Maclean, Ian James v Shell Chemical (Australia) Pty Ltd

Re: IAN JAMES MacLEAN and PATRICK DAINTON
And: SHELL CHEMICAL (AUSTRALIA) PTY. LTD.
No. WA G45 of 1984
1984 ATPR para 40-456 / 2 FCR 419 Trade Practices

COURT

IN THE FEDERAL COURT OF AUSTRALIA

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

CATCHWORDS

Trade Practices - sale of ectoparasiticides - respondent supplier of chemical required by applicants - essentially monopoly - terms of trade limited by respondent - alleged effect of destroying or severely damaging applicants' business - allegations not contradicted by respondent - interlocutory relief sought - terms of interlocutory relief - appropriate injunction by Court.

Trade Practices Act 1974 ss. 4E, 46, 80

Trade Practices - Monopolisation - Respondent the sole available source of supply of a chemical used by the applicants to manufacture a product competitive with products of the respondent - Variation of trading terms by respondent to require payment with order and to limit obligation to supply - Form of interlocutory order - Trade Practices Act 1974 (Cth), ss 4E, 46 and 80.

HEADNOTE

The applicants and respondent manufactured and sold lousecide in competition with each other. The applicants had formerly obtained its supplies of cypermethrin, an essential ingredient of the lousecide, from a third party, which refused to continue to supply. The applicants thereupon entered into arrangements with the respondent for the supply to it by the respondent of cypermethrin as part of a joint venture arrangement for the development of a pour-on lousecide. It was a term of the arrangement that if it were terminated the respondent would use its best endeavours to continue to supply cypermethrin at competitive rates within its capacity to do so and upon terms to be agreed. A dispute arose as to whether the arrangement had been determined. Litigation in the Supreme Court ensued. At a pre-trial conference a representative of the respondent said to a representative of the applicants that the respondent was unhappy about the litigation, and the applicants should bear in mind the consequences of suffering an effective cut off of supply of cypermethrin. Shortly thereafter the respondent wrote to the applicants purporting to vary trading terms for the supply of cypermethrin from thirty day terms to bank cheque on order. By the same letter the respondent warned that future stock would be "subject to product availability", whereas it had previously held sufficient stocks to ensure supply. The applicants contended that the new terms of supply and availability would destroy or severely damage its business.

Held: (1) In the circumstances the only effective source of supply of cypermethrin to the applicants was through the respondent. From the point of view of the applicants, the respondent was in a position effectively to control the market.

(2) The respondent had taken advantage of its power substantially to control the market for the purpose of damaging a competitor or deterring or preventing competitive conduct.

Observations upon the appropriate form of interlocutory order.

HEARING

Perth, 1984, June 18, 22. #DATE 22:6:1984

APPLICATION.

Application for interlocutory injunction.

R. S. French, for the applicants.

P. A. Kyle, for the respondent.

Cur. adv. vult.

Solicitors for the applicants: Corser & Corser.

Solicitors for the respondent: Dwyer & Thomas.

G.F.V.

ORDER

Upon the applicants giving the usual undertaking as to damages, it is herby ordered that:-

1. The respondent, its directors, officers, servants and agents be

restrained until judgment or further order from refusing or failing to supply Technical Cypermethrin to the applicants in accordance with the terms of the respondent's letter to the applicants dated 24 February 1982.

2. The costs of the application for interlocutory relief be costs

in the cause.

Upon the usual undertakings as to damages, order that the respondent, its directors, officers, servants and agents be restrained until judgment or further order from refusing or failing to supply technical cypermethrin to the applicants in accordance with the terms of the respondent's letter to the applicants dated 24 February 1982.

Costs to be costs in the cause.

JUDGE1

Cypermethrin is an essential ingredient in certain insect killing chemical products or ectoparasiticides for use on sheep. The applicants market such a product under the brand name Spurt; the respondent also markets one under the brand name Outflank.

