Ground 3 - Did the primary judge fail to take into account or give appropriate weight to the evidence of Dr FitzGerald?
220 The ACCC submitted that the primary judge rejected, or failed to have regard to, or failed to give appropriate weight to, the economic expert evidence of Dr FitzGerald that ANZ, through its branches, employees, agents and franchisees, and accredited brokers, provided loan arrangement services to customers seeking residential property loans in competition with each other.
221 The ACCC relied, in this context, on the fact that there was no expert evidence contrary to Dr FitzGerald's evidence. The ACCC also attacked the primary judge's reasons for not accepting the critical parts of Dr FitzGerald's evidence. In particular, the ACCC submitted that his Honour's rejection of Dr FitzGerald's evidence was based on "propositions" not raised with Dr FitzGerald or not properly analysed by the primary judge.
222 Before addressing these specific challenges to his Honour's treatment of the evidence of Dr FitzGerald, it is appropriate to make some brief observations concerning the proper way to approach expert evidence of the sort given by Dr FitzGerald; that is, evidence in relation to markets, competition and, in that context, the characterisation of the conduct of persons and entities in a commercial or economic context.
223 Questions relating to the identification and definition of a market or markets, the competition that is said to occur in that market or markets, the characterisation of the conduct of persons said to be participants in that market or markets, and the substitutability of goods or services, are all ultimately questions of fact. There is, however, a proper role or scope for expert evidence in relation to these issues.
224 In Australia Meat Holdings Pty Ltd, Wilcox J explained the role of expert economic evidence in relatively narrow terms. His Honour said (at 316):
… I deprecate the course, taken by AMH, of supplying to economists proofs of the evidence to be given by other witnesses and then eliciting from those economists opinions as to the proper conclusion upon the definition of the market. Economists are able to assist the court in relation to economic principles. But, once the relevant principles are expounded, their application to the facts of the case is a matter for the court. The proper definition of a market is entirely a matter of fact, the determination of which ought not to be made more protracted and expensive by the adduction of unnecessary expert evidence.
225 In Australian Competition and Consumer Commission v Liquorland (Australia) Pty Ltd [2005] FCA 630 at [21]-[36], Allsop J explained the permissible scope or role of expert economic evidence in this context in slightly more expansive terms. Having observed that economics is a social science that involves, amongst other things, the assessment of human behaviour, his Honour said, of the role of an economist (at [29]):
Because it [economics] is a social science and because in one sense and in part it truly is a way of approaching matters and a way of thinking about matters, there is a role, it seems to me, for the economist to assist the court by expressing, in his or her own words, what the human underlying facts reveal to him or her as an economist and what it reflects to him or her about underlying economic theory and its application.
226 The economist may also have a role in ordering, categorising and explaining the primary assumed facts if that is based on the use of the economist's specialised technique of thinking. In Liquorland [2005] FCA 630, Allsop J said that the economist may (at [32]):
… through his or her skill and background and expertise, be able to identify critical aspects of the underlying material as important to economic theory and consumer behaviour and economic behaviour, illustrating or illuminating the application of simple, or perhaps complex, economic theory. From that, conclusions can be drawn, through a reasoning process, which may be very short, as to what this economist thinks is the appropriate way to order, prioritise, synthesise and explain that underlying material.
227 There are, however, limits to the role in which an economist can properly or usefully play in relation to the primary or underlying facts. It is not for the economist to draw inferences or express conclusions about the primary facts if those inferences or conclusions are not based on his or her skill, background and expertise. Such, "retailing" of the primary evidence (an expression used by Allsop J in Liquorland [2005] FCA 630) is at best of little or no assistance to the Court and, at worst, is inadmissible.
228 It is also ultimately necessary to be able to identify and distinguish the primary facts and assumptions (however they may be categorised, ordered or prioritised by the economist) from the economist's opinion. That is because, as with all expert opinion evidence, the relevance and weight to be given to the opinion evidence will depend, to a large extent, on the correctness or otherwise of the assumed or proved facts. And, as with all expert evidence, the judge, as tribunal of fact, is not bound by the expert evidence, even if no opposing expert opinion evidence is adduced. The weight to be given to the economist's expert opinion is a matter for the judge and will depend, to a large extent, on whether the opinion is based on facts or assumptions that are proved to be accurate or correct.
