Official Trustee in Bankruptcy v Mitchell

Re: TRADE PRACTICES COMMISSION
And: SERVICE STATION ASSOCIATION LIMITED; JOHN ALICK LANGLEY and BRIAN ERNEST
MARK
No. N G616 of 1991
FED No. 521
Trade Practices
(1992) 14 ATPR 41-179

COURT

IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION
Heerey J.(1)

CATCHWORDS

Trade Practices - alleged arrangement or understanding to fix, control or maintain prices - ss.45(2)(a)(ii) and 45A(1) Trade Practices Act 1974 (Cth) - trade association of service station proprietors - campaign to increase retail margins - recommended retail prices - whether arrangement or understanding between proprietors to fix, control or maintain prices - whether sufficient certainty as to prices - whether mutual expectation as to each other's acting - whether in fact arrangement or understanding existed - evidence of prices actually charged - inducement - s.76(1)(d) - whether intent necessary - relevance of natural probable and inevitable consequence of respondent's conduct - whether in fact intent - whether attempt to induce.

Trade Practices Act 1974 (Cth): Ss.45(2)(a)(ii), 45A(1) and 76(1)(d).

Petroleum Retail Marketing Sites Act 1980 (Cth)

Earl of Mexborough v Whitwood Urban District Council (1987) 2 QB 111

Hornsby Building Information Centre Pty Ltd v Sydney Building Information Centre Ltd (1978) 140 CLR 216

Murphy v Farmer (1988) 165 CLR 19

Pyneboard Pty Ltd v Trade Practices Commission (1983) 152 CLR 328

Ranoa Pty Ltd v BP Oil Distribution Ltd (1989) 91 ALR 251

Trade Practices Commission v Mobil Oil Australia Ltd (1984) 3 FLR 168

Trade Practices Commission v Nicholas Enterprises Pty Ltd (1979) 40 FCR 83

Vallance v The Queen (1961) 108 CLR 56

Yorke v Lucas (1985) 158 CLR 661

Trade Practices Commission v Service Station Association Ltd, John Alick Langley and Brian Ernest Mark (NG 616 of 1991)

HEARING

SYDNEY

#DATE 24:7:1992

Solicitor for the applicant: Australian Government Solicitor

Counsel for the applicant: Mr J.D. Heydon QC with Mr C.P. Comans

Solicitors for the respondents: Mallesons Stephen Jacques

Counsel for the respondents: Mr B.C. Oslington QC with Mr C.C. Hodgekiss

ORDER

IT IS ORDERED THAT:-

1. The application be dismissed with costs, including reserved costs.

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

JUDGE1

I Introduction

The applicant Trade Practices Commission (TPC) brings this claim under Part IV of the Trade Practices Act 1974 (the Act) against the first respondent Service Station Association Limited (SSA), its President John Alick Langley (Mr Langley) and Executive Officer Brian Ernest Mark (Mr Mark) who are respectively the second and third respondents.

The precise nature of the contravention alleged will need to be examined in a little more detail. At the moment it suffices to say that the TPC claims that in the latter half of 1990 petrol retailers in the Sydney metropolitan area made an arrangement or arrived at an understanding with each other and with the SSA to fix, control or maintain retail petrol prices, contrary to s.45(2)(a)(ii) and s.45A(1) of the Act, and that the SSA, Mr Langley and Mr Mark induced or attempted to induce such conduct within the meaning of s.76(1)(d) of the Act.
II Sydney Petrol Retailing 1990
The contraventions of the Act are alleged to have occurred between July and October 1990. It is necessary therefore to look at the structure of the Sydney retail petrol market and the conditions which prevailed in the market at the time.
1. Categories of Service Stations
The principal suppliers of petrol and other petroleum products to service stations for retail sale were the major oil companies Shell, BP, Caltex, Mobil, Esso and Ampol. I shall refer to them collectively as "the oil companies".
The service stations to which the oil companies supplied petrol fell into three broad categories. The first category consisted of stations operated by oil companies themselves either through employees or through commission agents who received a fixed amount per litre on petrol sold. Such stations were generally referred to in the trade as "CA" sites. The oil company which operated a CA site thus had complete control over the setting of retail prices. Although as a result of the Petroleum Retail Marketing Sites Act 1980 (Cth) and other pressures the number of CA sites was limited to approximately 5 per cent of the total in the Sydney metropolitan area, they played an important role in influencing price fluctuations.
The second category consisted of franchised sites in which the franchisee was tied to a particular oil company. The franchisee could set his own retail price, but had no choice as to his source of supply and had to pay the price set by his oil company. The third category consisted of independent operators. Some of these might carry the signs of a particular oil company but were not necessarily obliged to buy from that company.
Service stations differed not only in terms of their relationship with the oil companies but also, quite markedly, in terms of size and style of operation. Sales volumes ranged from about 50,000 litres to 1.5 million litres per month. The types of operations included large self serve service stations and smaller stations providing driveway service. Some provided mechanical repairs and servicing. In addition there were convenience stores such as Food Plus and 7-Eleven which were essentially miniature supermarkets with petrol sales as an adjunct. Some stations were sited in close proximity to competitors, others were more isolated.
Viewed as individual businesses, Sydney service stations therefore displayed widely differing characteristics. Commercial decisions, including the setting of a retail price, would be affected by these different characteristics. Objectively speaking, a particular decision might be sensible for one dealer but not for others.
2. The Service Station Association
The SSA was the trade association of petrol retailers in New South Wales. It had approximately 1100 members. It was a member of the Australian Service Station Association (ASSA), the peak trade association of service station operators.
Mr Langley was the president of the SSA. He had had some 30 years experience in the service station trade. Mr Mark was the full time executive officer. Amongst his other duties he was responsible for a monthly journal called "Service Station" published by the SSA.
3. Price Information
The term "margin" as used in the service station trade means the difference, usually expressed in terms of cents per litre (cpl) but sometimes as a percentage, between the retail price and the price paid by the dealer to the oil company. The dealer's price was usually posted on large boards to attract the passing motorist. The price which the dealer paid the oil company was called the rack price. There was little direct evidence as to the history of the rack price system, but I gather it is of comparatively recent origin and was intended to overcome what was seen as the unfairness of discriminatory pricing by oil companies as between dealers. Each oil company sets its rack price and dealers can ascertain the rack price on a particular day by simply telephoning the oil company. The rack price is not treated as confidential information.
A company called Informed Sources Pty Ltd (Informed Sources) carries on the business of obtaining daily information as to the retail prices and margins obtained by dealers. The managing director of Informed Sources, Mr Alan Cadd, gave evidence. The more precise details of the method of operation of the business were received as confidential evidence but it can be said in general terms that his company obtains this information by physical observation of posted prices each day and by obtaining rack prices by telephone from the oil companies.
Informed Sources does not purport to report as a precise matter of fact what margins are being obtained. For example, a particular dealer might alter his posted price after the observation is made by Informed Sources. The dealer might be selling on that day petrol delivered on a previous day and paid for at a different rack price. But in its own terms the accuracy of the Informed Sources information was not challenged. It provides valuable information as to prices and margins obtaining from time to time in the Sydney metropolitan area; were this not the case presumably Informed Sources' main customers, the oil companies, would not pay for it.
4. Profitability
It was common ground in this case that by the first half of 1990 profitability for Sydney service stations had sunk to a disastrously low level. Margins were 3 cpl or less. A study by Coopers and Lybrand in Victoria had suggested that a minimum of 4.5 cpl was necessary to break even. In an examination under s.155 of the Act which was tendered in evidence Mr Langley described the position in the following terms:

"... the situation was so bad that our members, not only in New South Wales but in every State, were crying out to their associations for help. Their margins were compressed to what we just considered to be poverty level. I think at the time here in Sydney there was something like round about 200 service stations up for sale. I think a lot of banks were calling up mortgages. I think the average ... overdraft was reaching something like about $80,000. We were a bad risk as far as the banks were concerned, and generally the morale amongst our members was at rock bottom because they could see themselves in a hopeless situation."

