Boral Besser Masonry Ltd (now Boral Masonry Ltd) v Australian Competition and Consumer Commission
[2002] HCATrans 187
IN THE HIGH COURT OF AUSTRALIA
Office of the Registry
Melbourne No M1 of 2002
B e t w e e n -
BORAL BESSER MASONRY LIMITED
(now BORAL MASONRY LTD)Appellant
and
AUSTRALIAN COMPETITION AND CONSUMER COMMISSION
Respondent
GLEESON CJ
GAUDRON J
McHUGH J
GUMMOW J
KIRBY J
HAYNE J
CALLINAN J
TRANSCRIPT OF PROCEEDINGS
AT CANBERRA ON TUESDAY, 21 MAY 2002, AT 10.17 AM
Copyright in the High Court of Australia
MR A.C. ARCHIBALD, QC: May it please the Court, I appear with my learned friends, MR C.M. MAXWELL, QC and MR I.B. STEWART, for the appellant. (instructed by Blake Dawson Waldron)
MR N.J. YOUNG, QC: May it please the Court, I appear with my learned friends, MR D. SHAVIN, QC, MR M.J. CRENNAN, SC and MS P.M. TATE, for the respondent. (instructed by Australian Government Solicitor)
GLEESON CJ: Mr Archibald and Mr Young, I asked the Registrar to notify the parties that I have some shares in the parent company of the appellant. I do not regard that as disqualifying myself, but I wanted to give the parties an opportunity to make any submissions.
CALLINAN J: And I am in the same position; I think the Registrar also informed the parties in respect of my own holding.
McHUGH J: I am in the same position and I also held shares in Pioneer at the relevant time and I also held shares in BTR Nylex, which was the principal company, Rocla.
MR ARCHIBALD: For our part, we think no difficulty attends what members of the Court have observed.
MR ARCHIBALD: If the Court pleases, the products which the participants in this industry manufactured were essentially grouped into three: block products, brick products and paving and retaining wall products. They are depicted, if it would assist the Court at all, in a Pioneer price list which is in volume 3 at page 527 and following. The block products are at page 529. These are Pioneer products but because all the products are really generic they are as good a depiction of our product as of the Pioneer products.
The evidence speaks frequently of the 10.01 block and that is the first item in the left‑hand column at 529. The Court sees its features. There is also reference regularly to the 15.01 block and that is depicted at page 530, in the left‑hand column about halfway down.
CALLINAN J: That is the Holden of the industry, is that right?
MR ARCHIBALD: Yes.
GLEESON CJ: One of your arguments is that these belong to the same market of straw.
MR ARCHIBALD: Well, our case does not involve, in our submission, seeking to make bricks out of that product. Concrete bricks appear in the central column at 531 and following in various formats, and paving products and their ilk appear at 527 in various configurations.
Those were the products marketed by the participants. The industry during the period of concern – 1993 to 1996 – have these features, as we would submit the evidence showed. The Victorian economy was in recession and the industry commensurately was in recession. Demand for the products was considerably reduced, partly because of the recession and partly because of the incursions by competing products. There was substantial excess capacity. Products were essentially undifferentiated, as we observed when drawing the court’s attention to the depiction of them. For major projects in block, which was perhaps the archetypal product, a tender system existed in the course of which potential suppliers were bargained down and losses were made essentially by all participants save perhaps the new entrant C&M.
GLEESON CJ: Was this market limited geographically to Victoria?
MR ARCHIBALD: Yes.
GLEESON CJ: How come?
MR ARCHIBALD: Essentially, metropolitan Victoria.
GLEESON CJ: How come?
MR ARCHIBALD: Because of the transport costs of ferrying material from one State to another; those costs being relatively high, compared to the price attending the products themselves.
GLEESON CJ: And the major production facilities were in the capital cities, were they?
MR ARCHIBALD: Yes. There was a contention for a Victorian or a State market, and there was evidence that there were some regional or provincial producers. C&M itself had a Bendigo plant and had originally operated in that area of regional Victoria, and there were some small producers in Gippsland, but essentially the market that was found, and the concentrated demand, and the concentration of supply, was in the metropolitan area.
KIRBY J: That was common ground, was it?
MR ARCHIBALD: Ultimately, it is not in contest, for the purposes of this appeal.
KIRBY J: Victoria is, I think, the most decentralised State of Australia, Victoria or Queensland. It seems a surprising notion, but you accept it, anyway, for the purpose of this appeal.
MR ARCHIBALD: Yes, we do. Now, in that context, the trial judge found – we submit, correctly – and indeed, no other conclusion was open. We submit that the finding that the market was highly competitive was established with abundant clarity by the evidence. We wished at the outset to take the Court as briefly as we may to samples of that evidence, illustrating the circumstances which existed in the market.
KIRBY J: Could I just ask, in view of the respondent’s submissions, they say that you have, in a sense, bypassed the fact finding of the Full Court. We are here sitting on appeal from the Full Court, and you have to establish error on the part of the Full Court. Is the evidence you are taking us to in order to demonstrate the error of fact finding of the Full Court, or are you trying to turn this into yet a third finding of facts, by this Court? Because you have to show error.
MR ARCHIBALD: We seek to show error in the Full Court in its fact finding. Indeed, our submission is rather more fundamental than that. Our submission is that the Full Court really sought to ignore the detail of that material but otherwise effectively accepted and did not itself seek to controvert the conclusion that the market was highly competitive. The Full Court did that through its endeavour to find that market power resided in features other than the ability to raise prices above competitive levels; there not being such an ability in the appellant because of the highly competitive market. So, in a sense, the material that we wanted briefly take the Court to is illustrative of material which yields the conclusion which was not really sought to be controverted by the Full Court itself.
The material that we would refer to is taken from the index of evidence which is being supplied to the Court pursuant to directions given. The course that we have taken to avoid a chase through the multiple volumes of the appeal book is to have the content of the evidence referred to in the index set out in a folder of that material which we can now provide to the Court, so we will not need to take the Court to material for immediate purposes other than this single folder. In fact I think that is being provided to the members of the Court now.
What we wished to do was really just to take the an example perhaps of each of the categories of evidence, some of the categories of evidence that were before the court. So we would take a blocklayer, being a customer for block, a customer for brick and a competitor. In that folder I think we have included at the front of the folder effectively a dramatis personae, a list of the various witnesses before the court, so that if the Court saw names of persons who had given evidence that material would enable the Court readily to appreciate who they were and what their positions were.
Underneath that material should be a further copy of our index to evidence and then underneath the index should be the material itself, designated by item numbers, being the embodiment of the evidence that is in the index.
What we wished to do first was to go to the evidence of a blocklayer and a good example of a blocklayer was Mr Pethica of Brady’s, who were a prominent blocklayer, gaining much of the work that was available during this period of recession. We take the Court first to the material of Mr Pethica’s evidence at item 83, which is at page 68 of the material that has been provided to the Court. There the Court sees in paragraph 35 that Mr Pethica is dealing with the position in the first half of 1993, the first part of the period which was under consideration. He says that:
In the first half of 1993, Boral Besser Masonry was initially reluctant to respond to the competitive pricing of other suppliers in the market.
Mr Pethica is a witness called by the Commission. This is his evidence in‑chief led by the Commission. He continues:
I can recall that in or about April 1993, in relation to two building projects at Royal Melbourne Hospital and Cabrini Hospital, Boral Besser Masonry clearly said that they weren’t interest interested in reducing their prices any further to win the supply contract. However late in 1993 Brady commenced purchasing from Boral ‑ ‑ ‑
McHUGH J: Mr Archibald, I thought from recollection that in relation to the Royal Melbourne Hospital product that Boral matched Rocla’s prices for that ‑ ‑ ‑
MR ARCHIBALD: Yes, I think this is an earlier part of the Royal Melbourne Hospital project. At item 71 at page 61 Mr Pethica deals with projects generally. He says:
Throughout the early 1990s, the prices of concrete masonry products progressively decreased. They dramatically reduced in or about 1993. At this time, there was a reduced demand for commercial building work.
He then identifies the four producers. To the best of his recollection:
pricing gradually increased between 1993 and 1995 by an average of 15% in total. However in the second half of 1995 . . . prices dropped to the level they had been in 1993/1994. In some instances, particular products were even lower in price. I believe that this was directly related to the prices quoted by Besser Pioneer and subsequently Boral Besser Masonry in relation to the Casino contract. This was a contract of significant volume in which both suppliers agreed to supply at very competitive prices.
He said that sort of “price tends to set a new benchmark” ‑ ‑ ‑
KIRBY J: Mr Archibald, forgive me for interrupting again. I do not wish to be difficult, but looking at this as a matter of principle, from the point of view of this Court sitting in relation to error in the Full Court I just would like to have some help at the stages of the evidence as to what finding of fact of the Full Court you are now attacking. The respondent accepts all the findings of fact of the Full Court and I am just hesitant from long experience in factual appeals of becoming a fact‑finding tribunal for myself. I think we will spend a lot of time if we become a trial court of the facts here. They are very substantial and very complex but I think it will help me, at least, to know what finding of fact of the Full Court you are now attacking.
MR ARCHIBALD: This material is not designed to attack findings of fact of the Full Court. The Full Court did not controvert the conclusion that the market was a competitive market in which Boral lacked the ability to raise its prices above the competitive level. This material goes to establish the depth and intensity of that circumstance attending Boral’s position in the market, generally.
KIRBY J: So do you take this to be common ground, if this was not contravened by the Full Court, or ‑ ‑ ‑
MR ARCHIBALD: Yes, we do, but it is this low pricing that is treated by the Full Court as predatory pricing and the burden of our dealing with this evidence is to seek to show that the Full Court has assumed without consideration of the material that the pricing is properly to be characterised as predatory, which is to say elective low pricing because of the existence of market power. Whereas, we say this material shows that the low pricing was the product of market forces to which Boral was subject and subjugated and that the low pricing was yielded by the circumstances of the industry and the market in which it operated and does not bespeak pricing which is properly to be characterised as predatory.
The Full Court did not, in our submission, examine this evidence to enable it to appreciate that the low pricing was the consequence of market forces and not choice, or elective pricing, by Boral within that market.
GAUDRON J: Mr Archibald, now that you are interrupted, might I just observe that I am not entirely clear what purpose is served by characterising it as predatory behaviour. I know that is how the case has been run. It seems to me the question is, did you have substantial market power; did you use it for a particular purpose? To give it an adjective is neither here nor there, it seems to me.
MR ARCHIBALD: We would agree with that observation, your Honour. The adjective “predatory” is a pejorative word and it bespeaks, in its proper usage, an invocation of market power by the party said to be engaged in the predatory pricing. We submit that the Full Court begged the question as to whether the low prices were predatory prices. It simply used the label on the predicate or the assumption that these low prices were elective prices in which Boral chose to engage, irrespective of market forces, and that is why we say the Full ‑ ‑ ‑
GUMMOW J: That is your case, really. That is the nub of your case.
MR ARCHIBALD: Yes. That is why we say the Full Court was in error in ascribing this label to the pricing assuming that it both constituted the power and was the product or exercise of the power without addressing at all the material which showed that these prices were simply the product of ordinary competitive forces in a market in which every supplier was struggling to survive.
McHUGH J: That is why I asked about the Royal Melbourne project because initially, if I recollect correctly, Boral tendered at 85 cents a unit for that. After a discussion with Brady they cut it back to 76 cents and then, having been told that Rocla’s price was 71 cents, they said they would match Rocla.
MR ARCHIBALD: Yes. We were told we were coming last. It was a big project. Everybody was keen to have volume in their production. We were taken down by the competitive process with a blocklayer exercising its capabilities in what was essentially a buyers’ market.
KIRBY J: And as I understand it your case is that that is exactly how a competitive market is expected to operate. Matching ‑ being dragged down reluctantly, in a sense, as distinct from jumping in in order to grab a market that you want to have by reducing your prices, in effect, to destroy any opposition.
MR ARCHIBALD: Yes, it is the very essence of a competitive market in which there is a boon to consumers and no detriment to competition.
KIRBY J: Could I ask you ‑ we have been supplied – or at least I have been supplied with an article by Professor Edwards. I hope both parties have received a copy of this article. It is an article about to be published in the Australian Business Law Review.
MR ARCHIBALD: Yes. We have had access to that and because it was not published we thought we should provide it to our friends and we have.
KIRBY J: He says in the end that the discrimen that activates section 46 is an intention; that you have to look at what the purpose was and that, I took it, is what the Full Court has done and approached it in such a fashion.
MR ARCHIBALD: The Full Court has really treated purpose as dominating the analysis.
KIRBY J: Yes. As I understand Professor Edwards, he says that is the right way to approach section 46.
MR ARCHIBALD: Certainly the existence of the proscribed purpose is a necessary ingredient of a contravention of section 46, but it is not in itself sufficient; each of the other elements of the section must be established and made out. One of the errors of the Full Court, in our contention, was to treat the purpose ingredient effectively as both necessary and sufficient. So that without more, once one had the purpose, one could conclude there was a taking advantage and because there was a taking of advantage one should conclude there was power and therefore purpose was really decisive of all of the ingredients of a contravention of section 46 and, in our submission, that that is to err.
One does need to identify separately both the existence of power and the taking advantage of it and separately the existence of a proscribed purpose. The existence of the purpose does not bespeak or establish either the taking advantage or the power as the decision of this Court in Melway exemplifies. There there was the purpose, there there was the power, but there was not the taking advantage. Here, while we have an argument about purpose, we say, even if there was purpose, there was neither the taking advantage nor the power.
I perhaps need not labour or tarry too long with the evidence of Mr Pethica. The other items that we would mention are items 85 and 86 which do deal with some of the major tenders. There was also his evidence in volume 20 at page 4208 at line 9, that he regarded Boral as a price follower, not a price leader. Mr Bowen of Henley Builders was a customer for bricks. There is an extract at item 125 at page 104 of his evidence, the burden of which is that he, for his part, employed the same technique in negotiating with concrete brick producers that Mr Pethica utilised for the purposes of negotiating with block producers, namely to play one another off to get the best price that could be secured. Again Mr Bowen called by the Commission and his evidence at 125 being his evidence in‑chief.
Then, as a sample of the evidence from other suppliers in the industry, we would seek to mention to the Court some aspects of the evidence of Mr Steele of Rocla. His evidence in item 95 at page 74 shows at paragraph 102 that it was obvious to him:
that the other major producers were prepared to suffer losses to maintain their share of the available business in concrete blocks. This was partly due to the culture of the industry in which suppliers were unable to accept that a large proportion of the demand for blocks had gone. On the contrary, they expected the demand to recover to former levels, or even better, thereby enabling them to recoup the losses they had sustained and, possibly, increase their profits. It was therefore important to retain their customers and as great a share of the business as possible.
McHUGH J: Was Rocla an inefficient producer relative to the other manufacturers?
MR ARCHIBALD: No. The evidence suggested that C&M with its Hess machine was efficient, but the others – the other major producers were pretty much on a par. Rocla had treated its forte, however, as brick and pavers, and it was not as strongly in block as were Pioneer and Boral. But Rocla did make a big effort to try to secure block work, with its tender at the Eastland project, where, as your Honour Justice McHugh observed, it came in at the best offer in the tender process at first. At paragraph 104, Mr Steele said that:
The final impetus for Rocla’s exit from the block sector in Victoria was the Ringwood/Eastland Shopping centre extension project in August 1994. 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 –
to avoid it incurring further losses.
McHUGH J: Is that date right, in paragraph 104, August 1994, Or should it be ‑ ‑ ‑?
MR ARCHIBALD: Yes, the material is a little inconsistent in that regard. There is talk of Rocla being out at the end of 1993, and then there is talk of them being out at the end of 1994. I think the better view of the evidence probably is that they had not formally exited, but they were not getting any work in block, and their final decision to leave block altogether occurred some time in 1994.
KIRBY J: You accept that block is the market? So it is block, in metropolitan Melbourne. Is that ‑ ‑ ‑
MR ARCHIBALD: By no means, the totality of the market. Block was very important to Boral, but brick was a major part of the market, as well. But brick – because of the ways in which brick was largely used, it did not attract the same major project usage and therefore was not as centrally involved in the tender process.
KIRBY J: We are not talking about building materials generally, because, at least on one view, you could conceive that the market competes with various forms of building material.
MR ARCHIBALD: Yes, well, our submission is that the market is the walling and paving market.
KIRBY J: I did not hear the last words.
MR ARCHIBALD: And paving.
McHUGH J: When you talk about the walling, you include tilt-ups in that, do you?
MR ARCHIBALD: Yes, we do.
CALLINAN J: Tilt-ups, brick, and plasterboard ‑ ‑ ‑
MR ARCHIBALD: Plasterboard.
CALLINAN J: ‑ ‑ ‑ and aluminium studs.
MR ARCHIBALD: Yes.
CALLINAN J: So it is certainly not just concrete block.
MR ARCHIBALD: No. In the brick area of the market, the concrete brick was especially used for rendering purposes, fashionable in the mid‑1990s, and a direct competitor of concrete brick was the clay common. Call it a second, if you like. They were head‑on competitors, and C&M’s entry to the market was really predicated upon C&M estimating that it could take away from the clay common much of the demand that then existed for clay commons for render work.
CALLINAN J: Well, Justice Heerey found in your favour with respect to the market. He found that it included all of those commodities, and further, that even if – he even found in your favour – he looked at the alternative that there might be a market just in, or the market might just be, concrete blocks, and he would have reached the same conclusion. Is that not right?
MR ARCHIBALD: Yes.
KIRBY J: The Full Court took the narrower view, that it was concrete masonry products.
MR ARCHIBALD: Yes.
KIRBY J: How does one – anyway, at some stage, you will have to tell us how one draws the line, because as this Court pointed out in Queensland Wire, depending on where you draw the line, it becomes easier or harder to dominate that particular market.
MR ARCHIBALD: Well, indeed.
KIRBY J: I mean, on one view, you could say the market is all building materials.
MR ARCHIBALD: It is common ground, as we would understand, that if the market is the walling and paving market, then Boral had no substantial degree of market power in it. If the market was the narrower market found by the Full Court, then we say that narrower market was, on the evidence and on the trial judge’s findings, highly competitive and we lacked market power in that narrower market.
GAUDRON J: Is the identification of the market any more than a pure question of fact?
GUMMOW J: On which you succeeded.
CALLINAN J: Exactly.
MR ARCHIBALD: On which we succeeded.
KIRBY J: Well, you succeeded at trial but in the Full Court a different finding of fact was made, as I understand it – correct me if I am wrong – and you have to show error in the finding of fact of the Full Court. I mean we have gone beyond the day when Full Courts cannot make findings of fact. That is part of their function. Trial judges make mistakes in fact and those mistakes can often be very serious.
