Kernel Holdings Pty Ltd v Rothmans of Pall Mall (Australia) Pty Ltd

[1991] FCA 557

Re: KERNEL HOLDINGS PTY LTD
And: ROTHMANS OF PALL MALL (AUSTRALIA) PTY LTD
No. WA G83 of 1991
FED No. 557
Practice and Procedure - Trade Practices

COURT

IN THE FEDERAL COURT OF AUSTRALIA

WESTERN AUSTRALIA DISTRICT REGISTRY
GENERAL DIVISION
French J.(1)

CATCHWORDS

Practice and Procedure - pleading - statement of claim - material facts - level of particularity sufficient to inform respondent of case against it - allegations of exclusive dealing and misuse of market power - allegations substantially in terms of the statutory language - insufficient material facts pleaded to support pleaded conclusions - statement of claim struck out.

Trade Practices - exclusive dealing - misuse of market power - pleading of cause of action arising therefrom - level of generality permitted - level of particularity required - material facts underlying conclusions as to purpose and effect of exclusive dealing conduct - definition of markets - facts underlying claim of market power - mechanism by which market power taken advantage of - insufficient material facts pleaded - statement of claim struck out.

Trade Practices Act 1974 s.46, s.47

Sodastream Limited v Electronics (Broken Hill) Pty Ltd (1985) 60 ALR 427

Bruce v Odhams Press Ltd (1936) 1 KB 697

Ratcliffe v Evans (1892) 2 QB 524

Farrell v Secretary of State for Defence (1980) 1 WLR 172

Charlie Carter Pty Ltd v The Shop, Distributive and Allied Employee's Association of Western Australia (1987) 13 FCR 413

Trade Practices Commission v David Jones (Australia) Pty Ltd (1988) 7 FCR 109

HEARING

PERTH

#DATE 3:9:1991

Counsel for the Applicant: Mr A. Stavrianou

Solicitors for the Applicant: Chalmers and Partners

Counsel for the Respondent: Mr C.G. Colvin

Solicitors for the Respondent: Robinson Cox

ORDER

On the Respondent's motion filed 23 August 1991:

1. The statement of claim be struck out. 2. The applicant has leave to file an amended statement of claim. 3. The applicant do pay the respondent's costs of the motion in

any event.

Note: Settlement and entry of Orders is dealt with in Order 36 of the Federal Court Rules.

JUDGE1

Kernel Holdings Pty Ltd ("Kernel") sells tobacco products in Western Australia by wholesale and retail. By these proceedings, which were instituted on 8 August 1991, it complains that Rothmans of Pall Mall (Australia) Ltd ("Rothmans") refused to supply another company with products unless that company agreed not to resupply to Kernel. Rothmans' conduct is said to amount to exclusive dealing in contravention of s.47(3)(f) of the Trade Practices Act 1974 and in the alternative abuse of market power in contravention of s.46. By its application Kernel claims against Rothmans declaratory and injunctive relief and damages pursuant to s.82 of the Act.

1. Rothmans seeks to strike out the statement of the claim for failure to disclose a reasonable cause of action. The impugned pleading has the virtue of brevity and simplicity, but for all that is a delphic announcement of Kernel's case. It begins in the first paragraph by asserting Kernel's status as "a trading corporation formed within the limits of Australia". Why it should do that is not clear. Characterisation as a trading corporation is important only for the alleged contravenor. Kernel is said to carry on the business of selling tobacco products in Western Australia by wholesale and by retail. Rothmans, also a trading corporation, (para.3) is said to carry on the business of preparing and selling tobacco products (para.4). Paragraph 5 refers to a company called Turnbull Holdings Pty Ltd, which is licensed to operate a bonded warehouse under the Customs Act 1901 from premises at 27 Pakenham Street, Fremantle. In May 1991 Kernel and Turnbull Holdings are said to have entered into an arrangement whereby Turnbull Holdings gave Kernel permission to store tobacco products at its bonded warehouse and agreed to purchase such products from manufacturers, including Rothmans, on behalf of Kernel. It is then alleged that on or about 9 July 1991 Kernel asked Turnbull Holdings to place an order with Rothmans for the supply of certain cigarettes (para.7). The order was placed on the same day (para.8). The following day Rothmans allegedly refused to meet the order unless Turnbull Holdings agreed not to supply Kernel (para.9). Paragraphs 10, 11 and 12 follow:
   

"10. The said refusal renders it impossible for the Applicant to obtain a supply of the Respondent's cigarettes on terms which are commercially viable and substantially damages its ability to compete in the wholesale and retail markets for the supply of cigarettes in Western Australia.

11. The said refusal of the Respondent has as its purpose, and has or is likely to have the effect of, substantially lessening competition in the market for the wholesale supply of cigarettes in Western Australia.

12. Further or in the alternatively: (sic)

(a) the Respondent has a substantial degree of power in the market for the wholesale supply of cigarettes in Western Australia;

(b) the Applicant is a competitor of the Respondent and of bodies corporate that are related to the Respondent in the said market;

(c) the Respondent has taken advantage of its power in the said market for the purpose of-

(i) eliminating or substantially damaging the Applicant in the said market;

(ii) preventing the entry of the Applicant into the said market;

(iii) deterring or preventing the Applicant from engaging in competitive conduct in the said market and in the market for the retail supply of cigarettes in Western Australia."

