Australian Competition and Consumer Commission v Boral Ltd

Australian Competition and Consumer Commission v Boral Ltd - [1999] FCA 1318 - FCA 1999 case summary — Zoe

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Relevant TPA provisions 6 Section 46 of the TPA relevantly provides: "46(1) A corporation that has a substantial degree of power in a market shall not take advantage of that power for the purpose of: (a) eliminating or substantially damaging a competitor of the corporation or of a body corporate that is related to the corporation in that or any other market; (b) preventing the entry of a person into that or any other market; or (c) deterring or preventing a person from engaging in competitive conduct in that or any other market. (1A)For the purposes of subsection (1): (a) the reference in paragraph (1)(a) to a competitor includes a reference to competitors generally, or to a particular class or classes of competitors; and (b) the reference in paragraphs (1)(b) and (c) to a person includes a reference to persons generally, or to a particular class or classes of persons. (2) If: (a) a body corporate that is related to a corporation has, or 2 or more bodies corporate each of which is related to the one corporation together have, a substantial degree of power in a market; or (b) a corporation and a body corporate that is, or a corporation and 2 or more bodies corporate each of which is, related to that corporation, together have a substantial degree of power in a market; the corporation shall be taken for the purposes of this section to have a substantial degree of power in that market. (3) In determining for the purposes of this section the degree of power that a body corporate or bodies corporate has or have in a market, the Court shall have regard to the extent to which the conduct of the body corporate or of any of those bodies corporate in that market is constrained by the conduct of: (a) competitors, or potential competitors, of the body corporate or of any of those bodies corporate in that market; or (b) persons to whom or from whom the body corporate or any of those bodies corporate supplies or acquires goods or services in that market. (4) In this section: (a) a reference to power is a reference to market power; (b) a reference to a market is a reference to a market for goods or services; and (c) a reference to power in relation to, or to conduct in, a market is a reference to power, or to conduct, in that market either as a supplier or as an acquirer of goods or services in that market. (5) Without extending by implication the meaning of subsection (1), a corporation shall not be taken to contravene that subsection by reason only that it acquires plant or equipment. … (7) Without in any way limiting the manner in which the purpose of a person may be established for the purposes of any other provision of this Act, a corporation may be taken to have taken advantage of its power for a purpose referred to in subsection (1) notwithstanding that, after all the evidence has been considered, the existence of that purpose is ascertainable only by inference from the conduct of the corporation or of any other person or from other relevant circumstances." Also relevant are TPA ss 4E and 4F(1)(b): "4E For the purposes of this Act, unless the contrary intention appears, 'market' means a market in Australia and, when used in relation to any goods or services, includes a market for those goods or services and other goods or services that are substitutable for, or otherwise competitive with, the first-mentioned goods or services. 4F.(1) For the purposes of this Act: (a) … (b) a person shall be deemed to have engaged or to engage in conduct for a particular purpose or a particular reason if: (i) the person engaged or engages in the conduct for purposes that included or include that purpose or for reasons that included or include that reason, as the case may be; and (ii) that purpose or reason was or is a substantial purpose or reason. …"

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Tilt-up and precast panels 28 Tilt-up and precast are essentially the same product. A section of a wall is cast in concrete and then placed in position. The term tilt-up was sometimes applied to the product when made off site. Sometimes the terms were used interchangeably. An experienced quantity surveyor, Mr Peter Slattery, deposed as to the considerations which might dictate a choice of tilt-up or precast as opposed to concrete block. He said: "16.2 In my view, in Victoria in the years since before the recession of the early 90s, the market position of concrete masonry has weakened, except in relation to housing, and this can be attributed to two major causes: (a) building owners have looked for the most economical outcome from both capital and life cycle costs and together with their consultants have become more aware of the alternative products and building systems available and are willing to move away from the traditional materials such as masonry; (b) pre-cast concrete wall panels have been used extensively in the multi-unit developments of the 90s and gained acceptance as a real alternative to masonry at a relatively modest unit cost and the advantages of significantly reduced construction times. Also the structural characteristics of pre-cast concrete panels eliminate many structural elements required with traditional load bearing masonry construction." 29 Mr Steele of Rocla said: "Despite the superficial cost advantage which block appears to have over tilt-up, within a few years tilt-up had diminished the block market by 65 to 75 per cent. In my opinion it had such a significant impact that it brought the masonry commercial walling industry to its knees." 30 One reason for the increased use of tilt-up was the sharply increased labour cost associated with laying blocks and the fact that the block or bricklayers were part of a highly unionised labour force. During the boom years of the late 1980s the cost of using concrete masonry increased. This was an incentive for cost-effective alternatives. 31 More recently the substitution of tilt-up for block has to some extent been reversed as the cost of using block has fallen. Mr Simon Pethica of Bradys said: "The cost of tilt-up panels increased at a greater rate in comparison with concrete masonry blocks since the mid 1990s. I was aware of the price differential between masonry products and tilt-up panels because suppliers of concrete masonry blocks indicated to me that the increased cost of tilt-up panels represented an opportunity to supply blocks for the construction of factories. Also the cost of labour on site in concrete block laying has fallen in comparison to concrete panel and tilt-up. This has led it to an increased use of concrete block in recent years in preference to tilt-up or precast concrete."

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Plasterboard 32 The complex factors operating on a choice of concrete block as against stud and plasterboard are described by Mr Slattery as follows: "16.5 Internal walls in many types of construction nowadays are typically made from a stud and plasterboard system. In particular circumstances, for example, where a structural wall is required, or where there are noise and fire rating concerns (for example with internal party walls), it is often preferable to use masonry block products. The benefits of concrete masonry block products are that they have good sound transmission and fire resistance characteristics, they are robust, relatively easy to reinforce and readily maintained. Concrete masonry blocks are heavy however, and in many high-rise constructions, the floor slabs must be designed specifically to bear the extra weight of such internal walling and the hard plaster applied finishes with thicker floor slabs, increasing structural costs." 16.6 For this reason, increasingly in high-rise applications, fire rated and sound-proofed stud and plasterboard systems are being used for internal party walls and the walls around lift shafts and ducting as they have similar direct material costs, potentially lower installation costs (it may then not be necessary to have bricklayers on site) and lower structural costs from slimmer floor slab sections. Another benefit of using stud and plasterboard partitions is that they are built off the floor after carpet and ceilings have been installed. Rates for installation of carpet and ceilings are lower when large uninterrupted spaces are available. Installation is also quicker where spaces are large and open. This leads to a further cost and time savings in comparison to concrete masonry products. 16.7 Another disadvantage of using concrete masonry for internal walls is that concrete masonry walls allow less flexibility for future replanning of internal spaces. It is difficult to remove or redesign masonry partition walls after they have been installed. Also, relocation of concrete masonry walls causes prolonged inconvenience to the building's occupants, damages wall and ceiling finishes (often requiring their full replacement), and is noisy, dusty and slow. 16.8 In my view, however, where the choice to use stud and plasterboard systems is made, a lower quality outcome results. This can be an important factor to a developer, especially for a luxury unit development or when ongoing ownership of the building is intended. 16.9 In relation to internal walls, aesthetics are less important, as the walls are generally painted or otherwise coated. Accordingly, in selecting materials, total cost comparison becomes more important."