229 The primary judge gave detailed consideration to Dr FitzGerald's evidence. It could not sensibly be contended that his Honour "failed to take into account" Dr FitzGerald's evidence, as the ACCC contended in ground 3, if by that expression the ACCC meant that his Honour ignored the evidence.
230 The primary judge expressly accepted Dr FitzGerald's evidence as to economic principles, but ultimately did not accept Dr FitzGerald's application of those principles to the facts of the case. In particular, his Honour rejected, or gave no, or very limited, weight to Dr FitzGerald's opinions or conclusions concerning relevant market definitions and competition. The primary reason for that was that his Honour did not accept the various assumptions or conclusions concerning the underlying facts that were critical to the opinions that Dr FitzGerald expressed concerning markets and competition. In a sense, his Honour was rejecting aspects of Dr FitzGerald's evidence that amounted to no more than the "retailing" of the primary facts. This undermined Dr FitzGerald's opinions in relation to the relevant market and competition.
231 The question is whether the primary judge erred in rejecting the critical factual assumptions or inferences relied on by Dr FitzGerald and therefore rejecting his opinions.
232 On a close analysis of all the evidence, and the entirety of the primary judge's reasons, it cannot be concluded that his Honour erred in rejecting, or giving little weight to, Dr FitzGerald's opinions. His Honour's findings were open on the evidence and his reasoning does not reveal any error; they are findings with which we agree, from the examination of the record.
233 The most critical assumption or conclusion by Dr FitzGerald was that the services provided by bank branches (including ANZ branches) and brokers were effectively the same or close substitutes. There could be little doubt that this assumption or finding was fundamental to Dr FitzGerald's opinions and conclusions concerning the existence of a loan arrangement services market in which branches and brokers competed.
234 It is important to consider how Dr FitzGerald came to make that assumption or arrive at that finding. In his first report, Dr FitzGerald noted that he had been asked to assume, amongst other things, that brokers provide services to persons seeking to acquire loan products from loan providers as pleaded and as defined in paragraph 7 of the ACCC's pleading as "loan arrangement services" and as pleaded and defined in paragraph 6 of the ANZ's defence as "broking services". Both these paragraphs of the pleadings are extracted earlier in these reasons. It is to be noted that Dr FitzGerald was asked to, and made, that assumption despite the fact that ANZ did not admit that brokers provided loan arrangement services as defined in the ACCC's pleading, and despite the apparent differences between the two paragraphs of the pleadings. In effect, Dr FitzGerald was asked to, and did, assume that there was no difference between loan arrangement services and broking services as respectively defined in the ACCC's FASC and ANZ's defence.
235 As well as making this assumption, Dr FitzGerald also effectively found (or expressed an opinion) that there was no difference between the ACCC's "loan arrangement services" and ANZ's "broking services". In [13] of his first report, Dr FitzGerald stated:
In respect of services provided to prospective borrowers I do not see these two definitions as significantly different, except that the SoC explicitly states (para 7.1) that these services may be in respect of the loan products of either a single provider only, or more than one provider. For reasons that I elaborate in my opinions given in answer to the questions I have been asked, set out below, I do consider that these services may be in respect of the loan products of either one loan provider or more than one.
(Emphasis in original.)
236 Thus, Dr FitzGerald saw no significance in the fact that loan arrangement services can relate to loan products of a single loan provider, or the loan products of more than one loan provider, whereas "broking services" could involve independently given comparative advice concerning loan products from different loan providers. At [23] of his report, Dr FitzGerald confirmed again that the two "descriptions … do not differ materially". And at [53], Dr FitzGerald expressed the opinion that the relevant services "are the same or close substitutes" whether they are provided by bank staff (tied to that bank's own loan products) or by an "untied broker".
237 In his second report, which was a report that reviewed a report from an economist served by ANZ but not relied on at trial, Dr FitzGerald addressed this issue again. At [45] and [46] of this report, Dr FitzGerald addressed the question whether there was a difference between the services offered by "tied" channels, such as bank franchisees, and "untied" brokers in the following terms:
Moreover, franchised mobile lenders operate in essentially the same way as brokers, and compete directly with them in a relevant geography, by offering most of the same services, notwithstanding that the choices of loan products they can assist loan seekers with are confined to those of one lender. In a world where a substantial majority of loan seekers begin by obtaining information about a number of competing lenders' products from the internet before going to an intermediary, this is not in my opinion a significant difference between the bundle of loan arrangement services that the two offer.
