Re John Dee (Export) Pty Limited
[1989] ATPT 2
•14 April 1989
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| JUDGh1ENT No. *........ ........ . | I ........ .... | c | OK |
COMMONWEALTH OF AUSTRALIA TRADE PRACTICES ACT, 1974
| IN THE TRADE PRACTICES TRIBUNAL | NSW 5 of 1987 |
RE: JOHN DEE (EXPORT) PTY.
LIMITED & ORS.
~pplicants
RE: Application for a Review of a ~etermination made by the Trade Practices Commission dated 1 October 1987
CORRIGENDUM
Amendment to the reasons for decision of the Trade Practices
Tribunal delivered 14 April 1989:
Page 86, para 2, line 1, replace:
"18. Assessment of Claimed Benefit and
Findings on Detriment,
Bad Debts and Credit Control" with
"18. Assessment of Claimed Benefit and
Findings on Detriment:
Bad Debts and Credit Control"
Page 93, para 2, line 1, replace:
"19. Likely Operation of the Proposed System
of Accreditation" with
"19. Assessment of Claimed Benefit and
Findings on Detriment: of Accreditation".
Page 98, para. 3, line 1, replace:
| "20. Analysis of ~ffects" | with |
"20 Assessment of Claimed Benefit and
Findings on Detriment:
Analysis of Effects".
Index, replace:
"18. Assessment of Claimed Benefit and
Findings on Detriment,
Bad Debts and Credit Control" with
"18. Assessment of Claimed Benefit and
Findings on Detriment:
Bad Debts and Credit Control"
"19. Likely Operation of the Proposed System
of Accreditation!'with
"19. Assessment of Claimed Benefit and
Findings on Detriment: of Accreditation".
"20. Analysis of Effects" with
"20 Assessment of Claimed Benefie and
Findings on Detriment:
Analysis of Effects".
| ~sso6iate | to |
Mr. Justice Lockhart
JUDGMENT No.
| COMMONWEALTH OF AUSTRALIA | S- |
| TRADE PRACTICES ACT, 1974 |
| IN THE TRADE PRACTICES TRIBUNAL | NSW 5 of 1987 |
RE: JOHN DEE (EXPORT) PTY.
LIMITED & ORS.
Applicants
RE: Application for a Review of a Determination made by the Trade Practices Commission dated 1 October 1987
SUMMARY OF REASONS FOR DECISION
This-is an application by John Dee (Export) Pty. Limited and other companies, which are meat processors in Queensland, for a review by the Tribunal of a determination of the Trade Practices Commission which granted authorization to the proposed Constitution and Accreditation Rules (except clause
6) of the Queensland Stock Agents1 Association ("QSAA"),, a
body in the process of formation, and to the giving effect to
exclusionary provisions contained therein.
The Constitution provides for the making of Accreditation Rules which in turn provide for concessional trading terms upon which accredited buyers at auction sales of livestock in Queensland conducted by members of the Association may pay for their purchases.
The applicants for authorization before the Commission were the three Pastoral Houses, Edlers, Dalgetys and Primac together with a group of 39 stock and station agents who said they intended to join QSAA. The Pastoral Houses and these private agents together account for over 9 0 % of cattle marketed in Queensland through stock agents. The applicants for review of the Commission's determination are 21 meat processors who handle over 90% of cattle slaughtered in Queensland abattoirs.
The question before the Tribunal is whether the proposed Constitution and Accreditation Rules of QSAA would constitute a contract, arrangement or understanding to the effect that members of QSAA would deal collectively for the purpose of accrediting purchasers of livestock at auction for slaughter and thus constitute an exclusionary provision or have the effect of ,substantially lessening competition in breach of s. 45 of the Trade Practices Act 1 9 7 4 .
What is asserted in support of authorization is that the proposed system of QSAA:
will not be dominated by the Pastoral Houses;
will be of equal benefit to the Pastoral Houses and
independent agents alike;
will give rise to a better system of credit control with bonds and guarantees being provided for the benefit of all members, not just the Pastoral Houses;
will reduce the del credere risk to agents;
will provide information to agents which is not presently available to independent agents, namely, information as to the financial stability of processors and other purchasers of livestock;
will offer greater ability to monitor payment patterns
in accordance with concessional trading terms;
will no,t be inimical to competition or result in
anti-competitive detriment.
In the Tribunal's opinion it is hard to imagine an industry which shows less indication of any real or substantial credit risks than the sale of livestock. The history of the industry over many years proves this.
The Tribunal is not satisfied that the proposed system of market intelligence would give rise to such improvements or that any real differences would occur in prccki-e in warning agents about purchasers or prospective purchasers who may be credit risks. Any increase in the available credit information would be marginal. Past experience in the
astern States shows that recommendations to members as to
the risks involved in dealing with a particular purchaser or
prospective purchaser are of limited practical use.
Even viewing the proposed system on the basis that the Accreditation Rules include the most recently drawn proposed rules, including Rule 6, it is likely that it would be in practice a compulsory system. It is unreal to think that the system would operate in practice as voluntary. The Tribunal is satisfied that the system would be one in which all, or almost all, members would accept recommendations from QSAA as binding them to comply with such recommendations. It is likely that the proposed system would operate in practice, not as a means to reduce credit risk to agents, but to accelerate payment by purchasers.
We are not satisfied that the proposed accreditation system would give rise to any public benefit. On the contrary, in our view it is highly likely that it would give rise to considerable anti-competitive detriment.
We consider that the proposed system would constitute an exercise of market power without redeeming public benefit to shorten credit terms, shift the risk-bearing function, impose undue credit costs upon processors, achieve privileged access to financial information and discriminate in the imposition of security requi-rements.
The system would give rise to an inefficient allocation of iisk-bearing: agents would not be appropriately motivated in their del credere function; and some potential newcomers to meat processing could be inappropriately deterred by bonding requirements.
,
Whilst, in the short run at least, the attractiveness of the auction system could be increased for producers, this would not be the result of competition on the merits. The independence of the private agents could be undermined; and the Pastoral Houses encouraged to maintain a co-operative stance, one to another. The system would preclude competition in the terms of credit which, in the Tribunal's view, is just as valuable as any other form of competition.
The Tribunal refuses to grant the authorization sought and sets aside the authorization granted by the Commission. The authorization granted by the Commission will therefore not come into force.
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| JUDGfwIEMT No. ........ ........ .. | I ........ .... |
TRADE PRACTICES TRIBUNAL
TRADE PRACTICES - Queensland Stock Agents - review of the
Trade Practices Commission authorization of proposed Constitution and Accreditation Rules of trade association - whether the proposed conduct of such body would have the purpose or effect of substantially les~ening competition - whether public benefit outweighs public detriment from the lessening of competition - jurisdiction of Tribunal under
s. 88 - whether power of authorization extends to both the making and the giving effect to contracts, arrangements and understandings - whether s. 88(12) prohibits authorization of future conduct pursuant to contracts, arrangements or understandings which cannot themselves be authorized.
Trade Practices Act 1974 (Cth): ss. 45(1A), 88, 90(6),
90(8), 101.
JOHN DEE (EXPORT) PTY. LTD. & ORS. RE: APPLICATION FOR A REVIEW OF A DETERMINATION MADE BY THE TRADE PRACTICES COMMISSION
Lockhart J. (President), Professor Brunt, Mr. Fitzgerald
14 April 1989
Sydney
COMMONWEALTH OF AUSTRALIA TRADE PRACTICES ACT, 1974
| IN THE TRADE PRACTICES TRIBUNAL | NSW 5 of 1987 |
RE: JOHN DEE (EXPORT) PTY.
LIMITED & ORS.
RE: Application for a Review of a Determination made by the Trade Practices Commission dated 1 October 1987
MINUTE OF ORDER
| TRIBUNAL: Luc~hart | J. (President), Professor M. Brunt, |
Mr. A. Fitzgerald
14 April 1989
THE TRIBUNAL DETERMINES THAT: the determination of the Trade
Practices Commission dated 1 October 1987 be set aside.
COMMONWEALTH OF AUSTRALIA TRADE PRACTICES ACT, 1974
| IN THE TRADE PRACTICES TRIBUNAL | NSW 5 of 1987 |
RE: JOHN DEE (EXPORT) PTY.
LIMITED & ORS.
Applicants
RE: Application for a Review of a Determination made by the Trade Practices Commission dated 1 October 1987
| - | INDEX |
| Paragraph | Heading | Page NO. |
| 1. | Introduction | 1 |
| The Parties | 6 | |
| Submissions of the Pastoral Houses | 8 |
| Submissions of the Meat Processors | 11 |
| Witnesses and Exhibits | 13 |
| The Constitution of QSAA | |
| The Accreditation Rules | |
| Conduct for Which Authorisation is Sought | |
| Previous Applications for Authorisation | |
| The Relevant Law | |
| Methods of Marketing Cattle in Queensland | |
| Auction sales versus paddock sales CALM | |
| Pastoral Houses and Independent Agents |
Credit for Sale of Cattle by Auction
| and Del Credere Risk | 6 | 2 |
| Selling Centres and Saleyards | 6 5 |
| Meat Processors | 69 | ||
| Identification of the Relevant Market | |||
| Market Structure and Competitive | |||
| Behaviour | 79 | ||
| Assessment of Claimed Benefit and | |||
| Findings on Detriment, Bad Debts | |||
| and Credit Control |
| ||
| Likely Operation of Proposed System |
| of | Accreditation | 9 3 |
| Analysis of Effects | 9 | 8 |
| Conclusion | 108 |
COMMONWEALTH OF AUSTRALIA TRADE PRACTICES ACT, 1974
| IN THE TRADE PRACTICES TRIBUNAL | NSW 5 of 1987 |
RE: JOHN DEE (EXPORT) PTY.
LIMITED & ORS.
Applicants
RE: Application for a Review of a Determination made by the Trade Practices Commission ilated 1 October 1987
REASONS FOR DECISION
Lockhart J. (President), Professor Brunt and Mr. Fitzgerald-
1. Introduction
1.1 John Dee (Export) Pty. Limited ("John Dee") and other companies, which carry on business in Queensland as meat
| processors, applied to the Tribunal under s. 101 of the - | Trade |
Practices Act 1974 ("the Act") for a review of a determination of the Trade Practices Commission ("the Commission") made on 1 October 1987 in relation to two applications (A90450 and A90451) lodged by Elders IXL Limited ("Elders"), Dalgety Farmers Limited ("Dalgetys") and Primac Association Limited ("Primac") (to which we shall generally refer collectively as "the Pastoral Houses") with the Commission for authorization relating to the proposed Constitution and Accreditation Rules of a new body, the
Queensland Stock Agents' Association ("QSAA"). Application ~90450 was in respect of an agreement that may affect competition and application A90451 in respect of a possible exclusionary provision. QSAA is in process of formation by its three foundation members, Elders, Dalgetys and Primac, who have together drawn up the proposed Constitution and Accreditation Rules.
| 1.2 | The decision of the Commission is reported at | (1987) |
| ATPR (Com) 50-059. | The Commission was satisfied that: |
there was public benefit in the proposed Constitution and Accreditation Rules of QSAA except in relation to clause 6 of the Accreditation Rules;
tiiose public benefits outweighed the detriment caused by any lessening of competition; and
there was such a benefit to the public in the exclusionary provisions embodied in the Constitution and Accreditation Rules (except for clause 6) that those provisions should be given effect to: (1987) (Corn) ATPR 50-059 at 57,200.
