BETWEEN THE COMMERCE COMMISSION Plaintiff
[2004] NZHC 1224
•1 March 2004
IN THE HIGH COURT OF NEW ZEALAND
WELLINGTON REGISTRYCIV-1997-485-34
CP354/97BETWEENTHE COMMERCE COMMISSION
Plaintiff
ANDTHE OPHTHALMOLOGICAL SOCIETY OF NEW ZEALAND INCORPORATED
First DefendantANDPHILIP BOULTON
Second DefendantANDKEN TARR
Third DefendantANDBRETT ROGERS
Fourth DefendantANDMARK ELDER
Fifth DefendantANDRICHARD CLEMETT
Sixth Defendant
Hearing:29-30 September, 1-3, 6-10, 13-17, 20-24 October, 15-18 December 2003
Appearances: J O Upton QC and D J Goddard QC and N J Wills and P H Rainsfordfor Plaintiff
B W F Brown QC and G E Phipps for First, Second and Third Defendants
C J Hodson QC and J A Gibson for Fourth Defendant
A J Knowsley and C J Bace for Fifth and Sixth Defendants
Judgment:1 March 2004
RESERVED JUDGMENT OF GENDALL J
[1] In late 1996 there was a substantial waiting list of largely elderly persons in Southland awaiting surgery for cataracts to their eyes. They were persons who could not afford the cost of private surgery and were consigned to the public waiting list. The New Zealand Government provided funding to Southern Health, the Crown Health Enterprise which operated hospital services in Southland, so as to provide substantial funds to provide surgical services to reduce the waiting list for such cataract surgery.
[2] At the heart of this case is the provision of the services by specialist ophthalmologist surgeons to perform such cataract surgery on public, as opposed to private, patients. The case concerns the allegation by the Commerce Commission (“the Commission”) that two or more of the defendants came to an understanding or arrangement, and waged a campaign, to thwart, hinder or prevent the performance of such surgery upon those patients by surgeons, from Australia, whom Southern Health sought to contract.
[3] The Commission alleges that the defendants acted in breach of s27 of the Commerce Act 1986 (“the Act”) by entering into an arrangement or understanding, and gave effect to such, which contained a provision that had the purpose of, or had or was likely to have the effect of, substantially lessening competition in the market, namely the market for supply by ophthalmologists of routine cataract surgery (including pre and post operative care) in Southland. The Commission alleges that the arrangement or understanding was to hinder any entry or intrusion into the Southland market for routine cataract surgery if the resident ophthalmologist did not approve and co-operate with a new entrant.
[4] I heard evidence over a period of 22 days encompassing almost 400 pages of direct evidence through exchange of written briefs and 825 pages of notes of cross and re-examination and 271 pages of submissions delivered over two days. A wealth of evidence was provided on factual and medical matters with extensive expert opinion evidence, not only on questions relating to cataract surgery and what pre and post operative care was required, but also on matters of economic theory and opinion.
[5] In the end the parties were largely agreed as to the law to be applied in a case such as this. The real dispute related to one of fact, which requires a detailed assessment of all the evidence and an application of factual findings to the established law.
THE PARTIES
The Commerce Commission
[6] This is a Commission set up under the Act as an administrative body with extensive powers involving policy functions and certain quasi-legislative powers of exemption. Its primary function is to enforce the statutory code of the Act relating to restrictive trade practices in matters relating to competition, mergers and takeovers. It has power to bring proceedings seeking the imposition of pecuniary penalties if it can satisfy the Court that a person has contravened the provisions of the Act. In the present case it alleges breach of s27 of the Act (set out below) in respect of two or more of the defendants.
Ophthalmological Society of New Zealand Incorporated
[7] This is an incorporated society which has as its membership those registered medical practitioners who are ophthalmological surgeons who have sought membership, together with other medically qualified persons who have a special interest in ophthalmology. Others may be admitted as associate members. Its objects include the making of representations on matters “affecting the visual health of the community and the interests of members” and to “do all things as are … conducive to the attainment” of its objects.
[8] At the relevant time its president was Dr Philip Boulton, the second defendant, and its Vice-President was Dr Ken Tarr, the third defendant. The fourth, fifth and sixth defendants were all members of the society.
Dr Philip Boulton
[9] He is a registered medical practitioner and an ophthalmological surgeon resident in Palmerston North and practising generally in the Manawatu/Wanganui/ Wairarapa areas. In late 1996 and early 1997 he was President of the Ophthalmological Society.
Dr Ken Tarr
[10] At the relevant time he was an ophthalmological surgeon employed by the Canterbury Health Board, as well as in private practice, providing ophthalmological services to patients in that district. He was Vice-President of the Ophthalmological Society.
Dr Brett Rogers
[11] In 1996/97 he was an ophthalmological surgeon practising in Invercargill and in the Southland provincial area. He was engaged in private practice in Invercargill, and was also employed on a 6/10 basis by Southern Health to provide public services. For the relevant time he was the sole ophthalmological surgeon in Invercargill or the immediate area. Apart from his private practice and 6/10 public practice he was contracted by Southern Health to be on call one week out of two (shared with ophthalmological surgeons from Dunedin Hospital) in respect of “acute” or emergency cases which might arise.
Dr Mark Elder
[12] He is an ophthalmological surgeon employed full time by Canterbury Health, residing in Canterbury. During the year 1996 he was engaged on a separate private contract with Southland Hospital to attend on a monthly basis to perform ophthalmological clinics for one weekend in each month. As a colleague of Dr Rogers he became friendly with him. He did not perform any cataract surgery in Southland. Whilst in Canterbury he was, and remains, in full time employment by Canterbury Health in Christchurch Hospital and in the Clinical Medical School.
Professor Richard Clemett
[13] He is a specialist ophthalmologist employed full time by Canterbury Health then and now. He performs surgery at Christchurch Hospital on advanced ophthalmological cases. He is Clinical Director of the Department of Ophthalmology at Canterbury Health and an Associate Professor at the Christchurch School of Medicine.
Allegations of the Commission
[14] In the final amended statement of claim, the Commission contends that the defendants reached an arrangement or arrived at an understanding some time before 13 December 1996 through a combination of oral and written communications. The arrangement is said to have led to conduct by all or any two of the defendants. It is pleaded that the arrangement or understanding was that they would oppose what was described as “itinerant cataract surgery”, more particularly the surgery required to reduce the public waiting lists for cataract operations (known as “the WTF surgery”), being carried out in the “relevant market”. That market is contended to be the market for supply by ophthalmologists of routine cataract surgery, including pre and post operative care, in Southland. The Commission contended that the term “itinerant cataract surgery” was used variously by the defendants to describe surgery performed by a visiting non-resident ophthalmologist for a limited period without the support and/or assistance of the local ophthalmologist (Dr Rogers). It contends the label “itinerant surgery” was wrongly given to the proposed surgery, so as to provide a reason, or justification, for the defendants’ actions.
[15] The Commission pleads that the arrangement or understanding had the purpose, or a significant purpose, of substantially lessening competition in the relevant market in breach of s27 of the Act. Alternatively, or further, it contends that the arrangement or understanding had or was likely to have the effect of substantially lessening competition in the relevant market, also in breach of s27. The Commission pleads that the arrangement or understanding was intended to hinder or prevent the WTF surgery being carried out in the relevant market by two Australian doctors (Dr Versace and Dr Silva) and apart from having that intention, the arrangement or understanding in fact hindered or prevented those doctors carrying out such surgery.
[16] The Commission has sought a declaration that the defendants entered into such an arrangement or arrived at an understanding which:
(a)had the purpose of substantially lessening competition in the relevant market; and/or
(b)had or was likely to have the effect of substantially lessening competition in the relevant market.