The applicants contend that conduct of the respondent falls within s.46 of the Trade Practices Act 1974, the monopolization provision. They have brought proceedings in the Federal Court claiming declaratory relief, injunctions, damages and other relief. They seek injunctions by way of interlocutory relief; it is with that claim that the Court is presently concerned.
In support of their claim for interlocutory relief, the applicants have filed a lengthy affidavit sworn by Ian James MacLean, one of the applicants, to which is annexed a considerable number of documents. The respondent has filed no answering affidavit. There being nothing inherently unacceptable about the evidence tendered on behalf of the applicants, I proceed, for the purposes of the present application, on the basis of that evidence.
The applicants are partners in the firm of Western Stock Development. Some 3 years ago the firm, in conjuction with Youngs Animal Health Pty. Ltd., developed a pour-on lousecide for sheep. Cypermethrin, which was an ingredient of the lousecide, is available in Australia from two sources only. One is Robert Young Pty. Ltd. and the other is the respondent. The former company is the exclusive licencee in Australia for Cypermethrin manufactured in the United Kingdom by Mitchel Cotts. The respondent obtains its supplies from Shell (U.K.). There are some differences in the Cypermethrin imported by the two companies.
The applicants' arrangement with Youngs Animal Health Pty. Ltd. came to an end and as a result Robert Young Pty. Ltd. refused to supply them with Cypermethrin. The applicants then approached the respondent which was prepared to supply Technical Cypermethrin ("Technical" referring to a high degree of product purity), but only on the basis that the applicants entered into a joint venture arrangement with it for development of a pour-on lousecide. The parties entered into such an arrangement though, as mentioned earlier, each sells its product under a different brand name. The respondent sells through a national distributor Syntex Agri Business ("Syntex").
The sale of ectoparasiticides in Australia is controlled by various regulatory and administrative procedures, some federal and some state. Within a state, registration or approval for registration of the product by the Department of Agriculture is required. Registration is usually not granted until the product has been cleared by the Technical Committee on Veterinary Drugs ("TCVD") established by the Australian Bureau of Animal Health and by the Pesticides and Agricultural Chemicals Committee ("PACC"), a committee of the National Health and Medical Research Council. Clearance of an ectoparasiticide by these two bodies involves the production of extensive evidence relating to the properties, efficacy and impact of the product and its likely effect upon humans.
The process of obtaining clearance and registration is both lengthy and expensive. The significance of this for the purposes of the present application is that it operates as a significant barrier to anyone wishing to enter the market for the sale of an ectoparasiticide.
By an agreement evidenced in writing by a letter from the respondent to the applicants dated 24 February 1982, the parties entered into an arrangement "for development and commercialisation of a cypermethrin-based pour-on for sheep lice and ked control". They agreed to make available to each other information needed for TCVD clearance and state registrations. The respondent undertook to prepare and submit an application for federal clearance and to assist the applicants in obtaining registration in Western Australia. The parties agreed to launch and promote their own products independently of each other. The respondent undertook to supply Technical Cypermethrin to the applicants "at a competitive price". In the event of termination of the arrangement, it undertook to "use its best endeavours to continue to supply WSD (a reference to Western Stock Development) with technical cypermethrin at competitive prices within its capacity to do so, and otherwise upon terms that may be agreed by WSD and Shell at the time".
The agreement was expressed to run from 21 January 1982 to 31 December 1983, after which it was to continue on a yearly basis, terminable by written notice at least 6 months before the end of any year. Counsel for the respondent said that his client contended that, subsequent to 31 December 1983, the agreement was determined by mutual consent. The applicants disputed this. For the purposes of the present application, it is unnecessary to resolve this issue which, I understand, will fall for determination in proceedings brought against the respondent in the Supreme Court. On the evidence available to me, I must assume that the agreement is continuing on a yearly basis.
Pursuant to the agreement between the parties, the respondent made a joint submission to the TCVD but clearance was withheld on the basis that some of the trial information supplied could not be corroborated. The respondent then withdrew the submission made on its behalf. The submission remained on behalf of the applicants who sought assistance from the Department of Agriculture in this state. In the course of doing so they found that registration in Western Australia was not dependent upon TCVD clearance and the department approved Spurt for registration in this state.
The respondent made further submissions to the TCVD under its name only and in respect only of Outflank. The applicants contend that in so acting the respondent was in breach of the agreement between the parties. Again it is unnecessary to determine that question at this stage. In August 1983 the respondent received clearance from the TCVD for Outflank. Clearance was not given for Spurt which depended on the information furnished earlier by the respondent and was not included in later information provided by the respondent to the TCVD.
Following correspondence between the parties, the applicants (or it may be Western Stock Distributors Pty. Ltd. - the title varies on the material before me) began proceedings in the Supreme Court of Western Australia, alleging breaches by the respondent of the agreement contained in the letter of 24 February 1982. On 14 May a conference was held between the parties and their legal advisers with a view to resolving the litigation in the Supreme Court but that conference was unsuccessful. In the affidavit filed on behalf of the applicants in the present proceedings, Mr. MacLean deposed to a conversation with Gordon Maxwell McLean, the marketing manager for the Agro Chemical Division of the respondent. Mr. MacLean deposed that Mr. McLean told him that "the Applicants should be aware that the Respondent was unhappy that the Applicants had commenced the action in the Supreme Court and that in the circumstances should bear in mind that the consequences of suffering an effective cut-off or supply of the chemical cypermethrin from the Respondent". The word "that" between "mind" and "the" appears to have been wrongly included. The affidavit continued:

"I verily believe that whilst the substance of what was put to me in this respect by Gordon Maxwell McLean was a veiled threat that the Respondent might be prepared to either cut off the supply of the chemical cypermethrin to the Applicants or alternatively change the terms and conditions of its supply in such a way as to effective prevent us from competing with the respondent in market place".

Once again there is an unnecessary word; "whilst" has no function to perform.

On 28 May the respondent wrote to the applicants a letter headed "Terms of Trade" which began in this way:

"Considering current circumstances existing between Western Stock Development/Western Stock Distributors Pty Ltd and ourselves it is commercially prudent to confirm our terms of trade for purchases by you from us effective immediately as follows".

There followed various terms of trade of which the most significant were a requirement of bank cheque to accompany a written order (hitherto payment had been on 30 days trading); delivery within 7 days from stock available from the respondent's Bayswater warehouse or despatch within 7 days from its Brisbane warehouse by normal road transport to Perth; all deliveries subject to availability of stock; once stock then held in Perth had been depleted, future stock to be available only from Brisbane and "subject to product availability" (hitherto the respondent had maintained a reserve of Cypermethrin in its Bayswater warehouse).
The letter commented that "worldwide, cypermethrin products are in firm demand and we are not always able to arrange prompt despatch from our overseas associates of our cypermethrin requirements". The letter complained that the applicants had not in recent months provided firm estimates of their forward requirements and asked for adequate notice of future requirements.
The letter sought confirmation of these terms which the applicants declined to give. They contend that until the writing of that letter the respondent had supplied Cypermethrin to them usually within 24 hours of order, on the basis of payment within 30 days, and by the respondent maintaining in its Bayswater warehouse a reserve of at least one 200 kg drum of Cypermethrin to fill urgent orders and ensuring that between July and October (when shearing takes place) it was in a position to supply two or more drums at short notice.
It should be pointed out that the cost of a drum of Cypermethrin is about $30,000. The applicants assert that they have never defaulted in payment to the respondent and this assertion has not been contradicted.
The applicants complain that the terms upon which the respondent has said it will supply Cypermethrin henceforth are such that their business will be destroyed or severely damaged. They say that their ability to compete against the respondent and others is entirely dependent upon supplies of Cypermethrin being available at short notice and on normal trading terms.
The applicants argue that the respondent's alleged difficulties in obtaining supplies of Cypermethrin are at odds with the promotional advertising of its national distributor, Syntex. They point to a brochure in which Syntex offers Outflank in May, June and July on the basis that the buyer need not pay until 25 September 1984 and that a buyer "can stock up for Winter/Spring sales without immediate money outlay". The reference to "stock up", they say, hardly suggests a short supply of Cypermethrin.
The statement of claim asserts that the imposition by the respondent of the conditions set out in its letter of 28 May 1984 will render it impossible for the applicants to obtain supplies of Cypermethrin on terms which are commercially viable; will effectively destroy or substantially damage their ability to compete in the manufacture and supply of Spurt in Western Australia, South Australia and Tasmania; involves the respondent taking advantage of its power in relation to the market for the supply of Cypermethrin in a situation in which it is in a position substantially to control that market; and has, as its purpose, the prevention of the entry of the applicants into the Australian market, alternatively the New South Wales market and in the further alternative the Victorian market for the supply of pour-on ectoparasiticides for sheep.
There is a further claim that the conduct of the respondent is a breach of the agreement made 24 February 1982 in that it constitutes a failure by the respondent to use its best endeavours to continue to supply the applicants with Cypermethrin at competitive prices within its capacity to do so. This cause of action is subsidiary to the claim based on s.46 of the Trade Practices Act and relies upon the attached jurisdiction of the Federal Court arising from the claim based on that Act. In any event the obligation implied only arises on termination of the agreement.
Section 46 of the Act reads in part:

"46.(1) A corporation that is in a position substantially to control a market for goods or services shall not take advantage of the power in relation to that market that it has by virtue of being in that position for the purpose of -

(a) eliminating or substantially damaging a person, being a competitor in that market or in any other market of the corporation or of a body corporate related to the corporation;

(b) preventing the entry of a person into that market or into any other market; or

(c) deterring or preventing a person from engaging in competitive conduct in that market or in any other market.

(2) ...

(3) A reference in this section to a

corporation or other body corporate being in a position substantially to control a market for goods or services includes a reference to a corporation or other body corporate, as the case may be, having, by reason of its share of the market, or its share of the market combined with the availability to it of technical knowledge, raw materials or capital, the power to determine the prices, or control the production or distribution, of a substantial part of the goods or services in that market.

(4) A reference in this section to substantially controlling a market for goods or services shall be construed as

a reference to substantially controlling such a market either as a supplier or as an acquirer of goods or services in that

market.

(5) ...

(6) ... "

Reference should also be made to s.4E which defines "market" to mean "a market in Australia and, when used in relation to any goods or services, includes a market for those goods or services and other goods or services that are substitutable for, or otherwise competitive with, the first mentioned goods or services".
What is the market in the present case? That is a question that does not have to be resolved conclusively at this stage of the proceedings. It is enough to say that it is the market for the supply of Technical Cypermethrin. Geographically, the market is probably Australia; in any event it includes Western Australia, South Australia and Tasmania where the applicants sell Spurt and the respondent sells Outflank.
In the circumstances I do not think that it is the market for Spurt or for Outflank by those names. These are brand names. Authorities such as Top Performance Motors Pty. Ltd. v. Ira Berk (Queensland) Pty. Ltd. (1975) 24 FLR 286 and Ah Toy Pty. Ltd. v. Thiess Toyota Ltd (1980) 30 ALR 271 were concerned with brand names. I do not suggest they are irrelevant to the present application but detailed reference to them is unnecessary at this stage. The area of competition between the applicants and the respondent is in relation to the use of Technical Cypermethrin. For all practical purposes, and in particular since any supply of Cypermethrin through Robert Young Pty. Ltd. is closed to the applicants, the only effective source of supply is through the respondent. From the point of view of the applicants, the respondent is in a position effectively to control the market for Technical Cypermethrin. It should be noted that counsel for the respondent said he did not wish to argue the question of the market at this stage of the proceedings.

