Felkro Nominees Pty Ltd v Austissue Pty Ltd

[1993] FCA 455

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JUDGMENT NO. ........ ..,..,.... .....,.,.,~~

IN THE FEDERAL COURT OF AUSTRALIA )	No. QG 106 of 1993
QUEENSIAND DISTRICT REGISTRY	)
GENERAL DIVISION	1

BETWEEN: TRADE PRACTICES COMMISSION

Applicant

AND :  Q.U.F. INDUSTRIES LTD.

Respondent

MINUTES OF ORDERS 12 J U L 1993

FEDERAL COURT OF
AUSTRALIA

JUDGE MAKING ORDER:	Drummond J	PRINCIPAL REGISTRY
DATE OF ORDER:	6 July, 1993
WHERE MADE:	Brisbane
THE COURT ORDERS THAT:

The application for interlocutory relief is dismissed.

2.        The applicant pay the respondent's taxed costs of and incidental to the application for interlocutory relief.

NOTE:	Settlement and entry of orders is dealt with in
Order 36 of the Federal Court Rules.
IN THE FEDERAL COURT OF AUSTRALIA )	No. QG 106 of 1993
QUEENSLAND DISTRICT REGISTRY	1
GENERAL DIVISION	1

BETWEEN: TRADE PRACTICES COMMISSION

Applicant

AND:  Q.U.F. INDUSTRIES LTD.

Respondent

Corm:  Drummond J

Place: Brisbane

Date:  6 July, 1993

EX TEMPORE REASONS FOR JTJDGMENT

By amended application, the Trade Practices Commission sought interlocutory relief against Q.U.F. Industries Ltd. ("QUF") in relation to an auction of milk distribution leases to be held tomorrow morning by the Queensland Dairy Industry Authority ( "QDIA" ) in Brisbane. The form of relief sought was substantially narrowed in argument.

QUF forthwith deliver, to about 39 persons, a letter in terms	The Trade Practices Commission now seeks only an order that	of the draft exhibited to the affidavit of . Jolly, the solicitor for QUF.
The auction is one of a series held in Queensland by the QDIA as part of the on-going restructuring of the dairy industry. The application relates only to tomorrow's auction of the category "B" milk distribution leases for the Brisbane area. There appear to be 58 such leases. They give each holder, as I understand the evidence, the exclusive right to supply milk to retail outlets, other than supermarkets, in the area of the lease. Persons intending to bid for these leases are required to register as bidders. Although the evidence is not entirely clear, it seems that there have been about 120 registrations for tomorrow's auction, including some major organisations like Norco, Australian Co-operative Foods and QUF itself.
QUF is a major processor and distributor of milk in the Brisbane area. Although the Trade Practices Commission only very recently learned of it, some time ago QUF entered into an arrangement with about 39 persons which has provoked the present application. This arrangement is contained in a letter sent by QUF to each of the 39 or so persons, a copy of which is exhibit "JAL-2". It relevantly provides:

"As you are already aware, QUF intends to bid for

District at the auction to be conducted bv the	leases of Category B milk runs in the Brisbane Milk
Queensland Dairy Industry Authority, on wedne;day 7
July, 1993.
In the event that QUF is a successful bidder, it is intended that Distribution Agreements in terms of the draft annexed hereto will be offered to existing vendors for the operation of the runs acquired.
QUF hereby offers you a priority right to enter into a Distribution Agreement in respect of the restructured milk run described in the auction catalogue as . . . [a description of the relevant lease follows] in the event that a lease thereof is acquired by QUF.
This priority right is null and void in the event that you acquire the lease of a Category B milk run in the Brisbane Milk District in your own right at the auction on 7 July.
If you accept this priority right, QUF is the successful bidder and you have not acquired a milk run in your own right, the Distribution Agreement will commence from [a date fixed in accordance with the Agreement].
If you wish to accept this priority right to enter into a Distribution Agreement in respect of this milk run, please sign your acceptance on the duplicate of this letter and return it to QUF before Monday, 28 June 1993."
The form of acceptance on the bottom of the letter

reads, in part:

"I hereby accept the priority right to enter into a Distribution Agreement in respect of the restructured milk run set out in this letter and if QUF is the successful bidder for the Lease of the milk run and I have not acquired a run in my own right, I hereby agree ..."