[17] Further, penalties are sought in terms of s80 of the Act as well as an injunction pursuant to s81 to restrain the defendants from giving effect to such an arrangement or understanding. The passage of time has overtaken events so that an injunction no longer is practical.
Statutory provisions
[18] The proceedings allege a breach of s27 of the Commerce Act 1986, which where relevant, provides:
27 Contracts, arrangements, or understandings substantially lessening competition prohibited –
(1) No person shall enter into a contract or arrangement, or arrive at an understanding containing a provision that has the purpose, or has or is likely to have the effect, of substantially lessening competition in a market.
(2) No person shall give effect to a provision of a contract, arrangement, or understanding that has the purpose, or has or is likely to have the effect, of substantially lessening competition in a market.
(3) …
(4) …
[19] Section 80 of the Act is concerned with the imposition of pecuniary penalties and provides:
80 Pecuniary penalties –
(1) If the Court is satisfied on the application of the Commission that a person –
(a) Has contravened any of the provisions of Part II of this Act; or
(b) Has attempted to contravene such a provision; or
(c) Has aided, abetted, counselled, or procured any other person to contravene such a provision; or
(d) Has induced, or attempted to induce, any other person, whether by threats or promises or otherwise, to contravene such a provision; or
(e) Has been in any way, directly or indirectly, knowingly concerned, in, or party to, the contravention by any other person of such a provision; or
(f) Has conspired with any other person to contravene such a provision, –
the Court may order the person to pay to the Crown such pecuniary penalty as the Court determines to be appropriate.
[20] At the relevant time the prescribed maximum penalties were $500,000 for an individual and $5 million for a body corporate. In determining any appropriate penalty under this section (as at 1996/97), the Court was required to have regard to all relevant matters, including:
(a)The nature and extent of the act or omission;
(b)The nature and extent of any loss or damage suffered by any person as a result of the act or omission;
(c)The circumstances in which the act or omission took place;
(d)Whether or not the person has previously been found by the Court in proceedings under this Part of this Act to have engaged in any similar conduct.
[21] In 2001 the penalty section was amended to provide, inter alia, that the Court must order an individual who has engaged in any of the prohibited conduct to pay a pecuniary penalty, unless the Court considers that there is good reason for not making that order. But that statutory direction was not in force in 1996-97.
[22] The standard of proof in proceedings under the pecuniary penalties’ section is the standard of proof applying in civil proceedings.
[23] In ascertaining the ambit and extent of s27 there are relevant statutory definitions in s2:
‘PERSON’ includes … any association of persons whether incorporated or not.
‘PROVISION’, in relation to an understanding or arrangement, means any matter forming part of or relating to the understanding or arrangement.
‘SUBSTANTIAL’ [as it relates to s27] means real or of substance.
[24] Section 2(5)(a) states that a provision of a contract, arrangement or understanding, or a covenant shall be deemed to have had, or to have, a particular purpose if the provision is included for that purpose, or for that purpose among other purposes, and that particular purpose was a “substantial” one.
[25] Section 3 defines certain terms in relation to competition and provides:
(1) In this Act “competition” means workable or effective competition.
(1A)… ‘market’ is a reference to a market in New Zealand for goods or services as well as other goods or services that, as a matter of fact and commercial common sense, are substitutable for them.
(1B)…
(1C)…
(2)In this Act, unless the context otherwise requires, references to the lessening of competition include references to the hindering or preventing of competition.
(3)For the purposes of this Act, the effect on competition in a market shall be determined by reference to all factors that effect competition in that market including competition from goods or services supplied or likely to be supplied by persons not resident or not carrying on business in New Zealand.
(4) ….
(5)For the purposes of section 27 of this Act, a provision of a contract, arrangement, or understanding shall be deemed to have or to be likely to have the effect of substantially lessening competition in a market if that provision and –
(a)The other provisions of that contract, arrangement or understanding; or
(b)The provisions of any other contract, arrangement or understanding to which that person or any interconnected body corporate as a party –
taken together, have or are likely to have the effect of substantially lessening competition in that market.
Body Corporates
[26] Section 90(2) of the Act provides that any contract engaged in on behalf of a body corporate by a director, servant or agent of the body corporate, acting within the scope of his actual or apparent authority, shall be deemed to have been engaged in also by the body corporate. An incorporated society is a legal entity separate from its members. Any contract, arrangement, or understanding entered into by an association or body of persons is deemed to have been entered into by all persons who are members of such a body (s2(8)(a)) but members of such an association do not fall within the provisions of s2(8) if they notify the body that they disassociate themselves (and in fact do so) from the arrangement, or that they establish absence of knowledge and could not reasonably have been expected to have had knowledge of the arrangement.
The Commission’s Case
[27] In its barest form the plaintiff’s case was that there was an understanding existing between all the defendants that ophthalmological surgeons were entitled to exclusivity in their general geographic area or market and there would be no intrusions into that area without the consent, co-operation and approval of resident specialists. Once the possibility arose of doctors from Australia entering into the Southland market for routine cataract surgery, the then province of Dr Rogers, that threat was met by an arrangement or understanding that active opposition by the defendants and other ophthalmological surgeons would occur on the basis that the proposed engagement of Australian specialists was unwelcome and unethical, so that their entry into the market would be hindered and prevented. The Commission says this intended surgery by the Australian specialists was given the label “itinerant” as a pejorative term for surgery performed by “visiting” surgeons without the support of the local ophthalmologist. By its definition “itinerant” meant “unsafe”. It was contended by the Commission to be a code meaning surgery by outsiders, and therefore unsafe and to be opposed.
[28] The Commission says that the proposals for surgery that the Australian specialists would have carried out were, with no fundamental differences, carried out by some of the New Zealand surgeons (Dr Rogers, Dr Elder and Prof Clemett) who had successfully kept out the Australian surgeons as competitors of Dr Rogers. The only difference was that the New Zealand ophthalmologists carried out the surgery with the support of Dr Rogers, the sole resident ophthalmologist in Southland.
[29] The Commission contends that by a variety of measures the various defendants reached arrangements and understandings in a developing way so as to ensure that there be not only restricted entry, but complete opposition to entry, into the market for cataract surgery in Southland without Dr Rogers’ approval.
The Defendants’ Case
[30] The defendants’ case in a general way – and I will go onto expand further on this later in this judgment – is that they deny any arrangement or understanding as alleged; they contend that the purpose of concerns expressed by them, on actions undertaken by some of them, were solely out of concern for “patient safety” and their “purpose” was unrelated to any wrongful arrangement. The Society maintains that its “purpose” (through Drs Boulton and Tarr) was not as alleged so as to be in breach of the Act, but rather from the standpoint that patient safety required active intervention. Dr Rogers’ position is that he acted solely out of concern for patient safety which he contended was to be jeopardised and “a grave risk” if surgery by the Australian surgeons went ahead. Dr Elder and Prof Clemett’s position is that they, too, were concerned with patient safety, although Prof Clemett’s position was that he had no involvement in coming to any arrangement, understanding or forming an agreement with any of the other parties as alleged. His position is that as the Clinical Director of the Ophthalmological Services at Christchurch Hospital, it was his responsibility to take actions, or communicate, in that capacity and in response to what he saw were erroneous (or incorrect) actions or representations made by Southland Health insofar as they may have related to the provision of follow-up services (if such were representations) either by him or by Christchurch ophthalmologists.
[31] In addition, the defendants’ dispute that the relevant market, as pleaded by the Commission, is geographically confined to Southland or to the category of “routine cataract surgery” (as opposed to general ophthalmic services). They contend that, in any event, there could not have been any substantial lessening of competition in the market by reason of any understanding or arrangement of any of them.
