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

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
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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
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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 (1982) considered
Standard Oil Company of New Jersey v United States 221 US 1 (1910) cited
State Rail Authority of New South Wales v Earthline Constructions Pty Ltd (in liq) (1999) 73 ALJR 306; 160 ALR 588 applied
Story Parchment Co v Paterson Parchment Paper Co 282 US 555 (1931) cited
Trade Practices Commission v CSBP & Farmers Ltd (1980-1981) 53 FLR 135 referred to
Trade Practices Commission v Pioneer Concrete (Qld) Pty Ltd (1994) 50 FCR 160 considered
TV Signal Company of Aberdeen v AmericanTelephone and Telegraph Company 462 F2d 1256 (8th Cir 1972) cited
United States v Aluminium Co of America 184 F 2d 416 (1945) considered
United States v Columbia Steel Co 334 US 495 at 510-511 (1947) cited
United States v E I du Pont de Nemours & Co 351 US 377 (1956) applied
United States v Grinnell Corp 384 US 563 (1965) cited
US Anchor Manufacturing, Inc v Rule Industries,Inc 7 F3d 986 (1986) cited
Utah Pie Co v Continental Bakery Co 386 US 685 (1967) discussed
Victorian Egg Marketing Board v Parkwood Eggs Pty Ltd (1977-1978) 33 FLR 294 referred to
W Adams and D Brock “Predation, ‘Rationality’, and Judicial Somnambulance” 64 University of Cincinnati Law Review 811 (1996)
P E Areeda, J L Solow & H Hovenkamp Antitrust Law (1995) vol IIA p 85
P Areeda and D Turner “Predatory Pricing and Related Practices Under Section 2 of the Sherman Act” 88 Harvard Law Review 697 (1975)
J S Bain Barriers to New Competition (1956)
J B Baker “Predatory Pricing After Brooke Group: An Economic Perspective” 62 Antitrust Law Journal 585 (1994)
S Beck “Intent as an Element of Predatory Pricing under Section 2 of the Sherman Act” 76 Cornell Law Review 1242 (1991)
Bork The Antitrust Paradox (1978)
J F Brodley & G A Hay, “Predatory Pricing: Competing Economic Theories and the Evolution of Legal Standards” 66 Cornell Law Review 738 (1981)
B O Bruckman (ed) “Predatory Pricing Law – a Circuit-by-Circuit Survey” (1995) published by the Antitrust Law Section of the American Bar Association
Easterbrook “The Limits of Antitrust” 63 Texas Law Review 1 (1984)
K Elzinga and D Mills “Trumping the Areeda-Turner Test: The Recoupment Standard in Brooke Group” 62 Antitrust Law Journal 559 (1994)
P Geroski and J Schwalbach (eds) Entry and Market Contestability: An International Comparison (1991)
P Geroski, R J Gilbert & A Jacquemin Barriers to Entry and Strategic Competition (1990)
D Harbord and T Hoehn “Barriers to Entry and Exit in European Competition Policy” 14 International Review of Law and Economics 411 (1994).
G A Hay “The Economics of Predatory Pricing” 51 Antitrust Law Journal 361 (1982)
G Hay, J C Hilke and P B Nelson “Geographic Market Definition in an International G Hay “Market Power in Antitrust” 60 Antitrust Law Journal 807 (1992)
Context” 64 Chicago-Kent Law Review 711 (1988)
G Hay “Predatory Pricing” 58 Antitrust Law Journal 913 (1990)
R Hubbard “Potential Production: A Supply Side Approach for Relevant Product Market Definitions” 48 Fordham Law Review 1199 (1980)
T Krattenmaker, R Lande and S Salop “Monopoly Power and Market Power in Antitrust Law” 76 Georgetown Law Journal 241 (1987)
W M Landes & R A Posner “Market Power in Antitrust Cases” 94 Harvard Law Review 937 (1981)
W J Leibler “Whither Predatory Pricing? From Areeda and Turner to Matsushita” 61 Notre Dame Law Review 1052 (1986)
R Pitofsky “New Definitions of Relevant Market and the Assault on Antitrust” 90 Columbia Law Review 1805 (1990)
R A Posner Antitrust Law – An Economic Perspective (1976)
R A Posner “The Chicago School of Antitrust Analysis” 127 University of Pennsylvania Law Review 925 (1979)
S Salop, “Strategic Entry Deterrence” 69 American Economic Review 335 (1979).
F M Scherer & D Ross Industrial Market Structure and Economic Performance (3rd ed 1990) ch 2
F M Scherer “Predatory Pricing and the Sherman Act: A Comment” 89 Harvard Law Review 869 (1976)
G Stigler “Henry Calvert Simons” 17 Journal of Law and Economics 1 (1974)
G J Stigler The Organisation of Industry (1968)
L Sullivan Antitrust (1977)
A van Witteloostuijn Barriers to Entry and Dynamic Economies – A Survey and Critique (1986)
C C von Weizsäcker “A Welfare Analysis of Barriers to Entry” 11 Bell Journal of Economics 399 (1980)
D L White “Shaping Antitrust Enforcement: Greater Emphasis on Barriers to Entry” Brigham Young Law Review 823 (1989)
O E Williamson “Predatory Pricing: A Strategic and Welfare Analysis” 87 Yale Law Journal 284 (1977))
AUSTRALIAN COMPETITION AND CONSUMER COMMISSION v BORAL LIMITED AND BORAL BESSER MASONRY LTD
V 625 OF 1999
JUDGES:      BEAUMONT, MERKEL & FINKELSTEIN JJ
DATE:          27 FEBRUARY 2001
PLACE:        MELBOURNE

IN THE FEDERAL COURT OF AUSTRALIA

VICTORIA DISTRICT REGISTRY

V 625 OF 1999

ON APPEAL FROM A SINGLE JUDGE OF THE FEDERAL COURT OF AUSTRALIA

BETWEEN:

AUSTRALIAN COMPETITION AND CONSUMER COMMISSION
APPELLANT

AND:

BORAL LIMITED
FIRST RESPONDENT

BORAL BESSER MASONRY LTD
SECOND RESPONDENT

JUDGES:

BEAUMONT, MERKEL & FINKELSTEIN JJ

DATE OF ORDER:

27 FEBRUARY 2001

WHERE MADE:

MELBOURNE

THE COURT ORDERS THAT:
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.
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

V 625 OF 1999

ON APPEAL FROM A SINGLE JUDGE OF THE FEDERAL COURT OF AUSTRALIA

BETWEEN:

AUSTRALIAN COMPETITION AND CONSUMER COMMISSION
APPELLANT

AND:

BORAL LIMITED
FIRST RESPONDENT

BORAL BESSER MASONRY LTD
SECOND RESPONDENT

JUDGES:

BEAUMONT, MERKEL & FINKELSTEIN JJ

DATE:

27 FEBRUARY 2001

PLACE:

MELBOURNE

BEAUMONT J:
INDEX
INTRODUCTION........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ... 1
THE FINDINGS AND REASONING AT FIRST INSTANCE – THE BACKGROUND FACTS 4
(a)CMP participants........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ . 4
(1)       BBM........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ . 4
(2)Pioneer........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ..... 5
(3)Rocla........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ 5
(4)Budget........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ...... 5

(5) C & M........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ....... 5
(6) Other........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ 5

(b)CMP customers........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .... 5
(1)Blocklayers........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ....... 5
(2)Builders........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .... 6

(3) Retailers........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ... 6

(c)CMP........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ..... 6
(1)       Method of manufacture........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .... 6
(2)       Raw materials........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .. 6
(3)       Blocks........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ....... 6
(4)       Bricks........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ....... 7
(5)       Pavers........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ....... 7
(6)       Retaining wall products........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ... 7
(7)       CMP as a commodity........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ....... 8

(d)“Alternative” products........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ . 8
(1)       “Tilt-up” and pre-cast panels........ ........ ........ ........ ........ ........ ........ ........ ........ .. 8
(2)       Plasterboard........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ..... 9
(3)       Clay bricks........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ....... 9
(4)       Paving “alternatives”........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .... 10

(e)Monitoring of sales of “alternative” products by CMP manufacturers........ ........ ..... 10

(f)Concrete masonry “events” in Melbourne 1992 – 1996........ ........ ........ ........ ........ .... 12
(1) Conditions in 1992........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ . 12
(2)BBM’s plants........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .. 12
(3)BBM’s initial reaction to the establishment of C & M’s new plant at Campbellfield........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ 12
(4)The commencement of the “price war” – Royal Melbourne/St Vincent’s/Eastland (July 1993)........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ..... 13

(5) BBM’s reaction to Pioneer’s pricing policy (October 1993)........ ........ ........ 14
(6) Greensborough Shopping Centre Project (January 1994)........ ........ ........ .... 14
(7)Commencement of production by C & M in Melbourne (February 1994).... 14
(8)Negotiations for acquisition by BBM of C & M’s Campbellfield plant (February – July 1994)........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ....... 14

(9)       Western Metro College Project (April 1994)........ ........ ........ ........ ........ ........ . 15
(10)     Dandenong Shopping Centre Project (May 1994)........ ........ ........ ........ ........ 16
(11)     Melbourne Exhibition Centre (June 1994)........ ........ ........ ........ ........ ........ .... 16
(12)BBM’s transfer of concrete brick production to Sunshine (October 1994)... 16

(13)     Epping Plaza Project (December 1994)........ ........ ........ ........ ........ ........ ........ 16
(14)     Crown Casino Project (December 1994 to July 1995)........ ........ ........ ........ .. 16
(15)     BBM’s Deer Park upgrade (1995)........ ........ ........ ........ ........ ........ ........ ........ . 17
(16)     Beacon Cove Project (April 1995 – May 1996)........ ........ ........ ........ ........ ..... 18
(17)     BHP Global Leadership Building (May 1995)........ ........ ........ ........ ........ ...... 18
(18)     Rockman’s Regency Project (June 1995)........ ........ ........ ........ ........ ........ ...... 18
(19)Monash Sports Centre Project (June 1995)........ ........ ........ ........ ........ ........ ... 19
(20)Women’s Prison Project (July 1995)........ ........ ........ ........ ........ ........ ........ ..... 19
(21)Rocla’s withdrawal from CMP manufacture (August 1995)........ ........ ........ . 19
(22)Laverton Men’s Prison Project (September 1995 to September 1996)........ . 19
(23)Kraft Leitchville Project (October 1995)........ ........ ........ ........ ........ ........ ....... 20
(24)Smorgons Laverton Project (October 1995)........ ........ ........ ........ ........ ........ .. 20
(25)Swanston Dock Project (November 1995)........ ........ ........ ........ ........ ........ ..... 20
(26)Park Central St Kilda Road Project (December 1995)........ ........ ........ ........ . 20
(27)Deer Park Shopping Centre Project (December 1995)........ ........ ........ ........ . 20

(28)“Negotiations” between C & M and BBM and Pioneer (December 1995).. 21
(29)Flagstaff Gardens Project (February 1996)........ ........ ........ ........ ........ ........ .. 21
(30)Budget ceases operation (June 1996)........ ........ ........ ........ ........ ........ ........ .... 21
(31)BBM’s upgrade of Deer Park (August – October 1996)........ ........ ........ ....... 21
(32)Museum of Victoria Project (October 1996)........ ........ ........ ........ ........ ........ . 21

