Australian Competition and Consumer Commission v Real Estate Institute of Western Australia Inc

REASONS FOR RULING ON OBJECTIONS TO WITNESS STATEMENTS 1 In this application the Australian Competition and Consumer Commission (ACCC) seeks declaratory and other relief relating to the rules and rules of practice of the Real Estate Institute of WA (REIWA) and the conduct of REIWA and its Chief Executive in relation to their enforcement. 2 The rules in question prevent members from entering into franchise agreements with non-members and regulate the making of franchise agreements between members (Rule 39). They also prevent solicitation of customers in certain circumstances (Rules 2.1.2, 2.1.3, 2.2 and 2.6) and prevent advertising involving the offering of gifts, prizes or inducements said to be of a kind not associated with the provision of professional services of a real estate nature. The rules of practice are said to have, or be likely to have, the purpose or effect of substantially lessening competition and to contravene Part IV of the Trade Practices Act 1974 (Cth). The trial of the application is set down for five weeks commencing 8 November 1999. Pursuant to directions given by the Court, witness statements have been filed on behalf of the ACCC. The respondents are yet to file their witness statements. The hearing of the application will also involve a cross-claim by REIWA against its former solicitors and a partner in that firm. 3 REIWA raised objections to various parts of the witness statements filed on behalf of the Commission. The objections are supported by the other respondents. 4 The witness statements filed fall into the following discrete groups: 1. Real Estate franchisors: - Mark Ivor John Sinclair, State Regional Manager of Hooker Corporation Ltd which is a real estate franchising company; - David Pilling, Managing Director of Roy Weston Ltd which is primarily a franchise company providing franchise services to real estate agencies. 2. Real Estate franchisees: - Roderick John Crofts, L.J. Hooker, Karratha - Glenn Ian Grantham, L.J. Hooker, Willetton - Kevin Gerard Harrison, L.J. Hooker, Whitfords - Rodney James Kevan, L.J. Hooker, Scarborough - Brendon Thomas Moylan, L.J. Hooker, Forrestfield 3. TAFE Representative: - Stephen Graham McKay, Director of the Western Australian School of Management and Business at the Central Metropolitan College of TAFE. 4. ACCC Officers: - Katarzyna Anna Gascoigne, Project Officer employed by the ACCC at the Perth Office. - Scott Peter Gregson, Project Officer employed by the ACCC at the Perth office. 5. Expert Evidence: - Paul Brandon McLeod, Economist 5 REIWA has filed lengthy lists of objections to individual paragraphs of the statements of these witnesses filed thus far. So far as the industry witnesses are concerned the objections fall into categories outlined orally by counsel for REIWA at the objection hearing. 6 There are significant elements of the industry witness statements which include general observations about the markets in which they operate and the competitive processes in those markets. The ACCC justifies the use of this evidence as elucidating the perceptions and practices of those participants and their conduct in presenting a product into the market. The evidence of such perceptions and practices is said to be relevant, even if based upon hearsay or opinion. It is relevant not because it shows the truth of the facts perceived but because it is the perception of experienced market participants whose competitive decisions are driven by such perceptions. There is no doubt that the behaviour of people in the relevant industry may be the best evidence of the dimensions of a relevant market - Mark Lyons Pty Ltd v Bursill Sports Gear Pty Ltd (1987) ATPR 40-809 at 48,798. In Arnotts Ltd v Trade Practices Commission (1990) 97 ALR 555 at 574 there was considerable evidence, discussed by the Full Court, dealing with the behaviour and perceptions of market participants. There was, for example, evidence that retailers take into account other categories of biscuits when deciding whether to stock a new line of biscuits and avoid the simultaneous promotion of two products within the same category. There was evidence concerning the question whether biscuit manufacturers identified only other biscuit manufacturers as providing any real degree of competition. It was said by the Court at 578 to be "noteworthy that the industry itself sees biscuit products, considered as a whole, as constituting a discrete class of foods". 7 The objection taken on behalf of REIWA to evidence by industry participants said to be in this category was that there is no authority for the proposition that a statement by a participant in a market in the form "I believe I compete with A, B and C in this market" is admissible. Such a statement, if appearing in a witness statement, is at too high a level of generalisation. By way of example, in the statement of Roderick John Crofts, who operates the L.J. Hooker franchise at Karratha, it is said: "The Business competes with other real estate agents in the remote North West market in servicing isolated towns." 8 Counsel for REIWA, by way of another example, referred to pars 5 and 6 of the statement of Kevin Gerard Harrison, the operator of L.J. Hooker, Whitfords. These two paragraphs were in the following terms: "5. The Business operates in the market for residential sales and property management in Whitfords and the surrounding suburbs of Hillarys, Padbury, Kalaroo,(sic) North Shore and Craigie. The Business also occasionally deals with properties outside this area, for example, Subiaco. 