MR ARCHIBALD: The error of the Full Court in relation to market was substantially constituted by its misconception of the principles as to what constitute markets. When we come to that area of our submissions, one major element of it is that the Full Court was concentrating upon and focusing upon what was in truth, on principle, a sub-market. It mistook the sub‑market for the market and, accordingly, was looking only at the area of particularly intense rivalry between producers, whereas a proper application of principle to the facts in relation to market would have had it address the broader area of rivalry in which there was interchangeability and price elasticity.
KIRBY J: So at least the argument on the other side would be, in the structured organisation of corporations today they can pick out a section and seek to dominate it and to use predatory pricing and thereby contravene the Act and that that is what the Act is designed to prevent, either on a whole market basis or on a sub-market basis.
MR ARCHIBALD: Yes, but particularly difficult where the products are generic, essentially undifferentiated, and the consumers in the markets are highly price sensitive, without substantial loyalty, product differentiation, any of the other features that might ordinarily enable a supplier to secure advantage within the market.
McHUGH J: No one had a franchise to this market.
MR ARCHIBALD: No, except to lose money, I think, during the period in question. I will not trouble to take the Court through other features of Mr Steele’s evidence but could I mention item numbers in this index so that the Court could refer to that material if it wished. The item numbers are 95, 98, 99, 97, 116 and 117. Without taking the Court to them, from the Boral perspective of the market, we would refer to Mr Cormack’s evidence at item 122 and Mr Rawnsley at item 123 and 126.
What we would wish to take the Court to, however briefly, is the digest of material in relation to the major projects, the digest of which evidence is set out in schedule 7, volume 27 of the appeal book starting at page 5503. That material in the appeal books had evidence references but not appeal book evidence references, and revised forms of that schedule and also of schedule 2 in relation to market material, has been prepared and is provided to the Court. It is identical with the material in the appeal book save that appeal book references have been added. If one follows through – these are all the major projects during the alleged period of predation.
GLEESON CJ: Mr Archibald, did the evidence as to the relevant conduct of your client focus on these major projects?
MR ARCHIBALD: It included evidence about the major projects. It covered – Boral did not have much block work other than in major projects, Pioneer did. Our evidence also addressed in detail, as did the Commission’s evidence, on which we rely, addressed the brick market in particular and some aspects of the paving market.
GLEESON CJ: But the conduct of Boral that contravened the Act, according to the Commission’s case, was its conduct in relation to these major projects, was it?
MR ARCHIBALD: It would have to include that. I think we are accused of predation in the brick market as well, but certainly the central focus in our contention lies in these major projects. Block was our forte, our major product, and during the period in question almost the entirety of the block work was constituted by these major project tenders.
HAYNE J: Did the Commission’s case depart in any significant respect from the fashion in which it was pleaded at page 8 of the appeal book where in paragraph 11 of its statement of claim it identifies the conduct of which complaint is made.
MR ARCHIBALD: No, it does not.
HAYNE J: Thus the complaint so far as pricing is concerned and other complaints are made other than complaints about pricing, is a complaint of offering to supply concrete masonry products generally at levels at or below cost of manufacture and supply.
MR ARCHIBALD: Yes, although the products in respect of which the complaint of predation was made were the products in schedule A to the statement of claim which were not all of our concrete masonry products.
HAYNE J: Yes, I see.
MR ARCHIBALD: They did include various block products and other products, including brick.
HAYNE J: Now, just while at the statement of claim , much of the judgments below focuses on price. In subparagraphs (b) and (c) we see two other kinds of conduct mentioned. Do those kinds of conduct slip out of consideration for us, or do we need to bear them in mind?
MR ARCHIBALD: This Court certainly needs to bear in mind the conduct in 11(c), the increase of production capacity alleged at Deer Park. So far as the conduct in (b) is concerned, the offering to acquire the C&M Hess plant, I think that conduct does not loom in the contentions of the Commission or in the reasons of the Full Court. So it is pricing and upgrade of the Deer Park plant.
Now, in relation to the major projects, the sequence of the three July 1993 projects, Eastlands, St Vincents Hospital and Royal Melbourne Hospital appears clearly from pages 5504 to 5506. The first‑round quotes, Boral coming last, Rocla coming first – this is from the blocklayer’s perspective. For example, at Eastland Boral’s price for 10.01 block was 68 cents and Rocla’s was 61.9, Pioneer’s was 60.7, and C&M was 65.
The first‑round tender prices for St Vincent’s and Royal Melbourne also appear. In late July, early August, Brady, the blocklayer, told Boral that it was running last by a significant amount and that provoked revised quotations on 3 August by Boral. So it brought its price down to 63 cents for Eastland. Still, one would observe, above the initial Rocla quote. The revised quotation on 3 August is in the centre of page 5505.
GLEESON CJ: Where do we find some examples of Boral quoting less than it needed to quote to win the contract?
MR ARCHIBALD: We say there are none. The stance taken by Boral was to match or to beat by as small an amount as possible a rival bid in order to secure the work.
GLEESON CJ: But that seems a fairly central factual issue, does it not? Are you telling us that the evidence showed that the conduct of which the Commission complained in relation to pricing was demonstrated in every case to be setting prices which were no lower than they had to be in order to meet the quotes of competitors?
MR ARCHIBALD: We submit that is the outcome of the evidence but in some cases a rival supplier was told what the other manufacturer’s price was and therefore it knew with exactitude what price it needed to bid to match or to just beat. There were other cases in which the blocklayer did not convey to a bidder exactly what the competing price was and so that one was bidding a little bit in the dark and therefore there maybe cases in which the price that was ultimately bid to get the job turned out to be a price below that in fact bid by a rival potential supplier. But we say the evidence does not disclose a case in which Boral knew, for example, just hypothesising, that Pioneer had bid 50 cents for 10.01 block and we went down to 43 cents for 10.01 block. We say the evidence does not show that at all.
GLEESON CJ: Does it show any case in which the price charged by Boral was less than it needed to charge in order to meet the competition?
MR ARCHIBALD: We say not, approached from the position that I have described, that there were cases in which we did not know with precision what the other price was. Rockman’s Regency Hotel might be an example of that. We were told by Carnevale, the blocklayer, that we had to go down by another 41 per cent to beat Pioneer. Now, we may have been gullible in treating that assertion by Carnevale as a correct assertion, but we did, and Carnevale, in evidence, adhered to the view that if we had not gone down 41 per cent he would have gone with Pioneer.
So, the evidence, in our submission, does disclose that regime in which there was intense, and sometimes bitter, rivalry, particularly between Pioneer and Boral, to get whatever work was around at this time in a depressed industry.
GLEESON CJ: Was there evidence of Boral bidding for any work or any contract that it would not have bid for but for the purpose attributed to it?
MR ARCHIBALD: No, in our submission.
GLEESON CJ: In other words, did it go after contracts that it would not have otherwise gone after?
MR ARCHIBALD: No, in our submission. These were the few major projects around and the major producers were desperately fighting to get some work to keep their machines going.
McHUGH J: Is the case against you that you were prepared to cut prices to obtain contracts even though you made a loss on the particular ‑ ‑ ‑?
MR ARCHIBALD: That is part of the case.
McHUGH J: Yes.
MR ARCHIBALD: And yes, we did. We did make losses on block regularly but the evidence also showed that on a total product basis, having regard to all the products that we made, our revenues more than covered our variable costs. It was worth our while keeping our doors open.
CALLINAN J: Mr Archibald, was that the position if one excluded the profits which were earned by other connected corporations or the like? Is that right?
MR ARCHIBALD: Yes, leaving our of account altogether the upstream advantages, we earned more revenue by keeping our doors open and selling all our products than was referable to our variable costs.
CALLINAN J: Justice Heerey actually made a finding against you in respect of your submission that there should be excluded the profits that had made elsewhere in the corporate chain, he found that against you. Even still, you succeeded.
MR ARCHIBALD: Yes.
CALLINAN J: Do you challenge that finding?
MR ARCHIBALD: No, we do not challenge the finding of his Honour in that regard which was directed to the issue as to whether we did or did not sell below cost. Our argument was in looking at costs you should take into account the upstream advantage. We lost on that and we do not challenge that.
CALLINAN J: Why do you not challenge that? It just strikes me, with respect, as a very rational thing to do, to exclude it, because accounting is now done on a group basis; income tax is paid on a group basis. No company running its business would ignore the fact that it might be making the profit in one subsidiary rather than in another.
MR ARCHIBALD: What his Honour did find in our favour which we do rely upon here is that it made business sense for us to keep our doors open because the purchasers by us of raw materials at market prices did assist other entities within the Boral group and that, I think, is in the area that your Honour Justice Callinan adverts to.
CALLINAN J: It is in the area but at the moment ‑ and perhaps there is a great deal of learning on this that I am aware of ‑ seems to me to be eminently logical to exclude profits that are made within the group in assessing the purpose for which the company, or the group, may be doing something.
MR ARCHIBALD: Well, so far as the reason for engaging in the conduct in which we did was concerned, his Honour did take into account that there were benefits in the group ‑ ‑ ‑
CALLINAN J: He did for that purpose, right.
MR ARCHIBALD: ‑ ‑ ‑ and that is why his Honour concluded, or one of the reasons why his Honour found, that what we were doing was engaging in conduct in which a party lacking market power would likely engage in because of, amongst other things, the advantage to the group as a whole.
GLEESON CJ: I thought the Full Court actually turned this argument against you and, rightly or wrongly, they said an aspect of your market power is your capacity to survive because of the benefit your survival gave to other members of the group.
MR ARCHIBALD: They did, and that is in error, in our submission, because capacity to survive has nothing to do with market power. Market power is to do with the ability to ignore the constraints of disciplines of the market and no greater ability to survive, because of financial resource or support to other elements of the group, enables one to ignore the market, to price without regard to the market. All it does is enable one better to survive the vicissitudes of the market to which you are subject.
KIRBY J: But is that not to ignore the real world in which those marketeering corporations, which are very big, diverse and powerful, can sometimes have the motivation to destroy competitors in little markets and thereby to contravene the purposes of section 46.
MR ARCHIBALD: No, in our submission. Unless there is the enjoyment of market power and the taking advantage of it, section 46 has nothing to say about the topic; indeed, it would be a feature of the encouragement of vigorous and effective competition to afford advantage to consumers.
KIRBY J: Well, in the short term, but in the long run, if you destroy competitors in that sub-market – it depends a bit on how you define the market – in that market you thereby, in the long term, destroy the competition that will keep the prices down. That is the argument, as I understand it.
MR ARCHIBALD: You would and if there were an ability then to utilise your market power to increase your prices above the competitive level, competition would be harmed and you, the party enjoying market power, would be recouping the disadvantage that you were prepared to suffer and did suffer during your period of predation.
GLEESON CJ: This is probably not the appropriate time for you to deal with this point, but section 46 does not talk about damaging competition; it talks about “damaging a competitor”. At some stage before you conclude your argument could you tell us what form of competition does not damage a competitor?
MR ARCHIBALD: Yes, your Honour. Can I say something about that now. Section 46 fastens, in relation to the proscribed purpose, upon damage to a competitor, but damage to a competitor, and, indeed, the desire or intention to damage a competitor, may be either pro-competitive or anti‑competitive. It will be pro-competitive in a highly competitive market in which no participant enjoys a substantial degree of market power, but each participant is endeavouring to gain advantage at the expense of its rival and it will be seeking, in that sense – and many of the passages in the cases, of course, refer to the natural feature of intent to harm a competitor in a competitive market.
What section 46 is concerned with is not the pro‑competitive harm to a competitor that aids the consumer; it is concerned only with the anti‑competitive harm to the competitor. Anti‑competitive harm to the competitor only occurs if the process of competition itself is jeopardised or disadvantaged, and that phenomenon will occur only where the participant in the market that has a substantial degree of power takes advantage of its market power so as to allow an augmentation of its power at the expense of consumers.
Therefore the particular harm to the competitor with which section 46 is concerned is only that harm which flows from the taking advantage of power; that taking advantage, in itself, necessarily augmenting and exaggerating the power which the party abusing that power has otherwise enjoyed.
KIRBY J: Does that not answer – and the Chief Justice’s question – given that we must obey section 46, if it is within constitutional power – rather support Professor Edwards’ view that we are looking for a purpose or object, given that competition is going to harm a competitor? And therefore what we are looking at, in section 46, is the characterisation on a mass of facts – in this case, an enormous mass of facts – of the purpose or object. Is it naughty competition to destroy the market or sub‑market, or is it good competition to advance the interests of consumers?
MR ARCHIBALD: Yes, but that question cannot be answered by looking at purpose alone. If I do not have a substantial degree of market power, section 46 allows me to hurt my competitor. If I have a substantial degree of market power, but I do not take advantage of it, section 46 allows me to hurt my competitor – and to intend to hurt my competitor. Section 46 is only contravened if I both have market power and take advantage of it, and intend to hurt my competitor. That collocation of ingredients necessarily is attended with harm to the competitive process. In other words, harm to the competitor is not the end in itself; it is the means to the end with which section 46 is concerned, and the end with which section 46 is concerned is competition, not competitors.
CALLINAN J: Mr Archibald, it seems to me that a key finding against you in the Full Court was the one that was made by Justice Finkelstein at page 298, in volume 2, paragraph 309, where his Honour relied upon the witness Mr Mould, the architect, in relation to substitution. It seems to me to be a key finding made by the Full Court which is quite contrary to the finding of Justice Heerey. But if one looks at the basis for that, which is at page 626, in volume 4, in Mr Mould’s evidence – in his affidavit – is highly qualified, and none of the qualifications are mentioned by his Honour.
MR ARCHIBALD: No, and the ‑ ‑ ‑
CALLINAN J: Mr Mould, in paragraphs 6 and 7 of his affidavit, I would have thought, makes it absolutely clear that all of the alternative products are in the running, as it were, at the early stage, and it is only at the very later stage that the substitution issue is reduced to a 10 per cent chance or possibility. Is that right?
MR ARCHIBALD: Yes. That is concerned with market definition issues, and there are really, on the evidence, two stages. The first was the stage in which all the rival products were candidates for inclusion or specification in the project ‑ ‑ ‑
CALLINAN J: And it is only at a much later stage that the range of candidature is greatly reduced. His Honour makes absolutely no reference to the earlier – and, I would have thought, the much more important – stage, where cost is being very much evaluated by the architect and the owner.
MR ARCHIBALD: That is certainly a central burden of our submissions, so far as market definitions are concerned.
CALLINAN J: Really, it takes me back to the point that Justice Gaudron raised with you earlier. This is a finding of fact, what the market is. Was the Full Court in error? I mean, it is all very well to talk about the Full Court’s findings of fact, but that is one that can be demonstrated, I would have thought, over which there must be a serious question.
MR ARCHIBALD: Yes.
GAUDRON J: And there is perhaps a more basic question and that is how does the Full Court get to set aside the factual finding made at first instance?
CALLINAN J: That is really the question their Honours ‑ ‑ ‑
MR ARCHIBALD: Where the facts are really non-controversial, your Honours’ finding is well open, in our submission, on a proper understanding of principles as to what constitutes a market.
CALLINAN J: Well not quite non-controversial. I think the one I have just mentioned to you is an area of controversy and at first sight, it seems to me, that the balance very much favours your side, but it is an area of controversy, the degree of substitution and the stage perhaps of substitution.
MR ARCHIBALD: Well, yes, but the error is the product of a member of the Full Court not looking to the totality of the evidence and understanding that feature in its context, that context itself not being controversial.
One can track through these major projects in detail, and I will not seek to take the Court’s time with them, but one sees on a number of occasions instances where Boral declined to match its rivals’ price in order to get the project. So not a case of matching but declining to match ‑ ‑ ‑
KIRBY J: That could be important, on my thinking on this.
MR ARCHIBALD: Yes, well, that is why I mentioned it.
KIRBY J: It does tend to suggest that this is not a big scheme of predation but a case‑by‑case decision on particular contracts for the purpose of the contract?
MR ARCHIBALD: Indeed. So the Western Metro College project at 5508 is an example of that. In the paragraph opposite the marginal description “Late April”:
BBM was contacted by Deca and told that Pioneer had quoted a price . . . Deca asked BBM to match the prices . . . BBM refused to match these prices.
KIRBY J: Could it be suggested that that was because Pioneer was not its target?
MR ARCHIBALD: No, because ‑ ‑ ‑
KIRBY J: Which were the two that fell out? It was Rocla and Budget?
MR ARCHIBALD: And Budget.
KIRBY J: Now, if there was a cosy sort of gentlemen’s never‑mentioned agreement – I am not suggesting there was – then that might not be significant, because the enemy was not Pioneer.
GLEESON CJ: Was there evidence that there were a substantial number of gentleman in this market?
KIRBY J: Well, we went through the gentleman in Melway.
MR ARCHIBALD: There was evidence of ungentlemanly attitudes, and indeed, his Honour refers to this personal hostility between executives, and one of the factors that led, on the evidence, Boral to succumb to Mr Carnevale’s 41 per cent figure on Rockman’s Regency was that Boral understood that if Pioneer did not get that project then their senior executives were going to be sacked.
GLEESON CJ: It may be that we have a lot of things to worry about in this case but one of them is not gentlemen’s agreements.
MR ARCHIBALD: No, there is no sign of conscious parallelism or any other activity of a refined kind.
KIRBY J: Have you a case with Budget or Rocla where there was a refusal to deduce or to make?
MR ARCHIBALD: I think probably not because ‑ ‑ ‑
McHUGH J: Rocla went out very early, did they not?
MR ARCHIBALD: Rocla were out of block from 1993, query 1994, and ‑ ‑ ‑
McHUGH J: Because in those Eastland and Royal Melbourne projects they quoted at marginal cost and when they were undercut at that they said, “The game is not worth the candle and we are out.”
MR ARCHIBALD: “That is enough.” Budget, I think, were essentially out of the bigger projects. They had some quality problems with their product and tended to be pursing other work, including brickwork. Dandenong Shopping Centre car park at 5509 was a case where Boral did not quote to the successful blocklayer. Melbourne Exhibition Centre, Pioneer won over Boral’s quote. Crown Casino is quite a detailed story at 5514. I will not go into that at the moment.
Monash Sports Centre, Pioneer won. Boral was not approached for a revised quote – that is 5518. Rockman’s Regency I have already spoken of. Deer Park Shopping Centre, 5524. Vella was contacted by Carnevale. Carnevale asked Vella if Boral would match Pioneer’s prices for the project. Vella refused to match Pioneer’s prices and Boral lost the tender. Kraft Processing Plant, Boral lost the project to Pioneer. At 5526, Smorgon’s, Boral agreed to match Pioneer’s prices to win the project. Flagstaff Gardens, 5528, Boral asked to match the prices quoted by Pioneer. Vella refused to match. Pioneer won, and so on. The Museum of Victoria also, at 5530, Boral refused to match. The tender was won by C&M, 5530.
