Photo-Continental Pty Ltd v Sony (Australia) Pty Ltd

[1994] FCA 961

PHOTO-CONTINENTAL PTY LTD v. PHOTO-CONTINENTAL'S PHOTOGRAPHIC WAREHOUSES PTY
LTD; SONY (AUSTRALIA) PTY LTD and ALEXANDER FRANCIS PAGONIS
No. QG135 of 1990
FED No. 961/94
Number of pages - 5
Application For Summary Dismissal - Trade Practices
(1995) ATPR 41-372

COURT

IN THE FEDERAL COURT OF AUSTRALIA
QUEENSLAND DISTRICT REGISTRY
GENERAL DIVISION
KIEFEL J

CATCHWORDS

Application For Summary Dismissal - test to be applied - whether applicants can establish that respondents have abused market power - competiting inferences - what purpose can be inferred from facts pleaded

Trade Practices - market power - refusal to supply Trade Practices Act - s. 46
Federal Court Rules - O 20 r 2

General Steel Industries Inc v Commissioner for Railways (N.S.W.)(1964) 112 CLR 125 Appr
Dey v Victorian Railway Commissioners (1949) 78 CLR 62 Cons
Fancourt v Mercantile Credits Ltd (1983) 154 CLR 87 Cons
Brownbill and Ors v Esanda Corporation (1991) 31 FCR 153 Cons
Webster and Anor v Lampard (1993) 177 CLR 598 Refd
Munnings v Australian Government Solicitor and Ors (1994) 118 ALR 385 Refd
Sali v SPC Ltd and Anor (1993) 116 ALR 626 Cons
Bomanite Pty Ltd and Ors v Slatex Corp Aust Pty Ltd and Ors (1991) 32 FCR 379 Cons
Tawilla Pty Limited v Farrow Mortgage Services Pty Limited (In Liquidation), unreported decision of Queensland Court of Appeal 7 June 1994 refd
Queensland Wire Industries Pty Ltd v Broken Hill Proprietary Co. Ltd (1989) 167 CLR 177 Refd
Eastern Express Pty Ltd v General Newspapers Pty Ltd (1991) 30 FCR 385 Refd
Dowling v Dalgety (Australia) Limited (1992) 34 FCR 109 Refd
David Holdings Pty Ltd v Attorney-General of the Commonwealth (1994) ATPR 41-304 Refd
Trade Practices Commission v Pioneer Concete (Qld) Pty Limited and Ors (1994) ATPR 41-317 Refd
Natwest Australia Bank v Boral Gerrard Strapping Systems Pty Ltd (1992) ATPR 41-196 Refd

HEARING

BRISBANE, 27 October 1994
#DATE 8:12:1994

Counsel for the applicant: Mr S.Couper QC and Mr G. O'Grady

Solicitors for the applicant: Spranklin and Company

Counsel for the respondents: Mr D.K. Catterns QC and Mr R. Wright

Solicitors for the respondents: Blake Dawson Waldron

ORDER

THE COURT ORDERS THAT:

1. The motion be dismissed.

2. The respondents pay the applicants' costs of and incidental to the motion to the taxed.

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

JUDGE1

KIEFEL J The respondents seek an order under O 20 r 2 dismisseld the applicants' claim for relief based upon alleged contraventions of s 46 Trade Practices Act 1974. Section 46(1) 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) ...

(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."

1. At the heart of the applicants' allegations are the refusals of Sony to supply them with electronic products or to offer to supply them but only at a higher price.

2. The respondents submit that in each of three critical respects the applicants' case has fundamental flaws. It alleges that the applicants could not establish that Sony had or has market power within the meaning of the section; that there is not shown the necessary causal connexion between the conduct alleged and the market power pleaded; and that the requisite purpose cannot be inferred from the facts pleaded. The respondents seek a dismissal of this part of the applicants' case and were emphatic that the points taken were not technical pleading points. The applicants' statement of claim is the fifth in a series of amendments over the course of about two years, and, the respondents submit, necessarily then must be taken as the highest the applicants can put their case. Having limited their application to one for dismissal and not for delivery of any further amended pleading the respondents made preliminary submissions as to the approach the Court ought to take and submitted that reference to more recent decisions showed a move away from the approach to be taken by Courts to summary dismissal, established in General Steel Industries Inc. v. Commissioner for Railways (N.S.W.)(1964) 112 CLR 125, 129-30, and that it could be discerned that the Courts would now be more willing to dismiss claims which appear weak or tenuous, but from which submission I take it I am not to infer that the motion itself suffers weakness.