It may be accepted, again for the purposes of the present application, that a failure by the respondent to provide the applicants with Technical Cypermethrin will cause substantial damage to them. It will soon be the shearing season which is the peak of the demand for Spurt. The complexity of regulatory and administrative procedures means that even if the applicants were able to import Cypermethrin direct, it would be a year or so before they could market it as an ingredient of an ectoparasiticide.
However s.46 requires for its operation that a corporation, in a position substantially to control a market for goods, shall not take advantage of the power in relation to that market for the purpose of damaging a competitor, or preventing the entry of a person into the market or deterring or preventing competitive conduct. Again, that aspect must be determined on the material presently available. None of the applicants' allegations is contradicted by the respondent. Before the letter of 28 May 1984, the respondent supplied Cypermethrin to the applicants at short notice and maintained stock at its Bayswater premises. Not long before that letter was written, Mr. McLean the respondent's marketing manager for its Agro Chemical Division, had the conversation with Mr. MacLean, one of the applicants, mentioned earlier in these reasons. The basis of supply now offered by the respondent is heavily qualified in terms of availability. In the ordinary course, it would not be unreasonable for a supplier to make such a qualification. But it must be remembered that the respondent uses Cypermethrin in Outflank. There is no evidence that the respondent is able to obtain supplies only to meet its own needs. Mr. Kyle, counsel for the respondent, spoke from the Bar table of the respondent's difficulties in obtaining supplies of Cypermethrin. However he was not in a position to give any precise information and, if it was the respondent's intention to rely upon that fact in answer to the present application, it should have deposed thereto.
Whether the test for the granting of interlocutory relief be formulated in terms of a prima facie case (World Series Cricket Pty. Ltd. v. Parish (1977) 16 ALR 181) or a serious question to be tried (The Australian Coarse Grain Pool Pty. Ltd. v. The Barley Marketing Board of Queensland (1983) 57 ALJR 425), I am satisfied that the applicants have made out such a case. Considerations of the balance of convenience do not preclude the granting of interlocutory relief. On the contrary, it is the applicants who are gravely at risk if they are unable to obtain supplies of Cypermethrin. The respondent argued that the application should be left to any remedy they may have in damages but I do not accept this.
However I am troubled by the terms of the interlocutory relief sought by the applicants. Referring to the orders sought in the application itself, they claim by way of interlocutory relief an injunction "restraining the Respondent from terminating the supply of its Technical Cypermethrin on the terms and conditions previously agreed" and an injunction "restraining the respondent from terminating the supply of its Technical Cypermethrin except on reasonable terms".
Asked by the Court whether the injunctions sought were cumulative or alternative, Mr. French, counsel for the applicants, replied that they were alternative. He said that, for the purposes of interlocutory relief, the terms of the letter of 24 February 1982 were merely evidence of the respondent's capacity to supply Cypermethrin.
Section 46 is within Part IV of the Trade Practices Act. Section 80 of that Act empowers the Court, if satisfied that a person has engaged in conduct constituting a contravention of a provision of Part IV, to grant an injunction "in such terms as the Court determines to be appropriate". Sub-section 80(2) further empowers the Court, where in its opinion it is desirable to do so, to "grant an interim injunction pending determination of an application under sub-section (1)". A reading of sub-ss.80(4) and (5) shows that s.80 contemplates injunctions which may restrain a person from engaging in conduct or may require him to do an act or thing. Any injunction granted should be in such terms that is reasonably capable of being obeyed. In my view, an injunction on either of the bases sought by the applicants, without more, would create uncertainty and place the respondent in a position where it would not know with any precision what was required of it. It follows that, faced with an application to enforce such an injunction, the Court would be in an equally difficult position. Likewise, an injunction framed in terms of s.46 would, without more, be open to the same objection.
In my view, the only satisfactory course is to formulate an injunction by reference to the letter of 24 February 1982. Paragraph 14 of the statement of claim, which follows a recital of that agreement, pleads that until 28 May 1984 the respondents supplied Cypermethrin to the applicants on terms which have already been referred to in these reasons i.e. delivery within 24 hours, payment within 30 days and the maintenance of a reserve. Through counsel, the respondent indicated that it would not require payment against order and would be content with payment within 30 days. The agreement of 24 February 1982 covers a wider range of matters than the supply of Cypermethrin. But it is possible to formulate an injunction that restrains the respondent from failing to supply Cypermethrin in accordance with that agreement. That is as far as an injunction may usefully or properly go at this stage. To order the respondent to maintain a reserve at its Bayswater warehouse may be to require it do so something it is unable to do. I do not overlook the allegation of an oral agreement in para. 16 of Mr. MacLean's affidavit but an injunction framed in terms of that agreement would, I think, give rise to the sort of problems just mentioned.
There should be an injunction, until trial or further order, restraining the respondent from failing to supply Technical Cypermethrin to the applicants in accordance with the terms of the agreement evidenced by the respondent's letter to the applicants of 24 February 1982. Attached to these reasons is a suggested form of order but I shall hear from counsel as to the precise terms upon which an injunction should issue.
Counsel for the respondent asked me to include in any injunction that might be made a liberty to apply provision. That is unnecessary. Sub-section 80(3) empowers the Court to rescind or vary an injunction granted under the section.

[1984] FCA 172

22 JUNE 1984