Taprobane Tours (WA) Pty Ltd v Singapore Airlines Limited

[1992] HCATrans 145

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IN THE HIGH COURT OF AUSTRALIA

Office of the Registry

Perth No Pl of 1992

B e t w e e n -

TAPROBANE TOURS (WA) PTY

LIMITED

Applicant

and

SINGAPORE AIRLINES LIMITED

Respondent

Application for special leave

to appeal

DEANE J
DAWSON J

GAUDRON J

Taprobane 1 8/5/92

TRANSCRIPT OF PROCEEDINGS

FROM PERTH BY VIDEO LINK TO CANBERRA

ON FRIDAY, 8 MAY 1992, AT 12.23 PM

Copyright in the High Court of Australia

MR D.R. WILLIAMS, QC:  May it please the Court, I appear

with my learned friend, MR C.G. COLVIN, for the

applicants. (instructed by Clayton Utz)

MR J.D. HEYDON, QC:  May it please the Court, I appear with

my learned friend, MR C.P. COMANS, for the

respondent. (instructed by Turner Freeman)

DEANE J: Yes, Mr Williams.

MR WILLIAMS:	Your Honours, this case raises the question of the relationship between market definition and
market power in determining whether a corporation
had a substantial degree of power in a market, that
is market power in a market for the purposes of
section 46 of the Trade Practices Act.

The case deals, in our submission, confusion

over the use of the term "sub-market". It is
confusion that, in our submission, should be

dispelled. If the confusion is eliminated what it

reveals, in our submission, is that the trial

judge, Justice Lee, was correct and the Full Court

was, with respect, wrong.

Paraphrasing section 46, a corporation that

has a substantial degree of market power in a

market contravenes the Act if it takes advantage of

the market power for the purpose of deterring a

person from engaging in competitive conduct in that

market or in any other market. I highlight those

words because it is difficult to conceive of a

situation where a person is engaging in competitive

conduct when it is not in a market.

Now, there may be two markets or there may be

one market. Where the markets are the same, and a

predatory pricing case may be an example of that,

supply and demand by acquirers and suppliers are

closely related. But where there are two markets

the two markets may involve quite different sources
of supply and demand.

In a case where the applicant is an acquirer in market one, he will normally be a supplier in

market two, and that is where the common factor

arises that the section, section 46, hinges upon.

To take a relevant example, in the Australian

market for supplying steel products, the acquirers

of Y-bar, for the purpose of manufacturing star

pickets, are a small part of the demand side, that

is market one. In the star picket market the

suppliers may be few or they may be many; the

acquirers may be few or the may be many.	In this
case the point is that the supply of Y-bar

Taprobane 2 8/5/92

constitutes a small part of the steel product

market. What is not relevant is whether it

constitutes a market in its own right, or it merely

constitutes a segment of the steel products market.

In the market two, in that example, as found

in the Queensland Wire case, the star picket market

was, in itself, a discrete market. If the finding

had been that there was no star picket market but

there was merely a rural fencing market, the

result, in our submission, should have been the

same. It would not matter that the applicant was

engaged in competitive conduct in only a segment of

market two.

Now, before mentioning the Queensland Wire

case, can I just briefly refer to the definition of

market and the explanation of market power. For

the purposes of the Act section 4E requires that it

be taken into account that a market:

includes a market for those goods and
services ..... that are substitutable for, or
otherwise competitive with, the ..... goods and

services -

in relation to which the market term is used, and

looking at the judgments in Queensland Wire without
taking Your Honours to the relevant terms of them,

the concept of market, as applied by the court,

involves closely substitutable goods or services.

Looking at market power, on the other hand,

section 46(3) needs to be taken into account, and

that provides that:

In determining ..... the degree of market power

that a -

corporation has -

in a market -

a court is required to -

have regard to the extent to which the

conduct -

of the corporation -

in the market is constrained by the conduct

of:

(a) competitors, or potential

competitors ..... in that market; or

Taprobane 8/5/92

(b) persons to whom or from whom the body

the -

corporation -

supplies or acquires goods or services.