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Monitoring 37 Both BBM and other concrete masonry manufacturers regularly monitored products which threatened to take sales away from concrete masonry products. Both BBM and other manufacturers formulated defensive strategies and offensives to capture sales from such other products. BBM's strategic business plans showed an awareness of the constant threat of competing products and the opportunity to take sales from them. For example in its 1992 Strategic Business Plan prepared by Mr Rawnsley it was noted that significant sections of the market had disappeared to alternative products and that BBM should aim to "elevate the image of concrete brick so as to be an acceptable alternative to clay at a competitive price" and that its concrete brick was estimated to gain three per cent of the present clay market within three years. In July 1994 Mr Cormack sent a memorandum to State managers in his Division. One of the discussion items was stated as follows: "… to get the managers to obtain information about the cost of products which compete with masonry and to consider the future of masonry products in light of the competition faced from substitutable products." 38 In a response to that request Mr Rawnsley and Mr Vella prepared a document which compared the price of alternative products such as plasterboard, clay, tilt-up, asphalt and concrete to concrete masonry. 39 Again in February 1995 an analysis prepared by BBM indicated that the shares of the total walling market of clay, masonry, tilt-up panels and timber were 77, 11, 10 and 2 per cent respectively. 40 Other concrete masonry manufacturers behaved in the same way. The industry association, the Concrete Manufacturers Association of Australia, in May 1995 commissioned a report to review the position of concrete masonry products, vis-ŕ-vis competing products and systems. The report looked at the purchasing process and attitudes towards concrete, masonry and key alternatives. Mr Griffin said that the main reason for Pioneer's October 1993 price list was to win back sales from tilt-up. Pioneer's intention was to go to those jobs that had been specified in precast and tilt-up and try to win them back to block. Pioneer also lobbied builders and architects about the relative merits of block against tilt-up. Part of Pioneer's marketing effort was directed at the residential construction market to have concrete pavers used in driveways rather than in situ concrete. Other witnesses such as Mr Steele of Rocla spoke of concrete masonry manufacturers' efforts to persuade architects to use specified block rather than tilt-up. They would meet with architects generally or when they knew a particular project was coming up. There was even a second stage where manufacturers would encourage builders to negotiate a change of a specification already made. Mr Ullner when setting up C&M's Melbourne operation looked at the market and planned to get sales from clay bricks and clay pavers. He expected to obtain 5.44 per cent of the total Victorian sales of clay products.

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BBM/C&M negotiations Feb-July 1994 58 In early February 1994 negotiations commenced between BBM and C&M for the possible acquisition of C&M's Campbellfield plant. It remains unclear which of the parties initiated these negotiations. In any event, contact was made and Mr Rawnsley of BBM met Mr Ullner at the Broadmeadows Inn. Mr Ullner made it clear at the outset that Pioneer were also interested. At the meeting Messrs Ullner and Rawnsley discussed the manufacturing capabilities of the Hess plant, about which Mr Ullner was very enthusiastic. He said the BBM in Victoria would be "shot out of the water". At Mr Ullner's request a further meeting was agreed upon and Mr Rawnsley wrote to C&M on 16 February 1994 confirming that BBM was "serious in its approach to examine the viability of acquiring" the assets of C&M. A few days later Messrs Rawnsley, Cormack and Vella attended at the Campbellfield site with Messrs Ullner and Kupke. BBM was only interested in the Hess plant itself. Mr Kupke said that he and Mr Ullner wanted to sell the plant and retire, or perhaps use the proceeds of sale to set up a plant in New South Wales or Queensland. However the BBM people were rather surprised when they saw the Hess plant. They thought that the layout was poorly designed and that maintenance and housekeeping had been neglected. Nevertheless they left the meeting quite enthusiastic about the purchase. However Mr Ullner had indicated he and Mr Kupke were only prepared to sell all of C&M. Shortly afterwards Messrs Ullner and Kupke visited the BBM Sunshine plant. Mr Rawnsley showed them around, discussed how the plant operated and told them that Sunshine needed to be replaced in the medium term. Accordingly if BBM did acquire C&M then Sunshine could be closed. There was some discussion about Messrs Ullner and Kupke staying on in the short term as consultants. The personal relationship between the two sides at this stage was good. Further discussions took place at Mr Kupke's home about financial aspects. In none of these discussions did Ullner or Kupke nominate a price. BBM understood it was up to them to make an offer. Mr Kupke at an earlier meeting referred in a general way to $13 million on the basis that this was what had been allegedly spent on the Campbellfield operation. 59 Over the following few months BBM continued to give serious consideration to buying the Hess plant and, if necessary, the entire C&M operation. However the initial urgency abated, and in particular the immediate threat of Pioneer acquiring the machine receded. On 6 May BBM prepared a detailed internal assessment of the proposed purchase. They noted amongst other things that purchasing C&M provided one means of alleviating the problems of overcapacity. Victoria at the time had the lowest per capita consumption of concrete masonry in Australia and yet had more plants per capita than any other State. Prices generally were very low and all industry participants were competing vigorously. Within that context C&M were performing relatively well. They were aggressively winning sales and market share in concrete brick and paver. There were continuing rumours that they were about to commence production of concrete block. C&M appeared to be the only option available for purchase. On 1 July Mr Ullner telephoned Mr Rawnsley and said that BBM had missed out and that C&M had accepted an offer from somebody else. Mr Rawnsley did not believe this. BBM resolved to make an offer to purchase the C&M Hess plant only for $3.8 million. Mr Vella and Mr Rawnsley met with Mr Kupke and put the figure to him. Mr Kupke was "clearly livid" and stormed out. From BBM's point of view the $3.8 million was unlikely to be accepted, but nevertheless a reasonable opening offer. Mr Rawnsley had no authority to make any higher offer and awaited a counter-offer. But nothing eventuated. He considered the $13 million was a grossly inflated figure. He knew that the Hess machine had cost C&M around $760,000 and had an idea of how much it cost to set up the plant and necessary infrastructure. Most of the other equipment at Campbellfield was secondhand. 60 In the end nothing eventuated from these negotiations. I am quite satisfied however that at least from BBM's view they were conducted in good faith and not, as suggested, as a means of trying to find out information about C&M or as some kind of intimidatory tactic.

