Purpose - ss 46(1) & 47(10)
43 Common to both ss 46(1) and 47(10) is the reference to "purpose". Section 46(1)(c) proscribes (inter alia) a corporation taking advantage of its market power "for the purpose of deterring or preventing a person from engaging in competitive conduct …"; s 47(10) provides that certain forms of exclusive dealing by a corporation are prohibited (inter alia) if the conduct "has the purpose … of substantially lessening competition".
44 Section 4F further defines what is meant by "purpose". That section provides as follows:
References to purpose or reason
(1) For the purposes of this Act:
(a) a provision of a contract, arrangement or understanding or of a proposed contract, arrangement or understanding, or a covenant or a proposed covenant, shall be deemed to have had, or to have, a particular purpose if:
(i) the provision was included in the contract, arrangement or understanding or is to be included in the proposed contract, arrangement or understanding, or the covenant was required to be given or the proposed covenant is to be required to be given, as the case may be, for that purpose or for purposes that included or include that purpose; and
(ii) that purpose was or is a substantial purpose; and
(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.
(2) This section does not apply for the purposes of subsections 45D(1), 45DA(1), 45DB(1), 45E(2) and 45E(3).
45 The "purposes" referred to in ss 46(1) and 47(10) are nevertheless differently expressed and invite different inquiries.
46 In respect to both provisions, however, "purpose" is to be ascertained subjectively and not objectively: ASX Operations Pty Ltd v Pont Data Australia Pty Ltd (No 1) (1990) 27 FCR 460 at 474-475. Lockhart, Gummow and von Doussa JJ there observed:
There was no dispute that in s 46 "purpose" was to be ascertained "subjectively" rather than "objectively". Reliance was placed by ASX and ASXO upon what was said by Toohey J in Hughes v Western Australian Cricket Association (Inc) (1986) 19 FCR 10 at 37-38 where, after reviewing the authorities, his Honour said:
"I accept the view that it is the subjective purpose of those engaging in the relevant conduct with which the court is concerned. All other considerations aside, the use in s 45(2) of 'purpose' and 'effect' tends to suggest that a subjective approach is intended by the former expression. The application of a subjective test does not exclude a consideration of the circumstances surrounding the reaching of the understanding."
47 "Purpose" is concerned with the "intent" of the corporation engaging in the impugned conduct and is not concerned directly with the effect of conduct: Dowling v Dalgety Australia Limited (1992) 34 FCR 109 at 143. Lockhart J there referred to a number of authorities, including ASX Operations, and observed:
The determination of purpose for the purposes of s 46 is to be ascertained subjectively, in the sense of ascertaining the intent of the corporation in engaging in the relevant conduct … "Purpose" in s 46 is not concerned directly with the effect of conduct, but with purpose in the sense of motivation and reason, though, as mentioned earlier, purpose may be inferred from conduct …
The same proposition was repeated by Lockhart and Gummow JJ in Eastern Express Pty Limited v General Newspapers Pty Limited (1992) 35 FCR 43 at 66 as follows:
If a corporation has a substantial degree of power in the relevant market the question then arises whether the corporation has taken advantage of that power for one or other of the purposes proscribed by s 46(1)(a), (b) or (c). It is permissible to infer the relevant purpose under s 46: s 46(7). Further, a corporation shall be deemed to have engaged in conduct for a particular purpose if it engaged in conduct for purposes that included that purpose, and that purpose is a substantial purpose: s 4F(b). The determination of purpose for the operation of s 46 is to be ascertained subjectively, in the sense that what is to be ascertained is the intent of the corporation engaging in the relevant conduct: … "Purpose" in s 46 is not concerned directly with the effect of conduct, but with "purpose" in the sense of motivation and reason, although, as mentioned earlier, purpose may be inferred from conduct …
Lockhart J had previously observed in Dowling that purpose "will generally be inferred from the nature of the contract, the circumstances in which it was made and its likely effect": (1992) 34 FCR at 134.
48 What needs to be proved is the actual purpose of the relevant respondent: Universal Music Australia Pty Ltd v Australian Competition and Consumer Commission [2003] FCAFC 193 at [255], (2003) 131 FCR 529 at 588. Wilcox, French and Gyles JJ there went on to observe:
[256] Ascertaining the purpose for which conduct is engaged in by a party stands on quite a different footing. It would make no sense to consider that issue without paying regard to the direct and indirect evidence as to the actual intentions and purposes of the party. Of course, proof of the required purpose is not limited to direct evidence as to those purposes. Further, the court is not bound to accept such evidence. Indeed, it will normally be critically scrutinised; it is often ex post facto and self-serving. …
See also: Parmalat Australia Pty Ltd v VIP Plastic Packaging Pty Ltd [2013] FCA 119 at [28], (2013) 210 FCR 1 at 14 per Collier J.