[32] Generally speaking, the defendants’ position was that there was no arrangement or understanding reached by any of them, within the framework of the Commission’s pleadings, but rather parallel individual conduct as a responsible expression of medical concern by specialists for what they saw or apprehended to being unsafe practices detrimental to public and private patient health and welfare.
Factual background
[33] I heard evidence over 22 days with hundreds of pages of exhibits, correspondence and communications. As I review the evidence it has been necessary for me to make decisions on questions of reliability, accuracy and credibility in assessing factual matters. Inevitably there exists imperfect recollection on the part of some witnesses about events, and those involved in them, which occurred some years ago. So, too, there has been rationalisation in the process of recollection, arising out of hindsight reconstruction. None of the witnesses have deliberately told untruths or lied but some have reconstructed events in a light which supports the construction that they now wish to have placed upon events. In the recital of the facts which follow I make it clear that they are the facts as I find them to be from all the evidence. Conclusions and inferences to be drawn from those facts are another matter. They are to be dealt with later in this judgment.
[34] A cataract is a common eye condition which effects many elderly people. In simple terms it is an opacity of the lens through a growth across the eye which effects vision and may ultimately lead to blindness. Upon removal of cataracts from the capsule which contains the nucleus and cortex of the eye, an artificial lens is inserted. Operations to remove the cataract are very common and thousands are performed each year throughout New Zealand. They require the skill of ophthalmological surgeons.
[35] Southland Hospital was operated by Southern Health. In 1996 the waiting list for patients in Southland, who required routine surgery for removal of cataracts, was lengthy. People who did not have health insurance or were unable to afford private surgery had no option but to have it performed at Southland Hospital as public patients. The waiting list was at least 18 months and regarded as critical. Some patients could obtain priority over others who had earlier gone into the waiting list, according to a scoring scale, but the wait remained lengthy. Up until late 1995 there had been two ophthalmological surgeons in practice in the Invercargill area; they were Dr French and Dr Rogers (the fourth defendant). Each had private practices but were also employed by Southern Health on a part time basis. Dr French departed at the end of 1995. The evidence suggests that he and Dr Rogers were not entirely compatible for reasons that do not matter. Thereafter, Dr Rogers was the sole specialist ophthalmologist in practice in the area.
[36] The backlog of work in the public sphere grew. Southern Health endeavoured to recruit another ophthalmologist but was unsuccessful. Dr Rogers continued to work for Southern Health on a 6/10 basis, also maintaining his private practice. The lengthy public waiting list for patients requiring cataract surgery at the hospital could not, and was not, significantly reduced by him performing public surgery, because of his workload in his public and private practices. Dr Elder was a full time employee of Canterbury Health who attended at Southland Hospital, in his own time, on contract to Southern Health once a month over a weekend. He held outpatient clinics on public patients. He did not perform cataract surgery, and it was not his intention to do so at these weekend visits or otherwise.
[37] In May 1996 a new Chief Executive Officer, Ms Anthea Green, was appointed by Southern Health. She had a direction from the Board that waiting lists were not at an acceptable level. There was public disquiet or agitation about the situation.
[38] Government assistance which came to be known as the Waiting Times Fund (“WTF”) became available to resolve waiting list health issues throughout New Zealand. If funds could be obtained under the WTF initiative, extensive cataract surgery could be done to reduce the public waiting list. Ms Green set about seeking money under the WTF initiative to enable that cataract surgery to be done. She was successful. But one or more surgeons had to be found to perform the work. In total the aim was for up to 225 operations to be involved in the totally funded work, but efforts to recruit another ophthalmologist for the Southland area had been unsuccessful. Apart from pre-operative assessment of patients on the waiting list, and the performing of the operations, there needed to be routine follow-up care on a well understood basis. The fee or price to be charged by the surgeon or surgeons (if not performed pursuant to a public hospital appointment) who might perform the routine surgery was critical to the success (and indeed the taking place) of the proposed measures. The funds that Southern Health eventually received for the WTF procedures for each of the cataract operations were approximately $1,270. That included consequential costs such as theatre costs, surgeon’s fees, anaesthetist’s fees, nursing costs and the like. It would not have been possible for the work to be performed if a private surgeon’s fee was in the region of $1,000.
[39] Dr Rogers had performed some cataract operations at the hospital prior to Ms Green’s appointment as the Chief Executive Officer. There was a dispute between him and Southern Health as to what he was to be paid for the work. He was charging approximately $1,100 for his surgical fee but the manager of Surgical Services at Southern Health (Ms Gosper) believed that those operations should have been performed as part of his 6/10 appointment at the hospital, and not on a private fee basis. There may have been inadequate – or imprecise – discussions about the fee structure before the surgery was undertaken and Ms Green decided that to put the dispute behind them, the money claimed by Dr Rogers ($1,100 plus GST per case for 32 cases) should be paid in addition to his contract work. Thereafter on 19 June 1996 she wrote to Dr Rogers advising that he would have been aware of the WTF initiative announced by the Minister of Health and that funds to complete cataract procedures would become available and she said:
I am sure we can work together to progress this opportunity in a mutually beneficial business arrangement. I look forward to your support in this matter.
[40] Upon Southern Health winning the bid for funds to deal with the additional eye surgery, and without a second ophthalmologist having been recruited, discussions occurred between Ms Gosper and Dr Rogers. She experienced difficulties in securing a firm or precise price from him. Ms Gosper was a reliable and careful witness, and I accept her evidence. She was aware that Dr Rogers had earlier charged $1,100 plus GST for some extra cataract operations and when she spoke to him regarding the WTF funds he stated that he was prepared to perform such cataract surgery under the “same conditions as his previous arrangement”. She took that to mean $1,100 plus GST, and I find that that was what he did mean. She told Dr Rogers that such a figure could not be contemplated given the cost of nursing staff, drugs, implants and administrative time. Her evidence was that Dr Rogers did not then, in September 1996, offer to consider a lesser fee because if he had, then Southern Health would not have looked elsewhere. Dr Rogers said that he offered to reduce his fee, but I prefer Ms Gosper’s evidence. Both she, and Ms Green were reticent about accepting any generalised or vague proposals from Dr Rogers given the difficulties that had arisen over payment for earlier surgery and, understandably, were wanting a specific quote from Dr Rogers. Vagueness had led to the previous dispute. Ms Gosper also had some concern over Dr Rogers being able to perform the total number of operations envisaged, given his workload.
The arrangements with Dr Versace
[41] In the course of looking for a second ophthalmologist, Southern Health, through Ms Green, had discussions with an Australian ophthalmological surgeon Dr Patrick Versace. He had, however, declined to accept a full time position at Invercargill Hospital in the public sector. Thereafter, discussions occurred in September and October 1996 with Dr Versace during which he offered to present a proposal to perform the WTF surgery, or a substantial bulk of the 225 operations that were involved in the entire contract. Dr Versace submitted a proposal to Southern Health. It provided for treatment of 150 patients with cataracts so as to result in restoration of their vision. The surgery was to be carried out on the basis of what is known as the “Preferred Practice Patterns” published by the Royal Australian College of Ophthalmologists (“RACO”). Whilst relatively young (if aged 38 years could be so described), Dr Versace was a specialist surgeon who had extensive experience as an ophthalmologist in private and public practice as well as being a clinical lecturer in ophthalmology at the University of New South Wales. He was a well regarded and a reputable surgeon. Discussions with Southern Health led to him agreeing to perform the surgery at a fee of $600 per operation. He refined his proposal and timetable for performing 150 cataract operations over a 10 week period spacing the operations so as to enable him to provide follow-up visits and consultations. For routine cataract surgery – which occurs on a “day” basis – the patient is routinely seen after one day, one week, one month (as “indicated”). Dr Versace impressed me as a reliable, accurate witness and there was no suggestion that he was anything other than a careful and highly competent surgeon. His timetable or proposal was never, however, to become crystallised in final form. As with all ophthalmologists, he was aware of possible complications from such routine surgery. They are not frequent, but can arise. Emergencies or acute episodes, however, might occur when a surgeon may not have been present or available to provide care. That would be the case with any visiting surgeon, or when a specialist was not on call. Southern Health had a contractual arrangement with Dr Rogers and Dunedin Hospital, on a one week rotating basis, that urgent or emergency ophthalmological cover was provided by them to Southern Health. It was a standard, ongoing arrangement. Dr Versace’s programme was always dependent on the availability of an ophthalmologist to provide such emergency or acute cover.