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Crown Casino Dec 1994-July 1995 68 On 6 December BBM quoted to the builder Grocon for the first stage of this very large project. BBM had a good relationship with the builder and tendered prices higher than the market as it had made a conscious decision to raise prices generally. On 29 March BBM submitted a revised quote with 15.01 at 80 cents. This was still significantly higher than the market price. This quote was slightly revised again. On 6 April BBM was awarded the job and began to supply block. 69 In about June Grocon told Mr Vella that for the next stage of the project it proposed to contract out to blocklayers and asked for a recommendation. Mr Vella supplied three names but recommended Bradys. Mr Vella assumed that because of the good relationship with Bradys it would buy from BBM at the same price Grocon was paying. 70 Bradys was duly selected by Grocon. However shortly afterwards Mr Pethica of Bradys told Mr Vella that Pioneer had offered to supply at much lower prices, for example 71 cents for 15.01. 71 Initially Mr Vella did not believe this but shortly afterwards Mr Tony Brady telephoned him and said that he would have no choice but to buy the product from Pioneer unless BBM reduced its prices. Mr Vella spoke to Mr Stan Falloon of Grocon who said that they did not want to use the Pioneer product for the job and that if BBM would match the Pioneer prices he would make sure that BBM product was used. After discussion with Mr Rawnsley, Mr Vella told Mr Falloon that BBM would match Pioneer's prices. Mr Falloon spoke to Bradys and as a result the order to Pioneer was cancelled. 72 In addition BBM offered to pay a confidential rebate. The rebate was for Grocon 4 per cent of all products supplied and for Bradys $1000 per month. These rebates were to continue for the remainder of the Casino project. Amongst other things this was seen as a good marketing investment for BBM because it was good publicity for BBM trucks to be seen delivering block to a major construction site. Also their good relationship with Bradys was very important. But also the rebate was offered partly because Messrs Rawnsley and Vella were angry and frustrated at what seemed to them an attempt by Pioneer to drive down prices on the project when BBM was trying to improve prices in the industry and had already won the tender at a good price.

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Further discussion of possible BBM closure late 1994 74 At the end of 1994 there was further high level consideration of the option of closing down BBM's operations in Victoria. This was discussed at general managers' meetings and, as I shall mention in a moment, between Mr Cormack and Mr Berg. Mr Rawnsley deposed as follows: "172 … my own view, and my perception of the view of national management was that any closure would suggest that Boral masonry and other Boral companies would give in the face of stiff competition. Further, Boral Masonry was the only national masonry operator. This gave us an advantage in the eyes of our major customers, many of whom preferred dealing with national operators like themselves.
More importantly though, closure would simply give up to our competitors the production volume and market share that we had fought so hard to restore. In my view, it had to be worthwhile to hang for some time even in the face of some big losses, to see which of our competitors would 'break first' and depart from the industry. I thought this was the only possible solution as we had already examined all of the possible options ourselves and did not believe that any of our competitors, except perhaps C&M with its lower costs of production for concrete brick and concrete pavers, would come to a different conclusion than we had. It had been a struggle to re-establish our credibility with customers and I did not believe that it would be possible to re-establish it a second time. My view was that we needed to take a long term decision rather than being unduly concerned about short term losses as I believed that the industry had a bright future with the introduction of new and innovative products which were potentially a source of profitable activity for BBM Victoria." 75 I accept Mr Rawnsley's evidence as to this. Also at this time Mr Cormack had a meeting with Mr Berg at which they discussed the options ahead for BBM in Victoria, including whether to invest further in BBM Victoria or close it down. As already mentioned, Mr Cormack had similar discussions with Mr Bruce Kean about twelve months earlier. In speaking to Mr Berg in late 1994 Mr Cormack outlined for him the main reasons for BBM staying in business in Victoria. These included: · the substantial contribution BBM in Victoria made to the profits of the Boral upstream organisations - the Boral group was generally prepared to accept lower positive returns on masonry products because masonry was an important consumer of quarry tines and cement; · Boral was a national masonry producer and there were continued benefits in BBM Victoria staying in the industry; · the negative image of Boral being forced to close its operations by a new entrant. 76 Nevertheless Mr Cormack told Mr Berg that it would be "a struggle for BBM Victoria to continue in the industry". He said that if Boral was not prepared to invest money in upgrading the Deer Park facility so that BBM could improve the quality of its production capacity and profitability, then perhaps they should consider closing down BBM in Victoria. 77 Mr Berg did not take much time to consider this. He agreed with Mr Cormack's reasons for keeping BBM Victoria operating and dismissed the option of closing it down. He was adamant that Boral should not buy C&M. He said that BBM had to meet the competitive threat posed by C&M through cost rationalisation, that is by shutting the inefficient Sunshine plant and duplicating the plant at the Deer Park production facility. Mr Berg also said to Mr Cormack that he knew that this may lead to further capacity in the industry but his attitude was "so be it". BBM must be able to compete through reducing its costs. The aim was, insofar as possible, to make BBM Victoria's costs of production equivalent to those estimated for C&M so that the two organisations could compete on an even keel in terms of costs.

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BBM Deer Park upgrade strategy Jan 1995 78 The first stage of upgrading the Deer Park plant involved replacing the old Besser machine with a Besser machine obtained from the Seven Hills plant in New South Wales and upgrading the existing kiln. The kiln in particular was dangerous and needed immediate attention. This first stage did not provide any additional capacity. The changes were designed to improve reliability and address occupational health and safety concerns. The second stage involved acquiring plant and equipment from Moss Vale, New South Wales, including a second Besser machine, and closing Sunshine. This seemed to Mr Cormack a cheaper and more efficient option as compared to purchasing C&M or another competitor or closing BBM down in Victoria. The advantages of this strategy were: · substituting more efficient capacity for that of the Sunshine plant and reducing its costs; · greater flexibility in production as Deer Park could devote one machine to production of a particular product and use the other machine for smaller product lines; · rationalisation of many of its operational requirements in reduction of costs caused by operating two plants on different sites. 79 A strategic business plan prepared by Mr Rawnsley for 1994-2000 included the statement "Because we have reached the limit of productive capacity we have had to reduce the level of discounting which we had been using to building market share and weaken the opposition. Our projections are that the market will downturn slightly in 1995/96 and 1996/97 and then recover strongly. To take advantage of the downturn which will put pricing and volume pressure on the market prior to the recover [sic] is the rationale for additional production capacity. When the market turns down our volume … will enable us to supply pressure to our competition. Feed back from the market indicates that C&M and Budget are awed at the prospect of Boral doubling its capacity." 80 In May 1995 Mr Cormack prepared a detailed analysis of the proposed upgrade for Mr Berg. These figures also included an estimate of the contribution of the profitability to the Boral group as a whole from internal purchases by BBM. The upshot was that Mr Berg was asked to approve capital expenditure of $4.4 million to upgrade Deer Park. Mr Berg visited Deer Park and said that he agreed with the upgrade but was not prepared to authorise the amount requested. He wanted a "bare bones proposal" and a guarantee that BBM in Victoria would be cashflow positive, that it would continued to make a positive contribution to profits of the Boral group, and that in the long term it would become profitable in its own right. After Mr Berg's visit Messrs Cormack, Rawnsley and Vella revised the upgrade proposal and got it down to $3.2 million. Mr Berg approved this and the upgrade was implemented.