One of the factors depressing profitability was the issue by oil companies of credit cards which entitled the holder to buy petrol at a fixed price with the dealer receiving only a small commission per litre sold. Ordinary credit cards such as American Express, Mastercard and Bankcard were honoured by dealers. Although in this case the posted retail price was paid the credit card company charged its usual commission to the dealer.
The financial prospects of dealers were also affected by the decision of the Full Court of the Federal Court in Ranoa Pty Ltd v BP Oil Distribution Ltd (1989) 91 ALR 251 which held that franchisees had no disposable goodwill at the expiration of the term of their franchise. As a consequence, the only financial benefit to be obtained was by profit earned during the term.
III "Prosper from Petrol"
I shall briefly advert to the genesis of this campaign and certain steps that were taken to implement it before considering the communications which the SSA and Messrs Langley and Mark had with Sydney dealers. This latter aspect is central to the TPC's case and needs to be considered separately.
1. ASSA Meeting 5 April 1990
The ASSA held a meeting in Adelaide on 5 April 1990. Messrs Langley and Mark were present, along with representatives from a number of other States. The minutes of that meeting under the heading "Prosper from Petrol" record that:

"A lengthy discussion took place around the proposed re-education of dealers in determining petrol prices. All agreed there are a number of factors causing low profitability - oil company credit cards, high rents, franchise fees."

It was resolved:

"That ASSA members consolidate and co-ordinate the 'Prosper from Petrol' proposal and that a project of re-education of service station dealers and other sectors of the petroleum industry be embarked upon in order to achieve sensible profit objectives."

Later that year, in his annual report to members of the SSA dated 3 September 1990, Mr Langley referred to the Adelaide meeting as having discussed "a national profitability awareness campaign" the purpose of which was:

"to educate dealers in the need to address their lack of profitability due to ill informed pricing decisions that were driven by the philosophy of 'volume at any price'."

Meetings with Oil Companies

Although not recorded in the minutes of the 5 April meeting, it would seem that at the meeting Mr Mark and a Victorian representative were allocated the task of holding discussions with oil companies. In Mr Langley's annual report this was described as:

"a non-stop round of discussion with individual oil companies until their support was guaranteed."

It is obvious enough that if the oil companies were not to increase prices at their CA sites it would be more difficult for other dealers to increase prices. The TPC placed considerable weight on Mr Mark's meetings with the oil companies. Counsel for the TPC argued that it could be inferred that Mr Mark "extracted an undertaking from the oil companies not to discount through CA agents and to move CA prices upwards in the event that prices generally rose; or at the very least that Mr Mark and the SSA gained the confidence that the oil companies would so behave."
I do not think the evidence supports such a conclusion. It is important to note at the outset that there is no suggestion that the meetings between Mr Mark and the oil companies in themselves breached the Act, as would have been the case had there been any arrangement or understanding for the fixing, controlling or maintaining of retail prices. The only direct evidence of what took place at such meetings (as distinct from admissions alleged to have been made by Mr Langley and Mr Mark) is contained in a letter from Esso to the TPC dated 5 October 1990. That letter was in response to letters from the TPC concerning its investigation "into reseller margins and the SSA's recommended pricing scheme in Sydney". Esso in its letter reported that meetings took place on 17 May and 22 May 1990, the first at SSA's office and the second at Esso's office. As to the first meeting Esso's letter stated that the topics discussed included:

"SSA's concern at the plight of retailers and their poor profitability in the face of distributor supplies causing strong retail price competition, dealer owned service station price advantages and company owned service stations with aggressive dealers. SSA's view that competition had got to the stage where average costs of retailers were frequently not being covered by margins. With expensive overdrafts, the situation was clearly a problem facing the industry. The possibility of the SSA recommending a retail price as a reseller guide was raised by the SSA. This would be at a level which would cover typical average costs and a reasonable return on capital invested. No discussion as to the implicit retail margin or a particular retail price took place."

At the second meeting the topics discussed were the poor profitability of retailers, the impact of distributors on the retail market, the impact of company credit cards on retailers, the effect of high interest rates, the need for change as retailers were suffering significantly, and the potential value of a wider industry forum to discuss and recognise this issue.
Esso stated in its letter:

"No agreements were reached. Esso acknowledged that a range of retailer issues were of concern and that Esso would be mindful of these in formulating future policy. The meeting was informal, reached no agreements and did not warrant the taking of minutes or diary notes at the time. I (Mr S L Tregonning, the General Manager Retail) recall saying to Mr Ledlie after the meeting something like 'that it was a bit of a non event'."

The TPC withdrew from the bundle of agreed documents (Exhibit A) the responses from the other oil companies, so it is perhaps reasonable to infer that they were no more incriminating than the Esso letter. The tone of the Esso letter rather corroborates the rueful comment of Mr Mark in his s.155 examination that "the day I can persuade an oil company to do anything will be a miraculous day indeed".
The TPC relied on a statement of Mr Langley in his annual report when speaking of price rises which occurred from July onwards. He said:

"The oil companies proved true to their undertaking to support their dealers and move CA prices in accordance with the various markets in which they operate."

It seems however that "undertaking" referred to related to an undertaking given by the oil companies at a meeting at the Southern Cross Hotel on 1 June 1990 chaired by Professor Robert Baxt, the then Chairman of the TPC. This meeting is discussed in Mr Mark's editorial in the July issue of "Service Station", to which further reference will be made. It is plain from that account (the accuracy of which was not challenged by the TPC, either by calling Professor Baxt or otherwise) that a number of issues other than price were discussed and no undertaking in relation to CA retail prices was given.
3. Training the Trainers
A "Training Day for Trainers" was held on 29 May for the purpose of training SSA Councillors in presentation of the "Prosper from Petrol" campaign. This was organised by the SSA and attended by 15-20 people. Mr Langley addressed those present. He was asked in his s.115 examination what he intended the trainers were to do. Mr Langley answered:

"Quite obviously if we were going to have any success at all with the campaign there needed to be, first of all, a change of attitude, if you like, both with oil companies and with our members. You must remember that at that particular time a vast majority of our members knew no other marketing scheme other than a discount scheme. It was a question of an attitudinal change in their thinking, from one of volume, which had been drummed into them ever since they had gone into the service station by their particular oil company, to one of profit. They started thinking profit. So the whole idea of establishing this 'Prosper from Petrol' campaign, and more particularly, getting back to your question, at the (meeting) I ran through the campaign with the councillors that were present, and then indicated to them that if the campaign had any chance of success at all, then they and our members had to get off their backsides and starting doing a bit of work themselves to try to get some profit into their own businesses."