1.3 On 1 October 1987 the Commission granted authorization to QSAArs proposed Constitution and Accreditation Rules (except for clause 6 of the Accreditation Rules) in respect of applications A90450 and A90451 and to the giving effect to exclusionary provisions contained
therein. Paragraph 11.3 of the determination provided that, if no application for review of the determination was made to the Tribunal, it would come into force on 30 October 1987; and that, if an application for review was made to the Tribunal, the determination would come into force (a), if the application was not withdrawn, on the day on which the Tribunal made a determination on the review; and (b), if the application for review was withdrawn, on the day on which the application was withdrawn. As the application for review of the determination was made to the Tribunal and has not been withdrawn, the Commission's determination has not come into force. It will do so only if and when the Tribunal makes a determination on the review in favour of authorization.
1.4 A brief statement of the background facts is necessary' to enable the issues which arise in this application for review to be understood.
1.5 QSAA is being formed to operate in Queensland.
Membership of the QSAA is open to any Australian licensed livestock agent, but the Association is designed to regulate the conduct of auctions by members within the State of Queensland. There are to be two classes of members: the foundation members and the private agents. The Constitution determines the qualifications for membership of the Association, the governance of the Association, and the obligations of members to each other. It also provides for the making of Accreditation Rules. Broadly speaking, the Accreditation Rules provide for what are termed "concessional
trading terms" upon which accredited buyers at auction sales of livestock conducted by members of the Association may pay for their purchases. In the absence of accreditation the Accreditation Rules provide for the application of what are known as the Standard Conditions of Sale.
1.6 It has been the practice in Queensland for the
Standard Conditions of Sale to be exhibited at all saleyards. Conditions 5, 6, 7 , 8 and 11 have particular relevance to these applications and provide that the livestock agent or broker sells as a del credere agent; that the full purchase price is payable by the buyer to and recoverable by the broker alone; and that, in the absence of special terms, the full purchase price is "payable in cash on the fall of the
| hamme r | " . |
1.7 Originally, the Standard Conditions of Sale as a whole formed part of the applications for authorization to the Commission. But on 14 July 1987 the Conditions were withdrawn from the applications, the applicants having indicated that they were prepared to hold discussions with parties who perceived problems with them. The position is now that, while the Standard Conditions of Sale do not form part of the formal applications before us, the particular conditions listed above were relied on in aid of identification of the conduct for which authorization is sought. Accordingly, the conditions retain relevance for the applications and issues before us.
1.8 The Accredit:ticn Rules are designed to regulate the credit terms that may be extended to purchasers at auction of livestock for slaughter within 30 days. These purchasers would be meat processors and butchers. In short, the Rules make provision for procedures whereby (a) buyers of livestock at auction may be accredited to the QSAA; (b) a buyer's departure from standard payment terms (to be established at 12 days) may be monitored; and ( c ) information generally regarding credit-worthiness and current patterns of payment may be assembled. Accreditation may be granted subject to "Special Conditions" which may include the lodging of security to guarantee payment for purchases at auctions and a requirement that the applicant not exceed a prescribed level of total indebtedness.
1.9 The Pastoral Houses assert that the provision of
guarantees or other securities from buyers will not be a general requirement for all who seek to trade on credit, but will be required only when there is a discernible credit risk. It is said that the amount of the guarantee would not exceed the estimated cost of two weeksr purchases of livestock.
1.10 Provision is made by Rule 6 (a controversial rule to
which we shall refer later) to the effect that, if a member deals for credit with a buyer who is not an accredited person or with an accredited person in excess of the provisions of the concessional trading terms, he shall not be entitled to the benefit of guarantees or other security arrangements
furnished or provided pursuant to the Accreditation Rules in relation to the transaction or transactions the subject of the grant of credit.
1.11 The livestock industry in Queensland includes cattle, sheep and pigs, whether "fats" ready for slaughter, "stores" or breeders. The stock sold by auction is mainly fat cattle, store cattle or store sheep. So far as auction for slaughter is concerned, the great bulk and value of stock is in fat cattle. The evidence that was placed before us on the functioning of the livestock industry focused, correctly in our view, largely upon the cattle industry.
| 1.12 | The Queensland cattle industry is an important one. | - |
The current cattle population is approximately 9 million head, having fallen from 11 million over the preceding 10 years. There is significant export. Over the period 1983 to 1987 Queensland meat processors slaughtered, on average, 35% of all cattle slaughtered in Australia, attaining 36% in 1987.
2. The Parties
2.1 The applicants for authorization before the Commission were the Pastoral Houses. Elders, Dalgetys and Primac are the only three large Pastoral Houses operating in Queensland. A group of 39 stock and station agents who said that they intended to join QSAA, the Cattlemensf Union and the United Graziers' Association of Queensland lodged
submissions in support of the application by the Pastoral Houses, although they were not themselves parties to the application. The independent agents supporting the applications amount to roughly half the numbers of private agents. These private agents and the Pastoral Houses together account for over 90% of cattle marketed in Queensland through stock agents (whether by auction or direct sales). The respondents in the current proceedings are Elders, Dalgetys and Primac, who again receive the support, upon a similar basis, of the group of independent agents and of the United Graziers' Association.
2.2 The applicants for review of the Commission's determination are 21 meat processors who handle over 90% of cattle sl;u$l..tered in Queensland abbatoirs ("the Meat Processori"). Indeed, the only meat processor of any size not opposing the applications was Beef City, a wholly-owned subsidiary of Elders. During the course of the hearing Elders took over one of those processors, Australia Meat Holdings Pty. Limited ("AMH"), which thereupon withdrew its support for this application for review. Since AMH is the largest meat processor in Queensland, accounting for some 30% of abbatoir throughput prior to its contested takeover of
| Thomas Borthwick and Sons (Australia) Ltd. (see - | Trade |
Practices Commission v Australia Meat Holdings Pty. Ltd. & -Ors. (1988) ATPR 40-876, Trade Practice Commission v
| Australia Meat Holdings Pty. Ltd. (No.2) (1988) ATPR | 40-893, |
Australia Meat Holdings Pty. Ltd. v Trade Practices Commission, unreported judgment of Full Court of the Federal Court, 3 March 1989), that action was significant.
3. Submissions of the Pastoral Houses
3.1 The Pastoral Houses argued that authorization should be granted for various reasons which we shall summarise:
agents trading in Queensland accept the del credere risks for livestock sold at auction. There is a special problem in extending credit for purchase of stock to be slaughtered in that the stock, by definition, is a perishable commodity which cannot therefore serve as security for the debt;
the risk of default relates to the entire value of the transaction; but agents are remunerated by a small percentage commission. Hence, the sum at risk is disproportionately high in relation to the gross commission received; in fact, 20 or more times the gross commission;
the existing system of credit control in Queensland is
inadequate;
adequate credit controls will ensure a decrease in the risk of default either by the processor or the agent and will thus increase the value of the del credere guarantee to the producer;
a substantial default by a processor could cause a chain of agents to collapse, and the effects of such a collapse might extend beyond the processor and the agent to the primary producer who might not receive payment for cattle sold;
it is essential that there is an adequate degree of information available to agents on the financial standing of buyers and their total indebtedness to all agents in Queensland as a whole;
the proposed credit control would be fair and accurate;
a centralized system is better placed to monitor a processor's credit position continuously and to administer guarantees and call them up when necessary;
the proposed accreditation system is cost efficient, and allows economies of scale and the development of a high level of expertise in credit appraisal;
smaller agents would be better served by a centralized credit control system because of the pooling of credit information and access to economies of scale;
a failure of a processor can produce uneven effects because the Pastoral Houses have the ability to absorb larger losses;
because of thelr relatively small size and lack of market power, agents other than Pastoral Houses are not in a position to obtain useful credit information about livestock buyers, nor to obtain satisfactory guarantees;
there is a need for a strong body to represent all
agents in Queensland;
agents are faced with rapid economic, technological and legal changes in which they conduct their businesses together with rising costs; and they perceive that they will need to upgrade their educational qualifications and skills in the future;
the changes are bringing with them challenges that must be met and problems that must be solved on an industry basis. It is claimed that QSAA will be able to play a radical role in assisting agents to adapt to change and improving their efficiency;
the proposed system allows the extension of credit to processors and butchers more cheaply than alternative sources, such as bank overdraft facilities;
the concentration of demand for slaughter cattle into a relatively small number of hands justifies the development of a strong representative body in response;
the proposed system would encourage competition. It would strengthen the existing auction system as a competitive alternative to direct selling. The auction system is of particular value to small and medium-sized producers. It is also valuable as a source of market intelligence.
4. Submissions of the Meat Processors
4.1 The Meat Processors argued that authorization should not be granted. The grounds on which they rely are, in summary, that:
.
there is no need for any centralised system of credit control. Agents hear quickly of events thet adversely affect the creditworthiness or financial standing of a particular buyer;
bad debts in this industry are negligible, especially in
the case of meat processors;
the proposed credit control would be neither fair nor accurate. The proposed centralized credit control system would not result in credit information of any worth to agents;
accreditation discriminates against meat processors in
favour of other buyers of livestock at auction;
commission rates charged by agents for sale by physical auction are already too high. If the proposed credit control systems are introduced, and, if the del credere risk is then reduced, there would not be any passing on of the benefit of that reduction by agents to producers in the form of a lower commission rate;
the proposed system is not a credit control system designed to reduce bad debts to agents; but is a cashflow management system designed to ensure, by collective means, faster payment by buyers to agents and thereby enhance profits of stock agents;
even if the proposed accreditation system were voluntary in form, being expressed in terms that leave an agent who is a member of QSAA free to deal with a non-accredited buyer or with an accredited buyer who has exceeded the concessional trading terms, in practice the system would work as a compulsory system requiring all agents who are members of QSAA to conform with the recommendations of QSAA as to the buyers who might be traded on concessional trading terms. It was submitted that the scheme holds itself out as a voluntary scheme in the sense that it provides members with recommendations which are not binding, but that the scheme is in fact a compulsory scheme;
the best guide as to how the proposed system would work in practice is how the same or substantially the same scheme works in Victoria and New South Wales at present where it is in effect mandatory, and, how the previous association of the Pastoral Houses in Queensland has operated to impose substantially uniform terms;
in practice the system would constitute a collusive mechanism which is intended to and would produce a high degree of uniformity in relation to credit extended to buyers whatever their financial position may be;
the system could be used to facilitate collusion and to inhibit independent competition generally by private agents;
the system could be used as a device for securing information regarding individual meat processors that would give a bargaining or competitive advantage to those brokers who secure access to it.
Witnesses and Exhibits
5.1 The hearing of this matter occupied 18 days. Statements from 34 witnesses were provided by the parties, 23 of whom were called to give oral evidence. In some cases statements of witnesses were admitted by consent without the necessity of calling the witnesses themselves. A list of the witnesses and their occupations is annexed to these reasons
as Annexure A. The witnesses were officers of Elders, Dalgety and Primac, independent agents, officers of meat processors and producers. Other witnesses were the senior officer of CALM and one witness who gave evidence about insurance arrangements. Only one expert economist gave evidence and he was called by the Meat Processors. The evidence tendered was extensive and voluminous.