Principles to be applied
4. In General Steel (128-9) Barwick CJ held that:

"...the jurisdiction summarily to terminate an action is to be sparingly employed and is not to be used except in a clear case where the Court is satisfied that it has the requisite material and the necessary assistance from the parties to reach a definite and certain conclusion".

and that "exceptional caution" was needed in exercising the power, however it was derived. His Honour referred with approval to the statement of Dixon J (as he then was) in Dey v. Victorian Railway Commissioners (1949) 78 CLR 62, 91:

`A case must be very clear indeed to justify the summary intervention of the Court to prevent a plaintiff submitting his case for determination...'

and went on at p. 130:

"...Although I can agree with Latham CJ in the same case when he said that the defendant should be saved from the vexation of the continuance of useless and futile proceedings, in my opinion great care must be exercised to ensure that under the guise of achieving expeditious finality a plaintiff is not improperly deprived of his opportunity for the trial of his case by the appointed tribunal. On the other hand, I do not think that the exercise of the jurisdiction should be reserved for those cases where argument is unnecessary to evoke the futility of the plaintiff's claim. Argument, perhaps even of an extensive kind, may be necessary to demonstrate that the case of the plaintiff is so clearly untenable that it cannot possibly succeed."

and in Fancourt v. Mercantile Credits Ltd (1983) 154 CLR 87, 99 the High Court, whilst not referring expressly to General Steel, nevertheless reiterated that:

"... The power to order summary or final judgment is one that should be exercised with great care and should never be exercised unless it is clear that there is no real question to be tried:

...In our view, it is not possible to say without doubt, on the whole of the material, that there is no question to be tried concerning the payment of the deposits by the appellant..."

1. In Brownbill and Ors v. Esanda Corporation (1991) 31 FCR 153, 158 the Full Court of this Court in an appeal brought from a judgment on an application under O 11, r 16(a) and O 20, r 2(1) continued to apply the statements made in General Steel, although there the case was "so clearly untenable" that it was held right to strike it out. More recently in Webster and Anor v. Lampard (1993) 177 CLR 598, 602 Mason CJ, Deane and Dawson JJ applied the statements in General Steel and Dey's case. Dawson J in Munnings v. Australian Government Solicitor and Ors (1994) 118 ALR 385 again applied those two decisions.

2. There is, then, no trend away from the principles stated in General Steel discernible from these cases which might permit the respondents to show something less than that the applicants' case is clearly untenable. There is nothing to suggest that the Courts on an application to dismiss a case, might consider the degree of its strength once it was seen not to come within the above description. Such a "new approach" is however said by Counsel for the respondents to be gleaned from another recent decision of the High Court (Sali v. SPC Ltd and Anor (1993) 116 ALR 626) a decision of the Full Court (Bomanite Pty Ltd and Ors v. Slatex Corp Aust Pty Ltd and Ors (1991) 32 FCR 379) and a decision of the Queensland Court of Appeal (Tawilla Pty Limited v. Farrow Mortgage Services Pty Limited (In Liquidation), an unreported decision of 7 June 1994 in appeals 172 and 183 of 1993). These cases may be considered as indicative of the part the Courts now take in the conduct of litigation, of a more stringent attitude to applications which are considered as wasteful of the resources of the Courts, to the detriment of other litigants, and of an acceptance that orders for costs will not always compensate a party. Sali and Bromanite involved, respectively, refusals in the exercise of the Court's discretion of an application to adjourn a hearing and to file further material after lengthy directions hearings. The Court of Appeal in Tawilla at 21, 22 gave notice that the former approach to litigation, which left the shape and contents of pleadings largely to the parties, can in some cases now be seen to create unnecessarily complex and burdensome cases. The respondents placed considerable reliance on the words in that judgment following:
   

"... On that theory, problems thought to arise from the pleadings and questions such as whether complex allegations which are made support any reasonably arguable case are left to trial. There are disadvantages in doing so: the task of the trial Judge may be made unreasonably difficult; a party against whom numerous allegations of misrepresentation and the like are made may waste time and money preparing in respect of issues, which, in the end, are seen to have no substance; discovery may be unnecessarily lengthy and expensive. The strategy of pleading voluminous and complex allegations, without care to ensure that they lead to a case of other than a most tenuous kind, may flourish; in sum, this sort of litigation may be allowed to be unnecessarily and unreasonably burdensome."

(the underlining is mine).