Following the Training for Trainers day there were, as Mr Langley said in his annual report, "numerous small meetings" of dealers held before a large meeting on 2 July to which I shall shortly refer. The persons who had attended the Training for Trainers day were expected to co-ordinate and hold their own training for people in their own areas. It was understood that they would report back to the SSA on the results of their local meetings.
IV Communications with SSA Members
A central part of the TPC's case concerns the communications which the SSA, principally through Mr Langley and Mr Mark, had with its members in the course of promoting the Prosper from Petrol campaign. Since I am concerned to ascertain whether those two gentlemen (and as a consequence the SSA; see s.84(1)) acted with the intention of contravening the Act when they communicated with members of the SSA, those communications need to be looked at in some detail. Because some passages are relied on as evidence manifesting the proscribed intention it is necessary to examine the context in which such passages appear. The emphasis in quotations from those communications is mine.
1. SSA Journal "Service Station"
In the June 1990 issue of "Service Station" there appeared an article headed "Profit or Volume?". The theme of the article was described as "how dealers' reluctance to insist on realistic margins is slowly sending them out of business". The article referred to the Coopers and Lybrand study and noted what it called "Rule 1", viz "Oil companies are managed to maximise returns for their shareholders and not to provide profits for their service station operators". It referred to the recent Ranoa case which was said to have the effect that "service station operators have zero goodwill at the expiry of their lease. Therefore they must make their profit through the operation of their business rather than through its ultimate sale." The article drew the conclusion that "as a service station operator you have two choices. You can maximise volume or you can maximise overall profit for your site. It is not possible to do both at the same time." It continued:

"For years the oil companies (and some misinformed service station operators) would have had us believe that high volumes generate high profits because of the increased customer traffic on the site. We sell a few more Mars Bars and cigarettes which compensates us for the losses we make on fuel. The MTA of South Australia has released an excellent paper which proves that this "extra aftermarket" theory is completely incorrect. The MTASA paper supports the Coopers and Lybrand W D Scott finding that aftermarket sales cannot compensate for the enormous economic losses being suffered on fuel sales at a normal service station site.

The studies all show that you need a margin of about 5 cpl in order to break even on fuel sales. That's not to make a profit: it's just to break even.

Driveway service sites sell very little aftermarket and can't take advantage of this alleged increase in non-fuel profit. They do, however, have to employ extra driveway staff to cope with the extra customers

........ ........ ....

Dealers who are serious about staying in business and about looking after the interests of their own families should be operating at a minimum margin of 10%. That means that, if you buy at 61 cpl, you should be selling at 67.8 cpl. If you were to double your margin overnight, you would have to lose 50% of the volume before you became worse off. On the other hand, you'd need less working capital and, quite possibly, fewer staff.

The same amount of petrol will be sold in Australia regardless of whether the retail price is 65 cpl or 70 cpl. If you're dearer than the opposition then you will have to make up for it with service and cleanliness.

Remember, if you increase your gross margin from 5% to 10%, you would have to lose half of your volume before you were worse off. In the last 12 months we have seen a 40% increase in the price of fuel. The oil company take has doubled and, at the same time, dealer margins have dropped through the floor. Dealer margins have gone from 6.5% (3 cpl on 46.4 cpl) in January 1989 to 4.2% (2.7 cpl on 64.9 cpl) in April 1990.

Dealers who were hurting a year ago are now going broke. Dealers who were going broke a year ago are now out of business. As service station operators, we have only ourselves to blame. Under the new so-called Rack Pricing system, we are free to set our own margins.

If the servo down the street wants to sell at one or two cpl margin, then let him.

The way the industry is going, he won't be there for much longer."

Also in the June issue there was an editorial by Mr Mark under the hearing "Profit and Value". After referring to trends such as large self service stations and convenience stores and the belief that the public would prefer a freedom of choice, Mr Mark said:

"It is my view that high volume self-serves, convenience stores and full service outlets can exist in harmony. This will not happen, however, unless there is a fundamental change of attitude by oil companies, dealers and the general public. Oil companies must recognize that all classes of operation cannot survive if they are all expected to post identical retail prices. It is patently stupid, for example, to expect a dealer who cannot possibly expect to sell the same volume as a big self serve to cover the additional labour costs of providing driveway service with the same retail margin. It is equally stupid to expect him to compete on price with a full-blown convenience store which looks to its grocery lines as the principal source of income. Oil companies should therefore positively encourage retail price differentials according to the service provided. Dealers must understand that the majority of motorists will pay a higher price if, and only if, they believe that they are receiving value for their money. The general public must understand that, if they don't want the demise of neighbourhood service stations and freedom of choice, they must be prepared to pay a premium. The message, then, is clear: price for profit but always give good value."

In the July issue Mr Mark's article under the heading "Recipe for Disaster" refers to the Southern Cross Hotel meeting of 1 June 1990 which had been chaired by Professor Baxt. According to the editorial, the meeting was attended by senior marketing personnel from each of the six major oil companies, representatives of the Prices Surveillance Authority and service station organisations. It was recorded that the practices which were contributing "in a major way to the abysmal profitability of service station dealers" included oil company credit cards, bonus special allowances to some distributors, pricing policies at CA sites in unfair competition with oil companies' own dealers, pressure by field representatives who encouraged dealers to pursue volume at any price, even though ensuing retail margins are insufficient to cover operating costs and provision of selective or conditional price/profitability support to dealers or distributors. The editorial concluded:

"The SSA is optimistic that the goodwill demonstrated by all parties at the Southern Cross meeting, due in no small measure to the support and encouragement of the TPC which reiterated its desire to see the elimination of unfair or unjust business practices and the avoidance of harsh and unconscionable behaviour of any description, will provide an opportunity for restoration of some profitability to service stations.

It must be said, however, that unless and until dealers begin to make individual business decisions to post a price for their petrol that will provide for a satisfactory level of profit, all the goodwill in the world will not prevent bankruptcy. The entrenched and ingrained idea that simply matching the price of a competitor is the only answer or a substitute for making hard business decisions must inevitably end in disaster."

In the August issue of "Service Station" there appeared Mr Mark's editorial under the heading "The Corpse Revives". The TPC placed considerable reliance on this, and I shall quote it in full.

"Just when it appeared that Sydney dealers had made a commercial suicide pact by pricing themselves into oblivion, a spark was ignited to revive the corpse.

Retail margins had reached an all-time low, with 2.4 cpl representing the average gross profit throughout the metropolitan area. Many dealers were seriously contemplating the prospect of walking away from their sites, or facing bankruptcy. The SSA, in conjunction with other associations throughout the nation, had embarked on a comprehensive education policy to convince dealers that they were free to set their own margin of profit according to their individual costs and profit aspirations. They no longer had to rely on subsistence levels of price support, or face unrelenting pressure from their oil company supplier to pursue additional volume at any price.

At the same time, the associations maintained a non-stop lobby of the oil companies to speed up the process of eliminating all pricing practices that created obstacles to the achievement of a fair and orderly market.

However, despite all the effort put into the campaign, margins were continuing to shrink to levels that simply could not be sustained, and spelt disaster for literally hundred of dealers across the metropolis.

To my mind, the associations had provided all the fuel, but the 'fire' was still 'dead' until the oil companies took a collective decision to publicly acknowledge the merits of the argument that had been put, and spoke out in support of sensible dealer margins of profit.