5.2 We see no purpose in discussing the evidence of each witness and stating our impression, witness by witness, as to his or her credibility or reliability. Our findings of fact are based on the assessments which we have formed of the witnesses and we have viewed their evidence in the light of the relevant surrounding circumstances, contemporaneous documents and the probabilities.
| - 6. | The Constitution of QSAA |
6.1 Membership of QSAA is open to any Australian licensed stock and station agent (clause 5(ii)(a)). The foundation members are Elders, Dalgetys and Primac (clause 5(i) and Schedule A). Appeal against a refusal of admission for membership lies to a special general meeting of members or the next annual general meeting (clause 5(ii)(b)). Each financial member has one vote for each place of business with respect to which an annual subscription has been paid, which may be exercised either in person or by proxy; and a quorum of 20 is needed for general meetings of members (clause lO(iv)(a), (d) and (f)).
6.2 The governing body is the Council of QSAA. Queensland is divided into zones, each of which elects two members to the Council from members carrying on business in the zone. At least one member elected from each zone must be a private agent (that is, a member of QSAA other than from a Pastoral House) unless no private agent is prepared to stand for election for that zone (clause 6). There is a mechanism established by clause 7 to ensure that at least 50% of councillors are private agents and that there is an odd number of councillors. The councillors elect from members of the Council the president and two vice presidents, at least two of whom must be private agents (clause 7(v)). Questions arising at meetings of the Council are to be decided by simple majority and each councillor has one vote (clause 7(ix)(c)).-
6.3 The Executive Committee of the Council consists of the president, the two vice presidents, the Chairman of the Accreditation Committee and the secretary (clause 8(i)). The secretary is appointed by the Council (clause 15(i)). Each member of the Executive Committee has one vote and a quorum of three is necessary (clause 8(v) and (vi)). The Council is deemed to have delegated all its powers and discretions to the Executive Committee except where the Council otherwise directs and except for the making of accreditation rules (clause 9(iii) ) . The Executive Committee may delegate powers, duties and functions to the Accreditation Committee (clause 8;vii) and 8A(ii)).
6.4 The Accreditation Committee consists of seven members, one member being appointed by each foundation member with the remaining four members, all of whom must be private agents, to be appointed by the Council (clause 8A(i)). Each member of the Accreditation Committee has one vote and the quorum is three. The Accreditation Committee elects its own Chairman (clause 8A(iii), (iv), (v)) who becomes a member of the Executive Committee.
6.5 There is an Accreditation Appeals Committee
consisting of the Secretary and three councillors appointed by the Council of whom at least two shall be private agents (clause 8B(i)). No member of the Accreditation Committee is eligible to be a member of the Accreditation Appeals Committee '(clause 8B(ii)). Each member of the Appeals Committee is to have one vote and there is a quorum of three (clause 8B(iv) and (v)).
6.6 A member is liable to expulsion by the Council on the
happening of certain events set out in clause 12. Clause 12(ii) provides for the automatic expulsion from the Association of a member who refuses to accept or obey any decision or adjudication of the Council in respect of an allegation or dispute submitted to it. A majority of three-quarters of members of the Council is required for expulsion except in the case of automatic expulsion pursuant to clause 12(ii) (clause 12(iv)). Appeals against expulsion lie to a special general meeting of members or to the next
entitled to large numbers of members. Also, if the private agents do not seek as a body to exercise their voting power at Council meetings, the foundation members may secure majority votes at certain meetings of the Council, although in that event domination by foundation members is restricted or prevented by reason of minimum representation provisions at Council level and majority representation provision at the Accreditation Committee level with respect to private agents.
6.10 ~lthough QSAA is structured to ensure that the constitutional majority of power ultimately rests with private agents, we are not persuaded that in practice the running of the affairs of QSAA including its Accreditation Committee could not be controlled by the Pastoral Houses. We do not say that the Pastoral Houses would in fact control
QSAA. We'confine ourselves to saying that, in the light of
experience and market realities, they could exercise actual
control.
7 . The Accreditation Rules
7.1 The Council of QSAA is required to make accreditation rules (clause 9(ii)) of the Constitution). The Accreditation Rules are expressed to apply in respect of the purchase at auction of livestock for slaughter within 30 days of purchase (definition of purchase in rule 2 and see rule 3 ) .
| 7.2 | There are 42 accreditation rules. We propose to |
refer to some of them.
7.3 Certain proposed amendments to the Rules and
additional Rules were brought to our attention in the course of argument and we shall refer to the more important of them as we proceed.
7.4 Rule 2 contains definitions for the purposes of the
Accreditation Rules and it defines, so far as presently relevant:
an "accredited person" as meaning a person to whom accreditation has been granted and whose accreditation is not suspended;
"accreditation" as meaning accreditation granted pursuant to the rules for settlement of accounts upon Concessional Trading Terms as defined;
"Accreditation Appeals Committee" as meaning the Accreditation Appeals Committee appointed by the Council pursuant to the Constitution of QSAA;
"auction" as meaning the sale of livestock at an auction
conducted in Queensland by a member of QSAA;
"concessional trading terms" as meaning the terms of payment on credit set out in Schedule 1 to the Accreditation Rules:
"purchase" as reacing the purchase of livestock for
slaughter within 30 days of such purchase;
"standard conditions of sale" means the standard terms
of sale at auction.
7.5 Schedule 1, referred to in the above definition of "concessional trading terms" states "the concessional trading terms applicable to purchasers by accredited persons at auction": "All purchases made in Queensland shall be paid for within ten (10) days from the date of sale". In the course of the proceedings the Pastoral Houses intimated that they would amend the term to 12 days in accordance with the current practice of each Pastoral House.
7.6 WB quote the following rules, which- are those
contained in the Accreditation Rules under the heading "Terms
of Trading at Auctions".
| "3. | Subject to these Rules the Standard Conditions of Sale ... shall apply to every purchase at Auction. |
| 4. Notwithstanding any provision in the Standard Conditions of Sale, a member may apply the Concessional Trading Terms to any purchase at Auction by an Accredited Person. | |
| 5: The Concessional Trading Terms shall not | |
| apply to any purchase at Auction by a person who is not an Accredited Person." | |
| 6. If a Member knowingly grants credit for purchase or represents or acts in such a manner that other members have reason to believe that he has granted credit or will otherwise accept liability for the purchase at Auction - |
| - | to any Person who is not an Accredited Person or, | ||
| - | to an Accredited Person in excess of the provisions ofthe Concessional Trading Terms, then: | ||
| |||
|
7.7 Rule 6 is the most important of the Accreditation Rules for the purposes of these proceedings and was highly controversial throughout the proceedings before the Tribunal. It has assumed different forms during the course of this matter: first, before the Commission and later before the Tribunal. The form which it took before the Commission when it granted authorization to the Accreditation Rules (other than clause 6), is quite different from that which the Pastoral Houses ultimately told the Tribunal in final address was. the form that was to be its final form and that reads as follows:
"6(a) A Member may, notwithstanding any other provisions of these Rules including Rules 3, 4 and 5 hereof, deal for credit on such terms and conditions as the Member in his absolute discretion thinks fit with:
(i) any Person who is not an Accredited Person; or
(ii) an Accredited Person in excess of the provisions of the Concessional Trading Terms
PROVIDED HOWEVER THAT if such Member deals with
such person, he shall not be entitled to the benefit of any guarantee or other security arrangement furnished or provided pursuant to these Rules in relation to the transaction or transactions the subject of such grant of credit.
(b) It is hereby expressly declared that a Member dealing with any Person who is not an Accredited Person or dealing with an Accredited Person in excess of the provisions of the Concessional Trading Terms is not acting in breach of these Accreditation Rules."
7.8 Rules 7 to 16A provide for the grant of
accreditation. In considering accreditation the Executive committee is required by rule 10 to have regard to the following matters:
"(a) the financial standing of the Applicant,
including -
(i) the availability of liquid funds to the Applicant compared to his likely trading commitments;
(ii) the assets and liabilities of the
| |||
| liabilities) compared to the likely requirements of his business; |
(iii) the nature and extent of any mortgages, liens, charges and other claims over the assets of the Applicant.
| (b) | The financial and business history of the Applicant, including any previous bankruptcy or insolvency. |
| (c) | Whether the Applicant is of good character and reputation." |
7.9 If in the exercise of its discretion the Executive Committee grants an application it may subject the applicant to the imposition of special conditions (rule 14). The special conditions may include a requirement that the applicant lodge with QSAA a security to guarantee payment for purchases at auction in such form and of such value as the Executive Committee considers appropriate having regard to certain specified matters; and a requirement that the applicant undertake to QSAA that he will not at any time exceed such level of total indebtedness to members as may be prescribed by the Executive Committee in its determination (rule 15). Provision is made in rules 19 to 26 for appeals against determinations of the Executive Committee.
7.10 The Executive Committee is empowered to monitor the compliance by Accredited Persons with Concessional Trading Terms, and is expressly empowered to request information from Members for this purpose (rule 27).
7.11 Rules 2 8 to 30 provide for the suspension or amendment of accreditation and Rules 31 and 32 for appeals against suspension or amendment.
7.12 Rule 33 provides for the notification of members of the accreditation status of purchasers; and rule 34 provides that if an application is refused or accreditation suspended, the notification:
"shall be accompanied by a recommendation that Members should apply the Standard Conditions of Sale to any purchase at Auction by the Person who is the subject of the notification."
7.13 Rules 35 to 37 provide for a right of arbitration where a person is dissatisfied with a decision of the Accreditation Appeals Committee with respect to an appeal against suspension or amendment of accreditation.
7.14 There is also a proposed rule 40A to be read together with the proposed rule 6:
"40A. At the time of notification of any refusal or suspension pursuant to Rule 33, members shall be advised that the consequence to a member who grants concessional trading terms or other terms of credit to a non-accredited .person, notwithstanding the recommendation communicated by the notification, is that such member shall not be entitled to the benefit of any guarantee or other security arrangement furnished or provided pursuant to the Accreditation Rules in relation to the transaction or transactions the subject of such grant of credit."
7.15 Rules 3, 4 and 34 refer to the Standard Conditions of Sale. As we said earlier (above para. 1.7) these conditions, while not part of the applications before us, do retain relevance as an aid to identification of the conduct for which authorization is sought. The Conditions to which the Pastoral Houses would wish their rules to refer are 5, 6, 7,
8 and 11:
5. The broker by its auctioneer is selling as a del credere agent and the full purchase price for the stock hereby sold shall be payable by the buyer to and recoverable by the broker alone and, except where terms are given by and at the discretion of the broker, shall be payable in cash on the fall of the hammer.
6. Subject to the provisions of Clause 13 hereof, all stock shall be at the risk and expense of the purchaser upon the fall of the hammer .
7. No property or right in the said stock shall pass to the purchaser or to any other person, firm or corporation until payment in full of the purchase money and until all or any cheques or other negotiable instruments given in connection with the said payment shall have been paid and satisfied and until then the purchaser shall hold any stock delivered to him as bailee for the vendor.
