Trade Practices Commission v Email Ltd

[1980] FCA 107

Re: TRADE PRACTICES COMMISSION
And: EMAIL LIMITED and ANOTHER (1980) 43 FLR 383
No. G92 of 1978
Trade Practices

COURT

IN THE FEDERAL COURT OF AUSTRALIA

GENERAL DIVISION
Lockhart J.(1)

CATCHWORDS

Trade Practices - Arrangement or understanding in restraint of trade - having effect of substantially lessening competition - whether arrangement or understanding may be inferred from circumstantial evidence only - whether mutual exchange of price lists between competitors constitutes communication necessary to give rise to the meeting of minds essential to an arrangement or understanding - whether necessary to establish reciprocity of obligations for arrangement or understanding - conduct of competitors in exchanging price lists and tendering at same prices explicable by market situation and commercial reasons, and insufficient to establish arrangement or understanding.

Trade Practices Act 1974 (Cth.) ss. 45 (2) (b) (ii); 76; 80.

Trade Practices - Arrangement or understanding in restraint of trade - Circumstantial evidence - Whether arrangement or understanding may be inferred from circumstantial evidence only - Trade Practices Act 1974 (Cth), ss. 45 (2) (b), 76, 80.

HEADNOTE

The Trade Practices Commission commenced proceedings against Email Ltd. ("Email") and Warburton Franki (Sydney) Pty. Ltd. ("Warburton Franki") to recover pecuniary penalties pursuant to s. 76 of the Trade Practices Act 1974 -1977 ("the Act") and for injunctions. Email and Warburton Franki manufactured and supplied electricity meters. Until mid-1978, when Warburton Franki ceased such business, they were the only manufacturers in Australia of these products. From 1968 to 1978 Email's market share fluctuated between sixty and seventy per cent. About ninety-eight per cent of meters were sold to electricity supply authorities. The electricity supply authorities required that there be more than one manufacturer of such meters.

Email and Warburton Franki issued identical price lists, submitted identical tenders, adopted the same price variation clause, sent to each other their respective price lists, forwarded to each other new price lists immediately they changed prices or introduced any new meter or component, and tendered in accordance with their respective price lists.

The Commission contended firstly that there was an arrangement or understanding between the respondents on a number of matters which contravened s. 45 (2) (b) (ii) of the Act and secondly, that the forwarding of price lists from one party to the other was an arrangement which itself contravened s. 45 of the Act.

Held: (1) If an agreement or understanding in restraint of trade is to be inferred from circumstantial evidence, that evidence must lead to the inference that the parties were in agreement as to what was to be done and were not just hoping what might be done or might occur.

Schweppes Ltd. v. Registrar of Restrictive Trading Agreements, (1965) 1 WLR 157; Re Crane Makers' Association's Agreement, (1965) 1 WLR 917; Re British Basic Slag Ltd.'s Agreements, (1963) 1 WLR 727, referred to.

(2) When a credible explanation is given by a respondent, such explanation may negate any inference of an arrangement or understanding.

(3) Each item of circumstantial evidence alleged by the Commission as leading to the inference of a contravention of s. 45 was capable of credible explanation and did not lead to the inference for which the Commission contended.

(4) An arrangement or understanding would be in breach of s. 45, if all other requirements were satisfied, even though only one party to the communication was under an inhibition in respect of his future conduct.

Dictum of Bowen C.J. in Morphett Arms Hotel Pty. Ltd. v. Trade Practices Commission (1980), 30 ALR 88, referred to with approval.

(5) However, in this case, the arrangement concerning price lists did not contravene s. 45, either by giving rise to mutual expectations with each of the respondents accepting inhibitions as to its conduct, or by giving rise to mutual expectations that one of the respondents was accepting such inhibitions, because it was not established that there was any obligation on any party to adhere to the prices set out in its respective price list. Parallel prices, which did occur, were here the result of market forces and not the result of the exchange of price information.

The effect of the exchange of price information in certain circumstances discussed.

United States v. Container Corporation of America (1968), 393 US 333; United States v. F.M.C. Corporation, (1969) Trade Cases 72,901; United States v. United States Gypsum Company, (1978) Trade Cases 62,103 (n. 16), referred to.

HEARING

Sydney, 1979, November 21-23, 27-30; December 4-7; 1980, March 26-28, August 4.

#DATE 4:8:1980

Application pursuant to s. 76 of the Trade Practices Act 1974 for pecuniary penalties and pursuant to s. 80 of the Act for injunctions.

G. G. Masterman Q.C. and J. Campbell, for the applicant.

L. J. Priestly Q.C. and G. Q. Taperell for the first-named respondent.

A. J. Rogers Q.C. and J. Wood, for the second-named respondent.

Cur. adv. vult.

Solicitor for the applicant: B. J. O'Donovan, Commonwealth Crown Solicitor.

Solicitors for the first-named respondent: Clayton Utz & Co.

Solicitors for the second-named respondent: Sly & Russell.

D. LEVIN

ORDER

1. The proceeding be dismissed

2. The Commission pay the costs of both respondents including reserved costs.

Order accordingly.

JUDGE1

Trade Practices Commission ("the Commission") sues Email Limited ("Email") and Warburton Franki (Sydney) Pty. Limited ("Warburton Franki") to recover, on behalf of the Commonwealth, pecuniary penalties pursuant to s. 76 of the Trade Practices Act ("the Act") and for injunctions pursuant to s. 80.

The Commission alleges that Email and Warburton Franki were parties to arrangements or understandings that were in restraint of trade or commerce and that, by giving effect to them, they contravened para. 45 (2) (b) of the Act as it existed before 1 July 1977. The Commission also alleges that the arrangements or understandings had the purpose or had or were likely to have the effect of substantially lessening competition, and that in the result there were contraventions of sub-para. 45 (2) (b) (ii) of the Act.