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Rockman's Regency June 1995 84 Blocklayers Mulgrave, Carlisle and Glover were tendering for this project. On 6 June 1995 BBM gave each of those blocklayers an indicative quote for two of the major block products, 78 cents for 10.31 and 80 cents for 15.83. 85 Soon after BBM submitted its quote Mr Carnivale of Mulgrave spoke to Mr Vella and told him that Pioneer had offered much lower prices than BBM. On 7 August Mr Carnivale invited Mr Vella to requote. Pioneer's prices were discussed at the meeting, for example it appeared Pioneer had quoted 69.2 cents for 10.31. Mr Vella and Mr Rawnsley decided that BBM would reduce its prices to a level at or slightly below Pioneer's in order to win the job. A revised quote was sent on 14 August. The 10.31 was reduced from 78 cents to 68 cents and the 15.83 from 80 cents to 66 cents. The 15.01 was 71 cents. Soon after that revised quote was submitted Mr Carnivale again contacted Mr Vella and told him that Pioneer had offered a further price reduction. Mr Carnivale asked whether BBM would be prepared to reduce its prices further in order to win the job. 86 Mr Rawnsley and Mr Vella discussed BBM's response to Pioneer's second price reduction. They were both keen to win the project, particularly as they were extremely frustrated with Pioneer's conduct in relation to the Casino project where it had driven the prices down at a time when BBM was attempting to raise them. They had also heard rumours in the industry that if Pioneer did not win this project its Sales Manager and Victorian General Manager would be retrenched. This was seen as a desirable outcome for BBM. After extensive discussions Mr Rawnsley authorised Mr Vella to offer Mulgrave a 41 per cent rebate in order to win the project. This was the figure quoted by Mr Carnivale as being the amount by which BBM would have to reduce its prices in order to win the job. The offer was made to Mulgrave and accepted. The net price after rebate for 15.01 was 42 cents. The key product for the project was 10.31 which was reduced to 40 cents.

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Graphic evidence of BBM revenue and costs 111 Some of the evidence provided in graphic form can be summarised as follows. Again for the sake of clarity I will mention only 15.01 block. Figures are approximate only, based on the appearance of the graphs. 112 (i) Sales revenue and variable costs for 15.01 block. From April 1994 both sales and costs plunged together from a high $25,000 to a low $8,000 in June. Then there was a sharp rise to August by which time costs ($30,000) had outpaced revenue ($25,000). Then there was a more gradual fall off until February 1995 with costs consistently above revenue, although the gap was narrowing. From a low of $10,000 both costs and revenue rose in unison to a peak of $53,000 in May 1995. Then a jagged decline to December 1995 (costs $18,000, sales $15,000) with costs always slightly above sales. Finally there was a jagged rise with costs and sales almost identical concluding at $35,000 in October 1996. 113 (ii) Sales revenue and variable cost per unit for 15.01 block. At April 1994 price and cost were both on 80 cents. Price then fell to above 75 cents the following month while cost remained at 80 cents. Price rose to meet cost at July 1994. Thereafter cost rose to 86 cents and remained at that level until July 1996 when it rose by about 2 cents. From August 1994 to May 1996 price was always below cost, with the one exception of June 1995 when they coincided. The difference was as much as 18 cents in October 1994. From April 1996 price was mostly above cost. 114 (iii) Total BBM sales revenue and variable costs. In April 1994 revenue $480,000 was above costs $440,000. Thereafter sales rose to $760,000 (November 1994), dropped to $460,000 (February 1995), rose jaggedly to $850,000 (December 1995), fell sharply then rose to $800,000 in (October 1996). For roughly about three-quarters of this period sales were either equal to or above costs. 115 (iv) BBM and Pioneer monthly unit prices for 15.01 block. For almost all the period BBM was below Pioneer by margins of the order of 10 to 20 cents. However in the period April to July 1994 Pioneer won contracts for Western Metro TAFE, Dandenong Shopping Centre Car Park and Melbourne Exhibition Centre with prices well below BBM's average monthly unit selling price. Likewise with Flagstaff Gardens in February 1996 Pioneer's price was again below BBM's average, although the difference was not so great. 116 (v) Spread of invoice prices of BBM and Pioneer. While more often than not the lowest BBM invoice was below the lowest Pioneer invoices, they were fairly close together. But, generally speaking, the Pioneer invoices had a wider spread from lowest to highest. This is consistent with Pioneer having more smaller customers to whom it could charge higher prices. 117 (vi) Prices for BBM, Pioneer and C&M compared with BBM cost per unit for 15.01 block. Pioneer and C&M prices were substantially above BBM costs except for (Pioneer) a brief dip in January 1995 and the period October 1995 to January 1996 and (C&M) August to November 1995, December 1995 to March 1996 and in May 1996. BBM's price was below its cost per unit for March and April 1994 and for the period June 1994 to March 1996.

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Market definition 120 Section 4E requires the Court to have regard to goods that are "substitutable for, or otherwise competitive with" goods in the posited market. 121 In Re Queensland Co-operative Milling Association Ltd (1976) 25 FLR 169 at 190 the Trade Practices Tribunal gave an exposition which has been consistently adopted by the High Court and this Court in subsequent cases. The Tribunal said: "Before giving our reasons we should explain our understanding of the market concept, and of the relationship between 'markets' and 'sub-markets'. We take the concept of a market to be basically a very simple idea. A market is the area of close competition between firms or, putting it a little differently, the field of rivalry between them. (If there is no close competition there is of course a monopolistic market.) Within the bounds of a market there is substitution - substitution between one product and another, and between one source of supply and another, in response to changing prices. So a market is the field of actual and potential transactions between buyers and sellers amongst whom there can be strong substitution, at least in the long run, if given a sufficient price incentive. Let us suppose that the price of one supplier goes up. Then on the demand side buyers may switch their patronage from this firm's product to another, or from this geographic source of supply to another. As well, on the supply side, sellers can adjust their production plans, substituting one product for another in their output mix, or substituting one geographic source of supply for another. Whether such substitution is feasible or likely depends ultimately on customer attitudes, technology, distance, and cost and price incentives. It is the possibilities of such substitution which set the limits upon a firm's ability to 'give less and charge more'. Accordingly, in determining the outer boundaries of the market we ask a quite simple but fundamental question: if the firm were to 'give less and charge more' would there be, to put the matter colloquially, much of a reaction? And if so, from whom? In the language of economics the question is this: From which products and which activities could we expect a relatively high demand or supply response to price change, i.e. a relatively high cross-elasticity of demand or cross-elasticity of supply?"