8. Subject to any concessional trading terms granted to the purchaser, at any time prior to payment the vendor or the selling agent in his own name may recover possession.of the stock and for that purpose enter in or upon any lands occupied by the purchaser as often as may be necessary or alternatively or in addition sue for the recovery of possession of the stock.
11. In the event of default or failure by the purchaser to pay the purchase money or any part thereof at the time and in the manner hereinbefore provided, such unpaid purchase money shall bear interest at the current rate charged by the vendor's agent on overdue accounts, during such period of default, but this clause shall be without prejudice to any other rights of the vendor in the event of such default or failure."
| 8. . | Conduct for which Authorization is Sought |
8.1 The question before the Tribunal is whether the
proposed Constitution and Accreditation Rules of QSAA would,
upon adoption and implementation, constitute a contract, arrangement or understanding to the effect that members of QSAA would deal collectively for the purpose of accrediting purchasers of livestock at auction for slaughter and thus constitute an exclusionary provision or have the effect of substantially lessening competition in breach of s. 45 of the Act (sub-s. 88(1)).
8.2 The particular clauses of the Constitution and
Accreditation Rules of QSAA which may arguably be said to contain stipulations for an agreement of the kind mentioned are as follows:-
(i) The Constitution
Clause 5(ii)(a) which opens eligibility for membership to all Australian licensed stock and station agents;
Clause 9(ii) which authorizes the Council to make
accreditation rules:
Clause 12(i)(b) which relates to expulsion of a member for breach of the rules or by-laws of the Assocation;
(ii) The Accreditation Rules
Rules 3, 4 and 5 which relate to the terms of
| trading; |
Rule 6 which relates to the sanctions for breach of recommended trading terms;
Rules 7 to 16 which relate to the grant or refusal of
accreditation;
Rule 27 which relates to the requesting of credit information from members;
Rules 28 to 30 which relate to suspension or amendment of accreditation;
Rules 33 and 34 which relate to notifications to members of the accreditation status of purchasers and consequenfial recommendations as to trading terms.
8.3 A question arises as to the status of the proposed new rules, in particular of rule 6 and the related rule 40A. It was said that the proposed new rule 6 represented a fundamental alteration to the nature of the arrangement for which authorization was sought and that the Tribunal has no power to grant authorization to the new rule or, if it does, it should not do so. Rule 6 in this new form was never submitted to the Commission and was not advanced before the ~ribunal until final address by counsel for the Pastoral Houses. It was submitted that, if it was within the Tribunal's power to grant authorization in relation to an arrangesirnt embodying the proposed new rule 6, it would be a
breach of the rules of natural justice to grant such an authorization and would in all the circumstances be a breach of the scheme of the Act.
8.4 This argument was developed in some depth before us but we see no necessity to decide the question. The course which we propose to take is to assume that the subject of the application for review before the Tribunal includes the Accreditation Rules in the form that they took when authorization was granted by the Commission and when application for review was made to the Tribunal. As we understand it, there had been no change to the form of the Accreditation Rules during that period. However, as the Tribunal has power to impose conditions upon the grant of authorization, it will bear in mind that one condition which could be 'imposed is that amendments to the Accreditation Rules be made, including an amendment to rule 6 in the form or along the lines suggested by the Pastoral Houses which we have recited above. We adopt a similar approach to the other proposed alterations to the rules including the proposed new rule 40A.
9. Previous Applications for Authorization
9.1 Previous applications have been made by or on behalf of bodies representing stock and station agents in Victoria, New South Wales and Queensland. Brief reference to them is desirable.
9.2 Victoria. Applications were lodged on 7 September 1982 by Elders on behalf of the Victorian Stock Agentsr Association ("VSAA"). VSAA was formed in 1954 from "The Associated Stock and Station Agents of Melbourne", an organisation which represented the interests and views of stock agents in Victoria. VSAA had 99 principal members, the largest of whom were pastoral companies with branches throughout Victoria; but the majority of members were smaller organisations and individuals. The members comprised about 98% of the livestock agents practising in Victoria. It was said that 92% of all fat stock in Victoria was sold through the auction system. Authorization was sought from the Commission in substance for the Constitution of VSAA and proposed amendments including membership rules, the proposed Accreditation Rules, and the proposed conduct of members of VSAA giving effect to the Constitution, Accreditation Rules and Schedules.
9.3 The final determination of the Commission was made on 20 May 1983 and is reported in 119831 ATPR (Com) 50-059. The Commission found that the requirements of sub-s. 90(7) and para. 90(8)(b) of the Act were satisfied and it granted authorization to VSAAVs Constitution and proposed amendments thereto, the proposed Accreditation Rules and Schedules and the proposed conduct of members of VSAA in giving effect to those documents.
9.4 The Constitution and Accreditation Rules of VSAA are substantially similar to those proposed for QSAA leaving aside the proposed Rule 6 and the related amendments.
9.5 New South Wales. An application was lodged on 29 November 1983 by the Stock and Station Agents Association of New South Wales ("SSAA") seeking authorization in substance for changes to the Constitution of SSAA which were designed to merge the organisation and functions of SSAA with those of the NSW Livestock Agents' Bureau and for the Accreditation Rules of SSAA. The Bureau was operated exclusively for the Pastoral Houses. The Commission's final determination was made on 11 September 1984 and is reported in (19841 ATPR (Com) 50-078. The Commission noted that the proposed New South Wales system was
"broadly the same as the VSAA system, in both a structural sense, and in the basic objectives of the systems and the methods employed to achieve them. In both cases, the objective (which-in the Victorian case the Commission accepted as a benefit to the public) is to establish an effective and consistent system of credit control that is fair to all parties" (para. 2 at p. 55,453).
9.6 The Constitution and Accreditation Rules of SSAA and VSAA were substantially the same. The Commission granted authorization to the arrangements provided for in the changes to the Constitution of SSAA and in the Accreditation Rules.
9.7 Queensland. Two applications, in substantially
similar terms to each other and to the Victorian and N.S.W.
applications, have been made in Queensland. Both were
granted interim authorization in similar terms in January
1975, and final authorization in similar terms on 5 June
1981, subject to the deletion of certain credit control
provisions referred to as "Schedule G" (rules 5 and 6). One
application was made by Dalgetys on behalf of itself and
other members of 22 country livestock associations: see
Queensland Country Livestock Associations (1981) ATPR (Com.)
50-008. Membership of these associations almost entirely
comprised the branches of the five Pastoral Houses in
existence at this time; however in each of Dalby and the
Warwick districts there were in addition four private agents.
The second application was made by the Australian Mercantile
Land and Finance Co. Ltd. on behalf of itself and the other
four Pastoral House members of The Queensland Livestock,
Property and Produce Brokers1 Association ("QLPPBA"): see
Queensland Livestock, Property and Produce Brokers
-
Association (1981) ATPR (Com) 50-009.
9.8 These authorizations were understood by witnesses for the Pastoral Houses to be still in force and to govern, in particular, the conduct of QLPPBA. It is apparent that there has been in recent years some rationalisation in trade association organisation in this field of activity in Queensland, with the QLPPBA currently being the only significant body.
9.9 QLPPBA has borne its present name (The Queensland Livestock Property and Produce Brokers Association) since 1 July 1970. It was originally the Stock and Station Agents and Auctioneers Association, dating back to the 1890's. Although qualification for membership of QLPPBA is not
limited to pastoral houses, throughout its history pastoral houses have played a very significant role in its affairs. QLPPBA established a credit bureau to control credit facilities and it contained rules designed to ensure that what was referred to as "Schedule G" was adhered to by members. The members of QLPPBA are currently the three Pastoral Houses.
9.10 Schedule G is broadly akin to certain of the
Accreditation Rules including Rule 6. Rule 2 stipulated 12 days as the period allowed for settlement under Concessional Trading Terms subject to certain qualifications. Rule 4 required participants in Schedule G to report the names of all buyers who had not paid for their purchases on the due date. Rule 5 provided that buyers who were the subject of reports pursuant to rule 4 would be notified that they were debarred from purchasing at country sales conducted by selling agents who operated under Schedule G until payment was received by the selling agent concerned; and for the notification to participants in schedule G of the identity of defaulting buyers. Rule 6 obliged participants in Schedule G not to sell livestock to any buyers whose payments were overdue on their own books, or to a buyer whose name had been reported to them as having overdue outstanding payments.
9.11 The Commission found that there was a public benefit in QLPPBA1s Constitution, Rules and Regulations insofar as they provide the necessary machinery for the administration and implcnentation of conditions for saleyard activities,
facilitating the efficient operation of livestock sales and thereby achieving cost savings for sellers operating in the market. However, in refusing authorization of the credit control provisions embodied in rules 5 and 6 of Schedule G the Commission said:
"6.8 The provisions preventing buyers who have
overdue debts outstanding from buying at further auctions and preventing members and other selling agents from selling to such buyers may have anti-competitive detriments. The associations in their submission state that the credit control provisions are necessary for members to continue to act as del credere agents. The Commission recognises that there is a need for strict credit controls to ensure accounts are paid, when agents guarantee payment to sellers particularly where perhaps large amounts are involved. And there can be no objection to a credit information bureau which purely disseminates credit information to members, including information concerning buyers on the credit list who have not paid their accounts by the due date. However, agents should then be free to decide unilaterally whethex or not they will sell to such buyers at future auctions, either for cash or on further credit. A collective agreement by agents not to sell to such buyers, and to bar them from further auctions until their debt is paid, amounts to collective boycott, and is anti-competitive."
(Queensland Country Livestock Associations, para. 6.8 at p. 55, 265; Queensland Livestock, Property and Produce Brokersf Association, para. 6.8 at p. 55,270)
9.12 The significance of rules 5 and 6 of Schedule G needs to be recounted. In essence, a buyer who defaulted was denied concessional trading terms until he put his accounts into order and had to pay cash for purchases in the meantime. The cash payment procedure at auction, whilst not impossible,
in practice, makes it very difficult for a buyer to trade. The decision to deny concessional trading terms was that of QLPPBA and it was in fact binding on all members. It constituted a collective boycott on the granting of credit to offending purchasers. It is not clear what sanctions, if any, were imposed upon members who failed to abide by decisions of QLPPBA. It should be noted that during the subsistence of Schedule G a major meat processor, namely, Andersons, failed financially. It also should be recognised, as noted above, that the participants in Schedule G were in the main the Pastoral Houses.
9.13 It was submitted on behalf of the Pastoral Houses that the operation of rules 5 and 6 of Schedule G was in substance discontinued after June 1981. Whilst QLPPBA has operated a credit bureau, collecting information on purchases and payments of meat processors and butchers, it was said that, members of QLPPBA have since June 1981 regarded themselves as free to decide unilaterally whether or not to sell to defaulting buyers at auctions either for cash or on concessional trading terms.