(g)BBM’s pricing – questions of principle........ ........ ........ ........ ........ ........ ........ ........ ..... 22
(1)       The concept of “avoidable” or “variable” cost........ ........ ........ ........ ........ .... 22
(2)       Treatment of cost of upstream inputs........ ........ ........ ........ ........ ........ ........ ..... 22
(3)       Price/cost analysis – “whole of business” treatment........ ........ ........ ........ .... 22

(h)       BBM’s pricing – the details........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ....... 23
(1)       The relationship between sales revenue and variable cost........ ........ ........ .... 23
(2)       Major projects........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ 24
(3)       BBM’s pricing policy........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ..... 24

THE FINDINGS AND REASONING AT FIRST INSTANCE – THE ULTIMATE ISSUES 25
(a) The relevant market – market definition........ ........ ........ ........ ........ ........ ........ ........ .... 25
(b)BBM did not have substantial market power........ ........ ........ ........ ........ ........ ........ ..... 26
(c)....... Even if BBM had a substantial degree of market power, it did not take advantage of it........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .... 26

(d) BBM did, however, act with one of s 46’s proscribed purposes........ ........ ........ ....... 27
THE ACCC’S GROUNDS OF APPEAL........ ........ ........ ........ ........ ........ ........ ........ ........ ...... 27
THE ACCC’S CHALLENGE TO HIS HONOUR’S IDENTIFICATION OF THE RELEVANT MARKET........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ....... 28
THE ACCC’S CHALLENGE TO HIS HONOUR’S CONCLUSIONS THAT BBM DID NOT HAVE A SUBSTANTIAL DEGREE OF MARKET POWER........ ........ ........ ........ ........ .... 39
THE ACCC’S CHALLENGE TO HIS HONOUR’S CONCLUSION THAT BBM DID NOT “TAKE ADVANTAGE” OF ANY MARKET POWER IT POSSESSED........ ........ ........ ... 44
BBM’S CHALLENGE TO HIS HONOUR’S FINDING OF THE EXISTENCE OF A PROSCRIBED PURPOSE........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .... 48
CONCLUSIONS ON ACCC’S APPEAL AND BBM’S CONTENTION........ ........ ........ ... 51
(a)The meaning and operation of s 46........ ........ ........ ........ ........ ........ ........ ........ ........ .... 52
(b)The uncontested primary facts........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ... 58
(c)The proper inferences to be drawn from the uncontentious primary facts........ ........ 67

CONCLUSION – CONTRAVENTION BY BBM ESTABLISHED........ ........ ........ ........ ... 70
ORDERS PROPOSED........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .. 70

IN THE FEDERAL COURT OF AUSTRALIA

VICTORIA DISTRICT REGISTRY

V 625 OF 1999

ON APPEAL FROM A SINGLE JUDGE OF THE FEDERAL COURT OF AUSTRALIA

BETWEEN:

AUSTRALIAN COMPETITION AND CONSUMER COMMISSION
APPELLANT

AND:

BORAL LIMITED
FIRST RESPONDENT

BORAL BESSER MASONRY LTD
SECOND RESPONDENT

JUDGES:

BEAUMONT, MERKEL & FINKELSTEIN JJ

DATE:

27 FEBRUARY 2001

PLACE:

MELBOURNE

REASONS FOR JUDGMENT
BEAUMONT J:
INTRODUCTION

The appellant, the Australian Competition and Consumer Commission (“the ACCC”) instituted a proceeding in this Court against the first respondent, Boral Limited (“Boral”), and its subsidiary, Boral Besser Masonry Ltd (“BBM”), the second respondent, for the recovery of pecuniary penalties pursuant to ss 76 and 77 of the Trade Practices Act 1974 (Cth) (“the Act”), for injunctions pursuant to s 80 of the Act and for other relief. The ACCC claimed that BBM had contravened s 46(1) of the Act.
Section 46(1) relevantly provides:
“46(1) A corporation that has a substantial degree of power in a market shall not take advantage of that power for the purpose of:
(a)eliminating or substantially damaging a competitor of the corporation … in that … market;
(b)preventing the entry of a person into that … market; or
(c)deterring or preventing a person from engaging in competitive conduct in that … market.”
By s 4F(1)(b) it is provided that a person shall be deemed to have engaged in conduct for a particular purpose if the person engaged in the conduct for purposes that included that purpose and that purpose was or is a substantial purpose.
According to the ACCC’s statement of claim, the case sought to be made against BBM was as follows:
·In the relevant period (i.e. between April 1994 and October 1996), BBM carried on business as a manufacturer and supplier of concrete masonry products (“CMP”), being concrete blocks, concrete pavers and concrete retaining wall products.
·BBM, Pioneer International Limited (“Pioneer”), C & M Bricks Melb Pty Ltd and Eramosa Pty Ltd (collectively “C & M”) and G Boscato competed with each other, and also with others (including Amatek Limited (trading as Rocla (“Rocla”)) until Rocla ceased operations in the greater Melbourne metropolitan area (“Melbourne”) in August 1995 and Budget Bricks and Pavers (“Budget”) until Budget ceased operations in August 1996), in relation to the manufacture and supply of CMP in Melbourne. The approximate shares of the supply of CMP in 1994 were: BBM 33%; Pioneer 24%; Rocla 24%; C & M 8%; Budget 4%; others (including G Boscato and some limited activity in Melbourne by country suppliers) 7%. The volume of CMP produced in Melbourne between 1993 and 1995 was in the range of 175,000 to 353,000 tonnes per annum.
·In 1993 C & M built a modern highly efficient plant (a “Hess” plant) for the manufacture of CMP in Melbourne, commencing the supply of products in October 1993.
·From October 1993 (a) BBM recognised, and believed that Pioneer also recognised, their interdependence in relation to the manufacture and supply of CMP in Melbourne; (b) there was excess capacity to produce CMP in Melbourne, and the demand was from a large number of customers who individually accounted for a comparatively small proportion of the total demand; and (c) the excessive capacity, BBM’s substantial degree of power in the Melbourne CMP market, significant sunk cost requirements and the conduct of BBM (i) in reducing prices between April 1994 and October 1996; (ii) in offering to acquire C & M’s plant; and (iii) in increasing the capacity of its Deer Park plant; all of which resulted in the existence of significant barriers to entry to the Melbourne CMP market.
·BBM had substantial power in the Melbourne CMP market by reason of (a) its ready access to (i) the natural resources necessary to compete in relation to the manufacture and supply of CMP; and (ii) substantial financial resources; (b) its share of the Melbourne market; (c) its recognition of, or its belief in, its interdependence with Pioneer in relation to that supply in the Melbourne market and, consequently, the limited gains that either it, or Pioneer, could expect to gain from vigorous competition with each other in the Melbourne market or elsewhere; (d) its ownership and operation of substantial businesses and assets in all areas of commerce involving building products in Australia, including CMP, the economies of scale and/or scope which derive therefrom and the contact it thereby achieved with competitors including Pioneer; (e) the fact that in the Melbourne market each of the persons supplying CMP in competition with BBM (other than Pioneer) was significantly smaller than, and susceptible to the use by BBM of its market power; (f) its vertically integrated business structure from the winning of raw materials to the delivery of finished building products and economies of scale; and (g) its ability to engage in the conduct of price-cutting and of increasing Deer Park capacity.
·BBM’s conduct constituted the use of power in the Melbourne CMP market for the purpose, or substantially for the purpose of (a) eliminating or substantially damaging C & M and other competitors including Rocla and Budget; (b) preventing the entry of C & M, and others, into the market; or (c) deterring or preventing C & M (and others including Rocla and Budget) from engaging in competitive conduct in the market.
The primary Judge dismissed the application. His Honour held that the relevant market was not for CMP, but was the wider market for walling and paving products; and that BBM did not have a substantial degree of power in the walling and paving products market. It followed, his Honour held, that the application should be dismissed. His Honour went on to consider two further matters, upon assumptions (made contrary to his own earlier conclusions) (a) that the relevant market was that alleged by the ACCC; and (b) that BBM had a substantial degree of market power in that market. The primary Judge held that, even if those assumptions were to be made, BBM did not take advantage of that power. Secondly, however, the trial Judge held that BBM did have one or other of the purposes proscribed by s 46(1)(a), (b) and (c).
The ACCC now appeals from the order dismissing the application against BBM. For its part, BBM has filed a notice of contention, contending that there was not sufficient evidence to justify the finding of the proscribed purpose mentioned.
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
The raw materials for CMP were readily available to concrete manufacturers in Melbourne. Both BBM and Pioneer obtained some of their raw materials from upstream suppliers within their own corporate group, but, by and large, at market prices.
(3) Blocks
Masonry blocks, which were mostly used in the construction of walls, both internal and external, were either solid or with two or three hollow centres. Blocks came in a range of fractional sizes, described as “10.01”, “15.01” and “20.01”, reflecting the nominal width of each product (in centimetres). The 10.01, 15.01 and 20.01 blocks were most commonly used for commercial buildings, or where aesthetic appearance was not important. The hollow centres could be filled with concrete and reinforcing rod, which made a wall structurally stronger (ideal where the wall is weight-bearing), and would also enable a longer and higher wall to be constructed.
(4) Bricks
Masonry bricks, made in the same size as a standard clay house brick (230mm x 76mm x 110mm) and of standard grey or coloured, were principally used for the construction of walls, particularly in residences. Render bricks were a masonry brick in the natural grey colour of the concrete. Render bricks were used as a construction material where the exposed face of the brick was to be covered over with a thin film of render, either cement or acrylic based, applied on completion of construction. The render could have a colouring agent added to it, or the rendered wall could be painted.
(5) Pavers
Pavers, designed for use as an external pavement, usually around residences and commercial buildings, were made in a range of sizes (from 230mm x 115mm x 40mm to 400mm x 400mm x 60mm) for either light or heavy duty applications. The types of product sold by C & M in the largest quantities were 400mm x 400mm x 60mm stepstone pavers and the heavy duty interlocking paver. Heavy duty pavers were designed to bear a heavy load for e.g., roadways and wharves. They were a minimum of 80mm thick and of high compressive strength, having higher proportions of cement and stone in their make-up, and thus a higher abrasive resistance.
(6) Retaining wall products
These were used for landscaping external areas around residences, commercial buildings, public parks and along roadways for retaining earth and stopping erosion.
(7) CMP as a commodity
CMP were not the subject of patent, copyright or any other form of intellectual property protection. With some limited exceptions, CMP were not sold under a brand name or trade mark. In essence, CMP were a commodity.
(d)“Alternative” products
(1) “Tilt-up” and pre-cast panels
“Tilt-up” and pre-cast were essentially the same: a section of a wall was cast in concrete and then placed in position. The terms were occasionally used interchangeably. Sometimes, the term “tilt-up” was applied to a product of this kind made off site.
With respect to the considerations which could influence a choice between tilt-up or pre-cast on the one hand, and concrete block on the other, according to the evidence of Mr Peter Slattery, an experienced quantity surveyor –
·Since before the recession in Victoria in the early 1990s, the market position of CMP had weakened, except in relation to houses.
·There were two major reasons for this change:
(i)In working for a economical outcome, building owners had moved away from traditional materials such as CMP; and
(ii)Pre-cast concrete wall panels had gained acceptance as a real alternative to CMP not only because of a relatively modest unit cost, but also because of significantly reduced construction times. Further, the structural characteristics of pre-cast concrete panels eliminated many of the structural elements required with traditional load-bearing masonry construction.
According to the evidence of Mr Gregory Steele, Rocla’s Commercial Sales Manager –
“Despite the superficial cost advantage which block appears to have over tilt-up, within a few years [of its introduction] tilt-up had diminished the block market by 65 to 75 per cent …. [I]t had such a significant impact that it brought the masonry commercial walling industry to its knees.”
During the boom years of the late 1980s, the cost of using CMP increased, because of higher labour costs associated with laying blocks (block or bricklayers were part of a highly unionised labour force).
Subsequently, when block costs fell, the substitution of tilt-up for block was to some extent, reversed. According to the evidence of Mr Simon Pethica of Bradys –
“[S]ince the mid 1990s … the cost of labour on site in concrete block laying has fallen in comparison to concrete panel and tilt-up. This has led to an increased use of concrete block in recent years in preference to tilt-up or pre-cast concrete.”
(2) Plasterboard
Mr Slattery, a quantity surveyor, described the complexities involved in choosing between concrete block on the one hand and, on the other, stud and plasterboard. Where a structural wall was required, or where there were noise or fire rating concerns (as with internal party walls) it was often preferable to use CMP. The benefits of CMP blocks were that they had good sound transmission and fire resistant characteristics, they were robust, relatively easy to reinforce and readily maintained. However, they were heavy, and in many high-rise constructions their use had increased structural costs because the floor slabs must be designed to bear their extra weight. Stud and plasterboard partitions, by contrast, were built off the floor, and installation was quicker. It was also difficult to remove or redesign CMP walls. Yet stud and plasterboard provided a lower quality. This could be an important factor for a developer, especially for luxury apartments, or when ongoing ownership was contemplated.
(3) Clay bricks
Physically interchangeable with masonry bricks, clay bricks performed the same function. Clay commons (i.e. second grade clay bricks unsuitable for use on the uncovered face of an external wall) were used in commercial applications where appearance was not so important, or where buildings or walls were to be rendered, bagged or finished in some way. According to the evidence of Mr Ullner of C & M, a second quality clay brick was often used for rendering, and completed with C & M’s render brick.
According to the evidence of Mr Vella, BBM’s Victorian Sales and Manufacturing Manager, prices of masonry render bricks fell from mid 1994 and this affected sales of both clay commons and clay face bricks (i.e. first grade bricks suitable for external walls). From mid 1994 a growing number of houses were built with masonry rendered bricks, and between 1993 and 1995, demand increased by 30 per cent.
Before 1994, Glenvill used clay brick seconds for 90 per cent of houses that were to be rendered. Glenvill changed to concrete bricks when C & M approached it with an attractive offer. According to the evidence of one of C & M’s main shareholders, C & M was able, with its low prices, to expand the volume of concrete brick sales in Melbourne by taking business away from clay bricks.
(4) Paving “alternatives”
In situ concrete, clay pavers or asphalt could perform the same function as concrete pavers.
(e)Monitoring of sales of “alternative” products by CMP manufacturers
CMP manufacturers, including BBM, regularly monitored products which threatened to take away sales from CMP. They also formulated defensive strategies and offensive strategies aimed at capturing sales from the “alternative” products.
For example, BBM’s 1992 Strategic Business Plan (prepared by Mr Rawnsley, Victorian General Manager) stated that significant sections of the market had disappeared to “alternative” products; that BBM should aim to “elevate the image of concrete brick so as to be an acceptable alternative to clay at a competitive price”; and that BBM’s concrete brick would gain an estimated 3 per cent of the clay market within three years.
Further, in a memorandum addressed to BBM State managers in July 1994, Mr Magnus (Tim) Cormack, BBM’s Chief General Manager, Masonry and Road Services Division, noted that managers were “to obtain information about the cost of products which compete with masonry and to consider the future of masonry products in light of the competition faced from substitutable products”. In this connection, Messrs Rawnsey and Vella compared the price of CMP with the price of “alternative” products, including plasterboard, clay, tilt-up, asphalt and concrete.
An analysis prepared by BBM in 1995 indicated these shares of the total walling market: clay (77 per cent); masonry (11 per cent); tilt-up (10 per cent); and timber (2 per cent).
In May 1995, the industry association, the Concrete Manufacturers Association of Australia, commissioned a report to review the position of CMP vis-à-vis competing products and systems, taking into account the purchasing process and attitudes towards concrete, masonry and alternatives.
According to the evidence of Mr Griffin, Pioneer’s Victorian State Manager, the main aim of Pioneer’s October 1993 price list was to win back sales from tilt-up by approaching jobs that had been specified in pre-cast and tilt-up with a view to winning them back to block. Pioneer also lobbied builders and architects about the products’ relative merits. One aspect of Pioneer’s marketing effort was directed at having concrete pavers used in residential driveways rather than in situ concrete.
According to the evidence of Mr Steele of Rocla, CMP manufacturers made efforts to persuade architects, and builders, to specify block rather than tilt-up.
Mr Ullner’s evidence was that when C & M set up its Melbourne operation, it planned to get sales from clay bricks and clay pavers, and expected to obtain 5.44 per cent of sales of clay products in Victoria.
(f)Concrete masonry “events” in Melbourne 1992 – 1996
(1) Conditions in 1992
In the early 1990s, the Victorian economy was in severe recession; building activity was depressed until about 1994; and real improvements were not apparent until 1996 or 1997. The recession affected the level of demand for CMP; there was substantial excess production capacity; customer acceptance of CMP was at a very low level; and developers and builders, working for the most economical outcome, were very receptive to suggestions that they change to alternative products and building systems.