49 More recently, the difference between "purpose" and "motive" has, perhaps, been slightly differently expressed. Gleeson CJ in News Limited v South Sydney District Rugby League Football Club Limited [2003] HCA 45 at [18], (2003) 215 CLR 563 at 573 observes:
[18] … The distinction between purpose and effect is significant. … In a case such as the present, it is the subjective purpose … that is to say, the end they had in view, that is to be determined. Purpose is to be distinguished from motive. The purpose of conduct is the end sought to be accomplished by the conduct. The motive for conduct is the reason for seeking that end. The appropriate description or characterisation of the end sought to be accomplished (purpose), as distinct from the reason for seeking that end (motive), may depend upon the legislative or other context in which the task is undertaken. …
See also: Seven Network Ltd v News Ltd [2009] FCAFC 166 at [851]-[858], (2009) 182 FCR 160 at 355-356 per Dowsett and Lander JJ.
50 One manner in which "purpose" may well be established is if a corporation exerts pressure so as to defeat a new entrant's attempt to gain market share and a place in the market: Australian Competition and Consumer Commission v Liquorland (Australia) Pty Ltd [2006] FCA 826, (2006) ATPR 42,123. Allsop J (as his Honour then was) there observed:
[807] There is a danger in disembodying the debate about purpose from the evidence that is available. Even if a market is workably competitive or highly competitive, the appearance of a new entrant actively engaging in the winning of market share and recognition is the working of the competitive process. The effect of a new entrant may have a detrimental effect on the business and turnover of incumbents. That, of itself, will create competitive pressures and close competition to defeat the new entrant's attempt to gain market share and a place in the market. There may be cases where a firm acting to prevent a new entrant can explain that by a desire divorced from competition and the competitive process. If a firm has a purpose to impede or prevent the entry of a new competitor into a market lest that new entrant conduct itself competitively to wrest business from the incumbent and so damage its business, that purpose involves the process of competition. It involves preventing entry into the market and preventing a state of affairs of lost sales through additional competitive activity. Such lost sales and damage to business will, in the ordinary course call for steps, if available, in response to meet the challenge of any new entrant. The available steps may be marginal if the market is already highly competitive. To say as much, however, is only to posit even closer, or more fierce, competition. If a purpose is to prevent or impede market entry and so to prevent competitive activity, that is sufficient it seems to me to amount to a purpose directed to the competitive process. One does not need to superadd a further purpose that the success of that purpose is to affect the degree of competitive activity as opposed merely to preserving the firm's share of revenue in a mercantilist sense. The entry of competitors is an essential attribute of the competitive process. It is the means of access for competitive trading and for pressure on incumbent firms, through their revenue and profitability, to offer more or charge less in order to retain their places in the competitive (on this hypothesis increasingly competitive) market. If the grant of new licences were seen as a competitive threat they were so seen because they were a threat to business through competitive activity. A purpose to prevent or impede such competitive activity is a purpose concerned with the process and conduct of competition: (2006) ATPR at 45,303.
51 A proscribed purpose may be made out even though a corporation maintains that it is simply seeking to "win as much business as possible": Australian Competition and Consumer Commission v Baxter Healthcare Pty Ltd (No 2) [2008] FCAFC 141 at [381], (2008) 170 FCR 16 at 100 per Gyles J. The Baxter corporation was the manufacturer and supplier of sterile fluids and PD fluids. It negotiated and tendered for long-term contracts with the governments of four States and the Australian Capital Territory. It required those governments to acquire all of their sterile fluids and between 90 and 92.5% of their PD fluids from Baxter. The "bundled" prices were significantly lower than the item-by-item tender. The Commission alleged that Baxter had taken advantage of its market power in the sterile fluids market because otherwise it would not have been able, under competitive conditions, to force the States to take the bundled offer by threatening prohibitive prices for sterile fluids. The primary Judge concluded that there had not been a contravention of s 46 but that there had been a contravention of s 47. On appeal it was concluded that Baxter had a "substantial degree of power" in the Australia-wide sterile fluids market. Mansfield and Gyles JJ further concluded that Baxter's conduct fell within s 46(1)(c). In rejecting the argument that Baxter's conduct did not fall within s 46(1)(c), Gyles J concluded:
[381] Baxter contends that its aim was solely to win as much business as it could across the board and that its conduct was directed to achieving that result rather than harming competitors. In my view, that confuses purpose with motive. Baxter's method of winning business in the PD market was to prevent its potential competitors from competing in a meaningful way in that market because of its leverage from the substantial degree of market power it held in the sterile fluids market. The objective of maximising profit can only be achieved if there is compliance with the Act. Since Queensland Wire Industries Pty Ltd v Broken Hill Pty Company Ltd (1989) 167 CLR 177, it has been recognised that the conduct of a party with substantial power in a market may be subject to restraints to which others without power are not (see NT Power Generation Pty Ltd v Power and Water Authority (2004) 219 CLR 90 per McHugh ACJ, Gummow, Callinan and Heydon JJ at [72], [76], [85], [125] and [126]). Even if Baxter did have the purpose of winning as much business as possible, it also had the purpose of deterring or preventing others from engaging in competitive conduct in the PD market. The latter purpose was substantial (s 4F(1)(b)).