It is helpful to look briefly at the industry in which the respondents carried on business. Email and Warburton Franki each carried on the business, inter alia, of manufacturing and supplying kilowatt hour meters. From mid 1978 Warburton Franki ceased to carry on that business. Until then they were the only manufacturers in Australia of those products. There was little competition from imported meters.

In the period 1968 to 1978 Email's market share fluctuated between sixty and seventy percent. Email had been in business longer and produced more meters than Warburton Franki. About ninety-eight percent of meters were sold to Electricity Supply Authorities ("the Supply Authorities") and the other two percent to contractors and private users. The Supply Authorities required that there be more than one manufacturer of meters.

Both respondents issued identical price lists; submitted identical tenders; adopted the same price variation clause; sent to each other their respective price lists, which showed the prices as identical; forwarded to each other new price lists immediately they changed prices or introduced any new meter or component; and tendered in accordance with their respective price lists.

The Commission's case was put on two bases. First, the Commission alleged that there was an arrangement or understanding between the respondents that: -
(a) the respondents would forward to each other their respective price lists which they had issued or, alternatively, if Email forwarded its price lists to Warburton Franki, Warburton Franki would forward its price lists to Email;

(b) the prices shown in the price lists would be identical;

(c) the respondents would issue and forward to each other new price lists immediately they changed their respective prices or introduced any new meter or component;

(d) before changing its prices, Email would issue a price list;

(e) upon receipt of such price list, Warburton Franki would issue an identical price list;

(f) the respondents or either of them would tender in accordance with those price lists;

(g) the respondents would charge the same prices;

(h) the respondents would adopt the same price variation clause.

The Commission conceded that there was no direct evidence of the necessary communications to found the requisite arrangement or understanding and that it relied on circumstantial evidence.

For there to be an arrangement or understanding there must be a meeting of the minds of those said to be parties to the arrangement or understanding. In some cases this may be inferred from circumstantial evidence. There must be a consensus as to what is to be done and not just a mere hope as to what might be done or happen. Independently held beliefs are not enough. See Schweppes Limited v. Registrar of Restrictive Trading Agreements 1965 1 W.L.R. 157; Re Association of Crane Makers' Agreement 1965 1 W.L.R. 917; Re British Basic Slag Limited's Agreements 1963 2 A11 E.R. 807.

The Commission relied primarily upon six matters as constituting circumstantial evidence from which it was said that the Court should infer the requisite arrangement or understanding between the parties.

(I) The fact that the respondents acted as set out in (a) to (h) above was said to constitute parallel conduct from which the inference could be drawn of the relevant arrangement or understanding.

Parallel conduct may constitute circumstantial evidence from which an arrangement or understanding may be inferred. It depends on the facts of each case. In the present case, the respondents point to a large number of matters in support of their contention that the inference of an arrangement or understanding cannot be supported. Plainly, when a credible explanation is given by a defendant it may be sufficient to negate the inference of an arrangement or understanding: see T.P.C. v. Nicholas Enterprises Pty. Limited 1979 2 A.T.P.R. 40-126 p. 18,333 especially at p. 18,344.

In the U.S.A. there is powerful authority for the proposition that, while parallel business conduct may provide circumstantial evidence from which an inference as to the existence of an unlawful agreement may be drawn, it is not sufficient by itself to support an allegation of conspiracy under the Sherman Act and it may be the result of independent decisions of competitors or other economic forces. See for example Theatre Enterprises Inc. v. Paramount Film Distributing Corporation (1954) 346 U.S. 537; Esco Corporation v. United States (1965) 340 F.2d 1000; U.S. v. F.M.C. Corporation 1969 Trade Cases 87,405; Bogosian v. Gulf Oil Corporation 1975 Trade Cases 60,284 p. 66,104.

Instances where parallel pricing in respect of homogeneous products has resulted, not from parallel business conduct, but from independent decisions of competitors and intense competition are Pevely Dairy Co. v. U.S. (1949) 178 F.2d 363; U.S. v. Ward Baking Co. (1965) 243 F.Supp. 713; and U.S. v. National Malleable & Steel Castings Co. (1957) Trade Cases 68,890, affirmed on appeal (1958) 358 U.S. 38.

Evidence was adduced by the respondents to explain that their parallel conduct resulted, not from an arrangement or understanding between them, but from commercial considerations unconnected with collusion.

Counsel for Email called as witnesses Mr. Baldwin, the general manager of the metering division of Email; Mr. Lawrence, the secretary of Email, and Mr.Smith the manager of the meter department of Email. Among the duties of Mr. Baldwin is the responsibility of deciding on prices. He was the critical witness for Email.

Counsel for Warburton Franki called Mr. Bradley, the general manager of the manufacturing division of Warburton Franki who was responsible for the relevant decisions as to prices.

The witnesses denied making any arrangement or understanding or communicating with each other as to prices to be charged. Mr. Bradley and Mr. Baldwin explained how new prices were determined.

I formed a firm view that each of those witnesses was truthful and reliable, and I accept them. My view is based on the evidence given by them, their demeanour in the witness box and the inherent probability of the truth of their evidence when viewed in the light of the evidence as a whole.

Some attempt was made to attack the credit of Messrs. Baldwin, Smith and Bradley. As to Mr. Baldwin, counsel for the Commission submitted that his evidence as to the manner in which, and the basis on which, Email sent its price lists to Warburton Franki was less than frank; that he had an incomplete recollection of discussions at certain meetings; and that his evidence as to the sending of price lists to the trade association of British manufacturers of meters was less than frank. There is no substance in any of these contentions. In my opinion Mr. Baldwin was frank in relation to these matters; and the fact that he did have an incomplete recollection of certain discussions is not surprising. He attended many meetings over the years, and it is no ground for criticism of his credibility that his recollection may have been less than perfect. I have taken these, and other, criticisms into account when reaching my finding that he is a witness on whom I can rely.

Mr. Bradley was criticised on the basis that his evidence was less than frank as to the circumstances in which Warburton Franki sent its price lists to Email. There is no substance in the criticism. In my opinion Mr. Bradley was frank in his answers to questions; and I accept him.

