1.2 A BRIEF OVERVIEW
8 In 1994 and 1995, bread in Victoria was produced by three major firms, referred to as "plant bakers", and by independent bakers and hot bread shops. The three plant bakers, who together supplied some 80 per cent of all plant-baked bread sold in Victoria, were Tip Top, Quality Bakers Australia Limited, which carried on business under the name of "Buttercup Bakeries" ("Buttercup") and Sunicrust Bakeries Pty Ltd ("Sunicrust"). Apart from sales by Tip Top at its Preston Markets stall, the three plant bakers' entire production was sold by wholesale.
9 On the retail side, bread was also sold by hot bread stores, which baked bread on their retail premises, and by "in-store bakeries". The latter were set up within supermarkets as an attempt to replicate hot bread shops. In some instances bread was baked, or at least partly prepared for sale, in the in-store bakeries; more frequently, in what were called "cold spots", the bread was acquired from a wholesale supplier wrapped and ready for retail sale. Finally there was the "route trade" consisting of small retailers, such as milk bars.
10 Bread has a significance for a supermarket that goes beyond its character as a staple food. As the primary Judge found, it is a "communicable" product: that is to say, in a consumer's mind, it is indicative of a retailer's general price competitiveness.
11 At the relevant times, bread was marketed under different brands. Each plant baker had premium brand, or proprietary, bread and also a secondary brand bread. Premium brand bread was sold under a brand that was heavily advertised and promoted, such as Tip Top's "Sunblest", Sunicrust's "Suni" and Buttercup's "Wonder White". Secondary brand bread was sold under a brand that received little or no advertising or promotion, such as Thwaites or Tip Top's Eureka, the latter being sold in a plain-wrap package with minimal brand promotion. A further category of secondary bread was referred to as 'price-fighting' bread. Safeway entered into contracts with plant bakers to supply bread under a particular brand, such as Sunicrust's "Captain Cutless" and Buttercup's "Budget Family Fresh". The "price-fighting" bread was brought in at short notice in order to meet competitive threats.
12 A major retailer could also have its own "generic" brands. A generic brand was owned by the retailer and was applied to many items in addition to bread. In the case of Safeway, its generic brand was "Home Brand", which was supplied by Sunicrust. Buttercup supplied the Davids group of supermarkets with its "Black & Gold" generic bread.
13 Notwithstanding the importance attached to brands by bakers, retailers and consumers, and the substantial price differentials involved between premium, secondary and generic brand breads, the bread itself was essentially the same product. The most popular size of loaf sold was a 680g white sandwich loaf, referred to as "Code C". A "Code D" loaf was more expensive and was usually a 900g loaf. A white 680g premium brand loaf, for example, was the same bread as a white 680g secondary brand made by the same plant baker, although the secondary brand might be produced earlier in the day than the premium brand and would therefore be some hours older when delivered to the retailer. The only other differences between them were the price of the product and the manner in which each was marketed.
14 In the nine incidents, an independent retailer near a Safeway supermarket commenced selling bread of a particular plant baker at a discounted price. Safeway then "deleted" (that is, ceased to stock, display and sell) bread of that plant baker. Safeway adduced evidence that, before a deletion, it sought from the plant baker a "case deal" and only made deletions when the case deal was refused. The term "case deal" was an expression used to refer to an arrangement whereby a supplier provided a discount, rebate or special deal in connection with the supply of its products. Historically, the expression was derived from a practice in the grocery business whereby products were purchased by the case, presumably at a reduced price.
15 The evidence concerning requests for case deals was challenged by the Commission. The primary Judge found affirmatively that, in five of the nine incidents, there had been such a request and that in another two the evidence did not enable him to determine whether a request had or had not been made. In the remaining two incidents his Honour found that no request for a case deal had been made.
16 Three further aspects of the nine incidents should be mentioned. First, the bread that the independent retailers were discounting was secondary brand bread. However the bread for which Safeway sought case deals was the plant bakers' premium brand bread. Secondly, in each of the nine incidents there were "over-deletions" by Safeway; that is to say, Safeway deleted a wide range of the plant bakers' bread and related products and not just the same kind of bread as the independent stores had been discounting. Thirdly, following a deletion Safeway always brought in price-fighting bread supplied by a plant baker other than the one whose bread had been deleted.