6. The Business competes with other real estate agents in the geographical area North of the Swan River for the listing and selling of residential properties. The Business prefers to list properties that are in the suburbs of Whitfords, Hillarys, Padbury, Kalaroo,(sic) North Shore and Craigie." The formal objections to these paragraphs in the REIWA schedule were that they were respectively statements of opinion and of conclusion and opinion. In his oral argument, counsel for REIWA said that the first statement in par 6 was too general. He contended that it did not fit into the category for which the ACCC contended as a statement of belief as a market participant. It was said to be a summary or a submission as to competition or competitive forces in that market at the particular point in time. This was said to be objectionable as conclusionary involving an expression of opinion and as having no relevance to the issues. The real gravamen of the complaint is that statements of this kind are at too high a level of generalisation. I do not consider that this is a basis for striking them out. To the extent that they reflect a perception on the part of the franchisee which may affect the franchisee's behaviour in the market, they are admissible. It may be that in the context of all the evidence statements at such a level of generality will carry little weight in the ultimate determination of the case. I am not prepared, however, to strike out statements in this category. 9 A second issue raised by counsel for the respondents was that opinions are offered in the statements where it is entirely impossible to distinguish inferences from the facts upon which they are based. The particular paragraph which counsel took as an example from the statement of Mark Sinclair was one in respect of which the objection was conceded by counsel for ACCC. Notice of that concession was contained in a schedule to ACCC's submission. 10 As to this category of objection generally, I think it appropriate to deal with submissions that opinions offered are unsupported by relevant facts in the context at least of all ACCC's evidence at trial. To the extent that the evidence is relied upon as evidence of perception or as explanatory of the behaviour of industry participants, it would appear to attract the operation of s 77 of the Evidence Act 1995 (Cth) which provides: "77. The opinion rule does not apply to evidence of an opinion that is admitted because it is relevant for a purpose other than proof of the existence of a fact about the existence of which the opinion was expressed." In addition, in relation to lay opinions, s 78 provides: "78. The opinion rule does not apply to evidence of an opinion expressed by a person if: (a) the opinion is based on what the person saw, heard or otherwise perceived about a matter or event; and (b) evidence of the opinion is necessary to obtain an adequate account or understanding of the person's perception of the matter or event." It may be that an opinion is based upon observations which are not specifically analysed but expressed compendiously. The weight of such compendious expression, eg about the extent and nature of competition in a market, will depend upon a variety of factors. The more general such statements the less weight they are likely to be given. However this is not a matter that goes to admissibility. The difficulty of distinguishing between inferences and underlying facts in expressions of compendious impression is principally, in my opinion, a matter of weight. 11 Another aspect of the franchisee witness statements which attracted objection was their discussion of a promotion of a frequent flyer scheme involving the use of Telstra Visa Cards by customers of Hookers' franchisees. This was allegedly said by REIWA to have contravened its Practice Rule 9. By way of example of the kind of evidence to which he objected, counsel for REIWA referred to par 15 in the statement of Mr Harrison, the Whitfords franchisee. The witness there says: "The Telstra Promotion is a competitive marketing tool in that it provides a service that differentiates what the Business offers from that which competitors offer. The reward point system is of interest to any potential client who has a Telstra Visa Card or who may get one. The income of the Business generated by sales directly using the Telstra Promotion has been approximately $25,000." 12 The primary objection to this kind of statement is that it is hearsay. Counsel put it this way: "What does a member of the public use or consider? What motivates a member of the public to list a particular property with a particular agent. Having it from the flip side and the franchisees owning the business, saying that, "a potential client would want to list with us to get the Telstra Promotion" is clearly hearsay." 13 As to this ACCC argued that the evidence is admissible as evidence of the information upon which a market participant acts. For ACCC it was said: "For a market participant to actually explain why they believe the Telstra Promotion is an effective method of competing in the market place, and to identify the facts from which they draw that conclusion, can be a difficult process. They know inherently this is a significant issue and they draw the matter together in a general way." This is another version of the compendious impression argument. 