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Concrete masonry products or walling and paving products? 122 I have already referred (Pt IV above) to evidence of the use of various alternative products such as tilt-up and clay bricks. The evidence mentioned was but a sample of a large body from both the Commission's and the respondents' witnesses, which was all the one way. This is not a case where the Court has to prognosticate or hypothesise as to the likely behaviour of suppliers or consumers. There was abundant evidence of actual substitution, rising and falling as factors such as price, labour costs, aesthetics and building fashions waxed and waned. This is hardly surprising given the basic facts that the substitutable products were readily available in Melbourne and physically performed the same function. 123 The Commission relied heavily on evidence as to the behaviour of BBM management which was said to show close observation of competitive behaviour in the Melbourne concrete masonry market but not outside that market. Thus Mr Cormack could not name the top ten tilt-up producers and Messrs Randerson and Rawnsley paid no attention to the competitive activities or market shares of any companies supplying products other than concrete masonry products. BBM witnesses in internal documents consistently referred to a concrete masonry products market. Mr Vella said in evidence: "In my mind there's two markets, there's the wider market, which includes tilt-up, clay brick and plasterboard and AAC block and then there's the inner market, if you like, the direct market that we compete with, which is the masonry market." 124 In this context the Commission referred to the comments of Deane J in Queensland Wire Industries Pty Ltd v BHP Co Ltd (1989) 167 CLR 177 at 195-6: "The identification of relevant markets and the definition of market structures and boundaries ... involves value judgments about which there is some room for legitimate difference of opinion. The economy is not divided into an identifiable number of discrete markets into one or other of which all trading activities can be neatly fitted. One overall market may overlap other markets and contain more narrowly defined markets which may, in their turn, overlap, the one with one or more others. The outer limits (including geographic confines) of a particular market are likely to be blurred: their definition will commonly involve assessment of the relative weight to be given to competing considerations in relation to questions such as the extent of product substitutability and the significance of competition between traders at different stages of distribution." 125 But it is not in my view inconsistent with the existence of the market for which the respondents contend that BBM looked in a different way at producers who made the same products as it did. If a job was lost to tilt-up that was that; it would not matter in particular which tilt-up producer succeeded (there were 37 in Melbourne, so Mr Cormack may perhaps be excused a lack of detailed knowledge of them). But if concrete block was specified there would be the closest scrutiny of the behaviour of BBM's two or three competitors. 126 And as already mentioned, there was substantial evidence of the monitoring by BBM (and other masonry manufacturers) of competing products and the formulation of strategies to take sales away from such products and to prevent losing sales to them. For example, Pioneer's October 1993 price list was, according to Mr Griffin, fundamentally designed to win back sales from tilt-up. Concrete masonry manufacturers lobbied builders and architects to specify masonry products, on occasions even after a contract was awarded. 127 Concrete blocks, bricks and pavers were not distinct products generating distinct demands. In Arnotts Ltd v Trade Practices Commission (1990) 24 FCR 313 the relevant market was either the market for biscuits or a wider snack food market including items such as chocolate and corn crisps. In upholding the trial judge's finding of a biscuit market the Full Court stressed (at 333) that "… although some consumers may be fickle, there must be many for whom no other product provides an acceptable substitute; who routinely consume biscuits, throughout the year and with little regard for price variations or alternatives." 128 The Full Court referred to the decision of the Court of Justice of the European Community in United Brands v European Communities Commission [1978] 1 CMLR 429 at 484 which found a separate market for bananas because "… a very large number of consumers having a constant need for bananas are not noticeably or even appreciably enticed away from the consumption of this product by the arrival of [other] fresh fruit on the market …" 129 The European Court had earlier noted (at 483) that the banana "… has certain characteristics, appearance, taste, softness, seedlessness, easy handling, a constant level of production which enable it to satisfy the constant needs of an important section of the population consisting of the very young, the old and the sick." 130 Concrete masonry products are a notable contrast to the products considered in Arnotts and United Brands. A wall is a wall, whether it is made of concrete blocks or tilt-up or concrete bricks or clay bricks. The only need of the builder is to have a wall which will perform as a wall, and for the lowest possible cost. There is no suggestion in the evidence of any builders who had a particular attachment to or need for concrete blocks or bricks so as to generate the kind of product loyalty considered in Arnotts and United Brands. 131 The evidence leads to the conclusion that there was a market in which builders (either directly or through sub-contractors such as blocklayers) acquired materials for use in the construction of walls and paving. Within that market there was not only the ever present threat (or promise) of potential substitution but actual substitution over the time with which this case is concerned. 132 The matter can be tested simply. Could manufacturers of concrete masonry block have significantly increased prices without any fear that there would be, in the words of QCMA, "much of a reaction" from tilt-up? Plainly not.