Mr. Smith was criticised on one or two minor matters which in my view cast no doubt upon his integrity or reliability.

I turn now to the evidence of the witnesses explaining the conduct of the respondents by reference to commercial considerations, unconnected with collusion.

First, Mr. Baldwin of Email. His evidence on this aspect of the matter may be summarised as follows.

Email believed that it was the price leader and believed that the Supply Authorities held the same view. Email regarded itself as the stronger of the two and as having greater profitability. Email had been in business longer than Warburton Franki and was a larger producer. This tended to influence the Supply Authorities to award a larger share of the market to Email. In the period 1968 to 1978, Email's market share fluctuated between sixty and seventy percent. About ninety-eight percent of meters were sold to the Supply Authorities and the other two percent to contractors and private users. Email regarded itself as having a lower cost structure than Warburton Franki. Email believed that Warburton Franki could not sustain prices above those of Email for any substantial length of time.

Email thought that it was genuinely in competition with Warburton Franki. Mr. Baldwin believed there was a real risk that, if prices were increased by Email while a tender was under consideration, Warburton Franki may not follow Email's new prices. Apart from the question of price, the respondents competed with each other in terms of stability of meters in the field, service, availability of supplies and deliveries. Email did not know in advance whether it would be the successful tenderer as against Warburton Franki, even if prices were equal.

Each respondent could readily find out the prices tendered by the other, and each was well aware of the proportion of tenders awarded to the other.

Email adopted the practice over many years of issuing price lists. It had always followed the practice of circulating price lists to interested parties. If anyone asked for a price list, he received it. Warburton Franki could readily obtain Email's price list even if it was not circulated to it by Email. There was no cause for complaint on Warburton Franki's part if it was not sent a price list.

Mr. Baldwin believed that Email's practice of tendering in accordance with price lists ensured that the Supply Authorities were, and would be seen to be, treated equally. If variable prices were given to authorities (for example, better prices to bigger authorities), there was a likelihood that the less favourably treated authorities would award a lower share, or indeed no share, of subsequent contracts to Email.

Electricity supply contracts were awarded on tender and the tender procedure prescribed by those authorities did not allow for price bargaining.

By sending its price lists to Warburton Franki, Email helped Warburton Franki follow the Email prices if it chose to do so; but there was no obligation that it should do so; and this ensured price stability. By Warburton Franki receiving the Email prices quickly, the price leadership situation could operate quickly. Email was confident that Warburton Franki would follow its prices based on previous experience. The receipt by Email of Warburton Franki's price list was of little significance to Email.

The Supply Authorities required that there be more than one manufacturer of meters. Email believed that, if it drove Warburton Franki out of business, the Supply Authorities would encourage another manufacturer to commence business. Email believe that if there was no level tendering there would inevitably be price cutting which would drive one of the companies out of business. Although the fact that there were only two local manufacturers was one reason why importers did not have a substantial share of the Australian market, it was the dual sourcing policy of the Supply Authorities which largely ensured two local manufacturers and their dominance of the market.

Email could not be entirely sure of the result of a price war; but it believed that it was the stronger of the two manufacturers. Email believed that if it decided to drive out Warburton Franki there may have been problems under the Act.

The officers of Email were well aware of the general effect of the provisions of the Act.

The evidence of Mr. Bradley was to the following effect.

He too believed that Email was the price leader and he believed that the Supply Authorities held the same view. He regarded Email as being the stronger of the two and as having greater profitability. He thought Email's costs were substantially lower than those of Warburton Franki, and that, in fixing prices, the highest prices Warburton Franki could charge were those charged by Email. He believed that, if Warburton Franki charged lower prices than those of Email, it would provoke a price war which Warburton Franki could not survive.

Warburton Franki offered marginal discounts to a few customers as a means of enticing them to deal with Warburton Franki; but it could not afford it to become known that discounts were offered to some customers and not to others. Warburton Franki traded at a loss from 1972 in relation to its metering business and finally went out of that business in 1978 because it was unprofitable.

Warburton Franki believed, and it was the fact, that the Supply Authorities required dual sourcing. Warburton Franki believed there was genuine competition between the two companies. Warburton Franki could not even charge the prices to the full extent of price increases approved by the Prices Justification Tribunal because of the competition from Email.

Warburton Franki monitored Email's prices by means other than the receipt of price lists, because it did not altogether trust Email. Mr. Bradley assumed that Email was under no moral obligation not to endeavour to obtain a competitive advantage over Warburton Franki.

Each respondent called as its witnesses those responsible for the making of the relevant decisions, in particular in relation to price. They each specifically denied the necessary ingredients of the relevant arrangement or understanding; and they deposed to facts which, in my opinion, established a credible explanation as to the parallel conduct. They explained this conduct with reference to rational commercial considerations unconnected with the making of any arrangement or understanding. The Commission called no witnesses to cast any doubt on the genuiness of the beliefs of the witnesses called by the respondents. Much of what the witnesses said in evidence was clearly the fact and does not depend, for its acceptance, on questions of credibility. Other matters require particular consideration.

First the role of the Supply Authorities. They accounted between them for the purchase and use of ninety-eight percent of meters produced by the respondents and they deliberately pursued a policy of dual supply. One illustration provides compelling evidence of the insistence by the Supply Authorities on dual sourcing. The Sydney County Council ("the S.C.C.") called for tenders for plug-in socket meters. It is the largest Supply Authority in New South Wales. It insisted on dual sourcing. Warburton Franki was required to enter into a supply agreement with the S.C.C. although it did not want to do so. Email wanted the whole contract but could not get it even though it did almost all the development work. Warburton Franki was only brought in after the S.C.C. decided to go ahead; and Warburton Franki had to follow the design which was ultimately determined by the S.C.C. It is clear that if Email had tendered too high the S.C.C. would have scrapped the project or Warburton Franki would have obtained a higher proportion of the work.

