Mark Lyons Pty Ltd v Bursill Sportsgear Pty Ltd
[1987] FCA 450
•25 AUGUST 1987
Re: MARK LYONS PTY LIMITED
And: BURSILL SPORTSGEAR PTY LIMITED
No. NSW G588 of 1987
Trade Practices
COURT
IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION
Wilcox J.(1)
CATCHWORDS
Trade Practices - Denial of supply of ski boots to retailer engaging in cut-price sales in warehouses, public halls, etc - Alleged monopolization - Definition of market - Whether respondent has a substantial degree of power in the market - Purpose of respondent in denying supply - Alleged exclusive dealing - Reason for refusal to supply - Whether refusal was to place of sale or method of selling - Whether refusal of supply had the purpose or effect of lessening competition - Alleged price discrimination - Special concessions allowed to two retailers - Whether these concessions had, or were likely to have, the effect of lessening competition.
Trade Practices Act 1974 ss.4E, 4F, 46, 47, 49, 84.
HEARING
SYDNEY
#DATE 25:8:1987
Counsel for the Applicant: Mr C J Stevens and Mrs P Sharp
Solicitors for the Applicant: Williams Palmer Noss
Counsel for the Respondent: Mr R J Bainton QC with Mr I D Roche and Ms G Murrell
Solicitors for the Respondent: Simons Grinston & Co.
JUDGE1
This claim is brought under Part IV of the Trade Practices Act 1974, reliance being placed upon each of ss.46, 47 and 49 of that Act. The case concerns the supply of Salomon "alpine" ski boots to the applicant, Mark Lyons Pty. Limited, a Sydney-based ski equipment retailer, by the respondent, Bursill Sportsgear Pty. Limited, the Australian distributor of equipment manufactured by Francois Salomon et Fils SA of France. Alpine ski boots are boots suitable for downhill, as distinct from cross-country, skiing.
Pursuant to an application made by both parties, the Court directed that the issues relating to liability be tried before the issues relating to relief. These reasons deal only with liability.
Background to the claimsThe evidence shows that two brands of ski boots, Salomon and Nordica, each account for over 30% of Australian sales, which sales amount to about 50,000 pairs each year. At one time Nordica boots -- which are imported from Italy -- dominated the Australian market. But the sales of Salomon boots have increased significantly during recent years. There appear to be two reasons for this: more aggressive marketing of Salomon boots since the respondent became the distributor in about 1981 -- and especially since 1984 when Bursill ceased dealing in Nordica boots, so as to concentrate on Salomon -- and the increasing popularity of a new type of boot -- the "rear entry boot" -- which Salomon pioneered in Australia. The rear entry boot has an adjustable outer shell designed to provide easier foot access. It also involves the use of a grindable inner boot for more accurate boot fitting. Although rear entry boots were introduced to the Australian market only in 1981, they now account for about 80% of all sales; almost all manufacturers offering this type of boot. It appears that Salomon and Nordica are widely regarded as being the market leaders, in relation to alpine ski boots in Australia, not only in terms of volume but also in regard to innovation and quality.
The practice of Salomon, at least in relation to rear entry boots, has been to identify the particular model by a prefix SX followed by a distinguishing number. The numbers used in the first type of rear entry boots were all multiples of ten; for example SX50, SX60, etc. As these particular models were replaced their successors were accorded the first numeral of the old number, followed by the figure "1". So SX51 has taken the place of SX50, etc. Models in the original range -- none of which are in current production but some of which are still available -- are sometimes referred to as "close-out" stock. The present range is "in-line" stock.
The current distribution agreement between Bursill and Salomon was made on 21 September 1983. It was originally drafted so as to expire on 30 August 1986 but, by an amendment made on 21 August 1985, the agreement has been extended to 30 August 1989. That amendment contemplated a further agreement for an extension after that date. Article 3.1 of the distribution agreement gave to Bursill "exclusive rights for Australia to buy from Salomon and to resell to specialist ski-ing retailers ... Salomon alpine boots ...". In art.3.2 Salomon covenanted that it would "not directly or knowingly indirectly sell these articles to any ski-shop nor another organised" (that is incorporated) "company in Australia". Thus Bursill was granted a monopoly upon the importation into Australia, for use in the retail trade, inter alia, of Salomon ski boots.
Mr Mark Lyons has been involved in the retailing of ski equipment for approximately 12 years. Initially he was a sole trader. Since 1980, when the applicant company was incorporated, he has served as its managing director. Either on his own behalf or on behalf of the applicant or of an associated company, Misene Pty. Limited, he has conducted retail ski shops at four locations in Sydney. One shop, at Drummoyne, was operated from 1979 until July 1986; another, at South Strathfield, was opened in 1979 and is still conducted by the applicant. In addition Mr Lyons, on behalf of the applicant, has organized sales of ski equipment at various temporary locations. On some occasions these sales have been in warehouses, rented for a short period for that specific purpose. Sometimes the sales have been conducted in a shop occupied by some other retailer. On other occasions a hotel convention room or a public hall has been hired. The range of stock offered at the various sales appears to have been similar to that usually available at ski shops; that is, it comprises the full range of equipment necessary for alpine skiing, extending over several brands. However, it has been the practice of the applicant to offer goods at these sales -- generally referred to as "warehouse sales" or "town hall sales" -- at discounted prices. On some occasions large numbers of people have attended and a considerable volume of stock has been sold. Although Mr Lyons has sought whenever possible to purchase stock for these sales at bulk rates, it seems likely that his trading profit margin at warehouse sales has often been less than that which would ordinarily be expected in a retail shop. Retail discounting appears to be an essential element in warehouse sales.
Mr Graham Bursill has been the managing director of the respondent since its incorporation in 1973. During recent years he and Mr Lyons have had an uneasy relationship. Several clashes are referred to in the evidence; but it is not necessary to refer to them or to consider who was there at fault. The fundamental cause of these incidents is obvious. Each man has both a clear view of the best interests of his company and a belief that he is entitled to conduct his company's business in accordance with that view. The difficulty is that Mr Lyons' conception of the interests of the applicant involves a course of conduct which Mr Bursill feels to be inconsistent with the best interests of the respondent. Some personal friction was probably inevitable. It may have been exacerbated by personal factors. Each man appears to have a forceful personality.
