Australian Competition & Consumer Commission v Boral Ltd

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FEDERAL COURT OF AUSTRALIA

Australian Competition & Consumer Commission v Boral Ltd [2001] FCA 30

TRADE PRACTICES – market – product market – how ascertained – market power – ability to exclude competition – barriers to entry – structural barriers – dynamic barriers – predatory pricing as barrier – excess capacity as barrier – misuse of market power – predatory pricing

WORDS AND PHRASES – “power in a market”

Trade Practices Act 1974 (Cth) ss 4E, 46
Sherman Act 1890 (US) (15 USC §§  1 to 7)
Clayton Act 1914 (US) (15 USC §§ 12 to 27)
Robinson-Patman Act 1936 (US)
Treaty of Rome  Art 86

A A Poultry Farms, Inc vRose Acre Farms, Inc 881 F2d 1396 (7th Cir 1989) cited
Abalos v Australian Postal Commission (1990) 171 CLR 167 applied
AKZO Chemie BV v Commission of the European Communities [1994] ECR I-3359  discussed
American Key Corporation v Cole National Corporation 762 F 2d 1569 (11th Cir 1985) cited
Arnotts Limited v Trade Practices Commission (1990) 24 FCR 313 considered
ASX Operations Pty Ltd v Pont Data Australia Pty Ltd (No. 1) (1990) 27 FCR 460 considered
Betaseed, Inc v U & I Incorporated 681 F2d 1203 (9th Cir 1982) cited
Bhan v NME Hospitals, Inc 669 FSupp 998 (1987)  cited
Brooke Group, Ltd v Brown & Williamson Tobacco Corp 509 US 209 (1993) not followed
Brown Shoe Co, Inc v United States 370 US 294 at 325 fn 42 (1961) cited
Cargill, Inc v Monfort of Colorado, Inc 479 US 104 (1986) not followed
Continental Can Co Inc, Re [1972] CMLR D11  considered
Davids Holdings Pty Ltd v Attorney-General (Cth) (1994) 49 FCR 211 cons
Devries v Australian National Railways Commission (1993) 177 CLR 472 applied
Dowling v Dalgety Australia Limited (1992) 34 FCR 109
Eastern Express Pty Limited v General Newspapers Pty Limited (1991) 30 FCR 385 referred to
General Foods Corporation, In the Matter of 103 FTC 204 (1984) cons
General Newspapers Pty Limited v Eastern Express Pty Limited (1992) 35 FCR 43 referred to
Hoffman-La Roche v Commission [1979] 1 ECR 461 considered
Irish Sugar plc v Commission of the European Communities [1999] ECR II-2969 discussed
Jack Winter, Inc v Koratron Company, Inc 375 FSupp 1 (1974)  cited
Jones vHyde (1989) 63 ALJR 349; 85 ALR 23 applied
Matsushita Electric Industrial Co, Ltd v Zenith Radio Corp 475 US 574 (1986) cited
Melway Publishing Pty Ltd v Robert HicksPty Ltd (1999) 90 FCR 128 cited
National Dairy Products Corporation v United States 350 F2d 321 (8th Cir 1965) cited
Pont Data Australia Pty Ltd v ASX Operations Pty Ltd (1990) 21 FCR 385 considered
Porto Rican American Tobacco Co of Porto Rico v American TobaccoCo 30 F2d 234 (2d Cir 1929) cited
Queensland Co-operative Milling Association Ltd, Re (1976) 25 FLR 169 considered
Queensland Wire Industries Proprietary Limited v Broken Hill Proprietary Company Limited (1988-1989) 167 CLR 177 applied
Richter Concrete Corporation v Hilltop Concrete Association 691 F 2d 818

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Details
Case
[2001] FCA 30
Decision Date

CaseChat Overview and Summary

The Australian Competition & Consumer Commission (ACCC) initiated proceedings against Boral Limited, a major manufacturer of concrete masonry products, alleging contravention of the Australian Consumer Law. The case involved complex arguments that covered both factual and legal aspects. The trial judge provided detailed findings regarding the key participants in the concrete masonry products market, their operations, pricing strategies, and the overall market conditions in Melbourne between 1992 and 1996.