Equally, I believe that the bundle of loan arrangement services offered by ANZ in-house channels is not materially different from the bundle offered by brokers, with again the only significant difference being that the in-house channels assist with applications only in respect of choices from the range of products offered by Mortgages.
(Footnote omitted.)
238 Dr FitzGerald then referred to two affidavits (not apparently relied on at trial) that identified, as a relevant difference, the fact that the brokers can offer a greater choice. Dr FitzGerald then said (at [49]-[50]):
As regards the points above that in-house channels offer choices only over ANZ's range of loan products, and do not have the same level of knowledge as brokers do of alternative lenders' offerings, I note again that:
• mortgage brokers are very unlikely to be accredited with all lenders operating in Australia, and may not even be accredited with all major lenders (and may in fact be accredited with only a few), so the extent of 'choice' they offer may be limited and is in any event a point of differentiation in what they offer loan seekers;
• in any event, more than two-thirds of seekers of new loans do their own research on the alternatives offered by lenders before coming to a physical channel. The most important parameters (principally about competing variable and fixed interest rates) are very widely publicised and compared both in print and on the internet; and
• staff of ANZ in-house channels are provided with access to information (as above) on competing lenders' products - and so can and do respond to loan seekers' comments or queries on how ANZ's products compare.
For these reasons I do not see these as fundamental areas of difference between the bundles of loan arrangement services offered by in-house and independent channels. Notwithstanding the differences, these bundles are in my opinion relatively close substitutes in the economic sense.
(Footnotes omitted.)
239 It is important to note that Dr FitzGerald did not support his beliefs or assertions in this regard by reference to the evidence of the so-called "industry witnesses" or the ANZ internal documents. Indeed, it seems (in particular from [54] of his second report) that his views in that regard appear to be based on little more than his observation that "there is a substantial area of overlap among the bundles of services provided by the in-house or tied channels and by brokers."
240 The basis of the views expressed in these paragraphs was the subject of detailed cross-examination of Dr FitzGerald. It is unnecessary to discuss that cross-examination here. It is summarised (at considerable length) at [417] to [477] of the judgment of the primary judge. Suffice it to say that weaknesses in aspects of Dr FitzGerald's reasoning were exposed by this cross-examination, as was the fact that some of his views were no more than a product of Dr FitzGerald's own fact-finding, or his own factual evaluation, or in at least one respect his personal (rather than professional) experience. Dr FitzGerald agreed in cross-examination that these paragraphs of his second report covered the entirety of the areas he had analysed.
241 Of the reasoning in these paragraphs of Dr FitzGerald's second report, his Honour made the following observations (at [413]):
I have difficulty with Dr FitzGerald's dismissal of the wider range of products and lenders offered by brokers, as opposed to in-house and tied channels, and of the associated concept of relatively independent advice as to product suitability. The question of substitutability is, of course, to be determined by reference to behaviour in any relevant market, but the industry evidence seems to suggest that in the broking business, a high premium is placed on choice. One might expect that Dr FitzGerald would have explained his reasons for discounting the matter. I also have difficulty with Dr FitzGerald's insistence that loan products, themselves, are not significantly differentiated. Again, the industry evidence suggests otherwise. I shall return to these questions. As to Dr FitzGerald's view that use of the internet may fill any gap in the services offered by in-house and tied channels, I have previously indicated that his understanding of the extent of such use in connection with borrowing involves a misunderstanding of the Bank West survey material.
242 It was open to the primary judge to reject (or give little weight to) Dr FitzGerald's assumptions, views or findings concerning the equivalence of the services offered by banks and the services offered by brokers based on the deficiencies or weaknesses exposed in cross-examination. To the extent they were findings or opinions, as opposed to assumptions, they were not findings or opinions predominantly based on his economic credentials or experience. They were inferences Dr FitzGerald himself drew from some facts (not all of which were supported by evidence) or his own perceptions or experiences.
243 That was not, however, the only basis for the primary judge's rejection of this aspect of Dr FitzGerald's evidence. A more fundamental problem was that his Honour found that the industry evidence did not support Dr FitzGerald's assumptions and conclusions in this regard. His Honour's reasoning includes the following (at [535]-[539]):
I turn to Dr FitzGerald's evidence. The industry evidence also does not support many of his assumptions and conclusions. Dr FitzGerald's assumptions concerning the product supplied by mortgage brokers, and the differences between that product and the product allegedly supplied by lenders is a particular example. One of his reasons for concluding that the products are substitutable is that the loan products, themselves, are not significantly differentiated, so that competition will focus largely on the accompanying services. The evidence from industry witnesses establishes that the broker's task is to find a loan product which suits a particular potential borrower's needs and characteristics, and that such a borrower may meet the lending criteria of one lender but not those of another. The evidence also suggests that lending criteria and product characteristics vary over time.