Some brief, simply worded obligations are then set

out in a couple of lines.

Mr. Hill of QUF explained to Mr. Julum of the Trade Practices Commission how these arrangements were made. This appears from a conversation Mr. Julum reports between himself and Mr. Hill. Mr. Julum said of this arrangement:

"We are concerned that it could be an attempt to induce vendors not to bid for the leases by telling them that, if they do, they could place their priority right to operate a QUF lease at risk."

To which Mr. Hill replied:

"I'll give you some background, a couple of months ago we sent out letters to about 450 vendors advising that we may be interested in purchasing some of the leases and would be looking to vendors to operate these leases for us. About 107 vendors approached us to indicate their interest, these vendors were assessed and about 60 of them were given the letter in question. About 35 of these have indicated to us that they are interested in the offer and some of these 35 have also told us that they intend to bid at the auctions."

The Trade Practices Commission's contention is that

and (ii) of the Trade Practices Act 1974. The nub of the

the arrangements I have referred to infringe S. 45(2)(a)(i) in the passage I have just read from his affidavit; that is, that the arrangements are intended by QUF and are likely to operate to reduce the number of bidders for category "B" leases at tomorrow's auction. The concern is also set out in slightly more detail, albeit somewhat hesitantly, in the letter from the Trade Practices Commission to Mr. Hill of QUF

dated 2 July last, which contains the following passage:

"The effect of such an agreement may be to establish a non-bidding pact between QUF and accepting vendors. It appears that such an agreement may constitute an exclusionary provision in breach of section 45 of the Act, in that there is an implied agreement between QUF and the vendor, who may be competitors for the acquisition of milk runs, to limit the acquisition of services (a milk run) from another party (the QDIA)."

The Trade Practices Commission submits that the arrangements constitute an arrangement containing an exclusionary provision that contravenes S. 45(2)(a)(i), read with ss. 45(3), 4D and 45A(i), and also that the arrangements contain a provision that has the purpose, or would be likely to have the effect, of substantially lessening competition contrary to S. 45(2)(a)(ii).

The markets the Trade Practices Commission relies on with respect to both limbs of S. 45(2)(a) are, firstly, the market for the acquisition of category "B" milk distribution leases in the Brisbane milk district and, secondly, the market for the supply of milk to wholesaler outlets, other than supermarkets, in the Brisbane milk district.

QUF contends that it is the first of these markets

that can alone be relevant, since there will be no competition amongst suppliers of milk to wholesale outlets in the Brisbane milk district, that is, amongst the successful category "B"

The Trade Practices Commission's evidence is, I think,	leaseholders, given the controlled nature of the industry.
directed only to the first of these two markets and I propose to decide the case on the basis that that is the only relevant market.
The Trade Practices Commission seeks a mandatory interlocutory injunction. I propose to follow the approach of Pincus J in F A 1 Insurances Ltd. v Advance Bank Australia Ltd. (1986) 68 A.L.R. 133 at 135, a case similar to the present in that an interlocutory order was sought to compel FA1 to dispatch a letter to certain of its shareholders correcting what was said to be misleading information previously given to them by FA1 with respect to voting at a forthcoming company meeting.
The first question for me is this: has the Trade Practices Commission shown that it is reasonably obvious that there is a serious question to be tried that QUF's conduct constitutes an infringement of either limb of S. 45(2)(a)?
I do not think it has for the following reasons: firstly, the arrangement of concern to the Trade Practices Commission cannot be read, according to its terms, as involving an agreement by, or even an inducement to, the 39 recipients not to bid at the auction. Yet this is the core of the Commission's complaint. The arrangement acknowledges that each recipient has full right to bid, but will be disqualified
only if, he is successful in obtaining a lease for himself. from entering into a distribution agreement with QUF if, and
Secondly, there is no ground for thinking that the QUF arrangement has a practical operation different from the terms in which it is framed. Mr. Hill, of QUF, told the Commission on Friday last that: "Some of these 35 [I interpolate, it may now be 391 have told us that they intend to bid at the auctions." There is no reason, on the material before me, to doubt this.
Mr. Jolly, the solicitor for QUF, sets out in his affidavit the history to date of the QDIA auction program, of which tomorrow's forms part. He says:

"[Plrior to the Sunshine Coast auctions [held yesterday, 5 July, 19931 Suncoast [a wholly owned subsidiary of QUF] entered into priority agreements with vendors on the same terms as the priority agreements offered by QUF in respect to the Brisbane leases.

Mr. Hill informed the Trade Practices Commission

that such arrangements had been entered into in respect of the Suncoast leases on Friday July 2, 1993 and the Trade Practices Commission was aware of those arrangements.

[Tlhe only auctions at which spirited bidding ensued and all runs were sold under the hammer was the auction conducted at the Sunshine Coast, in respect of which Suncoast had the priority agreements in place. At the other auctions, a substantial number of leases were unsold, having failed to reach the minimum published reserve price."

There is, again, no reason to doubt any of this. It

may be that, far from depressing competition at such auctions,	QUF's arrangements with others conduce to more spirited
bidding than would otherwise occur by demonstrating to those others that there will be at least one serious bidder, QUF itself, while ensuring that those others can still bid on their own behalfs and retain the assurance of a sub-lease from QUF if they lose out to QUF. I do not think, however, it is necessary to make a particular finding in that regard on the evidence before me.
The limited relief now sought is based on the premise that the 35 or 39 persons who have entered into the arrangement with QUF with respect to the Brisbane category "B" leases may not clearly understand that they are free to bid for themselves for any of these leases, including such of them in which QUF may have expressed interest. Far from there being evidence to suggest that such persons may need such clarification and reassurance, the evidence before me indicates just the contrary, namely, that these persons are well aware that under the simply worded terms of the agreement they have full freedom to bid while retaining, unless and until their bids succeed, the rights conferred by this arrangement with QUF.
I would dismiss the application on the ground that the injunction in the terms now sought would not, on the evidence, be likely to serve any useful purpose.
Moreover, there is, as I have indicated, no reason to think that the existence of the QUF arrangements with the 39 people interested in the Brisbane category "B" leases will
operate to reduce prices otherwise obtainable by the QDIA at tomorrow's sale, since they do not impede, either as a matter of contractual obligation or as a matter of fact, the parties to those arrangements from bidding on their own behalfs. It is possible that QUF may well end up with all 39 leases and 39 people to run them for it. But if that happens, there is no ground for thinking, on the evidence before me, that that will be at the expense of depriving QDIA of the best bids those of the 39 people who are interested in seeking the leases for themselves can be expected to make, notwithstanding the arrangement they have entered into with QUF. Moreover, there is no evidence that any potential bidders have decided not to bid because of the existence of the arrangement here in question. Given the clear terms of the arrangement and the evidence that some of the 39 who have entered into it still intend to bid, I am not prepared to infer that that is likely to be the case. I therefore think that there is no ground for thinking that the arrangements will substantially lessen competition for the category "B" leases at tomorrow's sale.
I do not think the Commission has shown, to the requisite degree of certainty, that there is a serious question to be tried with respect to the possible breaches of either limb of S. 4 5 ( 2 ) (a) of the Act. I would dismiss the application on that basis also.
In the circumstances of this case, since I have indicated that I would have dismissed the application on one basis which cannot be affected, it seems to me, by what may happen at the subsequent trial, the Commission should pay the taxed costs of this application.
I certify that the preceding
nine pages are a true copy of the reasons for judgment herein of the Honourable Mr. Justice Drummond.
Associate: k./h'
Date :  6 July, 1993