Pioneer Concrete (Qld) and Ors v Trade Practices Com

[1995] HCATrans 47

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Brisbane  No B34 of 1994

B e t w e e n -

PIONEER CONCRETE (QLD) PTY LIMITED, PAUL ALOYSIUS CASEY, NICHOLAS MAURO MARINELLI and MICHAEL HUTCHINSON

Applicants

and

TRADE PRACTICES COMMISSION

Respondent

Application for special leave to appeal

BRENNAN J
DEANE J
GAUDRON J

TRANSCRIPT OF PROCEEDINGS

FROM BRISBANE BY VIDEO LINK TO CANBERRA

ON FRIDAY, 10 MARCH 1995, AT 9.31 AM

Copyright in the High Court of Australia

MR P.A. KEANE, QC, Solicitor-General for the State of Queensland:   May it please the Court, I appear with MR S.J. KEIM, for the applicant. (instructed by Stephen Comino & Cominos)

MR C.A. SWEENEY, QC:   May it please the Court, I appear with MR M.M. STEWART, for the respondent Commission. (instructed by Australian Government Solicitor)

BRENNAN J:   Yes, Mr Solicitor.

MR KEANE:   As your Honours have seen from the summary of argument, the Trade Practices Commission’s case against the applicant for a contravention of section 46 of the Trade Practices Act involves misuse of market power in the Warwick concrete market, being a market in and around the town of Warwick on the Darling Downs in Queensland.  The paragraphs in question, the paragraphs under attack in the statement of claim, or their effect, is usefully summarised by Mr Justice Sheppard in the passage from his Honour’s reasons which is exerpted at page 7 of our summary, and as his Honour said in the second sentence of that paragraph:

What the statement of claim in the present case was designed to do was to set out in paragraphs 3,11,14,15,16 and 17 an accumulation of factors which taken together were capable of demonstrating that Pioneer had a substantial degree of power in the market not arising by reason of its competitive position in that market.

Now, what the statement of claim does in those paragraphs, as your Honours will see from paragraphs 14 and 15 which your Honours will find at pages 7 to 10 of the record, is to allege that the applicant, and other companies with which it is associated within the Pioneer group of companies, is very wealthy, has activities world-wide, has wealth and resources elsewhere other than in this market and has an aggressive intent in relation to the expansion of its activities in those various markets.

It is our submission that aggressive intent and wealth and resources do not tend to establish market power as that concept is used in section 46 of the Act.  Market power is, in our submission, as was said in Queensland Wire Industries Pty Ltd v Broken Hill Proprietary Co. Ltd by the Chief Justice and Justice Wilson in the passage which your Honours will find at page 38 of the record, commencing at line 12, an ability to raise prices in the market without reference to possible response by competitors or the countervailing power of customers.  As Mr Justice Dawson put it, at the bottom of page 200 in (1988-89) 167 CLR, it:

is thus the advantage which flows from monopoly or near monopoly ‑

There is no allegation of a relationship between aggressive intent and wealth and resources to any possible response by any competitor or the countervailing power of customers to any attempt on our part to increase price in the market.

Thus, the Commission does not allege that Pioneer enjoyed, after March 1990, when the firm Warwick Ready-mixed Concrete entered the market, a substantial market share in the market, or that there were barriers to entry in that market other than some unspecified excess capacity referred to in paragraph 16(d).  It is submitted that section 46 cannot support the case the Commission seeks to make, because the notion of market power is not to be equated with financial strength, but to a more sophisticated concept concerned with the absence of constraint by reason of the possible reaction of competitors or customers being the other participants in the market.

We submit that the allegations which we seek to strike out found a wide-ranging and oppressive, but nevertheless quite immaterial, inquiry into the affairs of the applicant and its associated corporations, and this inquiry would appear to be very wide in its scope, bearing in mind that the case is about the market for concrete in Warwick.

Now the other side urge that it is inappropriate for this Court to grant leave now because the success of the appeal would not necessarily obviate the need for a trial.  As to that we, of course, cannot say that they will not press on with the section 46 case if the application is successful, but it would not be much of a section 46 case in the absence of any allegation of a substantial market share after the entry of Warwick Premix Concrete into the market and the absence of any allegations about significant barriers to entry.

In our submission, the Court should not support a strategy of pleading extensive allegations leading to a tenuous case and there are disadvantages, in our submission, in allowing the problem, the legal problem, clearly opposed views of the proper construction of the section as to whether these complex allegations support an arguable but ultimately deficient case to proceed to trial.  The Court would appreciate that the task of the trial judge may be made unreasonably difficult.       A party may waste time and money preparing in respect of the issues which, in the end, have no substance and discovery to which we may now be exposed, having regard to the Commission’s success in the Adco Iceworks Case it may be unnecessarily lengthy and expensive bearing in mind the allegations of our worldwide power in other markets.  It is for that reason that we seek to make the application now. 