Now, orthodox principles suggest that market power

can be defined in terms of the ability of a firm to

raise prices above the supply cost without losing

customers, but that was taken somewhat further by

Your Honour Justice Dawson in the Queensland Wire

case, in a passage which appears at page 200 in the

judgment. In the principal paragraph on that page,

there is reference to the ordinary concept, and

then Your Honour said:

But market power has aspects other than

influence upon the market price. It may be

manifested by practices directed at excluding

competition such as exclusive dealing -

et cetera. And then there is a passage cited:

"A firm possesses market power when it can

behave persistently in a manner different from

the behaviour that a competitive market would

enforce on a firm facing otherwise similar

cost and demand conditions."

Now, when one analyses that, and I hasten to add

simplifies it, the orthodox doctrine is that a market is defined by reference to the presence within a field of economic activity of

substitutable products, and market power is defined
by reference to the relative absence of

substitutable products within that field of

economic activity.

In Queensland Wire, mention was made of

sub-markets expressly and mention was made of what might be referred to as subsidiary markets. As it happens, one quote to which I invite attention is

from Your Honour Justice Deane, and the other is
from a judgment of Your Honour Justice Dawson. At

page 196, Your Honour Justice Deane in the fourth

line said:

The economy is not divided into an

identifiable number of discrete markets into

one or other of which all trading activities

can be neatly fitted. One overall market may

overlap other markets and contain more

narrowly defined markets which may, in their

turn, overlap, the one with one or more

others.

Taprobane 4 8/5/92

Your Honour is there, in our submission, using the

concept of market in terms which suggest that each
market is capable of appropriate characterization

for the purposes of the Act as a market. At

page 199, Your Honour Justice Dawson referred to

the notion of substitution and elasticities as not providing a complete solution to the definition of

market, and then referred to a sub-market, quoting

from the Queensland Co-Operative Milling decision:

The distinction between markets and

sub-markets can be merely one of degree.

Sub-markets are the more narrowly defined,

typically registering some discontinuity in

substitution possibilities. Where the

defining feature of a market is the existence
of close substitutes (whether in demand or

supply), the defining feature of a sub-market

is the existence of still closer and more

immediate substitutes.

In our submission, that passage is really referring

to a sub-market in what is referred to by the Full

Court in this case in effect as being the

Australian concept. It is what might be more

appropriately described as a market segment. It is

not necessarily a discrete market in its own right. subsidiary market to which Justice Deane referred in his judgment.

The Full Court referred to this contrast in

its judgment. In the application book, it is at

page 102, at the bottom of the page:

The US Supreme Court in the Brown Shoe

case accepted that within the boundaries of a

broad product market well defined sub-markets

exist which in themselves constitute product

markets for anti-trust purposes. Practical

indications of the boundaries of such a

sub-market would include industry or public

recognition of it as a separate economic

entity, the peculiar characteristics or uses

of the product, unique production facilities,

distinct customers, distinct prices,

sensitivity to price changes and specialised

vendors.

There are other examples cited. On page 104,

His Honour Justice French referred to the

sub-markets in the Australian context and cited the

Queensland Co-operative Milling case. At the

bottom of that page he referred to The Locksmith's

case, saying:

Taprobane 8/5/92

the Tribunal identified a national market for

the original supply of locks and locking

systems and regional markets for their

retailing, installation and servicing.

Sub-markets "of particular interest" were the

original supply of restricted security systems

and the servicing of such systems on a

regional or local basis. In that case the

distinctive combination of goods and services

constituting a restricted system, while not

itself defining a product market, was held to

offer advantages which were difficult to

duplicate -

there referring to what might be referred to as a

market segment.

If I might turn to what His Honour Justice Lee

did. His Honour found that the - I will not take

Your Honour to the passage in the judgment - issues

were whether Singapore Airlines had a substantial

degree of market power in the market for the supply

of airline services to wholesalers of package tours

from Australia to the Maldives, or alternatively,

airline services from Australia to the Maldives. So

there is the airline services market and the

provision of services to wholesale package tour

operators. The question then was whether - if

yes - Singapore took advantage of its market power.

He found, at page 23, the third line, that:

Singapore Airlines was the principal supplier

of airline services between Australia and the

Maldives.