The conflict between the two men arises out of Mr Lyons' policy of running warehouse sales. Mr Lyons sees this as an integral part of his company's business, not only achieving sales which are profitable in themselves but which also provide a volume of business enabling him to obtain better terms from suppliers.
Mr Bursill opposes warehouse sales, at least in connection with in-line ski boots. He has an interest in maximising Salomon sales in Australia. But he does not think that it follows that he should support the sale of Salomon boots at any time and at any place. He is concerned about the long term Australian market for Salomon products. He regards Salomon, rightly on the evidence, as a market leader in the field of ski equipment. He is anxious to protect its public "image". Moreover, Mr Bursill is sensitive to the interests of his retailers. Almost all retail ski shops stock Salomon products. Mr Bursill estimated that there were about 120 ski retailers in Australia, of whom some 90% were customers of his company. The evidence given on behalf of the applicant was that, in practical terms, a retailer of any consequence has to stock Salomon ski boots. From time to time Mr Bursill has received complaints from retailers about the competition presented by warehouse sales. The retailers apparently see this competition as unfair, given their overhead costs in maintaining a continuing service to the public.
As might be expected, orders for ski equipment are lodged by retailers well in advance of a skiing season. A major component of the marketing system for ski equipment is the Ski Show; a trade fair held at Canberra in early October each year. The Ski Show is well attended by both distributors and retailers. New equipment is displayed and orders are discussed; although -- at least in the case of Bursill -- orders then taken are subject to later confirmation. During recent years both Mr Lyons and Mr Bursill have regularly attended the Ski Show. Although there had been earlier conversations between Mr Bursill and Mr Lyons about discounting, this matter came to a head at the 1985 Ski Show. Mr Lyons spoke to Mr Bursill about an order for in-line boots for the 1986 season. Mr Bursill said he would "think about" supplying Mark Lyons with in-line boots but that, if he did, "they won't be sold through warehouses". There was discussion about the boots which would be available, Mr Bursill indicating that, if Mr Lyons "put it in writing and promise(d) not to sell out of warehouses", he may be able to supply his company with in-line boots. But Mr Bursill preferred not to discuss the matter further at that time, so no finality was reached.
Upon his return to Sydney Mr Lyons sent an order to Bursill, at its Sydney office. The order was for 550 pairs of boots -- 300 "close-out" and 250 "in-line" -- and 450 bindings. In a covering letter he said:
"We agree to your requests for us to
1. Not to resupply other shops.
2. Not to retail Salomon boots in Brisbane/Gold Coast.
3. To use only limited models in our bulk sales."
On 21 October 1985 Mr Bursill wrote to Mr Lyons rejecting the order but making an offer to supply the same quantities on certain terms. Except in relation to the close-out boots, the terms included a discount of 20% -- the discount usually allowed by Bursill for large volume orders -- together with a further discount of 20% of that nett figure for cash on delivery. They also included para.6 as follows:
"6. All models of boots are to be sold only through Mark Lyons Ski Deals at Strathfield and Ski Barn, Drummoyne. SX50 models may be sold through warehouses if necessary. SX61, 61L, 71, 71L, 81, 81L, 91, 91E to be only sold through the Strathfield and Drummoyne shops. This is necessary since these boots require care and specialized boot fitting. A service which cannot be offered in warehouse situations."
Mr Lyons responded by a letter dated 8 November enclosing a detailed order and including the following:
"Thanks for your letter dated the 23rd October we accept your offer and agree to abide by the terms and conditions.
I would like to discuss with you at your earliest convenience any close out model Salomon boots that would be suitable for our warehouse sales."
Mr Lyons had several complaints about the order lodged by him on 8 November. Mr Bursill required him to reduce his boot order so as to match the quantity of bindings he had ordered. Price increases were notified early in 1986; these being said to have been occasioned by a fall in the value of the Australian dollar as against the French franc. There were delays in deliveries. These matters generated a deal of friction between the parties and caused Mr Lyons to have his company's solicitors send a letter of demand regarding deliveries; but I am not satisfied that they had anything to do with the matter of warehouse sales. They seem to have been routine difficulties. However it is relevant to note that, in the course of a conversation in March 1986 regarding deliveries, Mr Lyons asked Mr Bursill to arrange for some SX91 boots -- which were, of course, in-line boots -- to be delivered to Mosman Town Hall. Mr Bursill told Mr Lyons that he had "entered into an agreement not to sell the 91 series from warehouses". Mr Lyons asserted that the Town Hall was not a warehouse but that, in any event, "I don't believe I can enter into such a restraint of trade". In the event, the boots were delivered to the Town Hall where a sale was conducted. At that sale Mark Lyons sold Salomon in-line boots, along with other items.
As a result of Mr Lyons' action in selling in-line boots at Mosman Town Hall, and in other "warehouse" venues, Mr Bursill went to the 1986 Ski Show resolved -- subject to legal advice -- not to supply Mark Lyons with any in-line boots for the 1987 season. At the Show Miss Judy Boulton, a Bursill employee, told Mr Lyons that Mr Bursill would not sell him in-line boots. Mr Lyons left with her an order for in-line boots and bindings but she subsequently told Mr Lyons that Mr Bursill was not prepared to sign it and that he would speak to Mr Lyons in Sydney.
Following his return to Sydney, on 13 October, Mr Lyons sent a written order to Bursill. There was a delay -- for which each side blames the other -- in Mr Lyons and Mr Bursill discussing this order. However, one day in November 1986 Mr Lyons saw Mr Bursill during a visit to the Bursill office on another matter. Mr Bursill handed to him a letter dated 6 November which read as follows:
"Thank you for your orders dated 13/10/86. We apologise for not replying to you sooner, however we are sending you back your orders as sent in your letter dated 13/10/86.