BBM then had poor management, and its Victorian Manager was dismissed in 1992.
(2)BBM’s plants
BBM had a plant in Deer Park with a Besser machine. Adjoining the plant was a quarry operated by another member of the Boral Group. BBM also operated a plant at Sunshine. In 1992, this (inefficient and worn out) plant produced Calsil, made with silica (and not a CMP).
(3)BBM’s initial reaction to the establishment of C & M’s new plant at Campbellfield
C & M’s move to Melbourne excited a fair amount of apprehension among the CMP manufacturers. BBM commissioned research into the production capacity of the Hess machine and Mr Cormack was impressed by its potential, believing that its efficiency would give C & M technical and cost advantages over other CMP manufacturers in terms of the cycle times, pallet size, rapid mould change times (allowing flexibility in making products) and significant labour savings.
According to Mr Cormack’s evidence (which his Honour accepted):
“… the aggressive competition between BBM, Pioneer and Rocla for sales of [CMP] blocks had started well before [C & M] started production at Campbellfield …[and] … the price war between Pioneer, Rocla and BBM had nothing to do with C & M …. [It] was a product of extreme competition for sales of [CMP] blocks between the three existing major players in a depressed market, and the combined struggle for market share.”
(4)The commencement of the “price war” – Royal Melbourne Hospital/St Vincent’s Hospital/Eastland (July 1993)
A “price war”, initially between BBM, Pioneer, Rocla and Budget, commenced in mid-1993.
Indications of the state of the price war were found in the prices offered by BBM and its competitors in their tenders for several major projects. In almost all of these projects, a tender was invited for the supply of concrete blocks of various sizes, including 15.01 block. (Described in the evidence as the “Holden motor car” of concrete blocks and for present purposes, it will usually be sufficient to refer to the prices for 15.01 only.)
In July 1993, Bradys won the block laying contract for three major projects at Royal Melbourne, St. Vincent’s and Eastland Shopping Centre. BBM’s quote, which included 15.01, was: Royal Melbourne – 85 cents; St Vincent’s – 86 cents; Eastland (which was further from Deer Park) – 90 cents.
Bradys asked BBM to revise its quote, which it did, as follows: Royal Melbourne – 76 cents; St Vincent’s – 77 cents; Eastland – 81 cents.
The Royal Melbourne project was awarded to Pioneer at an early stage. In August 1993, Mr Pethica (Bradys) arranged a meeting with Messrs Rawnsley and Vella (BBM) and informed them that BBM’s price was higher than any of the other suppliers, referring specifically to Rocla’s significantly lower quote of 71.2 cents. Mr Rawnsley indicated that BBM would match Rocla’s prices.
When Rocla did not win the tender, it decided that it could not compete in CMP in Victoria. According to the evidence of its Commercial Sales Manager, Mr Steele:
“Rocla tendered for this project, costing it on a marginal basis as a one-off to test and see whether Rocla’s continued operation in Victoria was viable. Rocla’s competitors seemed to be in free fall, and it was Rocla’s view that it simply had to make a clean break from price discounting if that was all that was necessary to avoid sustaining losses.”
(5) BBM’s reaction to Pioneer’s pricing policy (October 1993)
Block prices remained at about July/August 1993 levels for about three months. In October 1993, Pioneer further reduced prices for most block products to levels substantially lower than previously (including 15.01 at 70 cents), and undertook to keep prices at these levels for six months for customers who would commit to Pioneer for that period. Several block layers informed BBM that they would commit to Pioneer unless BBM matched its prices. BBM was “very concerned” about Pioneer’s prices and agreed to match them. BBM’s new prices applied to all products supplied thereafter, even if a project had already commenced.
(6) Greensborough Shopping Centre Project (January 1994)
BBM made several tenders on this project, initially to the builder (Civil & Civic); and, after the builder sought tenders from blocklayers, BBM quoted to Bradys, Mulgrave and Deca. Bradys suggested to BBM that if it dropped its price by $50,000, Bradys would give BBM all its upcoming work and pay an extra 2 cents per block. BBM accepted the proposal, but Mulgrave was awarded the blocklaying contract. As a result, BBM’s tender was accepted (by Mulgrave) without any commitment (to Mulgrave) to provide a discount of $50,000. The average price for 15.01 block supplied was 63 cents.
(7) Commencement of production by C & M in Melbourne (February 1994)
C & M’s Cambellfield plant commenced full scale production of bricks and pavers, but not blocks, from February 1994. Blocks were manufactured at the Bendigo plant and sold into the Melbourne market.
(8)Negotiations for acquisition by BBM of C & M’s Campbellfield plant (February – July 1994)
Initially, these negotiations were between Mr Rawnsley (BBM) and Mr Ullner (C & M). Mr Ullner indicated that Pioneer was also interested. Mr Ullner discussed the Hess plant’s capabilities, and said that BBM would be “shot out of the water” in Victoria. On 16 February 1994, Mr Rawnsley wrote to C & M confirming that BBM was seriously examining the viability of acquiring the assets of C & M. Subsequently, BBM indicated that it was interested in the Hess plant only. However, Mr Ullner stated that he and Mr Kupke were only prepared to sell the plant if all of the assets of the business were then acquired. BBM proceeded to give consideration to the prospect of acquiring the Hess plant, and if necessary the entire C & M operation, although the earlier urgency abated when Pioneer’s threat to buy the machine receded. (Negotiations between Pioneer and C & M commenced in February 1994 and concluded, without agreement on any acquisition.) On 6 May 1994, BBM made an (internal) assessment, which noted that the purchase of C & M would provide one means of alleviating the industry’s problem of over-capacity: Victoria then had Australia’s lowest consumption (but more plants) per capita of CPM; prices were generally very low, and all industry participants were competing vigorously; within this context, C & M was performing relatively well – it was aggressively winning sales and market share in concrete bricks and pavers; there were continuing rumours that C & M was about to commence block production; and C & M appeared to be the only option available for purchase.
On 1 July 1994, Mr Ullner informed Mr Rawnlsey that C & M had accepted an offer from another party. Mr Rawnsley refused to believe this. He and Mr Vella put to Mr Ullner an offer to buy the Hess plant (only) for $3.8 million. Mr Ullner rejected the proposal outright, Mr Kupke having previously mentioned to Mr Rawnsley that C & M had spent $13 million on the Campbellfield operations.
Although nothing ultimately eventuated from these negotiations, his Honour rejected a suggestion that BBM was using the process as a means of getting information about C & M, or of intimidation, and found that BBM had acted in good faith.
(9) Western Metro College Project (April 1994)
BBM was anxious to win this tender because the project was close to Deer Park, so that BBM’s cartage costs would be lower and Stertern, the blocklayer selected for the project, then bought all its block requirements from Pioneer. BBM quoted 68 cents for 15.01, but was informed that Pioneer’s quote was considerably lower. Mr Vella refused to match the prices of Pioneer, which was awarded the job. Mr Vella’s evidence was that he thought prices at the time were too low and he was “trying to raise BBM Victoria’s price a bit”.
(10) Dandenong Shopping Centre Project (May 1994)
BBM quoted several blocklayers for the Centre’s car park, but not Glover, which won the tender. According to Mr Vella’s evidence, BBM did not quote Glover because it was then buying most of its products from Pioneer, and Mr Vella believed that Glover would not deal with BBM unless BBM further reduced its prices, which Mr Vella did not wish to do.
Subsequently, however, BBM was awarded by Glover the job of supplying 15.01 block at 63 cents to the Centre itself, mainly because its “Assano” white block was specified. Thereafter, Glover bought a lot of product from BBM.
(11) Melbourne Exhibition Centre (June 1994)
BBM quoted here for 15.01 at 62 cents, but Pioneer, whose price is not known, was awarded the job.
(12) BBM’s transfer of concrete brick production to Sunshine (October 1994)
In 1994, concrete brick for use in rendering became increasingly popular. To cope with demand, all brick production was transferred from Deer Park to Sunshine, notwithstanding that the plant there was obsolete.
(13) Epping Plaza Project (December 1994)
BBM quoted on this project to several blocklayers, including Bradys, who won the project and asked BBM to revise its quote for 15.01. BBM was prepared to do this (charging 79 cents) because it had developed some other special products, for which it was able to charge a higher price.
(14) Crown Casino Project (December 1994 to July 1995)
In December 1994, BBM quoted the builder of this very large project (Grocon), with which BBM had a good relationship. BBM tendered at higher than market prices “as it had made a conscious decision to raise prices generally”. In March 1995, BBM submitted a revised quote for 15.01 at 80 cents. This was still significantly higher than the market. The quote was further revised (slightly). In April 1995, BBM was awarded the job.
In June 1995, Grocon informed BBM that for the next stage of the project, it proposed to contract out to blocklayers. In response to Grocon’s request for a recommendation, BBM mentioned three firms, but recommended Bradys, assuming that since Bradys had a good relationship with BBM, Bradys would buy from BBM at the price agreed by Grocon. However, when Bradys was selected by Grocon, it informed BBM that, because Pioneer had offered a lower price (71 cents), Bradys would have to deal with Pioneer unless BBM reduced its price. BBM approached Grocon, which indicated that Grocon preferred not to deal with Pioneer, and that if BBM would match Pioneer’s prices, BBM would get the job. BBM agreed to match Pioneer, and also to pay confidential rebates to Grocon (4 per cent of all products supplied) and to Bradys ($1,000 per month). As a result, Pioneer’s order was cancelled.
(15) BBM’s Deer Park upgrade (1995)
In late 1994, BBM’s management noted that Boral Masonry was the only national masonry operator and that this gave BBM an advantage in the eyes of major customers, who preferred to deal with national operators; but that because C & M had lower costs of production in the case of concrete bricks and pavers, BBM had sustained some short term losses in seeking to meet stiff competition, although the Boral Group as a whole was prepared to accept lower positive returns on CMP because masonry was an important consumer of quarry tiles and cement. BBM decided to meet the competitive threat by C & M through “cost rationalisation”, that is, by shutting the inefficient Sunshine plant and, instead, duplicating the Deer Park facility at a cost of $3.2 million, which included the acquisition of a second Besser machine.
BBM’s strategic business plan for the period 1994 – 2000 stated:
“Because we have reached the limit of productive capacity we have had to reduce the level of discounting which we had been using to build market share and weaken the opposition. Our projections are that the market will downturn slightly in 1995/96 and 1996/97 and then recover strongly.
To take advantage of the downturn which will put pricing and volume pressure on the market prior to the recovery is the rationale for additional production capacity.
When the market turns down our volume … will enable us to supply pressure to our competition.
Feed back from the market indicates that C&M and Budget are awed at the prospect of Boral doubling its capacity.”
(16) Beacon Cove Project (April 1995 – May 1996)
For the first stage of this large residential development, in April 1995 BBM quoted the developer for 10.01 (there was no 15.01) at 72 cents. C & M quoted 4 cents lower. The developer then declined BBM’s offer to match C & M.
BBM quoted for the second stage in May 1996, and succeeded (against Pioneer) because the architect had specified BBM’s product “Quickbrick”.
(17) BHP Global Leadership Building (May 1995)
BBM quoted successfully against Pioneer for 15.301 fire-rated block at 71 cents. Pioneer’s “Shannon Stone” was specified. BBM’s counterpart was “Boral Heritage Stone”, a split face sandstone block. BBM worked with the successful tendering blocklayer, and the builder, to produce special shaped products.
(18) Rockman’s Regency Project (June 1995)
In June 1995, BBM gave several blocklayers tendering for this project indicative quotes of 78 cents for 10.31 and 80 cents for 15.83. In August 1995, one of the blocklayers invited BBM to requote, since it appeared that Pioneer had quoted 69.2 cents for 10.31. BBM then requoted at 68 cents for 10.31, at 66 cents for 15.83, and at 71 cents for 15.01. Next, BBM was informed that Pioneer had further reduced its prices and the blocklayer asked BBM whether it wished to consider its position. BBM responded by offering the blocklayer a 41 per cent rebate, being the margin indicated by the blocklayer as required in order to secure the job. BBM’s offer was accepted. The net price for 15.01 after allowing for the rebate was 42 cents. The project’s key product, 10.31, was rebated to 40 cents.
(19)Monash Sports Centre Project (June 1995)
BBM quoted to several builders which tendered for this project at prices similar to those originally quoted for Crown Casino, and in accordance with BBM’s objective of raising prices, 15.01 was priced at 84 cents.
(20)Women’s Prison Project (July 1995)
BBM was keen to secure this project as the site was near Deer Park. BBM quoted 15.01 at 88 cents to several builders. BBM was informed that Pioneer’s prices were considerably less. BBM then agreed to match Pioneer, resulting in an average price of 71 cents.
(21)Rocla’s withdrawal from CMP manufacture (August 1995)
In 1994 Rocla made an assessment of the CMP market, concluding that there was substantial over-capacity in the market. On its assessment, any one of the three major manufacturers – Pioneer, BBM or Rocla – could, with their plant operating three shifts seven days a week, have supplied the market’s demand.In Rocla’s view, production over-capacity had led to lower prices. At the end of 1994, Rocla decided to concentrate on its product strengths – faced bricks for domestic housing and coloured paving products. However, in the first six months of 1995, housing demand declined substantially and Rocla decided to close down its Victorian operations.
(22)Laverton Men’s Prison Project (September 1995 to September 1996)
In September 1995, BBM submitted to the builder a quote of 88 cents for 15.01. About a year later, BBM quoted several blocklayers, some at 92 cents for 15.01, others at $1.00, depending on the relationship with BBM. In September 1996, Bradys informed BBM (a) that Pioneer was quoting for 10.01 at five to ten cents less than BBM, notwithstanding Pioneer’s higher transport costs; and (b) that C & M were quoting slightly lower than BBM for some products (70 cents compared with 72 cents for 10.01) and higher in others (94 cents compared with 92 cents for 15.01). Yet BBM secured the job because of its good relationship with Bradys and because BBM continued to allow Bradys a rebate of $1,000 per month. Accordingly, the net price paid by Bradys was slightly lower than the invoice price.
(23)Kraft Leitchville Project (October 1995)
BBM quoted to several builders for this project. The site was near Albury. The only price offered was 88 cents for 15.83. Pioneer secured the job.
(24)Smorgons Laverton Project (October 1995)
For this project, near Deer Park, BBM quoted a blocklayer 72 cents for 15.01. The blocklayer informed BBM that its price was higher than Pioneer’s (at 66 cents). BBM requoted at about 66 cents and was awarded the contract.
(25)Swanston Dock Project (November 1995)
BBM tendered for this large paving job, which was secured by C & M who quoted 90 cents per square metre less.
(26)Park Central St Kilda Road Project (December 1995)
BBM quoted blocklayers and builders here for its “Quickbrick” CMP, which was similar in appearance to two bricks stacked on top of each other. Although Pioneer’s price was lower, it could not supply an equivalent of “Quickbrick”. BBM secured the contract.
(27)Deer Park Shopping Centre Project (December 1995)
After BBM had tendered here, a blocklayer (Mulgrave) asked it whether it would match Pioneer’s considerably lower prices. BBM refused (on the ground that this was inconsistent with BBM’s objective of maintaining higher prices). This caused tension between BBM and Mulgrave, and Mulgrave stopped buying BBM’s products for some months.
(28)“Negotiations” between C & M and BBM and Pioneer (December 1995)
In December 1995 C & M raised with BBM and (separately) with Pioneer, the possibility of a sale of the Campbellfield plant. However, nothing eventuated.
(29)Flagstaff Gardens Project (February 1996)
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