The result has been nothing less than spectacular, with average margins being almost doubled in a few short days, and at the time of writing they are still on an upward curve. It would be foolish, of course, to believe that all of the problems have been overcome and that competitive forces will not be brought into play. A valuable lesson can be learned, however, in that it has been proved sensible that, if dealers possess the will and determination, they can achieve a satisfactory level of profit to survive in what is arguably the most difficult retail industry in the world."

I think the reference to "competitive forces" in the last paragraph is not, in the context, a reference to competition between dealers. Rather it is speaking of the competition between oil companies which had resulted in pressure for volume at any price and harsh and unfair behaviour towards dealers.
Viewed as a whole, the material in "Service Station" certainly promotes the view that dealers ought, as individual traders, to consider carefully whether they are charging enough to stay in business and whether they should raise their prices. It is not suggested that such conduct, or the inducing thereof, contravenes the Act. Moreover the evidence strongly suggests that the commercial setting was such that there was every reason for the SSA to convey such a message to its members, the advancement of whose interests was the SSA's raison d' tre. However I do not see on any reasonable construction of the "Service Station" material that it contains any encouragement to dealers to fix, control or maintain prices. On the contrary, the emphasis is on competition. There is reference to differing retail prices as being both inevitable and desirable. There is reference to competition by non price means such as driveway service. There is reference to the possibility of a positive decision to charge a higher price than a competitor because his price might be seen as too low.
The constantly repeated theme is that the individual dealer will be better off with an increase in price at the expense of volume - the necessary corollary being that the drop in volume is to occur because other dealers might charge lower prices.
2. Sydney Town Hall Meeting
On 2 July 1990 a meeting attended by approximately 200 dealers took place at Sydney Town Hall. The meeting was organised by the SSA.
Mr Langley addressed the meeting. He gave an account of this speech, or perhaps more accurately a repeat performance, in his s.155 examination. Since essentially the same speech was repeated at about 25 local area meetings after the Town Hall meeting, it may be accepted that practised repetition has resulted in an accurate version. Counsel for the TPC did not challenge the accuracy of the account given in the s.155 examination and it was substantially corroborated by Mr Stephen Bailey, the only witness who attended that meeting.
Mr Langley described the mood of the meeting as "fairly rowdy". He gave the following speech:

"Now, look, we're here, not to discuss price, but we're here because the market's ratshit. It's in a mess financially, we're all in a mess, and we're here to talk about profitability, profitability alone, and price is of no consequence. We're not concerned about price at all.

But just let me say this: there's no need for me to tell you out there how your businesses are going at the moment, because none of us are probably conducting very viable or worthwhile successful businesses at the moment. I just want to start off by saying this: that prolonged discounting ultimately results in business failure, as many of you out there now will attest, and unfortunately many have already succumbed to that and have gone out of business.

To reinforce that, currently we're told by the SSA business brokers that there are something like 200 service stations on the market for sale at the moment. Now if that number of businesses are up for sale, that gives an idea of what the actual market is like. Nobody's interested in them because they're just not profitable. I refer you to the June article of our 'Service Station' magazine which went into more detail with that. But just let me go on to the national scene, if I may, that perhaps there may be a glimmer of hope on the horizon. Let's hope so in any case, because the lack of profitability basically is a problem that's facing every dealer throughout Australia at the moment, without exception, so we figured that a national approach had to be made. Each State will have to play their part in this national approach.

Just to give you an indication of what's been going on in other States, the University of Queensland in a study they've conducted into service stations indicate that just to break-even, in Queensland, you need 14.5 percent gross profit margin - just to break-even. So obviously the boys in Queensland are suggesting they need 21 percent as a gross profit margin to make their businesses viable.

Another well known accounting company in Victoria, Coopers and Lybrand, have suggested that a minimum of 4.5 cents a litre is necessary to break-even. The figures I'm giving you, ladies and gentlemen, are break-even, not profit - break-even. Remember that. Even in South Australia their indications have supported those of Coopers and Lybrand of Victoria.

So what is a fair margin? What is a recommended price? What price do you need to set ........ ......

Look, it's for you to determine what margin you want to post, and this is the way to do it. Let's imagine, say that's your buying price, 60 cents. We'll go up in one cent sectors. So that's 61, 62, 63, 64, 65, 66, 67, etcetera. That's your starting point; that's your base buying price. Now, you want to relate everything back to your volume. Everybody knows what volume you're doing, so you have to relate all your expenses back to a percentage of your volume, or a cents per litre break-down of your volume. So in other words let's start off with rent. You know what rent you pay. Now, that might equate to about one and a half cents, right, on your volume. Now we'll go into the other costs of the service station. You've got your franchise fee; that might be half a cent. Then you've got your fixed costs; that might be say another 1.75 cents, expressed as on the throughput of what you're doing. Then you've got your wages of course, which is a very big component of expenses in your business; that might equate out to something like one and a half cents a litre. Then after wages you've got your incidental costs, like uniforms, advertising; let's say another two cents.

At the moment, roughly, we're up to 6 cents and we haven't even looked at a profit or return on investment. Do you get the gist of what I'm trying to say? You have to sit down and analyse your own businesses, work out how much the business is costing you to operate and then put a margin on top of that sufficient to make it viable and to get a decent return on your investment. Now, none of us are doing that, because for time immemorial the oil companies have tried to drum into us to use petrol as a loss leader. Now, that's not on, ladies and gentlemen; that's not on. From here on petrol should be a stand alone profit commodity. There's nobody in their right mind or anybody in small business would suggest that a margin of 4 percent, and remember - remember, that when we're talking about petrol, that constitutes 75 to 80 percent of the turnover of the business. You tell me any other business in small business where their main product which constitutes 80 percent of their turnover grosses 4 percent. You won't find any because they don't exist. So that's why it's very, very necessary that you examine critically - critically - examine your own businesses and post a margin that you consider necessary to make your business viable.

Now, what you should do is, not express it as a cents per litre, but express it as a percentage, because all your returns from your accountant come back as a percentage. The oil companies when they post their profits in their annual reports express their profits as a percentage against funds invested. So we should do the same. Besides that, part of the thing I'll get into later on is public awareness. We want the public to understand that we're not rip-off merchants. That 4 cents, 5 cents, 6 cents, whatever it is, is not exorbitant, and the only way we can express that is by way of percentage, because people understand percentages, they don't understand cents per litre.

We just can't stop anyone wanting to make only a cent a litre. It's called free enterprise. So we know and understand there'll be those out there in the market place who want to operate on one cent a litre and others can't under any circumstances do that. They might need 8 cents a litre. Because we all know credit cards are playing a big part in the business now. You take Amex; they're three percent. If you're in a discount scene you're selling it for nothing. So you have to consider that very, very important aspect.

Unfortunately some of our members don't have to make a profit on petrol, because we know that they're in other activities besides petrol, and they use it merely for cash flow purposes only. This is a problem, and I don't know how to overcome it. But once again there's always going to be discounting in the market place. It's called free enterprise. So it's up to you to decide what you want to do as far as your own business is concerned. And just remember, we can no longer afford the luxury of having petrol bleeding off the profits from other sources of your business; it's not on.