He found at page 26, that, at the bottom of the

page:

Singapore Airlines had no real competitor

in its delivery of airline services to the

Maldives -

and, at line 9 on the same page:

In that market there are no substitutable services for the services provided by

Singapore Airlines.

DEANE J: But, Mr Williams, do we not eventually come down

to this, that the critical thing in the case is the

definition of relevant market? Justice Lee took

the view that the supply of services to this one

island was the relevant market. The Full Court

took the view that that was too narrow a definition

of the relevant market and the relevant market was

the supply of these services to a number of

destinations?

Taprobane 6 8/5/92

MR WILLIAMS:  The way Your Honour has phrased that question

suggests that Your Honour accepts that this is a

one-market case, but, if I may say so, what

Your Honour suggests is also something of an

oversimplification of both what Justice Lee did and

what the Full Court did.

DEANE J: Yes, I appreciate that and I appreciate the

reasoning, but do we not eventually come down to
this question whether, for the purposes of this

case, the supply of services to the Maldives is

itself a relevant market?

MR WILLIAMS: That is the question that should have been

addressed by the Full Court but, in our submission,

was not.

DEANE J: Well, I think they addressed it by implication,

though, did they not?

DAWSON J:  They said that the relevant substitutes were not

between airlines, but between destinations.

MR WILLIAMS:  They said that in the context of a discussion

about a market for the provision of services to

wholesale tour operations. They did not say it in

the context of the provision of airlines services
generally. If one looks at the concept of a market
of provision of airline services from Australia to
the Maldives, it is, ex hypothesi, impossible to

conceive of a substitutable product. But if one

looks at the concept of a market for the supply of

airlines services to operators of package tours to

the Maldives, one can see then that there might be

seen to be a wider market and that that does not

constitute anything more than a segment of that

market.	You see, that really is the crux of the
case.

If the Full Court had accepted, as Justice Lee

did, that the market in which the power was held

was the market for supplying airline services from

Australia to the Maldives, they would then have

been able to focus upon whether the conduct of

Singapore Airlines in that market impinged on the

competitive conduct of Taprobane and would have

been able to conclude that Taprobane competed in

the more limited market of providing wholesale

island tours and actually competed in only a

segment of that market. On a proper analysis of

the structures of the markets, this is a two-market

case which has been treated as a one-market case.

If I might just briefly refer to the relevant

passages in the two judgments. Justice Lee did

formally identify, at page 25, what he thought at

Ta pro bane 7 8/5/92

that stage of his judgment was the relevant market

and, at line 9, he says it is:

the market for the supply of airline services
to persons engaged in providing wholesale

tours to the Maldives.

What he did, however, was to act on the wider

market. At page 26 he referred to the market in

which Singapore competed, being the airline

services market, in which there were no

substitutable services and it had no real

competitor. I have mentioned those passages.

On page 29 at line 5, he said, in considering

whether advantage had been taken of market power:

It was not seriously contended that if

the relevant market were found to be the

market for the supply of airline services to

the Maldives, Singapore Airlines had not taken

advantage of the substantial degree of power

it possessed in that market.

Interestingly, he also referred, at page 27

line 13, to a segment of that market.	He talked
about -

the delivery of airline services to the

Maldives to Australian tourists -

which is a narrower version, but not as narrow as

"the provision of services to wholesale operators".

Then, at page 34 at about line 8, in

contemplating the purpose of the conduct of

Singapore Airlines, said that had it exercised -

the substantial degree of market power that it

had in the market for the supply of air

services to the Maldives -

He has plainly taken the wider market there and, in

our respectful submission, His Honour was right in

saying that there are no substitutable services.

When one comes to the Full Court, we should

take the judgment of Mr Justice Spender at page 53

first. In agreeing with the judgment of

Justice French, he said:

For the reasons which French J gives, the

relevant market identified by the learned

primary judge, namely the market for the

supply of airline services to persons engaged

in providing wholesale tours to the Maldives

is, in my respectful opinion, too narrow.

Taprobane 8/5/92

That is market two.	We are not talking about
market two.	We are talking about market one.

Justice French, with whom Justice O'Loughlin

also agreed, referred to the judgment of

Justice Lee at page 110. He said:

His Honour identified the market for the

supply of airline services to persons engaged

in providing wholesale tours to the Maldives

as the relevant market in the present case.