[42] Late in October 1996 Dr Rogers became aware of discussions that Southern Health was having with Dr Versace. He wrote to Ms Gosper on 20 October 1996 in the following terms:
Re: Locum and acute call
I have heard rumours from various sources regarding the employment of a locum from Australia. This includes a reliable source advising that you have stated that the reason for obtaining such a locum is that my fees for cataract surgery are too high!
I have never advised anyone employed by Southland hospital that I have received any additional fees for additional cataract surgery. Such information is strictly confidential. I have not been asked to perform additional cataract surgery.
As a senior ophthalmologist I am disappointed that this issue has been discussed with others before I have been made aware of details. I ask for and expect to be advised of full details as to the proposed employment of such locum in my [sic] department.
I ask also, why the CHE prefers to employ Dunedin to cover the acute roster when, for nine months, I have offered my services for all week days.
[43] Dr Rogers said in evidence that he did not receive a reply to that letter. But it is clear that Ms Gosper met with Dr Rogers at his private surgery shortly afterwards to discuss his letter. Dr Rogers was travelling to Perth between 2-11 November 1996 to attend a conference. They met before he left. Ms Gosper suggested to Dr Rogers that he could work together with Dr Versace to perform the 225 operations that were the subject of the WTF funds. I accept her evidence that Dr Rogers pressed her as to the fee that Dr Versace was to charge. She was reluctant to give that information until Dr Rogers had given his price indication to her, but she eventually disclosed it as $600 per procedure. Then Dr Rogers verbally offered to her $800 per procedure. Thereafter Dr Rogers went on leave at the Perth conference. The precise proposed programme of Dr Versace was still being ironed out with Southern Health.
[44] After Dr Rogers returned from Perth, Dr Christmas, a senior colleague of Dr Rogers at Southland Hospital, (but not an ophthalmologist) approached Ms Gosper. He stated that Dr Rogers had expressed to him concerns about follow-up care and the clinical competence of Dr Versace. Dr Rogers had not seen (and never did see) Dr Versace’s timetable or proposal. But the proposed programme was shown to Dr Christmas by Ms Gosper and he said to her that it appeared to cover all the concerns that Dr Rogers had raised with him. The evidence is silent as to whether he conveyed that back to Dr Rogers.
[45] On 11 November 1996, Ms Gosper advised Dr Rogers that Southern Health was keen to pursue the option of Dr Versace performing 150 cataract operations from the WTF money within the first few months of 1997. It was clearly envisaged that the remaining 75 procedures were open to Dr Rogers to perform, depending on his price. In that memorandum Ms Gosper says that:
This option of course will be all the more successful if you were to in principle be supportive of the concept.
As also discussed, I would hope to soon receive an offer from you regarding costs associated with the remaining patients who would have their surgery through this initiative.
I have briefed Professor Ken Dawson [Medical Director] on the proposal and as you are aware Mr Peter Christmas is also fully informed. I believe both are in principle supportive of the option.
I understand you may not be in favour of a locum surgeon performing these operations, but I would ask that you focus on the overall benefits for the patients and ophthalmology service.
Ms Gosper was inviting Dr Rogers to put into writing a previous verbal offer that he had made to her when they met at his surgery of $800 or less if he chose. He knew of the level of Dr Versace’s fee.
[46] The response from Dr Rogers was a letter of 13 November 1996 in which he expressed strong opposition to the engagement of Dr Versace. He said that he, Dr Rogers, had the capacity to do the operations, that he had not been asked to perform the surgery and that most of the patients were “my patients” [although they were on a public waiting list]. He contended that he had not been approached to perform any of the extra surgery and gave a wide variety of reasons as to why it should not be performed by Dr Versace. He complained that matters were going on behind his back. Dr Rogers wrote also to the Medical Director in similar terms, being highly critical of the proposal, of which he did not have particulars. In that letter he said:
Dr Versace has apparently stressed that he would not accept his invitation to perform cataract surgery here if the local ophthalmologist was not in support. I do hope it has been made perfectly clear to him that they do not, that neither Dr Elder nor I condone this method of surgery nor support him operating here on any of our [sic] patients.
[47] Whether or not Dr Elder in fact then subscribed to what Dr Rogers was saying, it is apparent that at about that time the two surgeons discussed the question of Dr Versace’s proposed visit. Dr Elder’s evidence was that over the weekend of 16-17 November when he was staying at Dr Rogers’ home he briefly discussed the question with Dr Rogers and said in evidence that he did not appear to know anything more about the proposal than he (Dr Elder) did. Apparently, there was a discussion about whether Dr Versace was a junior doctor so as to be unable to obtain registration in New Zealand. Dr Elder’s evidence was that he then rang a consultant ophthalmologist, Dr McCluskie, in Australia on 17 November 1996. He said he did so only to enquire as to the qualifications of Dr Versace. He was assured that Dr Versace was a fully qualified and reputable ophthalmologist and he communicated that information back to Dr Rogers. Dr Elder’s evidence was that he told this Australian consultant that he believed there had been no consultation about the proposed visiting surgery with Dr Rogers. Reference was made by Dr McCluskie that he might ring the President of RACO but Dr Elder’s evidence was he did not encourage him to do so. Without doubt the proposal was described by Dr Elder to Dr McCluskie in critical terms, calling it itinerant surgery, because otherwise there would have been no reason for him to contact the President of RACO (Dr Martin).
[48] What then followed was that Dr McCluskie telephoned the President of RACO, who in turn communicated with a colleague of Dr Versace. Dr Versace was then rung and told that someone had been “making enquiries” about his proposal to conduct cataract surgery in Invercargill. Consequently, Dr Versace telephoned the President of RACO and was told that concern had been expressed about his arrangements for work at Invercargill and that Dr Versace “might not wish to get involved” in the undertaking. Consequently, Dr Versace telephoned Dr Elder and endeavoured to contact Dr Rogers but was unable to do so. Clearly there were communications passing between Dr Elder and Dr Rogers, because Dr Rogers was asked by Dr Elder to confirm in writing to Dr Versace his claim, which he did when he wrote on 22 November 1996:
I have never been offered and turned down the opportunity to perform any of this surgery. I have always been willing and available to perform it.
That fax letter, however, did not find its way to Dr Versace. It illustrates that Dr Rogers was making certain representations to Dr Versace, because he was requested to do so by Dr Elder.
[49] On the evidence, I find that Dr Rogers was in fact invited to participate in some of the WTF surgery, as his other work permitted. Up to this stage he had been invited to make a formal offer, but he had not done so as to commit himself. His claims, at that stage, to Dr Elder and Dr Versace that Ms Gosper had never offered him any of the surgery were not accurate. Indeed Ms Green on 21 November 1996 specifically authorised the Medical Director and Ms Gosper to “contract Brett Rogers for a set number of procedures at a set price and a set period of time. In the meantime we will pursue other options for further work.”