14 Treated not as a statement of public attitudes towards the Telstra Promotion but rather as a statement indicating the perception and attitude of the franchisee towards the Telstra Promotion, in my opinion this class of evidence is admissible at least for that purpose. It should be said however, that ACCC will not be able to rely upon evidence of this kind to prove actual public attitudes to the Telstra Promotion. That is not to say that the particular proposition set out in par 15 would not be accepted by the Court in argument as a matter of inference which the Court can draw based on its own knowledge of human behaviour which does not require particular expertise. It would seem to be a reasonably uncontroversial, albeit argumentative, proposition that the holder of a Telstra Visa Card would find a reward point system to be of interest. Whether the existence of a reward point system would induce such a cardholder to use a particular real estate agent over another in what may be a complex decision involving an array of factors affecting consumer choice, is a matter on which the Court may be less able to draw any conclusions without direct or survey evidence. 15 Objection was taken to opinion evidence about competition from Messrs Sinclair and Pilling, both principals of major franchisors. The objection was taken that Sinclair was not qualified to offer opinions about competition between franchisees as his business is that of selling franchises, not that of a real estate agent. I do not accept that his business places him at such a remove from the market that he is not in the position to offer opinion by virtue of his industry experience. In any event it is to be noted that according to his statement, he had a history of experience as a real estate agent. Similar objection was taken to Mr Pilling's evidence on the basis that his qualifications were insufficient to entitle him to offer opinions. Again, prima facie, I do not accept that objection as laying a foundation for striking out the evidence. It may well be that the opinions offered by Messrs. Sinclair and Pilling will be the subject of comment and findings as to their weight. But that is a distinct issue. 16 Objection was taken to the evidence of ACCC's witnesses Gascoigne and Gregson as irrelevant. The evidence of Gascoigne deals with communications between ACCC and REIWA relating to the circulation of a newsletter by REIWA in which the action initiated against it by ACCC was discussed. It also annexes subsequent exchanges of correspondence between REIWA and ACCC in relation to that newsletter. ACCC contends that the evidence is relevant to the question of penalty in the event that a contravention is established. 17 It is arguable that the matters referred to in the statement of Gascoigne may be relevant to penalty. It is also arguable that they should be disregarded in fixing penalty. I do not propose to pre-empt that issue by making a judgment at this stage as to admissibility based on relevance. The evidence can be led. The weight, if any, that will be given to it will be a matter of argument. In relation to the other ACCC witness, Gregson, his statement is also objected to for relevance. He is said to have been the principal investigating officer in the matter. His statement refers to exchanges of correspondence between REIWA and ACCC in the course of the investigation and REIWA's alleged persistence in enforcing Rule 39 and Rule of Practice 9.2 despite its awareness of ACCC's concerns with respect to the trade practices implications of those provisions as set out in a letter from ACCC of 23 September 1997. Without going into the detail of the exchanges of correspondence its general relevance to questions of penalty in the event that contravention is established is arguable and at least on the same basis as Ms Gascoigne's statement, it will not be struck out. There are some specific objections which have been conceded and they require no further direction from the Court in that regard. 18 Objection is also taken to the statement of Paul Brandon McLeod who is the Economist expert witness relied upon by ACCC. A global objection was made to his qualifications as an expert to express an opinion on matters set out in various paragraphs, including the market for real estate services, services provided in the relevant market, substitute services, sub-markets, preferred market definition, barriers to entry and forms of competition between real estate agents. On the face of it I am not prepared, at this stage, to adopt the submission that Dr McLeod lacks qualification. It appears reasonably arguable that the breadth of his qualifications in relation to economics and the range of publications and projects in which he has been involved, indicate a broad base from which to make relevant observations across a range of industries, even industries of which he has no direct personal experience. At this stage, of course, his evidence is prospective in the form of the statement which has been filed. The question of his qualifications will no doubt be further addressed at trial. At this stage I do not consider that there is a case made out for characterising his evidence as inadmissible on the ground of want of qualification. 