We have to educate ourselves to understand the changing market place. We've done some studies into buying habits and we know only five to six percent of customers chase price over a margin of two and a half cents a litre. Unfortunately we have no muscle power like the unions, so we must protect ourselves by any other means. We get no joy from governments, we get no joy from the PSA, we get no joy from the TPC - and heaven only knows most of the public think we're rip-off merchants and profiteers. But that's not the case.

But because of the advent of rack pricing we've now got the freedom, if you like, the freedom to set your own price in line with market forces, but we're just not using it at all. Rack pricing has given you the opportunity to price according to your own needs, regardless of what anybody else says. ........ ........ ........ ........ ........ ........ .... Now if I can just move on to the "Prosper from Petrol" campaign, all States have embraced this concept of "Prosper from Petrol" because every dealer in every State is in the same boat. Remember, nobody is going to help us except ourselves. Various States have got their own responsibilities. Every State of course has got the job of educating their numbers into what we want to do.

And here you get back to attitude. For this to be a success, ladies and gentlemen, we have to create a shift of emphasis from a perception of good business being volume or throughput to a focus on mark ups and profit made. We have to create a shift of emphasis from oil company control of the business to petrol retailer control of the business. We have to create a change of emphasis from autocratic management by the oil companies to a more laissez faire approach to the retailers. We have to create a change of emphasis from oil company responsibility for the performance of "their" outlets to retailers' responsibilities for their own businesses.

We have to create a shift of emphasis from oil companies having or providing all the skills required to run retail outlets to retailers having the required skills to run their own businesses. We have to create a shift of emphasis from the focus of the business's selling price or discounting to the focus of business's customer service and all the extras that go with it. We have to create a shift of emphasis from a high level of government regulation and control to a changing if not lower level of government intervention and control. And above all, ladies and gentlemen, above all we have to create a shift of emphasis from a low self-esteem, which we have now, to a high level of self-esteem and self-worth - "I'm proud to pump petrol".

For this, ladies and gentlemen, to be a success we've got to try and create the shift of emphasis on those areas. ........ ........ ........ ........ ........ ........ ..... The VACC and SSA of New South Wales have the responsibility of talking to the oil companies. The CA sites' pricing policies need to be looked at. You know, it's a poor situation in our industry where your own landlord, who we pay the rent to and supplies the same product, goes into competition with his own dealers by pricing under what we're able to price ourselves. So they'll be looking at the CA sites and the pricing policies. ........ ........ ........ ........ ........ ........ .... So that's roughly a break-down of the campaign. You'll be hearing more about this later, but other matters crucial to the success of this campaign are a public awareness and an acceptance that service stations need to make a reasonable margin. If we're able to make a reasonable margin, do you know because of this discounting scene which has been with us for years, we've had to prune costs, we've had to put off staff. Here's one of the things this government could really do to take a bit of heat off the unemployment. If we had a decent margin we could employ people on the driveway to give service again. We have no facility at the moment to do that, as you well and truly know. So we've got to try and somehow create a public awareness and get their acceptance that, say, a 10 percent gross profit margin, five percent gross profit margin, whatever it is, is not unreasonable and we're not ripping them off. There's got to be some fairness in our industry.

Oil company credit cards - we're doing something on that, of which one state is investigating that, and that will be communicated to you at a later date. But I don't have to tell you now, you know, the insidious roads that oil company cards are making into your market, and your profit particularly, where we only get a piddling handling fee of, say, two cents or two and a half cents a litre and we're supposed to carry the credit. They've got it their own way.

Price signs - there's nothing in your agreements nor the Petroleum Retail Marketing Franchise Act to say that you have to display a price board. If you don't want it up there, take it down, because all you're doing is telling the customers: Don't come in here, you can get it cheaper down the road. You don't have to display a sign.

We want the opportunity to buy from branded distributors, because obviously we can buy from branded distributors a damn sight cheaper than we can from our landlord supplier. But each State is working pretty hard on this campaign, but the success is in your hands. We've got to convince you to price according to your own site's needs - nothing more, nothing less. You've got to determine what you need in your business to make a profit. Just remember this - nothing is more valuable than your margin. It's a whole lot better than volume and litres. Thank you."

Counsel for the TPC did not subject Mr Langley's speech to any critical analysis. There was no suggestion that it conveyed anything other than its ordinary and natural meaning. No sub-text, code or nod and wink meaning was alleged. This is not surprising. A "rowdy" meeting of 200 service station operators in the Sydney Town Hall would be an unlikely occasion for subtle nuance and hidden irony.
There was debate on the floor at the meeting at which various margins were put forward as being desirable. Reference was made to a Queensland campaign arguing for a 21 per cent margin. However some speakers from the floor said that they would be happy with 10 per cent and that a claim for 20 per cent might "ruin the credibility of the campaign".
3. Local Meetings
Following the Town Hall meeting Mr Langley attended about 25 local area meetings of dealers. These occurred at locations stretching from Hornsby in the North to Campbell Town in the South and as far West as Mount Druitt. At these meetings Mr Langley repeated the speech he had made at the Town Hall meeting. The only direct evidence as to what occurred at these meetings relates to a meeting held at the Forestville RSL, this being the meeting which was attended by the witnesses Bailey and Rossi. I shall refer to that meeting shortly. There was evidence that at the Forestville meeting Mr Langley suggested after his speech to those present that they break up into groups and discuss what was happening in their particular areas. I was asked by counsel for the TPC to infer that "what happened at the Forestville meeting ... happened as a rule at all these meetings". No other basis for such an inference was suggested. In particular, I was not directed to any admission to this effect by Mr Langley in his s.155 examination. Having regard to the Briginshaw standard, I do not think I should draw the suggested inference. This is not a case where the happening of an event on many occasions might support an inference that a similar event occurred on the one occasion in question. It is rather the reverse.
4. Forestville RSL Meeting
One of the local meetings which Mr Langley attended after the Sydney Town Hall meeting was a meeting at Forestville RSL on 25 July 1990. This was attended by dealers from the Northern Beaches, an area extending from Palm Beach to Manly and as far west as Northbridge and Forestville. Most of the dealers however had service stations on or in the vicinity of Pittwater Road and Condamine Street. Mr Stephen Bailey, who operated through a family company a BP franchised service station in Pittwater Road Brookvale, attended this meeting. He was a member of the SSA and had attended the Sydney Town Hall meeting. About 70 to 80 people were present. Mr Langley spoke for about 20 to 25 minutes. Mr Bailey recalled him saying that "the petrol retail industry was really going down the gurgler and that to maintain viability we'd probably have to have a 10 per cent margin on our fuel". There was mention of the Coopers and Lybrand survey. After his speech Mr Langley "suggested we break up into groups and just discuss what was happening in our area".
Mr Bailey then walked up to some other dealers he knew and each wrote his telephone number on a piece of paper. After the meeting Mr Bailey used the information on that piece of paper to compile a list of service stations in the area. This latter document was admitted in to evidence.
In the course of discussion in the small group, some of the dealers said "it was probably a good idea to have 10 per cent margin on our fuel price". Mr Bailey said that he "somehow felt part of a team in that group". Mr Langley had spoken of a recommended retail price line being put forward by the SSA so Mr Bailey said to the group "OK, I've got the paper here. I will ascertain the recommended retail price from time to time and pass it on to the people in the group."
It will be convenient to note at this stage the message which Mr Bailey got both from the Sydney Town Hall meeting and the Forestville meeting and what he did as a consequence. He was asked in cross-examination:

"The emphasis of Mr Langley was that each individual ought to go down and work out their own costs in the manner he described and work out what margin they needed having regard to their business to make their business profitable, is that correct?---It appears to be that way, sir. Yes.