1. The remark, in its reference to "strategy" was however squarely aimed at practitioners and to the undeniable practice that exists of pleading every possible cause without proper consideration as to whether each is necessary and whether it is in the interests of the client and of the court in pursuing it. The position of the Court (in a passage also referred to by the respondents) was later (at 23) described in these terms:
   

"... But if the Supreme Court is to fulfil its functions properly it is necessary that the judges, on suitable occasions, exercise their discretion to keep out allegations the contesting of which is likely to involve a great deal of trouble and expense, but which do not appear to have any substance..."

1. The phrase "to have any substance" might refer to a judgment that the allegations cannot succeed, a test which does not differ from earlier authorities, and a reference to the Court's reasons for upholding the decision to strike out (at 10-12) shows that that was the approach taken. The evidence (letters identified in the pleading and upon which the party relied) was, on a review of it, found to be plainly contrary to the facts pleaded on a critical point. The case does not, I consider, suggest some new or different approach to applications for summary termination of an action.

2. In any event, the decisions I have earlier referred to remain as binding statements of principle to be applied in such applications. Nothing said in Sali or Bromanite suggests a different test. Given the question is whether to terminate an action, such a decision would likely require consideration not only of the interests of the Court and therefore the public in utilisation of resources but also of what has been described as the potential for a "denial of access" to the Court (per Dawson J in Munnings, 388) were a party to be prevented from a hearing of his or her case. That is not to say the Courts will not look closely to the case pleaded and may, as here, entertain extensive argument. The applicants' case must however be shown to be "so clearly untenable that it cannot possibly succeed" or that there be "no real question to be tried".

Market Power
10. The applicants allege (para. 45) that Sony has at all material times had a substantial degree of power in the market or markets referred to in its (amended) market statement. That conclusion is premised upon the factors set out at length in the previous paragraph 44C.

1. Paragraph 2A of the amended market statement describes the market (or markets) in these terms:
   

"The market in which the first respondent has a substantial degree of power is the market for supply to wholesalers and retailers in the geographic markets defined below or alternatively in an Australia wide market of the products in the product markets defined below".

The geographic market with respect to what I will describe as electronic goods usually associated with entertainment such as television receivers, hi-fis, and CD players is said to be that of the Brisbane Statistical Division. With respect to electronic communication products the market is said to be either that market, or Queensland and Northern New South Wales or part of Northern New South Wales. The later description of "Product Markets" in the market statement refers to each of the different types of products and attributes to most of them a sub- market, for example with respect to television receivers there is said to be a sub-market for receivers of a particular size. Expressed as it is the applicants appear to contend for individual markets for the supply to resellers of the different products, and I apprehend it would be said there is substitutability between them but not the other products. The respondents' first contention, and to which I shall later refer, is that given the large number of markets so identified, the applicants are unlikely to establish that Sony has a substantial degree of power in any particular market.

1. The relevant passages in Queensland Wire Industries Pty Ltd v. Broken Hill Proprietary Co. Ltd (1989) 167 CLR 177 and in cases in this Court following it, such as Eastern Express Pty Ltd v. General Newspapers Pty Ltd(1991) 30 FCR 385 and (1992) 35 FCR 43; Dowling v. Dalgety (Australia) Limited (1992) 34 FCR 109 and David Holdings Pty Ltd v. Attorney-General of the Commonwealth (1994) ATPR 41-304, have conveniently, for my purposes, been set out by Cooper J in Trade Practices Commission v. Pioneer Concete (Qld) Pty Limited and Ors (1994) ATPR 41-317 (the decision of the Full Court, unreported, 5.8.94 does not affect this). The primary consideration in determining market power is whether there are barriers to entry in the relevant market. Other factors include the ability of a corporation to raise prices above the supply cost without losing customers to rivals in due time, and as s. 46(3) requires, the extent to which the conduct of the respondent in the identified market is constrained by the conduct of competitors or potential competitors. Market share and the presence of vertical integration, whilst relevant, are not necessarily determinative of market power. Market power may, as Dawson J said in the Queensland Wire case at 200-210 be manifested by practices directed at excluding competition such as exclusive dealing, tying arrangements, predatory pricing or refusal to deal. It might be thought these matters are more pertinent to questions as to motive or purpose but, as His Honour went on to explain, the ability to engage persistently in such practices may itself be indicative of market power.