1. Section 47(1) of the Trade Practices Act prohibits the practice of exclusive dealing by a corporation in trade or commerce. The definitions of exclusive dealing include that in para.47(3)(f) which provides:
   

"(3) A corporation also engages in the practice of exclusive dealing if the corporation refuses -

(a) to supply goods or services to a person; for the reason that the person or, if the person is a body corporate, a body corporate related to that body corporate -

(f) in the case of a refusal in relation to the supply or proposed supply of goods, has re-supplied, or has not agreed not to re-supply, goods, or goods of a particular kind or description, acquired from the corporation to any person, or has re-supplied, or has not agreed not to re-supply, goods, or goods of a particular kind or description, acquired from the corporation-

(i) to particular persons or

classes of persons or to

persons other than particular

persons or classes of persons;

or

(ii) in particular places or

classes of places or in places

other than particular places

or classes of places."

But by sub-section 47(10), sub-section (1) does not apply to the practice of exclusive dealing as defined, inter alia, sub-section (3) unless:

"(a) the engaging by the corporation in that conduct has the purpose, or has or is

likely to have the effect, of

substantially lessening competition."

The onus of establishing the matters specified in sub-s.47(10) lies upon the party asserting a contravention of sub-s.47(1) - Sodastream Limited v Electronics (Broken Hill) Pty Ltd (1985) 60 ALR 427 at 430 (Beaumont J.).

1. The "competition" referred to in sub-s.47(10) is further defined in sub-s.47(13)(b):
   

"13. In this section -

(b) a reference to competition, in relation to conduct to which a provision of this

section other than sub-section (8) or (9) applies, shall be read as a reference to competition in any market in which -

(i) the corporation engaging in

the conduct or any body

corporate related to that

corporation; or

(ii) any person whose business

dealings are restricted,

limited or otherwise

circumscribed by the conduct

or, if that person is a body

corporate, any body corporate

related to that body corporate,

supplies or acquires, or is likely to

supply or acquire, goods or services or would, but for the conduct, supply or

acquire, or be likely to supply or

acquire, goods or services..."

1. Rothmans submits that the statement of claim has pleaded only conclusions and not the material facts upon which they are based. In relation to the plea based upon s.47, it is said that there are insufficient material facts relating to the market relied upon and the alleged purpose or effect of substantially lessening competition.

2. A material fact is one which is necessary to formulate a complete cause of action. It is to be distinguished from particulars which are not part of the pleading. Material facts must be pleaded with the degree of specificity necessary to define the issues and inform the parties in advance of the case they have to meet. There are certain levels of generality in pleading which while they may bring in all facts necessary to establish a cause of action, are insufficient for that purpose - Bruce v Odhams Press Ltd (1936) 1 KB 697 at 705 and 712; Ratcliffe v Evans (1892) 2 QB 524 at 532; Farrell v Secretary of State for Defence (1980) 1 WLR 172 at 179-180; Charlie Carter Pty Ltd v The Shop, Distributive and Allied Employees' Association of Western Australia (1987) 13 FCR 413.

3. Rothmans' counsel relied upon the decision of Fisher J. in Trade Practices Commission v David Jones (Australia) Pty Ltd (1988) 7 FCR 109 in which his Honour struck out a statement of claim alleging contraventions of s.45 of the Act on the basis that it pleaded conclusions in terms of the section rather than the material facts underlying them. I do not accept that the pleading of something which can be described as a conclusion cannot also be a pleading of a material fact. The real issue in a case where such an objection is raised is whether the facts are pleaded at too great a level of generality. In my opinion, the level of generality of the statement of claim in this case is too great for Rothmans to know with any precision what case it has to meet. The facts relied upon to support the conclusion about Rothmans' alleged purpose in refusing supply should be spelt out. So too should the facts relied upon to support the conclusion that the refusal has or is likely to have the effect of substantially lessening competition in the relevant market. The allegation is made in para. 10 that the refusal to supply substantially damages Kernel's ability to compete in the wholesale and retail markets for the supply of cigarettes in Western Australia. It does not follow from that however, that there would or is likely to be a substantial lessening of competition in that market. The mechanism of the lessening is not identified in the statement of claim. Further, the market in which the lessening of competition is to be measured must be a market in which Rothmans and/or Kernel supplies or acquires goods and must defined with some precision. It is not clear whether Rothmans and Kernel are said to be operating in the same or different functional markets.

4. I accept that the plea based on the contravention of s.46 should plead the material facts necessary to support the allegations that Rothmans has a substantial degree of power in a relevant market and that it has taken advantage of that power for a particular purpose. The incantation of the components of s.46 is not sufficient to disclose the material facts on which Kernel relies to establish those elements.

5. In my opinion the statement of claim as a whole fails to comply with the requirements of O.11 r.2 that it contain a statement of the material facts on which the applicant relies. To that extent, it may also be said to fail to disclose a reasonable cause of action. In the circumstances the statement of claim should be struck out subject to leave to replead.