At a later point in his judgment he referred

to "the market for air services to the

Maldives" which would embrace a wider

functional range. In context this should be

regarded as a shorthand reference to the

relevant market which he formally identified.

In our submission, that is just not correct;

His Honour deliberately referred to the wider

market.

His Honour's determination of the market was

founded upon the proposition that it was

necessary to take into account "the

possibility of the existence of clearly

defined spheres of commercial activities which

together may form a larger market but

individually may be discrete markets -

That is cited from page 22.

This analysis tended to put markets and

sub-markets on the same footing for the

purposes of section 46.

Now what His Honour there is doing, in our

submission, is confusing the ambiguous notion of
sub-market and treating His Honour as having looked

only at a segment and not a subsidiary market. And

the discussion that then follows is a discussion of

the market in which Taprobane was competing; the

provision of wholesale tours to retailers. They

were not considering the market in which Singapore

supplied services. Some confusion may arise

because Singapore itself was a competitor in the

wholesale market and in fact, the evidence shows,

had a substantial position in that market.

But, although His Honour referred to the

Singapore Airlines evidence on the point, he seems

not to have taken it into account. Page 88 is

discussing the evidence of Singapore Airlines

expert, Professor McKern. He said at line 5:

Professor McKern's report did not address

the market for the supply of passenger airline

Taprobane 9 8/5/92

services from Australia to the Maldives. This

was pleaded in the alternative ..... He accepted

in cross-examination that this was a separate

market and that the existence of competition

in the package island holiday tour market to

the Maldives did not mean that there was
competition in the market for the provision of

air services from Australia to the Maldives.

He accepted that if one were to refer to the

supply of air services from Australia only,

then Singapore Airlines, which carried 80-90%

of passengers, dominated the market and would

have "more than a substantial degree of power"

in the market.

He then said:

The packaged island holiday tour market was

"downstream".

Now, it is this "downstream" market which is the

focus of the Full Court's attention and they say it

is not a market. We can accept that and it does

not, in our submission, affect the proper result,

because if the wholesale tours market is an island

market and not a Maldives market, we are still

engaging in competitive conduct in the island

market. The effect of exercising a substantial

degree of power in the market one, the provision of

airline services from Maldives to Australia,

impacts in a manner prohibited·by section 46 upon

that conduct.

So if Queensland Wire identified that the

exercise of a power by the alleged contravener can

be in a segment of a market and not across the

market, as in the supply of Y-bar buyer as part of

the steel products market, the impact of the

exercise of power may affect the applicant in a

segment of another market and not necessarily
across that whole market.	And that really is the

issue, in our submission, that justifies this case

being granted special leave. They are our

submissions.

DEANE J: Thank you, Mr Williams. Yes, Mr Heydon.

MR HEYDON:  If Your Honour pleases. We submit that the

central part of the Full Court's reasoning is

between pages 109 and about 114, and at page 110 -

DEANE J: Mr Heyden - Mr Williams, can you hear what

Mr Heydon is saying?

MR WILLIAMS:  Yes, but not all that well.

Taprobane 10 8/5/92

DEANE J: Well, he has a very quiet voice, I will ask him to

speak a little more loudly.

MR HEYDON:  If the Court pleases. I just submitted that the

central part of the Full Court's reasoning on the question of market, is at pages 109 to 114 of the application book, and at 110 the Full Court, at the

very top, indicated that its task was simply to see

whether there was any market in which Singapore

Airlines had a substantial degree of power, because

if it did not the threshold into the section would
not have been crossed. In those four or five
pages, the court analyses, first of all,

Mr Justice Lee's identification of the market, at lines 5 to 7 on page 110, and go on to deal with

His Honour's justifications for arriving at that

conclusion and then to either qualify them, point out that they lack evidentiary support at all, or

arrive at a different conclusion on the evidence.

The evidentiary background to those four or

five pages appears in the Full Court's summary of

what might be called the trade evidence, from about

page 79 to page 89. In our submission, what has

been done does not raise any question of law. It

does not reveal any error of legal principle within
the Full Court's reasoning. It may - we say it
does not - reveal some error as to inferences from
the evidence, or findings on the evidence, but that

would not justify the grant of special leave.