Dr FitzGerald's view is also, to some extent, dependent upon his belief that many, perhaps most potential borrowers obtain significant amounts of information from the internet. This perception is based on a survey which was, itself conducted on-line. Further, it discloses only that in 2007 63% of respondents used the internet to "access" information on loans, and that 38.1% used it as their main source. However there is no evidence as to the next step taken by these respondents, in particular, as to whether they went to a broker or a lender. Nor is there evidence as to the nature of the information which they obtained from the internet. Dr FitzGerald's inclusion of the internet as a major source of information concerning loans suggests that a lender's internal and tied channels are, by themselves, insufficient to compete with brokers, at least for some sections of the community, perhaps re-inforcing the proposition that brokers' services are significantly different from those provided by a lender's in-house and tied channels.
There is no evidence as to whether the sites visited by internet users are lenders' sites or sites dedicated to comparing available products, although Dr FitzGerald says that the Cannex site (which provides some comparable information) is very popular. Access to lenders' sites would not provide comparative information. A potential borrower would have to visit numerous sites. A broker is not only a supplier of information. He or she is also a filter. If the internet user goes to a site offering comparisons, there may be questions about the accuracy of the relevant information, currency and general reliability. It may be that information from such a site is not as satisfactory to a potential borrower as information provided by a human being in an established office environment, particularly if the office has been in place for some time and/or the potential borrower has been referred to it by another person. Such questions have not been investigated.
Dr FitzGerald and the ACCC seem also to discount the importance to potential borrowers of a broker's independence from potential lenders. Again, the industry evidence suggests that this is one of the broker's strengths. This aspect may not be as prominent in much of the promotional material as one might have expected. However the evidence demonstrates that ASIC has discouraged brokers from describing themselves as being independent of lenders, no doubt because of the universal, or near universal remuneration of brokers by lenders. Nonetheless, it is clear that brokers seek to create an image of ethical conduct which at least implies independence. See, for example, the Mortgage Choice Customer Charter in exhibit 1 tab 1. See also the BankWest survey material (exhibit 2) under the heading "Benefits of Using a Broker". The benefits surveyed clearly create an impression of expert (and therefore independent) advice as to a wide range of products. Further, ANZ seems to have believed that the brokers occupied an area of trust.
Finally, I have difficulty with Dr FitzGerald's approach to a potential borrower's purpose when he or she approaches either a lender or a broker. Clearly, a potential borrower approaches a broker in order to obtain advice and assistance for the purpose of applying for a loan. When a potential borrower approaches a lender directly, he or she will generally be simply seeking a loan from that lender. There may be some people who go to bank branches or other lenders' internal channels to obtain information as to available and suitable products, intending to visit other lenders for the same purpose, and then to compare the outcomes. There is no suggestion that many people do so. In any event brokers offer an alternative to that time-consuming task. Some information may be acquired "over the counter" in branches. Lenders no doubt have brochures which provide information concerning their products, or some of them, but that is not the service which is alleged in this case. The in-house service, which is said to be offered in competition with that offered by brokers, includes assembling the necessary information and advising as to an appropriate product offered by the lender in question, completing and submitting the application and, possibly, providing follow-up services in connection with the application.
244 There is no error in this reasoning. It was open to his Honour, on the whole of the evidence, to find that these critical assumptions and conclusions that founded Dr FitzGerald's analysis were not supported by the industry evidence.
245 It should be noted, in this context, that the ACCC complained that his Honour's reasoning in relation to the different attributes of the services offered by bank branches and independent brokers was erroneous because "on the uncontradicted evidence, including the expert evidence of Dr FitzGerald, those attributes might be regarded by some potential borrowers as making the services of brokers more attractive, but did not differentiate those services to the extent that the services of banks and brokers could not or should not be regarded as close substitutes" (ground 6 of the notice of appeal).