9.14 It was submitted by the Meat Processors that Schedule G, including Rules 5 and 6, have in fact continued to operate in Queensland as between members of QLPPBA notwithstanding that the Commission's authorization of June 1981 excluded the mandatory credit control procedures of rules 5 and 6. It was argued that members of QLPPBA have, since June 1981, as well as before that time, made decisions to require bonds and
securities from part:cd:ar buyers and have on occasions made arrangements as to how particular buyers are to be treated by all members. The ordinary modus operandi of QLPPBA was said to be that members inform each other as to their intentions in relation to how a particular buyer is to be traded and reach a common view on that question. QLPPBA has operated in relation to these matters, so it was submitted, in all respects substantially the same after June 1981 as it did before then. There is correspondence and other documentation in existence to support the conclusion that the decision, since June 1981, as to how a particular buyer was to be traded, was a matter for each individual member of QLPPBA to decide for himself; but the Meat Processors submitted that this material was merely window dressing to mask the reality that Schedule G had continued in operation.
9.15 It is not necessary that we reach a conclusion on this question. The Tribunal prefers to express no concluded view on it except to say that on the material before us we are not persuaded that the operation and application of Rules 5 and 6, which are the critical rules of Schedule G, have in fact been discontinued by the Pastoral Houses each of which is a member of QLPPBA.
10. The Relevant Law
10.1 The applications to the Commission were made under s. 88 of the Act for authorization of a proposed contract, arrangement or understanding that would be, or might be, an
exclusionary provision or would have the purpose, or would have or might have the effect, of substantially lessening competition within the meaning of section 45. The relevant tests for authorization are contained in sub-s. 90(6) and 90(8) of the Act.
10.2 Sub-section 90(6) requires that the Tribunal be satisfied in all the circumstances that the provision of the proposed contract, arrangement or understanding would result, or be likely to result, in a benefit to the public and that that benefit would outweigh the detriment to the public constituted by any lessening of competition that would result, or be likely to result.
-
10.3 Whilst sub-s. 90(8) exhibits some variation in language,'it is and has been the Tribunal's view that the practical application of this language gives rise to a test that is essentially the same as that required by sub-s. 90(6), necessitating the establishment of likely benefit to the public, and a weighing against that benefit of any likely detriment to the public from lessening of competition: - Re Media Council of Australia (No. 2) (1987) ATPR 40-774 at p 48,419
10.4 The principles governing the application of this authorization test have been extensively discussed in previous determinations of the Tribunal: Re Queensland Co-operative Milling Association Ltd. and Defiance Holdings
-Ltd. (1976) ATPR 40-012; Re G. and M. Stephens Cartage
Contractors Pty. Ltd. (1977) ATPR 40-042, In Re Tooth and Co.
Ltd; In Re Tooheys Ltd. (1979) ATPR 40-113.
| 10.5 | we are content to state the guiding principles in |
summary form:
First, it is for the parties seeking authorization to satisfy the Tribunal that benefit to the public is likely and that there will be sufficient public benefit to outweigh any likely anti-competitive detriment;
Second, since the likely benefits and detriments to be considered are those that would result from the proposed conduct, the Tribunal is required to consider the likely shape oi she future both with and without the conduct in question; and
Third, that task will generally entail an understanding of the functioning of relevant markets with and without the conduct for which authorization is sought.
10.6 Various arguments were put to the Tribunal, some going to its jurisdiction and others to matters of discretion, based upon the proper construction of s. 88 of the Act. The relevant parts of s. 88 provide:
"88(1) Subject to this Part, the Commission may, upon application by or on behalf of a corporation, grant an authorization to the corporation -
(3) to make a contract or arrangement, or
arrive at an understanding, where a
provision of the proposed contract, arrangement or understanding would be, or might be, an exclusionary provision or would have the purpose, or would have or might have the effect, of substantially lessening competition within the meaning of section 45; or
| (b) | to give effect to a provision of a contract, arrangement or understanding where the provision is, or may be, an exclusionary provision or has the purpose, or has or may have the effect, of substantially lessening competition within the meaning of section 45, |
and while such an authorization remains in force -
| (c) | in the case of an authorization to make a contract or arrangement or to arrive at an understanding - sub-section 45(2) does not prevent the corporation from making the contract or arrangement or arriving at the understanding in accordance with the authorization and giving effect in accordance with the authorization to any provision of the contract or arrangement so made or of the understanding so arrived at; | |||
| (d) | in the case of an authorization -to give effect to a provision of a contract - | |||
| ||||
| (e) | in the case of an authorization to give effect to a provision of an arrangement or understanding - sub-section 45(2) does not prevent the corporation from giving effect to the provision in accordance with the authorization. |
Subject to sub-sections ( 3 ) and (41,
sub-section (1) does not permit the granting of an
authorization in relation to -
(2)
| (a) | the making of a contract or arrangement, or the arriving at an understanding, that would contain a provision having the purpose, or having or being likely to have the effect, of fixinq, controllinq or maintaining, or providing for the fixing, controlling or maintaining of, the price |
for, or a discount, allowance, rebate or credit in relation to, goods supplied or acquired or to be supplied or acquired by the proposed parties to the proposed contract, arrangement or understanding, or by any of them, or by any bodies corporate that are related to any of them, in competition with each other, to or from other persons who are neither proposed parties to the proposed contract, arrangement or understanding nor bodies corporate related to such proposed parties;
| 0 | r |
| (b) | the giving effect to such a provision of a contract, arrangement or understanding. |
( 2 A ) The reference in pragraph (2)(a) to the supply or acquisition of goods by persons in competition with each other includes a reference to the supply or acquisition of goods by persons who, but for a provision of any contract, arrangement or understanding or of any proposed contract, arrangement or understanding, would be, or would be likely to be, in competition with each other in relation to the supply or acquisition of the goods.
(12) The Commission does not have power to grant
an authorization to a corporation to make a contract or arrangement, to arrive at an understanding or to require the giving of, or to give, a covenant if the contract or arrangement has been made, the understanding has been arrived at or the covenant has been given before the Commission makes a determination in respect of the application."
10.7 The Meat Processors argued that the Tribunal did not
have jurisdiction to hear the application for review. It was said that the subject matter of the review is the determination of the Commission which in essence authorized the.Pastora1 Houses to make the arrangements embodied in the proposed Constitution and ~ccreditation Rules (except clause
6 of the Accreditation Rules). Those documents contained
allaegedly exclusionary provisions which would or might have the purpose or the effect of substantially lessening
competition within tte rzaning of s. 45 of the Act. ~t was submitted that the proposed arrangements are in substance the same as those which have been in force for many years in Queensland and that those arrangements necessarily involve giving effect to the Schedule G restrictions. It was argued that one must look at the substance, not the form, of the application for authorization to the Commission end of review to the Tribunal, and that, when looked at this way, the substance of the previous and present conduct of the Pastoral Houses in Queensland is the same as the substance of the conduct the subject of application for authorization and review. That conduct in Queensland was already the result, so it was submitted, of an arrangement or understanding between the Pastoral Houses. It was then argued that sub-s. 88(12) of the Act operated to deprive the Tribunal of power to grant 'the requisite authorization because the relevant contract, arrangement or understanding had been made or arrived at before the Commission made its determination and before the Tribunal would make its determination of the review.
10.8 In the alternative, it was argued on behrlf of the Meat Processors that, if the Tribunal concluded that the relevant contract or arrangement had been made, or the understanding arrived at, before the Tribunal made its determination s.88(12) may operate to prohibit the authroisation. Such a conclusion it is argued would mean that the Tribunal would not be able to treat the application for review as one for authorization to the giving effect to
exclusionary provisions, or those provisions which may have the effect of substantially lessening competition, because the sub-s. 88(12) prohibition extends to the giving effect to such provisions in addition to the making of the relevant contract, arrangement or understanding.
10.9 It was argued on behalf of the Meat Processors, again in the alternative, that the Tribunal has no power to authorize the giving effect to such provisions on the ground that the subject matter of the application for authorization to the Commission, and hence of this application for review by the Tribunal, was the making of the relevant contract or arrangement or the arriving at the relevant understanding, not the giving effect to the relevant provisions. Hence, for the Tribunal to purport to authorize the giving effect to those provisions would be beyond the Tribunal's power.
10.10 An argument was put on behalf of the Meat Processors that the Tribunal was prohbiited pursuant to s.88(2) from granting the authorization sought, whether in relation to the making of a contract or arrangement or the arriving at an understanding or the giving effect thereto. Section 88(2) was argued to apply because the relevant provision of the contract, arrangement or understanding was one which had the purpose, or would be likely to have the effect, of fixing, controlling, maintaining or providing for the fixing, controlling or maintaining of an allowance or credit in relation to goods supplied or acquired, or to be supplied or acquired, by the proposed parties to the proposed contract,
arrangement or understanding or the giving effect to such a provision of a contract, arrangement or understm3ing within the meaning of sub-s. 8 8 ( 2 ) which in terms forbids the grant of authorization in those circumstances.
10.11 The conclusions of law that follow are those of the President: see s. 42 of the Act which entrusts to the President decisions on questions of law arising on a review. In so far as some conclusions are stated which are not solely on questions of law they are the conclusions of all three members of the Tribunal
10.12 The power of the Commission, and hence that of the Tribunal, to grant authorizations which is conferred by s. 88 is with respedt to two separate matters: first, the power to grant authorization to the making of a contract, arrangement or the arriving at an understanding where a provision thereof would or might be an exclusionary provision or would have the purpose or would have or might have the effect of substantially lessening competition within the meaning of s.
45; and, second, the power to grant authorization to the
giving effect to such a provision. This is plain as a matter of the language and syntax of the various sub-sections of s.
88: see, for example, sub-s. (1) in all five of its
paragraphs and sub-s. ( 2 ) . Also, it is obvious that, if the Commission ar,d the Tribunal are to have effective powers over the range of contracts, arrangements and understandings which contain exclusionary provisions or which would have the purpose o i effect of substantially lessening competition, the
right of corporations to seek authorization and the power of the Commission and the Tribunal to grant it would rationally not be confined to the mere making of contracts or arrangements or arriving at understandings, but extend to giving effect to those provisions whether before or after the contracts, arrangements or understandings have been made or arrived at.
10.13 Sub-section 88(1) is cast in language which empowers the Commission (and therefore the Tribunal on review of a decision of the Commission) to grant authorizations to corporations to make contracts or arrangements or arrive at understandings or to give effect to relevant provisions upon application by or on behalf of corporations. It is not expressed in terms which define the ambit of applications of corporations for authorization. This point is of some importance because it supports the conclusion that, even if a corporation has applied to the Co.mission for the grant of authorization to make a contract or arrangement or arrive at an understanding and has not included within the frame of the application a request for authorization to give effect to a provision of a contract, arrangement or understanding, there is no bar to the Commission's grant of an authorization either to make the contract, arrangement or arrive at the understanding or to give effect to the provision or both, as the case may be, if the circumstances of the case warrant this in the opinion of the Commission. Indeed, the contrary conclusion would impede the proper working of the Act and act against the interests of the commercial community and the
public generally. Plainly it is the intent of the legislature, as discerned from Division 1 of Part VII of the ~ c t , to deal with the substance of commercial conduct that might otherwise contravene the Act.