We have decided after much consideration not to sell your Company Mark Lyons Pty. Ltd, the contemporary range of Salomon ski boots, (viz SX91E, SX91, SX81, SX81L, SX71, SX71L, SX61, SX61L, SX51, SX51L, SX31 and SX31L).
We feel that the style of your operation, selling upmarket ski boots through town halls and warehouses is not conducive to the image that we are attempting to project for these boots.
We would be willing to accept your orders for ski bindings and clothing, however we will not accept the boot order.
We do from time to time have close out items which we will still offer you on a cash basis.
Please by return mail, communicate if you wish Bursill Sportsgear to proceed with your clothing and ski binding orders. We have an order for 450 pairs of 337 bindings, that you placed at the October Ski Show. Please indicate if you wish to proceed with this order. All dealings will be on a COD basis."
After Mr Lyons read the letter a conversation ensued. There is no real dispute as to its content. Mr Lyons accused Mr Bursill of refusing him supply because he was discounting. Mr Bursill denied this. He said that there had been a bad reaction to his boot fitting, wrong sizes being supplied. Mr Bursill disputes that he expressed opposition to discounting as such, saying that the price at which Mark Lyons sold was no concern of his company, but that warehouse sales were "not conducive to the Salomon image". There was argument about the reasonableness of a distinction -- in terms of boot fitting and image -- between the warehouse sale of close-out boots and of in-line boots. Mr Bursill said to Mr Lyons that he had broken his agreement "so I can't trust you anymore, so that's it - you will not be supplied". Mr Bursill said that if Mr Lyons took the matter to the Trade Practices Commission "that's it - all orders including close-outs are cancelled".
Shortly after this conversation Mr Lyons received from Mr Bursill a letter dated 26 November 1986, which was in identical terms to that of 6 November and which enclosed six workslips issued by the Salomon service centre maintained by Bursill at Thredbo. Those slips referred to problems relating to Salomon boots said to have been purchased from Mark Lyons. In one case, according to the slip, the customer claimed to have purchased the boots from Mark Lyons' Strathfield shop, but the problem was not identified. Three slips referred to alleged purchases in Mosman Town Hall; in two cases a fitting adjustment being required. The remaining two slips claimed a purchase from Mark Lyons, without further particulars. In one of those cases the boots were said to be of the wrong size.
It is convenient to note at this point that the evidence of Mr W R Vertucci, the manager of the Thredbo service centre, is that during the 1986 season the centre attended to over 600 customers. Of these, about 10-20 had been fitted with boots of an incorrect size. Some could be readily adjusted; some could not. Mr Vertucci took the names of four such customers who had purchased their boots from Mark Lyons; in two cases from one of its shops, in the other two cases at the Mosman Town Hall. The cases referred to by Mr Vertucci are additional to those noted on the workslips referred to in the preceding paragraph.
On 2 December 1986 Mr Lyons replied to Mr Bursill's letter of 26 November complaining of its contents. Mr Bursill responded on 11 December, referring to the discussion at the Ski Show. The letter said, in part:
"At this meeting, we discussed clothing and equipment order you gave us. We informed you that as you were going to sell the inline Salomon boots through warehouses and town halls, we would not be supplying you with this line of boots. The boots need specialist fitting with back up service from the retailer and therefore cannot be properly sold or serviced if sold from short lease town hall or warehouse sales."
In the event Bursill did not supply Mark Lyons with any in-line boots for the 1987 season.
Monopolization -- the s.46 claimSection 46 relevantly provides:
"46. (1) A corporation that has a substantial degree of power in a market shall not take advantage of that power for the purpose of--
(a) eliminating or substantially damaging a competitor of the corporation or of a body corporate that is related to the corporation in that or any other market;
(b) preventing the entry of a person into that or any other market; or
(c) deterring or preventing a person from engaging in competitive conduct in that or any other market.
(2) ...
(3) In determining for the purposes of this section the degree of power that a body corporate or bodies corporate has or have in a market, the Court shall have regard to the extent to which the conduct of the body corporate or of any of those bodies corporate in that market is constrained by the conduct of--
(a) competitors, or potential competitors, of the body corporate or of any of those bodies corporate in that market; or
(b) persons to whom or from whom the body corporate or any of those bodies corporate supplies or acquires goods or services in that market.
(4) In this section--
(a) a reference to power is a reference to market power;
(b) a reference to a market is a reference to a market for goods or services; and
(c) a reference to power in relation to, or to conduct in, a market is a reference to power, or to conduct, in that market either as a supplier or as an acquirer of goods or services in that market.
(5) ...
(6) ...
(7) Without in any way limiting the manner in which the purpose of a person may be established for the purposes of any other provision of this Act, a corporation may be taken to have taken advantage of its power for a purpose referred to in sub-section (1) notwithstanding that after all the evidence has been considered the existence of that purpose is ascertainable only by inference from the conduct of the corporation or of any other person or from other relevant circumstances."
There is a major issue between the parties, in connection with s.46, regarding the definition of the relevant market. Counsel for the applicant put alternative positions. They contend that, for the purposes of this case, the "market" is the market in Australia for Salomon ski boots, the market for Salomon ski boots in the Sydney region or the retail market for Salomon ski boots in the Sydney region. Counsel for the respondent, on the other hand, put a wide definition. They argue that the relevant market is the retail market for sportsgear, or alternatively for ski gear.
The definition of "market" in the Trade Practices Act, as originally enacted, was intended to limit rather than to describe. That definition simply read: "'market' means a market in Australia". The meaning of "market", as used in s.46, was discussed in the first reported Part IV case: Top Performance Motors Pty. Limited v. Ira Berk (Queensland) Pty. Limited (1975) 5 ALR 465. A question arose as to whether it was appropriate to speak of a market for the retail sale of Datsun cars in the City of Gold Coast, the respondent contending that there cannot be a market consisting only of goods sold under a particular brand name. The Australian Industrial Court rejected this argument. Joske J., with whom both Smithers and Evatt JJ. agreed on this question, said at pp467-468:
"In my opinion whether there is a market and what that market consists of and what area it covers must be a question of fact in any particular case. In determining this question of fact it must be borne in mind that market means trade or traffic, especially as regards a particular commodity ... and that s.46 is aimed at preventing the control of a market for goods as provided by that section. In my opinion the offering for sale of goods under their trade name may constitute trade or traffic in a particular commodity. Motor vehicles differ from each other in many respects and there are numerous differences between the various brands of motor vehicles which are for sale. If a corporation is in a position substantially to control all Datsun vehicles, and is doing so in a manner prohibited by s.46, in my opinion the corporation falls within the very words of the section and any contrary view would fail to carry out the purpose of the section."