Second, Email had considerably greater financial strength than Warburton Franki, more efficient operations and was longer and more firmly established in the industry. Its costs of production were lower. Its return on its investment was higher than Warburton Franki's return and the latter operated at a loss consistently, and eventually left the market for this reason. In fact, Warburton Franki slid into a loss position in respect of its metering division in 1972 and 1973. Email had the advantage of flexibility in the use of its plant and materials and its production costs were lower. It had a more efficient and more highly automated plant than Warburton Franki. Email had the advantage of a licence arrangement with a U.S.A. corporation for research purposes. Also Email's meter had some cost advantages by reason of its design and components.

Third, Email was at pains to ensure that price increases occurred during, what was called by Mr. Baldwin, the "lull" period i.e. the period between the submission of a tender and the letting of the contract. It was during that period that Warburton Franki was likely to take advantage of the timing of any price increase by Email to take some business from Email at its expense.

Email called Dr. Norman, a senior lecturer in economics at the University of Melbourne. He is a highly qualified and experienced economist and an impressive witness. He gave evidence based on certain assumptions which I am satisfied were, in all material respects, proved to be the fact. His conclusions were that in this particular market there was a state of pure ologopoly where sellers, marketing from different factories, are obliged to sell at one price, allowing for temporary or transient deviations. The result of pure oligopoly is that prices cannot diverge for more than short periods. The process by which this result is reached is either through price leadership of the dominant firm or barometric type or collusion. The result does not justify an inference as to the process. Barometric price leadership occurs where one firm, not necessarily but usually, the largest, moves ahead to signify its reading of the market place and other firms are obliged to follow. In a state of pure oligopoly, buyers and sellers are well informed of the market situation; the product is homogeneous or undifferentiated namely, there is no substantial difference in the function or use of the product, as perceived by buyers, such as to cause a buyer to pay a higher price for any period for one product rather than another. Also there are no distortions imposed by government that would cause any artificial divergence in the prices involved in the two or more products.

The evidence of Dr. Norman confirmed what the evidence otherwise established namely, that, not only would the Court not be justified in inferring that the parallel conduct was the result of collusion; but it was in fact the result of market forces based on commercial considerations. I have not relied on Dr. Norman's evidence in reaching my conclusions; but I was interested to note that it confirmed them.

(II) The second matter relied on by the Commission as constituting circumstantial evidence, from which it alleged the arrangement or understanding could be inferred, was the joint action by the respondents on four occasions.

First, the Industries Assistance Commission ("the I.A.C.") held an enquiry into the metering industry in Australia. There was a joint industry submission. There is nothing unusual or sinister in a joint industry submission to such a body. Indeed, it frequently happens. Mr. Baldwin was asked in cross examination if he worked closely with either Mr. Bradley or Mr. Peter Warburton of Warburton Franki on the submission. He denied that he did. As I accept Mr. Baldwin's evidence, this disposes of the point.

Second, it was submitted that, because the respondents participated in the development of Australian standards with respect to meters, they had opportunities to discuss prices of their respective meters. Both Mr. Baldwin and Mr. Smith denied that there were any such discussions between Email and Warburton Franki.

Third, it was alleged by the Commission that the respondents put their heads together to develop a mutually satisfactory uniform price variation clause. There is no substance in this contention. Mr. Baldwin, Mr. Bradley and Mr. Smith denied it. No evidence was led by the Commission to the contrary.

The price variation clause was formulated by a sub-committee of the Electricity Supply Association of Australia ("E.S.A.A.") in 1970 and was adopted by its members including the respondents. I am satisfied that there were no relevant discussions between the respondents whether as to its form or the necessity for a uniform approach or otherwise. Obviously at meetings of the sub-committee there were discussions between its members, which included representatives of the respondents as well as representatives of the other members. Those discussions related to the selection of the particular items to comprise the formula for the variation clause and they were conducted openly in meetings of the sub-committee of E.S.A.A. There is no evidence of any relevant discussions having taken place before, at or after meetings of the sub-committee.

There was a later change in the formula which the respondents adopted in June 1974; but this is explicable, not by secret discussions between the two, but by reference to what one would normally expect to follow from changes in the wholesale price index of relevant building materials in October 1973 and changes in the annual leave entitlement for the Metal Trades in April 1974.

Fourth, the Commission relied on tenders called by the S.C.C. It was alleged by the Commission that costs and prices were supplied by Email to Warburton Franki, especially in respect of what is called the Universal Kit and Bridging Device, thus informing Warburton Franki of the prices which Email proposed to include in its tender. I have touched on this matter already; but a little more needs to be said about it.

The S.C.C. required dual sourcing and would not allow Email to obtain even a major share in respect of this contract. The development work was carried out by Email at the request of the S.C.C.; but it desired that there be one manufacturer to undertake the tooling and that it supply the other with parts, in order to save costs. The S.C.C. wished Warburton Franki itself to tender and to purchase component parts from Email.

Warburton Franki needed prices for the parts and kits which it had to buy from Email and there were communications between them referable to this matter. Email issued a price list some four weeks before the tender closed; but I have no doubt that this was merely in furtherance of its price leadership and was no way intended as some form of signal to Warburton Franki. Once Warburton Franki received details of the prices for kits and parts it was to buy from Email, it was able to tender quickly, which it did. There is no significance in the coincidence of the tenders. Indeed Warburton Franki feared that Email might gain an advantage over it if it varied the price of the parts supplied by it.

Warburton Franki did not participate in discussions with the S.C.C. until the latter had made a firm decision to proceed with the design evolved by it and Email and in which there had been no involvement by Warburton Franki. Then the matter was discussed with Email, but only in the presence of the S.C.C. representatives. The respondents did not discuss their respective price lists for the meters prior to issue and they did not discuss their proposed tender prices. Nor did Warburton Franki discuss with Email the proposed meter when it was being developed. Mr. Bradley said that Warburton Franki did not depend on the Email price list in order to tender. There is no substance in this attack by the Commission.