BBM contended that in the case (as this was) of a multi-product firm, a price/cost analysis should be carried out on a “whole of business” basis. According to the opinion evidence of BBM’s expert, Professor George Hay –
“To support an inference of predatory pricing, [one] would look at the product range as a whole to see if revenues persistently failed to cover avoidable costs.”
However, whilst his Honour accepted that the profits or losses on a “whole of business” basis cannot be ignored, the learned Judge thought it conceivable that, within an overall profitable period, there might be “such deep discounting” of a particular product that, if the other ingredients of s 46 existed, a contravention of its provisions might be established.
(h) BBM’s pricing – the details
(1) The relationship between sales revenue and variable cost
In the thirty months in question, sales revenue exceeded variable costs of manufacture and supply for all products in all except eight months (that is May, July, August, September and December 1994, January and November 1995, and October 1996) in a total amount of $1.3 million. In the four financial years 1993 – 1997, the excess was: 1993 – 1994: $732,220; 1994 – 1995: $124,413; 1995 – 1996: $373,086 and 1996 – 1997: $770,420.
In the case of total sales of 15.01 block, from a high in April 1994 of $25,000 for both revenue and costs, there was a fall to $8,000 for both in June 1994, followed by a sharp rise to August 1994 when costs ($30,000) exceeded revenue ($25,000). This was followed by a more gradual fall-off until February 1995, with costs consistently above revenue, although the gap was narrowing. From a low of $10,000 for both costs and revenue, the two items rose together to peak at $53,000 for May 1995. These figures declined sharply for December 1995 (costs $18,000; revenue $15,000), with costs in this period consistently above sales. This was followed by a sharp rise in both items (virtually the same – $53,000) for October 1996.
A comparative analysis of revenue and cost per unit of 15.01 block indicated that for April 1994, both were 80 cents; then prices fell to 75 cents in May 1994, with costs remaining at 80 cents, while prices recovered so as to equal cost for July 1994. Next, costs rose to 86 cents, remaining there until July 1996, when there was an increase of 2 cents. Between August 1994 and May 1996, with the exception of June 1995 (when they coincided), price was always below cost – in October 1994 by as much as 18 cents. From April 1996, price mostly exceeded cost.
An analysis of total BBM sales and costs showed in April 1994 revenue of $480,000 and costs of $440,000. Sales were up at $760,000 for November 1994, down at $460,000 for February 1995, rising to $850,000 for December 1995, then falling sharply before rising to $800,000 for October 1996. For about three-quarters of the period, total sales equalled or exceeded total costs.
A comparison of BBM and Pioneer unit prices for 15.01 block showed that, for almost all of the relevant period, BBM was below Pioneer by between 10 and 20 cents. However, between April and July 1994 Pioneer won contracts for Western Metro TAFE, Dandenong Shopping Centre and Car Park and Melbourne Exhibition Centre projects, with prices well below BBM’s average monthly unit selling price. With the Flagstaff Gardens Project in February 1996, Pioneer was below BBM’s average, but to a lesser extent.
When the spread of invoice prices of BBM and Pioneer was considered, more often than not, the lowest BBM invoice was below the lowest Pioneer invoice; nonetheless, they were fairly close together. Yet, consistently with Pioneer having a greater number of smaller customers (from whom it could seek higher prices), Pioneer invoices had, generally speaking, a wider spread from lowest to highest.
A comparison of prices for 15.01 block of BBM, Pioneer and C & M with BBM’s cost per unit showed that Pioneer and C & M prices were substantially above BBM’s costs (except that there were brief dips in January 1995 and between October 1995 and January 1996 in the case of Pioneer; and between August and November 1995, December 1995 to March 1996 and in May 1996 in the case of C & M). BBM’s price was below its cost per unit in March/April 1994 and between June 1994 and March 1996.
(2) Major projects
BBM attached importance to winning major projects (of which at any one time in 1995 – 1996 there were six or seven in Melbourne) so as to keep production volumes up and recover fixed costs, and to achieve market share.
(3) BBM’s pricing policy
His Honour found that in strict terms of measuring price against avoidable cost, for important parts of BBM’s product range, cost exceeded price for a significant part of the relevant period; and inferred that management knew this, although there was no ground for concluding that they believed or suspected that BBM’s pricing might contravene s 46 of the Act.
THE FINDINGS AND REASONING AT FIRST INSTANCE – THE ULTIMATE ISSUES
(a) The relevant market – market definition
His Honour noted that the provisions of s 4E of the Act spoke of “a market for those goods … that are substitutable for, or otherwise competitive with, … goods …”, and that in the well-known passage in Re Queensland Co-operative Milling Association Ltd (1976) 25 FLR 169 at 190, the Trade Practices Tribunal described a market as “the field of actual and potential transactions between buyers and sellers amongst whom there can be strong substitution, at least in the long run, if given a sufficient price incentive…. It is the possibilities of such substitution which set the limits upon a firm’s ability to ‘give less and charge more’…”. Referring to evidence of the use of various “alternative” products such as tilt-up and clay bricks, his Honour said (at par 122):
“The evidence mentioned was but a sample of a large body from both the Commission’s and the respondents’ witnesses, which was all the one way. This is not a case where the Court has to prognosticate or hypothesise as to the likely behaviour of suppliers or consumers. There was abundant evidence of actual substitution, rising and falling as factors such as price, labour costs, aesthetics and building fashions waxed and waned. This is hardly surprising given the basic facts that the substitutable products were readily available in Melbourne and physically performed the same function.”
The primary Judge referred to the evidence of Mr Vella that there was a “wider” market, which included tilt-up, clay brick and plasterboard and Autoclaved Aerated Concrete (“AAC”) block, but also an “inner” or “direct” market, in which BBM competed, of CMP. But his Honour said (par 126):
“… there was substantial evidence of the monitoring by BBM (and other masonry manufacturers) of competing products and the formulation of strategies to take sales away from such products and to prevent losing sales to them. For example, Pioneer’s October 1993 price list was, according to Mr Griffin, fundamentally designed to win back sales from tilt-up. Concrete masonry manufacturers lobbied builders and architects to specify masonry products, on occasions even after a contract was awarded.”
His Honour said (at par 127) that concrete blocks, bricks and pavers “were not distinct products generating distinct demands”. He went on to say (at par 130):
“A wall is a wall, whether it is made of concrete blocks or tilt-up or concrete bricks or clay bricks. The only need of the builder is to have a wall which will perform as a wall, and for the lowest possible cost. There is no suggestion in the evidence of any builders who had a particular attachment to or need for concrete blocks or bricks so as to generate the kind of product loyalty considered in Arnotts and United Brands.”
The trial Judge concluded (at par 131) that –
“… there was a market in which builders (either directly or through sub-contractors such as blocklayers) acquired materials for use in the construction of walls and paving. Within that market there was not only the ever present threat (or promise) of potential substitution but actual substitution over the time with which this case is concerned.”
His Honour added (at par 132):
“The matter can be tested simply. Could manufacturers of concrete masonry block have significantly increased prices without any fear that there would be, in the words of QCMA, “much of a reaction” from tilt-up? Plainly not.”
(b)BBM did not have substantial market power
His Honour held (at par 155) that low barriers to entry, and the existence of strong competitors, in particular Pioneer, and later C & M, meant that BBM did not have power to behave independently of competition and of competitive forces, either in the broader market found by his Honour, or even in the narrower market contended for by the ACCC.
(c)Even if BBM had a substantial degree of market power, it did not take advantage of it
The Judge held (at pars 157 – 158) that there must be a causal connection between the market power and the impugned conduct; that is, the conduct must be made possible only by the absence of competitive conditions; and, if the conduct has a business rationale, this is a factor pointing against taking advantage of market power. Selling below avoidable cost, even for a prolonged period, can be a rational business decision; and such conduct is not of necessity consistent only with taking advantage of market power for a predatory pricing purpose (par 175). What BBM did was to make legitimate business decisions, consistent with it being in a very competitive market, and consistent with it not having any degree of market power or taking advantage of such power (par 180).
With respect to BBM’s offer to buy C & M’s Hess machine, his Honour referred to s 46(5) of the Act and said (at par 186) that, in itself, acquiring plant cannot contravene s 46. (By s 46(5) it is provided that a corporation shall not be taken to contravene by reason only that it acquires plant or equipment.) The trial Judge went on to say that there were valid reasons for BBM entering into negotiations. He said (at par 186):
“Its Sunshine plant was to be closed and that capacity needed replacing. The C&M Hess machine would be an alternative to upgrading the old and inefficient Deer Park plant. Also the possibility of its major competitor Pioneer acquiring the Hess plant was something BBM would wish to avoid, irrespective of its degree of market power.”
With respect to the upgrade of Deer Park, the Judge held (at par 187) that it was “understandable …, especially in the light of the closure of Sunshine. The upgrade would enable the production of more value added products and reduce overall costs of production. The availability of the [second] Moss Vale plant was a fortuitous opportunity.” He added (at par 188):