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Existing and actual power 137 Section 46 is concerned with actual market power which presently exists. It does not speak of potential or latent power or a firm's own subjective perceptions of power. Power of course may not need to be exercised. The stronger the power, the less need for its actual exercise. As President Theodore Roosevelt said, one may "Speak softly and carry a big stick". 138 The concept of market power, the ability to charge more and give less (or, presumably, charge more and give the same, or charge the same and give less) is discussed in QCMA in the passage already quoted. In Eastern Express Pty Ltd v General Newspapers Ltd (1992) 35 FCR 43 at 62-63 Lockhart and Gummow JJ (with whom Beaumont J generally agreed) said: "Market power is concerned with power which enables a corporation to behave independently of competition and of the competitive forces in a relevant market. The primary consideration in determining market power must be taken to be whether there are barriers to entry into the relevant market. This is the fundamental point made in Queensland Wire; see also Arnotts [Ltd v Trade Practices Commission (1990) 24 FCR 313] (at 336,339) and Dowling [v Dalgety Australia Ltd (1992) 34 FCR 109] (at 137-138). To what extent is it rational or possible for new entrants to enter the market in this case? That is the primary question in considering whether each of the respondents has a substantial degree of market power. Other factors to be taken into account in defining and identifying market power are referred to in the judgment in Queensland Wire, in particular per Mason CJ and Wilson J (at 188-190), namely: · 'the ability of a firm to raise prices above the supply cost without rivals taking away customers in due time, supply cost being the minimum cost an efficient firm would incur in producing the product'; · 'the extent to which the conduct of [any of the respondents] in that market is constrained by the conduct of … competitors, or potential competitors …' (s 46(3)); · Market share of each respondent must be examined but this alone is generally not determinative of market power as 'the relative effect of percentage command of a market varies with the setting in which the factor is placed' (per Mason CJ and Wilson J when adopting the language of Reed J in United States v Columbia Steel Co [334 US 495 (1948)] (supra); · The presence of vertical integration is another factor, but its presence does not necessarily mean that a substantial degree of power exists. The question of whether any of the proprietors of ESN has market power must be considered also in light of the fact that s 46 requires that there be a substantial degree of market power. For a corporation to have a substantial degree of market power it must have a considerable or large degree of such power. The difficulty lies not in defining the word 'substantial' but in applying the concept of a substantial degree of market power to the circumstances of each case and in identifying whether the requisite degree of market power exists. This is a relative concept." (Emphasis in original) 139 I accept the evidence of Professor Hay that economic circumstances - such as falling demand and over-capacity - which might make it unattractive, irrational or even impossible for a new entrant to enter a market does not constitute a barrier to entry. In particular as to low prices Professor Hay said: "A barrier to entry is a factor that would deter a new firm from entering the market, even though the incumbent firm (or firms) is charging monopoly prices and earning monopoly profits. It is therefore a contradiction in terms to talk about low prices as a barrier. To assert that entry will not occur when prices are low is hardly a radical proposition but it relates only to the attractiveness of entry in those circumstances, and does not go to the question of whether there exists any barrier which might prevent a competitor from entering if the incumbent (or incumbents) is earning monopoly profits. The fact that a firm's low prices have made entry unattractive to potential competitors does not mean that the firm has erected a barrier to entry."

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Competition dynamics 150 The following picture of the Victorian building industry is given by Mr Peter Slattery, a quantity surveyor of some 38 years experience. It was not challenged. Mr Slattery's professional role was to scrutinise building costs and advise on the most economically efficient way of constructing buildings. His observations are thus very pertinent. He deposed: "18.1 In 1991, the Victorian building industry suffered a downturn in activity from a peak in early 1990 which was caused by the general economic recession in Victoria at the time, high interest rates, surplus office space and high vacancy rates which drove rental revenue down. The downturn continued for approximately three to four years with overall prices remaining below 1990 levels until about 1998 when the combination of low inflation and interest rates created a favourable climate for investment in building construction. Vacancy rates for premium and secondary commercial space have reduced and there is now ongoing demand for regional retail space. There has also been an increase in construction in the education and health sectors. 18.2 During periods of high building activity, a number of factors impact on tender prices. Demand for available skilled labour resources increases and competition for market share between suppliers of materials diminishes. The net result is that building contractors are often prepared to pay a premium for trade labour and materials prices increase. Contractors have a wider range of projects to tender on and so can recover a higher profit margin. In lean times, however, in my experience there is a tendency for contractors to win a tender at or below cost, on the hope that they will recover their overheads, even if no profit is made. The result of this sort of discounting is that many contracting and sub-contracting businesses fail financially, with their losses flowing back through the system to the suppliers of materials." 151 The operation of this highly competitive market can be seen in the history of major projects (Pt V above). Blocklayers and builders were able to force masonry manufacturers down and down.

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Predatory pricing, the Sherman Act and the TPA 159 The term "predatory pricing" does not appear in s 46 or in its nearest counterpart in United States anti-trust law, s 2 of the Sherman Act. Nevertheless the term forms part of the discourse of Courts, lawyers and economists in both countries. Section 46 was enacted in its present form in 1986. As par 54 of the Explanatory Memorandum makes clear, Parliament had in mind predatory pricing eo nomine as one form of conduct which could contravene the section. It is not suggested that the term has some different or qualified meaning in Australia. Therefore it will be helpful to examine the concept, to see how it is applied in the United States, and to consider its application in the context of s 46. It is necessary of course to bear in mind the warnings in Eastern Express (at 70) that caution is required in translating United States judgments to the interpretation of Australian law which "evinces a somewhat different approach to legislative drafting" and (at 71-2) that it would be "an error to translate into the operation of s 46 the United States decisions dealing with 'predatory pricing' at the expense of an independent examination of the Australian legislation as it applies to each case." 160 In Cargill, Inc v Monfort of Colorado, Inc 479 US 104 (1986) at 117-8 Brennan J defined predatory pricing as "… pricing below an appropriate measure of cost for the purpose of eliminating competitors in the short run and reducing competition in the long run." 161 His Honour's reference to reduction of competition in the long run shows that an essential element of the concept of predatory pricing is recoupment of losses by the subsequent charging of supra-competitive prices. As was said in Indiana Grocery Inc v Super-Value Stores 684 F Supp 566 (1988) at 569 (emphasis added): "The gravamen of predation is not the recoupment of losses from increased market sales at competitive prices, it is the recoupment of losses from monopoly prices. Predatory pricing is pricing by a monopoly or at least a dominant firm that will cause that firm to suffer losses, the purpose for which is to allow the predator to recoup the losses through higher prices set in the no longer competitive market. This again is the concept that distinguishes anticompetitor conduct from anticompetitive conduct. Predation is a two-fold notion: prey and recoup at higher prices than a competitive market would permit." 162 As the Commission's expert witness Professor Robert Officer said, the predator acts because it believes that, having driven competitors out of the market and deterred new entrants, it can prevent future entry by others who would be attracted to the market by price rises which would be necessary to recoup previous losses. 163 The application of the Sherman Act to predatory pricing was discussed by Judge Breyer, now a Justice of the United States Supreme Court, when a member of the United States Court of Appeals for the First Circuit in Barry Wright Corporation v ITT Grinnell Corporation 724 F 2d 227 (1983) at 231. His Honour said (citations omitted, emphasis in original): "… one must ask why the Sherman Act ever forbids price cutting. After all, lower prices help consumers. The competitive marketplace that the antitrust laws encourage and protect is characterized by firms willing and able to cut prices in order to take customers from their rivals. And, in an economy with a significant number of concentrated industries, price cutting limits the ability of large firms to exercise their 'market power', … at a minimum it likely moves 'concentrated market' prices in the 'right' direction - towards the level they would reach under competitive conditions … Thus, a legal precedent or rule of law that prevents a firm from unilaterally cutting its prices risks interference with one of the Sherman Act's most basic objectives: the low price levels that one would find in well-functioning competitive markets … Despite these considerations, courts have reasoned that it is sometimes possible to identify circumstances in which a price cut will make consumers worse off, not better off. … Suppose, for example, a firm cuts prices to unsustainably low levels - prices below 'incremental' costs. Suppose it drives competitors out of business, and later on it raises prices to levels higher than it could have sustained had its competitors remained in the market. Without special circumstances there is little to be said in economic or competitive terms for such a price cut." 164 Section 2 of the Sherman Act 1890 relevantly provides: "Every person who shall monopolize, or attempt to monopolize, or combine or conspire with any other person or persons, to monopolize any part of the trade or commerce among the several States, or with foreign nations, shall be deemed guilty of a felony …" 165 As explained by Professor Hay (whose career includes six years as Director of Economics in the Economic Policy Office of the US Department of Justice Antitrust Division), a firm which engaged in alleged predatory pricing for the purpose of driving a competitor out of the market and thereafter charging monopoly prices would be dealt with as an attempt to monopolise. The theory of the case would be "… the reason this behaviour makes sense, the reason it's rational, is because you would expect to achieve monopoly power once you have eliminated your competition. So the recoupment will come, your power to charge more and give less will come only after that predatory campaign is successful, if it is successful. So we don't have a problem because our statute doesn't say you have to have power in the first place, it says that the dangerous probability of achieving the monopoly is enough." 166 Turning to s 46, Senior Counsel for the respondents advanced the following explanation as to how predatory pricing would contravene the section. A firm with a substantial degree of market power can move above the market price and not suffer a significant diminution in sales. If it choses to sell below market price, or at a loss, or below avoidable cost, there are two possibilities: (i) legitimate non-proscribed business purpose or (ii) anti-competitive proscribed purpose. It will be anti-competitive if the firm has engaged in the conduct so that competitors will exit the market so that in due course it will more readily enjoy the advantages of market power and recoup its losses. Such conduct is taking advantage of power because only the firm with market power can elect to price lower knowing it is a worthwhile outlay. It is worthwhile incurring those losses because the firm can recoup them later. 167 I agree with the analysis. It is consistent with the basic propositions that s 46 exists to protect competition and consumers, not competitors, that neither price cutting (to whatever level) nor ruthless competition, nor conduct designed to injure competitors is necessarily unlawful (Queensland Wire at 191). As Wilcox J said at first instance in Eastern Express (1991) ATPR 41-128 at 52,897: "Traders commonly fix prices with the intention of diverting to themselves custom which would otherwise flow to their competitors. In doing so, they realise that, if they are successful, the result will be to damage - in extreme cases, even to eliminate - those competitors. But such conduct is the very stuff of competition, the result which Pt IV seeks to achieve. It would be surprising if Parliament intended to proscribe competitive conduct when undertaken by a company with sufficient resources to compete effectively. Something more must be required." 168 Put another way, if a firm does not have a substantial degree of market power it does not matter how low are its prices or how competitor-hostile its purposes. Prices may later return to a profitable level, but the firm will not be able to give less and charge more.