Dr Geoffrey Walker commented upon that decision in 50 Australian Law Journal at pp89-92. He pointed out that, in one sense, all goods and services compete for the buyer's custom; and, in that sense, are within the same market. In another sense, most items being distinct in some respect, each item has its own market. Plainly, in the practical application of s.46, an intermediate position is appropriate.
In an early decision, the Trade Practices Tribunal (Woodward J. presiding) offered guidance in selecting that position. In Re Queensland Co-operative Milling Association Ltd: Re Defiance Holdings Ltd. (1976) 25 FLR 169 the Tribunal said, at p 190:
"A market is the area of close competition between firms or, putting it a little differently, the field of rivalry between them. (If there is no close competition there is of course a monopolistic market). Within the bounds of a market there is substitution -- substitution between one product and another, and between one source of supply and another, in response to changing prices. So a market is the field of actual and potential transactions between buyers and sellers amongst whom there can be strong substitution, at least in the long run, if given a sufficient price incentive. Let us suppose that the price of one supplier goes up. Then on the demand side buyers may switch their patronage from this firm's product to another, or from this geographic source of supply to another. As well, on the supply side, sellers can adjust their production plans, substituting one product for another in their output mix, or substituting one geographic source of supply for another. Whether such substitution is feasible or likely depends ultimately on customer attitudes, technology, distance, and cost and price incentives.
It is the possibilities of such substitution which set the limits upon a firm's ability to 'give less and charge more'. Accordingly, in determining the outer boundaries of the market we ask a quite simple but fundamental question: If the firm were to 'give less and charge more' would there be, to put the matter colloquially, much of a reaction? And if so, from whom? In the language of economics the question is this: From which products and which activities could we expect a relatively high demand or supply response to price change, i.e. a relatively high cross-elasticity of demand or cross-elasticity of supply?"
This approach was followed in a subsequent decision of the Tribunal (Northrop J. presiding): Re Howard Smith Industries Pty. Limited (1977) 28 FLR 385 at pp 394-395.
In its report dated 20 August 1976 the Trade Practices Review Committee ("the Swanson Committee") recommended an extension of the definition of "market" so as to "require that, in the determination of a 'market' for particular purposes, regard shall be had to substitute products, being products which have a reasonable interchangeability of use and which have high cross-elasticity of demand i.e. where a small decrease in the price of a particular product would cause a significant quantum of demand for a similar product to switch to the product in question". Although this was not said, one apparent intention of the Committee was to eliminate the argument that there was necessarily a separate market in respect of each individual product or brand of products.
In 1977, pursuant to this recommendation, s.4E was added to the Act. It replaced the earlier definition of "market" by the following:
"4E. For the purposes of this Act, 'market' means 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."
The first part of the definition, of course, simply reproduced the earlier limitation. The effect of the second part is that there will always be a question of fact whether the relevant market is confined to a single product or brand of products. The test is substitutability. There may be cases where a particular product, or brand of products, is so distinctive that no other product or brand is seen by consumers as a possible substitute. In such a case the "market" is constituted by the trade in that product or brand of products. Perhaps more frequently other products or brands present realistic alternatives; in which case they also will be within the relevant market.
The enactment of s.4E casts doubt upon the continued application of Top Performance Motors -- unless it be first held that no other brands are substitutable for Datsun products -- but the new definition has not been seen as inconsistent with the continued application of Queensland Co-operative Milling and Howard Smith: see Trade Practices Commission v. Ansett Transport Industries (Operations) Pty. Limited (1978) 32 FLR 305 at p 312, Outboard Marine Australia Pty. Limited v. Hecar Investments No 6 Pty. Limited (1982) 66 FLR 120 at p 123.
The view expressed in Queensland Co-operative Milling is similar to that applied in the United States of America in cases arising under s.2 of the Sherman Act. In United States v. E I du Pont de Nemours & Co. (1956) 351 US 377 the question was whether the relevant market was that for cellophane, of which the respondent produced about 75% of all sales, or for flexible packaging materials, of which cellophane constituted only 20%. Reed J., who delivered the opinion of the majority of the United States Supreme Court, at pp380-381 posed as the test "the availability of alternative commodities for buyers; i.e. whether there is a cross-elasticity of demand between cellophane and other wrappings". He went on to say:
"This interchangeability is largely gauged by the purchase of competing products for similar uses considering the price, characteristics and adaptability of the competing commodities."
Some of the authorities speak of sub-markets within a market, as so defined. The concept of sub-market is recognized in the American cases. See, for example, Brown Shoe Co. Inc v. United States (1961) 370 US 294 at p 325. It was accepted by the Trade Practices Tribunal in Queensland Co-operative Milling at pp 190-191, the Tribunal seeing the distinction between markets and sub-markets as merely one of degree. The Tribunal thought that "the defining feature of a sub-market is the existence of still closer and more immediate substitutes".
In their work "Trade Practices Law" (1978), Donald and Heydon discussed at pp92-111 the concept of a market. They criticized the notion of a sub-market, arguing that the existence of more precisely definable substitutability means that "there are just more markets, not sub-markets". For present purposes it is not necessary to pursue this matter; the relevant question in any case is the extent of substitutability.