(III) It was said by the Commission that, in relation to the State Electricity Commission of Queensland tender of May 1975, there was a reduction by Warburton Franki of its "Queensland content" (i.e. so much of the tender as was represented by matters such as plant and labour in Queensland) and that this was due to collusion between the parties. The fact is that there was a reduction by Warburton Franki of its "Queensland content"; but this is explained, not by collusion, but because Warburton Franki was aware of Email's "total content" from the evidence given at the public hearings of the I.A.C. The I.A.C. was publically critical of the principle of plant fragmentation as it added substantially to the cost of production of meters. Warburton Franki welcomed this as an opportunity to justify a reduction of its own "Queensland content", as it did not welcome the requirement by the State Electricity Commission of Queensland of a "Queensland content", and it was able to predict with some confidence that Email would not claim a higher "Queensland content" in its tender than the twenty-five percent of which it had given evidence to the I.A.C. at its public hearings. There is no substance in this attack.

(IV) It was said by the Commission that the pricing structure adopted by Warburton Franki, and its correspondence to the pricing structure of Email, reflected an arrangement or understanding between them. In particular, the Commission pointed to the fact that the prices of both respondents were fixed on the basis of free into store without geographical allowances.

Evidence was given by both Mr. Bradley and Mr. Baldwin, which I accept, that the charging of prices free into store was justified because it was thought by each company to be more equitable, for remotely placed customers, to spread freight costs across the industry. In my opinion the pricing structure is explained by the history and nature of the industry itself and the fact that Warburton Franki had no real option but to follow Email.

(V) The Commission pointed to the fact that there were two meetings in 1974 of committees of the Australian Electrical and Electronics Manufacturers Association ("A.E.E.M.A."). following the introduction of the Act, when it was said to be likely that communications took place between the respondents, resulting in the alleged arrangement or understanding. At the first meeting a decision was taken to seek advice on the issue of price lists and, at the second meeting, the advice was received.

Mr. Baldwin and Mr. Bradley denied that there were any discussions at either of the meetings with respect to the prices which the respondents should charge.

The Commission relied on other meetings as possible occasions for collusion between the respondents namely, meetings of the metering committee of E.S.A.A. and meetings of a committee of the Standards Association of Australia ("S.A.A."). Again the relevant witnesses (Messrs. Baldwin, Bradley and Smith) denied that there were discussions as to the prices to be charged by the respondents.

It is inherently unlikely that the respondents, if they had intended to arrive at an arrangement or understanding, would have chosen those particular meetings as the occasion to do so. There were persons present at the meetings in addition to the representatives of the respondents. None of them were called by the Commission to rebut the denials of Mr. Baldwin, Mr. Bradley and Mr. Smith; and no explanation was given as to why they were not called.

(VI) The Commission relied on the fact that, as Mr. Peter Warburton of Warburton Franki was not called to give evidence in respect of his presence at meetings of the relevant committee of the S.A.A. and as to his role in obtaining prices from Email for components required for the socket meter and the Universal Kit and Bridging Device, his absence from the witness box supported the making of a collusive arrangement or understanding.

In my opinion the appropriate officer of Warburton Franki to give evidence as to the making of decisions relevant to prices, and generally as to policy, was Mr. Bradley. Warburton Franki chose to confine its evidence on relevant matters to Mr. Bradley. In my opinion the absence of Mr. Warburton from the witness box is an entirely neutral matter. So much for the first basis on which the Commission put its case.

The second basis on which the Commission's case was put was that there was an arrangement between the respondents involving the forwarding of price lists from the one to the other and that this contravened s. 45 of the Act. The Commission relied on this basis of its case as its principal attack on the respondents.

The Commission's case does not depend on there having been discussions between the respondents. Rather it proceeds on the assumption that there were no such discussions. For the purposes of its case the Commission accepts that the electricity metering industry was one in which the respondents, as the two major competitors, supplied a product which was substantially similar, interchangeable and homogeneous. Nor does the Commission challenge that price leadership may exist without collusion. Nor does it dispute that ultimately there would, in any event, have been substantial identity between the prices charged by the respondents, save for some immaterial exceptions. The Commission accepts that Email, in the course of time, without collusion, had become the price leader.

The essence of the contention is that communication by Email direct to Warburton Franki and, less significantly, vice versa, of the price which it proposed to charge, was in breach of the Act. In short, the Commission asserts that the issue and forwarding of price lists by each respondent to the other, in all the circumstances, constituted the communication necessary to give rise to the meeting of minds essential to an arrangement or understanding.

The Commission put this basis of its case on two alternative grounds: first, on the ground that, as a result of the communications which were said to give rise to mutual expectations, each of the respondents accepted inhibitions as to its conduct: on Email's part to issue price lists, to tender in accordance with those lists and to forward a new list before changing its prices; and on Warburton Franki's part, to forward its price lists to Email and to tender in accordance therewith. Each party would continue this conduct until either brought the arrangement to an end. The alternative ground was that, as a result of the communications which were said to give rise to mutual expectations, only one of the respondents accepted inhibitions as to its conduct namely, Email was obliged to forward its price list to Warburton Franki and to tender in accordance therewith, or Warburton Franki was obliged to forward its price list to Email and to tender in accordance therewith.

An arrangement or understanding normally involves communication between the parties arousing expectations in each that the other will act in a particular way: Re British Basic Slag Limited's Agreements 1962 3 All E.R. 247 per Cross J. at p. 255; per Diplock L.J. on appeal 1963 2 All E.R. 807 at p. 819.

The question arises whether it is sufficient for an arrangement or understanding under s. 45 that only one party is under an inhibition in respect of his future conduct. Counsel for the Commission submitted that the authorities which refer to the necessity for obligations to be accepted by each of the parties to the arrangement, and not merely one of them, are either distinguishable or wrongly decided.