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Deep pockets 170 A central part of the Commission's case on the issue of taking advantage, and indeed on the antecedent issue of market power, was the importance of BBM's deep pocket. It was only the great financial resources of BBM which, it was said, enabled it to price below avoidable cost for a sustained period. 171 Obviously enough, sustained and substantial price cutting requires financial resources. And BBM, as part of one of the largest corporate groups in Australia, did have access to a lot of money. However there was not, to mix the metaphor, a bottomless pit. As the evidence in relation to the Deer Park upgrade demonstrates, Mr Berg was not going to provide BBM management in Victoria with money simply because they asked for it. Any expenditure had to be justified on commercial grounds. 172 More fundamentally however, I do not agree that financial strength necessarily equates to a substantial degree of market power or that spending a lot of money necessarily equates to taking advantage of such power. 173 This issue is really another aspect of the concept of predatory pricing and its place within the framework of s 46. To recapitulate, selling below cost plus recoupment by supra-competitive pricing equals predatory pricing. Absent the second element, or at least the hope or expectation thereof, there is no more than ruthless competitive conduct, something which the TPA does not forbid, but rather promotes. 174 Assume firm X has a very deep pocket. It participates in a market with low barriers to entry; no brand loyalties, easy assess to raw materials and so forth. If firm X cuts prices for a sustained period and then attempts to raise prices above a competitive level in order to recover its losses at supra-competitive prices, what will happen? It is likely that new firms will enter the market and they, together with any competing firms which have survived the price war, will be able to undercut firm X and still make profits. This is because, given the hypothesis of low barriers to entry, firm X is unable to give less and charge more - however deep its pocket. Charging high prices, as distinct from low prices, has little to do with financial strength. Any firm can ask for supra-competitive prices. A firm can usually only get them if it is ensconced with a substantial degree of market power.