[50] On 28 November 1996 Dr Rogers said in a memorandum to the Clinical Directors that:
Dr Elder and I are more than happy to perform all the additional volumes of cataract surgery in the same timeframe and for the same costs involved in employing the Australian ophthalmologists. …
Dr Elder in evidence said that this was not discussed with him, but a copy of that memorandum was sent by Dr Rogers to Dr Elder. In it Dr Rogers asks the “colleagues” in the Southland Hospital to:
Support Dr Elder and me in resolving this matter in a cool-headed manner and retaining eye services and all other clinical services in Invercargill.
[51] In the end, however, Dr Versace withdrew from finalising and pursuing his proposal. He, at about that time, gave as his reasons for withdrawing from the proposal; first, the unwillingness of Dr Rogers to cover any eye emergencies (despite the contractual requirement existing as between him, Dunedin and Southern Health); and, secondly, because of the ill-feeling that he believed it would create, as well as not having the support of other ophthalmologists. That belief was justified. It is clear that at no time was his proposed timetable or other matters relating to the surgery known to Dr Rogers, Dr Elder, RACO, or its President (but Dr Christmas knew of the tentative timetable and said to Ms Gosper it was appropriate). Patient safety was not expressed as a concern. I accept that Dr Versace, as a reputable specialist surgeon, would not have undertaken any procedures or acted in any way that may have compromised his patients’ welfare.
[52] Dr Versace’s withdrawal from his proposal arose directly as a result of communications that he had received from senior Australian colleagues who had contacted him because of concern expressed by RACO, and originating from Dr Elder.
The involvement of Dr Silva
[53] Dr Silva was an experienced and highly regarded Australian ophthalmological surgeon, well known for his cataract and eye surgery over many years. Dr Versace had suggested or recommended that Dr Silva, a senior colleague of his, might be able to assist Southern Health by performing some of the public cataract surgery.
[54] Before Southern Health became aware of Dr Silva’s interest, Ms Green had advised her Clinical Directors (Dr Dawson and Dr Christmas) that she would like to open negotiations urgently with the Chief Executive at Canterbury Health, and Prof Clemett, to “subcontract ophthalmology services to Christchurch until such time as we can find ophthalmologists who will meet our obligations”. That advice was in a confidential memorandum to the Clinical Directors. Somehow it found its way to Dr Rogers who sent a copy of it to Dr Elder. Some of the statements in the memorandum were critical of Dr Rogers and Dr Elder in refusing to give any support to the proposal to engage Dr Versace.
[55] Dr Silva presented a proposal to Southern Health for the performance by him of some of the surgery. As was the case with Dr Versace’s proposal, it was preliminary only. Dr Silva understood that a backlog of cataract surgery required 130 operations to be performed over a short timeframe and he prepared a programme for lists for such cataract surgery in January 1997. Arrangements were made for a Southern Health theatre sister, Nurse Brown, to visit Dr Silva’s clinic in Australia to view his routine, and this was done. Communications occurred between the Anaesthetic Services Department at Southern Health and Dr Silva’s own anaesthetist in Australia so as to ensure that his procedures would be understood. Dr Silva adopted a different type of anaesthesia to that of Dr Versace or Dr Rogers. Communications occurred between Dr Silva and the Medical Council of New Zealand regarding his eligibility for registration in New Zealand. Because of the new Medical Practitioners Act 1996 it was thought that Dr Silva required what was known as “general oversight” only because he was not to reside for over four months in New Zealand. Given his senior status, background, experience and reputation, that did not appear to present any difficulty. He was told by the Medical Council that “general oversight involves a mutually agreed relationship with a colleague in the same vocational branch or sub-branch”. It did not require day to day monitoring or supervision.
[56] In the meantime, events had been occurring in New Zealand within the wider circle of ophthalmologists outside Southland. Dr Rogers had spoken with Ms Green in early December 1996. She had recorded in her diary that he said his fee for the WTF cataract surgery, if he was to perform it, was “$900 non negotiable”. It had escalated from the $800 he had mentioned to Ms Gosper. However, a formal written proposal was still not forthcoming. Ms Green mentioned that to Dr Rogers’ union representative, Dr Christmas, and to the Clinical Directors on 3 December 1996. She invited firm pricing or details from Dr Rogers but in his response of 4 December that was still not forthcoming. He said that his costs would “be for a mutually agreed fee which I expect would be no more than the cost of employing an Australian ophthalmologist”, referring to what he said was the “true costs including hidden costs such as travel, accommodation etc as well as additional costs” and using certain equipment. He was hinting at some uncertain figure well in excess of $600.
[57] Given the past problem that had arisen with imprecision regarding fees to be charged for public sector eye surgery by Dr Rogers, Ms Green was reluctant to accept such a vague proposal. She responded on 4 December 1996 by letter to Dr Rogers in which she said:
Following my phone conversation with Mr Peter Christmas [when I assured him there was work in the CHE for you in relation to additional surgery] I assumed that you would be submitting to us a written proposal. I have not seen that written proposal and indeed have written to Mr Christmas and am sending you a copy of the letter.
The letter I just received from you offering to do all the procedures does not set out the actual proposal. … Nor, most importantly does it offer a price. We cannot negotiate an arrangement without a firm price.
I am currently negotiating with another Ophthalmologist to do some of the work on the Waiting Times Fund money. The number of procedures that are going to be contracted is 130 cataract procedures. This leaves 95 cataract surgical procedures in relation to the Waiting Times Fund money to be done which are to be bid on. … It is clear that the volume requires two Ophthalmologists. Could you therefore also bid separately for additional work in relation to the ongoing requirements in the CHE. … We are currently assessing what we could reasonably expect you to complete of this volume outside your contract. However it is important you put forward a submission. …
I would suggest to you that the bid on the Waiting Times Fund money – Cataract Surgery, needs to be with me as quickly as possible and no later than close of business on Friday 6 December 1996.
[58] That letter refers to overall 1996/97 ophthalmology procedures and contract volumes, but it is clear that a WTF cataract surgery bid was required. It was about that time that Dr Silva was communicating with Southern Health, as is apparent from that letter. No doubt, through discussions or rumour, Dr Rogers became aware that it was Dr Silva because he made a handwritten note to that effect on the letter that he received.
[59] In the meantime, things were occurring on other fronts. On the same day, 4 December 1996, there was a meeting of the senior medical staff committee at Southland Hospital. The minutes record under “General Business” that a Dr Wilson “had learnt that an Australian ophthalmologist was to commence cataract surgery lists next year” and had concerns on a number of issues. Dr Rogers is recorded as having said (or to the effect of) that he:
Had not been formally consulted on these arrangements. He understood that the initial surgeon chosen from Australia had declined and a second person had been chosen. Although he was available, he was not asked to do the extra surgery. In Palmerston North when a surgeon had been brought in from outside under similar circumstances the entire staff in the ophthalmology department doing public work had resigned.
There is reference in the minutes to other doctors saying that available specialists in Southland should be given the extra work and it was moved by Dr Christmas:
Any extra work in the Southland CHE should be primarily offered to Southland consultants. It should be offered outside only if they were unable to provide the service.
The minutes record that that motion was carried unanimously.