That evidence is almost entirely uncontested and the trial judge made findings about each of those projects and not addressed by the members of the Full Court. At least as a matter of analysis Justice Beaumont recited the material but in his analysis did not return to consider those materials.
KIRBY J: It must be the proposition that the Full Court in their fact finding took the view that these were exceptions from a general strategy, otherwise their fact finding cannot stand.
MR ARCHIBALD: Maybe so but they do not seek to characterise it in that way.
HAYNE J: What was the Full Court’s stated basis for embarking on fact findings?
MR ARCHIBALD: The Full Court appeared to accept that the market was highly competitive and that there was no ability in Boral to raise its prices above the competitive level, but embarked upon an analysis which involved a conclusion that market power could exist by reason of strategic barriers – not structural barriers, so‑called strategic barriers which would deter entry by other participants and through these strategic barriers somehow or other market power was achieved and the strategic barriers were constituted by low prices and by increasing the capacity at Deer Park.
McHUGH J: It may be that the case stands and falls on whether that proposition is correct.
MR ARCHIBALD: Yes. But, as to the first limb of that, the low prices, they were simply labelled predatory as though they bespoke the elective pricing by Boral choosing – although it could go higher if it wished –to go low in order to predate, that the very finding of a highly competitive market really negates the availability of that conclusion.
GAUDRON J: But was the Full Court’s gateway into this fact‑finding process, if you like, its discovery of error on the part of Justice Heerey as to the definition of the market?
MR ARCHIBALD: No.
GAUDRON J: No?
MR ARCHIBALD: No.
GLEESON CJ: Was it its discovery of error on the part of Justice Heerey in his theory of recoupment as a necessary ingredient of predation?
MR ARCHIBALD: We think not. The finding of ‑ ‑ ‑
GUMMOW J: That would not help anyway because that is down the track.
MR ARCHIBALD: No.
GUMMOW J: That is part of the problem, there is a sort of conflation gone on I think.
MR ARCHIBALD: It is true.
GUMMOW J: Unexpressed conflation of concepts I think.
MR ARCHIBALD: Well, indeed, because they are all wrapped together and start from the other end, the purpose end.
GUMMOW J: Yes.
KIRBY J: This is the difference between you and the respondent, I think. The respondent says you cannot take words out of context. You cannot look at dividing up and snipping up the section. You have to look at it as a whole and look at it the way it is intended to operate as a whole.
MR ARCHIBALD: Yes.
KIRBY J: And you say the precondition to the application of the statute is the fulfilment of the preconditions that the Parliament has laid down, namely that there is a market, that you have a dominant power in it and that you have done these things for a particular assigned purpose. So that is perhaps a significant statutory construction difference between you and the respondent.
MR ARCHIBALD: We say ultimately you read the section as a whole, but in order to read the section as a whole you must first identify discretely the elements which are addressed by the section.
GLEESON CJ: The problem is emphasised, is it not, when the contravening conduct takes the form of price‑cutting. It might be different with withholding supply but where the alleged contravening conduct is cutting prices which, on the face of it, is the classical form of competitive behaviour in a market, then price‑cutting will inevitably have a purpose of damaging a competitor, will it not?
MR ARCHIBALD: Yes.
GLEESON CJ: At least damaging the competitor by taking business away from the competitor.
MR ARCHIBALD: Yes, indeed.
GLEESON CJ: I, just at the moment, cannot think of a form of price‑cutting that would not have the purpose of harming a competitor.
MR ARCHIBALD: No, it is intrinsic to the competitive process. The approach and analysis of the Full Court does not enable one to distinguish low pricing which is pro‑competitive from low pricing which is anti‑competitive. One of the useful functions of the recoupment notion is that it does enable one to distinguish the one from the other.
GLEESON CJ: Am I right in thinking that historically this concept of “predatory pricing” came into discourse in the context of monopolisation.
MR ARCHIBALD: Yes.
GLEESON CJ: Where, by hypothesis, you had market dominance and an abusive form of exercise of market dominance was predatory pricing, of which a classic example historically, as I recollected, would have been a shipping conference employing fighting ships.
MR ARCHIBALD: Yes, indeed.
KIRBY J: I thought this Court said in Queensland Wire that in oligopolies you can also have predatory pricing.
MR ARCHIBALD: Yes, you can. A party that has a substantial degree of market power is able to choose its own level of profits. It can raise its prices above competitive levels if it chooses. It is free from the constraints of the market. Once you have that capability and that power, you can elect to price low even though you have the capability of pricing high. You might ‑ ‑ ‑
GLEESON CJ: A shipping conference would be a classic form of oligopoly.
MR ARCHIBALD: Yes.
GLEESON CJ: But this market, you say, was highly competitive.
MR ARCHIBALD: And there was no capability in Boral to raise its prices above the market level. We say that means it did not have – it was incapable of having a substantial degree of market power. It could not elect to price low. The low pricing was forced upon it because it was subject to the constraints of the market, not because it was free from the constraints of the market.
GLEESON CJ: But what does predatory pricing mean when you get away from a monopoly, or an oligopoly, into a highly competitive market? What does the expression then mean?
MR ARCHIBALD: It cannot have any meaning. All it can refer to is the phenomenon of low competitive pricing that will, particularly in an industry which is suffering from excess capacity, likely lead to the exit from the marketplace of a competitor, but there will be no harm to competition in that circumstance and that low pricing would not properly be described as predatory pricing. It is vigorous competitive pricing, but it does no harm to the competitive process. The consumer benefits. The only way the consumer is disadvantaged by predatory pricing is by enjoying very low prices for a short period but then, in the second phase of the predatory scheme, the consumer suffering above competitive level of pricing when the predator, having achieved its greater degree of power in the market, uses its market power then to lift prices to harm the consumer.
GLEESON CJ: May there be an intermediate situation? Suppose the appraisal of the market condition by one of the competitors is, “This is senseless. The only way for us to restore what is sometimes called orderliness or rationality, by incautious drafters of documents, to the market is for us not just to stick out this price war, but to intensify it, in the hope and expectation that the consequence will be that the fringe operators who are behind the price‑cutting will be forced out of the market and although we will have to continue to compete and although we will not have a monopoly, or an oligopoly, we will at least have market stability.” May that be conduct of a kind that could be caught by section 46?
MR ARCHIBALD: No, because section 46 requires that there be market power at the time of the engaging in the conduct which is sought to be impugned.
KIRBY J: But is not the point that the Full Court made that the proof is in the pudding? If you do it, you have the market power?
MR ARCHIBALD: No, in our submission. No, all that that might contemplate is perhaps one form of operation of the Sherman Act, which is a different operation from section 46, that I might at a future point of time somewhere, sometime, gain market power.
KIRBY J: The experience of mankind is that if you gain 42 per cent of the market – I must say I am influenced by that schedule at page 10 of the respondent’s submissions which show that you got the lion’s share of the fallout of Rocla and Budget in the market. You ended up with 42, whereas you were hovering around 30, and Pioneer stayed roundabout 30 and C&M stayed round, say at a lower figure, and you picked it up. The inference that the Full Court apparently took was that was your strategy, that is where you won, and the experience of humanity being that in that dominant position you will use the position to your advantage, that is the very kind of conduct against which section 46 is pitched.
MR ARCHIBALD: Well, in our submission, no; section 46 does not penalise success in a competitive market, particularly in a market where products are generic, undifferentiated and customers are price sensitive and market shares will rise or fall readily according to pricing levels in which participants engage.
McHUGH J: The fact that you have 30 per cent of the market tells you nothing about whether you are got any market power.
MR ARCHIBALD: Well, particularly when you have two others with 30 per cent against you.
KIRBY J: If you ended up with 42 as against 32 and 21?
MR ARCHIBALD: Well, the 42 per cent is a figure, we say, not properly reflected of the burden of the evidence and it is a 42 per cent figure after the period in which we are accused of predation.
KIRBY J: Well you are on your way to it, that is the allegation.
MR ARCHIBALD: The exemplification of the ease with which market shares can be gained in this market is the success that C&M had. By early 1995, on their evidence, about a year into the market, they said they had 30 per cent; by mid‑1995 they said they had 35 and by late‑1995 they said they had 40 and Pioneer and Boral were running second to them.
McHUGH J: But there is something circular about it, is there not, because supposing it was accepted that you had just under substantial marketing power, but engaged in what you did, did exactly the same things that you did, and ended up with 42 per cent of the market, you could not say there was a breach of section 46 in that particular case.
MR ARCHIBALD: No, in our submission, plainly no.
GAUDRON J: Now, is the notion of market power a legal concept at all?
I mean, is it?
MR ARCHIBALD: In our submission, it is a legal concept informed by economic principle.
GAUDRON J: Well what is the concept of market power? Where does one find that legal concept?
MR ARCHIBALD: One finds it in the statement of principle of Chief Justice Sir Anthony Mason and Justice Wilson in Queensland Wire at page 188, point 8:
Market power can be defined as the ability of a firm to raise prices above the supply cost without rivals taking away customers in due time, supply cost being the minimum cost an efficient firm would incur in producing the product.
GLEESON CJ: Has market power ever been found to consist in an ability to drop prices?
MR ARCHIBALD: No, because that is to confuse conduct in exercise of market power with the source of market power that will generate or establish or create it.
McHUGH J: Although in Queensland Wire Justice Dawson said that market power included predatory pricing, did he not?
MR ARCHIBALD: He said market power is manifested by a variety of practices which include predatory pricing and the manifestation is the exercise of the power.
McHUGH J: Yes.
GLEESON CJ: And if predatory pricing was understood originally as monopolistic or oligopolistic conduct, then it is the fact that somebody who starts out with market power uses predatory pricing to force out of the market a potential competitor that constitutes the abuse of monopoly power that the Sherman Act required for contravention.
MR ARCHIBALD: Yes, exactly, and market power gives you the ability to raise prices above competitive levels. With that power you can do a variety of things. You may, in fact, raise your prices. The exercise of the power, the use of your power to raise your prices is evidence that you possess that power; it does not give you the power, but it is evidence that you have it.
McHUGH J: And the fact that you are able to exclude competition does not mean that you have market power, unless you are able to raise your prices.
MR ARCHIBALD: Yes, exactly.
McHUGH J: If people take on substitute products, unless you can increase your prices, then the fact that you have excluded some competition ‑ or, in fact, probably all competition – does not mean you have market power.
MR ARCHIBALD: The reason you exclude competition is so that you can raise your price, to take advantage of your market power.
GLEESON CJ: I thought that market power meant the capacity to act without competitive constraint.
MR ARCHIBALD: Yes, it does.
KIRBY J: And if you destroy your target, then you do have that capacity. I think this is the way the Full Court reasoned. They said if your object is to reduce the competition in the market, the experience of humanity is that you get rid of them, then you are free.
MR ARCHIBALD: If you have market power, you can exercise it. You can exercise it in a variety of ways. One way might be to increase your prices. Another way might be to refuse supply. The mere practice of refusing supply may or may not be a taking advantage of market power. Queensland Wire was a case in which the refusal to supply was held to be a taking advantage of market power. Melway was a case where a refusal to supply was held not to be a taking advantage of market power. One cannot beg the question, as Justice Dawson said in Queensland Wire, by ascribing labels to these practices. The practices may or may not be reflective of market power. They may or may not reflect a taking advantage of market power. One has to analyse them to see. And low prices may or may not be a taking advantage of market power. One has to analyse them to see. One cannot beg the question.
GAUDRON J: Well, if you take the definition which the Chief Justice has just proffered – capacity to act without competitive restraint – why would that not include forcing prices down?
MR ARCHIBALD: It would include forcing prices down if prices were going down because the party possessing market power was forcing them down, ie ‑ ‑ ‑
GLEESON CJ: But that was the importance of the earlier questions, as to whether there was any example, in the present case, of a circumstance where you bid for a contract below the price you had to bid to win the contract. If you found such a case, that would be an example of what Justice Gaudron just mentioned.
MR ARCHIBALD: Yes, it would. A classic case of true predatory pricing is a party with market power doing just that.
GUMMOW J: Now, are there any cases on section 46 in its post‑1986 form where predatory pricing has actually got up, apart from this case?
MR ARCHIBALD: No.
GUMMOW J: I do not think there is, is there? Parkwood Eggs is a long while ago. That is pre‑1986.
MR ARCHIBALD: Yes.
KIRBY J: Would you explain to me the effect of the 1986 amendment, just generally?
MR ARCHIBALD: The 1986 amendment reduced the level of required market power from “dominance or control” to “a substantial degree of market power”.
KIRBY J: The purpose of that would seem to be to make more effective section 46, rather than less.
MR ARCHIBALD: Yes, but that ‑ ‑ ‑
KIRBY J: It has not worked.
MR ARCHIBALD: Well, it has worked, but it does not ‑ ‑ ‑
KIRBY J: Except in this case.
MR ARCHIBALD: Well, no. It does not attract this case. The change from the “dominance” level to the “substantial degree of power” level makes no difference whatsoever, in our submission, to the application of section 46 to the kind of power, or the capabilities that attend the power, which enliven the operation of the section.
GLEESON CJ: But it does raise a problem that we have to face up to, does it not, when you deal with price‑cutting. If you see price‑cutting engaged in by a person who is in a dominant position in a market, it might be easy to conclude that such conduct has the relevant anti‑competitive purpose because if you are dominant in a market why would you cut your prices, except to eliminate competition? But now that you do not have to be in a dominant position in a market, if you engage in price‑cutting, the question will be whether you are merely responding to market forces, as you say, or whether you have the anti‑competitive purpose, as Mr Young says.
That still leaves alive questions of power and taking advantage of power, but putting those questions to one side, what occurred in 1986 did raise a problem about relating price‑cutting activity to section 46, did it not?
MR ARCHIBALD: Yes, because where the party having the substantial degree of market power is in fact a monopolist, in fact has dominance, it might be as easy to see the occurrence of the phenomenon in that case as had hitherto been the case. If the party in question has only a substantial degree of power and is not a fully‑fledged monopolist, then the conduct that one is concerned with is still conduct in order that the section be contravened which must be engaged in electively by the party accused of predation.
It must still be choosing to price low because it sees advantage in that for it rather than the lower prices merely reflecting the market levels and the features which otherwise attend the market. Now, if in such a case, the evidence shows, as we submit it showed here, that the prices were the result of intense competition between the suppliers and the market, that tells you two things. One, it tells you that no party had market power, but, two, it tells you that none of the pricing was elective, it was pricing which was inevitably provoked by the market forces and conduct in those circumstances does not have the capability of operating to harm competition.
GLEESON CJ: But does not that involve the possibility of an oversimplification? Might not you have a case where there is a deliberate decision not just to meet the market but to intensify, temporarily, the price‑cutting that is going on in the expectation that in the medium term that will eliminate some competitors and restore to the market some kind of greater order or lesser competition.
MR ARCHIBALD: But a party engaging in that behaviour will neither have a substantial degree of market power nor be taking advantage of it. All that would flow from conduct of that kind is that there would be an achievement, in due course, of a re‑balancing, a moderation of the disequilibrium which has otherwise attended that market which is really the cause of the low competitive pricing.
GLEESON CJ: Was not that the way the Full Court looked at the facts in the present case, that the ‑ ‑ ‑?
MR ARCHIBALD: No.
GLEESON CJ: Did not they see self‑congratulatory correspondence within your client’s documents that indicated that what they decided they would do is temporarily intensify the competition?
MR ARCHIBALD: To intensify competition is not to bespeak market power nor to take advantage of it and the enthusiastic language, and, perhaps the exaggerated language of strategic market plans cannot bestow market power nor require re‑characterisation of conduct as taking advantage of market power where none exists.
KIRBY J: But perhaps it is evidence of the very power which manifests itself in this type of strategy. You call it equalising the market. Others will call it the misuse of the power.
MR ARCHIBALD: But the Full Court did not rely upon market power residing in the ability to raise prices above competitive levels.
McHUGH J: That is a very important point, it seems to me, because the evidence of the ability of a firm to exclude competition, at the moment, does not seem to me to indicate that you have market power. The competition may have been an inefficient producer in the market.
MR ARCHIBALD: The key to market power is the existence of high barriers to entry. The finding of the trial judge was that barriers to entry were quite low and, as the American cases tend to say, the best evidence of low barriers to entry is actual entry and the entry by C&M is the embodiment and exemplification of low barriers.
KIRBY J: Yes, but they came with entirely new equipment which was extremely expensive.
MR ARCHIBALD: Well, not expensive. In our submission, the findings of the trial judge again were that entry costs were not high.
CALLINAN J: It was $8 million, was it not? He said you could get into the business with about $8 million, is that right?
MR ARCHIBALD: Yes, and that is not just the machine; that is everything else you need and they did and they managed it quite readily. But the Full Court accepting that, concluded that there were other barriers called strategic barriers which, somehow or other, were assumed – not proven, assumed to deter entry and establish a barrier where otherwise no barriers were said to exist.
GLEESON CJ: Well, the principal strategic barrier they seemed to identify was your client’s aggressiveness.
MR ARCHIBALD: Yes.
CALLINAN J: It is just a business risk, though, is it not?
MR ARCHIBALD: Well, aggression is the essence of competition and to be an aggressive competitor and to tell the world that you are going to be around this year, next year and the year after, we are prepared to stay in there, stay in the ring ‑ ‑ ‑
KIRBY J: Unless you are one of a very few who has embarked upon a strategy to destroy competitors in the hope that in the end you will recoup because you will have a smaller market and less competition.
MR ARCHIBALD: No, one engages in the vigorous competition in the hope and expectation that the competitive market will cease to be attended by the extent of disequilibrium that currently exists. Where there is extensive disequilibrium, exit is natural and to be expected in the competitive market, and to hope and intend to be around where that disequilibrium is moderated and where there might be a hope of competitive prices is to do nothing about either possessing market power or to be taking advantage of it.
CALLINAN J: And competitive behaviour may enlarge the overall market.
MR ARCHIBALD: It plainly did here. C&M’s low pricing in bricks led to capturing quite a volume of the market which had otherwise been enjoyed at that point by clay commons and that is why volumes were up and capacity needed to go up because these low prices, naturally enough in this kind of market, were attracting higher volumes across the board.
CALLINAN J: And this is what interests the architect and the principal at the early stage referred to in paragraphs 6 and 7 in Mr Mould’s affidavit.
MR ARCHIBALD: Yes, indeed. So, what we would wish to emphasise on market power ‑ ‑ ‑
KIRBY J: So we could blame all those ugly buildings with bricks upon the working of the market.