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BBM's business considerations 175 Selling below avoidable cost, even for a prolonged period, can be a rational business decision. Such conduct is not of necessity consistent only with taking advantage of market power for the purpose of predatory pricing in the way discussed. 176 As Lockhart and Gummow JJ, speaking of the misuse of market power for a proscribed purpose, said in Eastern Express (at 72): "No pre-ordained and fixed categories as to the level of pricing or economic theory or practice of costing necessarily controls the drawing of that inference in any particular case." 177 This statement is consistent with the following passage from the cross-examination of Professor Hay: "Q. So if you are going to invest in sales of product below avoidable cost and you are a rational entity it must be with the belief, must it not, that at some subsequent time you will earn sufficient to cover the funds that you've invested? A. Or alternatively that the alternative of not investing the funds is going to make matters worse. Let me give you an example: suppose I have invested $1 million in a restaurant; the restaurant business I will stipulate in most cities is reasonably competitive. I find I've got a lousy chef, my business is going bankrupt unless I do something to fix it. Now, if I fix the problem I don't expect to earn monopoly returns, the industry is competitive, but if I don't fix the problem I lose all the money I've invested. Would it be rational to invest additional money in order to fix the problem you've got, even though the industry you are operating in is reasonably competitive? I think the answer is yes, because the alternative of not fixing the problem is even worse." 178 The conditions, actual and prospective, which BBM faced in 1992 were very difficult. They included: · a market share which had fallen from more than 30 per cent to 12-15 per cent, partly at least as a result of poor local management; · a deep recession in Victoria with consequent decline in building activity; · growth in popularity of competing products, in particular tilt-up; and · excess capacity in the industry, exacerbated by the new C&M plant. 179 BBM gave active consideration in late 1993, and again some twelve months later, as to whether it should quit concrete manufacturing in Victoria. It decided to stay in, cut prices to win business, and upgrade its plant to improve efficiency, all in the hope of better times to come. Pioneer also decided to stay in. Rocla decided to quit. All these were firms with deep pockets. C&M decided to stay in. It did not have a particularly deep pocket, but nevertheless it survived and prospered. Budget did not have a deep pocket at all. It failed and its proprietor Mr Coghill lost his home, lost everything. 180 All these competitors were faced with the same hard conditions as BBM and also had to make hard decisions. What BBM did was to make legitimate business decisions, consistent with it being in a very competitive market and consistent with it not having any degree of market power or taking advantage of such power. 181 The alternative of closing down temporarily was not seen as a realistic alternative by BBM (or by Budget). It was not an option Pioneer took, notwithstanding that it also was making heavy losses. 182 Also there were good reasons for BBM continuing to make its entire product range rather than falling back on a few profitable lines. 183 Mr Rawnsley deposed: "170. From time to time at these General Managers' meetings, we considered the possibility of BBM Victoria making only high margin products, rather than generic products such as concrete block and concrete brick, because the generic products had seen the greatest reduction in margins during the price war. Rod Vella and I also considered this occasionally, and I referred to this as an option in my strategic reports.
However, there were several reasons why the General Managers, Rod Vella and I all thought that this was not a viable option. I knew that there were insufficient volumes of sales of high margin products to justify BBM Victoria producing only those products. Further, I considered that high volume sales of generic product enabled Deer Park to run efficiently and to cover the fixed costs of production. As a result, competitive (but still high margin) prices could be charged for any value-added product also produced. However, without the contribution to fixed costs made by production of the generic products, even higher prices would need to have been charged. BBM Victoria would then have lost sales to other manufacturers who produced value added and generic product. Finally, BBM Victoria lacked the unique production or processing equipment which would enable them to produce product which was not capable of being closely replicated by our competitors." 184 Moreover BBM saw it as important to be an acquirer of raw materials from upstream suppliers within the Boral group. Also there was, in Mr Rawnsley's words, "a strong case to be made out for being able to obtain a constant level of quality and product and service around the nation". 185 But these policies were not implemented irrationally and dogmatically. BBM decided it was not worth competing against C&M with 400 x 400 mm pavers after the latter commenced production. Likewise after C&M won the Swanston Dock tender BBM decided not to continue with interlocking pavers.

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X PURPOSE 189 Although my finding as to the extent of the relevant market is determinative of the case, I have made findings as to the other s 46 issues. There is however a complication with respect to the issue of purpose. Taking advantage of market power for a proscribed purpose is a composite expression involving two elements: Queensland Wire at 213 per Toohey J. What is relevant is not just purpose as an isolated corporate state of mind but the taking advantage of market power for that purpose. So a firm which had substantial degree of market power might act in a way which did not involve taking advantage of that power. In such a case it would not matter if the firm had in mind one of the proscribed purposes. 190 Subject to that caveat, there is evidence which establishes that BBM did act with one or more of the purposes proscribed by s 46(1). For example in its Strategic Business Plan Update 1994 - 2000 prepared in approximately May 1995, it is stated: "… Our aim through 1996/97 and 1997/98 is to drive at least one competitor out of the market. The new plant gives us the ability to do this." "New plant" is a reference to the upgrade of Deer Park. 191 BBM's view throughout the period was that it was necessary in order to stabilise prices that two or more players should leave the market. In its reaction to the exit of Rocla and Budget, BBM said in its Strategic Plan: "Part of our plan has been realised with Rocla and BTR Nylex withdrawing from the market by the end of September 1995." 192 Another internal assessment spoke of the price war and said: "So, one of the requirements was to make it more difficult for new entrants to gain a foothold. How can Boral do that?" 193 In the same document it had said: "The long term solution to the market decline in Melbourne is for C&M to fail as a producer and one of the major producers to pick up the assets." 194 There is more material to the same effect. Some of it is quite consistent with the operation of a competitive market. The TPA says nothing about the reduction in number of competitors in a genuinely competitive market. However, if, contrary to the findings I have made, BBM had a substantial degree of power in the market and took advantage of that power, there is sufficient evidence that it had one or more of the proscribed purposes. 195 BBM's argument that statements of purpose only appeared in high level documents and not in documents recording day to day operations like weekly reports is not particularly convincing. One would not expect foot soldiers engaged in the daily struggle for survival to be constantly articulating grand strategic aims.

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XI LIABILITY OF BORAL 196 The Commission's case against Boral is the same as that against BBM. Each company is alleged to have contravened s 46 as principal, in its own right. Two working days before the trial was due to start, the Commission sought to amend its statement of claim by including an allegation that Boral "aided, abetted counselled or procured" or had been "directly or indirectly knowingly concerned in or a party to" the alleged contravention of BBM and thus became liable pursuant to s 76(1)(c) and (e) of the TPA. In the light of the lateness of the application, the inadequacy of reasons for it and the prejudice to the respondents, I refused to allow the amendment. 197 Therefore the issues would be, if I had otherwise found the issues in favour of the Commission, whether Boral, as well as BBM, engaged in the conduct alleged to be a contravention of s 46 that is to say (i) reducing prices to below the cost of production, (i) offering to acquire the C&M Hess plant and (iii) increasing the production capacity of Deer Park. 198 I agree that this is a question of fact: Trade Practices Commission v The Gillette Company (1993) 45 FCR 366 at 382. Nevertheless it is a question of fact which has to be resolved within a context of established legal principles, including the separate identity of subsidiary companies, including wholly owned subsidiaries. As the English Court of Appeal said in Adams v Cape Industries Plc [1991] 1 All ER 929 at 1019: "Our law, for better or worse, recognises the creation of subsidiary companies, which though in one sense the creatures of their parent companies, will nevertheless under the general law fall to be treated as separate legal entities with all the rights and liabilities which would normally attach to separate legal entities." 199 The underlying fact was that it was BBM, and not Boral, which carried on the business of manufacturing and selling concrete masonry products in Victoria. It was BBM which acquired the raw materials and sold the products and received the proceeds of sale. It was BBM, not Boral, which engaged in the conduct alleged to be a contravention. 200 As might be expected, major decisions, such as the upgrade of Deer Park, were made at a higher level of the Boral group and became a matter for the Chief Executive Officer Mr Berg. Also the picture presented to the world by the Boral group, as for example in its annual reports, is one of the group's business as a whole. To the extent that separate businesses are referred to they are discussed along functional lines in accordance with the separation into various divisions such as the one which Mr Cormack headed. Nevertheless this does not make BBM's conduct the conduct of Boral. Mr Berg was not called as a witness and there was no evidence advanced as to why it would be impossible or difficult for him to be called. I would not however regard the rule in Jones v Dunkel (1959) 101 CLR 298 as applicable. I do not think the evidence gives rise to any inference that the conduct in question was the conduct of Boral and I do not think the absence of Mr Berg makes that non-existent inference any stronger.

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