2. I shall, by reason of the length of paragraph 44C, attempt to summarise the premises relied upon:
   

(a) The Sony brand is number one in the market for supply of specialist communication products(by volume and dollar value of sales);

(b) In each of the identified product markets the Sony brand is superior in quality and performance to other brands and is so perceived by resellers and the public in the geographic markets;

(c) Advertising campaigns conducted, and which continue, have established Sony as a market leader, leading innovator and producer of superior quality products;

(d) Sony has been consistently successful in product differentiation between Sony products and establishing and maintaining a low cross-elasticity of demand between its products and those of other brands;

(e) A substantial majority of resellers consider it essential to stock Sony brand products to meet customer demand;

(f) Resellers and end users pay a price premium for Sony products;

(g) Resellers have little or no ability to affect the price at which or terms on which Sony supplies to them;

(h) Sony is able to and does refuse to supply to certain resellers;

(i) Sony supplies products at different prices to different resellers;

(j) Suppliers of competing brands to resellers have no capacity to affect Sony's conduct regarding price and distribution;

(k) There are a large number of competitors in each product market (except for communications products) each with a low market share;

(l) Sony has a very high market share in certain sub-markets. These are identified in the Market Statement.

(m) There are high barriers to entry in the markets.

(n) Sony has a high market share with respect to particular

(identified) products and types of products.

1. Whatever be the barriers to entry into the relevant markets as the respondents point out, they are not specified. The first respondent is alleged earlier in the pleading to be a supplier, although these particulars suggest it (and not another Sony corporation) is also a manufacturer. In either case it is quite possible that there are barriers - in both cases a need for resources and in relation to manufacture and supply factors such as technological information and intellectual property rights. But this is a pleading point. Whilst I am conscious of the respondents' general submissions as to the liberty given to the applicants in formulating their pleading, it has not been shown that an inference must be drawn, as to this allegation, that they are unable to particularise it. It would, I consider, have been a simple enough matter to establish by requiring those particulars. The matter may then have been capable of a conclusion one way or the other. At present it remains a contention, although absent particularity, and no facts have been put forward to show that it has no basis.

2. Paragraph 44C(k),(l) and (n) refer to market share. Apart from the products referred to in (n) (specialist communications products, video film and slide projectors and other film equipment) and (l) (some 15 products including TVs, VCRs, radios, and hi-fis) one is left to wonder what Sony's position is said to be in the market with respect to the other categories of product, for example "colour television receivers", generally unless it be that the applicants will contend for such findings based upon proof of the market shares in the identified products together with a general "demand" for products of the Sony brand as earlier alleged. As pleaded it suggests an attempt, when particulars were required, to leave the question of market share open for trial by pleading the available facts. For present purposes, in other than the listed products, I could not presently hold there is a tenable basis for a finding with respect to each of the markets disclosed. But market share is not, as the cases earlier referred to state, determinative of market power, and it may not in this case be a critical question in the final analysis. No doubt the applicants' representatives will assess this, mindful of the time which might be taken and costs incurred on such an issue.

3. It is also correct to say, as the respondent does, that advertising and product differentiation tends to suggest a corporation subject to the constraints of or reacting to the pressures of competition. Further, the feature of prestige in a market, implying that the products are desirable, does not of itself establish power, and paragraph (b) may indicate a possible brand market. It is however alleged that Sony is a "market leader" and "leading innovator", from which an inference of some special position in the market might be drawn, depending upon evidence, for example, as to what steps if any it has taken ahead of its competitors and whether it holds intellectual property rights in technology which affect its ability to conduct itself in the market.

1. But apart from the general allegation that there exist barriers to entry in the markets, it is also alleged (by (f) (g) (h) and (i)) that Sony is able to and does charge more for its products, that it provides them at different prices to different resellers and that it is not affected by its purchasers or competitors in its decisions as to price or supply. These are factors which might be explained by a substantial degree of market power. The respondents' further submission, which casts doubt on the ability of the applicants to make out the requisite high degree of power because of the large number of markets involved, cannot presently be tested. In any event the stronger allegations of barriers to entry (though presently unparticularised) and an ability to alter prices unaffected by others combined with refusals to supply are said to apply across the range of products, so that regardless of what are determined to be the proper markets the requisite power in some or all of them may yet be made out.

Taking advantage of market power
18. Paragraph 46(a) of the Statement of Claim is in these terms:

"(a) In the circumstances the said refusal by the first respondent to supply its said products to the first applicant and the second applicant constituted taking advantage by the first respondent of its power in the said market or markets for the purpose of preventing the entry of the first applicant and the second applicant or either of them into or preventing or deterring the applicants from competitive conduct in the said markets referred to in paragraph 2B of the applicant's market statement".