We submit that the questions of construction are important.  We submit that is reflected in the fact that the Full Court gave leave to appeal, although it dismissed the appeal, and as to the resistance to our appeal on the ground that the construction of section 46, for which we contend is clearly wrong, may we say, firstly, that we were largely successful at first instance before Mr Justice Cooper who did strike out many of the paragraphs about which we complain and secondly, we submit that the reasoning of the Full Court is not comfortable with the language of section 46, in particular section 46(3), which identifies that to which regard shall be had.

Now we submit that can be seen, firstly from the passage from the judgment of Mr Justice Sheppard to which we took your Honours at page 7 of our summary when we commenced and in the judgment of Mr Justice Drummond, the relevant passage in his Honour’s reasons being at page 7 of our summary where his Honour said:

“But the notion of constraining conduct to which s.46(3) directs the Court’s attention is no more capable of providing a complete answer to the question of what market power a corporation has than is the identification of constraining influences on a corporation capable of providing a complete answer to the question of market identification.  This, I think, is recognised by s.46(3) insofar as it does not purport to limit the Court in determining whether a corporation has a substantial degree of market power to an examination of the constraints referred to in s.46(3):  the sub-section requires the Court only to “have regard to” those constraining influences.”

Our submission is, with respect, that section 46(3) is definitive of that to which the court shall have regard, and in this regard ‑ ‑ ‑

GAUDRON J:   Does your entire argument depend on that proposition?

MR KEANE:   Not entirely, your Honour, no.  It is our submission that section 46(3) reflects the notion that market power is the advantage that flows from monopoly or near monopoly, as Justice Dawson put it in BHP v Queensland Wire, or that it subsists in the power to raise prices without fear of loss of market share in the long run.

BRENNAN J:   But that was a definition that surely must be construed according to the circumstances and facts of that case.  Where is the error in the approach taken by Justice Drummond?

MR KEANE:   Your Honour, the error in his Honour’s approach, in our respectful submission, is to identify the possibility of relevant power in a market deriving from circumstances other than those circumstances identified by 46(3), namely the constraint imposed by competitors or the countervailing power of customers.  We submit that that is indeed the definitive statement of that to which regard should be had.  Can we say, for example ‑ ‑ ‑

BRENNAN J:   You must surely answer Justice Gaudron’s question in the affirmative then; not just the definitive but the exclusive statement.

MR KEANE:   Your Honour, we say that that is so because the notion of market power is this rather sophisticated and refined notion of advantage which is necessarily a comparative one.  It is not, in our submission, the case that market power in section 46 is concerned simply with wealth, resources and aggressive intent, but it is rather the ability to act free of constraint by competitors.  The other side would say that one can act free of reference to one’s competitors if one has the wealth to act independently of them by dropping prices.  We submit, with respect, that is to misunderstand the nature of constraint and to fail to appreciate the direct application of the observations of the Chief Justice, Justice Wilson and Justice Dawson in the BHP Case.

DEANE J:   In assessing the market power of competitors, would it be relevant to know whether they were extremely wealthy international corporations or on the verge of insolvency?

MR KEANE:   No, with respect, what would be relevant in an inquiry under section 46 would be to know whether, in the particular market in respect to which a contravention is alleged, they are free to act independently of the possible retaliation of competitors.

DEANE J:   So, it would not be relevant to know that they had no spare resources, and indeed, were on the brink of insolvency and liquidation?

MR KEANE:   Your Honour, it may be relevant if the case that were made involved the further suggestion that they had, or that there were in relation to the market significant barriers to others entering, or that there were no significant barriers to others entering.  If there were no significant barriers to entry, then the possibility that a competitor in the market will go out of

the market because it cannot keep up the pace, in our respectful submission, is irrelevant to the question of market power.  Can we say, with respect, that if it were otherwise - if we were not correct - section  46 would have a scope, really, with respect, beyond that which the legislature should reasonably be taken to have intended, in that one could have a situation where a wealthy, aggressive competitor enters a market in relation to which it has no market share; it could compete aggressively with the intention of taking market share from other competitors, and thus damaging them, for the section 46(1) - damage to the competitor being the other side of the coin of aggressive competition - and yet notwithstanding the absence of market share, and notwithstanding the absence of barriers to entry, a case of the section 46 contravention could be made out.  In our respectful submission, that is a most surprising result; it is an unlikely result to have been intended by the Parliament, in that it would deprive consumers of the substantial benefits to which the Act is directed.  Your Honours, those are the submissions we wish to make in support of our application for special leave.

BRENNAN J:   Thank you, Mr Solicitor.  We need not trouble you, Mr Sweeney.

In the context of an application to strike out paragraphs of the statement of claim, we consider that the actual decision of the Full Court was correct.  As the applicant could not succeed without demonstrating the error in the Full Court’s decision, special leave should be refused. 

MR SWEENEY:  I seek an order for costs, your Honours.

BRENNAN J:    Do you have anything to say about that, Mr Solicitor?

MR KEANE:   No, your Honours.

BRENNAN J:   It will be refused with costs.

AT 9.50 AM THE MATTER WAS CONCLUDED