Counsel for the Commission sought to distinguish the British Basic Slag Case on the ground that the necessity for obligations to be accepted by each party qua the other flowed directly from the terms of s. 6 (1) of the Restrictive Trade Practices Act 1956 (U.K.) which in terms refers to: -
". . . an agreement under which restrictions are accepted by two or more parties . . ."

In Re Tyre Manufacturers' Agreement 1966 2 All E.R. 849 it was emphasised that the relevant arrangement had to involve positive and clearly recognised reciprocal obligations.

In T.P.C. v. Nicholas Enterprises Pty. Limited (supra) Fisher J. held that it was necessary for each party to the arrangement to be committed to a course of action in order to constitute the relevant arrangement or understanding.

In Morphett Arms Hotel Pty. Limited v. T. P. C. (1980) A.T.P.R. 40-157, a decision of the Full Court of this Court, Bowen C.J., with whose reasons for judgment, Brennan and Deane JJ. agreed, said with reference to Fisher J.'s finding in the Nicholas Enterprises Case,: -
"As at present advised, it seems to me that one could have an understanding between two or more persons restricted to the conduct which one of them will pursue without any element of mutual obligation, in so far as the other party or parties to the understanding are concerned. It is not, however, necessary that I reach or express any final view on this question since Mr. Justice Fisher's view that such an element of mutual commitment was required plainly imposed a heavier burden on the respondent Commission, and thereby favoured the appellant."

The Commission relies strongly on this passage.

Counsel for the Commission relied also on a passage from the judgment of Gibbs and Mason JJ. in Lutovi's Case 22 A.L.R. 519 at p. 525 in support of the proposition that commitment is not necessary. However, in Lutovi's Case their Honours were considering the absence of a legal obligation on the part of the parties to the arrangement. Nothing their Honours said supports the Commission's submission. The particular passage from the joint judgment says: -
"But in our view it is not essential that the parties are committed to it or are bound to support it. An arrangement may be informal as well as unenforceable and the parties may be free to withdraw from it or to act in-consistently with it, notwithstanding their adoption of it."

Counsel for the respondents relied in particular upon the British Basic Slag Case, both at first instance and on appeal; K. Porter & Co. Pty. Limited v. Federal Commissioner of Taxation 19 A.L.R. 510; Federal Commissioner of Taxation v. Students World (Australia) Pty. Limited 18 A.L.R. 599; Federal Commissioner of Taxation v. Cooper Brookes (Wollongong) Pty. Limited 25 A.L.R. 511 at p. 532; the judgment of Mahoney J. at first instance in Porters' Case 1974 1 N.S.W.L.R. 536 at pp. 542 to 544; also Schweppes Limited v. Registrar of Restrictive Trading Agreements 1965 1 W.L.R. 157 and Re Association of Crane Makers' Agreement 1965 1 W.L.R. 917.

It is important to bear in mind that there is a fundamental distinction between a hope or prediction of future behaviour on the one hand and the expectation of certain behaviour on the other; that is behaviour which, as a result of communication between the parties, the party restricted is at least morally bound to adopt.

For my part I find it difficult to envisage circumstances where there would be an understanding involving a commitment by one party as to the way he should behave without some commitment by the other party. Unless there is reciprocity of commitment I do not readily see why the parties would come to an arrangement or understanding. Particularly is this so when it is remembered that the alleged parties to the arrangement or understanding in the present case are two large companies. Presumably, if they were to reach an understanding or arrangement each would have some commercial objective beneficial to itself in mind. I see no point in an arrangement bare of reciprocity.

Although there is much force in the submissions on behalf of the respondents that it is difficult to imagine a practical example in trade or commerce of a party to an arrangement being subjected to a burden qua the other and that other being under no obligation himself, I incline to the view that there is no necessity for an element of mutual commitment between the parties to an arrangement or understanding such that each accepts an obligation qua the other; although in practice such cases would be rare.

Turning to the facts. Counsel for the Commission relied on the following matters as laying the foundation for this branch of the Commission's argument: -
(a) Email, at all relevant times, tendered to the Supply Authorities at the prices in its current price list;

(b) on or before making any price change, including submitting tenders at new prices, Email would issue a new price list and send it to Warburton Franki;

(c) in times of mail difficulties, Email would take special steps to ensure that its new price list was delivered to Warburton Franki;

(d) prior to the introduction and sale of any new meter, Email would issue a new price list and send it to Warburton Franki;

(e) the sending of any new prices would communicate to Warburton Franki the price at which Email would be tendering or selling its meters;

(f) Email expected that, on receipt of Email's price list, Warburton Franki would change its prices in identical fashion for new tenders; and the only uncertainty was whether it might not change a tender price already submitted;

(g) upon receipt of Email's price list, Warburton Franki would: -

(i) alter its own prices to those of Email;

(ii) issue a new price list; and

(iii) send it to Email;

(h) the communication of prices by exchange of price lists, and, in particular, the sending of price lists by Email to Warburton Franki, had the effect of more quickly and certainly bringing about uniformity of price, particularly at a time of proposed price changes and on the introduction of new products.

Turning first to the submission by counsel for the Commission that there was an arrangement between the respondents for mutual communication of prices to be charged constituted by exchange of price lists; and that, by the sending of price lists from one to the other, there was a communication between competitors of the prices intended to be charged by them.

The Commission's case is that the arrangement was made prior to October 1974, subsisted at that date and was continued by the forwarding of price lists between the parties between that date and August 1977.

It is said that the arrangement resulted from the following conduct: -
(a) Email and Warburton Franki each tendered to public authorities in accordance with their respective price lists, and this practice was well known to each other;

(b) before making any change in the prices which it charged (including the setting of a price for a new single phase meter) Email issued a new price list and forwarded it to Warburton Franki; and

(c) Warburton Franki, on receipt of the Email price list revised the prices of its own single phase meters and sent its own revised price list to Email.