“In part the Deer Park upgrade was a signal of BBM’s commitment to be a long term manufacturer of concrete masonry in Melbourne. This is not inconsistent with BBM being a participant in a competitive market. But at bottom BBM’s motive in upgrading Deer Park was to achieve efficiency, just as efficiency drove C&M’s decision to enter the market with the Hess machine.”
(d) BBM did, however, act with one of s 46’s proscribed purposes
Although not strictly necessary (his findings as to the relevant market and degrees of market power being determinative), his Honour held (at par 190) that there was evidence, of which examples were given, which established that BBM did act “with one or more of the purposes proscribed by s 46(1)”.
THE ACCC’S GROUNDS OF APPEAL
By its grounds of appeal, the ACCC contends that the primary Judge should have construed s 46 as a whole and applied its elements in an integrated manner; and that the trial Judge should have applied s 46 as a whole to the facts and found, in particular, that BBM had consciously priced important parts of its product range below their avoidable costs of production for a significant part of the period from about April 1994 to about October 1996 (“the relevant period”); and that BBM had so acted for a purpose or purposes proscribed by s 46 of the Act.
THE ACCC’S CHALLENGE TO HIS HONOUR’S IDENTIFICATION OF THE RELEVANT MARKET
The ACCC contends, inter alia, that –
·the trial Judge should not have approached the question of market definition without giving sufficient consideration to market behaviour and the use of market power.
·the trial Judge should not have held, as was contrary to the weight of the evidence, that C & M had prospered during the relevant period.
·the trial Judge should not have found that the relevant product market was the market in which builders (either directly or through sub-contractors such as blocklayers) acquired materials for use in the construction of walls and paving (“the wall and paving materials market”).
·the trial Judge should have held that a limited degree of demand-side substitutability between products within and without a market for the supply of CMP was consistent with, and did not derogate from the existence of, a product market confined to CMP.
·in finding that the relevant product market was the wall and paving materials market, the trial Judge did not give sufficient weight to the evidence (a) of the existence of a market for the supply of CMP that ought properly to be inferred from the conduct of, and views expressed by, BBM and the firms which they regarded as their competitors; (b) of BBM’s own expressed views and understanding of a market for the supply of CMP in Melbourne; (c) of the close supply-side substitutability of CMP; and (d) that products other than CMP were not, either functionally or otherwise, close substitutes for CMP.
·his Honour should, accordingly, have held that the relevant product market for the purposes of this proceeding was the market for the supply of CMP.
In support of this branch of its appeal, the ACCC contends that the issue of market definition should be approached in its entire industrial setting; and that the weight of the evidence demonstrated that the following inferences should be drawn from the uncontested primary facts (many of which have already been noted):
(1)By 1993, BBM had considered that there were too many competitors in the Melbourne market for CMP. Further, BBM had become aware late in 1992 that C & M proposed to install a highly efficient, state of the art plant in Campbellfield with a view to producing CMP for the Melbourne metropolitan market. BBM believed, during 1993, that this new plant would effectively render BBM’s old plant obsolete and uncompetitive.
(2)Between April 1994 and October 1996, BBM sold a number of its important lines of CMP at prices which it knew were substantially below its avoidable cost of producing those products. During this period BBM planned for, and constructed, plant which provided a significant increase in its productive capacity of CMP in Melbourne. Moreover, it used this additional capacity to greatly increase output despite the fact that every additional unit of production cost BBM money (that is, it was sold at a price below the avoidable cost of production).
(3)BBM undertook this conduct for two principal purposes: (a) to reduce the number of CMP manufacturers in the Melbourne market by driving one or more of them, including C & M if possible, out of business; and (b) to discourage entry by other firms into the Melbourne market or into other markets in which BBM competed in the manufacture and supply of CMP.
(4)BBM believed that, if it achieved these purposes, prices would rise and it would then achieve profits which would otherwise be unobtainable.
This conduct, the ACCC submits, took place in the following industry and market context or setting, revealed by the uncontested evidence (much of which had previously been found by his Honour and noted earlier in these reasons) to the following effect:
(i)The Victorian building industry was in recession in the early 1990s. The recession continued until about 1994, although improved conditions for builders were not apparent until about 1996 – 1997. As building activity declined, so did the level of demand for CMP, because demand for CMP is linked closely to the general building industry cycle. The CMP industry was characterised by substantial excess capacity which was exacerbated by the poor demand in the early 1990s. After a period of very poor performance, during which BBM’s share of sales of CMP in Melbourne fell to 12 per cent in early 1992, BBM decided that it should aim for a market share of at least 30 per cent.
(ii)The major players in the Melbourne CMP market during the relevant period were BBM, Pioneer, Rocla, C & M and Budget. There were a number of other minor players.
(iii)BBM was part of the Boral Masonry Division. This division was part of a national, vertically integrated, building products group. It purchased all its raw materials, including sand, cement and aggregate, from related companies. BBM manufactured a full range of CMP, including blocks, bricks and pavers. Blocks and bricks constituted some 55 per cent of BBM’s CMP turnover. Until 1996 BBM operated from two plants, one in Deer Park operating a Besser block making machine and one in Sunshine operating Krupp machines utilising the Calsil process. The Deer Park plant was upgraded in three stages, commencing in late 1994 and concluding in 1996. These upgrades substantially increased BBM’s production capacity and on their completion the Sunshine plant was closed.
(iv)Pioneer operated in the Melbourne market through Besser Masonry, a trading division of Besser Pioneer Pty Ltd, a subsidiary of Pioneer International Ltd. Pioneer manufactured CMP of all types and operated two Besser three-block machines (capable of manufacturing bricks, pavers and blocks) at its plant located in Wellington Road, Clayton. Pioneer had similar corporate characteristics to BBM, being vertically integrated and acquiring most of its significant raw material inputs from subsidiaries of the Pioneer International group. It was at all material times BBM’s largest competitor. Pioneer pursued a corporate strategy of trying to maintain higher prices in the market and earning profits so far as possible.
(v)Rocla Pavers and Masonry, a division of Amatek Limited which, until August 1995, manufactured and sold CMP in Victoria under the trading name “Rocla Eureka”, operated Besser block machines at plants in Geelong (which closed in mid 1993) and Dandenong and a Rosacometta paving plant at Dandenong. Rocla obtained some of its raw materials from within the BTR–Amatek group, but others were obtained from outside the group, including some from BBM and Pioneer. Rocla focused its activities particularly on the brick and paving market. By August 1993, Rocla was considering whether it should abandon the CMP market in Victoria due to the depressed economic conditions, and doubts about whether its business could be profitable in Victoria. In December 1993 Rocla withdrew from the manufacture and supply of concrete masonry blocks. Rocla’s parent company gave an ultimatum that, unless the business could be made profitable, it would be closed down. In August 1995, Rocla decided that its CMP business was no longer viable because of the low prices prevailing in Melbourne, and it was then closed down.
(vi)C & M operated as a Bendigo CMP supplier until its decision to enter the Melbourne metropolitan market in 1992. C & M constructed a large, modern and highly efficient plant at Campbellfield during 1993 and commenced full production in February 1994. The greater efficiency of C & M’s Hess plant enabled it to quote prices which were below those offered by other CMP manufacturers, but which were profitable for C & M. C & M concentrated its production on bricks and pavers, because the prevailing price levels in relation to blocks prevented it from producing blocks economically. Because of low prevailing prices, C & M made losses in its first years of operating the Campbellfield plant. The business was not making profits. Between January 1994 and June 1997, C & M’s net profit amounted to some $89,000. In these circumstances, C & M required further finance. C & M had borrowed from the ANZ Bank, and its overdraft had increased beyond its acceptable limit. Accordingly, its shareholders lent some $2.9 million to C & M, which was at this time dependent upon extended credit terms from its suppliers. Finally, C & M sought additional equity funding from Oupan Resources, which purchased a 10 per cent holding in C & M with an option for a further 40 per cent for $700,000 in 1995. These funds were necessary to allow C & M to continue trading. But for an accounting treatment recording depreciation at 1 per cent, C & M’s profit and loss account for 1994/1995 would have shown a loss.
(vii)Budget commenced production in 1987, and ceased in June 1996. It was owned and managed by Mr Coghill, and operated a single Columbia block machine. Between 1993 and 1996, Budget operated at a reduced output, and was unable to secure sufficient orders to keep the plant running even at one shift per day five days per week. Budget needed to operate this plant for at least one shift a day to remain viable. Mr Coghill observed dramatic price cutting in the Melbourne CMP market immediately before C & M commenced production in late 1993. Mr Coghill formed the view that BBM and Pioneer were prepared to decrease their prices below those of any new competitor in order to protect their market shares. Budget incurred trading losses continuously between 1991 and 1996. By 1996 its capital reserves had been exhausted, and it was decided to close the business.