And that's the impression you came away with from that Town Hall meeting wasn't it?---Yes.

And that's the impression you came away with after the Forestville meeting wasn't it?---Yes.

And indeed that's what you endeavoured to do with your own business, following the Town Hall meeting, isn't it?---I was frightened of going bankrupt.

Yes, so - but you went through the exercise of analysing what your own costs were, I suppose you got a fright when you did that, did you?---I really didn't analyse anything I just knew the requirement was to increase the margin on fuel to make a profit, or to try and make a profit.

Were you going out backwards before that?---My - I have a certain overdraft at the bank it didn't go anywhere, it just stayed. Were you saving any money?---No, not really.

You were at best treading water?---We were paying the bills.

Later he was asked:

"So, Mr Langley certainly didn't say that all service station proprietors ought to get together and simply charge the same price?---No, he did not.

And you didn't take that impression away with you from either of those meetings, did you?---No.

And as I think you agree of yesterday, the emphasis of Mr Langley's speech, as you recall it, was that individual service stations ought to make an assessment of their own costs and work out a margin so they can make a profit in selling gasoline?---Yes. You were acutely aware when you attended at the Town Hall meeting that the sort of margins which you were achieving weren't really profitable to you?---That's correct.

It was not suggested by counsel for the TPC that Mr Bailey was a witness unworthy of belief or that the meaning he says was conveyed to him by Mr Langley's speeches at the Town Hall and Forestville was not reasonably open. I accept Mr Bailey's evidence as to what Mr Langley said. And I find that Mr Langley's intention when he gave those speeches was to convey the meaning which Mr Bailey says he received.
5. Recommended Retail Prices
From time to time after the Town Hall meeting the SSA published recommended retail prices by means of advertisements in the daily press and in "Service Station". From 10 August a telephone recording at the SSA office gave the price to a caller who dialled the "retail price line". During the period with which this case is concerned (July to October 1990) the price recommended was given as a single figure. Later it was given as a range and the qualification was added "members should adopt a price according to the nature of their businesses".
On the evidence I find that the recommended retail prices published by the SSA were just that. They were prices which carried with them the recommendation of the SSA as a reasonable price to achieve reasonable profitability for dealers but they carried no obligation, express or implied, to follow them.
I have already referred to the evidence, and in particular material in "Service Station" and the speeches of Mr Langley, which shows that the SSA stressed that decisions as to retail prices were ultimately a matter for individual dealers. The way in which recommended retail prices were published is quite consistent with that theme. There was no suggestion of compulsion or sanction.
V Movements in Prices and Margins
1. Metropolitan Area
After the Town Hall meeting retail prices and margins in the Sydney metropolitan area rose quite sharply.
In a television interview on 9 August Mr Mark said that margins had doubled from "suicidal levels of about two and a half cents per litre". Graphs prepared by Informed Sources substantially support that conclusion. However the impact on the public was compounded by the Iraqi invasion of Kuwait in early August. This resulted in a substantial rise in the rack price with a consequent increase in the retail price.
2. The Northern Beaches Area
After the Town Hall meeting Mr Bailey took his price board down and "decided to put the margin up a couple of cents". He said that he got the idea from the meeting at the Town Hall. He noticed that some other dealers had taken prices off their boards. Mr Bailey put his price back after a week to 10 days.
After the Forestville RSL meeting on 25 July Mr Bailey would ascertain the recommended retail price from the SSA price line and pass it on to the dealers on his list.
About six weeks after the meeting on 25 July he himself organised another meeting of dealers at the same venue. About eight or nine attended. He expressed to the meeting a concern "that prices were falling back in the discounting" as well as concern about credit card commissions. Some of the other dealers expressed concern about prices going back in the discounting. Some other dealers had telephoned him in the July to September period about lower prices. This second Forestville meeting was something Mr Bailey organised on his own initiative, independently of any instruction or advice from the SSA, Mr Langley or Mr Mark.
Informed Sources provided a detailed analysis of the prices charged by 21 service stations in the Northern Beaches area, including 11 out of the 13 on Mr Bailey's list, over the period 1 June to 31 October. No other area of metropolitan Sydney was the subject of evidence of this kind. A schedule of the information in this analysis was tendered. The schedule also showed the date and amount of recommended retail prices published by the SSA, commencing at 64.9 cpl on 16 July.
It appears from the schedule that the recommended retail price was by no means universally, or even generally, followed. Of a total of 1549 service station days between the commencement of recommended prices and 31 October on which prices were recorded, only 509 (32.86%) were days on which the recommended price was charged.
Some stations, including some members of Bailey group, hardly ever charged the recommended price. For five out of the 21 stations, compliance with the recommended price on the 77 trading days recorded was as follows:

Station Compliance Compliance Percentage Dates Days # * Esso, Harbord Rd 26 July 3 3.8 Harbord 31 August

27 September

* Mobil, 612 Pittwater 20 July 7 9.1 Brookvale 23-26 July

27 September

3 October

* BP Food Plus, 922 30 August 1 1.3 Pittwater Road Dee Why

Shell, 198 Harbord 30-31 August 6 7.8 Road Brookvale 3 September

11 September

26-27 September Mobil, 702 Warringah nil nil 0.0 Road Forestville

# Only 75 trading days are recorded

* Members of the Bailey Group

Thus for almost a quarter of the Northern Beaches stations, the compliance rate never exceeded 10% and averaged 4.4%.
Moreover the price variations in the Northern Beaches area did not appear to manifest any particular pattern. Rises in the recommended price seemed to result in varying degrees of support. Thus from 10 to 28 August the recommended price was 69.9 cpl which was followed for the whole of the period by seven out of the 21 stations. From 29 August to 7 September the price went up to 73.9 cpl with 12 stations following the price for the period or a substantial part thereof. Yet by the time the highest recommended price was reached (88.9 cpl on 19 October) only two stations followed and one of these dropped back after the first day.
I conclude that, for the only area of metropolitan Sydney for which detailed evidence was tendered, recommended prices may well have been a contributing cause of the rise in retail prices which took place. However, the distinct lack of uniformity points against a conclusion that there was any arrangement or understanding as between the dealers in that area to fix, control or maintain those prices.
VI The TPC's Case
In its amended statement of claim the TPC alleges in substance that there was between the period July to October 1990 an arrangement or understanding as follows:

That dealers in Sydney should or would thereafter increase their retail margins for petrol above those which had obtained in the period January to July 1990, and, more specifically, that a retail margin in the order of 10 per cent in the selling price, or alternatively approximately 6.5 cpl, was appropriate.

The parties who made that arrangement or arrived at that understanding are said to have been:

Many dealers in Sydney with each other, or alternatively with each other and the SSA.

It is also alleged in the alternative that those parties gave effect to such arrangement or understanding.
As against the SSA, it is alleged that the SSA, and Messrs Langley and Mark on behalf of the SSA, breached s.76(1)(d) of the Act by attempting to induce, or alternatively inducing, dealers:

- to make such arrangement or arrive at such understanding with each other or alternatively with the SSA; - to give effect to that arrangement or understanding.