Mansfield J recited the finding of the primary Judge as to the purpose being pursued by Baxter as follows:
[179] Based upon the evidence, his Honour found that the "core … of the purpose of the bundle or tie", or more broadly the alternative offer strategy, was to foreclose the likelihood or restrict the possibility of the Gambro or Fresenius bids for PD fluids having any realistic prospect of success. That was, he said, illustrated or reflected in the "stubbornness" of Baxter's attitude to the request by SA for a tender for the long-term exclusive supply of sterile fluids, because a discount for exclusive supply of a volume of sterile fluids only would have exposed the Gambro and Fresenius bids for PD fluids to realistic prospects of acceptance. Baxter's attitude was to prevent those prospects and so to protect its PD fluids revenue stream.
His Honour thereafter continued on to reach the same conclusion as that reached by Gyles J, saying:
[187] Baxter, having a substantial degree of power in the sterile fluids market, took advantage of that power by the impugned conduct. It did so to secure as much of the supply of sterile fluids and PD fluids as it could. It did so for obvious commercial reasons. In doing so, it had the purpose of shutting out Gambro and Fresenius from being able to put forward bids for the supply of PD fluids which could be accepted by the SPAs except at a significant cost penalty. The significant cost penalty existed by reason of the bundled offers, and the fact that Baxter in the sterile fluids market had a substantial degree of power, and took advantage of that power by its alternative offer strategy. Baxter did not compete separately with Gambro and Fresenius in the PD fluids market, whether by price or quality of product or service or otherwise. It sought to avoid competing with them directly by taking advantage of its market power in the sterile fluids market. Its purpose, as the primary judge found, was to deter or prevent Gambro and Fresenius from engaging in competitive conduct in the PD fluids market by shutting them out from effectively being able to compete in that market.
[188] I do not accept Baxter's alternative contention. The primary judge found, upon analysis and assessment of the evidence, that Baxter's purpose by its impugned conduct was to shut out Gambro and Fresenius from being able to effectively compete in the PD fluids market in relation to the tender invitations from the SPAs. The outcome of its alternative offer strategy shows that its purpose was fulfilled. The fact that both Gambro and Fresenius were, before the impugned conduct, its competitors in the PD fluids market and remained its competitors in that market after the impugned conduct does not mean that Baxter did not have the purpose referred to in s 46(1)(c). Nor does the fact the (sic) Gambro and Fresenius tendered in various ways for all or part of the PD fluids supply contracts available in the tendering invitations of the SPAs. Nor does the fact that, in the period of time after the impugned conduct, Gambro and Fresenius may have increased their respective market shares in the PD fluids market.
Although in dissent as to whether the conduct whether there had been a hindering of competition, Dowsett J had there also observed:
[329] Purpose, effect and likely effect are quite distinct concepts. To establish that Baxter had a proscribed purpose, it was necessary to show an actual, subjective intention. As always, purpose must be distinguished from motive, but subjective purpose must still be demonstrated. Purpose may be inferred from statements and actions in the light of common experience. In the present context, effect is to be distinguished from likely effect. The effect of conduct is its outcome as demonstrated by evidence concerning actual events. Likely effect involves a prediction as to whether particular events will flow from relevant conduct. Likely effect may vary, depending upon the time at which the prediction is made. It may be made before, at the time of, shortly after, or long after the relevant causal conduct.
An application for special leave to appeal was refused but without prejudice to the ability to institute a further application at the conclusion of the litigation: Baxter Healthcare Pty Limited v ACCC [2009] HCATrans 20.
52 Just as "purpose" must be distinguished from "motive" (as referred to by Dowsett J in Baxter), "effect" must also be distinguished from "motive". Thus, for example, in Universal Music Australia Pty Ltd v Australian Competition and Consumer Commission [2003] FCAFC 193, (2003) 131 FCR 529 at 587 Wilcox, French and Gyles JJ observed:
[249] We turn to the subject of purpose. A person may have the purpose of securing a result which it is, in fact, impossible for that person to achieve. That no doubt explains the reference to purpose, in para (a) of s 47(10) of the Act, as an alternative to effect and likely effect. The paragraph is satisfied if the relevant corporation has the requisite purpose, regardless of whether or not that purpose has been, or was or is likely to be, achieved. It may conceivably be satisfied even in a case where the court finds the purpose could never in fact have been achieved; although that finding would be relevant in determining whether to infer the proscribed purpose.