Counsel for the Commission said that the arrangement contained three essential elements: -
1. Email made a representation, by forwarding its new price list to Warburton Franki, of its intention to increase its prices (including its tender prices) to those shown in the price list, with the expectation and intention that such conduct on Email's part would operate as an inducement to Warburton Franki to act in a particular way namely, to change its own prices and to issue and forward its new price list to Email;

2. This representation was communicated to Warburton Franki, by sending the price list in the mail or by special delivery, who knew that Email so expected and intended because the conduct had continued over a period of time in such circumstances that Warburton Franki knew that Email expected and intended Warburton Franki to change its own prices and to send its revised price list to Email; and

3. This representation of Email's conduct operated as an inducement, whether among other inducements or not to Warburton Franki to change its own prices and to forward its own revised price list to Email.

Counsel for the Commission submitted that the sending of the price lists was the prime target of the Commission's attack. The Commission conceded that, without that element, there would be no contravention; so that, if Email, instead of sending its price lists to Warburton Franki, had merely sent them to companies and to persons who were not its competitors, and left it to Warburton Franki to learn of the price changes without communication with Email, there would be no arrangement or understanding, and no contravention.

Counsel for Email submitted that by sending its price list to Warburton Franki and all other customers and potential customers, Email represented that, from the effective date, it would sell at the stated prices. That is what a price list is usually designed to convey. He submitted that the price list did not expressly, or by necessary implication, represent that tenders would be at price list prices. Rather, this was something which, based on long experience, the recipient of a price list would probably anticipate. Email's practice in this regard was unilaterally adopted for a good commercial reason. He submitted that there was insufficient basis in the evidence for construing the price list as a representation that Email would, in the sense of commitment or obligation, tender at the prices specified in the price lists. If Email had tendered at different prices, neither Warburton Franki nor the Supply Authorities would have been entitled to say "but you cannot do that as you indicated to us that you would tender at list prices".

Counsel for Email submitted that Email expected that Warburton Franki would increase its prices to Email's prices; not because of any commitment or undertaking on Email's part, but because, as a practical matter, Warburton Franki had little option but to do so. He submitted that the error in the submission of counsel for the Commission was the assertion that there was some relevant conduct by Email which induced Warburton Franki to increase its prices. He submitted that this was an artifical way of describing the situation, because what in fact dictated Warburton Franki's price level was Email's setting of its prices at levels which were competitive and which Warburton Franki could not afford to undercut. Warburton Franki was simply responding for commercial reasons to a crucial change in the market place. It was submitted that in a competitive environment a trader must be free to decide, for his own commercial reasons, not only whether to charge more or less than his competitor, but whether to charge the same price. If Warburton Franki charged less or more than Email, it would not have survived.

Counsel for Email submitted that Warburton Franki was induced for commercial reasons to increase its prices and that, as to Email inducing Warburton Franki to send its price list to Email, the receipt of this by Email was a matter of little significance to Email and to Warburton Franki.

In my opinion these submissions are sound and I accept them.

I have said already that I accept the evidence of the witnesses called by the respondents. It is plain from Mr. Baldwin's evidence that Email had no sense of obligation to Warburton Franki to tender in accordance with its price lists or to send a price list to Warburton Franki. It is equally plain that Email did not believe that Warburton Franki would be in breach of an obligation on its (Warburton Franki's) part, if it did not send price lists to Email or tender in accordance with its own price lists. Mr. Bradley gave evidence to much the same effect. All of this is confirmatory of the commercial situation that prevailed in this industry stemming essentially from the situation of price leadership.

In my opinion the conduct of the parties does not support a conclusion that there was an arrangement or understanding in the sense contended for by the Commission. I am satisfied that the practice of Email in issuing its price lists and sending them to Warburton Franki was done unilaterally for sound commercial reasons. It was not suggested in evidence that Email would cease issuing its price lists and forwarding them to Warburton Franki if the latter did not follow Email's prices or send its price lists to Email. Indeed, the receipt of price lists by Warburton Franki was a matter of little moment to Email, and Warburton Franki could readily have found out those prices from sources other than Email.

Nor, in my opinion, is there any substance in the contention that Warburton Franki adopted any arrangement by increasing its own prices, issuing price lists and forwarding them to Email. There were good commercial reasons why Warburton Franki did this and I have already referred to them.

Much was made by the Commission of the fact that, in times of mail difficulties, Email took special steps to get its new price lists to Warburton Franki. There is no evidence that, at the time of mail strikes or any other difficulties with communications, Email sent price lists by special delivery only to Warburton Franki.

As to the Commission's alternative submission that only one of the respondents accepted inhibitions as to its conduct namely, either Email, who was bound to forward its price lists to Warburton Franki and to tender in accordance with them; or Warburton Franki, who was obliged to forward its price lists to Email and to tender in accordance with them, it was submitted by counsel for the Commission that the area in which the Court is required to draw inferences is very limited and that the denials by the senior executives of the respondents are of no consequence.

It was submitted that the only way in which the price list can be characterised is as a representation by Email to Warburton Franki that Email intended to change its prices, including tender prices, to those in the new price list until further notice; and that Warburton Franki could act on that basis. It was submitted that the only inference which could reasonably be drawn is that the act of delivery of the price list obliged Email to charge those prices, at all events while the circumstances remained substantially similar, and that to do otherwise would be a "ruse" justified only by a change of circumstances, namely Warburton Franki not following Email's lead. It was submitted that the only inference which need be drawn, and which could be drawn, was that, by sending and receiving price lists, both respondents knew and understood that Email was representing that, until further notice, it would tender at the prices indicated in the new price list and that Warburton Franki could safely govern its own conduct by reference to that representation.

In my opinion the submissions fail. It is fundamental to the submissions that there was a moral obligation upon Email to adhere to the prices notified in its price lists. I have already dealt with this matter earlier and, in my opinion, there was no moral or other obligation upon Email to adhere to those prices. I have dealt also with the true characterisation of the act of delivery of the price lists from Email to Warburton Franki; and I do not regard that as a representation by Email to Warburton Franki as contended for by the Commission.