The primary legal issues revolved around the interpretation and application of the Australian Consumer Law, specifically focusing on the concept of "avoidable" or "variable" costs and how these should be considered in pricing strategies. The court was tasked with determining whether Boral Limited's pricing practices constituted anti-competitive behaviour. This involved assessing whether Boral Limited's pricing decisions were made in a manner that contravened the provisions of the Australian Consumer Law, particularly sections related to misleading or deceptive conduct and price discrimination.

The court meticulously examined the evidence and arguments presented by both parties. It found that Boral Limited's approach to calculating its "variable" costs was not in line with the principles outlined in the law. Specifically, the court rejected Boral Limited's argument that adjustments should be made to the transfer prices of raw materials to exclude the seller's profit, holding that such adjustments were inappropriate given that the transfer prices were generally at market levels. The court also concluded that a retrospective rewriting of costs to levels not actually considered at the time was impermissible. Consequently, the court found that Boral Limited's pricing strategies contravened the Australian Consumer Law.

The court ordered the appeal against the dismissal of the application against the second respondent be allowed and the orders of the trial judge, in relation to the second respondent, be set aside. The proceedings were remitted to the trial judge for further hearing and determination in relation to the relief sought by the appellant. The second respondent was ordered to pay the appellant's costs of the appeal and of the hearing below. The appeal against the dismissal of the application against the first respondent was dismissed, with the appellant ordered to pay the first respondent's costs of the appeal.

Orders

Orders of the court

1. The appeal against the dismissal of the application against the second respondent be allowed.

2. The orders of the trial judge, in relation to the second respondent, be set aside.

3. The proceeding be remitted to the trial judge, for further hearing and determination in relation to the relief sought by the appellant, in accordance with the judgment of this Court.

4. The second respondent pay the appellant’s costs of the appeal and of the hearing below.

5. The appeal against the dismissal of the application against the first respondent, be dismissed.

6. The appellant pay the first respondent’s costs of the appeal.

Background

Background to the litigation

The arguments advanced on behalf of the parties were extensive in their scope. They encompassed a range of factual as well as legal issues. Consequently, it will first be necessary to explain some of the detail of his Honour’s findings and conclusions.THE FINDINGS AND REASONING AT FIRST INSTANCE – THE BACKGROUND FACTS In his reasons, the trial Judge first described the identity of key “participants and customers”, the nature of the “concrete masonry products”, the nature of the “alternative products”, the history of “concrete masonry events in Melbourne 1992 – 1996” and the history of “BBM pricing” to the following effect:(a)CMP participants(1) BBM BBM was a member of the Boral Group, a large group operating throughout Australia and overseas. The group’s core businesses were the supply of building and construction materials and energy products. Group revenues for the year ended 30 June 1995 were $4.9 billion.(2) Pioneer Besser Pioneer Pty Ltd was a subsidiary of Pioneer International Limited, the holding company of another large Australian group. Pioneer manufactured concrete masonry blocks, bricks and pavers in Victoria.(3) Rocla Amatek Limited, part of another large Australian group, BTR Nylex, trading as Rocla, manufactured bricks and CMP in Victoria. It ceased manufacture of blocks in Victoria in September 1993 and of the remaining CMP in August 1995.(4) Budget Budget, a private company, manufactured CMP in Victoria until June 1996.(5) C & M For many years, C & M, a private company, manufactured CMP at Bendigo. In 1993, it established a CMP plant at Campbellfield, near Melbourne, using a highly efficient “Hess” machine. Full scale production of concrete bricks and pavers at Campbellfield commenced in February 1994. Production of blocks commenced much later.(6) Other Other, relatively small, firms manufactured CMP in Melbourne, including Boscato.(b)CMP customers(1)Blocklayers In most major projects, where concrete blocks were specified, the builder would call for tenders from blocklayers on a supply and lay basis. In turn, blocklayers would call for tenders from CMP manufacturers. Leading blocklayers included A & J Brady Pty Ltd (“Bradys”), Mulgrave Bricklaying & Building Contractors Pty Ltd (“Mulgrave”), Deca Constructions Pty Ltd (“Deca”), Glover Contractors Pty Ltd (“Glover”) and Stertern-Gill & Byrne Bricklayers Pty Ltd (“Stertern”).(2)Builders Large domestic builders who often purchased concrete bricks and blocks direct from manufacturers included Henley Arch Pty Ltd (“Henley Arch”), Glenvill Pty Ltd (“Glenvill”) and Mirvac Constructions Pty Ltd (“Mirvac”).(3) Retailers Hardware and building products retailers who purchased concrete paving products would typically present displays of rival paving manufacturers.(c)CMP(1) Method of manufacture Cement, sand, stone aggregate, water, and (sometimes) a colour ingredient, are mixed and injected into a mould in the form of a block, a brick or a paver. After compression, the product is moved to a kiln for drying, then placed on a pallet and wrapped in plastic covering. Because the process is not continuous, the more units a machine can produce in one batch, and the more quickly this can be done, the more efficient the process. The machines were manufactured in Europe and the United States. The local industry believed that the American machines were better suited for blocks, and the European machines for bricks and pavers.(2) Raw materials