As against Messrs Langley and Mark, it is said that each attempted to induce, or alternatively induced, dealers to engage in the same conduct.
In his final submissions senior counsel for the TPC put the case in two ways. The natural, probable and inevitable consequence of the "Prosper from Petrol" campaign was that dealers would be likely to reach understandings or arrangements between themselves as to price, or that it was a distinct possibility that they would do so. Alternatively, he contended that there was specific evidence from which it could be inferred that Messrs Langley and Mark had the actual intention of inducing the arrangement or understanding.
VII The Alleged Arrangement or Understanding
1. Its Definition
I read the arrangement or understanding alleged as being one and not two; that is to say it is not a general one ("an arrangement or understanding to increase margins over those in January-July") with a second and more specific alternative variation ("an arrangement or understanding to increase in the order of 10 per cent or approximately 6.5 cpl"). If that were the case, a general arrangement or understanding merely to increase margins over those existing at some previous period could not in my view conceivably constitute an arrangement or understanding to fix, control or maintain prices.
However even treating the second part as integral to the definition of a single arrangement or understanding, obvious problems are raised by the qualifications "in the order of" and "approximately". In appropriate circumstances of course there may be an arrangement to fix, control or maintain prices notwithstanding that there is no agreement to charge literally identical prices; cf, in the context of s.96, Trade Practices Commission v Mobil Oil Australia Ltd (1984) 3 FCR 168 at 183 and the authorities there cited. However, some features of the retail petrol market point against such a conclusion in this particular setting. Here, one might think, precise price is a critical factor. The motorist customer, at any rate in a metropolitan area, usually has the mobility to choose between competing prices. The blandishments of television advertising notwithstanding, the customer may perceive no benefit in buying one brand as against another. Small differentials in price may be critical in determining a decision to purchase. The fact that movements in the recommended price between 16 July and 31 October were almost always by one or two cpl steps suggests a market in which fine adjustment of price is important.

Therefore in the Sydney metropolitan retail petrol market an arrangement or understanding to increase margins "in the order of 10 per cent or approximately 6.5 cpl" as against those which had obtained over the previous six month period (in itself a notably vague starting point) may lack the degree of certainty inherent in the concept of fixing, controlling or maintaining prices.
I am of course not dealing with a striking out application. The ultimate issue remains whether there was an arrangement or understanding to fix, control or maintain prices. But the definitional problems I have mentioned rather highlight the difficulty of establishing that an arrangement or understanding of the proscribed kind occurred in such a market.
2. Did it Occur?
In my opinion the evidence does not justify a finding (having regard to the Briginshaw standard) that the arrangement or understanding alleged, or indeed any arrangement or understanding, in fact occurred.
As might have been expected, most of the TPC's case was in essence the same mode of proof as occurs when a civil or criminal conspiracy is alleged. Overt acts are proved from which the tribunal of fact is asked to infer the existence of a prior arrangement or understanding of a particular kind.
It is difficult to infer an arrangement or understanding to fix, control or maintain prices when the evidence fails to show that prices were in fact fixed, controlled or maintained. For the reasons mentioned, that appears to be the case with the Northern Beaches area.
There is the further feature of this case that, insofar as there was some uniformity in the prices charged by some service stations, such a phenomenon is explicable by a factor other than the existence of an arrangement or understanding to fix, control or maintain prices. I refer to the recommended retail price system. This is something which need not necessarily involve a breach of the Act - and did not in the present case, for reasons which I shall shortly mention.
Also there is an absence of any evidence of mutual promises or undertakings as between dealers, or as between dealers and the SSA. There was not that element of each party having "raised an expectation in the mind of the other, and for each to have accepted an obligation qua the other": Trade Practices Commission v Nicholas Enterprises Pty Ltd (1979) 40 FLR 83 at 89 per Fisher J. The communications from the SSA, which came primarily in the form of Mr Langley's speeches and the material in "Service Station", do not urge such mutual binding of dealers between themselves; on the contrary, the explicit and repeated message is that dealers have to make their own decisions with the consequence (again specifically stated) that differing prices will often be charged. Thus it is not surprising that individual dealers did not do something they were not urged to do.
The only real attempt of the TPC to erect an arrangement or understanding from direct evidence was its reliance on the arrangement in Mr Bailey's group at the first Forestville RSL meeting that he would ascertain the SSA recommended retail price from time to time and pass it on. To my mind that is not inconsistent with this small group simply agreeing that Mr Bailey would, as a matter or convenience, do on their behalf what they could equally do themselves, that is obtain the recommended price from the SSA. What they did when they got that price, and whether they followed it wholly or partly, was to remain a matter for each individual without obligations to other members of the group or other members of the SSA or the SSA itself.
An attempt to enforce an arrangement or understanding might provide some evidence that such an arrangement or understanding existed. The only evidence of this kind was that of Mr Talal Rossi, also a member of the Bailey group. He said that Mr Bailey and his (Bailey's) brother came to his service station and asked "Why is your price so low for?". Mr Rossi explained to them that the price was out of his control. This was doubtless a truthful answer because Mr Rossi operated a Mobil CA site. That evidence falls well short of an attempted enforcement of an arrangement or understanding of the kind alleged. No allegation was made by the Baileys to Mr Rossi that he was in breach of some pre-existing arrangement or understanding, still less was there any threat of sanction. There was not even a request that he raise his price.
3. Adherence to Recommended Price
Although the TPC relied on the publication by the SSA of recommended prices, the arrangement or understanding pleaded in its amended statement of claim does not include a promise to adhere to recommended prices as an element.
The publication of recommended prices is in some circumstances expressly permitted by the Act: s.45A(3). Of course if traders agree between themselves that each will follow published recommended prices, that may well amount to a fixing, controlling or maintaining of prices. But the evidence does not suggest that this happened in the present case. The message from the SSA was that ultimately the decision was a matter for each dealer. There is no evidence that dealers agreed between themselves that each would follow the recommended price. Taking the Northern Beaches area as the only available guide, a substantial number of dealers did not in fact follow the recommended price. Moreover, there is no evidence of attempted sanction or enforcement.
VIII Inducing
My finding that there was no arrangement or understanding to fix, control or maintain prices means that the respondents could not have induced one. It is still possible of course that they could have attempted to induce such an arrangement or understanding, and I shall deal with that issue. Before doing so, however, I should consider whether there is a case of inducement made out against the respondents. Such an issue would arise were an appellate court to hold that, contrary to my finding, there was an arrangement or understanding of the kind alleged.
1. The Intent Necessary
In Trade Practices Commission v Mobil Oil Australia Ltd (1984) 3 FCR 168 at 183, in the context of an allegation that the respondent induced or attempted to induce a contravention of s.48 (resale price maintenance) in the respect identified by s.96(3)(b), Toohey J said:

"As to the requirement of inducing, counsel submitted that this involved a mental element, in particular the intention of modifying the conduct of the person said to be induced. Where an attempt to induce is alleged, the submission was that there must be an intention to bring about the required result. I accept that, in the case of attempt, there must be an intention to bring about the prohibited result. I refer to my decision in Trade Practices Commission v Tubemakers of Australia Ltd (1983) 47 ALR 719 in particular at 737 where I said:

'In ordinary parlance, to say that a person has attempted to do something means that he has acted with the purpose of bringing about that which he is said to have attempted. Questions may arise as to what precisely must be proved to establish attempt to commit an offence, but the principle that proof of intent is necessary is well established: R. v Mohan (1975) 2 All ER 193.'