The respondent's conception of the market is clearly too broad. It is true that Bursill is involved in the wholesaling of a wide range of sportsgear, with emphasis on ski equipment and tennis gear. But, although it may be accurate to speak of the sportsgear industry -- see Donald and Heydon at p93 -- it is difficult to see "sportsgear" as an accurate description of a market. Except in the first of the two extreme senses referred to by Dr Walker, tennis shoes are not substitutable for ski boots. Nor, I think, is it correct to define the market as being one for "ski gear". Ski boots are not interchangeable with skis, bindings or parkas; a skier needs all of these items. It seems to me that both the submissions of the respondent define the market too broadly.
On the other hand the applicant defines the market too narrowly. Although there is not a lot of evidence as to brand interchangeability, it does not appear that Salomon boots are so distinctive as to be free of effective competition.
As is suggested by Donald and Heydon at p92, the best evidence of the dimensions of the relevant market may be the behaviour of people in the particular trade:
"Their records will establish the dimensions of the market; they will show the figures being kept of competitors' and customers' behaviour and the particular products being followed. They will show the potential customers whom salesmen are visiting, the suppliers whom purchasing officers regularly contact, products against which advertising is directed, the price movements of other suppliers which give rise to intra-corporate memoranda, the process by which products are bought, what buyers must seek in terms of quantities, delivery schedules, price flexibility, why accounts are won and lost."
Bursill is obliged, by a condition of its distribution agreement, to forward to Salomon, in France, each year a report, inter alia, upon the sales and promotion of Salomon products. In its 1986 report Bursill referred to competitors. Comments were made, in relation to the SX91 model, regarding concern "about competition from the many copies". Reference was made to two particular competitors, Munari and Nordica. The report also referred to competition from Nordica regarding the SX61 boot.
These comments are consistent with the impression conveyed by the affidavit and oral evidence. Witnesses on both sides spoke of the share of the ski boot market enjoyed by Salomon and of the brand's major competitors in Australia. Mr Robert Grant, the general manager of the Australian distributors of Nordica equipment, regarded Nordica and Salomon as competing at all price levels. Although it was common ground between the parties that Salomon was a leading brand -- perhaps the leading brand -- nobody suggested that Salomon boots were so distinctive as to be insensitive to price competition from other brands. I think that the relevant market should be described as the Australian ski boot market.
The opening words of s.46 refer to a "corporation that has a substantial degree of power in a market". The word "substantial" has been said to be not only susceptible of ambiguity but "a word calculated to conceal a lack of precision": see per Deane J. in Tillmanns Butcheries Pty. Limited v. Australasian Meat Industry Employees' Union (1979) 27 ALR 367 at p 382. It presents problems of degree. The test of "substantial degree of power" was inserted in s.46 only in 1986 and I am not aware of any authority upon the meaning of "substantial" in that context. But, in the context of s.45D of the Act, the word has been regarded as requiring a loss or damage that is "more than trivial or minimal" -- see Bowen C.J. in Tillmanns at p374 -- "real or of substance and not insubstantial or nominal" -- see Deane J. in Tillmanns at p 382. In Cool & Sons Pty. Limited v. O'Brien Glass Industries Limited (1981) 35 ALR 445 at p 458 Keely J. applied the approach taken in Tillmanns in understanding the words "substantially lessening competition" in s.47(10) of the Act to refer to "a lessening of competition that is real or of substance as distinct from a lessening that is insubstantial, insignificant or minimal". This course was upheld on appeal: see (1983) 48 ALR 625 at p631.
Although it is always necessary to consider the context in which a particular word is used, especially one as imprecise as "substantial", the decisions to which I have referred provide useful guidance. The opening words of s.46 do not require that the corporation control a market. The current formulation is less restrictive than the previous requirement that the corporation be "in a position substantially to control" the market. Upon the other hand the legislature has chosen to insert the word "substantial" so as to avoid including all corporations having power, however minute, in a particular market. I suppose that all participants in a market have some degree of power in it.
If the question be asked whether Bursill has power in the Australian ski boot market which is more than trivial or minimal, or real and of substance, the answer is clear. Section 46(3) makes relevant to this question not only the conduct of competitors but of persons who supply Bursill -- i.e. relevantly Salomon -- and of persons supplied by Bursill. In this connection it should be noted that the company has been granted the sole distribution rights of a brand of boot which not only accounts for about one-third of all sales but which is widely regarded as the leader in terms of innovative ideas and which 90% of Australian ski retailers find it necessary to stock.
When asked about the importance to a retailer of having access to Nordica and Salomon boots, Mr Grant replied: "I do not think it would be a very profitable ski shop without Salomon and Nordica in your store. It is possible to operate but it is not good business". Upon this evidence, a decision by Bursill to deny supplies of Salomon ski boots to a major retailer is a decision likely substantially to damage that retailer's business. It must be concluded that the opening words of s.46(1) are fulfilled, that Bursill is "a corporation that has a substantial degree of power" in the market.
There is no doubt that, in denying the supply of in-line boots to Mark Lyons, Bursill took advantage of its market power. It was able to deny supply in the knowledge that no other source of supply was available to Mark Lyons. But there is a major issue between the parties as to the purpose of that conduct. The applicant contends that, in denying supply, Mr Bursill -- and so the respondent: see s.84 -- intended to restrict the outlets at which in-line boots could be sold and to restrict the capacity of the applicant to compete with retail shops by discounting such boots at warehouse sales. The respondent, on the other hand, submits that its purpose was to prevent conduct which could bring the product into market disrepute.
Section 4F of the Trade Practices Act provides that, for the purposes of the Act, "a person shall be deemed to have engaged or to engage in conduct for a particular purpose ... if--
(i) the person engaged or engages in the conduct for purposes that included or include that purpose ...; and
(ii) that purpose ... was or is a substantial purpose ..."
It follows that it is sufficient that an applicant prove that one of the purposes actuating a respondent -- provided only that this one purpose was substantial -- was the deterrence or prevention of competition. It is not necessary to prove that this was the sole purpose.