GAUDRON J: I think that is right.
MR ARCHIBALD: Prosaic products but I am ‑ ‑ ‑
HAYNE J: That is self‑evidently right, Mr Archibald. They are not Georgians.
MR ARCHIBALD: They are rendered.
CALLINAN J: Better not to get into aesthetics in this Court, I think.
MR ARCHIBALD: Market power resides in the ability to raise prices above the competitive level. The Full Court accepted, in our submission, that Boral lacked that capability. Lacking that capability, it lacked market power.
GUMMOW J: It is very hard to find a passage to put your finger on ‑ ‑ ‑
MR ARCHIBALD: Yes.
GUMMOW J: ‑ ‑ ‑ where one can say, “This is the wrong turning.” You would end up with a feeling at the end of the journey that you had gone on the wrong line, but you cannot quite find the points.
KIRBY J: Maybe that indicates that there was no wrong turning. You have to show error.
GAUDRON J: But I am just wondering how valid is this terminus. Market capacity or substantial market power is the ability to raise prices without losing custom. That is your starting point, is it not?
MR ARCHIBALD: Yes.
GAUDRON J: Now, you have a statement to that effect but in an almost monopolistic‑type situation in Queensland Wire. Your provisions have changed in 1986, and the hypothesis of section 46 is now that there can be substantial market power in an oligopolistic situation. I am wondering whether your terminus is any longer valid. That is not to say that I can think of another terminus. It is just to say that in that statutory setting, is that the right concept?
MR ARCHIBALD: Yes, in our submission. Market power does not change in its content or qualitative requirements, whether the level of market power, degree of market power required to enliven the operation of the section is dominance or a substantial degree. In each instance the essential feature which constitutes the market power is the freedom to act without the constraint that markets would ordinarily impose.
GAUDRON J: Would that not come about, for example, although there was a competitive market, if demand was outstripping supply?
MR ARCHIBALD: No. If demand outstripped supply the efficient competitor will get more market share, but there being no barriers to entry new entrants will come in to add to the supply to meet the demand.
GAUDRON J: Yes.
MR ARCHIBALD: That is I think what simplistic forms of economic principle would say about that situation. None of that bespeaks the market power.
GAUDRON J: But until the new entrants come in – I just find all this a little bit too simplistic in a sense, and perhaps the premise is a little bit too much an act of faith. One presumes there might be a time lag, and in a situation in which demand is outstripping supply, even though there are no barriers to entry, you may well have the ability to raise prices without losing custom.
MR ARCHIBALD: No, in our submission, because market power is gauged by reference to the existence of barrier. If a barrier does not exist, the barrier does not exist.
GAUDRON J: Then there is something more to your terminus than the ability to raise prices without losing custom.
MR ARCHIBALD: You must be able to do it persistently over a period of time without losing substantial sales.
HAYNE J: Does that definition not deny the proposition that there can be degrees of market power? That is, do you not define the expression in absolute terms “denying degree”.
MR ARCHIBALD: No, in our submission. Market power reflects freedom from constraint, independence from the constrains which markets would otherwise impose upon a party. There may be degrees of independence. The full monopolist will have a greater degree of independence than will the party who is not a monopolist but does have a substantial degree of market power, but qualitatively their capabilities are identical. They each have the ability to raise prices above the competitive level.
One will hit, as they say in economics, the limit price beyond which, even though one has market power – a substantial degree of market power – you will attract new entrants, and a full monopolist will hit the limit price at a higher level than will the party with a substantial degree of market power. So there are degrees of market power and there are levels at which new entry will be attracted but each has the ability to act independently of the market, that is, to raise prices above the competitive level.
HAYNE J: But is the notion of degree of market power then, for which you contend, identified as being the range within which there is freedom to move?
MR ARCHIBALD: The range that is available to one, until one reaches the point at which a further increase in price will not continue to insulate you from competitive forces.
HAYNE J: And in a market in which prices generally are dropping ‑ let us for the moment leave aside why they are dropping – the question of market power may find reflection in the degree to which you can hold or maintain previous prices against the trend of fall.
MR ARCHIBALD: If I have market power, falling prices do not concern me because I have the power to choose my level of profit. I can lift prices against the phenomenon elsewhere in the market of prices falling. That is the essence of market power, whether it be a substantial degree or a full monopoly. But if I possess market power, but of my own volition force prices down by my own elective pricing, then I may be ‑ I will not inevitably be but I may be – using my market power to achieve an anti‑competitive objective.
GLEESON CJ: Mr Archibald, just returning to the matter of barriers to entry for a moment, were either James Hardie or CSR participants in this market?
MR ARCHIBALD: No. They were candidate entrants and there is some evidence as to the – I am sorry, I think Hardie were in Tasmania.
GLEESON CJ: It just occurs to me that when you are looking at barriers to entry you cannot leave out of account what I might call the size and shape of potential entrants. If the market is not the building materials market or the walling and paving market but is the narrower market of rocks, if it is an inexpensive market to enter and if hovering around the outskirts of the market are other participants in the wider market who are just as large and just as financially powerful as Boral, such as James Hardie or CSR, that, it might be thought, would be relevant to questions of market power.
MR ARCHIBALD: No – well, it may be, but if upon analysis the reason for the James Hardie or the CSR not being in that market is that it is simply an unattractive market, then one would conclude that although the barriers to entry are low, there are no particular incentives for further entry into the market at that time, just as one might say – if one takes another unattractive industry, say the wool industry in the last 10 years. Given prevailing prices in the wool industry, one might have said, there was no incentive for anybody to enter that industry. There was a perfect readiness and ability to do so, but it was unattractive to do so and absence of entry would not bespeak market power amongst the woolgrowers who were there.
GLEESON CJ: But did not the Full Court, when it was speaking of strategic or dynamic barriers to entry, take the view that one of the disincentives to entry into this market was what might be called the characteristics of the people who are already in it? They were well‑heeled, aggressive, and people who would put their prices down to force you out of the market as quick as look at you.
MR ARCHIBALD: To observe that one would be faced with vigorous competitive activity if one were to enter the competitive market is not to be faced with a barrier to entry, and that was the evidence. Low prices, even low prices which are the product of vigorous competitive activity, are not a barrier to entry. Justice Finkelstein, in face of that unanimous evidence from the experts, simply said, “I think that is wrong”, and rejected it. But the principle and the evidence before the court and the trial judge’s findings were that those circumstances did not constitute a barrier to entry for purposes of market power. The only way the Full Court overcame that problem was for Justice Finkelstein simply to say, “I think that is unjustified and wrong and I reject the unchallenged evidence of the independent experts and I reject the trial judge’s finding and I choose to treat that as a barrier to entry.”
GLEESON CJ: Apart from the inference that might be drawn from its inherent unattractiveness because of the price‑cutting that was going on, was there any evidence as to why major building material groups like Hardie or CSR were not in this market?
MR ARCHIBALD: Not directly. CSR were in Tasmania and there was some evidence about that and there was some evidence directed to the capability of their entry into markets in other States if they chose, but it was not suggested that there were barriers to their taking that course if they found it an attractive course to follow, and those were the findings of the trial judge.
KIRBY J: That really gets back to the characterisation, is there non‑entry because this is a very vigorously competitive market in which every contract is chased or is there non‑entry because they would be concerned that if they went in they would have to face a market in which your client is sort of undercutting prices in order to keep and gain a greater dominance? It just begs the question.
MR ARCHIBALD: Yes, but the one area in respect of which there was no evidence was that anybody was deterred or might have been deterred by ‑ ‑ ‑
KIRBY J: Well, they just did not enter.
MR ARCHIBALD: Well, C&M did – might have been deterred by such behaviour. The two who exited, Rocla and Budget, the evidence from Mr Steele and the evidence from Mr Coghill of Budget was not that they exited because they were terrified of increased capacity about to be utilised, or in fact utilised by Boral. They exited just because conditions – from Rocla’s point of view, they did not want to tolerate the losses – they could have but chose not to – and Budget just failed because it was withering on the vine making losses year after year, even from before the time of the price war or the low prices.
McHUGH J: Is there any evidence that Boral was aware of the average variable costs of the other manufacturers?
MR ARCHIBALD: I think the answer is no awareness of levels of cost in terms of dollar figures but a general appreciation that Pioneer, and I think Rocla, likely had similar levels of cost but that C&M were certainly more efficient because of their efficient machine and, of course, it would have been futile predation to price below your own cost but above the cost of a more efficient competitor because the more efficient competitor would ‑ ‑ ‑
KIRBY J: Win every time.
MR ARCHIBALD: Win every time. You are only causing yourself harm by charging below your cost there. There was evidence from Mr Rawnsley, volume 5, paragraph 168, page 826:
I believed that my competitors (with the possible exception of C&M) were making losses because I had a fair idea of their costs of production and generally I knew their cartage rates and the prices they were quoting.
So all knew they were suffering losses and they apprehended that the rest of the industry, apart from C&M were also suffering losses.
GLEESON CJ: When you say they were suffering losses, I thought you told us a little earlier that they were suffering losses on this particular product, but that it was worth their while to gain these contracts.
MR ARCHIBALD: It was better than shutting down. We were partly covering our fixed costs, but not completely covering our fixed costs.
GLEESON CJ: Where is the most convenient place to look to see the evidence in summary form of that; that is to say, the relationship between Boral’s ‑ I mean your client’s overall profitability and its costing?
MR ARCHIBALD: That evidence is best identified in the report of the accounting expert, Mr Kus, in volume 9, page 1627, paragraphs 31 to 35 and the evidence, a convenient summary by Professor Hay at item 148 in the separate volume.
GLEESON CJ: Item 148?
MR ARCHIBALD: Yes, item 148.
HAYNE J: Page 125.
MR ARCHIBALD: Yes, thank you, your Honour.
KIRBY J: The evidence of Mr Kus has the stamp “Confidential” in red. Is this something we are supposed not to look at?
MR ARCHIBALD: I am a little unclear about those items.
KIRBY J: Yes, but I would not want to do anything that the parties agree we should not do.
MR ARCHIBALD: One can see from those paragraphs in Mr Kus’s report, forgetting the numbers for the moment, that there was a surplus of revenue over variable cost on a whole of business analysis during most months, during virtually every month and over the period as a whole there was a considerable surplus. Professor Hay said this at item 148:
the most important conclusion from the accounting analysis is that, even before any adjustment for upstream contribution, revenues for all BBM concrete masonry products taken together equal or exceed variable costs in virtually every month during the entire period and greatly exceed variable costs for the period taken as a whole.
That was not controversial. Mr Kus was not called for cross-examination and Professor Hay was not cross‑examined upon that evidence.
So that losses were being incurred because not all fixed costs were covered, but if you had stopped production you might eliminate your variable costs, but you would have no revenue to meet your fixed costs and so you would be worse off by stopping production than by continuing production.
GLEESON CJ: And by “production” in that context, do you mean production of all your client’s products, not just the blocks?
MR ARCHIBALD: Yes, the range of products which you make.
KIRBY J: Which of the three points – this goes to the third point, taking advantage of market power, does it?
MR ARCHIBALD: Yes, it goes to the good sense of doing what we did, even if, which we deny, we did have market power. The party without market power would keep its doors open, because you are worse off if you close them than by keeping them open. Not only would you incur your fixed costs if you shut down, but you would incur closing costs and if you ever reopened you would incur reopening costs. So those further costs would exaggerate the disadvantage of ceasing production and there was evidence: would it make sense to close down for a month? Stop during the month where you were seen to slip below cost, but then reopen the next month, and the lack of good business sense of trying to keep a business going and behaving in that fashion.
The decision to stay open was one which was keenly addressed by Boral. There were two occasions upon which it did consider shutting down. Those occasions were dealt with in the evidence of Mr Cormack, volume 4, page 700, and were the subject of findings by the trial judge at paragraph 55, appeal book page 130.
So on two occasions, including in late 1994, Boral considered whether it should shut down. It determined against that course, for reasons which were the subject of the trial judge’s findings, paragraph 74, page 135 and following, where his Honour accepted the evidence of Mr Rawnsley about the good business sense of staying open. The very fact that there was consideration given to closing down itself, in our submission, is powerful evidence against the prospect that Boral was engaged in predation.
KIRBY J: Well, that is one way to put it. The other way is that they hit on a different strategy.
MR ARCHIBALD: Well, no.
KIRBY J: This is after.
MR ARCHIBALD: The strategy did not change, according to the evidence – or, indeed, according to the Full Court – but more importantly perhaps for present purposes, his Honour accepted at those passages the sound business rationale – a rationale that would be sound for a party without market power – of remaining open and continuing to tough it out.
KIRBY J: I realise you have been answering the helpful questions from the Court, but I am getting a bit lost in the structure of your argument.
MR ARCHIBALD: I was starting to read the preliminary evidence, I think.
KIRBY J: Is that where we are?
MR ARCHIBALD: Without going back to it, can I say that a survey of all of the major projects conveys the point about a highly competitive market, in our submission. Likewise, a survey of the monthly and weekly reports that were prepared by Boral’s executive, Mr Rawnsley, shows the reality and the vicissitudes of the market to which Boral was subject. That is item 101 in the folder. I will not trouble to take the Court to it, but a perusal of the weekly entries there shows the grimness and the toughness of competition, the struggle to get work, the exasperation with the other suppliers, with their low prices – ridiculous prices, absurd prices, prices hitting an all-time low, and so on. That material again gives a very powerful picture, in our submission, of the existence of the highly competitive market.
GUMMOW J: Mr Archibald, you took us to item 148, I think, in the folder. Item 149, which is an extract from what Professor Hay said in oral evidence, I think, is important really as to what this case is all about, in a sense. Then if you pick up volume 22, at page 4637, starting at line 10, this conflation point I was grumbling about becomes a bit clearer, I suspect, where at line 16 Professor Hay says “it’s based on a very simple theory”, and he explains that. It is not a theory he accepts. At line 35 he talks about bootstrapping “your way from below cost pricing” to monopoly pricing. That seems to be the nub of what is put against you, in a way, and you say that does not square with the terms of 46.
MR ARCHIBALD: It does not square with the evidence because the behaviour would be, as Professor Hay says at line 20:
irrational unless the firm believed that it would eventually be able to charge higher prices, or put another way, a firm might do this if it believed it would be able to achieve the power to give less and charge more in the future.
The finding of fact of the trial judge was that there was no such belief or expectation. All that was going to occur in the hope of Boral was a return to normal competitive profits, not above competitive profits that would attend a non‑competitive market in which Boral had a substantial degree of market power.
KIRBY J: Yes.
MR ARCHIBALD: It cuts out at the factual level as well as the level of principle. There is that evidence about the reality of the market, generally.
KIRBY J: Could I just ask: up to what point did the analysis of the market reach?
MR ARCHIBALD: Right to the end. The period of predation ‑ ‑ ‑
KIRBY J: Did that show any evidence at all of recoupment by reason of the 40 per cent share of the market, or ‑ ‑ ‑
MR ARCHIBALD: No, in our submission. There was some evidence that some profitability returned but no evidence that the profitability that returned was profitability above normal competitive levels, that is supra‑competitive prices and abnormal non‑competitive level profits. No evidence of that at all.
KIRBY J: Was there any evidence of what attracted the attention of the Commission in the first place? Was it the fallout of Rocla and of Budget and the relatively sudden rise of your client’s market share?
MR ARCHIBALD: No. It was C&M. C&M wrote to the Commission alleging – not predation by Boral, but alleging a collusion and conspiracy between Boral and Pioneer. That was in October/November 1995. Our conduct did not change. We learned of that in about December 1995. Our conduct did not change after December 1995 from the conduct in which we had engaged before we heard of this complaint to the Commission. So, our conduct throughout 1996 during the further period of alleged predation was identical with our conduct before.
Now, it would be a very bold party participating in this industry accused of predation by the Commission to knowingly continue unabated in the same conduct and, yet, if the Commission’s case is right, that is what we did. They accuse us of engaging in predation after we knew that we were being accused of predation and that the Commission was dragging documents out of us.
KIRBY J: It cuts both ways because if you alter your practice it tends to prove the case, does it not?
MR ARCHIBALD: Well, yes. It would not do well in mitigation, though.
KIRBY J: It would not do well in a court of law if you were suddenly seen to be changing your practices. However.
MR ARCHIBALD: No. But, nor did we change after the period of predation is alleged to have ended. There seems to be no cut‑off point – no change in conduct after we are alleged to have ceased to predate, just as we would say there was no change in conduct between the way we were behaving before we were accused of commencing to predate and the way we were behaving during the period within which we were accused of predating. It is constant conduct throughout this period, before and after the impugned period.
Yes, in Justice Heerey’s reasons on the expectation of above‑competitive profits in the future, Justice Heerey found at paragraph 169, volume 1, page 159, line 28:
nowhere is there any suggestion, hope or expectation of BBM being able to recover its losses by supra‑competitive prices. Certainly BBM hoped one day to return to profitable operations; there would be no point in it staying in business if that were no so. Yet all it hoped for, or could hope for, was profit in a competitive market.
KIRBY J: What was that paragraph again?
MR ARCHIBALD: That is 169 at page 159, volume 1, a finding well open to the judge on the evidence and not contested on appeal. Now, another indicator of conduct inconsistent with predation was Boral’s withdrawal from ‑ ‑ ‑
KIRBY J: Now, is this issue 3 or issue 2, because taking advantage ‑ ‑ ‑
MR ARCHIBALD: Still preliminary.
KIRBY J: You are still in the preliminaries.
MR ARCHIBALD: I am just trying to mark out a couple of these matters so I really can move on but the discussion of closure is one feature of our conduct during the period which is antithetical to predation. The declining to match in major projects is another feature and the further feature I wish to draw attention to, simply because it is in another sphere of the market, the paving sector, is the way we behaved in the paving market.
Mr Rawnsley’s evidence, item 102 in that volume, speaks of that and what happened was that we had two paving products in which we saw that we were being roundly beaten in the marketplace by C&M. They were producing these products more efficiently than we could. We declined to chase them down in price. We gave up and vacated the market in respect of those products, inconsistent, we would submit, with the conduct of a predator, particularly a predator accused of targeting the new entrant, C&M.
To be an effective predator you would target the new entrant in the areas in which it was operating; that was brick and paving and yet, in the paving field, we vacated part of the market and left it to C&M because we could not beat them, inconsistent, in our submission, with predation, and in brick, which was C&M’s forte, the evidence was that they were the lowest price producer. Their prices were the lowest in the marketplace. Those graphs in volume 18, with all their shortcomings, clearly show average prices of C&M in relation to brick below the average prices of Boral in that product.