246 That submission is rejected. Dr FitzGerald's evidence was not "uncontradicted". To the extent that Dr FitzGerald's views on this issue comprised opinion evidence based on his training and experience, which is doubtful, it might be correct to say that there was no contrary economic opinion evidence. Nonetheless, the basis and correctness of his opinions in this regard were the subject of direct challenge in cross-examination. More significantly, Dr FitzGerald's views or opinions about how potential borrowers regarded the differences between the services provided by branches and brokers, when properly analysed, were the product of fact-finding or factual evaluation not solidly grounded in Dr FitzGerald's expertise as an economist. The primary judge was equally qualified to draw inferences and arrive at conclusions about such matters. The ACCC did not identify any other "uncontradicted evidence" said to compel a conclusion contrary to that arrived at by the primary judge.
247 It was open to the primary judge to conclude that the different attributes of the services offered by brokers were sufficiently significant to mean that they were not close substitutes for the services offered by bank branches. The evidence did not compel a contrary finding.
248 The ACCC contended (paragraph 3.3 of the notice of appeal) that the primary judge's "criticisms" of the expert evidence of Dr FitzGerald were based on a number of "propositions" which were not "raised" with Dr FitzGerald, either in cross-examination or by his Honour. It also contended, in the same paragraph of the notice of appeal, that his Honour's "criticisms" were based on his interpretation of parts of documents which were not "raised" with Dr FitzGerald. These contentions were not significantly developed by the ACCC in its submissions. It did not identify the specific "criticisms", or the "propositions" or "interpretation" of documents not put to Dr FitzGerald. Nor did it identify why fairness, or any other consideration, required the propositions or interpretation to be put to Dr FitzGerald.
249 It is not accurate to characterise the primary judge's treatment of Dr FitzGerald's evidence as "criticisms". His Honour simply did not accept many of the assumptions or inferences of fact that founded Dr FitzGerald's opinions. The cross-examination of Dr FitzGerald directly or indirectly addressed and challenged the important assumptions or inferences upon which Dr FitzGerald based his opinions. It is not correct that these matters were not "raised" with Dr FitzGerald. Further, to the extent that his Honour's findings concerning the underlying assumptions or factual findings were based on different interpretations of parts of ANZ's internal documents, his Honour was not, in all the circumstances, obliged to "raise" the potentially different interpretations with Dr FitzGerald in the course of his evidence.
250 The ACCC raised a number of other complaints concerning the primary judge's treatment of Dr FitzGerald's evidence. It is unnecessary to consider all those criticisms. It is enough to say that the additional criticisms have no merit. They were based on a mischaracterisation of parts of the primary judge's reasoning and the importance of Dr FitzGerald's evidence to it. One example will suffice.
251 The ACCC complained that his Honour rejected Dr FitzGerald's "functional analysis" which relied, to an extent, on treating ANZ as relevantly comprising different business units. The separate business or economic units included ANZ Mortgage Group, which was responsible for approval and grant of all loan products, and ANZ's internal distribution channels, in particular the branches. Dr FitzGerald's opinion was that the relevant market was a "two-sided" market where ANZ Mortgage Group was in a "vertical relationship" with each of the "downstream channels", including the ANZ branches, and the ANZ branches were also in a "horizontal relationship", as competitors, with brokers.
252 The ACCC submitted that the primary judge rejected this aspect of the analysis and that in rejecting it he acted contrary to the admitted facts as to the business structure of ANZ and the agreed view of the competing economists (Dr FitzGerald and ANZ's economist) and economic theory. That submission is based on a mischaracterisation of his Honour's reasons. His Honour understood Dr FitzGerald's distinction between business units and accepted that separate treatment of economic units might be useful and appropriate in certain cases and in certain circumstances: see [262] and [263]. His Honour found, however, on the facts and evidence relating to the advice and assistance provided by ANZ branches to customers, that it was artificial to characterise the activities of the branches as supplying loan arrangement services to customers in a market for the supply of such services. Accordingly, the fact that ANZ may have had separate and distinct internal economic or business units was of no moment.
253 His Honour's reasons for arriving at this finding have already been dealt with at length earlier in these reasons. The important point is that this finding was not a rejection of any aspect of economic theory involving a functional analysis, separate economic units or vertical and horizontal relationships. It was, rather, a finding of fact concerning the proper characterisation of the relevant activities of the ANZ branches. It was, in other words, a rejection of the ACCC's case (and Dr FitzGerald's opinion) that the relevant economic theory applied to the particular facts of this case.
254 The ACCC has failed to demonstrate that the primary judge erred in his treatment of Dr FitzGerald's evidence. Appeal ground 3 is accordingly not made out.