It is clear too that, where a person is alleged to have aided or abetted a contravention of Pt IV of the Act or to have been a party to such a contravention, proof of actual or constructive knowledge of the essential facts constituting the contravention is required (Yorke v Lucas (1983) 49 ALR 672).

But, where the contravention alleged is one of inducement as opposed to an attempt to induce, I am of the opinion that s.96(3)(b) contains an absolute prohibition on the conduct in question, absolute in the sense that proof of the conduct proscribed is sufficient. See Tubemakers' case at 737. Although a contravention of s.48 carries serious financial consequences, the proceedings are civil. With the exception of "attempting to induce", it seems to me that s.96 is concerned with conduct, not with the mental element that may accompany the conduct."

His Honour's reference to Yorke v Lucas is to that case in the Full Court of the Federal Court. The High Court's decision was handed down the following year: (1985) 158 CLR 661.
In Yorke the trial judge had found that a corporation had contravened s.52. The issue which went to the High Court was whether, for the purposes of s.75B (now s.75B(1)), a natural person could be involved in that contravention by aiding, abetting, counselling or procuring the contravention (s.75B(a)) or being a party to the contravention (s.75B(c)) without proof of intent. In the case of a corporation it had been already established that contravention requires no mental element: Hornsby Building Information Centre Pty Ltd v Sydney Building Information Centre Ltd (1978) 140 CLR 216.
The High Court held that s.75B(a) and (c) required proof of intention. Although not directly concerned with s.75B(b), which had the effect that a person is involved in a contravention of a provision of Part IV or V where the person "has induced, whether by threats or promises or otherwise, the contravention", the majority (Mason A.C.J., Wilson, Deane and Dawson JJ.) made a comment about that paragraph which is important for present purposes. Their Honours said (at 670):

"Whilst it is not a contradiction in terms to speak of a person being 'party to' something of which he is unaware, some indication is needed to convey such a meaning. There is nothing in the paragraph itself which would point to any conclusion other than that the words 'party to' are used to refer to a participant in the nature of an accessory. Moreover, the wider context of the whole section leads to the same conclusion. We have already indicated why par.(a) requires knowledge. Paragraph (b), which speaks of inducing a contravention by threats, promises or otherwise, and par.(d), which speaks of conspiring with others to effect a contravention, both clearly require intent based upon knowledge ..." (Emphasis added.)

Counsel for the unsuccessful appellant had cited Mobil (at 663).
The present case arises under s.76(1) which confers a power to impose pecuniary penalties. Much of s.76(1) mirrors the language of s.75B(1), the section with which the High Court was dealing in Yorke. Both sections deal with aiding and abetting (s.75B(1)(a), s.76(1)(c)), inducing (s.75B(1)(b), s.76(1)(d)), being concerned in or a party to a contravention (s.75B(1)(c), s.76(1)(e)) and conspiring (s.75B(1)(d), s.76(1)(f)). In the case of inducing, s.76(1)(d), unlike the corresponding s.75B(1)(b), includes attempting to induce. The reason for this distinction no doubt is that s.75B(1) is concerned to define involvement in contraventions for the purposes of the remedies of damages (s.82) and other orders (s.87), in which case attempts would not be relevant because where no contravention had in fact occurred such remedies would be inappropriate.
The reasoning of the High Court in Yorke is consistent only with intent being an essential element for all of the forms of conduct referred to in s.75B(1). There is no rational ground for a different approach to the identically worded provisions in s.76(1)(b) to (f). Indeed since s.76(1) imposes a liability for pecuniary penalties, there is all the more reason for a construction which favours the person sued.
The courts have not looked sympathetically on actions for penalties. Procedures such as discovery and interrogatories will not be made available to a plaintiff: Earl of Mexborough v Whitwood Urban District Council (1987) 2 QB 111 at 115. The privilege against incrimination applies unless excluded expressly or by necessary implication by statute: Pyneboard Pty Ltd v Trade Practices Commission (1983) 152 CLR 328. By the same token, it would seem logical to apply to statutes imposing liability for pecuniary penalties a similarly strict canon of construction as that which favours the liberty of the citizen in the case of statutes imposing criminal liability, as to which see Murphy v Farmer (1988) 165 CLR 19 at 29. Should there be any doubt or ambiguity, a construction which requires intent as an essential element of the inducing referred to in s.76(1)(d) is in my opinion to be preferred.
In any event, the ordinary meaning of the word "induce" is consistent only with the inducer intending a particular effect on the person induced. Thus the primary definition given in the Oxford English Dictionary is:

"To lead (a person), by persuasion or some influence or motive that acts upon the will, to some action, condition, belief, etc.; to lead on, move influence, prevail upon (any one) to do something. a. Of persons, personal action, influence, etc."

In the Macquarie Dictionary:

"To lead or move by persuasion or influence, as to some action, state of mind, etc."

I conclude therefore that for the purposes of s.76(1)(d), the TPC has to establish intention on the part of the respondents. The conduct complained of has to be conduct engaged in by those respondents with the intention of bringing about the making by dealers of the arrangement alleged or the arrival by them at the understanding alleged.
2. The Intent Held
In my opinion the relevant intent has not been established. As Mr Langley's speeches and the material in "Service Station" shows, the respondents' intent was a different one, and one that was lawful. Their purpose, and intent, was to bring about a willingness among dealers to examine their individual businesses and the retail prices charged and to increase their retail margins, even at the expense of volume.
I do not think it is sufficient to show that the "natural, probable and inevitable consequence" of the respondents' conduct was the making or arriving at the impugned arrangement or understanding. Such a contention is in my view inconsistent with the principle that the concepts in s.75B(1) and s.76(1) are derived from the criminal law and as such require proof of actual intent: Yorke at 669. Of course the objective likelihood of particular conduct producing a particular result is relevant to the ascertainment of what the actual intention in fact was. But that actual intention remains the ultimate issue. In the words of Windeyer J in Vallance v The Queen (1961) 108 CLR 56 at 82:

"What a man does is often the best evidence of the purpose he had in mind. The probability that harm will result from a man's acts may be so great, and so apparent, that it compels an inference that he actually intended to do that harm. Nevertheless, intention is a state of mind. The circumstances and probable consequences of a man's act are no more than evidence of his intention. For this reason this Court has often said that it is misleading to speak of a man being presumed always to intend the natural and probable consequences of his acts."

See also per Menzies J at 74.
In any case, the "natural, probable and inevitable consequence" of the respondents' conduct was not a contravention of the Act. There was another, and in my view much more likely consequence, viz that dealers would act as they were urged by the respondents to do and make individual decisions as to pricing.
IX Attempting to Induce
It was accepted that intent was required here. For reasons which I think are already sufficiently clear, I find that the respondents did not have the intention to bring about arrangements or understandings to fix, control or maintain prices. Nor was their conduct such as to be likely to bring about that result.
X Orders
The application will be dismissed with costs, including reserved costs.

[1992] FCA 521

24 JULY 1992