So those, we say, are important features of the evidence. There is, the Court knows, a huge volume of evidence but those features that we have sought to draw attention to, in our submission, are important features and they powerfully underpin a finding that Boral did not predate. So that is the background. The first question then is, did we have market power? The test, as we have submitted, is ‑ ‑ ‑
KIRBY J: I thought the first question is, what is the market?
MR ARCHIBALD: Yes, it is, but I am sorry, in the order in which we are seeking to deal with matters for these purposes we were going to market power.
KIRBY J: Do you not have to define the market before you consider the power? I mean, I will follow whatever you do.
MR ARCHIBALD: For these purposes we approach it on two footings. If the market is the broader market for which we contend there is no argument but that we lacked a substantial degree of market power. So, our argument for present purposes assumes against us for the moment that the market is the narrower market of concrete masonry products in the metropolitan area of Melbourne and the question is did we have market power. We could only have market power if we have the ability to raise prices significantly above the competitive level for a sustained period without significant loss of sales. The evidence showed that we did not and that really was not controverted by the Full Court. We lacked the ability to charge more and give less.
The Commission seek to contend in this Court that that test is of no utility in this case. We say it is of utility. Indeed, it is fundamental and unavoidable, because the essence of market power, however viewed, is the ability to raise prices above the competitive level. Moreover, it was the unanimous view of the experts in their evidence that that was the concept of market power. That was Professor Hey, volume 19, page 3733 at paragraphs 14 to 15, and Professor Officer, same volume, page 3800, paragraph 20. So there was no controversy about this matter so far as the evidence is concerned before the trial judge.
The question then is whether the statement of market power utilised by Justice Dawson in the Queensland Wire Case is a different test than that stated by the Chief Justice and Justice Wilson in the same decision. Our submission is that it is not. There is no trace in the reasons for judgment of the members of the Court in that case of a controversy about what constituted market power. Of course market power confers the ability upon the party having that power to enjoy it, to exercise it, to use it, to take advantage of it, in various ways. One way in which advantage can be taken of it is, in fact, to raise prices, but other ways in which advantage can be taken of it is to act in a way that precludes competition, for example, to tie up the market with exclusive dealing arrangements, an example given by Justice Dawson. Another example is refusing to deal, an example given by Justice Dawson and exemplified by the Queensland Wire Case itself.
Those manifestations are manifestations via utilisation of the market power by exercise of market power. They are not the source of the market power. They do not create or bestow market power where it is otherwise absent. So the essence remains in any event that one cannot possess market power, meaning a substantial degree of market power, absent the ability to charge more and give less.
GAUDRON J: You would say, would you not, that there is no relevant concept where over a prolonged period supply, or perhaps capacity to supply, exceeds demand?
MR ARCHIBALD: There will frequently be a capacity to supply which exceeds demand. Any industry in disequilibrium, where supply exceeds demand, will reflect such a capability. Such a circumstance is the classic recipe for low prices because suppliers are competing for a demand which is less than the supply that they have.
GAUDRON J: Do you go so far as to say there can be no power in a supplier in a situation of that kind that pertains for a sustained period?
MR ARCHIBALD: There can be if there are high barriers to entry.
GAUDRON J: Only if there are high barriers?
MR ARCHIBALD: Yes, the essence, or the sine qua non, as some of the writers put it, of market power is high barriers to entry. Absent high barriers to entry there will be capability of entry. Whether there is actual entry is beside the point; there will be capability of entry and an absence of market power. Market power resides in the ability to act independently of competitive forces and that independence, that capability, is attributable largely to the presence of high barriers to entry. Absent those barriers there will be entry or there is a capability of entry and you are subjected to the market disciplines.
Again, here the Commission criticises the conception of or the test of market power as involving the circumstance in which a firm can act independently of competitive forces. They say in paragraph 24 of their submissions it is inappropriate. We say such a test is both correct and useful because the formulation of market power adopted for the purposes of the Eastern Express Case in the Full Court of the Federal Court, to be found in the reasons of Justice Lockhart and your Honour Justice Gummow at page 62, point 8, it is a correct test and its utility largely resides in its fastening upon the essence of market power, the freedom from constraint, the particular elements identified in section 46(3), and one considers whether there is a freedom to act from constraint from competitors on the one hand or from constraints imposed by customers on the other hand. That independence attends market power, whether it be a substantial degree of market power or a dominant power.
GLEESON CJ: Is there a difference between market power and market strength?
MR ARCHIBALD: No, in our submission, at least not relevantly. There may be a strong competitor in the market, a competitive market, and that competitor may be a very effective competitor but, if there are no barriers to entry, it is as much subject to the disciplines of that market as is the weak participant. Market strength is not attended by the ability to act free from the constraints of that market if that is the way in which market strength is being used. If it is being used as a synonym for market power, then the questions falls away. One can be a strong competitor in a competitive market and therefore, ex hypothesi, lack market power. If a firm has a substantial degree of market power the market is not a competitive market.
Those principles, in our submission, lead to the conclusion that one cannot have market power if one cannot raise prices above the competitive level. I can manifest my market power in a variety of ways by raising prices or by refusing to deal or by predation or by entering into exclusive supply agreements, but they are the exercise of my power, not the source of it. The source of my power is the high barrier to entry.
GUMMOW J: But what do you say about footnote 41 on page 8 of your opponent’s submissions where it is said, “Well, this way of looking at it won’t really work in a case like Queensland Wire”. Footnote 41 on page 8.
MR ARCHIBALD: We would say that the test stated in terms of giving less and charging more did have real utility in Queensland Wire. It is the embodiment of the statement that we have drawn the Court’s attention to in the reasons of Sir Anthony Mason and Justice Wilson.
GUMMOW J: I know, but they said a number of general things. This is focusing on the actual situation in Queensland Wire.
MR ARCHIBALD: Yes, but it goes back to the point that we are seeking to make about the passage in Justice Dawson’s reasons in the same case at page 200:
The market power resides in the capability to give less and charge more.
That power may be manifested in various ways. It may be manifested by raising the prices but it may be manifested in other ways, but the conduct in exercise of the power does not alter the essential content of the power.
GUMMOW J: Yes, but one of the things that has been got at in 41 is the ‑ it is another aspect I suppose. How would the relief ever have been framed in Queensland Wire, but that is another question. How would a mandatory injunction ever have been framed? They did not have to grapple all that in this Court.
MR ARCHIBALD: No, but the taking advantage – the power resided in the ability to charge more and give less, that is the power. The taking advantage, the impugned conduct resided in the refusal to supply, and the injunction would no doubt be, “You must not refuse to supply”.
GUMMOW J: What, produce more Y‑bar? They were supplying the whole of their product to their own company.
MR ARCHIBALD: Well, there are a lot of difficulties with that case.
GUMMOW J: However, we should move on probably.
MR ARCHIBALD: We do not want to stir up old wounds, but I think the answer to your Honours ‑ ‑ ‑
KIRBY J: The Parliament has presumed that a remedy can be framed and it is not for courts to deny that possibility.
MR ARCHIBALD: That is so, but the remedy will be framed by reference to the taking advantage problem, not that in which the power is seen to reside. We in no way join issue with or cavil at the formulation of the statement of market power found at page 200 in Justice Dawson’s reasons, which formulation, of course, was endorsed by this Court in the Melway Case. All that that formulation is doing is not referring to some discrete ingredient of market power, but drawing attention to the variety of ways in which behaviour may reflect or involve a taking advantage of that power.
McHUGH J: But why is not the ability to charge below avoidable costs with the expectation that you would be able to recoup losses in the future not evidence of market power?
MR ARCHIBALD: It would be.
McHUGH J: Yes.
MR ARCHIBALD: It is, but the significant ‑ ‑ ‑
McHUGH J: But is that not the case that is put against you here?
MR ARCHIBALD: Yes, but there are two things about that. The first is it is an ability to charge below costs, that is, an election – not a pricing level forced by the market, but a choice independently of market forces. That is where the essence of market power resides: I elect to charge below costs. I do not have to charge below cost to get business. I choose to charge below cost to get business. If it can be seen that my pricing is a matter of choice rather than a matter of response to market forces, that ‑ ‑ ‑
McHUGH J: In a sense you did have a choice. It was not a very palatable choice. The choice was that you closed down and walked away – which, I think, all the experts agreed was more expensive than to lose money in the price war – or to charge below your average variable costs with the over‑expectation or perhaps the belief that in the future you would be able to recoup those losses.
MR ARCHIBALD: Yes, but that reflects an absence of market power. Did I, in those circumstances, have the choice, the ability, to charge above the market price and not lose business? And the answer, on the evidence ‑ ‑ ‑
McHUGH J: But at what point of time?
MR ARCHIBALD: At any point of time during this period. The plain evidence is we had to get those major projects, or we would lose the business. We had to match, or lose the business. If we had market power, we would have thumbed our nose at the tender process, we would have said, “Our price is $1.20; you have to come to us and do business with us”.
GLEESON CJ: But you seem to be asserting factually that not charging the prices that you did charge was the practical equivalent to going out of business.
MR ARCHIBALD: Yes, and a party who has market power and charges the prices above the market level will not have to go out of business ‑ ‑ ‑
McHUGH J: The reason I asked you these questions is, I just wonder whether or not the definition of “market power” approved in Queensland Wire, particularly in the judgment of the Chief Justice and Justice Wilson, is adequate in all circumstances.
MR ARCHIBALD: It is plainly not, because it is not endeavouring to be encyclopaedic, and the advantage of the Kaysen and Turner formulation is that it does address other faces of the same phenomenon, the same power: the power to act free from constraint of the market.
McHUGH J: Assume that you have a very well‑financed company which is prepared to engage in a price war for the prescribed purpose of forcing a competitor out of business, with the expectation that, in the future, prices will rise and you will be able to recover your losses. Why is that not a breach of section 46?
MR ARCHIBALD: At the evidentiary level, there was no expectation of recovery of losses. At the level of principle, that circumstance is not attended by the possession of market power by the entity who engages in or hopes to engage in that conduct. To have financial resource to enable you to last out the vicissitudes of competition is not, according to the evidence, an element of market power or a source of market power. This is the evidence that Justice Finkelstein had to sweep aside to come to his own view apparently based upon his perusal of some academic articles written by economists in various parts of the world.
GAUDRON J: Why do you not have market power if, by reason of your action or inaction, you are able to bring about a situation in which the number of players in the market is altered?
MR ARCHIBALD: The answer is that with an industry in disequilibrium where supply exceeds demand, competitive market forces of their accord will ordinarily yield exit from the marketplace of one or more of those players.
GAUDRON J: Why do you not have market power if, by your action or inaction, you can bring about a situation in which people leave the market sooner than they otherwise would have?
MR ARCHIBALD: Because all that is happening is that the competitive forces of the market are operating in a more intense or more immediate fashion than might otherwise be the case.
GAUDRON J: I know that is what “market theory” is, but I am just looking at the words “market power” which are words of a statute.
GLEESON CJ: You need to draw a distinction, do you not, between market power and staying power?
MR ARCHIBALD: Yes, indeed. To have the ability to stay is not to have market power or to exercise market power but to be a ‑ ‑ ‑
McHUGH J: But, in a sense, if you can force prices down, you have market power, have you not?
MR ARCHIBALD: If you, by your elective processes, are forcing prices down, then that may be evidence of market power, just as a refusal to supply may be evidence of market power. But it is wrong to assume or prejudge the question and proceed upon the footing that inevitably or inexorably that process both bespeaks market power and the taking of advantage of market power. It may or may not.
McHUGH J: Yes, but it may be proof of one element and then that throws the weight of the section on what your purpose was. There is no problem about using your market power to force down prices as long as you do not have a proscribed purpose.
MR ARCHIBALD: If you are forcing market prices down by your own election as to whether you price at your supra‑competitive level which is available to you or you price at a lower level – and here the evidence plainly showed there was no capability to price at the higher level – not just at a higher competitive level but a supra‑competitive level.
McHUGH J: One problem in your way, it seems to me, at the moment, is on what rational commercial basis would you expand your capacity, as you did at this time. It is one thing to think that you would cut prices to maintain your market share, but what was the signal that you were sending out to other players in the market other than an indication that you had the capacity to engage in this price war forever and ever and you were going to increase your production?
MR ARCHIBALD: The first answer is the judge found as a matter of fact that we did it for sound, rational business reasons, largely of efficiency. Secondly, one observes that virtually simultaneously Pioneer doubled their capacity, effectively by doubling shifts, and the evidence was approximately double capacity. Thirdly, it made business sense to cope with the unsafe, antiquated features of our Sunshine plant and to upgrade and get over the shortcomings of the Deer Park plant.
GLEESON CJ: Well, perhaps you can come back at 2.15 and tell us about the basis of the trial judge’s finding on that point, Mr Archibald.
MR ARCHIBALD: If your Honour please.
GLEESON CJ: We will adjourn until 2.15.
AT 12.49 PM LUNCHEON ADJOURNMENT
UPON RESUMING AT 2.20 PM:
GLEESON CJ: Yes, Mr Archibald.
MR ARCHIBALD: If the Court please, the references to Justice Heerey’s findings in relation to the upgrade work are as follows: at paragraph 77, volume 1, page 136, line 21 ‑ ‑ ‑
KIRBY J: What is this going to, I am sorry?
MR ARCHIBALD: Questions were asked just before the adjournment about the trial judge’s findings concerning the Deer Park upgrade. These are the references we give.
KIRBY J: Yes.
MR ARCHIBALD: Paragraph 77, Mr Berg, the chief executive officer of Boral, said that:
BBM had to meet the competitive threat posed by C&M through cost rationalisation, that is by shutting the inefficient Sunshine plant and duplicating the plant at the Deer Park production facility . . . BBM must be able to compete through reducing its costs.
At paragraph 102, page 143 there was a narrative description of the upgrade work showing that by early October 1996 the additional plant was operating and Sunshine was closed at the end of October. At paragraph 179, page 162 his Honour found that Boral, looking at the second sentence:
decided to stay in –
that is in concrete manufacturing –
cut prices to win business, and upgrade its plant to improve efficiency, all in the hope of better times to come.
and then paragraphs 187 to 188 at the next page, page 163:
The Deer Park upgrade was an understandable decision, 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 Moss Vale plant was a fortuitous opportunity.
In part the Deer Park upgrade was a signal of BBM’s commitment to be a long term manufacturer . . . 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 –
and at paragraph 180, page 162, his Honour said that:
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 –
The table at paragraph 56 of the Commission’s submissions does show only a marginal increase in production between the 95/96 year and the 96/97 year, the 96/97 year being the year in which the additional machine came on stream. His Honour having found at paragraph 78, page 136, that the original replacement machine did not itself increase capacity.
GLEESON CJ: Mr Archibald, what were the time boundaries of the contravening conduct? When did it begin and when did it end?
MR ARCHIBALD: It was alleged to begin in the first half of 1993 and conclude in the middle of 1996.
GLEESON CJ: Thank you.
MR ARCHIBALD: I am sorry, I said 93; I meant 94, April 1994 and October 1996 – paragraph 11(a) at page 8, volume 1. In relation to the possibility of entry by CSR, or the actual involvement of CSR, there was the evidence of Mr Vella in volume 7, page 1353, paragraphs 595 to 596, showing contemporaneous notes by Mr Vella saying:
“Rocla CSR could re‑enter Vic by end ’97” –
and I think the CSR component is a fear that CSR might have bought the Rocla assets and themselves have entered Victoria. Paragraph 596 shows the expression of the continuous worry of Mr Rawnsley and Mr Vella:
during the period 1993 to 1996 about the prospect of new entry which –
gave rise to the risk of further additional capacity in the industry.
As to attempts, and indeed failed attempts, by Boral to raise prices during the period, really demonstrating their inability to do what is required for the purposes of possessing market power, there is Mr Vella’s evidence, volume 7, page 1227 and following as to block; his evidence about the failure of attempts to raise brick prices in the same volume, 1232 and following, and Mr Rawnsley’s evidence on the same topic, volume 5, pages 845 to 854.
As to the so‑called 42 per cent market share, the document referred to by the Commission is in volume 16 and what has been taken is the material at page 3193. That page is not a statement of market share of all concrete masonry products. It is a statement of market share of some concrete masonry products, called there traditional masonry. Traditional masonry, one sees from page 3177, was grey block and concrete brick, which amounted to only 55 per cent of the total market in tonnage terms. So that the statement at 3193 ‑ ‑ ‑
KIRBY J: But 55 per cent of what market?
MR ARCHIBALD: Of the concrete masonry product market. One sees that in parentheses under the heading “TRADITIONAL MASONRY” at 3193 itself. The pages surrounding that page show shares in respect of other concrete masonry products, for example, paving at page 3195, showing Boral with 26 per cent and C&M with 42 per cent. All of these figures being, I think, in 1997 after the alleged period of predation.
Later in this document at – I think I have lost the reference. I will pick it up later. The document otherwise describes Boral in respect of overall market terms as being in the “weak number two position”. Page 3192 I am told it is. The page before the page I was referring to, the fourth star point, assessment of overall competitive position:
In a weak number two position in Victoria against C&M Brick –
effectively treating C&M Brick as the market leader as they, in their own material, claim for themselves.
Now, in relation to the approach of the Full Court to the question of market power, could we refer the Court to Justice Finkelstein’s reasons in volume 2, paragraph 325, at page 303. There his Honour says:
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.
His Honour there is saying, in our submission, that Boral did not have power to price above competitive market levels, was not in a position to set its price above marginal cost, and although a firm may lack that capability it may still have market power because separately market power can exist when a firm has power to exclude competition. At paragraph 329, page 304, the last sentence, having engaged in intermediate analysis, his Honour then says:
the second test formulated by the Supreme Court in du Pont is not so easily dismissed.
The so‑called “second test” being the power to exclude competition. His Honour in those passages can be seen, in our submission, to be proceeding upon the footing that Boral did not have the power to control prices, but his Honour then proceeded on the basis that market power was still capable of existing by residing in a power to exclude competitors, and then proceeded to analyse that alleged basis of market power. It is our submission that that is an incorrect conception of market power; an incorrect conception according to law in Australia and it is also, in our submission, an incorrect assessment of what the position is said by his Honour to be in the United States.
His Honour, at paragraph 325, addresses the du Pont Case and draws attention to phraseology in passages cited from pages 389 and 391, where the court referred to:
“a power of controlling prices or unreasonably restricting competition.”
And monopoly power being, “the power to control prices or exclude competition.” His Honour treats those as disjunctive formulations specifying discrete tests for market power. His Honour proceeding upon the footing that the court was saying, “You can have market power if you have a power to control prices, or, even if you lack power to control prices, you can have market power via a power to exclude competition”. In our submission, his Honour has misunderstood the du Pont Case ‑ ‑ ‑
GAUDRON J: But even if he has misunderstood the du Pont Case, as a matter of ordinary language, would not the words, “market power”, suggest just that? It is all very well to put it in a context of prevailing economic theory, but if you cast prevailing economic theory aside and put it just in terms of ordinary language, would it not include that?
