have been involved in the formulation and implementation of the policy alleged by the Commission, the causes of action alleged against Mr Brookes were different from the causes of action alleged against Safeway and Mr Jones. The causes of action against Mr Brookes were founded upon s 76 of the Act and were based upon the allegation that he was knowingly concerned in, or party to, or aided, abetted, counselled or procured, contraventions of the Act by Safeway.
1144 The causes of action alleged against Safeway raised directly its liability for the contraventions alleged, the causes of action alleged against Mr Brookes raised his liability as an accessory to the alleged contraventions and as a person who was knowingly concerned in the contraventions. The causes of action alleged against Mr Brookes raised a liability separate and distinct from Safeway's liability and raised matters to be established against Mr Brookes that did not have to be established against Safeway, such as Mr Brookes' knowledge of the essential elements of the contraventions by Safeway: Yorke v Lucas (1985) 158 CLR 661 at 666-671; Hamilton v Whitehead (supra) at 128.
1145 There is a further reason why the defence of res judicata cannot be maintained. Safeway was not a privy of Mr Brookes. A plea of res judicata can be sustained even though the cause of action sought to be barred is raised against a person different from the person in whose favour the first judgment was pronounced. But in order for that result to be achieved there must be a privity of interest between the beneficiary of the first judgment and the person raising the defence of res judicata.
1146 Safeway did not, in relation to the causes of action against it, claim under or through Mr Brookes. As Gummow J pointed out at first instance in Trawl Industries of Australia Pty Ltd (In liq) v Effem Foods Pty Ltd (In liq) (1992) 36 FCR 406 at 413, privity can be described as "a mutual or successive relationship to the same right of property." His Honour also observed that in determining whether the necessary privity in a mutual or successive relationship exists, "courts have looked to legal rather than economic indicia as the criterion of operation of the privity doctrine" (p 414): see also Ramsay v Pigram (1968) 118 CLR 271 at 279 per Barwick CJ, 287; Spencer Bower, Turner and Handley, (op cit) at 119-122.
1147 Safeway had no legal or beneficial interest in the outcome of the proceeding against Mr Brookes. It had a personal interest in the outcome in the sense that it would not want one of its senior executives to be found to have contravened the Act, and it also had an interest in there not being a finding of a contravention of the Act against an employee whose intention was said to be attributed to it. But that interest did not give Safeway a sufficient privity of interest to warrant the conclusion that Safeway was a privy of Mr Brookes for the purposes of the application of the principle of res judicata.
1148 The defence of issue estoppel raised different considerations. The fact that the judgment obtained was by consent is no bar to a claim that an issue estoppel arises out of the judgment so long as one can ascertain what are the issues which have been determined and disposed of by the judgment: In re South American and Mexican Company; Ex parte Bank of England [1895] 1 Ch 37 at 50; Isaacs v The Ocean Accident and Guarantee Corporation Ltd & Winslett [1958] SR (NSW) 69 at 75; Makhoul v Barnes (1995) 60 FCR 572 at 582. However, what is critical, in order to found an issue estoppel, is to be able to establish that an issue was involved in the consent judgment and was necessarily and conclusively determined by it.
1149 Safeway submitted that the consent judgment determined the following issues in favour of Mr Brookes:
• Mr Brookes did not reach any agreement or arrive at any understanding with Tip Top;
• Mr Brookes did not know that the agreements or understandings with Tip Top alleged against him were entered into or reached for the purpose of preventing or limiting the supply of bread products to customers of Tip Top;
• Mr Brookes did not know that the purpose of the policy alleged against Safeway was to punish the plant bakers, such as Tip Top, to prevent them from engaging in competitive conduct;
• Safeway did not have substantial market power, of which it took advantage, in relation to the Tip Top stall at Preston Market.
It followed, submitted Safeway, that there was therefore determined in Safeway's favour, as a privy of Mr Brookes, that:
• Mr Brookes did not develop the policy alleged by the Commission for an anti-competitive purpose;
• Mr Brookes did not reach any agreement or understanding with any Tip Top employee in relation to the Tip Top stall at the Preston Market;
• Safeway did not possess substantial market power, of which it took advantage, in relation to the Tip Top stall at the Preston Market.