10.14 The language of other relevant provisions of the Act, including s. 89, which deals with procedures for applications for authorization and s. 90, which relates to the Commission's determination of applications for authorization, also supports this conclusion. Hence, even if in the present case the application to the Commission and later by way of review to the Tribunal sought authorization for the Pastoral Houses to make the relevant contract or arrangement or arrive at the relevant understanding and did not include in terms an application to give effect to the relevant provision, the Commissiozi (hence the Tribunal) would nevertheless be authorized by the Act to grant authorization either to the making of the relevant contract, arrangement or arriving at the relevant understanding or giving effect to the relevent provision or both, as the Commission or Tribunal deems appropriate in all the circumstances.
10.15 The applications for authorization which were lodged with the Commission by the Pastoral Houses (nos. A90450 and A90451) have been perused by the Tribunal. Those applications seek in terms authorization for making the relevant contract or arrangement or arriving at the relevant understanding or for giving effect thereto. That this was the Commission's perception of the applications is plain from
paragraph 11.2 of iLs ietermination, (1987) ATPR 50-059 at
57,200, which reads:
| "11.2 | In respect of application numbers A90450 and A90451 the Commission therefore grants authorization to the Association's proposed Constitution and Accreditation Rules (except for cl. 6 of the Accreditation Rules) and to the giving effect of exclusionary provisions contained therein." |
There is no substance in the argument of the Meat Processors on this point.
10.16 In turning to the construction and effect of sub-s. 88(12) of the Act, the first point to notice is that the language of the provision is confined to paragraph (a) not paragraph (b) of sub-s. 88(1), though with an additional provision'relating to covenants upon which nothing turns for present purposes. There is no warrant for reading into sub-s. 88(12) some implied restraint upon the Commission's power with respect to the subject matter of para. 88(l)(b). Further, there is sound reason why the legislature has confined the operation of sub-s. 88(12) to the subject matter of para. 88(l)(a). The legislature was concerned thpt, if the Commission's power to grant authorization could be exercised with respect to the making of an agreement or
I
| I | arrangement or the arriving at an understanding so as to have |
| I I | |
| retroactive effect, it would render nugatory the consequences of previous or existing breaches of provisions of Part IV of the Act which may have occurred after the making of the | |
| I | |
| 1 | relevant agreements or arrangements or the arriving at the |
relevant understanding. Sub-section (12) does not therefore prevent authorization being given to a corporation's future conduct which takes place pursuant to a contract or arrangement or understanding the making of which may itself be outside the jurisdiction of the Commission to authorize.
10.17 The Tribunal noted above that it was not necessary to reach a conclusion as to whether since June 1981 members of QLPPBA have in fact decided for themselves how individual buyers should be traded, or whether joint decision-making equivalent to that which had previously taken place under Schedule G has been continued. Whatever the answer to that question, the Tribunal rejects the submission of the Meat Processors that the relevant contract lor arrangement or understanding or conduct pursuant thereto is the same as that which may' currently be in force in Queensland pursuant to arrangements analogous to those defined in Rules 5 and 6 of Schedule G. We accept for this purpose that there may be close correspondence between the conduct presently in force in Queensland and the proposed conduct that would be likely to ensue if authorization were granted in the present case. Although the Pastoral Houses are both the applicants for authorization in the present case and the members of QLPPBA, there are differences between the proposed Constitution and Accreditation Rules and the comparable documents presently in force under the QLPPBA, including provisions within the QSAA proposals for appeal and arbitration.
10.18 Also, the proposed system would involve not only the pastoral Houses, but as many independent stock and station agents in Queensland as applied for membership and were accepted as members. It is fundamental to the proposed system of QSAA that private agents be brouqht into the scheme with the Pastoral Houses to ensure a different working of the system under the auspices of the proposed Constitution and Accreditation Rules. Thus the subject matter of the application for authorization is not an existing contract, arrangement or understanding which applies in Queensland or the giving effect thereto, but the prospective arrangement and conduct, notwithstanding the existence of many similarities in substance between the conduct said to have taken place in the recent past and the conduct for which
| authorizati~r- | Is sought. |
10.19 There remains the submission of the Meat Processors with respect to the construction of sub-s. 88(2), which was quoted above. Sub-section 88(2) must be read in relation to sub-s. 45A(l) of the Act which declares in essence that price fixing agreements are illegal per se. That sub-section provides:
"45A (1) Without limiting the generality of section 45, a provision of a contract, arrangement or understanding, or of a proposed contract, arrangement or understanding, shall be deemed for the purposes of that section to have the purpose, or to have or be likely to have the effect, of substantially lessening competition if the provision has the purpose, or has or is likely to have the effect, as the case may be, of fixing, controlling or maintaining, or providing for the fixing, controlling, or maintaining of, the price fo;, or a discount, allowance, rebate or credit in
"relation to, goods or services supplied or acquired or to be supplied or acquired by the parties to the contract, arrangement or understanding or the proposed parties to the proposed contract, arrangement or understanding, or by any of them, or by any bodies corporate that are related to any of them, in competition with each other ."
10.20 Whether sub-s. 88(2), in referring to an allowance or credit, encompasses credit in the sense of a period of time within which payment may be made by a purchaser or is used in the sense of a deduction from the sale price of goods is a question of some importance. In view of the conclusion which the Tribunal has reached in this matter, namely that authorization should be refused, it is not necessary for this question to be considered further in this matter. It would have been necessary to determine this question had the Tribunal reached the point where it would have otherwise been disposed to grant authorization.
11. Methods of Marketing Cattle in Queensland
| 11.1 | The methods of marketing cattle in Queensland are by: |
| (a) | physical auction sales conducted by agents; |
(b) "paddock sales" (or "private sales") i .e. sales not at auction, with or without the intervention of an agent. Where paddock sales are made without an agent we refer to them as "direct sales".
| (c) | a new system of electronic auction by description |
known as CALM;
(d an electronic auction by video known as video sales which is presently limited to specialist herds or specimens and which we will not further consider.
11.2 Auction sales versus paddock sales. Physical auction sales and paddock sales account for most of the sales of livestock in Queensland. Agents are necessarily involved at auction sales. paddock sales account for 40-45% of all sales of livestock for slaughter in Queensland and 70% of sales in the northern region of Queensland. The proportion of slaughter cattle sold at auction in recent years is between 52% and 58%. In turn, sales of livestock for slaughter account for 60-70% of all cattle sold through saleyards in Queensland.
11.3 The CALM system is in its infancy, having been in operation for less than two years. In its first year of operation (1987-88) it handled only 111,000 head for the whole of Australia in 169 sales, and 25,500 for Queensland. (The figure for sheep and lambs for Australia was 517,000). This may be compared with the number of cattle sold by physical auction in Queensland which is in the vicinity of 2,000,000 head.
11.4 In our opinion there has probably been a decline in auction sales as a vehicle for purchase of cattle for slaughter over recent years. There has certainly been a rationalization of saleyards. It is difficult to determine
in any accurate quanti2stive manner the extent of the decline in auction sales over the years. Such a decline seems to be a likely trend for the future having regard to the overall downward trend in turnover, to aggressive moves by meat processors to increase direct purchasing, and to the introduction of CALM. There is a distinct preference in Northern Queensland for direct sales.
11.5 It is difficult to define any direct correlation between saleyard turnover performance and the cattle population of a local district. It appears that vendors may move cattle substantial distances to go to their preferred saleyards. In Dalby, for example, 60% of the cattle which go through its yards come from outside the region. There is considerable movement of store cattle and breeders both around Queensland and beyond. However, the movement of fat cattle is mainly from west to east, most abbatoirs being located on or near the coast. The cattle yards at auction process a large number of cattle and transactions in a very short time.
11.6 At present, sale of livestock at auction involves mostly live weight selling where the cattle are weighed at auction and a percentage yield on each beast is calculated. Before live weight selling was introduced cattle were sold per head and buyers would bid for a beast according to its estimated weight and quality.
11.7 Sale over the hook is the kind of direct sale most favoured by meat processors and producers. The price of the beast is calculated after it has been slaughtered and passed down the production line to the scales at the abattoir where its value is assessed either at a flat rate or according to weight and grade. In the latter case different prices are paid according to the quality of the carcass.
11.8 In a direct sale the producer is responsible for the freight costs involved in delivering the livestock to the abattoir for slaughter. The producer also bears the risk of any bruising, weight loss or other loss of condition which may occur during transport. A defect in the public auction system is the bruising and loss of weight which occurs both - during transport from producersr properties to the auction saleyard; whilst the cattle are in pens at the saleyards themselves; whilst they are awaiting transport to the premises of purchasers; and during transit to those premises.
18.15 The obvious answer from the evidence is that if an agent does business with a buyer whom he is aware has a doubtful credit record, he does so at his own risk. Some limited credit risk is a normal part of running any business. In addition, there is this special characteristic of this industry, that it is part of the stock agent's function to
take the del credere risk. For this, the Pastoral Houses are
adequately rewarded.
19. Likely Operation of the Proposed System of Accreditation
19.1 Experience of the operation of Schedule G in Queensland before 1981 and experience thereafter (whether pursuant to Schedule G or not) leads us to conclude that the likely result of the operation of the proposed new system for which authorization is sought is that buyers will be virtually compelled to keep within concessional trading terms under threat of being "put on cash". This threat means that a buyer is unable to take delivery of his cattle until payment is made. Moreover, a member of QSAA is in practice likely to be bound to trade on cash a buyer whose accreditation has been withdrawn, notwithstanding his apparent freedom of choice under the terms of the latest version of proposed Rule 6. A member of QSAA who trades a non-accredited person on credit will be deprived of access to QSAA's guarantees or other securities. The proposed system is designed to encourage members to adhere to the concessional trading arrangements. It is therefore likely that a non-accredited person will not be traded by members of QSAA except for cash.
19.2 The evidence before us about present experiences in New South Wales and Victoria also points strongly to the conclusion that any recommendations by QSAA and its Council
and other bodies would almost invariably be adhered to by the
Pastoral Houses and independent agents.
19.3 It is likely that in practice the Accreditation Committee would act for the purpose of ensuring that members of QSAA adopted the same approach to a livestock buyer who is not accredited. The reason is plain enough, namely, that for a system of the kind proposed to achieve success, there must be total or almost total compliance with such system. Without that degree of compliance, agents considering whether or not to comply would be worried that another agent would trade a particular buyer, thereby obtaining a competitive advantage over agents who complied with the QSAA recommendation. Most agents would want to be in the position of being assured that nobody else will deal with the particulat buyer before they make their own decisions. In New South Wales and Victoria, members of the relevant industry bodies of agents presently operating are reminded from time to time that they should comply with recommendations of the Accreditation Committee and efforts are made to ensure compliance. It is plain that to work the proposed system must have at least a high level of oersuasive authority amounting to effective compulsion of members of QSAA .
19.4 Although one of the arguments in favour of authorization is said to be that it would increase the flow of information to members of QSAA about the credit of buyers including processors, past experience in New South Wales and
Victoria does not support this proposition. The main item of communication to members is a recommendation as to whether or not to trade a buyer as accredited. Credit details are generally not given to members. We doubt if this position would change in practice if authorization were granted in this case.
19.5 Indeed, the Livestock Agents Bureau was in operation in Queensland before the issue of granting authorization to the QLPBBA came before the Commission. It was then possible for agents, be they private or the Pastoral Houses, to hear quite quickly if the Bureau thought a particular buyer was a bad risk and agents could then make their own decisions about whether they took the bid. That process also conveyed minimal information as to the credit of particular buyers.