MR ARCHIBALD: No, because the so‑called power to exclude competition is the exercise of the antecedently existing and separately sourced power. The power to exclude competition is an exercise of the power, not the source of the power itself.
GLEESON CJ: But section 46 talks of having a purpose of “eliminating” a competitor. Now, Justice Heerey found that your client had such a purpose. If you have a purpose of eliminating a competitor, does that not suggest you have a power to eliminate a competitor?
MR ARCHIBALD: No. It suggests that one has the objective, and the objective may or may not be one which is able to be implemented or within one’s capability. The expression of the desire cannot bestow a power which is otherwise unavailable.
GLEESON CJ: Suppose there was an internal memorandum that said, “There may be not a lot of things that we can do to solve the problems of this market but one thing we can do is see Budget off. Let’s do that.” That would be a purpose of eliminating a competitor and that expression of purpose would reflect an assumption that there was a power to achieve it.
MR ARCHIBALD: No, because the objective of seeing Budget off is entirely consistent with an objective of Boral playing its part in the competitive processes which themselves would see Budget off and Boral desiring that outcome to be achieved and to play its role in that outcome occurring.
HAYNE J: On that answer, is the hypothesis that Boral has no substantial degree of power?
MR ARCHIBALD: Yes, and/or is not taking advantage of it.
HAYNE J: Is not the difficulty in this aspect of your argument a difficulty of speaking in absolutes, whereas 46, as now framed, does not speak in absolutes but in degrees of power?
MR ARCHIBALD: It does but ‑ ‑ ‑
HAYNE J: And, in particular, degrees of power to affect, if I can use “affect” in a neutral sense – to affect a competitor.
MR ARCHIBALD: If one has a substantial degree of power but not full monopoly power, one has the capability to affect a competitor and one has a lesser capability than if one had full monopoly power.
HAYNE J: Yes.
MR ARCHIBALD: The ability to affect the competitor may be sourced in two ways. One may be the ability to affect a competitor by playing one’s role in a purely competitive market in which no market power exists, including an absence of a substantial degree of power. One would also be able to affect a competitor if one had a substantial degree of market power and took advantage of it.
HAYNE J: But then the next question becomes, does it not, under 46(3), the question of constraint?
MR ARCHIBALD: Yes, indeed.
HAYNE J: Because every participant in a market by its conduct assumedly has some effect on other participants in the market? If it gets the sale no one else gets the sale, but it is absence of constraint in, for example, a pricing decision which is of singular importance in 46, is it not?
MR ARCHIBALD: Yes, because section 46 is promoting the competitive process and promoting the consumer advantage which attends the competitive process and therefore is promoting the situation which the party without market power competes vigorously and in that process affects – or if one likes – harms arrival in the marketplace. That harm may arise by reason of low pricing, but if the low pricing flows from the competitive process and not from freedom of choice arising from absence of constraint then section 46 does not seek to prohibit it and, indeed, seeks to promote it.
HAYNE J: But is another way of stating your argument to say that on your contention Boral was constrained by the market to price as it did?
MR ARCHIBALD: Yes.
GLEESON CJ: If it wanted to stay in the market?
MR ARCHIBALD: Having decided to stay in the market, its participation in the market on an ongoing basis, required that pricing, just as Pioneer’s decision to stay in the market required Pioneer’s pricing and as long as it stayed Rocla the same and C&M the same.
GUMMOW J: Do you want to say anything more about the Cellophane Case – du Pont?
MR ARCHIBALD: Yes, if we may. If one looks at the du Pont Case, if one looks at paragraph 392 of the court’s reasons there – I am sorry, it is page 392 ‑ ‑ ‑
GUMMOW J: It is a case in which substitution was terribly important, is not it?
MR ARCHIBALD: Yes.
GUMMOW J: Substitution of cellophane.
MR ARCHIBALD: What one sees at 392 is that the court can be seen to have been elucidating its reference to monopoly power being the power to control prices or exclude competition, and a few lines into the page, the Court said:
Price and competition –
that is control of price and excluding competition –
are so intimately entwined that any discussion of theory must treat them as one. It is inconceivable that price could be controlled without power over competition or vice versa.
GLEESON CJ: Where are you reading from?
MR ARCHIBALD: I am sorry, I have an electronic print which may mean the presentation is a little different. It should be about five lines into page 392, so it is about point 3 on the page.
GLEESON CJ: Thank you.
MR ARCHIBALD: In the light of that passage which his Honour did not cite one can see, in our submission, that the Court was not stating discrete separate tests for market power but a single test, drawing attention to two aspects or emanations of it, and so his Honour was wrong, in our submission, to draw from that decision the conclusion that the United States law recognised the potentiality or the capability for market power to exist in the absence of a power to control prices, that is, a power to price discretionally and, indeed, that view of the law is exemplified, in our submission, in the article that is referred to by his Honour at paragraph 329 page 304.
If one looks at the articulation of principle in paragraph 249 of that article one sees again the unitary or single concept rather than a dual concept and to the same effect is the conclusion of the authors in that article between page 263 to 264.
GLEESON CJ: Could I come back again to section 46(1)(a) – I think this question was raised this morning – but what form of competitive behaviour does not have a purpose of “eliminating or substantially damaging a competitor”?
MR ARCHIBALD: Probably none. Indeed, there is more likely to be an absence of purpose of harming a competitor if one does have market power and one chooses to exercise the freedom that one has to raise prices, because that course is available to you but unlikely, in itself, to harm your competitor.
GLEESON CJ: But a mark of success as a competitor is elimination of your rival, is it not?
MR ARCHIBALD: Yes.
GLEESON CJ: And a lesser mark of success is substantially damaging them by taking business away from them.
MR ARCHIBALD: A mark of success in a competitive market is damaging them. Our argument on purpose, the extent of our challenge on purpose, to his Honour’s conclusions, is that one does not look at purpose independently of the means, because one has to look at the question as to whether the purpose is to be achieved through a course of conduct which would jeopardise competition; not just jeopardise a competitor, but jeopardise competition. The relevant purpose that would attract those limbs of section 46 is the purpose that sees off the competitor by means which impact adversely upon the competitive process, upon competition.
Here, at best, for the purpose which his Honour found Boral to have, was a purpose which was directed against the competitor but which was not to be affected and which was not capable of being affected by any activity that would jeopardise the competitive process, jeopardise competition, because, as his Honour found, there was no market power and no taking advantage of market power. So all that his Honour really identified was the ordinary purpose or intention of a competitor wanting to harm a rival. It was no more than that. So his Honour erred in his comprehension of purpose.
One needs in section 46 a means of distinguishing the proscribed purpose and the permitted purpose. The permitted purpose is the one that will intend to harm a competitor but will not harm competition. The proscribed purpose is the one that will harm the competitor but will also harm competition. That is the distinction that his Honour did not make and should have made and it is a distinction that the Full Court failed to make and should have made.
GAUDRON J: It is also a gloss on the language though, is it not?
MR ARCHIBALD: Well, with respect, no, because it cannot be the objective of section 46, in our submission, to proceed upon the footing that the proscribed purpose will exist in every single case. There would be no point in putting those provisions in ‑ ‑ ‑
GAUDRON J: No, but if there is a finding of market power and a finding of taking advantage, why then put a gloss. It may link into to take advantage. There may be something in the notion of take advantage of market power that will bring in the concept you are talking about but I do not see it in purpose.
MR ARCHIBALD: Queensland Wire says, in our submission, authoritatively, that “take advantage” means simply “use” and has no ingredient which is influenced or affected by purpose.
HAYNE J: It suggests, does it not, that the answer to your conundrum lies in market power and the degree of absence of constraint; that is, if your conduct is dictated by the market there is no use of power.
MR ARCHIBALD: That is so, but business rivals always wish to hurt one another.
HAYNE J: I understand that.
MR ARCHIBALD: And they do that, effectively, whether they are in a competitive market or a market in which a party enjoys a degree of market power. The inclusion of the paragraphs as to purpose in section 46 indicates, in our submission, that something more is required to enliven them than the ordinary competitive purpose of harming a competitor and the answer, in our submission, lies in the proposition we advanced a few moments ago that it must be a purpose which is a purpose directed to or is to be achieved by conduct which is otherwise proscribed by the other limbs of section 46, those provisions being directed to subject matter that will harm the competitive process.
McHUGH J: I must say although it has been accepted since Queensland Wire that “take advantage” means “use”, I have real difficulty about that. I do not think, myself, that those two terms are interchangeable. There seems to be more in “take advantage” than “use”.
GLEESON CJ: Is the heading part of the section? It is not. My print is headed “MISUSE OF MARKET POWER”.
MR ARCHIBALD: No, not part of the section.
HAYNE J: But it is an extrinsic aid to which regard can be had, is it not, under Acts Interpretation Act?
MR ARCHIBALD: Yes.
CALLINAN J: I must say I incline to a similar view to Justice McHugh’s. Once you start using the word “disadvantage” or “advantage” you are immediately looking at relativities, I would have thought. Somebody’s advantage over somebody else’s or a situation of advantage. It seems to me to convey more than merely “use” at first sight.
MR ARCHIBALD: I do not think any of the submissions before this Court in this matter seek to raise that proposition. The exposition in Melway would indicate that the notion of advantage resides in the material facilitation to the conduct in question by reason of the existence of the market power.
GLEESON CJ: Mr Archibald, I am not suggesting this is wrong if it is the case but am I right in thinking that both sides to this litigation at all stages have conducted it as though the expression “predatory price‑cutting” was really a shorthand rendition of the words of section 46(1A)?
MR ARCHIBALD: Yes. One might make the observation that predatory pricing does not readily fit section 46, or the configuration or ingredients of section 46, but one ‑ ‑ ‑
GLEESON CJ: Maybe it does not fit it any longer, since 1986. Before 1986 it is hot hard to see how it fits, is it?
MR ARCHIBALD: No, but one is really driven by the observations in the explanatory memorandum that is really seeking to tell one that one of the activities or courses of conduct which is to be captured by section 46 is something which the memorandum called predatory pricing. Now it may be it only ‑ ‑ ‑
GLEESON CJ: One of the problems, when you pick up a loaded expression like that that comes with an accumulation of learning from another jurisdiction or from other jurisdictions, is that you might then take your eyes off our statute.
MR ARCHIBALD: Yes, and one might in that process fail to appreciate that section 46 requires the existence of market power whereas an Act like the Sherman Act because it covers the monopolisation process, covers other activity which is conduct which along the way might yield the outcome which is adverse to the competitive process, a dimension which is, on no view, captured by section 46.
GLEESON CJ: Does the Sherman Act cover attempting to monopolise?
MR ARCHIBALD: Yes, and hence one has the phraseology in Brooke and other cases “the dangerous probability”, and that is something which is plainly absent from the reach of section 46 in respect of conduct of that kind.
Justice Finkelstein, having wrongly, in our submission, proceeded upon the footing that the United States law allowed for these two independent tests of market power, then proceeded to refer to the passage in Justice Dawson’s reasons in Queensland Wire as though that passage also exemplified an exposition of principle which allowed for two independent tests which would, if it were to be the case, allow that market power could exist even though there was an absence of power to price in a discretionary fashion and our submission is that that is wrong, that is not what Justice Dawson was articulating in that passage.
All that his Honour was drawing attention to was the different ways in which market power otherwise existing would be capable of being exercised. That is why his Honour spoke in terms saying that market power may be manifested by practices directed at excluding competition, but the power must otherwise be established. The conduct does not establish the power. The power must be derived from other sources. Then his Honour added necessarily that one cannot beg the question by using phrases such as “excluding competition” or “predatory pricing”. One still needs to consider that practice to see whether it is, in fact, something which evidences market power or whether it is a practice which is consistent with competitive conduct.
I mentioned before the adjournment the refusal to supply circumstance, Queensland Power being refusal to supply which was held to be anti‑competitive; Melway held not to be anti‑competitive. So one cannot, by using pejorative phrases such as “predatory pricing”, proceed upon the footing that conduct of that kind necessarily bespeaks both market power and the taking advantage of it . What one needs to do is to analyse according to conventional tests that conduct to see whether it does or does not bespeak market power.
So one of the errors which, in our submission, was committed by the Full Court was to collapse the separate ingredients of the section into one, or to conflate the discrete issues, and to, as we put it, elide the separate integers of the section.
GLEESON CJ: Can I take you to page 165 in volume 1 of the appeal books and to the finding on purpose of Justice Heerey. At line 13 he quotes from a Strategic Business Plan which says:
Our aim . . . is to drive at least one competitor out of the market.
And then at line 17 he says:
BBM’s view throughout the period was that it was necessary in order to stabilise prices that two or more players should leave the market.
Now, just leave aside for the moment this question about recoupment. The object in the medium term was to stabilise prices.
MR ARCHIBALD: Yes.
GLEESON CJ: To put an end to the irrational degree of price competition that was going on. The means by which they set out to achieve that was to eliminate two or more competitors. They never thought that they were going to have the market free of competition. They understood that there were relatively low barriers to entry. They were not trying to achieve a monopolistic profit. They just wanted relative calm order. To achieve that they set out to reduce the number of competitors in the market. If that is a purpose, as Justice Heerey thought it was, within section 46, why does not the fact that they thought they could achieve that end indicate that they both had a substantial degree of market power and were willing to take advantage of it?
MR ARCHIBALD: Because the way in which they were proceeding to their objective was to continue to compete in a dogged and vigorous fashion on the footing that, there being an excess of capacity in the marketplace, exit of one or more competitors in a competitive market was the natural outcome, and if they continued with their course of conduct on the basis that they would stay in the market, another one, or more than one, competitor would leave. That was the way in which prices would stabilise, because if participants leave, in a competitive market, there is less excess capacity. There is less of a surplus of supply over demand. There is less pressure on prices, and prices are likely, in a competitive market, to stabilise. The prices would not stabilise at a level above a level of competitive prices.
McHUGH J: What do you mean by “competitive prices”, marginal cost?
MR ARCHIBALD: Or thereabouts, yes. In other words, a level of prices that obtains in circumstances in which no one party in the market is choosing because that party is free of constraint to price at a higher level and can do so without losing sales. A normal competitive level.
McHUGH J: The theory against you is that you either should not have bid for these jobs, or you should have walked away. Take an industry where there is an excess capacity and it is obvious that one or two producers have to go. So there is a price war on and it is a question of the last man standing. They want to drive out a couple, but all those that will be left realise that they will never be able to charge more than marginal cost. Now, is that a breach of section 46? I think the respondent must say it is.
MR ARCHIBALD: We say it is not. One thing section 46 does not command is that one party shut down. And why us? Why not Pioneer?
McHUGH J: Well, I wondered about that. How is Pioneer’s situation distinguished from yours?
MR ARCHIBALD: We cannot see that it is, but it is no more guilty of contravening section 46 than we are. Why is not C&M, if it got to levels of market share that we had and got there very quickly by, at least in some respects, prices clearly lower than ours? Why should ‑ ‑ ‑
McHUGH J: It seems to me, because your pricing was below your average variable cost or your avoidable cost. Is there any distinction between those two terms?
MR ARCHIBALD: In accounting terms there probably is but one is often used as a convenient approximation of the other but exactly what costs are is an horrendously difficult exercise, in any event, and gives rise to more argument than are ever solved. That is one of the reasons why we submit that the respondent’s argument cannot be right. It, essentially, would lead to a conclusion that a party in our position would be not permitted to stay in the market, would be forced to close down simply because of the circumstances that attended it and if it ‑ ‑ ‑
McHUGH J: Or not bid for jobs, particular jobs.
MR ARCHIBALD: That is closing down and that is causing you to suffer all sorts of loss and then how do you work out which party is the one that has to shut down or is it every incumbent. Do you leave the market empty. That cannot be right.
GLEESON CJ: How did the new plant at Deer Park give your client the ability to drive at least one competitor out of the market?
MR ARCHIBALD: We say it did not.
GLEESON CJ: No, but your client said it did.
MR ARCHIBALD: Yes. Somebody in our client said it did. The best that one could say was that it assisted in reducing our costs and therefore made us the more able to hang in the market with the prevailing adverse prices. In light of his Honour’s findings that we referred to just after the adjournment that is the most one could say about it. The upgrading of Deer Park gave to Boral no ability to act independently of market forces.
GLEESON CJ: Where can we find in the papers the strategic business plan update quoted on page 164? You can come back to that when it is convenient, Mr Archibald.
MR ARCHIBALD: Yes. I have various way of tracking it down and I will get it as quickly as we can. Could I proceed with what we wanted to say about the collapsing of questions into one and, indeed, not just collapsing questions into one but reversal of the sequence of the consideration of the issues which arise. Justice Finkelstein expressed the view that that was a permissible course at paragraph 331, page 305 and Justice Merkel joined with him in that view at paragraph 222, page 270 in volume 2, and so his Honour said that:
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.
McHUGH J: Read the next sentence. The two propositions then seem to be irreconcilable. If:
It is the exclusionary conduct that establishes market power -
then it does not seem that you:
must necessarily take into account barriers to entry.
MR ARCHIBALD: Yes, indeed. If his Honour is right, the next discussion is entirely irrelevant.
McHUGH J: Exactly.
MR ARCHIBALD: We draw attention to that circumstances but apart from that feature, the proposition must be erroneous for the reason that I adverted to earlier that conduct in the exercise of power cannot be the source of power. One must not confuse conduct in the exercise of power with the source of power and the exclusionary conduct to which Justice Dawson referred in his reasons in Queensland Wire was a reference to practices in the exercise of power. His Honour was not referring to matters which provided the source of power.
The error, or the commonly committed error, in that regard was referred to by Professor Officer in his paragraph 27, volume 19, page 3802. Put another way, in our submission, exclusionary conduct does not establish or create the power. At best it is a manifestation of power which otherwise exists. So that if I engage in the practice of increasing my prices above competitive levels, I am manifesting the power I have, but my actual conduct in increasing the level of price does not create my power. It may assist in demonstrating that I have it but it is not the source of power. The source of power is fundamentally, as we submitted this morning, a barrier to entry, not exclusionary conduct.
So the correct approach is the sequential one outlined in Queensland Wire in the reasons of their Honours, the Chief Justice Sir Anthony Mason and Justice Wilson, page 187, point 7:
The analysis of a s. 46 claim necessarily begins with a description of the market –
Page 188, point 7:
After the market has been delimited, the question is whether the defendant has a “substantial degree of power” within that market –
and 190, point 9:
Once it is established that a firm has a substantial degree of market power, the issue is whether it has “take[n] advantage” –
of it and, of course, it is important to note that Queensland Wire itself is an exclusionary conduct case. It is a case of refusal to supply and if his Honour’s proposition was sound, it ought to have been exemplified by the approach in Queensland Wire but the approach adopted by the Court in that case is the converse of his Honour’s proposition and does not support it.