1150 I have already found that Safeway was not the privy of Mr Brookes for the purpose of the application of the principle of res judicata. But even if Safeway was the privy of Mr Brookes for the purpose of the application of the principle of issue estoppel, I do not consider that issues estoppel arise as a result of the consent judgment as submitted by Safeway.
1151 Although the accessorial claim made against Mr Brookes required proof of a number of matters required to prove the claims made against Safeway and Mr Jones, such as the making of the agreements as alleged, the formulation of the policy by Mr Brookes as alleged, the purpose of the policy and Safeway's substantial degree of market power in the wholesale bread market in 1994 and 1995, it does not follow that each of those issues was necessarily and conclusively determined by the consent judgment. The consent judgment was not given or entered on the basis of any particular finding of fact or conclusion of law. As the claims against Mr Brookes involved a number of elements, the absence of any of those elements could have led to a judgment in favour of Mr Brookes notwithstanding the existence of other elements.
1152 Where a judgment is given in favour of an applicant or plaintiff, it is easier to determine the issues that are fundamental to the judgment than it is when a judgment is given in favour of a respondent or a defendant in respect of causes of action that require a number of elements to be established, the failure to prove any one of which will result in the claim being dismissed. In a multi-element cause of action, a dismissal of the proceeding without reasons will not demonstrate which elements were not made out. The proposition is succinctly set out in Spencer Bower, Turner and Handley, (op cit) at 56-57:
"A dismissal of an action which could succeed on establishing either x or y, is a decision negativing both, but if the action is found on x plus y, its dismissal does not necessarily involve a decision as to either, since the action may have failed because x had not been established, though y had been, or vice versa, or because neither had been established."
The authors cite Re Allsop and Joy's Contract (1889) 61 LT 213 at 215 in support of the proposition stated. Counsel for Safeway submitted that the reasoning in Re Allsop and Joy's Contract was not good law in Australia and was inconsistent with the reasoning of the High Court in Blair v Curran (supra). In Re Allsop and Joy's Contract, Chitty J said at 215:
"It is new to me that on the doctrine of estoppel either side can rely upon the reasons which the learned judge gives for his coming to a conclusion upon any point. To use the language of Knight-Bruce L.J. in Barrs v. Jackson ... the estoppel is not of any matter incidentally cognisable, nor of any matter to be inferred by argument from the judgment. Much less therefore is either side estopped by the reasons which the judge assigns for the conclusion that he comes to. It is the conclusion that constitutes the estoppel. Now, after what I have said, it is plain that this bill might have been dismissed on either one of the two grounds. It might have been dismissed on the ground that the plaintiff already had the legal estate, or on the other ground that he had not the equitable estate in fee simple. I am not at liberty, nor in my opinion would any court hereafter be at liberty, to adopt either one of these propositions as the ground and say, `It is this, and not that.' Therefore I consider that the reason which Lord Romilly apparently gave for his judgment, which reason is not expressed on the face of the decree itself, does not constitute any part of this estoppel."
I am prepared to accept that this reasoning is inconsistent with Blair v Curran (supra) and Jackson v Goldsmith (supra) to the extent that it stands for the proposition that one cannot look at the reasons for the decision said to raise the issue estoppel to determine what issues are necessarily and conclusively determined by the decision. In Australia, one is not limited to looking only at the final decision, judgment or order in determining whether an issue estoppel can be raised. A party is entitled to rely on the reasons for an earlier decision to raise an issue estoppel: Blair v Curran (supra) at 532; Jackson v Goldsmith (supra) at 466-467.