Considerable evidence was led regarding the fitting of ski boots. It was agreed on all hands that it was important, from the customer's point of view, that new ski boots be carefully fitted by persons trained for that purpose. There was an issue between the parties as to whether boots could be properly fitted at warehouse sales. Mr Lyons gave detailed evidence as to the persons employed by his company at warehouse sales. According to him -- and he was not challenged on the matter -- qualified boot fitters attended every sale. They had available to them the full range of fitting equipment. There is no reason to doubt that, in the vast majority of cases, boots purchased at the warehouse sales were fitted as carefully and as skilfully as if they were purchased in a shop. The total volume of proved complaints of poor fitting is extremely small.
On the other hand it appears that on one occasion, at the Mosman Town Hall sale in March 1986, business was much above expectations and that the applicant's staff found themselves unable to cope with the demand. It is highly likely that, upon this occasion at least, not all customers were properly fitted. It is significant that this sale was specifically mentioned by five of the people who complained of ill-fitting boots at the Thredbo service centre.
It may be that, in making his decision to refuse supply, Mr Bursill was influenced by what he had heard of the Mosman sale, and a belief that customers could not properly be fitted under sale conditions; although it seems curious that Mr Bursill should have drawn a distinction between in-line boots and close-out boots. Mr Bursill says that the "0" series boots, the close-out models, are easier to fit than the current series. But if a boot is in fact ill-fitted the discomfort of the wearer is not mitigated by the circumstance that a skilled fitter would have found it relatively easy to fit.
Mr Bursill claims also to have been influenced by a view that it was inconsistent with the image of Salomon to have its boots sold at warehouse sales. Counsel for the respondent submit that this was a proper purpose for him to pursue, contending that if the applicant's case is supportable, "Cartier would have to tolerate its watches and jewellery being sold at Paddy's market". It may be accepted that Mr Bursill has a genuine interest in maintaining and enhancing the prestige of Salomon products, as is evidenced by his action in establishing the Thredbo service centre. But the problem in accepting the "image" claim is that Mr Bursill has displayed no similar qualms regarding the sale of other Salomon products in warehouses and public halls. While denying Mark Lyons in-line boots, Mr Bursill supplied Salomon close-out boots to Mark Lyons in the knowledge that they were to be included in warehouse sales. Perhaps it may be responded that they were superseded models -- although it may be doubted whether customers would realise this, the boots being unused and in their original packings -- but it appears that Salomon skis have also been offered at warehouse sales, without complaint by Mr Bursill.
The Bursill 1986 report to Salomon dealt with the denial of supply to Mark Lyons. In his section of the report Mr Bursill wrote:
"We have now decided to stop dealing with Mark Lyons for the contemporary Salomon boots. We hope this will put a bit of sanity back into the market. However, I fear as prices are now quite outrageous, that in general there will be more discounting than ever."
The Sales Manager, Mr David O'Reilly, wrote:
"The beginning of the selling season for our retailers in Sydney featured discounting and sales from rented premises such as town halls. This early trend was compounded with price increases over 1985 prices that some retailers weren't confident they could command from the public. ... This resulted in a continued trend towards discounting well into the season. We have had to make some decisions not to supply dealers who have been consistently involved in these sales. Because the Salomon boot is so strong in our market, it was featured heavily in advertising for town hall sales and this caused some concern for our dealers as they attempted to realise their normal margin.
The retail scene in Victoria did not feature this same trend of discounting, and on the whole better prices and margins were achieved. It is very important for us to protect the dealer margin by controlling the distribution of the boots. If we do not, then continued discounting reduces the profitability in the products and they become less attractive as an investment for the ski shop. This would be to the long term detriment of Salomon in Australia. As well as cancelling some dealer orders, we have reduced quantity to dealers who have shown that they rely on discounts to move more boots instead of providing a good fitting service."
Although Mr O'Reilly used the plural "dealers", Mr Bursill's evidence is that only Mark Lyons was denied supply for the reasons mentioned by Mr O'Reilly. It is, perhaps, significant that Mark Lyons did not sell in Victoria.
Mr Bursill read Mr O'Reilly's comments before the report was sent. He said in evidence that he agreed with the facts Mr O'Reilly had stated. In evidence Mr Bursill was asked about his comment on sanity. He was asked whether it was "the removal of the supply of in-line goods to Mr Lyons' company that you considered would lead to a sanity returning to the market". He replied: "Logical distribution, orderly distribution of the product".
The impression conveyed by the report to Salomon is consistent with the evidence as to Mr Bursill's earlier reaction to sales by Mark Lyons outside its own two shops. As long ago as 1984 -- before there had been any complaints of ill-fitting boots -- Mr Bursill had received complaints from Brisbane retailers about a sale being conducted by Mark Lyons in Brisbane; not in a warehouse or public hall but in the shop of an established ski retailer. There is a conflict in the evidence as to whether Mr Bursill complained to Mr Lyons about this sale but Mr Bursill did admit in evidence that he was "concerned" at the time. It is difficult to see any cause for that concern other than a desire to protect his retailers from what he called "hit and run" competition. In one answer under cross-examination Mr Bursill said:
"We believe in a kind of franchise distribution, it is not in actual fact enforced but we believe that there should be a distribution network set up which allows for adequate competition and, at the same time, it also allows for reasonable profitability to the retailer."
This is a long-standing attitude of Mr Bursill. Mr Bursill was asked about his reaction to Mark Lyons having conducted a shop for six months in 1983 near an established retailer:
Q "It was the practice of your company through its directors, you and your wife at that time, to need to know where your particular retailers were intending to open so that you could plan the distribution of your products in the area in 1983, was not it?"
A "Yes, that is logical."
Q "Right. And in fact that practice has continued to the present time, has not it?"
A "Yes, yes it has."
Q "So in other words then, you want to know where your retailers will be opening and operating at all times so that you can plan the distribution of your products in the area?"
A "The retailers invest a lot of money at the trade show, they place orders for hundreds of thousands of dollars worth of ski gear, they invest probably up to 70 per cent of their investment is made at the October Ski Show, we have to import those products on their behalf, and ship them out to them. They will not give you the support that you require for the marketing image, especially the marketing image of Salomon boots, if somebody is roving around the countryside with hit-and-run style tactics, dumping 100 to 200 pairs of boots in two days on the market. That is the decision. That decision is based on economics. It is based on the image that is being projected for the ski boot and the image will not be supported by the retailers if we allow that type of merchandizing to take place. There is no law that states that we cannot do that."