Evidence

Evidence Before The Court

Full text does not contain this section.

Decision

Reasons for decision

Full text does not contain this section.

Ratio Decidendi

Legal Principle Established

After BBM had tendered here, the bricklayers (Bradrear) informed it that its prices were higher than Pioneer’s (for 15.01, 78 cents against 77 cents; and other products showed greater discrepancies – e.g. for 15.83, 80 cents against 72 cents). Although asked to match Pioneer, BBM declined on the ground that BBM did not have a well established relationship with Bradrear.(30)Budget ceases operation (June 1996) By June 1996, Budget had sustained losses for five consecutive years and its reserves had been depleted. It was unable to survive because of “[t]he continual downward pressure on prices” and ceased the manufacture of masonry products. (31)BBM’s upgrade of Deer Park (August – October 1996) By October 1996, BBM’s both new and old plants were operating. Deer Park then had sufficient capacity to manufacture render bricks as well as other products. Although Deer Park could not make Calsil brick, the demand was small and, in any event, it produced a substitute. Sunshine was closed at the end of October 1996.(32)Museum of Victoria Project (October 1996) BBM quoted 90 cents for 15.01 here. When, after some months, no response was received, BBM revised its quote at $1.05, having by then increased its prices generally. The blocklayer informed BBM that C & M’s quote was for $20,000 less. However, BBM did not revise its quote. C & M secured the contract. This was the first major block contract awarded to C & M.(g)BBM’s pricing – questions of principle(1) The concept of “avoidable” or “variable” cost His Honour made a number of findings as to BBM’s “variable” costs of manufacture and supply, which was taken as a reference to the concept of “avoidable” costs; and which were illustrated by the following example: assume a cost of raw materials of $6.00 and fixed costs of $4.00; any sale over $10.00 will return a profit; a sale at $8.00 will incur a loss but the cost of raw materials will be recovered, and a contribution will be made towards fixed costs; however, unless a price of at least $6.00 is achieved, it would be better not to make the article, that is, this cost ($6.00 for raw materials) will be avoided by not making the product (i.e. “avoidable” or, for present purposes, “variable” cost).(2) Treatment of cost of upstream inputs BBM contended that, in calculating the true cost of raw materials purchased from other members of the Boral Group, an adjustment needed to be made by removing the seller’s profit element from the transfer price, thus reducing the avoidable cost. However, his Honour rejected the contention, holding that such an adjustment was not appropriate for several reasons. First, the transfer prices were, in general, at market levels for arm’s length transactions. Secondly, since s 46 is concerned with the actual (i.e. subjective) purpose, a retrospective rewriting of costs to levels which were not actually given consideration at the time is impermissible.(3) Price/cost analysis – “whole of business” treatment