Sony submits that whilst the applicant may intend to rely upon a necessary inference to be drawn from the facts of market power and refusal (see Natwest Australia Bank v. Boral Gerrard Strapping Systems Pty Ltd (1992) ATPR 41-196) there are other inferences open, for example, that Sony was simply exercising its right to choose its dealers for its products. The submission proceeds that it is necessary for the applicant to plead particular circumstances to support the contention that Sony was able to refuse only because of lack of competitive restraints upon it. The respondents' submission is, then, simply that without further particulars the applicants' case could not be regarded as necessarily strong. That submission is dependant upon and resolved by reference to the principles governing dismissal of action. Sony having conceded, as it must, that the connection between refusal and market power might be inferred, it follows that the Court cannot find that the applicant's case is hopeless or even that it is necessarily tenuous.

Purpose
19. The markets which it is alleged the applicants are prevented from entry into or in which they are prevented or deterred from engaging in competitive conduct is said to be those for retail or wholesale sale of the products listed. It is then alleged, as s. 46(1) requires, that Sony's refusals to supply products were for those purposes.

1. The particulars from which that purpose is to be inferred (paragraph 46(b)) are in these terms:
   

"(i) prior to 10 April 1991 the first respondent permitted the applicants to stock the products referred to in paragraph 43(a);

(ii) the first respondent gave no reason for its refusal to supply the said products;

(iii) on or about 15 October 1992 Mr Moss-Rees on behalf of the first respondent informed Mr Schleicher on behalf of the applicants: A. that the applicants could have access to no more than two television sets; B. that no other photographic stores were given access to more than two television sets by the first respondent;

(iv) the statement in paragraph (iii)(B) was false;

(v) on or about 10th February 1993 Mr Moss- Rees on behalf of the first respondent stated to Mr Schleicher on behalf of the applicants that the Sony dealer structure was such that particular Sony products were supplied to certain dealers and that no one dealer had access to all Sony dealers;

(vi) the Applicants rely on the matters referred to in paragraph 4(a)(ii) and 4(b) herein;

(vii) in respect of communications product group products or alternatively specialist communications products the first respondent had and has a policy of supplying to no more than two dealers in Queensland."

And paragraphs 4(a)(ii) and 4(b) provide as follows:

"4.(a)(ii) The first applicant at all material times at its business premises at the Corner of Mains and Kessels Road, McGregor, Brisbane in the State of Queensland had and has sufficient financial capacity, sufficient storage space, sufficient display space and sufficient trained staff to enable it to engage in the business of retail sales of the products supplied by the first respondent as listed in the following schedule: A. CONSUMER COMMUNICATIONS PRODUCTS - As defined in the Market Statement of the First and Second Respondents dated 18 September 1993.

B. SPECIALIST COMMUNICATIONS PRODUCTS as defined in the Market Statement of the First and Second Respondents dated 18 September 1993 other than medical imaging and diagnostic systems.

(b)(i) The Second Applicant at all material times carried on business in the State of Queensland, as inter alia, a wholesale supplier of video cameras and video camera accessories home movie cameras, colour television receivers, video cassette recorders, broadcast studio equipment and monitors including the supply of such products to the First Applicant.

(ii) The second applicant at all material times at its business premises at the Corner of Mains and Kessels Roads, McGregor, Brisbane in the State of Queensland had and has sufficient financial capacity, sufficient storage space, sufficient display space and sufficient trained staff to enable it to engage in the business of wholesale sales of the products referred to in paragraph 4(a)(ii)."

1. The applicants' allegations are to the effect that it was in a position to sell Sony products but it was not permitted to. One may infer that there would then be an effect upon the applicants' ability to offer a range of products or to compete with resellers offering Sony brand products, particularly given the earlier allegations that the Sony brand was prestigious and Sony products were in demand. Where a refusal to supply is likely to have such an obvious and direct result, that might be sufficient to establish that the use of a corporation's market power was for that proscribed purpose, subject to other explanations offered or appearing from the circumstances. The respondents' submissions were that the refusals were explicable on other bases, such as chosen methods of marketing. Whether that overcomes a conclusion as to the requisite purpose I leave to one side. The submissions suffer the same difficulty as did those with respect to the taking advantage of market power, namely that they attempt to require the applicants to show at this time only one inference is open. The respondents may of course plead any other alleged purpose.

2. The motion will be dismissed with costs.