I think that it is clear that one of the purposes which actuated Mr Bursill's decision to refuse the supply of in-line ski boots to Mark Lyons for the 1987 season was the desire to protect his established retailers from the competition presented to them by Mark Lyons' sales. Some people may regard that as a laudable motive but such a purpose clearly offends against s.46(1)(c). The withholding of the boots is for the purpose of deterring or preventing Mark Lyons from engaging in competitive conduct -- that is, the warehouse sales -- in the Australian ski boot market.
The claim under s.46 is made out.
Exclusive dealing -- the s.47 claimSection 47 relevantly provides:
"47. (1) Subject to this section, a corporation shall not, in trade or commerce, engage in the practice of exclusive dealing.
(2) ...
(3) A corporation also engages in the practice of exclusive dealing if the corporation refuses--
(a) to supply goods or services to a person;
(b) ...
(c) ...
(d) ...
(e) ...
(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.
(4) ...
(5) ...
(6) ...
(7) ...
(8) ...
(9) ...
(10) Sub-section (1) does not apply to the practice of exclusive dealing constituted by a corporation engaging in conduct of a kind referred to in sub-sections (2), (3), (4), or (5) or paragraphs (8)(a) or (b) or (9)(a), (b) or (c) 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; or
(b) ...
(11) ...
(12) ...
(13) In this section--
(a) ...
(b) a reference to competition, in relation to conduct to which a provision of this section other than sub-sections (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; and
(c) ..."
The applicant contends that the refusal of the respondent to supply in-line ski boots for the 1987 season constituted a breach of s.47(3)(f). The reason for the refusal, counsel argue, was that Mark Lyons would not agree not to re-supply the goods "in particular places or classes of places", namely warehouses, public halls and the like.
The respondent relies upon several defences to the s.47 claim. The first depends upon a distinction between a refusal to supply because of a failure to agree not to sell in warehouses, etc and a refusal to supply because of a broken promise. "The Trade Practices Act", counsel submit, "is not designed to require a wholesaler to deal with a retailer who has in the past acquired goods from him by something which comes very close to false pretences". Counsel justify the reference to "false pretences" by pointing out that Mr Lyons admitted in evidence that he had never intended to abide by the undertaking which he gave to Mr Bursill on 8 November 1985.
Section 47 does not compel a wholesaler to continue to deal with a dishonest, unreliable or impecunious retailer. If the broken promise related to a matter unconnected with s.47, there would be great force in the respondent's submission. It is not necessary to decide whether a refusal to supply because of a failure to comply with an agreement the making of which was itself proscribed by s.47 -- subject to sub-s.(10) -- would offend against s.47. I am satisfied that this was not the reason why Mr Bursill refused supply for 1987. The letters of 6 and 26 November 1986 set out the decision which Mr Bursill had made, viz "the style of your operation, selling upmarket ski boots through town halls and warehouses is not conducive to the image that we are attempting to project for their boots". Mr Bursill affirmed in evidence that the letter of 6 November, which said nothing about the broken agreement, accurately reflected the decision he had made. His evidence proceeded:
Q "Therefore, as far as your decision was concerned, it already had been made prior to 26 November 1986 and there was nothing further to discuss?"
A "Not necessarily. I never say everything is black and white or 100 per cent. There is always a chance things could change, that Mr Lyons might agree and apologise for the fact he broke his word and broke his agreement. There was always a chance that could have taken place."
Q "Did you ever seek such an apology from Mr Lyons as a basis for reconsidering your decision?"
A "Well, it was not only an ..."
Q "Did you, or did you not?"
A "It was not only an apology; I wanted an assurance."
The reference to an assurance is revealing. I think it is apparent that Mr Bursill did not refuse to sell in-line boots because he thought Mr Lyons to be dishonest or deceitful -- had that been his motivation it would have been logical to refuse to deal with him at all -- but because he could get no reliable agreement from Mr Lyons not to sell those boots at warehouses, etc.
The next submission is that any refusal by Bursill is related not to the place of sale but to the method of selling; reference being made to the comment in the letters of 6 and 26 November about the style of the applicant's operation. But, when analysed, the objection was to selling at places other than the applicant's two permanent shops, at Strathfield and Drummoyne. This had been expressly stated in condition 6 of the letter of 21 October 1985. So, if it be correct to say that the reference to warehouses was so broad that there was no refusal to supply because the applicant had not agreed not to sell "in particular places or classes of places", there was a refusal to supply because the applicant had not agreed not to sell "in places other than particular places", ie the two shops.
Finally, the respondent relies upon sub-s.(10) of s.47, contending that the respondent's conduct neither had the purpose nor had, or would be likely to have, the effect of substantially lessening competition. Counsel submit that Bursill had no interest in reducing the number of Salomon ski boots sold in Australia; indeed, quite the contrary. So, they say, the question must be whether or not denial of supply to one retailer could be said to have or be likely to have the effect of substantially lessening competition. They refer to Outboard Marine which, they suggest, conclusively determines the s.47 claim in the respondent's favour.
Paragraph (a) of s.47(10) contains alternative exceptions to the exclusion set out in the opening words of the sub-section. The exclusion is denied if either the purpose or the effect of the conduct was the lessening of competition. It is not necessary to show both purpose and effect.
In connection with s.46 I have already found that Mr Bursill, and so the respondent, was actuated by the purpose of deterring or preventing Mark Lyons from engaging in competitive conduct in the retail ski boot market; by selling in additional locations at discounted prices. If that same conduct constitutes exclusive dealing under s.47(2)(f), as I think, the conclusion is inescapable that it is conduct which was engaged in by Bursill for the purpose of lessening competition. Moreover, I think that the intended diminution of competition must be characterised as "substantial", using that word in the sense previously discussed. It is clear that Mr Bursill regarded as significant the competition presented by Mark Lyons to the established retailers supplied by him. The removal of significant competition to some retailers must result in "a lessening of competition that is real or of substance", to use the words of Keely J. in Cool.