The trial judge found, on evidence which he described as “all the one way”, that concrete masonry products compete with and are substitutable for other walling products. His Honour said:
“A wall is a wall whether it is made of concrete blocks or tilt-up or concrete bricks or clay bricks. The only need of the builder is to have a wall which will perform as a wall, and for the lowest possible cost.”
In a market where walling products include masonry blocks and bricks, clay bricks, tilt-up panels, precast concrete, plasterboard, timber, glass, aluminium, steel products, and fibro-cement sheeting, BBM could not have significant market power. But was the trial judge correct in his determination of the product market? Or did the evidence in fact establish the existence of a narrower market, such as the one for which the Commission contended, namely a market for concrete masonry products?
A simple approach in this case would have been to follow what was said by the Supreme Court of the United States in United States v E I du Pont de Nemours & Co 351 US 377 (1956). The government alleged that du Pont had monopolised interstate commerce in cellophane in violation of § 2 of the Sherman Act. It was necessary to define the market which it was alleged du Pont dominated. Either it was a market for cellophane or a market for flexible packaging materials. The judgment of the Court was delivered by Reed J. In discussing the relevant principles his Honour said (at 393):
“Determination of the competitive market for commodities depends on how different from one another are the offered commodities in character or use, how far buyers will go to substitute one commodity for another. For example, one can think of building materials as in commodity competition but one could hardly say that brick competed with steel or wood or cement or stone in the meaning of Sherman Act litigation; the products are too different.”
It is apparent that the Supreme Court would have had little difficulty in rejecting the views of the trial judge. It appeared self-evident to that court that diverse building products, such as are under consideration here, could not possibly be in the same market. As I will show, the evidence adduced at trial leads inevitably to the same conclusion, even upon a traditional rather than an instinctive analysis.
The specification of what products are to be used in the construction of a building occurs at the stage when plans for the building are drawn. The choice of products is usually made by the architect (not the builder to whom the trial judge was directing attention in the passage quoted), sometimes in conjunction with an engineer or other consultant such as a quantity surveyor. Cost is but one factor, albeit an important factor, that is taken into account in choosing the appropriate product. Structural requirements, aesthetic considerations, site requirements, performance characteristics and the like are also important factors. Very often there will be little choice in the selection of the appropriate material. The choice will be dictated by the requirements of a particular project. One of BBM’s witnesses, Mr Mould, an experienced architect, said that in only approximately 10 per cent of projects will there be a choice of building materials, which are of similar cost implications and performance characteristics, for use in a particular application.
When it comes to selecting the product which is to be used for a wall the following features, among others, are taken into account: whether the wall is interior or exterior; the wall load bearing; the risk of fire and safety requirements; sound transmission requirements; whether windows or doors are required in the wall; building code requirements concerning matters such as impact, hygiene and security.
Each walling product has its own characteristics that make it more or less capable of satisfying a particular requirement. For example a timber or plaster wall does not have the fire rating of a concrete block. Tilt-up walls are porous and transmit sound more readily than clay brick or concrete brick. Pre-cast concrete has certain technical limitations. All in all, one thing that comes across quite clearly from the evidence is that a wall is not just a wall.
When the design of a building is completed the specification will include details of all the building material to be used in the design. When the building material is a generic product, for example, a concrete block or a clay brick, the specification will mention the generic type. It is at the point when tenders are called that one finds intense competition to supply the selected material. When the selected material is concrete block, the masonry manufacturers will compete for the job, almost always on the basis of price. When some other building material is specified there may be some attempt to alter the choice, but this will meet limited success for it is usually too late in the day to make a change.
To be sure, manufacturers of concrete masonry products do make some attempt to influence the decision of the architect when choosing the product that is to be specified. BBM described the evidence as establishing “vigorous” competition with the manufacturers of other walling products. This is not a realistic characterisation of the evidence. In the fifty or so lever arch folders of evidence, comprising thousands of pages, there are but a few scattered sentences that attest to some effort in this regard. No doubt it was not worthwhile to press too hard.
The evidence upon which the trial judge based his conclusion that any one walling product is substitutable for another took into account, in a significant way, the dramatic extent to which tilt-up panels and pre-cast concrete had taken business from concrete masonry manufacturers in the 1980s and early 1990s, the use of stud walls in preference to masonry concrete products for internal use in high rise buildings and the fact that concrete masonry bricks have been taking sales from clay bricks since mid-1994.
It is true that the evidence established that, for a number of years before the recession, concrete bricks (if they were to be rendered or bagged) were interchangeable with clay bricks in residential constructions, concrete blocks were interchangeable with tilt-up panels and pre-cast concrete for external walls in commercial and high-rise apartments, and concrete blocks were interchangeable with plasterboard for internal walls, when other factors permitted the substitute product to be used. But the evidence also shows that once tilt-up panels and pre-cast concrete in particular, being products which for practical purposes were new products in the 1980s, had acquired a degree of acceptance, they did not thereafter compete to any significant extent with the products they had originally displaced.
A number of witnesses, Mr Steele, the managing director of Shannon Tower Pty Ltd, a company that carried on the business of reselling and distributing clay and masonry products (trading as ‘Brick N Pave’), Mr Whiteford, the general manager of Rocla, and Mr Pearson, the executive director of the Concrete Masonry Association of Australia, all said that the explanation for he reduced sales of concrete blocks during the 1980s and early 1990s was the increased use of tilt-up and precast concrete in commercial construction. Mr Steele said that tilt-up had reduced the block market by 65 to 75 per cent. This he attributed to be a direct result of the sharp increase in labour costs for laying blocks.
But there is very little evidence of any significant substitution between alternative building materials in the 1990s, especially during the period of the price war. This is the most revealing feature of the evidence as regards the determination of the product market. There was a substantial reduction in the price of concrete blocks and a similar, although not as sustained, drop in the price of concrete bricks over an extended period. The two largest suppliers, BBM and Pioneer, were suffering heavy losses as a consequence. Professor Hay said that products will be close substitutes when “any attempt to charge more and give less with respect to one of the products would result in a significant loss in sales to the other product.” Professor Hay highlights the obvious point that substitution between products that in fact compete with one another will take place when the seller of one product either raises or lowers his prices. If there is ‘cross-elasticity of demand’ (the favoured expression of the economist) the raising of prices will result in lost sales and the lowering of prices will gain sales. When this occurs the products are usually in the same market.
If the trial judge was correct, one would expect to find a substantial movement away from pre-cast and tilt-up concrete slabs, clay bricks and any other material used to make walls, and a corresponding increase in the sale of concrete masonry products during the price war. Moreover, this is one of those seemingly rare cases where there is no need to speculate on what would occur. Economic theory can be proved by actual market behaviour. Indeed, I cannot stress too highly my view that the court should consider actual patterns of market behaviour, as these are more likely to produce a better market analysis than hypothetical markets and even historical evidence. For example, past sales patterns may have occurred for reasons that are idiosyncratic and may not be repeated.
What do the facts show? Certainly not enough to sustain the finding of the trial judge. As regards tilt-up panels and pre-cast concrete, a number of witnesses, Mr Rawnsley, Mr Pethica, an estimator and contracts administrator, Mr Byrne, the manager of a bricklaying company, and Mr Coghill of Budget, all said that as the cost of concrete blocks fell, tilt-up panels and pre-cast concrete was used in preference. To what degree, in what quantity, and in which situations we are not told. Mr Vella of BBM said that the low prices offered by C & M for its render bricks caused a dramatic increase in demand for that product. The evidence was that C & M won over business from competing concrete brick manufacturers (for example BBM and Pioneer) as well as from clay brick manufacturers. Other suppliers, including BBM on the occasions when it matched the price for concrete bricks, also took away business from the manufacturers of clay brick. The extent to which this occurred is not explained, although many witnesses would have been in a position to explain. Importantly also, is the fact that Mr Vella, one of BBM’s key witnesses, spoke only of “competition” in render bricks and not in other products.
This scant evidence certainly does not support a finding that there was sufficient substitution of walling products to conclude that they share the same market. Indeed I am of the firm opinion that the evidence, especially the absence of evidence of substitution during the price war, established the opposite position. If confirmation of this conclusion be necessary I note that if products are in the same market one would expect to find that over a period of time the price movement of each product would correlate. When price movements do not correlate the chance of the products being in the same market is not great: G J Stigler and R A Sherwin “The Extent of the Market” 28 Journal of Law and Economics 555 (1985). Here the evidence does not show that the price of the building materials which the trial judge considered to be in the same market followed the same movement from 1992 through to the end of the price war. The evidence, such as it is, suggests the opposite. An example is the evidence of Mr Mould that I mentioned earlier. Thus, there was a market for the sale of concrete masonry products, in my opinion. The geographic dimensions of that market (Melbourne) were not in dispute on this appeal.
Having established the dimensions of the relevant product market it is necessary next to consider whether BBM had a substantial degree of power in that market. Monopoly power and market power must be kept distinct. Section 46 does not require monopoly power to be shown, but of course if it exists it will, of necessity, suffice. All that need be established is that BBM had considerable and not a minimal degree of market power: Dowling v Dalgety Australia Limited (1992) 34 FCR 109 at 138-139; see also Explanatory Memorandum for the Trade Practices Revision Bill 1986, para 42 (“substitution … [does] not … require the high degree of market power connoted by … being in a position substantially to control a market”).
Whether a firm has market power is not a matter of measurement, but of judgment. But what is it that must be judged? Various definitions have been put forward, usually in the context of considering the power of a monopolist. L Sullivan in Antitrust (1977) at p 30 defines market power as:
“the power of a firm to affect the price which will prevail on the market in which the firm trades.”
W M Landes & R A Posner in “Market Power in Antitrust Cases” 94 Harvard Law Review 937 (1981) at 937 define market power as:
“the ability of a firm (or a group of firms, acting jointly) to raise price above the competitive level without losing so many sales so rapidly that the price increase is unprofitable and must be rescinded.”
P E Areeda, J L Solow & H Hovenkamp in Antitrust Law (1995) vol IIA p 85 define market power as:
“the ability to raise prices by restricting output…[or the ability] to raise price without a total loss of sales.”
In these and most other definitions, the reference to “price” is misleading. It is not intended to be confined to the actual price of goods or services. It includes the ability of a firm to supply inferior goods or services, and the ability to impose unfavourable terms and conditions.
According to Landes & Posner a simple meaning of market power is the ability to set price above marginal cost, that is the minimum cost, including an appropriate rate of return, that an efficient firm would have to incur to produce the product in question. In a competitive market, price will equal marginal cost. If a firm can raise price above marginal cost without losing business it has market power: Queensland Wire at 188. Presumably, when a firm can raise its price above marginal cost by more than a trivial amount, the firm will have substantial market power. The greater the discretion to raise price above marginal cost, the closer the power will approximate that of a monopolist.
To decide whether there is an ability to increase price, it is necessary to consider the extent to which the ability of the firm is constrained by its competitors, potential competitors, suppliers and customers. Both economic theory and s 46(3) require that consideration be given to these issues. It is for these reasons that reference to matters such as the firm’s market share, the size of its profits and barriers to entry (as to which see later) have been the common ways of establishing the existence of market power. No doubt these factors must also be taken into account when determining the degree of market power that is held. In its decision in Re Continental Can Co Inc [1972] CMLR D11, the European Court of Justice said (at D27):
“Undertakings are in a dominant position when they have the power to behave independently, which puts them in a position to act without taking into account their competitors, purchasers or suppliers. That is the position when, because of their share of the market, or of their share of the market combined with the availability of technical knowledge, raw materials or capital, they have the power to determine prices or to control production or distribution for a significant part of the product in question. This power does not necessarily have to derive from an absolute domination permitting the undertakings which hold it to eliminate all will on the part of their economic partners, but it is enough that they be strong enough as a whole to ensure that those undertakings and overall independence of behaviour, even if there are differences in intensity in their influence on the different partial markets.
However, even if a firm is not in an immediate position to set its price above marginal cost, it may still have market power. Market power can exist when a firm has power to exclude competition. This was recognised by the Supreme Court of the United States in du Pont. Reed J, delivering the opinion of the court, said (at 389):
“This court has pointed out that monopoly at common law was a grant by the sovereign to any person for the sole making or handling of anything so that others were restrained or hindered in their lawful trade… However, as in England, it came to be recognized here that acts bringing the evils of authorized monopoly -–unduly diminishing competition and enhancing prices – were undesirable and were declared illegal by § 2. Our cases determine that a party has monopoly power if it has, over ‘any part of the trade or commerce among the several States’, a power of controlling prices or unreasonably restricting competition.” (Authorities omitted)
Later (at 391) Reed J said:
“Monopoly power is the power to control prices or exclude competition.”
Thus, according to the Supreme Court, a firm will have monopoly power if either test (the ability to control prices or the ability to restrict competition) is satisfied. Some economists have criticised this formulation. In an article entitled “Market Power in Antitrust” 60 Antitrust Law Journal 807 (1992), Professor Hay argues that for the economist the power to control prices depends on the absence of competition. Hence, the “power to exclude competition” permits “the power to control prices”. He says that the two statements are the same phenomenon.
Be that as it may, courts in the United States do not agree and have continued to adopt and apply the two tests as separate tests. See, eg, United States v Grinnell Corp 384 US 563, 571 (1965); TV Signal Company of Aberdeen v AmericanTelephone and Telegraph Company 462 F2d 1256, 1261 (8th Cir 1972); Jack Winter, Inc v Koratron Company, Inc 375 FSupp 1, 68-69 (1974); Bhan v NME Hospitals, Inc 669 FSupp 998, 1019 (1987); Betaseed, Inc v U & I Incorporated 681 F2d 1203, 1231 (9th Cir 1982); US Anchor Manufacturing, Inc v Rule Industries,Inc 7 F3d 986, 994 (1986); American Key Corporation v Cole National Corporation 762 F 2d 1569, 1581 (11th Cir 1985).
In their article ‘Market Power in Antitrust Cases’, Landes and Posner comment on the definition of market power in du Pont (94 Harvard Law Review at 977):
“The first part of this definition [power to control prices] seems equivalent to the economic definition of market power …. The second [power to exclude competition] is puzzling. The Court may just have been making the corollary point that any firm that has and exercises the power to raise price above the competitive level must be able to exclude entrants; otherwise it would not be able to maintain the higher-than-competitive price …. Finally, the Court may have had in mind the exclusion of equally or more efficient competitors through predatory pricing or other exclusionary practices – a dimension of the monopoly problem to which our analysis does not speak directly.”
Although not the subject of analysis by Landes and Posner, the second test was considered in some detail by T Krattenmaker, R Lande and S Salop in, “Monopoly Power and Market Power in Antitrust Law” 76 Georgetown Law Journal 241 (1987). The authors argue that the core concept underlying the notion of market power is a firm’s ability to increase profits and to harm consumers by charging prices above competitive levels. They point out that this can be achieved directly by restricting output: the classic formulation of market power. On the other hand, the authors explain that the same result may be achieved indirectly by raising a rival’s costs, thereby causing it to restrict its output. This, the authors say, is at the bottom of the claimed harm to competition by excluding competitors. On this analysis, the second test formulated by the Supreme Court in du Pont is not so easily dismissed.