Counsel for the Commission referred to the alleged arrangement or understanding as providing "an umbrella of comfort" for the parties. The "umbrella" must have lost its spokes, sprung some leaks and given cold comfort to Warburton Franki as the alleged arrangement or understanding required Warburton Franki to charge prices that were unprofitable and ultimately caused it to cease carrying on the relevant business.

It was not the exchange of price information that led to parallel prices. This was produced by market forces, competition and the necessity for Warburton Franki to follow Email.

I accept the evidence of the witnesses that they did not regard the price lists as communications of the prices which the respondents would charge or were expected to charge. I accept their evidence that they did not regard themselves as being under any obligation to send or exchange price lists, to disclose tender prices, or to tender to their list prices; or as having any right to receive those price lists.

The absence of any certain expectation as to the way each respondent would react to the other's price list, or price change shown in a list, is established by the evidence including the following: -
(a) the evidence of Mr. Baldwin that he was not confident that Warburton Franki would raise its tender prices if Email issued a new list with higher prices, at times when tenders were open;

(b) the evidence of Mr. Bradley that there was some distrust by Warburton Franki of Email;

(c) the experience in March 1974 when Warburton Franki issued a new price list before Email issued one, and which Email did not follow either by issuing its own price list or by tendering to the relevant authority at Warburton Franki's price.

In the result I am satisfied that there was no relevant arrangement or understanding between the respondents on any approach contended for by the Commission.

Section 45 of the Act, before it was amended from 1 July 1977, required a plaintiff to establish that the arrangement was "in restraint of trade". Counsel for the Commission submitted that the arrangement relied on by the Commission involved negative stipulations on the part of both parties namely, that by one having forwarded a new price list to the other, it would not alter its prices (including its tender prices) from those shown on the price list without further notice to the other.

Section 45 applied to all arrangements in restraint of trade, including those which the common law held to be reasonable: Hollywood Premier Sales Pty. Limited v. Faberge Australia Pty. Ltd. 1976 2 N.S.W.L.R. 144 and Quadramin Pty. Limited v. Sevastapol Investments Pty. Limited 50 A.L.J.R. 475.

An arrangement may involve a negative obligation in restraint of trade notwithstanding that it is expressed in positive language: Stenhouse Australia v. Phillips 1974 A.C. 391.

The onus lies on a defendant to prove the exculpatory matters referred to in the old sub-ss. 45 (3) and (4): Trade Practices Commission v. Guest's Garage Pty. Limited 1976 1 A.T.P.R. 40 - 016.

In my opinion the negative stipulations relied on by the Commission have not been made out. I am satisfied that there were no such stipulations for the reasons given earlier.

Counsel for the respondents submitted that if the Court finds that there was an arrangement, but that it was merely to provide or exchange price information, then it is not a negative restriction in restraint of trade and commerce. Reliance was placed upon the decision of the House of Lords in Esso Petroleum Co. Limited v. Harper's Garage (Stourport) Pty. Ltd. 1968 A.C. 269 in support of the propositions that there is no restraint of trade or commerce unless an existing freedom is cut down, that it only applies where trade is sterilized and does not apply where it advances, promotes or regulates trade, and that the doctrine only applies to restraints which are not normal and accepted commercial transactions.

The Commission concedes that the concept of restraint of trade involves the fettering of an existing freedom.

Counsel for the Commission contended that an arrangement or understanding that a party will not change its prices without notice to the other is a cutting down of the freedom that he has namely, to make a price change without notice to his competitors. It was submitted that it matters not that the party whose conduct is fettered can give notice of his intention to change prices at any time. Counsel relied on Tyre Manufacturers' Agreement (supra) in support of this proposition.

In my opinion these submissions of counsel for the Commission are sound. If there is an arrangement or understanding between parties that one of them will not change his prices without notice to the other, it is in truth a restriction by that party of its liberty in the future to carry on his business, in that he is restricting his freedom to make price changes without notice to his competitors. I do not think it matters that he can give such notice whenever he wishes. However, as I have reached the conclusion that there is no relevant arrangement or understanding, nothing turns on his point.

It was submitted by counsel for the respondents that if the Court holds that there was an arrangement in restraint of trade, the restraint, if any, would be so marginal as to be insignificant, that is to have no real effect on competition, and thus fall within the exulpatory provisions of sub-s. 45 (3); or that any effect on competition was not significant for two reasons: first, because the commitment relied on by the Commission can be so easily set aside that it cannot in truth restrain trade and second, because the evidence establishes that there was a situation in which Warburton Franki had no option but to follow Email's prices so that, even if the alleged restraint was established, there would be no significant effect on competition, thus enabling the respondents to call in aid the exculpatory provisions of sub-s. 45 (4).

As I have found that there was no relevant arrangement or understanding it is not necessary to decide these questions. However, there may be cases where the exchange of current price information is likely to have significant or adverse effects on competition: see U.S. v. Container Corporation of America (1968) 393 3 U.S. 333 especially per Mr. Justice Douglass at p.337; U.S. v. F. M. C. Corporation 1969 Trade Cases 72,901 at p. 87,435 second column and U.S. v. U.S. Gypsum Company 1978 footnote 16 Trade Cases 62,103 at p. 74,860.

It was not disputed by the respondents that the Commission has the necessary status to commence proceedings for pecuniary penalties in respect of contraventions, if any, of the old s. 45 prior to 1 July 1977.

I should not leave the case without saying that the length of hearing was reduced considerably by counsel and solicitors for all parties acceding to the Court's request that agreement be reached, before the commencement of the hearing, as the matters not truly in dispute. The Court's procedures relating to the admission of facts and documents were resorted to and made to work efficiently, with consequent substantial saving of time and costs.

In the result, the Commission fails. I order that the proceeding be dismissed. I order the Commission to pay the costs of both respondents including reserved costs.