The reasoning of the Court in the Melway decision in paragraphs [31] and [67], in our submission, support the contention we now advance. In paragraph [31] the Court warned of the danger of moving too readily from the question of “purpose” to “taking advantage” and we would say an even greater danger arises if one moves, not only from purpose to taking advantage, but from taking advantage to power. One is coalescing all of the ingredients and proceeding upon the footing that the question of purpose is effectively the sole or the dominating criterion, whereas each of the integers of the section require to be separately established.
Now, his Honour cites no authority for the aphorism appearing at the end of paragraph 331, but for our part we rather proceed upon the footing that his Honour has, without attribution, taken the proposition from the Georgetown Law Journal article to which his Honour referred a few paragraphs before. If one looks at page 255 in that article, one sees in a paragraph commencing “This procedure is seriously flawed” this statement:
Bainian power –
that is, power to exclude –
cannot be evaluated in a vacuum, independent of and prior to analysis of the allegedly exclusionary conduct. It is the exclusionary conduct that creates the market power being evaluated, not the other way around.
KIRBY J: Which paragraph was that?
MR ARCHIBALD: Again, I have an electronic print. I think it is the first complete paragraph on page 255, the paragraph commencing “This procedure is seriously flawed”. It is the first complete paragraph on the page. The relevant sentence is at about point 3 on the page.
Now, that seems to us to be the source of his Honour’s proposition and it must be wrong, because the Court sees there explicitly that the authors proceed upon the footing that the exclusionary conduct creates the market power being evaluated. That is a commission of the familiar fallacy to which Professor Officer referred and with slight verbal adjustments, in our submission, his Honour has made the same error. The proper approach on authority and on principle, in our submission, is to consider each of the ingredients separately and sequentially and not to conflate the elements in the way that the Full Court did.
GUMMOW J: Did any of the experts comment on this actual article?
MR ARCHIBALD: No, I do not think it was referred to at all in the course of argument or evidence, at the trial or on appeal. Most of the material to which Justice Finkelstein refers was not addressed by the evidence or in argument at trial or on appeal.
Justice Merkel at paragraph 222, in our submission, makes the same error and advances no reasons or justification for the view that his Honour there expresses. His Honour does say at paragraph 218, page 269 that the market was “highly competitive”. So his Honour seems to have made his own finding that the market was highly competitive. In light of that finding by his Honour, we would contend that a finding by his Honour that there was market power is contradictory of the finding of the “highly competitive market”.
Both Justices Finkelstein and Merkel, in our submission, begged the question about the characterisation of the low prices. They attribute the label “predatory pricing” to them. They do not examine the foundation of those prices or examine the market realities and market conditions that we mentioned at the outset of our submissions to this Court. Had they done so, in our submission, the only conclusion could have been that those prices were not elective discretionary prices but prices which were driven and commanded by the harsh reality of a highly competitive market place.
Justice Beaumont at page 254 of the appeal book, paragraph 179(c)(ii), seems to address without discussion conduct that might be said to be exclusionary. He does not explicitly coalesce or collapse the questions into one, but such analysis as appears at that page seems to proceed upon that footing. He, too, apparently proceeds upon the premise that there was no power in Boral to price free of competitive constraint. So, in our submission, the members of the Full Court erred in principle in concluding ‑ ‑ ‑
GUMMOW J: Which paragraph in Justice Beaumont do you say manifests the collapse, Mr Archibald?
MR ARCHIBALD: I am not sure that it really does but his Honour, in that passage at page 254, has a long paragraph ‑ it is paragraph 179, part (c) of that paragraph starts at line 10 on page 253. Subparagraph (i) deals with market and subparagraph (ii) seems to collapse into the one issue, both the question of power in the market and the question of taking advantage of that power.
GUMMOW J: Yes.
MR ARCHIBALD: We say that that process involves misconception.
In relation to the further reasoning of Justice Finkelstein beyond paragraph 331, his Honour then does address, we would submit inconsistently with the earlier reasoning, questions as to barriers of entry. It is clear from the evidence and from the conclusions of the trial judge in our submission, that barriers to entry were in fact low, that was his Honour the trial judge’s finding, paragraph 140, volume 1, pages 152 to 153, the expression was “quite low”. Justice Merkel, at paragraph 225, line 28, spoke of:
C&M’s ability to enter the Melbourne market with an efficient state‑of‑the‑art plant at a reasonable capital cost demonstrated that it was not difficult to enter the market. Thus, the structural barrier to entry was low.
Justice Beaumont also says that “structural barriers . . . were low”, at page 254, line 3.
Justice Finkelstein then seeks to proceed upon an analysis, the outcome of which is that there were other barriers than structural barriers, and that reasoning depends upon the view which his Honour articulated in paragraph 341, volume 2, page 307, third sentence, that “it is now accepted by many economists”, that is, not by all:
it is now accepted by many economists that the behaviour of incumbent firms to exclude rivals . . . is as much a barrier to entry as any structural condition that may exist in a market.
And at paragraph 342, second sentence:
Some economists refer to these deterrent activities as “strategic” barriers to entry –
So his Honour is accepting, in our submission, that there was no power residing in any ability of Boral to increase prices above the competitive level. In the endeavour to find power involving exclusionary conduct, his Honour was fastening exclusively upon what he was describing as strategic barriers.
McHUGH J: Is the presence of efficient producers in the market traditionally regarded as a barrier to entry?
MR ARCHIBALD: No. If one has economies of scale that are unattainable by others, then that might give rise to a barrier, but that is a structural barrier. Here, the finding was that those barriers were low. If one has control of a resource which makes one efficient and that resource is denied to others, that is a barrier. But none of these features were present here.
CALLINAN J: When did C&M come into the business?
MR ARCHIBALD: They came in in 1993. They were setting up a plant at Campbellfield in outer suburban Melbourne from ‑ ‑ ‑
CALLINAN J: This was the Hess plant that they were ‑ ‑ ‑
MR ARCHIBALD: Yes. They had already been in Bendigo. They came to Melbourne with the Hess plant and they started production during, I think, the first half of 1993. The findings of the trial judge as to that are at page 127, paragraph 25.
CALLINAN J: The offer that was made by your client for the whole of their operations was 3.8 million, I think.
MR ARCHIBALD: Yes.
CALLINAN J: And they wanted 13 million, or 13.6, which gives you some idea of the basis, perhaps, for his Honour’s finding that you could get into the business for $8 million – somewhere in between the two.
MR ARCHIBALD: Yes, and there was other evidence about costs and I think some of C&M’s own evidence related to costs too.
CALLINAN J: Was there any evidence as to what happened to C&M in the end?
MR ARCHIBALD: Well, they are market leader.
CALLINAN J: They are still there.
MR ARCHIBALD: The biggest share of the market. The most prosperous.
McHUGH J: But they were only able to survive by bringing in Wilson, were they not?
MR ARCHIBALD: There was some evidence about that, but his Honour’s findings are that they prospered, and his Honour implicitly rejected a lot of that evidence – must have rejected a lot of that evidence. The fact was they started in the market and they immediately – there is some evidence showing that they were operating on positive margins throughout, and they immediately gained market share and throughout the whole period increasing market share, and I mentioned before the adjournment the levels they had in 1995.
McHUGH J: Was there an equity issue to Wilson?
MR ARCHIBALD: Yes.
McHUGH J: Yes.
GLEESON CJ: How did the costs of C&M compare with your prices?
MR ARCHIBALD: I am not sure that the evidence was clear, but I do not think the evidence showed that our prices were below their costs.
CALLINAN J: But their costs should have been lower. This Hess machine was supposed to be state of the art.
MR ARCHIBALD: They plainly were lower, yes. The evidence was clear they were lower than our costs. Exactly how much lower, I think, was not clear.
CALLINAN J: Where is his Honour the trial judge’s finding about the prosperity of C&M concluded?
MR ARCHIBALD: At paragraph 179, page 162.
CALLINAN J: Thank you.
MR ARCHIBALD: That is the reference we gave in paragraph 16 of our reply submission but ‑ ‑ ‑
HAYNE J: It is line 7 or 8 of that page of the appeal book:
C&M decided to stay in. It did not have a particularly deep pocket, but nevertheless it survived and prospered.
MR ARCHIBALD: I am sorry, it is there, yes. I was thinking it was a more elaborate finding. Thank you, your Honour. Yes, “it survived and prospered”, and there was evidence about the surplus before depreciation, interest and tax that it achieved during that period and the positive margin, over all its cost, upon which it was operating. Like many start‑up businesses, you do not make a profit, even though you are doing well in your first couple of years, but you are still doing well.
Now, his Honour Mr Justice Finkelstein’s views about strategic barriers were expressed upon the footing of the views of a number of economists whose views his Honour was aware of.
HAYNE J: Was any of it put to the experts who were called?
MR ARCHIBALD: No.
HAYNE J: Does anything follow from that fact?
MR ARCHIBALD: Well, in our submission, yes, and what his Honour had to do at paragraph 344 to get to the view he did was reject, just out of hand, evidence of Professor Hay, the expert, who ‑ ‑ ‑
GUMMOW J: Had the advantage of having been cross-examined.
MR ARCHIBALD: Not on this. His Honour acknowledged at 344 it:
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.
That is line 25. This is on the deterrent effect of low prices. His Honour says at 345:
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.
And that is so, that it is a correct view, and it was also the view of Professor Officer, the uncontroversial evidence that Professor Officer, on the same point – Professor Officer’s evidence is at item 138 in the folder. In the appeal books, it is at volume 22, page 4666, line 31 to 4667, line 11. Prices are not per se a barrier to entry. Indeed, conduct does not create market power, market power precedes conduct – the same point. So his Honour simply says at line 3 of Professor Hay’s evidence:
This is unnecessarily restrictive and wrong in my view.
But it is just a bald assertion, contrary to the unanimous expert evidence before the court, his Honour choosing to select the views of many but not all economists and overturning a finding of the trial judge which it was well open to the trial judge to make – indeed the trial judge was obliged to make that finding.
KIRBY J: In your predatory advocacy you have singled out Justice Finkelstein but there are two other judges of the court.
MR ARCHIBALD: Yes, can I go to them in a minute.
KIRBY J: I cannot wait.
MR ARCHIBALD: I am just using competitive forces, not discretionary. Before I go to the others, could I mention that this view about deterrent strategies being barriers to entry has been consistently rejected by the United States courts. We have mentioned in our list of authorities the Advo decision.
KIRBY J: Do they deal anywhere with what seems to me to be commonsense, that the restriction on entry is a consequence rather than, as it were, a precondition of market power? It is what happens if you have the market power and you can do certain things that stop other people. It is not, as it were, part of the definition of the market power.
MR ARCHIBALD: I do not think they approach the matter upon that footing.
KIRBY J: But is that not correct?
MR ARCHIBALD: No, with respect. The barrier to entry operates as the source of the power. Once one has the power, one is then enabled to act in various ways, and the ways in which one may act involves utilisation of that power but are not the source of the power.
Ways in which one can act include refusal to supply or, if one likes, predatory pricing. That is exercise of a power otherwise available. Now, we have mentioned Advo at page 1199 where the court rejected the theories that the alleged predator could scare away potential entrants by strategic deterrent conduct. At page 1202 to the like affect ‑ ‑ ‑
HAYNE J: I am disappointed you will not take us to the second column on 1199 and Mr Croc’s advice, Mr Archibald.
MR ARCHIBALD: If one had the luxury of time there are a whole lot of things one would do, your Honour. There are always some graphic statements in the American jurisprudence in this field. One thing we were not doing. Apart from the Advo Case, the most recent United States decision which deals with this matter is the American Airlines Case, which is on our list of authorities. There the District Court rejected as misguided and contrary to law the argument for the existence of strategic barriers. The relevant pages are 1213 and 1216. At 1216, five reasons were given for rejecting the argument, reason two was contrary to law and no court has adopted such a theory. At page 1215 the court referred to another case, Los Angeles Land which had also rejected the proposition. In our submission, there is no solace in the American authorities for the proposition which his Honour sought to advance.
Justice Merkel approached the matter on the same footing at paragraph 225. At line 30, his Honour said:
Thus, the structural barrier to entry was low –
and then proceeded:
However, it was probably not rational to enter the market during the price war as the market had substantial excess capacity ‑ ‑ ‑
KIRBY J: Which paragraph is this?
MR ARCHIBALD: Paragraph 225 starting at line 27 on page 270. He speaks of structural barriers being low. Then at line 2 at page 271, without any discussion as to whether law or economics would recognise dynamic or strategic barriers to entry, his Honour says:
Thus, at least during the price war there was a dynamic or strategic barrier to entry which gave at least the major participants in the market some market power. The dynamic barrier arises as a result of the prevailing economic circumstances in the market, including a potential entrant’s disincentive to enter . . . I am satisfied that a dynamic or strategic barrier to entry is a relevant factor.
Now, his Honour does not do more than assert the availability of such a concept and its relevance. That approach must suffer at least the same shortcomings as Justice Finkelstein’s analysis, including the proposition that it is in clear defiance of non‑controversial evidence accepted by the trial judge but there is a further shortcoming, in our submission. His Honour seems to attribute the barrier to the major participants in the market.
In other words, he treats the prevailing economic circumstances as somehow or other bestowing market power not just on, presumably, Boral, but, one would take it, Pioneer and, presumably, C&M once they were well into the market and while it was there, Rocla and in some fashion, then, without ascribing to a particular participant in the market a degree of market power, effectively saying that because the market is unattractive to enter there is a barrier presented to all potential entrants and that barrier avails everybody in the market and presumably it must have availed Budget with its 5 per cent share, or less, as it would avail Boral or Pioneer.
McHUGH J: What does his Honour mean in paragraph 226 when he says that an:
indications of BBM’s market power were its capacity to persistently drive down and maintain prices at below avoidable cost –
and then he refers to:
an expectation of some recoupment by reason of higher prices and better profitability with fewer rivals –
Is he talking about supra‑competitive profits? Is he talking about profits over and above marginal cost?
MR ARCHIBALD: He cannot be, on the evidence, because of the trial judge’s findings that there was no such expectation or capability.
CALLINAN J: There was no evidence, no suggestion of that.
MR ARCHIBALD: It was the contrary. The evidence was that ‑ ‑ ‑
CALLINAN J: I do not think it is pleaded, either, is it, recoupment?
MR ARCHIBALD: No. Of course, this is one of the peculiarities. The experts called by both sides – the economic experts agreed that recoupment was a necessary, or is an inevitable phenomenon or ingredient of predatory pricing. It was not a matter of controversy.
CALLINAN J: In view of that, may I take you back to the respondent’s pleading which is at page 6 of appeal book 6?
MR ARCHIBALD: Yes, your Honour.
CALLINAN J: It rather looks to me as if on a number of the issues which perhaps one might regard as key issues the respondent failed to make out a case. Can I take you to 9(a), for example, on page 6.
MR ARCHIBALD: This was a form of collusion or ‑ ‑ ‑
CALLINAN J: Yes. That failed, did it not?
MR ARCHIBALD: Yes.
CALLINAN J: And then if I take you to page 7, 9(d):
the existence of the excess capacity . . . together with the facts alleged in paragraphs 5 . . . significant sunk cost requirements and the conduct of Boral –
I cannot think of any more controversial issue than the right or otherwise of an operator to recover sunk costs. There is all the problem of trying to bring them into current day terms or current day values.
MR ARCHIBALD: Yes.
CALLINAN J: There does not seem to me that there was any attempt to prove that sunk costs were so far in the past and so insignificant that they could be disregarded for the purposes of fixed costs. Am I right about that?
MR ARCHIBALD: Yes, in our submission, but ‑ ‑ ‑
CALLINAN J: Well that failed also.
MR ARCHIBALD: Yes.
CALLINAN J: And then, if you go onto the next page, on page 8, 11(b):
in or about August 1994 ‑ ‑ ‑
the appellants –
offered to acquire the Hess plant . . . for a price of $3.8 million knowing that this price did not enable C&M Bricks to recover the costs incurred by it in establishing that plant;
GUMMOW J: You told us that dropped out.
MR ARCHIBALD: It effectively dropped out and his Honour found that it was a genuine bona fide offer.
CALLINAN J: Exactly, but there was not even evidence, was there, that it would have cost a great deal more than $3.8 million. There was one valuation put upon the plant of 700,000‑odd, because of its bad layout and other factors.
MR ARCHIBALD: I think, your Honour, there was some evidence that would suggest that their total costs of establishing and running the business, probably were a bit above $3.8 million.
CALLINAN J: In any event, a number of the factors fall away, a number of the pleaded factors, and it rather looks to me as if the pleading is upon the basis that you need, if not all of them, you certainly need a more significant number of them than survived in order to make the case.
MR ARCHIBALD: Yes, and, of course, what Justice Finkelstein did effectively in the Full Court, in our submission, was to step around the conclusion that Boral did not have discretionary pricing capability by embarking upon this analysis of strategic or deterrent barriers and really trying to fasten upon some discrete novel, unprecedented ingredient of market power to get to a conclusion, but his Honour, having identified for his part, we submit wrongly, the possibility that these matters could have an impact, did not proceed to analyse whether they did have any impact at all, whether they did operate as a deterrent.
CALLINAN J: I see Justice Beaumont has made a finding that I was going to ask you about later but perhaps I will ask you about it now. At page 253, at about line 15, he speaks about the availability of “alternative products” and some substitution, but then he says:
But given the discontinuities of substitution previously mentioned, and the price differentials involved, it ought not, in my view, to be inferred that the relevant market was the wider walling products market –
Now, did the trial judge deal with discontinuities of substitution, because I rather thought his Honour’s finding was different, that these were always continually available?
MR ARCHIBALD: Yes, but I think the discontinuities that his Honour is there alluding to are, in effect, steps in the degree of direct competition between the products, but the vice in the analysis of Justice Beaumont at this point is that his Honour, in our submission, is looking at discontinuities from the perspective of the sub‑market notion of particularly intense competition and the authorities - we will come to in a moment if we may – that discuss sub‑markets, recognise that even in sub‑markets one may have discontinuities. The existence of discontinuities is not inconsistent with the existence of a sub‑market. Still less is it inconsistent with the existence of a market for walling and paper products?
CALLINAN J: But there is no reference to a sub‑market in that paragraph.