19.6 By way of comparison, it is useful to refer to the system of credit control presently operating in New South Wales under the auspices of SSAA. Under that system random checks are made of the payment patterr~s of buyers selected.
| ~ l s o , particular checks are conducted when the random investigation reveals matters of particular concern. | About |
15 random checks take place each month, and about 25-30 checks of targeted processors. The random checks are conducted because the Accreditation Committee of SSAA does not trust "deemed" accreditations, being accreditations of buyers who had been accredited under previous systems of credit control. Random selections are made only of processors whose accreditations have not yet been scrutinised
by the Committee. RL-t the Accreditation Committee of SSAA has never used or even considered using the kind of external credit information that may be available from a credit bureau. Information is sought from financial statements and no private credit agencies are used. In our view, the evidence indicates that the credit intelligence which is in the possession of the Accreditation Committee of SSAA is such that very little worthwhile information is collected, let alone disseminated to agents who may enquire about the credit rating of a particular buyer or prospective buyer.
19.7 When it is remembered that the amount owing to agents
upon purchases by processors, especially large processors, can reach extremely large figures within a period of two weeks of trading, we strongly doubt if the proposed system would in fact result in an effective credit checking of the processors concerned. To be effective, credit checks would have to be very frequently conducted, and information would have to be sought from varied sources having real knowledge of the affairs of the processor concerned, not merely from financial statements such as published accounts. This would necessarily require that the credit information system regularly obtained up to date information about the financial standing and ability of the particular processor, in particular about its liquidity. We strongly doubt if the system for which authorization is presently sought would be able to work in this way. Indeed, it would be likely to work much the same as it does in New South Wales at present under SSAA, whizh on the evidence before us appears to be neither
an effective credit checking system nor an effective credit
reference system.
19.8 The experience in the various eastern States suggests plainly to us that if authorization were granted individual agents would not receive useful credit information of the kind required to enable them to make sensible judgements about how to deal with buyers of livestock. All they are likely to receive is some form of stipulation from the Accreditation Committee or other body of the QSAA to the effect that particular identified buyers are to be treated as cash buyers or that consideration should be given by members to so treating them. The scheme would provide few, if any, of the benefits of a credit information system. In the Tribunalrs view, the proposed system would really be in the nature of 'a compulsory credit restriction system.
19.9 In the case of a possible bad risk, it is likely that this information would in fact only be received after the damage had already been done. An example of the failure of the previous systems of credit control adopted in the eastern States to deal sufficiently promptly with the risk of failure when that risk is in fact a real one is provided by the failure of Andersons in the 1960's. Andersons was a meat processor which engaged in the slaughtering and exporting of beef on a large scale. It suffered severe financial difficulty in 1967. Schedule G was operating at that time, but it did not prevent losses to the agents when Andersons went into receivership in 1967. It collapsed because it
continued to buy whilst credit was available. It is likely that credit would not in fact have been stopped through the availability of more credit information. There were strong rumours before Andersons collapsed about its financial stability, but agents continued to sell cattle to Andersons at auction in large numbers. Andersons was paying over the perceived market price for cattle and the Pastoral Houses supported the company in its purchases by allowing it continued credit
19.10 It is also plain that "the bush telegraph" generally spreads the word very quickly if a meat processor is in default or has a liquidity problem. Most agents would not knowingly allow another agent to sell cattle to a meat processor rhc is in default. There is little doubt that market intelligence between agents is quite relihble and they hear quickly enough about a purchaser whose financial standing is in doubt. If one of the Pastoral Houses or other agents put a purchaser, whether a processor or not, on cash terms, the word would spread through the industry quickly. To use the words of Mr. Roberts of Elders: "The industry has the best grapevine of any industry". Probably this intelligence spreads within a district rather than over a whole State.
| 20. | - | Analpis of Effects |
20.1 We have found that the proposed system of bonding and accreditation is largely directed to securing quicker payment
by processors for cattle purchased for slaughter at auction. It is thus appropriately described as a (temporal) credit restriction system. We have also found that it is likely that it would be in practice a compulsory system, one in which all, or almost all, members would accept recommendations from QSAA as binding them to comply with such recommendations. These are the two key features of the proposed system. We here examine the implications of these features for the generation of benefit and detriment to the public.
2 0 . 2 We have also found that the system is likely to
generate little useful information or make any significant contribution to the containment of credit risk. Nevertheless we shall examine more closely what might be the implications for benefit and detriment to the public were the system to enjoy some limited success in this regard.
2 0 . 3 Upon this closer analysis we find the effects of the proposed system not to be appropriately described as benefits to the public; rather they constitute anti-competitive detriment, as the following demonstrates:
2 0 . 4 A collective system of credit restriction is, in
essence, a concealed price rise. The pastoral Housesf working capital position would be enhanced, that of meat processors diminished. The Pastoral Houses' receipts, unlike those of the private agents, are not required to be segregated in trust accounts. Thus a shortening of credit
terms would improve the Pastoral Housesr cash flow. While there is little competition as to rates between the Pastoral Houses, their rates are subject to price control, i.e. they are held to a maximum of 5%. Thus, the restriction on credit could be expected to have a similar impact upon profitability to a price rise.
20.5 The independence of agents who join QSSA might well be undermined. Certainly we predict this happening in the collective enforcement of uniform credit terms. We think, however, that the effect upon the private agent's capacity for independent decision-making and competitive pressure upon the Pastoral Houses might be more generally inhibited. As we have seen, it is the private agents that presently offer competition as to rates. It is desirable, too, that in the future the private agents not be shackled in their capacity for independent assessment and response to the dynamic forces operating about their industry.
20.6 It was submitted that there is public benefit in the creation of an industry-wide trade association to secure the more effective representation of the interests of livestock agents in Queensland. Perhaps so. But there is no connection between the establishment of this elaborate bonding and accreditation system and the establishment of a useful trade association. Moreover, if there be any merit in the creation of a specialised credit bureau to monitor credit information relating to purchases of cattle, such a bureau would be better operated by independent professional people,
in possession of a~propriate technical expertise and the
capacity to guarantee confidentiality.
20.7 It was submitted by counsel for the Meat Processors
that in essential respects the new system would operate to reinstate the old, so far as the Pastoral Houses are concerned. One of the reasons, indeed, given by the Pastoral Houses for proposing the new system was, as expressed in the affidavit of one of the exeuctives, that there is "uncertainty as to the legality of the existing bonding system". Granted that the new system has some significant differences from the old, namely, in its coverage of the independent agents, its wider information network, its appeal system and its nominal "voluntary" character; it is still the case that it shackles the Pastoral Houses1 own independent capacity for competition, whatever that be - both now and in the future. One example of how that might operate is the inhibitions placed upon each Pastoral Housesr capacity to develop an independent strategy in response to forces making for change. Another would be the removal of some of the incentives to efficiency in the conduct of their widespread netowrk. To give one pertinent example, the evidence establishes that it is common for the Pastoral Houses to be slow in despatching invoices to purchasers. Elders in particular has a reputation in the industry for the slow delivery of invoices. The average time taken by the Pastoral Houses to despatch invoices to purchasers appears to be about
7 or 8 days after sale, but delays of up to 14 days are not
uncommon This particular system would tend to encourage the
making of commercially unjustifiable demands upon buyers and would at the same time insulate agents from normal consequences of any inefficiency in their systems in relation to the rendering of invoices and requiring of payment for goods sold at auction.
20.8 More generally, we have written above of the opportunities and temptations for collusion associated with the existence of the credit bureau of QLPPBA. The authorization of this system would enhance such opportunities and temptations.
20.9 It was submitted to the Tribunal by counsel for the Pastoral Houses that there is a
-
| w p ~ b i i ~ | benefit in maintaining a strong adversary system to direct dealing in the auction system so that producers and in particular small to medium sized producers have effective choices as to the means by which they deal with meat processors. The physical auction system is the most robust competitor presently available to direct selling, as well as constituting the dominant market indicator. For the auction system to remain viable and vigorous, there must obviously be confidence in the system". |
20.10 In a broadly competitive market setting, the strengthening of the physical auction system vis a vis direct selling, and other marketing modes, might well be thought to benefit the public. Producers and processors, alike, would
| freely choose between alternative marketing modes. | However |
that is not the case here. We have found that the Pastoral Houses, when acting jointly, do possess significant market
power; and that this would be enhanced by many independent agents1 uniform adherence, in practice, to the recommendations of the Accreditation Committee and Executive. Further, the Accreditation Rules would be imposed by collective means upon reluctant meat processors unable or unwilling to avoid substantial use of the physical auction system. There is no sense in which it might be said that the accreditation system would foster effective competition.
20.11 Meat processors are strong buyers. But to strengthen the position of the Pastoral Houses by authorization of the accreditation system is little more than to permit them to exercise their market power to change uniform and restricted credit terms, and to shift the costs of risk-bearing to the processors.
20.12 We have concluded that the system is unlikely to diminish the incidence of del credere risk through improved information. Rather, the system would shift the cost of that risk to meat processors as a group, compelling most of them to furnish securities and guarantees. Calculations were placed before us of the implications for working capital costs of the processors. We accept that there would be significant costs. In our opinion they are unnecesary, in that the risks are not great and there are alternative techniques of risk management available, such as the exercise of care and prudence on the part of stock agents. In our view they are inappropriately located, in that they would be borne by financially sound and unsound processors alike, and
serve no function in stimulating the exercise of due care and prudence. They could deter the entry of new meat processors to the industry.
20.13 It was argued that the meat processor is better able to bear the risks of default than is the producer or small agent. But the producer delegates to the agent the functions of credit-management and risk-bearing. That is what the del credere function means. This is the justification, in part, for the agent's commission. It is the agent who is in the position to seek out the relevant information regarding credit-worthiness, on behalf of the producer, and to manage the credit function with due care. Economic efficiency will be served if it is the agent that bears the credit risk as well as the rewards, for he will then be appropriately motivated'in his task.
20.14 The Pastoral Houses would not have a majority on the Accreditation Committee but they would always be represented on it. To the extent that the Accreditation Committee would receive hard financial information on individual meat processors, the Pastoral Houses would have privileg-d access to it. It is not proposed that this information be disseminated to members in general: it is "confidential" information. This means that the members of the Accreditation Committee would be given an advantage vis-a-vis the remaining membership. It could also mean that they secure inappropriate financial information regarding competitors. For, as we have seen, agents and processors may
sometimes compete in the purchase of cattle; processors assume some of the functions of agents when making direct purchases; and Elders operates as both agent and processor. Nor is the Tribunal satisfied that the confidentiality arrangements would preclude AMH from obtaining access to information about the financial position of meat processors who are its competitors.
20.15 The likely result of the proposed system, if authorized, is that it would provide a centralised and compulsory machinery to ensure that an obligation of prompt payment is in fact imposed on meat processors and other purchasers which will be strictly enforced. The enforcement is, however, likely to be discrimi~atory in that processors probably would be required to provide security for ad hoc reasons having little, if anything, to do -with their creditworthiness. Our conclusion is supported by experience in New South Wales and Victoria of the systems presently there in force.