More importantly for present purposes, the fact that market power can be exercised by means other than the power to raise price by restricting output was accepted by Dawson J in Queensland Wire. There his Honour said (at 200):
“But market power has aspects other than influence upon the market price. It may be manifested by practices directed at excluding competition such as exclusive dealing, tying arrangements, predatory pricing or refusal to deal. The ability to engage persistently in these practices may be as indicative of market power as the ability to influence prices. Thus Kaysen and Turner define market power as follows: ‘A firm possesses market power when it can behave persistently in a manner different from the behaviour that a competitive market would enforce on a firm facing otherwise similar cost and demand conditions. (Kaysen and Turner, Antitrust Policy (1959) p.75).’… Market power is thus the advantage which flows monopoly or near monopoly…”
(Of course, for the purpose of s 46, in its current form, it is not necessary to show the power of a monopolist or near monopolist.)
Generally, an analysis of abuse of market power involves a two-stage process: first, it is necessary to determine whether a firm has market power, second it is necessary to examine whether that power has been abused. However, when the existence of market power is defined by reference to a firm’s ability to exclude competition, the two step investigation is not appropriate. The evaluation of market power and the abuse of that power is part of one analysis. The existence of market power based on this approach cannot be examined independent of the alleged exclusionary conduct. It is the exclusionary conduct that establishes market power, not the reverse.
I mentioned earlier that any consideration of market power must necessarily take into account barriers to entry. Scherer & Ross have referred to entry barriers as the sine qua non of monopoly: FM Scherer and D Ross, Industrial Market Structure and Economic Performance at p 18. Barriers to entry are perhaps the single most important determinant of a firm’s ability to exercise market power, although the extent to which it faces competition from existing rivals is obviously important.
It may be accepted that if there are absolutely no barriers to entry, that is where entry is free (not disadvantageous) and exit is costless (no sunk costs) there can be no effective market power. In such a market, a perfectly contestable market as it is usually referred to, an incumbent enjoys no advantages because cost and demand conditions are symmetrical between all firms, actual and potential, and sunk costs are presumed to be zero. Of course, there is no perfectly contestable market to be found outside the economists’ model. Every real market has real barriers.
The issue of what constitutes a barrier to entry has given rise to a body of literature. Indeed, it is difficult to find a definition that commands wide acceptance. Here it will be sufficient to refer to the more popular meanings. The main definitions are in terms of cost symmetries or in terms of the ability of the incumbent firm or firms to earn supra competitive profits in the long run without attracting entry.
One of the most important definitions is that proposed by J S Bain in his seminal work Barriers to New Competition (1956). Bain described barriers to entry (at p 3) as:
“…the advantages of established sellers in an industry over potential entrant sellers, these advantages being reflected in the extent to which established sellers can persistently raise their prices above a competitive level without attracting new firms to enter the industry.”
Thus, a barrier to entry exists if an entrant cannot achieve the same profit as the incumbent. Bain also argued that a barrier is fundamentally a structural characteristic of a market. He would not accept, for example, that an incumbent’s behaviour was a relevant influence on a potential entrant. Nor would Bain regard as a barrier transitory market conditions such as trade cycles and so forth.
According to Bain, barriers would exist if the incumbent had absolute cost advantages such as would flow from legal restrictions (patents and the like), access to limited raw materials, technology and other scarce factors relating to production, and the capital cost of establishing a new firm. Bain also includes as a barrier the advantage flowing from the preference for the incumbent’s goods which an entrant could only avoid by lowering prices or engaging in expensive advertising. Probably the most common structural barrier is that which arises from economies of scale. These he characterised as real economies of scale (those existing in relation to production and distribution), pecuniary economies of scale (giving the firm greater bargaining power), and real or strictly pecuniary economies of large-scale advertising and sales promotion.
G J Stigler in The Organisation of Industry (1968) at p 67 proposed an alternative definition which is often referred to in industrial organisation literature. According to Stigler a barrier to entry is:
“…a cost of producing (at some or every rate of output) which must be borne by a firm which seeks to enter an industry but is not borne by firms already in the industry.”
By this definition any cost advantage of an incumbent over a potential entrant is a barrier to entry. Thus, inadequate demand resulting from an economic cycle would be as much a barrier as would economies of scale.
C C von Weizsäcker widened Stigler’s definition to incorporate an explicit consideration of economic welfare. In his article entitled “A Welfare Analysis of Barriers to Entry” 11 Bell Journal of Economics 399 at 400 (1980), von Weizsäcker defined a barrier to entry as:
“a cost of producing (at some or every rate of output) which must be borne by firms which seek to enter an industry but is not borne by firms already in the industry and which implies a distortion in the use of economic resources from the social point of view.”
More recently, economists have turned from economic models to dynamic market behaviour to determine what is a barrier to entry. P Geroski and J Schwalbach (eds) Entry and Market Contestability: An International Comparison (1991) give this definition:
“Barriers to entry are obstacles which inhibit the ability of firms outside a market to enter and compete with established insiders.”
This definition has significant advantages over some of the earlier ones. It follows the recent trend of economists to broaden barriers beyond those that are structural, to incorporate the strategic behaviour of incumbent firms. In particular, it is now accepted by many economists that the behaviour of incumbent firms to exclude rivals by a variety of restrictive or uncompetitive practices is as much a barrier to entry as any structural condition that may exist in a market: see, eg, P Geroski, R J Gilbert & A Jacquemin Barriers to Entry and Strategic Competition (1990) p 15ff; A van Witteloostuijn Barriers to Entry and Dynamic Economies – A Survey and Critique (1986). This approach recognises the realities of a market. It also involves the rejection of the Chicago School economists’ view that these practices should not be the concern of antitrust law because they are motivated by considerations of efficiency.
Incumbents are often willing to take action that will result in short-term reductions in profit to prevent the establishment of a new entrant. Some economists refer to these deterrent activities as “strategic” barriers to entry, “purposely enacted to redress the possibility of entry” as opposed to “innocent” entry barriers “unintentionally erected as a side effect of innocent profit maximisation”: S Salop, “Strategic Entry Deterrence” 69 American Economic Review 335 (1979).
Two types of exclusionary behaviour are presently relevant. The first is the predatory pricing that was carried out in a sustained fashion between 1993 and 1996. It is of no surprise that an incumbent firm with large financial resources might seek to drive out a financially constrained rival by engaging in price cutting for a sustained period. A rival will exit before the price war has become too prolonged: D Harbord and T Hoehn “Barriers to Entry and Exit in European Competition Policy” 14 International Review of Law and Economics 411, 420 (1994). Further, a prospective entrant may stay out of the market altogether. As Harbord and Hoehn point out, and as common experience shows, the presumption that predation is not a rational strategy has been shown to be false. They also explain that one reason for predatory behaviour is the incumbent’s wish to achieve a reputation for predation in order to deter future prospective entrants. See also D L White “Shaping Antitrust Enforcement: Greater Emphasis on Barriers to Entry” Brigham Young Law Review 823, 845-846 (1989), where the author discusses “limit pricing” as a barrier to entry. ‘Limit pricing’ is the charging of a price low enough to discourage entry but sufficient to provide an economic profit. Moreover, an incumbent can erect a larger barrier to entry if the nature of the group of which the incumbent is a member allows substantial temporary losses. For example, diversified or vertically integrated firms, because of their ability to cross-subsidise, can engage in sustained predatory pricing thereby raising very real barriers to entry.
What I have said so far about predatory pricing being a barrier to entry is not a universally accepted proposition. For example, it does not accord with the views of Professor Hay, whose opinion on this issue was accepted by the trial judge. Professor Hay said:
“In the course of this case, the concept of a barrier to entry has been distorted beyond recognition. If only for the benefit of future generations of would-be economists, one point must be made emphatically – low prices are not a barrier to entry. A barrier to entry is a factor that would deter a new firm from entering the market, even though the incumbent firm (or firms) is charging monopoly prices and earning monopoly profits. It is therefore a contradiction in terms to talk about low prices as a barrier.”
There are a number of comments that can be made about this testimony. The first is that it seems to confine an entry barrier to one that occurs only when the incumbent is earning monopoly profits. This is unnecessarily restrictive and wrong in my view. Second, it echoes the views of economists who believe that barriers to entry are structural and not dynamic. This is no longer a mainstream opinion. Finally, and I mean no disrespect to Professor Hay when I say this, it confuses the ideal market with the real market. The fact is that there are firms that engage in predatory behaviour to be rid of competition, whether or not it is a rational strategy from an economist’s stand point. When it is necessary to assess market power it is inevitable that entry barriers resulting from predatory behaviour must be considered. Indeed, I rather suspect that Professor Hay begrudgingly recognises this. In “Predatory Pricing” 58 Antitrust Law Journal 913 (1990), Professor Hay wrote (at 918-919):
“Another potential problem with entry barriers as a filter is that, according to some commentators, the very active predatory pricing can create disincentives for subsequent entry. By way of example, suppose we observed that the private garbage-hauling business in most parts of New York City was effectively monopolized, one company having all the business on the Lower East Side, another company, the Upper East Side, and so forth. If we looked only for the traditional structural barriers to explain the absence of entry, eg, capital market barriers, brand loyalty, or high sunk costs, we might be inclined to characterize the market as contestable. Cynics, on the other hand, might observe that the barrier to entry is that if you tried to enter that business you would end up in the East River with cement overshoes. I don’t want to overdo the point, but simply to point out that, according to some economists, a major barrier to entry in certain markets will be the reputation of the monopolist as one who will stop at nothing to get rid of its rivals.”
For my part, I would accept the views of those economists who consider the dynamics of a market to determine its barriers, in preference to opinion of Professor Hay, in the passage quoted from his evidence. If Professor Hay’s thesis be accepted, it will render less effective in the face of damage to a market not only s 46, but also those other provisions in Part IV of the Trade PracticesAct a breach of which depends upon the establishment of market power.
The second aspect of exclusionary behaviour is the upgrade of the plant at Deer Park to increase BBM’s production capacity. Excess capacity should also be regarded as a barrier to entry. van Witteloostuijn notes (at p 7) that:
“An incumbent firm with excess capacity disseminates the threat of increasing output after the appearance of an entrant and hence the threat of reducing prices. Reduced post-entry prices imply less profitable entry.”
Hence, he says that excess capacity is a barrier to entry. I agree. More importantly, even if the threat to make use of excess capacity is not usually sufficient to deter entry, it most certainly will during a price war. This is what BBM understood only too well. As I have pointed out, when BBM decided to increase its capacity at Deer Park, it publicised that fact to exert “psychological pressure” on its rivals. What was that “psychological pressure”? BBM intended to signal to its rivals that it was willing to continue to wage the price war for some time and that it would bear whatever losses may result. The case for a strategically-erected barrier to entry could not be more clear.
There is another aspect of strategic barriers to entry that should be mentioned. The creation or strengthening of barriers to entry can, in appropriate circumstances, be seen as a misuse of market power. Melway Publishing Pty Ltd v Robert HicksPty Ltd (1999) 90 FCR 128 is an example of such a case. There the incumbent had a near monopoly in the supply of street directories in the relevant market. It refused to supply a former customer to keep it out of the market. That refusal was held to be in breach of s 46. Plainly enough, the refusal to supply was a barrier to entry. The case is not much different from one where the incumbent has control of a scarce resource. At the same time as raising an entry barrier, the refusal to supply was an abuse of market power because its purpose was to impede competition in the street directory market.
In my opinion, BBM has substantial power in the concrete masonry product market and it misused that power for a relevant purpose when it engaged in a predatory pricing scheme. A similar allegation against Boral Limited, BBM’s parent company, was abandoned during the appeal. Accordingly, the appeal should be allowed in part, the orders made below in favour of BBM should be set aside, and a declaration should be made to the effect that BBM has contravened s 46. The matter should be remitted to the trial judge to determine the precise form of that declaration, whether any injunction should be ordered and what penalties