[60] Dr Rogers said in evidence that he would have expressed at that meeting his concerns over what he said were “safety issues”. But, it is apparent from the evidence of Ms Gosper, which I accept, that Dr Rogers did not know of the details of the proposals of Dr Versace or of Dr Silva. Further, Dr Christmas had approached Ms Gosper concerning Dr Versace’s programme, had been shown it and had agreed that it appeared to cover any concerns that had been raised with him by Dr Rogers. That is, safety was not said by Dr Christmas to be the concern. Rather, as the minutes record, the doctors’ views were that the work should first be offered to Southland consultants.
[61] Late on 6 December 1996 Dr Rogers made a firm proposal to Southern Health in respect of the WTF cataract surgery. The letter purports to make the offer on behalf of himself and Dr Elder for the entire contract of 285 cataract operations (225 WTF cases plus 60 additional volume cases) at a fee of $675 per case. In that letter Dr Rogers criticises Dr French as a colleague “working against me and the hospital management and working in favour of Dunedin”, and that the involvement of Dr Elder had been an essential link in allowing Dr Rogers to “sever all ties with Healthcare Otago with respect to tertiary ophthalmic services”. Clearly there was not a happy relationship between ophthalmic surgeons at Healthcare Otago and Dr Rogers.
[62] In Dr Rogers’ letter of 6 December 1996 he said:
You can be assured that I can both complete all these cataract operations before 30 June1997 without the intrusion of overseas itinerant surgeons and continue their long term follow-up. Indeed, as you are aware, there are grave concerns about both the ethical and safety aspects of the use of such assistance. This is a practice which is strongly disapproved of at the highest level and also both at the Royal Australian College of Ophthalmologists and the Ophthalmological Society of New Zealand, which I could not tolerate nor support, and which is opposed by Southland Hospital senior medical staff. It would be a serious and dangerous mistake to pursue this option.
[63] I have used the word “purports” in para [62] above because Dr Elder’s evidence was that he did not recollect having any discussion with Dr Rogers concerning the letter, nor that he agreed to participate at a surgical fee of $675. If he is correct, it is puzzling why Dr Rogers would have said what he did so as to involve, and commit, Dr Elder. Dr Rogers had said (in his earlier letter to Ms Gosper of 13 November 1996): “Dr Mark Elder as you are already aware is willing to assist me perform some of this surgery”, but Dr Elder said he was not aware of making such an offer. It is quite clear that Dr Rogers sent to Dr Elder a copy of his draft letter of 6 December, so as to be aware of what Dr Rogers had in mind. That is, at the draft letter stage, Dr Rogers was proposing he do all the contract cases (leaving the number uncertain). But a later discussion with Dr Elder seemed to have resolved the number of cases (“285 cataracts or for the 225 additional volumes cases of $675 per case”) and because of the number, the proposal was that Dr Elder also participate. Of course, Dr Elder had only an annual, one weekend per month contract with Southern Health and did not perform surgery, but only did outpatient clinics. He was also employed full time by Canterbury Health and without its approval he could not have been involved in performing the surgery on any extended basis, except in his own time. That must be why Dr Rogers says that it would be “during any week in January” that Dr Elder would be able to perform surgery (i.e. during vacation). The compelling inference is that Dr Rogers and Dr Elder discussed the original draft letter of Dr Rogers (it was faxed to Dr Elder) before it was amended and sent in final form to Southern Health. Dr Rogers’ letter acknowledged that the WTF cataract surgery would involve too many operations for him to perform alone without Dr Elder’s help (as Ms Green had said on 4 December 1996). That evidence compels me to conclude that Dr Elder acquiesced in, and agreed with, Dr Rogers telling Ms Green that he would share some of the surgery at a fee of $675 per case.
[64] Ms Gosper on 11 December 1996 advised Ms Green that she had major reservations regarding the ability of Dr Rogers to perform the number of surgeries that he had proposed. She recommended that Dr Silva perform approximately 130 operations with Dr Rogers being offered the remaining 95 from the WTF funds, and 31 further cataract operations from the 1995/96 contract. That proposal was put by Ms Green to the Medical Directors and the Board of Southern Health on 11 December 1996. Later that day Dr Rogers met with Ms Green and a somewhat terse exchange took place. Dr Rogers insisted that, if it was intended that Dr Silva perform 130 operations, then it was likewise not impossible for him (Dr Rogers) to do so over the same time period.
[65] The Board of Southern Health endorsed and approved the recommendations of Ms Green and Dr Dawson of 11 December 1996. Those recommendations were as follows:
(1)Dr Michael Silva, one of Sydney’s most eminent ophthalmologists, has contracted with the CHE to perform approximately 130 cataract operations from the Waiting Times Fund commencing 1 January 1997 and completing at the end of January. His proposal is fully covered in terms of indemnity, New Zealand registration, pre and post-operative clinics etc. Should any post-operative emergencies require hospital admission or specialist treatment, if the CHE cannot provide such cover, Canterbury Health will.
(2)Dr Brett Rogers be contracted, at his proposed fee in his letter of 6 December 1996, for 95 Waiting Times Fund cataract operations and 31 cataract operations from the 1995-96 contract at the same price. This work is to be completed within Dr Roger’s normal lists over the remaining six months of the financial year.
(3)Dr Brett Rogers continue with contractual work including all DRG procedures that relate to the ongoing RHA contract (277 discharges of which 23 have been performed). It is anticipated that he would complete approximately half of the RHA contract this financial year as this is the contractual arrangement we have with him.
(4)The balance of the RHA contractual work (138 DRG procedures) will be negotiated with Dr Rogers first and Canterbury Health second in January so that the work can be completed by 30 June 1997.
[66] The reference to Canterbury Health providing cover “should any post-operative emergencies require hospital admission or specialist treatment” arose because Ms Green had earlier had discussions with Mr Webb, the Chief Executive Officer of Canterbury Health, from which she believed that such emergency cover, if necessary, was available. Although it was said that she may have been in error, it is apparent that the cover in respect of emergency or acute situations was provided by Dunedin and Dr Rogers under existing contracts, and if it be that Dr Rogers could not, or would not, provide emergency cover in terms of that contract then she believed that Canterbury Health would do so. Such a belief was justifiable, to the extent that Christchurch Hospital (or any hospital) would not turn away any patient who presented in an emergency situation. That really is self-evident and the doctors there said much the same. But it was this reference that led to some specialists at Christchurch taking objection or becoming angry.
[67] Dr Rogers obtained a copy of the memorandum of 11 December of Anthea Green and Dr Dawson to the Board of Southern Health. He sent it by fax to Dr Elder in Christchurch. At the same time he wrote to Ms Green and also sent a copy of that letter to Dr Elder. That letter dealt with a number of matters and contained various representations by, and opinions of, Dr Rogers as to his objection to and disagreement to Dr Silva being engaged. He said:
I feel very strongly that Dr Elder as my colleague, as an ophthalmologist currently employed by Southern Health to care for Dr French’s share of these cataract patients and whom I am sure would be more than willing to participate in this work, should be asked to performs [sic] a portion of the surgery in recommendations 2-4.
…
[Judy Gosper] … is by exclusion suggesting that it is physically impossible for me to perform 130 cases in January, but that Dr Silva is physically able to do so!
‘I have assured you today and in my letter of 6 December, that this is actually an effortless task for me given that this is time when my room is closed for non-urgent matters with my secretary out of the country. I could even use up some of my excess annual leave from hospital during this time as the additional work would be outside my usual contractual work. It would actually be ‘physically impossible’ only if the theatre was occupied by Dr Silva.’