20.16 It would not be surprising if, for example, AMH were not required to provide securities, with QSAA content to accept a letter of comfort from Elders. In the Tribunal's view, such a result would act as a severe anti-competitive detriment to other processors.
20.17 There is some evidence from the Pastoral Houses that, if authorization is not granted, some meat processors may attempt to extend their times for payment. It was argued
that the proposed system offers a useful control over the meat processors' proclivities. However, an alternative control is available, namely to offer a discount for prompt payment. Also, the Pastoral Houses1 fears may simply mean that in practice there will be competition by processors for purchasing cattle from agents who tend to be more indulgent in relation to the provision of credit. On the other hand, it is clear that the proposed accreditation system would enable the security arrangements to be weapons to further the control of time taken by processors for payment. In our view this should simply be left to market forces.
20.18 The alternative of rivalrous conduct of the Pastoral Houses and other agents in relation to the time for payment afforded to processors purchasing at auction should be permitted; Without the benefit of the autho-riiation and without the proposed system the Pastoral Houses would have to meet competition in the marketplace. If other agents permitted their payment patterns to extend, the Pastoral Houses would have to consider their own position and meet that development in a competitive manner. The processors would be allowed to shop around between agents for the terms that best suited them and agents could bargain with the processors accordingly. We not only see nothing wrong with such conduct, but regard it as a matter of positive public benefit.
20.19 It was submitted by counsel for the Pastoral Houses that conicatition in credit terms is impracticable. But we
have just described one quite practical mode for credit competition. Another lies in the individual agent's making his own assessment of credit-worthiness.
2 0 . 2 0 Mr. Teys, a meat processor, was asked whether he
thought that the proposed system was not "quite a harmless
kind of arrangement"? He replied:
"I do not view it as a harmless arrangement.
Why? --- Because an agent - if we had an accreditation thing put up to us, they could collectively start saying to us, right, we are not going to truck your livestock. You are going to - the - the 12 days could go to seven days. ... Now, I do no - I do not mind someone saying - an agent coming to me and saying, 'I'm sorry, I don't want to take your bid today.' Well, that is fine. I - you know, if an agent said that, that is fine. I can - I can make other arrangements and - and - and there is competition there, but if we have an accreditation, it is taking away the competition that we have with an agent. ... In the respect of Morex that he - the other agents were reluctant to trade him. This is three years or so ago, but a private agent said, I'll trade this fellowr, and he went up there, and the bigger - the market was absolutely the best market. . .. he made this market so good for this private agent, but that private agent took his own chance on his credit arrangements. He has got paid for all of his livestock. There was no - no problem, I do not think. He - he seemed to have got paid, and he still goes there, and he still dominates his market every week.
Yes? --- And - and that is the competition that
... [we've got] - that competition that - that -
that agents have now is going to be diminished
under it ---
Yes? --- because he - that situation - that person would have been put into a situation that the private agent would not have been able to trade him ...
Yes? --- where out of his wit he has made a market for that man ---
yes? --- and that man has enjoyed being
| independent. | " |
21. Conclusion
21.1 we have earlier stated our findings on particular matters under the relevant headings and need not repeat them.
A summary will suffice for present purposes.
21.2 what is asserted in essence by the Pastoral Houses in support of authorization is that the proposed system:
will not be dominated by the Pastoral Houses;
will be of equal benefit to the Pastoral Houses and
independent agents alike;
will give rise to a better system of credit control with bonds and guarantees being provided for the benefit of all members, not just the Pastoral Houses;
will reduce the del credere risk to agents;
will provide information to agents which is not presently available to independent agents, namely, information as to the financial stability of processors
, and other purchasers of livestock;
will offer greater ability to monitor payment patterns
in accordance with concessional trading terms;
will not be inimical to competition or result in
anti-competitive detriment.
21.3 It is hard to imagine an industry which shows less indication of any real or substantial credit risks than the sale of livestock; the history of the industry over many years proves this.
21.4 The Tribunal is not satisfied that the proposed
system of market intelligence would give rise to such improvements or that any real differences would occur in practice in warning agents about purchasers or prospective purchasers who may be credit risks. Any increase in the available credit information would we think be marginal. Past experience in the Eastern States shows that recommendations to members as to the risks' involved in dealing with a particular purchaser or prospective purchaser are of limited practical use.
21.5 Even viewing the proposed system on the basis that the Accreditation Rules include the most recently drawn proposed rules, including Rule 6, it is likely that !t would
| be in practice a compulsory system. | It is unreal to think |
that the system would operate in practice as voluntary. The Tribunal is satisfied that the system would be one in which all, or almost all, members would accept recommendations from
QSAA as binding them to comply with such recommendations. It
is likely that the proposed system would operate in practice, not as a means to reduce credit risk to agents, but to accelerate payment by purchasers.
21.6 we are not satisfied that the proposed accreditation system would give rise to any public benefit. On the contrary, in our view it is highly likely that it would give rise to considerable anti-competitive detriment.
21.7 we consider that the proposed system would constitute an exercise of market power without redeeming public benefit to shorten credit terms, shift the risk-bearing function, impose undue credit costs upon processors, achieve privileged access to financial information and discriminate in the imposition of security requirements.
21.8 The system would give rise to an inefficient allocation of risk-bearing: agents would not be appropriately motivated in their del credere function; and
- some potential newcomers to meat processing could be
inappropriately deterred by bonding requirements.
21.9 Whilst, in the short run at least, the attractiveness of the auction system could be increased for producers, this would not be the result of competition on the merits. The independence of the private agents could be undermined; and the Pastoral Houses encouraged to maintain a co-operative stance, one to another. The system would preclude competition in the terms of credit which, in the Tribunal's view, is just as valuable as any other form of competition.
21.10 The Tribunal refuses to grant the authorization sought and sets aside the decision of the Commission granting the authorization. The authorization granted by the Commission will therefore not come into force.
I certify that this and the preceding one hundred and ten (110) pages are a true copy of the Reasons for Decision herein of the Trade Practices Tribunal.
Associate
Date: 14 April 1989
| Counsel for John Dee (Exports) | Mr. C.A. Sweeney Q.C. with |
| Pty. Limited: | Mr. M. Cashion |
Solicitors for John Dee (Exports) Messrs. Allen Allen & Hemsley
Pty. Limited
Counsel for Elders IXL Limited,
| Dalgety Farmers Limited and | Mr. R. Conti Q.C. with |
| Primac Association Limited: | Mr. N. Cotman |
| Solicitors for Elders IXL Limited, | |
| Dalgety Farmers Limited and | Messrs. Sly ti Russell |
| Primac Association Limited: | |
| Counsel for Trade Practices | |
| Commission: | Mr. 3 . Hilton |
| Solicitors for Trade Practices | |
| Commission: | Australian Government Solicitor |
| Date of Decision: | 14 April 1989 |
APPENDIX A
LIST OF WITNESSES AND OCCUPATIONS
Witnesses giving oral evidence
| David Geoffrey ARMITAGE | Stock and Station Agent, Armidale; Chairman, Accreditation Committee of New South Wale; Stock and Station Agents Association | |||
| Benjamin BALL | Director of Marketing, South Burnett Meatworks Co-operative Association Ltd. | |||
| Andrew William Robert | Corporate Adviser, Ernst & | |||
| BLOMFIELD | Whinney | |||
| Baden John CAMERON | Chief Executive Officer, United Graziers Association o f | |||
| ||||
| John Bruce CAMERON | Manager Accounting, Elders Pastoral Queensland | |||
| Clifford Brian CANMACK |
| |||
| Gilbertson (Qld) Pty. Ltd. | ||||
| Gary William DANIELS | Senior Credit Officer, Elders Pastoral Queensland | |||
| Howard James GARDNER | Chief Executive, CALM Services | |||
| Barry Thearle HART | Director, Hart Holding Group | |||
| Richard James HUGHES | Assistant Manager, Queensland, Dalgety Winchcombe FGC | |||
| Edwrad James INGRAN |
| |||
| Association Ltd. | ||||
| Darryl Gregory KIRKBY | General Manager , Pastoral Division (Livestock Section), Elders IXL Ltd. | |||
| Thomas Esmond KNOX | Livestock Auctioneer, Dalby, Qld. | |||
| Michael James MAGUIRE | Stock and Station Agent, Emerald, Qld. |
| George Stephen PRATT | Managing Director, Lee Pratt Pty. Ltd., Casino, NSW |
| Brian Robert QUINN | Legal Liaison Off~cer, Elders IXL Ltd. |
| Geoffrey Graham ROBERTS | General Manager , Elders Pastoral Queensland |
| Kenneth Maynard SAVAGE | Stock and Station Agent, Rockhampton, Qld. |
| Donald Joseph STEELE | Secretary, Queensland Livestock Property and Produce Brokers Association |
| Clifford Geoffrey TEYS | Livestock Manager , Teys Brothers Beenleigh Pty. Ltd. |
| Roy David TURPIE | Stock and Station Agent, Ballarat; Member , Credit Committee of Victorian Stock and Station Agents Association |
| Philip Laurence WILLIAMS | Reader, Graduate School of Management, University of Melbourne |
| Colin James WdUDHEAD | Senior Branch Inspector, Elders Pastoral Queensland |
| Statements Tendered | |
| Graham William ACTON | Managing Director, Acton Land & Cattle Company |
| Maurice Gregory BINSTEAD | Manager, Binstead & Kirk |
| Jeffrey James DANIELS | Stock and Station Agent |
| Quentin John Barclay ELLIS | Secretary/Director, Harry Ellis Trading Pty. Ltd. |
| John McDonald ENGWICHT | Pastoralist |
| Robert McDonald ENGWICHT | Pastoralist |
| Peter Malcolm HUGHES | Managing Director, Hughes Grazing Co. |
| Terence John L3fiL1,SL'E | Livestock Department Manager, Central Queensland Meat Exports Co. Pty. Ltd. |
| John ONLEY | Partner, Hamilton Park Grazing Company |
| George Edward PETERSON | Pastoralist |
| Betty Olive SHANNON | Pastoralist |
annual general meeting, the upholding of the appeal requiring a three-quarters majority of members to be in 5zvnur of the appeal (clause 12(vi)).
6.7 There was sharp conflict between the parties as to whether QSAA will be dominated by the Pastoral Houses
6.8 The Pastoral Houses pointed to the provisions of the
constitution of QSAA and argued that on all critical matters the majority power is conferred on private agents, not the pastoral Houses. They referred to the fact that private agents are assured of at least the bare majority of members of the Council and that it is the Council which elects directly all members of the Executive Committee except the Chairman of tile Accreditation Committee. Through their voting power at Council level the private agents have the majority vote on election of the Accreditation Committee which elects its own chairman. Also, the Council elects all members of the Accreditation Appeals Committee.
6.9 The Meat Processors emphasised that it is how QSAA
works in practice that is the critical consideration, not merely the formal structures of its Constitution and Committees. The Processors said it was likely that QSAA would be dominated by Pastoral Houses. They pointed to the fact that each financial member has one vote for each place of business with respect to which an annual subscription has been paid. In the case of the Pastoral Houses, each of which has a large number of places of business, they would be
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