19 There is a long list of specific objections to particular paragraphs in Dr McLeod's report. The general form of objection is that the assertions are by way of opinion, are hearsay, or lack relevance. An example is the objection to par 7 which says: "The economic essentials of market competition requires that real estate agents consider all the legitimate competitive strategies available to them to secure sales and market share for their businesses. This includes positioning their offices so as to maximize (sic) their competitive advantage and the use of commercially accepted price and non-price competition." The second sentence is objected to on the basis that it is an opinion and lacks relevance. On the face of it the sentence is not based upon facts identified by Dr McLeod about the behaviour of real estate agents in positioning their offices. It may be that there is such evidence somewhere in the witness statements of one or more of the franchisees. But absent such evidence the statement is not fatally flawed. It may be offered as nothing more than a general inference about the pressures that market competition imposes on real estate agents in devising competitive strategies. It seems a relatively uncontroversial proposition that competitive strategies may include locating an outlet for retail services in a way which maximises competitive advantage. How much weight can be given to such a general statement is, of course, another question. This statement, along with many others, no doubt occupies something of a twilight zone between expert opinion properly treated as evidence and argument. The difficulty in drawing that dividing line in some forms of expert testimony is recognised by the Court in O 10 r 1(2)(j). Under that rule the Court may: "in proceedings in which a party seeks to rely on the opinion of a person involving a subject in which the person has specialist qualifications, direct that all or part of such opinion be received by way of submission in such manner and form as the Court may think fit, whether or not the opinion would be admissible as evidence." It would assist the management of the litigation if ACCC were to indicate those significant elements of Dr McLeod's report which it would seek to have treated as submission rather than as evidence. Counsel for REIWA might well take the view, in any event, that what is argumentative is reasonably apparent on the face of the report, can be identified as such and will be treated as such by the Court. Some of the material in Dr McLeod's report would appear to be at a level of generality that could call into question its relevance. General observations about licensing and accreditation regimes and the incidence and types of advertising restrictions may be of questionable utility in the context of this litigation. However I would not want to preclude their reception absent more detailed argument about it. In the end the most prudent course is to treat the difficulties that may attend these elements of the report as matters going to weight. If relevance is not able to be established in particular cases where it is questionable, then those aspects of the report will simply be disregarded. There are parts of Dr McLeod's report which read like an academic review paper. An example is the material under the heading "Professional Services as Market Goods". At this stage it is not clear to me that that evidence will be of great assistance in dealing with the issues raised by the ACCC. However, again, I would not wish to preclude admissibility without hearing the relationship between that evidence and the rest of the material in the case. 20 Having regard to my conclusions on the general objections taken to the various classes of witness statements to which I have referred, I do not consider it a fruitful exercise to go individually through the large number of particular objections to specific paragraphs of those statements. The respondents are entitled to the reassurance that generalised statements of opinion are likely to be given little weight where not supported by factual material except to the extent that they reflect the perceptions and affect the behaviour of those witnesses as market participants. And even under that head, the more general the statement the less weight it will tend to carry. Statements which are argumentative or conclusionary in character and do not serve any other legitimate evidentiary purpose will be given little or no weight at all. I do not consider, however, that there is any practical prejudice to the respondents in not ruling on particular paragraphs of the statements in issue. The sheer volume of objections would render that an exercise which, having regard to my general observations, is both unnecessary and of little or no benefit. 21 Certain of the objections have been conceded by ACCC and those concessions should be reflected in reformulated statements. Rather than requiring the filing of a whole new set of statements embodying them, it may be sufficient to allow the ACCC to uplift the statements it has filed in Court with a view to ruling through those paragraphs which it concedes should be deleted. So far as statements delivered to the respondents are concerned, they may have been marked by the respondents' advisers. In that event the ACCC should deliver a copy of the statements marked with its concessions to the respondents so that they will have a set of statements which properly reflect those concessions. This does not prevent the ACCC from lodging reformulated statements to implement their concessions if that is more convenient and provided it can be done promptly. 22 In the circumstances I propose to make no directions on the objections which have been raised. There has been a significant number of concessions and these will be dealt with in the way indicated. I think, however, it would be useful if the ACCC were, in respect of Dr McLeod's report, to identify any significant elements of that report which it would seek to have treated as submission rather than as evidence. I do not require it to go to individual sentences which may fall into that category.