1153 However, the Australian authorities do not disavow the proposition stated in Re Allsop and Joy's Contract that if there were alternative grounds for dismissing a proceeding, and it is not possible from the decision or the reasoning of the Court to determine what was in fact the ground on which the proceeding was dismissed, then an issue estoppel will not arise in relation to the alternative grounds. So much is clear from the following passage in the judgment of Dixon J in Blair v Curran (supra) at 531-532:
"A judicial determination directly involving an issue of fact or of law disposes once for all of the issue, so that it cannot afterwards be raised between the same parties or their privies. The estoppel covers only those matters which the prior judgment, decree or order necessarily established as the legal foundation or justification of its conclusion, whether that conclusion is that a money sum be recovered or that the doing of an act be commanded or be restrained or that rights be declared. The distinction between res judicata and issue-estoppel is that in the first the very right or cause of action claimed or put in suit has in the former proceedings passed into judgment, so that it is merged and has no longer an independent existence, while in the second, for the purpose of some other claim or cause of action, a state of fact or law is alleged or denied the existence of which is a matter necessarily decided by the prior judgment, decree or order.Nothing but what is legally indispensable to the conclusion is thus finally closed or precluded. In matters of fact the issue-estoppel is confined to those ultimate facts which form the ingredients in the cause of action, that is, the title to the right established. Where the conclusion is against the existence of a right or claim which in point of law depends upon a number of ingredients or ultimate facts the absence of any one of which would be enough to defeat the claim, the estoppel covers only the actual ground upon which the existence of the right was negatived. But in neither case is the estoppel confined to the final legal conclusion expressed in the judgment, decree or order. In the phraseology of Coleridge J. in R. v Inhabitants of the Township of Hartington Middle Quarter, the judicial determination concludes, not merely as to the point actually decided, but as to a matter which it was necessary to decide and which was actually decided as the groundwork of the decision itself, though not then directly the point at issue. Matters cardinal to the latter claim or contention cannot be raised if to raise them is necessarily to assert that the former decision was erroneous." (Emphasis added)
1154 This passage demonstrates that in order for an issue estoppel to arise in relation to a judgment dismissing a proceeding, one must be able to identify from the judgment itself, or the reasons for the judgment, the issues necessarily and conclusively determined in favour of the party in whose favour the proceeding was dismissed. If the cause of action was dismissed without reasons being given, and the causes of action were based on the need to prove a number of elements so that it is not able to be established which element was not proved in the dismissed proceeding, then no issue estoppel will arise in relation to any of the elements required to establish the causes of action in respect of which the proceeding was dismissed. To that extent the proposition in Spencer Bower, Turner and Handley, (par 1152 above) is good law.
1155 The judgment in favour of Mr Brookes could have been determined on a number of alternative grounds:
• Mr Brookes did not reach the agreements or arrive at the understandings alleged;
• the policy alleged was not formulated or implemented as alleged in relation to Tip Top;
• Mr Brookes did not have the requisite knowledge;
• Safeway did not have substantial market power in respect of which it took advantage in relation to Tip Top's Preston Market stall.
The causes of action against Mr Brookes would have been dismissed in the absence of the Commission establishing any one or more of these grounds. Although there were a number of issues fundamental to the proceeding brought against Mr Brookes, their nature is such that it is not possible to determine which of them necessarily were conclusively determined by the consent judgment and therefore determined in favour of Safeway. Accordingly, the defence of issue estoppel raised by Safeway and Mr Jones is not made out.
CONCLUSION
1156 None of the contraventions of the Act alleged against Safeway and Mr Jones have been established. Having regard to my findings and conclusions, it has not been necessary to consider a number of submissions which were predicated on findings of contraventions of the Act by Safeway. I refer, for example, to the issue of Mr Jones' liability pursuant to s 75B of the Act. If Safeway is not liable as a principal, Mr Jones is not liable as an accessory.
1157 The application insofar as it relates to allegations against Safeway and Mr Jones will be dismissed. I will hear the parties on any orders as to costs which should be made.
I certify that the preceding one thousand, one hundred and fifty-seven (1157) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Goldberg.
Associate:
Dated: 21 December 2001
#DATE 21:12:2001
Counsel for the Applicants: Mr J I Fajgenbaum QC, Mr R A Brett QC, Mr T J Ginnane & Mr D Star
Solicitor for the Applicants: Australian Government Solicitor Counsel for the First Respondent: Mr T F Bathurst QC, Mr R M Smith SC & Mr P R Whitford
Solicitor for the First Respondent: Clayton Utz Counsel for the Third Respondent: Mr L Glick Solicitor for the Third Respondent: Corrs Chambers Westgarth Counsel for the Fourth Respondent: Mr J Davis Solicitor for the Fourth Respondent: Norton Smith & Co Dates of Hearing: 9-12, 15-18, 22, 24-26 February 1-4, 9-12, 17-18 March
19 April
17-20, 24-27, 31 May
1-3, 7-10, 15-18, 21-23, 25 June
12-15, 19-22 July
2-5, 9-12, 24 August
8-10, 13-15, 21-24, 27-30 September
1, 4-8, 11-15, 18-20 October 1999
Date of Judgment: 21 December 2001
44