ought to be imposed. The Commission should have its costs of the appeal and of the hearing below.

I certify that the preceding one hundred and thirteen (113) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Finkelstein.

Associate:
Dated: 27 February 2001

Counsel for the Appellant:

Mr N Young QC and

Mr D Shavin QC with

Mr M Crennan

Solicitor for the Appellant:

Australian Government Solicitor

Counsel for the Respondents:

Mr A Archibald QC and

Mr C Maxwell QC with

Mr I Stewart

Solicitor for the Respondents:

Blake Dawson Waldron

Dates of Hearing:

7, 8, 9 and 10 February 2000

Date of Judgment:

27 February 2001

IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY	V 625 OF 1999

BETWEEN:	AUSTRALIAN COMPETITION AND CONSUMER COMMISSION APPELLANT
AND:	BORAL LIMITED FIRST RESPONDENT BORAL BESSER MASONRY LTD SECOND RESPONDENT
JUDGES:	BEAUMONT, MERKEL & FINKELSTEIN JJ
DATE OF ORDER:	27 FEBRUARY 2001
WHERE MADE:	MELBOURNE

JUDGES:	BEAUMONT, MERKEL & FINKELSTEIN JJ
DATE:	27 FEBRUARY 2001
PLACE:	MELBOURNE

Counsel for the Appellant:	Mr N Young QC and
Mr D Shavin QC with
Mr M Crennan
Solicitor for the Appellant:	Australian Government Solicitor
Counsel for the Respondents:	Mr A Archibald QC and
Mr C Maxwell QC with
Mr I Stewart
Solicitor for the Respondents:	Blake Dawson Waldron
Dates of Hearing:	7, 8, 9 and 10 February 2000
Date of Judgment:	27 February 2001