Further, as it seems to me, the effect of the conduct of Bursill was likely to be the substantial lessening of competition. Outboard Marine is clearly distinguishable. That case concerned a decision by Outboard Marine to terminate the status of Hecar as an authorized dealer of Evinrude engines, Outboard Marine intending to appoint a new dealer in the same geographic area. The only argument available to Hecar, in support of its submission that the conduct of Outboard Marine reduced competition in the relevant market, was that customers were denied the opportunity of comparing Evinrude engines with other engines in the same premises. The Full Court held that this argument confused convenience with competition. Counsel for the respondent place particular emphasis upon a passage in the judgment of Fitzgerald J. in Outboard Marine at p143. In that passage his Honour said that it would "be an unusual and exceptional case in which it could be shown that competition in a generally competitive market was or was likely to be substantially lessened by a refusal to supply one of a number of competitive retailers in a market with a product otherwise freely available and competitively marketed". I would not wish to differ with that comment but, as Bowen C.J. and Fisher J. pointed out at p125, "the particular facts and circumstances of each case must be carefully considered". There was no suggestion in the Outboard Marine case that Hecar had in the past offered, or was likely in the future to offer, engines at prices below those available from other dealers. Apart from the convenience of being able to compare different brands in the same premises it made no difference to purchasers of outboard engines whether the local dealer was Hecar or its proposed successor. In the present case, by contrast, the Court is concerned with a retailer who is not content merely to offer the relevant goods from its own premises at normal prices; that is list prices subject to "shop" discounts from time to time. The applicant conducts sales outside its own shops, in the "territory" of other retailers, at heavily discounted prices. The vigour of its competition with those retailers gave rise to the complaints made to Mr Bursill and to his concern at the effect upon the other retailers of Mark Lyons' activities. Only by eliminating that competition, which he sees as disruptive, can Mr Bursill hope to restore what he called "a bit of sanity" to the market. Mr Bursill is well placed to evaluate the extent of the competition within the Australian ski boot market. His comments to Salomon clearly demonstrate that he saw the denial of the supply of in-line boots to Mark Lyons as being likely to result in a lessening of competition -- competition which he regarded as excessive and unfortunate -- in the Australian ski boot market. Mr Bursill's assessment, obviously, was that Mark Lyons was not just "one of a number of competitive retailers in the market", but rather a retailer unfairly undercutting his competitors.
The s.47 claim must succeed.
Price discrimination -- the s.49 claimSection 49(1) provides that a "corporation shall not, in trade or commerce, discriminate between purchasers of goods of like grade and quality in relation to--
(a) the prices charged for the goods;
(b) any discounts, allowances, rebates or credits given or allowed in relation to the supply of goods;
(c) ...
(d) ...
if the discrimination is of such magnitude or is of such a recurring or systematic character that it has or is likely to have the effect of substantially lessening competition in a market for goods, being a market in which the corporation supplies, or those persons supply, goods."
The applicant complains that the respondent has breached this provision, it being said that Bursill has sold ski boots to other retailers on terms more favourable than those offered to Mark Lyons.
As already mentioned, the respondent has always allowed the applicant a dealer's discount of 20% together with a further 20% for cash on delivery. The evidence shows that these are standard terms. However, documentary evidence reveals that, upon two occasions, more favourable terms have been allowed to retailers.
The first such transaction arose out of an order by Inski Pty. Limited for ski boots to be delivered by 1 April 1986, the agreed terms being "less 20%, less 20%, 30 days from delivery". The complaint is that, the discounts being the same as for Mark Lyons, Inski was advantaged by being allowed 30 days to pay. The reason, according to Mr Bursill, is that in each of the years ended 30 June 1984, 1985 and 1986 Inski has been his company's largest customer, in dollar terms, taking the full range of Salomon products. He allowed the 30 day terms, at the request of Inski, in recognition of the substantial orders given by that company.
The second case involves a retailer named Castle Ski Hire, which trades at Castle Hill. That customer was allowed a discount of 20% less 25%, payment being cash on delivery. Mr Bursill said that the additional discount was allowed because Castle Ski Hire arranged for a number of retailers in the north west of Sydney to pool their orders so as to amount to a full container load of Salomon ski equipment. By special arrangement the container was delivered directly from the wharf to a warehouse specified by them, thus eliminating handling by Bursill. Moreover, they put up an irrevocable letter of credit prior to shipment from France which the respondent was able to use as collateral security.
Section 49 is not concerned with the motivation behind price discrimination; but rather with its effect. Thus the Court is not concerned with the sufficiency of the reasons which caused Mr Bursill to give these concessions. But it is an ingredient of the discrimination proscribed by s.49 that it have, or be likely to have, the effect of substantially lessening the effect of competiton in a relevant market. There is no evidence that the granting of these special concessions has had, or is likely to have, such an effect. So far as the wholesale market is concerned it would seem that, if anything, the grant by Bursill of those special concessions would promote competition between itself and other ski equipment wholesalers. In connection with the retail market it may be accepted that price discrimination by a wholesaler may have the effect of lessening competition, for example by preventing non-favoured retailers from continuing to trade in the relevant goods; cf the facts of Cool. But there is nothing to suggest that the isolated and minor concessions given by Bursill to Inski and to Castle Ski Hire have affected in any way the ability of others to compete with those two retailers.
The s.49 claim fails.
OrdersThe applicant seeks both injunctions and damages. I think that it is undesirable to deal with final relief in a piecemeal fashion. If there is to be any appeal, it is better that all findings the subject of complaint be argued at the one hearing. So it is better to avoid time running against a possible appellant until all the orders are made. Accordingly, I shall not at this stage make any formal orders in the matter. Instead I will adjourn the matter for mention at 9.30 a.m. on Tuesday 1 September 1987. That will enable the parties to consider these reasons and to discuss with me at that time the appropriate future course of the proceedings.
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