MR ARCHIBALD: No, but the discontinuities is an immediate indicator that his Honour is saying competition is not immediate in all respects and so his Honour must be fastening - I am not sure what the reference is to at that line –
discontinuities . . . previously mentioned ‑ ‑ ‑
CALLINAN J: That is my problem. I am trying to find out what it is a reference to.
MR ARCHIBALD: It is very hard because of the very long recitation of fact at the start of his Honour’s reasons and then the very compressed discussion in paragraph 179, wrapping up a whole lot of matters without ‑ ‑ ‑
CALLINAN J: It seems to be a critically important finding for his Honour’s judgment.
MR ARCHIBALD: Certainly, on market, it is. So far we have not really addressed market but as your Honour knows we challenge the conclusions of the Full Court on market largely because of their erroneous approach to the topic through the sub‑market issue and the apparent insistence by the members of the court, including Justice Beaumont, on substitutional possibilities, both on the supply and the demand side which, in our submission, is a misunderstanding of the evidence.
The finding of the trial judge about expectations of recoupment was paragraph 169, page 159, lines 28 to 29:
nowhere is there any suggestion, hope or expectation of BBM being able to recover its losses by supra‑competitive prices.
Justice Merkel’s observation about some hope of recoupment must be one of two things: one, an endeavour to gainsay that factual finding of the trial judge ‑ ‑ ‑
KIRBY J: What was that paragraph of the factual finding?
MR ARCHIBALD: Paragraph 169, page 159 in volume 1.
KIRBY J: This is really on the third issue, is it not?
MR ARCHIBALD: Yes, on the recoupment issue that his Honour mentioned at the passage to which I was taken, and either his Honour was seeking to controvert that conclusion or his Honour misunderstood what recoupment was. The more likely position is the latter, that his Honour thought you could recoup out of normal competitive level profits, whereas the true conception is that recoupment only occurs out of above competitive level profits, out of super‑profits.
That that is the case is exemplified by a decision in the Indiana Case which was not on our list of authorities but which we would seek to provide to the Court now if it is convenient to do so. At page 569 in the report of the decision ‑ ‑ ‑
KIRBY J: How do you distinguish between so‑called ordinary profits and supra‑profits?
MR ARCHIBALD: Super profits are the profits which are the result of the exercise of market power. I have the power to lift my prices without market constraint. I elect to lift them above the competitive level. They are supra‑competitive prices and they attract supra‑competitive profits.
McHUGH J: In general terms they are cost plus an appropriate rate of return, are they not?
MR ARCHIBALD: That is a normal profit.
McHUGH J: Yes.
MR ARCHIBALD: And a super profit is something above that. Yes. So, at 569 ‑ ‑ ‑
GUMMOW J: They refer to Areeda and Turner.
MR ARCHIBALD: Yes:
not the recoupment of losses from increased market sales at competitive prices, it is the recoupment of losses from monopoly prices –
and so on. That is, in our submission, the correct exposition of principle.
KIRBY J: Which paragraph of Indiana?
MR ARCHIBALD: At 569.
KIRBY J: That is the page?
MR ARCHIBALD: Yes, the paragraph numbered [3] starting at the top of the page in the left‑hand column, including the reference to Matsushita and the sentence following that:
Again, there is nothing predatory about recouping from increased market sales or competitive prices.
It seems that his Honour Justice Merkel misunderstood that concept.
GUMMOW J: Where is the passage where Justice Merkel manifests that misunderstanding? Which paragraph?
McHUGH J: I think it is 225 in his judgment at page 270.
MR ARCHIBALD: Yes, thank you, your Honour. At 226, line 14.
GUMMOW J: Page 226. Yes, thank you.
GAUDRON J: I am sorry. This is not an area with which I am entirely familiar but do all these terms come out of the expression “attempted monopolisation”?
MR ARCHIBALD: The expression “recoupment” certainly does not come out of that notion.
GAUDRON J: Well, what is the legal concept in the United States that gives rise to predatory pricing of which recoupment seems to be a subset? Does it all come out of anti‑monopolisation?
GUMMOW J: It all comes out of what can go to a jury, or a jury can infer, does it not?
MR ARCHIBALD: Yes, but under section 2 of the Sherman Act, which prohibits monopolisation and attempted monopolisation, the courts have said, “We recognise that an ingredient of the prohibited activity will involve a two‑stage process. To make business sense to engage in predation, one forgoes short‑term profits on the expectation of gaining long‑term supra‑profits and that is ‑ ‑ ‑
GAUDRON J: Yes, I understand that, but it comes out of particular language.
MR ARCHIBALD: Well, no. In our submission, recoupment is not given life or created by section 2 of the Sherman Act. It is not a legal notion. It is a notion of economics or business explaining why parties will behave in a particular way.
GLEESON CJ: But it is a response to a conundrum presented by the Sherman Act, because behaviour that on the face of it looks competitive, not anti‑competitive ‑ ‑ ‑
MR ARCHIBALD: How do you distinguish?
GLEESON CJ: ‑ ‑ ‑ in truth can be discerned as anti-competitive behaviour if it has a certain object. But I am just wondering how valid or useful it is to translate the response that has been made to the Sherman Act conundrum to the response that ought to be made to the section 46 conundrum.
MR ARCHIBALD: We say that the phenomenon is embedded in the activity of which we are accused, not as a matter of legal proposition or any subscription to any particular economic theory, but as a matter of business reality.
GLEESON CJ: Well, you are doing something that looks as though it is competitive. You are putting your prices down.
MR ARCHIBALD: It looks as though it is competitive and the utility – it is an aid rather than a superimposed requirement, but the utility of focusing on the recoupment notion is that it assists you to distinguish pro‑competitive legitimate conduct from anti-competitive prohibited conduct. If there is no expectation of recoupment, that circumstance tells you or assists in your analysis to conclude that the party in question both lacks market power and is not taking advantage of market power.
KIRBY J: Unless it is big enough that its object is simply to destroy.
MR ARCHIBALD: Well, no, but the businesses act rationally, economically rationally. One proceeds upon the premise of profit maximisation. A big business will not forego profits simply to vent its spleen on a competitor.
KIRBY J: Well, not entirely just vent its spleen, but just to demonstrate power and thereby, perhaps in the long term, to discourage others from venturing where this one foolishly chose to tread.
MR ARCHIBALD: And if by doing that you increase your power and enable you to more readily charge above competitive level prices or charge above competitive level prices to a point greater than you could previously achieve, then you are recouping in the long term what you have foregone in the short term. That is the aid or the utility that is afforded by this analysis. We do not submit that it is an extra ingredient or a necessary feature that one can discern in the legislation. It is approaching the ‑ ‑ ‑
GAUDRON J: Well, ultimately do you say it is a consideration which enables a factual determination to be made, namely that your client did not have substantial market power because it could not ‑ ‑ ‑
MR ARCHIBALD: It is an evidentiary aid to assist in the conclusion as to power or absence of power.
GAUDRON J: Also, I would have thought though it might be more directly relevant to the question whether you were using, taking advantage of market power.
MR ARCHIBALD: Yes, it is also relevant to that.
GLEESON CJ: It is a consideration that you say is relevant to making sense of this legislation?
MR ARCHIBALD: Not making sense but ‑ ‑ ‑
GLEESON CJ: In terms of the purpose that it is seeking to achieve. If you ask, “Why is Parliament prohibiting people putting their prices down?” “Why is the ACCC complaining about people putting their prices down?” There has to be a reason.
MR ARCHIBALD: Yes, and the reason is that competition is being harmed. Why is competition being harmed? Because the short‑term boom for consumers from low prices will be followed by long‑term disadvantage from supra‑competitive prices when the predator exacts the profit component that will have made the predatory activity a sensible business activity to have engaged in. Make it worth his while.
GAUDRON J: Is it a permissible approach to say if there was no prospect of recoupment then it is easier to infer that what was happening was that the supplier was merely responding to market forces, and by reason that he/she/it was merely responding to market forces it is impossible to say that they took advantage of them and their market power, their substantial market power.
MR ARCHIBALD: Exactly so, but more than that it tells you that in all likelihood that party did not have market power in any event because in pricing it was not discretionarily choosing to go low. It was obliged to go low by market forces. You would only go low by choice, by discretionary pricing, if you knew or expected that at a later time you could go high to recover your outlay.
GAUDRON J: Or – but there are other possibilities for going low, are there not?
MR ARCHIBALD: Not that would make sense to the profit maximiser ‑ ‑ ‑
GAUDRON J: Exactly, but that is an economic theory.
MR ARCHIBALD: Well, it concentrates businessmen’s minds too.
GAUDRON J: I know it is the prevailing theory. But one might be motivated simply by saying – by these considerations, “We have been in this industry for three generations. We aim to stay here for another three generations. We know that in the long term things will sort themselves out and if you take the long‑term fine generation view everything will be fine.” Now, that is one possible view, which is not necessarily – which is more sentimental than rational on one view, is it not?
MR ARCHIBALD: If it is sentimental or if it is business rationale, neither involve any exercise of market power.
GAUDRON J: I do not know. Your decision is to stay in the industry, let us say, or to stay in the market. The means by which you achieve – you give effect to that decision may vary, it seems to me. You might decide, “We will sustain loss for 15 years because that is the period over which we can write off losses to tax and at the end of the day we are not interested in profit. In the short term we are not interested in profits”. I am only putting these to you to say, I think you have to make the words of section 46 work independently of the prevailing economic dogma.
HAYNE J: Is it prevailing economic dogma or is it the distinction between the individual trader and the corporate trader that must have regard to a body of shareholders? The latter could not properly, consistent with fiduciary obligation, make the decision her Honour posits, could they?
MR ARCHIBALD: Very probably not. Even the degree of tolerance allowed for business judgments probably would not allow a board of directors to sentimentally choose not to make profits.
HAYNE J: The individual trader or the family group could.
MR ARCHIBALD: Possibly.
GAUDRON J: And this Act applies to family companies, does it not?
MR ARCHIBALD: Yes.
HAYNE J: But whatever else Boral was it was not family.
MR ARCHIBALD: The factual findings here were that the decisions were based on rational business considerations.
GLEESON CJ: The document that appears behind tab H51 in volume 17 contains a set of lachrymose ruminations beginning with the expression:
WE CANNOT DO NOTHING.
BLEED TO DEATH ‑
and ends:
Why is Market the Way it is:
Who was the author of that document.
HAYNE J: Someone who used to work for Boral, I suspect.
GLEESON CJ: It is an interesting document because the author’s only suggested strategy is to buy Hess.
MR ARCHIBALD: Bleed to death is another suggested strategy.
GLEESON CJ: It is obviously a document ruminating about the offer that they were to make to C&M and it talks about owning the only Hess in Victoria as being the only way out of their problem.
MR ARCHIBALD: Yes.
GLEESON CJ: Do we know who the author of that document was?
MR ARCHIBALD: I am pretty sure it is Mr Vella, your Honour. There is some other handwriting at 3553 but the other script is that of Mr Vella.
GLEESON CJ: On page 3334 in that document, on the second page of their strategic plan, the 1996 of 2001, you will see “Threats” referred to on the top of page 2.
MR ARCHIBALD: Yes.
GLEESON CJ: The third threat is “Substitution”. The products referred to after the word “Substitution” are they products that form part of what you say is the relevant market?
MR ARCHIBALD: Yes, exactly. Precast sometimes covers tilt‑up. Tilt‑up is either done on‑site or off‑site but the expressions are sometimes used interchangeably but “precast” probably covers tilt‑up there. Precast is done away from the site and brought in, and tilt‑up is done on‑site and tilted‑up.
I might return to recoupment for a moment. Justice Finkelstein rejected the notion of recoupment on two grounds at paragraph 262, page 284. He said at line 9:
While a monopolist may have the ability to extract a monopoly rent and thus recoup its losses, a firm with only a substantial degree of power may never be in that position.
That must be wrong. It is of the essence that a party who has a substantial degree of power has the ability to price free of market constraints and has the ability to charge supra‑competitive prices without substantial loss of custom.
Once you can charge supra-competitive prices, you have the ability to recoup from supra-competitive profits. It may take you longer than a full monopolist would take but you have the capability. So it is wrong, in our submission, for his Honour to proceed upon the footing that a firm with a substantial degree may not be in that position. The second reason seems to be in the penultimate sentence of that paragraph:
there is no need to have recourse to a test such as “selling below cost plus recoupment” because intent is at the heart of the offence.
That would seem, in our submission, to elevate purpose to a status of being the sole or dominant criterion overwhelming and absorbing every other consideration rather than taking its place as one of the necessary, but not by itself sufficient, criteria. So those reasons, in our submission, do not justify the rejection of recoupment as an aid to analysis in the consideration of section 46. The power to charge above competitive prices available to a party having a substantial degree of power is qualitatively identical with the power that attends the full monopolist.
Justice Merkel seemed to have the same misconception. At paragraph 196 on page 263 his Honour said in the second sentence at line 10:
a firm in a market in which more than one firm has a substantial degree of power is unlikely to ever have the capacity to recoup its losses by subsequently extracting supra competitive or monopoly prices, assuming the absence of complicity.
Our submission is that is in error. It is a denial of the defined concept. Again, it may take longer, but you have the capability.
HAYNE J: Does this point come to any more than this: when 46(1) talks of “taking advantage of a substantial degree of power”, in a case where the power which is allegedly taken advantage of is the power to price at a particular level, the key question is whether the entity alleged to have contravened can set its prices free from constraint by competitors or acquirers?
MR ARCHIBALD: Yes, that is the question.
HAYNE J: And the answer you say here is factually found, “No, they could not set free from competitors or acquirers.”?
MR ARCHIBALD: Yes, and one more confidently and readily reaches that conclusion if one adds the further ingredient of a finding that there was no ability in Boral to recoup the consequences of low prices.
HAYNE J: But that is simply a restatement, is it not, of the proposition, cannot set price free from competition a competitor or supplier?
MR ARCHIBALD: Yes, because the ability to set free from price carries with it the ability to set supra‑competitive prices and therefore recover your losses later. Justice Finkelstein at paragraph 230 repeated the fallacy, in our submission, when he said at line 18:
it is only such firms –
that is dominant firms –
that can behave independently of competitive forces and thereby “win supra‑competitive or monopoly profits”.
That must be wrong. The party with a substantial degree of market power can behave independently of competitive forces, which was the feature we addressed the Court on this morning.
GUMMOW J: Now it follows, does it not, from what Justice Hayne was putting to you, that one is always looking at the particular aspect of power in a market, as it were; a power to do something or not to do something.
MR ARCHIBALD: Yes.
GUMMOW J: Here it is fixed prices.
MR ARCHIBALD: Fixing low prices. The freedom to fix ‑ ‑ ‑
GUMMOW J: Yes. In Queensland Wire it was power to do something else.
MR ARCHIBALD: Yes, and Queensland Wire, refusal to supply, can be called exclusionary conduct, but it is conduct. Fixing prices is as much conduct as refusing supply. They are all conduct cases. There is nothing unique about the kind of conduct that Justice Finkelstein was addressing which would attribute to it some different rule or different approach ‑ ‑ ‑
GUMMOW J: Having worked out that as the point it is about, you then get content, if I can put it that way, from 46(3), do you not?
MR ARCHIBALD: Yes. 46(3) is critical. That is why it is there, to remind you ‑ ‑ ‑
GLEESON CJ: Putting your prices down on its own can never be an exercise of power, can it? You have to add something to putting the prices down to be exercising power. It might be putting them down with a view to putting them up again later.
MR ARCHIBALD: Yes. It is the freedom that is associated with the price setting that is the indicator of market power.
HAYNE J: Is that the point, that it is not a question of comparison which may be connoted by saying “putting prices down”. The question is price setting. Regardless of the particular level chosen, do you have power to set your own prices free, substantially free, largely free - some comparison has to come in – from constraint by those to whom you supply and those against whom you compete?
MR ARCHIBALD: Yes. What was the price that you set? A discretionary price. Did you choose it? Was it forced on you or did you choose it? Our prices were forced on us ‑ ‑ ‑
HAYNE J: Now, the further complication is that every price fixing by a vendor of goods or services is essentially voluntary.
MR ARCHIBALD: But if you make a mistake in a competitive market you will be out of business pretty quickly. That is the difference. The party who has market power will not be out of business. He can choose his prices anywhere and he will stay in business because he will not lose sales significantly over a sustained period.
HAYNE J: But pointing to the fact that you chose to fix a price does not tell you anything.
MR ARCHIBALD: It does not tell you enough.
HAYNE J: Why did you choose to fix the prices where you did?
MR ARCHIBALD: Yes, why were you able to fix it at that level?
HAYNE J: Yes.
MR ARCHIBALD: Yes. The final leg in the analysis of Justice Merkel on recoupment is paragraph 234. His Honour states his recognition that what his Honour has concluded does not sit comfortably with the principles that provide the underpinning for the European and United States case law. He essentially attributes that difference to the 1986 amendments. The 1986 amendments, in our submission, make no difference whatsoever because qualitatively the type of power that is exercised by the party having a substantial degree of power is identical with the power that is exercised by the dominant party. It is a matter of degree not a difference in kind and cannot explain any departure from analysis that would obtain before the amendments as would obtain after. His Honour seems to be saying recoupment would have been an ingredient before the amendments but it is not after. Our submission is that no relevant effect is imparted by the 1986 amendments and the principles which obtained before, likewise obtained after.
GLEESON CJ: Mr Archibald, have you and Mr Young made an agreement between yourselves about the division of the remaining time tomorrow?
MR ARCHIBALD: Not formally but we should, effectively, have equal time and I am pretty much at the limit.
GLEESON CJ: I wonder if the two of you would be good enough to make such an agreement between yourselves overnight about the division of the remaining time tomorrow.
MR ARCHIBALD: Yes, we will certainly do that.
GLEESON CJ: Thank you. Is that a convenient time?
MR ARCHIBALD: Yes, your Honour.
MR YOUNG: Your Honour, before we adjourn could I ask whether implicit in your Honour’s question is a premise that this matter will necessarily finish by 4.15 tomorrow?
GLEESON CJ: Yes, we have a fairly substantial case to follow this matter in the list.
MR YOUNG: Yes, I appreciate that, your Honour. The difficulty I see, your Honour, is that the submissions we need to make would necessitate equal time. We would need, effectively, to take the whole of the day, leaving no time for reply.
GLEESON CJ: Would it relieve your difficulty if tomorrow at lunch time we adjourned from 1 until 2 instead of 12.45 to 2.15?
MR YOUNG: It certainly may assist and I will have discussions with my learned friend.
GLEESON CJ: Very well then, we will expect the parties to be able to make an agreement. We will adjourn until 10.15 am tomorrow morning.
AT 4.15 PM THE MATTER WAS ADJOURNED
UNTIL WEDNESDAY, 22 MAY 2002
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