When referring to the marked reduction in waiting time for cataract surgery he said:
Whilst this will have a devastating effect on my private practice with a markedly reduced number of private cataract referrals and cataract operation at Southern Cross Hospital over the next year or more as more people opt for public hospital surgery, my ongoing commitment to the Public Hospital Service now and in the future is however such that I am still prepared to assist just as I did when I performed the extra 66 outpatient clinics seeing 700 extra new patients over the last 2 years when it would have clearly been financially more advantageous for me not to have done this. The reduction in my private surgical income together with my ongoing practice overheads despite this reduction, will offset significantly any payment I receive from Southern Health for additional surgery and whilst of serious concern to me it will ironically make it easier for me to perform this public hospital surgical workload.
The letter ends:
As well, whilst itinerant cataract surgery is clearly considered unsafe by and is unacceptable to both the Royal College of Ophthalmologists, and the ophthalmological [sic] Society of New Zealand, you advise the directors that Dr Silva who is known to practice [sic] this method of surgery is ‘one of Sydney’s most eminent ophthalmologists’ and that itinerant surgery is ‘quite common in Australia.’ Whilst I appreciate that it is you who has the final say and you who accepts responsibility for your decisions, I urge you to contact the President of the College Dr Frank Martin from Sydney. …
Dr Rogers supplies that Sydney address, phone and fax number. It is not said in evidence from where he obtained that information.
[68] On 12 December Ms Green advised Dr Rogers of the possibility of him performing 95 of the WTF surgery, plus 31 operations from the earlier contract, but he would be required to work alongside Dr Silva. Dr Rogers was not amenable to that. He made it known that he would not be prepared to work at the hospital whilst Dr Silva was operating (despite two theatres being available and another microscope obtainable, as his letter to Ms Green of 6 December states).
Senior staff meeting of Christchurch ophthalmologists at Canterbury Health 12 December 1996
[69] The material that Dr Elder had received earlier that day from Dr Rogers (the memorandum to the Board of Southern Health dated 11 December and Dr Rogers’ letter to Ms Green of 11 December) was referred to the meeting by Dr Elder. It was discussed by the six doctors present. They included Dr Elder, Dr Tarr and Prof Clemett. It was not part of the agenda of the meeting. But the question of future “strategic alliances” between the Christchurch Eye Department of Canterbury Health and Southern Health was on the agenda. Within that topic the issue of the WTF surgery in Southland was raised by Dr Elder. Apart from the two documents sent to him by Dr Rogers, he also had received the draft copy of Dr Rogers’ letter to Ms Green of 6 December. The minutes record the following:
Matters for urgent attention:
….
Southland have waiting list initiative funds to do 225 cataracts for which at least 130 will be done by Dr Michael Silva, an Australian. It was stated that Anthea Green, Southland CEO, has committed to paper a statement that Canterbury Health will cover eye emergencies for these patients when their own CHE cannot cover. There was widespread agreement that this was rejected and was thought to be totally unsatisfactory. No member of the staff had been approached about this. Mark Elder raised logistical concerns of transporting patients here after hours.
(iii)Brett Rogers seems not to have been adequately consulted by his CEO regarding the additional cataract volumes. There was unanimous support from Christchurch ophthalmologists for Brett’s predicament. Ken Tarr suggested that the OSNZ should issue a media statement about this. Richard Clemett said he would ring Phil Boulton about that this evening and would inform Richard Webb of our feelings.
[70] What was Dr Rogers’ “predicament”? Dr Rogers in evidence said that reference to the “predicament” could only mean the predicament of “the patients”, and not him. Dr Elder’s evidence was that the reference to “predicament” was meant to relate to “communication with the CEO”. Prof Clemett in his evidence said the reference to “predicament” was not to that of the patients.
[71] Later that evening Prof Clemett had a telephone conversation with Dr Boulton, the President of the Society. Prof Clemett’s evidence was that this conversation was going to occur in any event because of a social or leisure time commitment or arrangement that the two doctors were making. That may be so but I have no doubt that the issue recorded in the minutes was discussed on the phone. It is not conceivable that the issue of “itinerant” surgery occurring in Southland would not have been a topic of discussion, given the record in the minutes of the meeting that Prof Clemett would ring Dr Boulton “about that” and unanimity was expressed over Dr Rogers’ “predicament”.
[196] I agree with, and adopt, Mr Sundakov’s conclusion:
… that the relevant geographic market is Southland. Ophthalmologists in Southland would be able to sustain price differentials of substantially more than five percent, without inducing providers outside Southland to seek to supply cataract surgery to Southland residents. At the same time, cataract surgery supplied outside Southland does not provide an adequate substitute. It would take more than a five percent price increase for most consumers to travel to other regions for cataract surgery. This conclusion is consistent with the facts – in particular the actual behaviour of the market participants – and commercial commonsense.
Was there likely to be a lessening or hindering of competition, by the provisions to oppose entry?
[197] As earlier said, substantial means “real or of substance” and competition is “workable or effective competition”. Applying the counterfactual test from Dandy Power Equipment Pty Ltd v Mercury Marine Pty Ltd (supra) i.e. “what would have happened but for the conduct in question?” I have no doubt that competitive pressure would have been enhanced. Dr Rogers enjoyed the position as sole provider of routine cataract surgery in his market. The likelihood of others entering that market increased the competitive pressure, and if entry occurred competitive pressure would be great and he would be constrained by actual competitors.
[198] The purpose of the arrangement was to prevent entry by Australian doctors. Objectively viewed it had the aim of preventing competition by other surgeons. That is to prevent a competitor performing such surgery, and providing effective competition on price and service.
[199] The arrangement also had the effect, or likely effect, of substantially lessening competition in that market for cataract surgery. The evidence establishes that the arrangement (to oppose, hinder, prevent), led to actions which increased the costs for Dr Versace (risk to his reputation and standing); the costs for Southern Health (consequential reaction from powerful professional bodies); brought pressure on Dr Silva by, for example, difficulties in obtaining registration; creating uncertainty about collegial co-operation and whether the emergency care that Dr Rogers and Otago were contractually obliged to provided would in fact be available. So it also amounted to a barrier to entry created by the arrangement/understanding. Entrants who had Dr Rogers support did not face such barriers, which is a “cost” that an entrant must bear, which existing providers do not face.
[200] I accept the opinion of Mr Sundakov that the arrangement, and subsequent actions, would have increased the cost of entry into the market to both the surgeon and the purchaser (Southern Health). The arrangement was designed to remove constraints on market providers that would have arisen if entry became more likely. It made entry more costly and less likely. It must have lessened competition compared to the counterfactual.
[201] The actions of those who implemented the arrangement to oppose and hinder entry, prevented the Australian doctors from entering the market. Competition was reduced, relative to the counterfactual. I agree with the Commission that the lessening of competition was substantial. Evidence as to how prices reduced from the prior entry fee of Dr Rogers ($1,100), to $800 upon learning of entry; to $675 when Dr Silva was to be the new entrant; supports the view of Mr Sundakov that entry from either Drs Versace or Silva would have stimulated increased price competition, with benefits for Southern Health, and potentially for patients. His view, is that if entry had actually occurred, such competition could possibly have reduced prices to the originally proposed $600 per operation. Mr Sundakov’s opinion was that the sustainable price reduction that would have resulted from the proposed entry would have been at least 27 percent, and possibly as great as 45 percent. He went on to express that:
The damage to competition from the behaviour in question is not limited to the foregone benefits of price competition. The proposed entry would have considerably improved the timelines of cataract surgery for patients in Southland, by reducing waiting times for both existing and future patients. This clearly would have had considerable benefits for affected patients in terms of overall quality of life.