17 The Commission alleged that there was a market in Victoria for the supply of bread products on a wholesale basis to retailers, that Safeway had a substantial degree of power in that market and that Safeway had taken advantage of that power for the purposes of damaging competing independent stores by denying them access to cheap bread (s 46(1)(a)). The Commission also alleged that Safeway had taken advantage of its market power for the purpose of deterring or preventing the plant bakers and the independent retailers from engaging in competitive conduct in, respectively, the wholesale market and the retail markets in which the independent stores were located (s 46(1)(c)).
18 The primary Judge found that in two of the nine incidents, at Frankston and at Albury in May 1995, where no case deals were sought, Safeway's purpose was to punish the plant bakers concerned (Buttercup and Tip Top, respectively) and to deter them from continuing to sell bread to the independent retailer at a discounted price. But he held that because the Commission had pleaded its case by reference to a policy formulated by Mr Brookes and because the policy so pleaded had not been made out, the Commission was precluded from succeeding in its claim that Safeway had contravened s 46(1)(c) of the Act. Apart from the pleading point, the Commission's case failed. While his Honour found that Safeway had a substantial degree of power in the wholesale bread market, he held that it had not taken advantage of its power for a proscribed purpose. While Safeway had used its market power, in the sense that it had engaged in conduct that was available to it, there was no necessary connection between its market power and the conduct in which it had engaged.
19 The Commission also alleged that Safeway contravened s 47 of the Act by engaging in exclusive dealing. According to the Commission, Safeway had offered to acquire bread from the plant bakers on condition that they not supply bread to independent retailers except where the independent retailers did not sell such products at prices cheaper than Safeway's competing retail prices. Also, Safeway had refused to acquire bread products from plant bakers because they had supplied bread to independent retailers who had sold bread at prices cheaper than Safeway's retail prices.
20 The primary Judge concluded that there was no contravention of s 47(4). His Honour characterised the critical issue that arose under s 47(4) as whether the condition imposed by Safeway was that the plant baker in each instance only supplied bread to the relevant independent retailer "to a limited extent". His Honour considered that the expression did not sit easily with a condition that a supplier would supply whatever quantity of goods were required by a purchaser, but only if the purchaser did not sell them below a particular price.
21 In relation to its claims based on s 47(5) the Commission said that in each relevant case Safeway refused to stock a plant baker's bread because the particular plant baker had supplied secondary or generic brand bread to an independent retailer. The refusal was constituted by the deletion of the plant baker's products from the relevant Safeway supermarket. His Honour held that s 47(5) does not cover a situation where the reason for the refusal to acquire goods is that the supplier has supplied goods to another person for a particular price. Accordingly, he concluded that the conduct of Safeway in relation to the nine incidents did not contravene s 47(5) of the Act. It was therefore unnecessary for his Honour to make a finding as to whether any condition was imposed or any acquisition was refused for the purpose of substantially lessening competition ( s 47(10)).
22 The Preston Market incident did not involve any independent retailer. Tip Top conducted a stall at the Preston Market at which it sold its bread by retail to members of the public. Tip Top products had been deleted from Safeway's Preston store, which was in competition with Tip Top's stall. The Commission alleged that Safeway and Tip Top, in contravention of s 45 of the Act, entered into an arrangement or understanding to fix the prices at which bread was sold at the Preston Market stall. His Honour found that, although there had been discussions between officers of Tip Top and Safeway relating to the fixing of prices, he was not satisfied that an arrangement or understanding had been entered into between persons with authority to act on behalf of Safeway.
23 Mr Jones was responsible, under the direction of Mr Brookes, for buying and merchandising bread, as well as fourteen other product categories not relevant for present purposes. His duties included marketing issues such as pricing and shelf management. The Commission alleged that Mr Jones was involved in Safeway's contraventions in all ten incidents and was liable by virtue of s 75B of the Act. It is common ground that, to the extent the appeal succeeds, the issue of Mr Jones' liability must be remitted to his Honour.