There is one other aspect I ought to point to

before turning to one or two of Mr Williams'

submissions more directly, and that is this: the

Full Court dealt only direction with the question of market definition, it did not deal with two

other issues which the respondent below - that is

to say the respondent here also dealt with, namely,

what was the degree of market power and what was

the respondent's purpose.	The Full Court in that
regard made no finding on the first of those two

matters and on the second said, after full argument

and examination, that there did not appear to be

any anti-competitive objective on the respondent's

part. Success, accordingly, for the applicant,

would appear not necessarily to lead to finality.

I just wanted to make that as a background point.

Now, in our submission, there is no

misapprehension and no failure to apprehend the

two-market analysis that might have been available

to be detected on pages 110 to 113, and in those

circumstances there does not, in our submission,

appear to be any relevant error that would justify

the grant of leave.

Ta pro bane 11 8/5/92

MR WILLIAMS:  Excuse me, Your Honours, we cannot hear

anything. I think Mr Heydon might have his hand

over the microphone.

DEANE J:  Did you hear what was said then? He cannot hear

you.

MR HEYDON:  I think I heard what he said in effect: (a)

that he cannot hear me; and (b) because I have my

hand over the microphone. I deny the second

charge, I will try and rectify the problem in

relation to the first.

DEANE J:  How is that now, Mr Williams?

MR WILLIAMS:  That is very good. Thank you, Your Honour.

DEANE J: Well, if you cannot hear what is going on at any

stage, or if you are having difficulty, interrupt.

MR WILLIAMS:	Thank you.
MR HEYDON:	Submissions were put in relation to the

expression "sub-market" and Justice Dawson's

citation from the QCMA decision in Queensland Wire

was referred to and that depends upon the

proposition that a sub-market is, as it were, a

narrower segment of a market in which there may be

some specific competitive feature more readily

observed. As we read Their Honours in the

Full Court, there is no misapprehension of that proposition and Their Honours' approach, in a

nutshell, is simply to reach the conclusion, with

respect to Justice Lee, that his definition of the

market was in truth merely a sub-market and it was

a sub-market in which the position of Taprobane and

Singapore Airlines did not permit any wider

inference as to the existence of market power in

the real market.

So the first submission is that there is no

error in their conceptual approach to the question

of sub-markets, and the second is that if there be

any error at all it is merely a difference of judgment or inference or conclusion as to the

evidence and nothing more than that.

Mr Williams also cited from the Queensland Wire case some passages from Justice Deane's

reasons for judgment that turn on the notion of

there being subsidiary markets. I think that that

can perhaps be left on one side because, as we

heard the submissions, they did not lead to any

specific attack to the reasoning below.

Your Honours, those are our submissions in

opposition to the application.

Ta pro bane 12 8/5/92

DEANE J: Thank you, Mr Heyden. Yes, Mr Williams.

MR WILLIAMS:  Your Honours, there is really only one point I

wish to make and that is to refer to the ultimate

point the Full Court took. This appears at
page 114, following the discussion of what was the

relevant market. It is said that:

The definition of the relevant market was

critical to the outcome of the proceedings

before his Honour and once it is accepted that

the market properly defined ranges at least as

far as other island holiday destinations,
there is no basis for attributing to Singapore

Airlines a substantial degree of power in the

relevant market.

Their Honours are there addressing market two and
not market one and not at any stage in the judgment
of Justice French has the relevant market, being
the provision of airline services to Australia and

the Maldives, been addressed as market one.

DEANE J: Thank you, Mr Williams. While the Court is

conscious of the force of the arguments advanced by

Mr Williams of Queen's Counsel, it appears to all

members of the Court that the conflict between the
conclusion of the learned trial judge and that of

the Full Court ultimately turns upon differences of

factual judgment, assessment, and inference.

Accordingly, the case is not an appropriate case for a grant of special leave to appeal.

MR HEYDON:  I seek costs of the application, if the Court

pleases.

DEANE J:	Mr Williams?
MR WILLIAMS:	I can say nothing, Your Honour.

DEANE J:  Very well. The application is refused with costs.

AT 1.00 PM THE MATTER WAS ADJOURNED SINE DIE

Taprobane 13 8/5/92