Entry by Drs Versace or Silva would have introduced competitive pressure to the market for cataract surgery in Southland. This would have had ongoing benefits by providing a precedent for potential future entrants. As a result, all future cataract operations performed in Southland would have been subject to competitive pressure or the clear threat of competition. The number of operations affected would have been substantial …
The success of the defendants in defeating the entry attempt of Drs Versace and Silva sent a clear signal to other similar potential entrants not to attempt to enter the market in future. This effectively reduced the extent of competitive pressure in the market not just at the time in question, but well into the future.
[202] The likely effect – substantially lessening of competition – must be more than short term and must impact upon the competitive process in the particular market structure. Mr Sundakov’s opinion was that the relevant time dimension was one and a half to two years. Ms Vautier regarded the short term of the WTF surgery as being one-off in nature, so that any impact would have only been short term. I prefer the opinion of Mr Sundakov. The arrangement to thwart entry of “itinerant” (visiting) surgeons would deter new entry in the future and there was strategic value for Dr Rogers and those who were parties to the arrangement of knowing that, because of concerted opposition, future market transactions and negotiations could proceed without competitive threat from outside. The lessening of competition would have been substantial and not over a transitiona; short term period. I accept Dr Sundkov’s assessment of 18-24 months and that the opposition and preventing of entry to the market had the effect of substantially lessening competition.
[203] The argument by the defendants that Dr Silva was not eligible for general registration and thus, if oversight had been available the proposal still could not lawfully have proceeded does not alter the position. The attitude of the Medical Council, as evident from its witnesses, was such that it would have found a way to grant registration, or taken steps to register Dr Silva temporarily. There might have been a delay, but not a cancellation. And, if oversight had been obtained, Dr Silva would have proceeded. I accept the Commission’s submission that in any event the defendants’ argument can have no hearing on the alternative claim that the defendants’ arrangement/understanding had the purpose or likely effect of lessening competition. It is clear that an arrangement/understanding can have the proscribed purpose, or likely effect, even thought it did not in fact have the effect of lessening competition: Port Nelson v Commerce Commission (supra).
[204] Accordingly, I find for the Commission that it has established that:
a)the relevant market was routine (elective) cataract surgery, including pre-operative assessment and post-operative care;
b)performed privately and publicly;
c)within the geographic boundaries of Southland;
d)the provision in the arrangement (being the arrangement itself) – to oppose, hinder, prevent entry into the market by Australian doctors – had the purpose of substantially lessening competition in that market; and
e)further, the arrangement was likely to have, and in fact had, the effect of substantially lessening such competition.
Conclusions
[205] It follow that the Commission succeeds in its cause of action against all defendants. The Society is liable because of the actions of Dr Boulton, so as to become part of the arrangement or understanding.
[206] Each of the individual doctors are liable because, in breach of s27 (although unaware of its provisions) they became parties to an arrangement designed to prevent, obstruct or hinder entry into the routine cataract surgery market, in Southland, of Australian doctors, without the consent or approval of the sole resident ophthalmologist.
[207] That arrangement, or its integral provision, was that entry by Dr Silva (and earlier Dr Versace) was to be opposed and obstructed, had the purpose of substantially lessening competition in the market for supply by ophthalmologists of routine cataract surgery (with pre and post-operative care) in Southland.
[208] Section 27 of the Act was clearly breached by each of the doctors – although their respective culpabilities or liabilities differ significantly.
[209] In general terms, what occurred was concerted action by members of a profession, and its professional body, to assist a colleague avoid legitimate competition to protect what he, and his profession, regarded as his exclusive domain. It was lamentable and the media release of the NZMC (of 5 March 1997) aptly states the position that the arrangement of the defendants’, and actions of some of them, was:
… an attempt by professional rivals to restrict the legitimate safe practice of medicine by an appropriately qualified doctor.
[210] It follows that the Commission is entitled to the declarations it seeks.
[211] But I do not consider that pecuniary penalties pursuant to s80 of the Act are required against the second, third and sixth defendants. Dr Boulton was acting on behalf of the Society based upon what he had been told. If any pecuniary penalty is to be levied (and that remains to be decided) it would be sufficient for it to be imposed on the Society. Dr Tarr, although possibly acting as Vice-President of the Society, fell within s27 only because he was a party, and subscribed to the agreement or arrangement (along with other doctors) at the Christchurch doctors’ meeting. His letter was to his President. Prof Clemett falls into the same category. His later actions in relation to resisting the provisions of post-operative care were understandable, based upon misunderstanding of the true position, and did not derive from the prohibited arrangement. He acted in good faith and is only liable to the declaration because, when the facts are viewed objectively, he was a party to the arrangement reached at the Christchurch meeting. But he is not deserving of any pecuniary penalty.
[212] Drs Rogers and Elder fall into different categories. It was Dr Rogers who was the mover of the events that led to the prohibited arrangement being formulated and reached by all defendants. It was competition in the market in which he alone held command that he sought to hinder. Dr Elder had less motivation as he did not perform cataract surgery in Southland, and had little to achieve personally, but he lent considerable support to his colleague, Dr Rogers, and was a vital link in conveying messages, information and representations to Australian doctors (in relation to Dr Versace’s proposal) and the Christchurch Ophthalmologists. Without his active assistance to aid and further the arrangement or understanding with Dr Rogers, his Invercargill colleague would not have been able to marshal the wider ranging support that he sought to prevent entry into the market by Dr Silva.
[213] So I consider that the Society, Dr Rogers and Dr Elder only may face possible individual s80 penalties. Whether or not any pecuniary penalties are levied, and if so to what extent, is for later determination. Despite the statutory direction in s80(2) that a pecuniary penalty must be imposed upon an individual who breaches s27, unless there are “good reasons”, I consider that this does not apply to these individual defendants because it was not a direction in force in 1996-1997. Even if it was applicable there are good reasons why Drs Boulton, Tarr and Prof Clemett, ought not be subject to pecuniary penalties. Two of them in reality, breached s27 by being at the meeting of 12 December and by subscribing to the arrangement. Dr Boulton was acting solely in his capacity as President of the Society, and not personally. Those considerations do not apply to Dr Rogers and Dr Elder. Dr Boulton, Dr Tarr and Prof Clemett are not to be subject to s80 penalties. The declarations are sufficient sanction.
Judgment
[214] There will be declarations that all of the defendants entered into an arrangement or arrived at an understanding which:
a)had the purpose of substantially lessening competition in the relevant market in breach of s27 of the Act; and
b)had, or was likely to have, the effect of substantially lessening competition in such market in breach of s27 of the Act.
[215] Whether or not pecuniary penalties under s80 of the Act are to be imposed on the first, fourth and fifth defendants shall be determined after further submission (or evidence) is received from counsel at a time to be fixed by the Registrar. Counsel for those defendants and the Commission are to submit a memorandum as to what is required and available dates. I would not envisage such a resumed hearing to be lengthy.
[216] No pecuniary penalties are to be imposed on the second, third and sixth defendants. I do not require those defendants to be heard, through counsel, at the resumed “penalty hearing” unless they wish to do so, or wish to be heard as to costs.
Costs
[217] The Commission is entitled to costs. They were earlier fixed at level 3C. How, and to what extent, the defendants are to meet, or share, those costs may be a matter for them to agree upon. But failing agreement I will determine their respective liabilities. Irrespective, counsel are invited to submit memoranda as to the quantum of costs, and apportionment between defendants if agreed upon, or if there is no agreement.
………………………………….
J W Gendall JSolicitors:
Commerce Commission, Wellington for Plaintiff
Bartlett Partners, Wellington for First, Second and Third Defendants
C J Hodson QC (Barrister), Wellington for Fourth Defendant
Rainey Collins Wright & Co, Wellington for Fifth and Sixth DefendantsDelivered at 11.30 am on 1 March 2004
0
0
0